<PAGE>
================================================================================
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 June 30, 1994
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 1-8606
Bell Atlantic Corporation
(Exact name of registrant as specified in its charter)
Delaware 23-2259884
(State of incorporation) (I.R.S. Employer
Identification No.)
1717 Arch Street
Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (215) 963-6000
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
----- -----
At July 31, 1994, 436,137,984 shares of the registrant's Common Stock were
outstanding, after deducting 184,882 shares held in treasury.
================================================================================
<PAGE>
TABLE OF CONTENTS
Item No. Page
- - -------- ----
Part I. Financial Information
1. Financial Statements
Condensed Consolidated Statements of Income
For the three months and six months ended June 30, 1994 and 1993 ... 2-3
Condensed Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 ................................ 4-5
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 1994 and 1993 .................... 6
Notes to Condensed Consolidated Financial Statements .................. 7-10
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 11-20
Part II. Other Information
1. Legal Proceedings ..................................................... 21
4. Submission of Matters to a Vote of Security Holders ................... 21-22
5. Other Information ..................................................... 22
6. Exhibits and Reports on Form 8-K ...................................... 23
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months
ended June 30,
--------------
1994 1993
---- ----
<S> <C> <C>
OPERATING REVENUES
Communications and Related Services
Network Services
Local service.................................... $1,315.0 $1,261.3
Network access................................... 783.7 764.5
Toll service..................................... 401.8 386.5
Directory advertising, billing services and other 441.4 429.1
Provision for uncollectibles..................... (35.9) (39.2)
Other Communications and Related Services......... 418.5 313.0
Financial, Real Estate, and Other Services......... 69.6 104.9
-------- --------
3,394.1 3,220.1
-------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes....... 1,028.8 998.0
Depreciation and amortization...................... 649.1 638.1
Other.............................................. 918.7 831.8
-------- --------
2,596.6 2,467.9
-------- --------
OPERATING INCOME................................... 797.5 752.2
Other Income and Expense, Net...................... 52.8 .7
Interest Expense, excluding Financial Services..... 140.3 160.2
-------- --------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM...................... 710.0 592.7
Provision for Income Taxes......................... 294.6 207.2
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM................... 415.4 385.5
EXTRAORDINARY ITEM
Early Extinguishment of Debt, Net of Tax........... -- (22.9)
-------- --------
NET INCOME......................................... $ 415.4 $ 362.6
======== ========
PER COMMON SHARE
- - ----------------
INCOME BEFORE EXTRAORDINARY ITEM................... $ .95 $ .88
EXTRAORDINARY ITEM................................. -- (.05)
-------- --------
NET INCOME......................................... $ .95 $ .83
======== ========
Cash Dividends..................................... $ .69 $ .67
======== ========
Weighted Average Number of Common Shares
and Equivalent Shares Outstanding (in millions)... 437.1 435.8
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six months
ended June 30,
---------------
1994 1993
---- ----
<S> <C> <C>
OPERATING REVENUES
Communications and Related Services
Network Services
Local service.................................... $2,598.8 $2,496.9
Network access................................... 1,587.6 1,518.5
Toll service..................................... 813.1 776.0
Directory advertising, billing services and other 870.9 845.8
Provision for uncollectibles..................... (82.3) (77.2)
Other Communications and Related Services......... 803.3 599.2
Financial, Real Estate, and Other Services......... 175.9 224.2
-------- --------
6,767.3 6,383.4
-------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes....... 2,076.7 1,972.0
Depreciation and amortization...................... 1,297.7 1,238.2
Other.............................................. 1,846.6 1,703.5
-------- --------
5,221.0 4,913.7
-------- --------
OPERATING INCOME................................... 1,546.3 1,469.7
Other Income and Expense, Net...................... 66.6 33.8
Interest Expense, excluding Financial Services..... 283.8 319.4
-------- --------
INCOME BEFORE PROVISION FOR INCOME
TAXES, EXTRAORDINARY ITEM, AND
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES............................. 1,329.1 1,184.1
Provision for Income Taxes......................... 517.8 426.4
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES............................. 811.3 757.7
-------- --------
EXTRAORDINARY ITEM
Early Extinguishment of Debt, Net of Tax........... (6.7) (46.1)
-------- --------
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES
Income Taxes...................................... -- 65.2
Postemployment Benefits, Net of Tax............... -- (85.0)
-------- --------
-- (19.8)
-------- --------
NET INCOME........................................ $ 804.6 $ 691.8
======== ========
PER COMMON SHARE
- - ----------------
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES......................... $ 1.86 $ 1.74
EXTRAORDINARY ITEM................................ (.02) (.11)
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES............................ -- (.04)
-------- --------
NET INCOME........................................ $ 1.84 $ 1.59
======== ========
Cash Dividends.................................... $ 1.38 $ 1.34
======== ========
Weighted Average Number of Common Shares
and Equivalent Shares Outstanding (in millions).. 437.2 435.7
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................... $ 252.9 $ 146.1
Short-term investments.................................. -- 8.5
Accounts receivable, net of allowances of $174.0 and
$192.6................................................. 2,233.9 2,135.7
Notes and finance lease receivables, net................ 530.2 626.6
Inventories............................................. 271.2 250.9
Prepaid expenses........................................ 556.0 452.4
Deferred charges and other.............................. 275.0 250.6
--------- ---------
4,119.2 3,870.8
--------- ---------
PLANT, PROPERTY AND EQUIPMENT........................... 33,082.3 32,329.9
Less accumulated depreciation........................... 12,934.0 11,964.0
--------- ---------
20,148.3 20,365.9
--------- ---------
EQUIPMENT UNDER OPERATING LEASES, NET................... 32.7 199.3
NOTES AND FINANCE LEASE RECEIVABLES, NET................ 1,306.9 1,888.4
INVESTMENTS IN AFFILIATES............................... 1,430.9 1,394.7
OTHER ASSETS............................................ 1,647.6 1,825.1
--------- ---------
TOTAL ASSETS............................................ $28,685.6 $29,544.2
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions)
LIABILITIES AND SHAREOWNERS' INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year................... $ 2,151.0 $ 2,677.3
Accounts payable................................ 1,686.0 2,134.9
Accrued expenses................................ 458.5 434.9
Other........................................... 874.8 876.8
--------- ---------
5,170.3 6,123.9
--------- ---------
LONG-TERM DEBT.................................. 6,993.2 7,206.2
--------- ---------
EMPLOYEE BENEFIT OBLIGATIONS.................... 3,503.4 3,396.0
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes........................... 2,828.0 2,913.5
Unamortized investment tax credits.............. 417.3 447.2
Other........................................... 1,192.5 1,233.0
--------- ---------
4,437.8 4,593.7
--------- ---------
PREFERRED STOCK OF SUBSIDIARY................... 85.0 --
--------- ---------
SHAREOWNERS' INVESTMENT
Preferred and Preference stock ($1 par value;
none issued)................................... -- --
Common stock ($1 par value; 436,306,344 shares
and 436,130,185 shares issued)................. 436.3 436.1
Common stock issuable (139,348 shares and
142,068 shares)................................ .1 .1
Contributed capital............................. 5,424.5 5,415.2
Reinvested earnings............................. 3,300.9 3,093.6
Foreign currency translation adjustment......... (46.5) (83.9)
--------- ---------
9,115.3 8,861.1
Less common stock in treasury, at cost.......... 9.2 2.4
Less deferred compensation-employee stock
ownership plans................................ 610.2 634.3
--------- ---------
8,495.9 8,224.4
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' INVESTMENT... $28,685.6 $29,544.2
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Six months
ended June 30,
---------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 804.6 $ 691.8
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,297.7 1,238.2
Extraordinary item related to early
extinguishment of debt, net of tax benefit...... 6.7 46.1
Cumulative effect of changes in accounting
principles...................................... -- 19.8
Other items, net................................. (64.0) (37.6)
Changes in certain assets and liabilities, net
of effects from
acquisition/disposition of businesses........... (512.4) (95.9)
--------- ---------
Net cash provided by operating activities.......... 1,532.6 1,862.4
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............... 8.5 34.0
Additions to plant, property and equipment......... (1,037.8) (982.0)
Proceeds from sale of plant, property and
equipment......................................... 7.1 1.1
Additions to equipment under operating leases...... (5.7) (42.7)
Proceeds from sale of equipment under operating
leases............................................ 17.0 29.2
Additions to notes and finance lease receivables... (735.8) (810.5)
Proceeds from sales related to notes and finance
lease receivables................................. 19.2 28.6
Principal payments received under notes and
finance lease receivables......................... 668.6 717.5
Acquisition of businesses, less cash acquired...... -- (127.1)
Proceeds from sale of ownership interest in
Telecom Corporation of New Zealand Limited........ -- 145.5
Proceeds from Telecom Corporation of New Zealand
Limited capital reduction plan.................... 67.4 --
Investment in joint ventures....................... (20.1) --
Proceeds from disposition of businesses............ 903.5 --
Other, net......................................... (13.4) 6.3
--------- ---------
Net cash used in investing activities.............. (121.5) (1,000.1)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings........................... 249.5 1,554.3
Principal repayments of borrowings and capital
lease obligations................................. (472.2) (314.8)
Early extinguishment of debt and related call
premium........................................... (362.0) (1,376.0)
Net change in short-term borrowings with original
maturities of three months or less................ (148.3) (205.7)
Dividends paid..................................... (593.2) (573.2)
Proceeds from sale of common stock................. 5.0 7.2
Purchase of common stock for treasury.............. (8.7) --
Net change in outstanding checks drawn on
controlled disbursement accounts.................. (59.4) (138.6)
Proceeds from sale of preferred stock by subsidiary 85.0 --
--------- ---------
Net cash used in financing activities.............. (1,304.3) (1,046.8)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 106.8 (184.5)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..... 146.1 296.0
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........... $ 252.9 $ 111.5
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
---------------------
The accompanying financial statements are unaudited and have been prepared by
Bell Atlantic Corporation (Bell Atlantic or the Company) pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). The December
31, 1993 balance sheet was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. In the opinion of management, these financial statements include all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the results of operations, financial position and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such SEC rules and regulations. The
Company believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
2. Shareowners' Investment
-----------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
-------------------
Foreign
Common Currency Deferred
Common Stock Contributed Reinvested Translation Treasury Compensation
Stock Issuable Capital Earnings Adjustment Stock ESOPs
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.................... $436.1 $.1 $5,415.2 $3,093.6 $(83.9) $ 2.4 $634.3
Net income.................................... 804.6
Dividends declared on common stock............ (601.9)
Acquisition................................... (1.2)
Purchase of common stock for treasury......... 8.7
Common stock distributed in connection
with stock incentive plans.................. .2 9.3 (.2) (.7)
Foreign currency translation adjustment, net.. 37.4
Reduction of ESOP obligations................. (24.1)
Tax benefit of dividends paid to ESOPs........ 4.8
------- --- -------- -------- ------ ----- ------
Balance, June 30, 1994........................ $436.3 $.1 $5,424.5 $3,300.9 $(46.5) $ 9.2 $610.2
======= === ======== ======== ====== ===== ======
</TABLE>
During the six months ended June 30, 1994, the Company distributed 22,786
treasury shares pursuant to an acquisition agreement entered into in 1992 and
2,720 treasury shares under the terms of an acquisition in 1993 of a permit for
the construction of a cellular telephone system. During the same period, the
Company repurchased 173,729 shares of its common stock for treasury and
distributed 13,300 treasury shares in connection with stock incentive plans.
3. Long-Term Debt - Bell Atlantic Financial Services, Inc.
-------------------------------------------------------
Debt securities of Bell Atlantic Financial Services, Inc. (FSI) (aggregating
$700.1 million at June 30, 1994) have the benefit of a Support Agreement dated
October 1, 1992 between Bell Atlantic and FSI, under which Bell Atlantic has
committed to make payments of interest, premium, if any, and principal on the
FSI debt in the event of FSI's failure to pay. The Support Agreement provides
that the holders of FSI debt shall not have recourse to the stock or assets of
Bell Atlantic's telephone subsidiaries. However, in addition to dividends paid
to Bell Atlantic by any of its consolidated subsidiaries, assets of Bell
Atlantic that are not subject to such exclusion are available as recourse to
holders of FSI debt. The carrying value of the available assets reflected in the
consolidated financial statements of Bell Atlantic was approximately $5 billion
at June 30, 1994.
7
<PAGE>
4. Extraordinary Item
------------------
Costs associated with the early extinguishment of debentures called by the
Company's telephone subsidiaries reduced net income by $22.9 million (net of an
income tax benefit of $13.0 million) for the three months ended June 30, 1993,
and by $6.7 million (net of an income tax benefit of $3.6 million) and $46.1
million (net of an income tax benefit of $28.9 million) for the six months ended
June 30, 1994 and 1993, respectively.
5. Sale of Leasing Business
------------------------
On April 30, 1994, the Company sold the assets of Bell Atlantic TriCon Leasing
Corporation, except for leveraged lease and project finance portfolios, to GFC
Financial Corporation. The sale price, which is subject to post-closing
adjustments, consisted of $344.2 million in cash and $1,428.1 million in notes
receivable, plus the assumption of $81.0 million of liabilities by the
purchaser. The Company recorded a pretax gain of $38.5 million as a result of
this transaction.
6. Sale of Preferred Stock by Subsidiary
-------------------------------------
On June 2, 1994, Bell Atlantic New Zealand Holdings, Inc. (BANZHI), a subsidiary
of the Company, issued 850,000 shares of Series A Preferred Stock at a price per
share of $100 with a dividend rate of $7.08 per share per annum, pursuant to a
private placement. The preferred stock is subject to mandatory redemption on May
1, 2004 at a redemption price per share of $100. BANZHI and another subsidiary
of the Company indirectly own the Company's investment in Telecom Corporation of
New Zealand Limited.
7. Joint Venture Agreement
-----------------------
On June 29, 1994, the Company and NYNEX Corporation executed a Joint Venture
Formation Agreement, which sets forth the terms and conditions under which the
parties intend to combine their domestic cellular properties and bid jointly in
the forthcoming Federal Communications Commission auctions for personal
communications licenses. The Joint Venture Formation Agreement has been filed as
an exhibit to the Company's Current Report on Form 8-K, dated June 30, 1994. The
transaction is subject to receipt of regulatory approvals and various other
conditions to closing. The parties expect to close the transaction in the second
quarter of 1995.
8. Restatement
-----------
Results of operations for the six months ended June 30, 1993 were restated in
the fourth quarter of 1993 to reflect the cumulative effect of the adoption of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (Statement No. 112), effective January 1, 1993.
8
<PAGE>
9. Subsequent Events
-----------------
Discontinued Application of Statement No. 71
The Company's telephone subsidiaries have historically accounted for the
economic effects of regulation in accordance with the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (Statement No. 71). Under Statement No. 71, as a result
of actions of regulators, the telephone subsidiaries have depreciated telephone
plant using lives prescribed by regulators and deferred certain costs or
recognized certain liabilities (regulatory assets and liabilities).
On August 15, 1994, the Company announced (see Part II - Other Information, Item
5) that it has determined that it is no longer eligible for continued
application of the accounting required by Statement No. 71. The Company
believes that the convergence of competition, technological change (including
the Company's recent technology deployment plans), recent and potential
regulatory, legislative and judicial actions and other factors will create fully
open and competitive markets. In such markets, the Company believes it can no
longer be assured that prices can be maintained at levels that will recover the
net carrying amount of existing telephone plant and equipment, which has been
depreciated over relatively long regulator-prescribed lives. In addition,
changes from cost-based regulation to various forms of incentive regulation in
all jurisdictions contributed to the determination that the continued
application of Statement No. 71 is inappropriate.
The discontinued application of Statement No. 71 requires the Company, for
financial reporting purposes, to eliminate its regulatory assets and liabilities
and adjust the carrying amount of its telephone plant to the extent that it
determines that such amounts either are overstated as a result of the regulatory
process, or are not recoverable. Accordingly, as of August 1, 1994, the Company
will recognize a non-cash, after-tax extraordinary charge of approximately $2.0
billion to adjust the net carrying amount of telephone plant and equipment and
an after-tax extraordinary charge of approximately $145 million to eliminate net
regulatory assets. The adjustment to the net carrying amount of telephone plant
and equipment will increase the reserve for accumulated depreciation by
approximately $3.5 billion. The telephone subsidiaries' accounting and
reporting for regulatory purposes are not affected by the discontinued
application of Statement No. 71.
As of August 1, 1994, for financial reporting purposes, the Company will utilize
estimated asset lives for certain categories of plant and equipment that are
shorter than those currently approved by regulators. The shorter estimated asset
lives result from the Company's current expectations as to the revenue-producing
lives of the assets. A comparison of the current regulator-approved asset lives
and the associated shorter estimated asset lives for the most significantly
impacted categories of plant and equipment follows:
<TABLE>
<CAPTION>
Average Lives (in years)
-------------------------------
Regulator-Approved Estimated
Asset Lives Asset Lives
------------------ -----------
<S> <C> <C>
Digital Switch 17 - 19 12
Digital Circuit 11 - 13 9 - 11
Conduit 50 - 60 50
Copper Cable 20 - 30 14 - 19
Fiber Cable 20 - 30 20 - 25
</TABLE>
9
<PAGE>
9. Subsequent Events (continued)
-----------------------------
Employee Benefits
On August 15, 1994, the Company also announced (see Part II - Other Information,
Item 5) that it will record a pretax charge of approximately $162 million in the
third quarter of 1994, as required by Statement No. 112, to recognize the
benefit costs for the separation of employees who are entitled to benefits under
preexisting separation pay plans. The charge, which was actuarially determined,
represents benefits earned to date for employees who are expected to receive
separation payments in the future. The Company expects to separate a total of
5,600 management and associate employees through 1997. The separation benefit
costs associated with this workforce reduction are included in the charge. These
workforce reductions will be made possible by improved provisioning systems and
customer service processes, increased spans of control, and consolidation and
centralization of administrative and staff groups.
Investment in Grupo Iusacell, S.A. de C.V.
In August 1994, Bell Atlantic increased its economic interest in Grupo Iusacell,
S.A. de C.V. (Iusacell) from 21% to approximately 42% through the purchase of
166,769,760 Series D shares and 38,792,690 Series L shares of Iusacell from
interests owned by the Peralta family for an aggregate purchase price of $524.0
million. Substantially all of this additional investment exceeded the recorded
value of the proportionate share of the underlying net assets and will be
amortized by the straight-line method over a period of 25 years. In June 1994,
Iusacell completed a public offering of Series D and Series L shares,
representing approximately 10% of its capital stock. The Peralta family owns
approximately a 48% economic interest in Iusacell representing 52% of the voting
rights pertaining to Iusacell stock. Shares held by Bell Atlantic represent
approximately 44% of the voting rights pertaining to Iusacell stock.
10. Reclassifications
-----------------
Certain reclassifications of prior years' data have been made to conform to 1994
classifications.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
Net income for the three months ended June 30, 1994 increased $52.8 million or
14.6% from the corresponding period in 1993. Second quarter earnings per share
were $.95, representing a 14.5% increase over second quarter 1993. Results for
the second quarter of 1994 included a charge of $.04 per share for the effects
of carrying costs, and equity and foreign exchange losses, related to the
Company's investment in Grupo Iusacell, S.A. de C.V. (Iusacell). Results for
the second quarter of 1993 included an extraordinary charge, net of tax, of
$22.9 million, or $.05 per share, for the early extinguishment of debt and an
after-tax charge of $17.0 million, or $.04 per share, for the disposition of
certain non-strategic businesses.
Net income for the six months ended June 30, 1994 increased $112.8 million or
16.3% from the same period last year. Earnings per share were $1.84,
representing a 15.7% increase over the first half of 1993. Earnings for the
first half of 1994 included $6.7 million, or $.02 per share, for the early
extinguishment of debt and a charge of $.06 per share for certain costs
associated with the Company's investment in Iusacell. Results for the first half
of 1993 included the cumulative effects of adopting Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" (Statement No. 112) and Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." In addition, earnings for the first six
months of 1993 included an extraordinary charge, net of tax, of $46.1 million,
or $.11 per share, for the early extinguishment of debt, and the aforementioned
1993 charge associated with the disposition of certain non-strategic businesses.
On April 30, 1994, the Company sold the assets of Bell Atlantic TriCon Leasing
Corporation (TriCon), except for the leveraged lease and project finance
portfolios, to GFC Financial Corporation (See Note 5 to the Condensed
Consolidated Financial Statements). The Company recognized a pretax gain of
$38.5 million as a result of this transaction. Future periods will no longer
include a significant portion of revenues and expenses from this leasing
business. Revenues and expenses related to the portion of the portfolio that
was sold were $245.3 million and $191.6 million, respectively, for the year
ended December 31, 1993, and $71.6 million and $60.7 million, respectively, for
the four months ended April 30, 1994.
These and other items affecting the comparison of operating results are
discussed in the following sections.
Operating Revenues
- - ------------------
Total operating revenues for the second quarter of 1994 increased $174.0 million
or 5.4%, while year-to-date operating revenues increased $383.9 million or
6.0%, from the corresponding periods last year.
11
<PAGE>
The change in operating revenues was comprised of the following:
<TABLE>
<CAPTION>
Period Ended June 30,
1994 vs. 1993
----------------------
Three Six
Months Months
---------- ----------
Increase (Decrease)
(Dollars in Millions)
<S> <C> <C>
Communications and Related Services
Network Services
Local service $ 53.7 $101.9
Network access 19.2 69.1
Toll service 15.3 37.1
Directory advertising, billing services and
other 12.3 25.1
Provision for uncollectibles 3.3 (5.1)
Other Communications and Related Services 105.5 204.1
Financial, Real Estate, and Other Services (35.3) (48.3)
------ ------
$174.0 $383.9
====== ======
</TABLE>
Local service revenues are earned by the telephone subsidiaries from the
provision of local exchange, local private line, and public telephone services.
Local service revenues for the second quarter and first half of 1994 increased
$53.7 million or 4.3%, and $101.9 million or 4.1%, respectively, compared with
the same periods in 1993. The increases resulted primarily from growth in
network access lines and higher demand for value-added central office services
such as Custom Calling and Caller ID. Access lines in service at June 30, 1994
increased 2.8% from June 30, 1993. Revenues from value-added central office
services offered by the telephone subsidiaries increased approximately $15
million or 14.5% in the second quarter of 1994 and approximately $32 million or
15.8% in the first six months of 1994 over the same periods last year.
Network access revenues are received from interexchange carriers (IXCs) for
their use of the Company's local exchange facilities in providing long-distance
services to IXCs' customers and from end-user subscribers. Switched access
revenues are derived from usage-based charges paid by IXCs for access to the
Company's network. Special access revenues arise from access charges paid by
customers who have private lines, and end-user access revenues are earned from
local exchange carrier customers who pay for access to the network.
Network access revenues increased $19.2 million or 2.5% and $69.1 million or
4.6%, respectively, over the corresponding second quarter and first half of the
prior year. Access minutes of use for the three and six month periods ended
June 30, 1994 were higher than the corresponding periods of 1993 by 7.8% and
9.3%, respectively, due to the effect of a recovering economy throughout the
first six months of 1994. The effect of inclement weather conditions in the
region during the first quarter of 1994 also contributed to higher volume growth
in the six month period. Revenues for the six month period were further
increased by lower support payments to the National Exchange Carrier Association
(NECA) interstate common line pool. These revenue increases were partially
offset by the effect of an interstate rate reduction filed by the Company with
the Federal Communications Commission (FCC), which became effective on July 2,
1993. In its April 1, 1994 tariff filing, the Company filed revised rates, which
became effective July 1, 1994. These revised rates, net of lower support
obligations to the NECA interstate common line pool, are not expected to
significantly change current levels of interstate access revenues.
Toll service revenues increased $15.3 million or 4.0% over the second quarter of
1993, and increased $37.1 million or 4.8% over the first half of 1993. Toll
message volumes (including messages from
12
<PAGE>
optional calling plans) for the three and six month periods ended June 30, 1994
grew 2.7% and 4.5%, respectively, over the comparable periods last year. Toll
message volumes were higher due to the effect of a recovering economy throughout
the first six months of 1994. Volume growth in the six month period was further
boosted by the effect of harsh weather conditions during the first quarter of
1994. Growth-related message toll service revenue increases were partially
offset by declines in revenues from WATS and private line services, principally
due to competitive pressures.
Other Network Services revenues include amounts earned from directory
advertising, billing and collection services provided to IXCs, premises services
such as inside wire installation and maintenance, and certain nonregulated
enhanced network services. Other Network Services revenues increased $12.3
million or 2.9% and $25.1 million or 3.0% compared with the corresponding
quarter and first half of 1993. Directory advertising revenues were $7.0
million or 2.7% and $15.7 million or 3.0% higher than the corresponding periods
of the prior year. Premises services revenues increased $10.3 million or 14.5%
and $15.9 million or 11.7% over the same periods of 1993 principally as a result
of higher business volumes. Revenues from voice messaging services, primarily
Answer Call, were approximately $5 million higher in the second quarter of 1994
and approximately $10 million higher year-to-date, as compared with the
corresponding periods last year. These increases were partially offset by lower
facilities rental revenues and the effect of billing adjustments in both the
prior and current years.
The provision for uncollectibles decreased $3.3 million or 8.4% for the three
month period ended June 30, 1994, and increased $5.1 million or 6.6% year-to-
date, over the comparable periods in 1993. The year-to-date increase includes a
$9.9 million charge related to prior year fraudulent calling card toll calls
made through IXCs.
Other Communications and Related Services includes revenues from the Company's
domestic and international operations in wireless communications, computer
maintenance, software development and support, systems integration, and
telecommunications consulting. Revenues from these sources grew $105.5 million
or 33.7% over the second quarter of 1993 and $204.1 million or 34.1% over the
corresponding first six months. The continued growth of the Company's cellular
customer base was the primary reason for increases in cellular operations
revenues of $69.1 million or 37.1% and $139.7 million or 40.0% over the
respective three and six month periods of the prior year. Volume-related
increases in the Company's third-party computer maintenance business of $19.7
million or 19.8% and $40.0 million or 20.7% in the second quarter and first six
months of 1994, respectively, also contributed to the increase in revenues.
Revenue growth of approximately $24 million and $43 million from network systems
integration operations in the second quarter of 1994 and year-to-date,
respectively, was partially offset by lower revenues in the software development
businesses due to the disposition of two business units at the end of 1993 and
the disposition of a third subsidiary in May 1994.
Due to the restructuring of the New York SMSA Limited Partnership agreement
between Bell Atlantic Mobile Systems (BAMS) and NYNEX Mobile Communications
Company on May 1, 1994, other communications and related services revenues no
longer include cellular revenues associated with BAMS' reseller operation in the
New York-Northern New Jersey SMSA. Beginning in May 1994, these revenues are
accounted for using the equity method and are reflected in other income and
expense. This change is not expected to have a significant impact on future
operating revenues.
Financial, Real Estate, and Other Services includes revenues from the Company's
domestic and international operations in diversified leasing, computer leasing,
real estate, and liquefied petroleum gas distribution. The three and six month
revenues decreased $35.3 million or 33.7% and $48.3 million or 21.5%,
respectively, over the same periods in 1993, primarily as a result of the
Company's decreased emphasis on computer leasing and the April 1994 sale of the
majority of the leasing portfolio owned by TriCon. This decreasing revenue
trend is expected to continue throughout 1994.
13
<PAGE>
Operating Expenses
------------------
Total operating expenses for the second quarter and first half of 1994 increased
$128.7 million or 5.2% and $307.3 million or 6.3%, respectively, from the
corresponding periods last year.
The increase in operating expenses was comprised of the following:
<TABLE>
<CAPTION>
Period Ended June 30,
1994 vs. 1993
---------------------
Three Six
Months Months
---------- ----------
(Dollars in Millions)
<S> <C> <C>
Employee costs $ 30.8 $104.7
Depreciation and amortization 11.0 59.5
Other operating expenses 86.9 143.1
------ ------
$128.7 $307.3
====== ======
</TABLE>
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes. Employee costs increased $30.8 million or
3.1% and $104.7 million or 5.3% in the second quarter of 1994 and year-to-date,
respectively, due to a combination of salary and wage increases, increased
overtime, higher benefit costs, and an increase in the number of employees at
certain nonregulated subsidiaries. Higher repair and maintenance activity
experienced in the first quarter of 1994 caused by unusually severe winter storm
conditions throughout the region contributed to the increase in employee costs
in the first half of the year. These expense increases were offset in part by
lower force levels at the telephone subsidiaries compared with the same periods
in the prior year.
On August 15, 1994, the Company announced (see Part II - Other Information, Item
5) that it will record a pretax charge of approximately $162 million in the
third quarter of 1994, as required by Statement No. 112, to recognize the
benefit costs for the separation of employees who are entitled to benefits under
preexisting separation pay plans. The charge, which was actuarially determined,
represents benefits earned to date for employees who are expected to receive
separation payments in the future. The Company expects to separate a total of
5,600 management and associate employees through 1997. The separation benefit
costs associated with this workforce reduction are included in the charge.
These workforce reductions will be made possible by improved provisioning
systems and customer service processes, increased spans of control, and
consolidation and centralization of administrative and staff groups. Costs of
enhancing systems and consolidating work activities will be charged to expense
as incurred.
Depreciation and amortization expense increased $11.0 million or 1.7% and $59.5
million or 4.8% compared with the second quarter and first six months of 1993,
respectively, due to growth in the levels of depreciable telephone and cellular
plant and the effect of represcribed depreciation rates at several of the
telephone subsidiaries, which became effective in the second and third quarters
of 1993. These increases were partially offset by a reduction in depreciation
and amortization expense at the financial services companies due to the
decreased emphasis on computer leasing and the April 1994 sale of a substantial
portion of TriCon's assets.
Other operating expenses increased $86.9 million or 10.4% and $143.1 million or
8.4%, respectively, during the three and six month periods ended June 30, 1994,
as compared with the same periods in the prior year. These increases resulted
principally from higher volumes of business-related expenses at the Company's
network services, cellular, computer maintenance and network systems integration
subsidiaries, as well added expenses for video services development.
Additionally, in the first quarter
14
<PAGE>
of 1994, the Company recorded a charge of approximately $13 million for legal,
consulting and investment banking fees incurred in connection with the proposed
merger between the Company, Tele-Communications, Inc. and Liberty Media
Corporation, which was terminated. The total effect of these increases was
partially offset by lower expenses in the software development businesses due to
the disposition of several business units, and lower expenses in the financial
services businesses due principally to the April 1994 sale of TriCon.
In connection with the aforementioned restructuring of the New York SMSA Limited
Partnership agreement between BAMS and NYNEX Mobile Communications Company on
May 1, 1994, other operating expenses no longer include cellular expenses
associated with BAMS' reseller operation in the New York-Northern New Jersey
SMSA. Beginning in May 1994, these expenses are accounted for using the equity
method and are reflected in other income and expense. This change is not
expected to have a significant impact on future operating expenses.
Other Income and Expense
------------------------
Other income and expense includes equity income and losses and goodwill
amortization related to the Company's investments in unconsolidated businesses,
interest and dividend income, and gains and losses from the disposition of
assets and investments. The Company reported other income and expense of $52.8
million for the second quarter of 1994 and $13.8 million for the first quarter
of 1994. In 1993, other income and expense for the comparable periods was $.7
million and $33.1 million, respectively.
The second quarter of 1994 includes a pretax gain of $38.5 million related to
the April 1994 sale of TriCon. Other income in 1994 also reflects improved
operating results from the Company's unconsolidated wireless businesses and its
investment in Telecom Corporation of New Zealand Limited (Telecom), offset in
part by certain charges associated with the Company's Iusacell investment.
The second quarter of 1993 included a $25.8 million pretax charge associated
with the disposition of certain non-strategic businesses. The first quarter of
1993 included a pretax gain of $63.0 million for the private sale of a portion
of the Telecom investment and a pretax charge of approximately $42 million
representing the Company's share of nonrecurring charges taken by Telecom.
Interest Expense, excluding Financial Services
----------------------------------------------
Interest expense decreased $19.9 million or 12.4% and $35.6 million or 11.1%
compared with the second quarter and first half of 1993, respectively, due
mainly to the effect of long-term debt refinancings at the telephone and real
estate subsidiaries and lower interest costs associated with a reduction in the
Telecom acquisition-related debt.
Income Taxes
------------
The provision for income taxes increased $87.4 million or 42.2% and $91.4
million or 21.4% during the three and six months ended June 30, 1994 compared
with the same periods in 1993.
The Company's effective income tax rates were 41.5% and 39.0% for the three and
six month periods ended June 30, 1994 compared with 35.0% and 36.0% for the
corresponding periods last year. The higher effective tax rates in 1994 were
principally the result of recording an adjustment in the second quarter of 1994
to the provision for deferred state income taxes on the remaining leveraged
lease portfolio of TriCon, the increase in the federal income tax rate from 34%
to 35%, and the effects of certain foreign investments which reduced
consolidated income without providing corresponding tax benefits.
15
<PAGE>
Extraordinary Item
------------------
During the first half of 1994, the Company called $250 million of long-term
debentures at one of the telephone subsidiaries, which were refinanced at more
favorable interest rates. As a result of the early retirement of this debt,
the Company incurred after-tax charges of $6.7 million. For the six months
ended June 30, 1993, the Company incurred charges of $46.1 million for the early
retirement of debt. The debt refinancing in 1994 is expected to reduce interest
costs on the refinanced debt by approximately $5 million annually.
Competitive Environment
The communications industry is currently undergoing fundamental changes which
may have a significant impact on future financial performance of
telecommunications companies. These changes are driven by a number of factors,
including the accelerated pace of technological innovation, the convergence of
telecommunications, cable television, information services and entertainment
businesses, and a regulatory environment in which many traditional regulatory
barriers are being lowered and competition permitted or encouraged.
Communications services and equipment and the number of competitors offering
such services are continuing to expand. The Company's telecommunications
business is currently subject to competition from numerous sources, including
competitive access providers for network access services (and in most
jurisdictions for intraLATA toll services) and competing cellular telephone
companies. An increasing amount of this competition is from large companies
which have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company. Other
potential sources of competition are cable television systems, shared tenant
services and other non-carrier systems which are capable of partially or
completely bypassing the telephone subsidiaries' local network.
The entry of well-financed competitors, such as large long-distance carriers and
other local exchange service competitors, has the potential to adversely affect
multiple revenue streams of the telephone subsidiaries, including local
exchange, local access, and long-distance services in the market segments and
geographical areas in which the competitors operate. The amount of revenue
reductions will depend on the competitors' success in marketing these services,
and the conditions of interconnection established by the regulatory commissions.
The potential impact is expected to be offset, to some extent, by revenues from
interconnection charges to be paid to the telephone subsidiaries by these
competitors.
The Company continues to focus its efforts on becoming more competitive and
seeking growth opportunities in businesses where it possesses core competencies.
The Company's responses to competitive challenges include an increased emphasis
on meeting customer requirements through the rapid introduction of new products
and services, the delivery of increased customer value, and the development of
customer loyalty programs. In addition, the Company continues to strive for
increased pricing flexibility through efforts to reprice and repackage existing
competitive services, to reduce its cost structure and workforce through
consolidation, re-engineering and streamlining initiatives, and to achieve an
improved regulatory and legislative environment. Other important competitive
responses which will improve the Company's ability to take advantage of the
growth opportunities created by technological advances and the convergence of
the telecommunications, information services and entertainment industries
include the development of broadband networks and expanding the Company's
wireless service offerings.
16
<PAGE>
On May 19, 1994, the Company announced the specifics underlying its full service
network deployment program to make broadband, interactive, multimedia services
available to up to 8.5 million homes by the end of the year 2000. The Company
will use a variety of technologies, on a market by market basis, depending on
customer demand and cost considerations.
On June 29, 1994, the Company and NYNEX Corporation executed a Joint Venture
Formation Agreement, which sets forth the terms and conditions under which the
parties intend to combine their domestic cellular properties and bid jointly in
the forthcoming FCC auctions for personal communications licenses. The Joint
Venture Formation Agreement has been filed as an exhibit to the Company's
Current Report on Form 8-K, dated June 30, 1994. The transaction is subject to
receipt of regulatory approvals and various other conditions to closing. The
parties expect to close the transaction in the second quarter of 1995.
Regulatory Environment
Federal Regulation
------------------
Recent FCC regulatory rulings have sought to expand competition for special and
switched access services. Effective February 1994, the FCC ordered local
exchange carriers (LECs), including the Company, to allow competing carriers to
interconnect to the local exchange network for the purpose of providing switched
access transport services. The terms and conditions of this ruling are similar
to those for special access collocation ordered during 1992. The principal goal
of the FCC's collocation rulings is to encourage competition for these services.
The FCC also granted additional, but limited, pricing flexibility for these
services so that the LECs can better respond to the competition that will
result. The Company does not expect the net revenue impact of special access
collocation to be material. Revenue losses from switched access collocation,
however, are expected to be larger than from special access collocation. The
Company and certain other parties appealed both the special and switched access
collocation orders. In June 1994, the U.S. Court of Appeals for the District of
Columbia Circuit vacated the FCC's special access collocation order insofar as
it required physical collocation and remanded for further proceedings in which
the FCC could consider whether, and to what extent, virtual collocation should
be imposed. In July 1994, the FCC voted to require LECs to offer competitors
virtual collocation, with the LECs having the option to offer physical
collocation. Tariffs for virtual collocation for special access are required to
be filed on September 1, 1994 and will become effective on December 15, 1994.
The appeal of the switched access collocation order is being held in abeyance.
The FCC has informed the U.S. Court of Appeals that it will not further litigate
the June 1994 special access decision.
In February 1994, the FCC initiated a rulemaking proceeding to determine the
effectiveness of the price cap rules and decide what changes, if any, should be
made to those rules. Under proposed rulemaking, the FCC identified for
examination three broad sets of issues including those related to the basic
goals of price regulation, the operation of price caps and the transition of
local exchange services to a fully competitive market. This rulemaking is
expected to be concluded by the end of 1994. Any changes to the current price
cap plan are expected to be effective January 1, 1995 or shortly thereafter. At
this time, the Company cannot estimate the financial impact, if any, that would
result if the FCC revised its current price cap rules.
State Regulation
----------------
State regulatory commissions are also addressing issues pertaining to
competition for local exchange, local access and intraLATA toll services,
alternative regulation plans and rates of return. Six of the seven state
jurisdictions have operated under alternative regulation plans instead of
traditional rate of return regulation. The seventh telephone subsidiary, Bell
Atlantic - Pennsylvania, Inc., received approval on June 28, 1994 to implement
an alternative regulation plan, which will replace rate base rate of return
17
<PAGE>
regulation and allow Bell Atlantic - Pennsylvania, Inc. to operate under a pure
price cap plan with no sharing provisions.
Large competitors are seeking authority, or are likely to seek authority, from
state commissions to offer competing local exchange services, such as dial tone
and local usage in selected local telephone service areas of the telephone
subsidiaries. In April 1994, the Maryland Public Service Commission approved an
application from MFS-Intelenet of Maryland, Inc., a subsidiary of MFS
Communications Company, Inc., for authority to provide and resell local exchange
and interexchange telecommunications services to business customers in areas
served by Bell Atlantic - Maryland, Inc. In May 1994, SBC Media Ventures, Inc.,
an affiliate of Southwestern Bell Corporation, filed an application to provide
local exchange service in Montgomery County, Maryland. A decision on this case
is expected in 1995. Bell Atlantic - Maryland, Inc. expects some loss of market
share as a result of these competitors offering local exchange services.
The ability of IXCs to offer intrastate intraLATA long-distance service is
subject to state regulation. Currently, such competition is permitted in
Pennsylvania, Delaware, Maryland and West Virginia. In New Jersey, IXCs were
recently granted permission by the Board of Public Utilities (BPU) to compete
for the provision of intraLATA toll services, beginning July 1, 1994. In
September 1994, the BPU is expected to commence a further proceeding to examine
issues of intraLATA toll service competition in New Jersey, including whether
presubscription should be authorized, and if so, under what terms and
conditions, and to address the issue of subsidies embodied in rates. An order
on presubscription in New Jersey is expected by December 1995. In Pennsylvania,
the Public Utility Commission commenced an investigation to determine whether
presubscription for intraLATA toll services should be authorized. A similar
investigation is currently being conducted by the Public Service Commission in
Delaware. The Virginia State Corporation Commission is considering whether, and
under what terms, to permit intraLATA toll competition in Virginia. Competition
from long-distance companies has resulted in a decline in telephone subsidiary
toll revenues, such as WATS and private line services, as the IXCs have the
ability to offer both intraLATA and interLATA long-distance services at more
competitive prices.
Other Matters
Subsequent Events
-----------------
Discontinued Application of Statement No. 71
On August 15, 1994, the Company announced (see Part II - Other Information, Item
5) that it has determined that it is no longer eligible for continued
application of the accounting required by Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation"
(Statement No. 71). The discontinued application of Statement No. 71 requires
the Company, for financial reporting purposes, to eliminate its regulatory
assets and liabilities and adjust the carrying amount of its telephone plant to
the extent that it determines that such amounts either are overstated as a
result of the regulatory process, or are not recoverable. Accordingly, as of
August 1, 1994, the Company will recognize a non-cash, after-tax extraordinary
charge of approximately $2.0 billion to adjust the net carrying amount of
telephone plant and equipment and an after-tax extraordinary charge of
approximately $145 million to eliminate net regulatory assets. The adjustment
to the net carrying amount of telephone plant and equipment will increase the
reserve for accumulated depreciation by approximately $3.5 billion. The Company
expects to report a loss for the third quarter and year as a result of the
extraordinary charge for the discontinued application of Statement No. 71.
As of August 1, 1994, for financial reporting purposes, the Company will utilize
estimated asset lives for certain categories of plant and equipment that are
shorter than those currently approved by regulators (see Note 9 to the Condensed
Consolidated Financial Statements). It is expected that the use of the shorter
18
<PAGE>
asset lives when applied to the reduced net asset base will result in increased
depreciation expense for financial reporting purposes of approximately $34
million for the remainder of 1994. The ongoing impact on operating expense
resulting from the elimination of the amortization of net regulatory assets is
not expected to be significant in future periods. The telephone subsidiaries'
accounting and reporting for regulatory purposes are not affected by the
discontinued application of Statement No. 71.
Investment in Grupo Iusacell, S.A. de C.V.
In August 1994, Bell Atlantic increased its economic interest in Iusacell from
21% to approximately 42% through the purchase of 166,769,760 Series D shares and
38,792,690 Series L shares of Iusacell from interests owned by the Peralta
family for an aggregate purchase price of $524.0 million. Substantially all of
this additional investment exceeded the recorded value of the proportionate
share of the underlying net assets and will be amortized by the straight-line
method over a period of 25 years. In June 1994, Iusacell completed a public
offering of Series D and Series L shares, representing approximately 10% of its
capital stock. The Peralta family owns approximately a 48% economic interest in
Iusacell representing 52% of the voting rights pertaining to Iusacell stock.
Shares held by Bell Atlantic represent approximately 44% of the voting rights
pertaining to Iusacell stock.
Environmental Issues
--------------------
The Company is subject to a number of environmental matters as a result of the
operations of its subsidiaries and shared liability provisions in the Plan of
Reorganization, related to the Modification of Final Judgment. Certain of these
environmental matters relate to Superfund sites for which the telephone
subsidiaries have been designated as potentially responsible parties by the U.S.
Environmental Protection Agency or third party defendants. Designation as a
potentially responsible party subjects the named company to potential liability
for costs relating to cleanup of the affected sites. The Company is also
responsible for the remediation of sites with underground fuel storage tanks and
other expenses associated with environmental compliance.
The Company continually monitors its operations with respect to potential
environmental issues, including changes in legally mandated standards and
remediation technologies. The Company's recorded liability reflects those
specific issues where remediation activities are currently deemed to be probable
and where the cost of remediation is estimable. Management believes that the
aggregate amount of any potential liability would not have a material effect on
the Company's financial condition or results of operations.
Financial Condition
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization, business development, and the payment of dividends.
Management expects that presently foreseeable capital requirements will be
financed primarily through internally generated funds, although additional long-
term debt or equity financing may be needed to fund development activities and
to maintain the Company's capital structure within management's guidelines. The
Company determines the appropriateness of the level of its dividend payments on
a periodic basis by considering such factors as long-term growth opportunities,
internal requirements of the Company and the expectations of shareowners. The
one-time, non-cash initiatives announced on August 15, 1994 (see Part II - Other
Information, Item 5) are not expected to have any impact on the determination of
the level of dividend payments.
As of June 30, 1994, the Company and its subsidiaries had in excess of $2.1
billion of unused bank lines of credit and shelf registrations for the issuance
of up to $2.0 billion of unsecured debt securities.
During the first half of 1994, as in the past, the Company's primary source of
funds continued to be cash generated from operations. Operating income growth
and savings on interest costs contributed to cash provided from operations of
$1.53 billion for the six months ended June 30, 1994. Cash provided by
19
<PAGE>
operations decreased $329.8 million versus the corresponding period last year
due chiefly to cash payments in the first half of 1994 related to significant
purchases made late in the fourth quarter of 1993.
Cash proceeds from investing activities in the first half of 1994 included
approximately $895 million from the TriCon sale. Additionally, the Company
received $67.4 million resulting from a special capital reduction plan by
Telecom in which 20% of Telecom's outstanding shares were canceled on a pro rata
basis and shareholders received one New Zealand Dollar for each share canceled.
Telecom's capital reduction did not change the Company's percentage ownership of
Telecom.
The primary use of capital resources in the first half of 1994 continued to be
capital expenditures and the payment of dividends. The Company invested
approximately $875 million in the telephone subsidiaries' network during the six
months ended June 30, 1994. Through June 30, 1994, the Company had invested
approximately $20 million as a member of the Omnitel-Pronto Italia consortium
that was awarded the second cellular license in Italy in March 1994.
On June 2, 1994, Bell Atlantic New Zealand Holdings, Inc. (BANZHI), a subsidiary
of the Company, issued 850,000 shares of Series A Preferred Stock at a price per
share of $100, with a dividend rate of $7.08 per share per annum, pursuant to a
private placement resulting in a cash inflow from financing activities of $85.0
million. The preferred stock is subject to mandatory redemption on May 1, 2004
at a redemption price per share of $100. BANZHI and another subsidiary of the
Company indirectly own the Company's investment in Telecom.
The Company's debt ratio was 51.8% at June 30, 1994, compared to 54.6% at
December 31, 1993. The decrease in the debt ratio is due primarily to the
reduction of debt associated with the TriCon sale and the repayment of debt at
the telephone subsidiaries.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
For background concerning the Company's contingent liabilities under the Plan of
Reorganization governing the divestiture by AT&T Corp. (formerly American
Telephone and Telegraph Company) of certain assets of the former Bell System
Operating Companies with respect to private actions relating to pre-divestiture
events, including pending antitrust cases, see Item 3 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's 1994 Annual Meeting of Shareowners was held on April 29,
1994. At the meeting, the following items were submitted to a vote of
the Shareowners:
(a) Each of the following nominees was elected to serve on the Board of
Directors:
<TABLE>
<CAPTION>
Name of Nominee Votes Cast For Votes Withheld
--------------- -------------- ---------------
<S> <C> <C>
William W. Adams 338,364,237 6,128,483
Thomas E. Bolger 338,338,072 6,154,648
Frank C. Carlucci 338,301,886 6,190,834
William G. Copeland 338,351,786 6,140,934
James H. Gilliam, Jr. 338,336,538 6,156,182
Thomas H. Kean 338,287,307 6,205,413
John C. Marous, Jr. 338,306,410 6,186,310
John F. Maypole 338,405,447 6,087,273
Thomas H. O'Brien 338,384,766 6,107,954
Rozanne L. Ridgway 338,331,975 6,160,745
Raymond W. Smith 338,199,257 6,293,463
Shirley Young 338,361,898 6,130,822
</TABLE>
(b) The appointment of Coopers & Lybrand as independent accountants of
the Company for 1994 was ratified with 338,482,299 votes for, and
3,470,480 votes against.
(c) A management proposal to amend the Bell Atlantic Stock Incentive
Plan was approved with 302,385,567 votes for, 35,147,144 votes
against and 6,960,009 abstentions.
(d) A shareowner proposal regarding additional disclosure of executive
officer compensation was defeated with 37,856,065 votes for, and
256,369,447 votes against.
(e) A shareowner proposal regarding the amount of executive officer
compensation was defeated with 38,103,943 votes for, and
255,471,707 votes against.
21
<PAGE>
(f) A shareowner proposal regarding creation of a health care reform
committee of the Board of Directors was defeated with 22,871,664
votes for, and 268,265,009 votes against.
(g) A shareowner proposal regarding increases to retiree pension
benefits was defeated with 35,391 votes for, and 344,427,345 votes
against.
With respect to item (b) and items (d) through (g) above,
abstentions and broker non-votes are not counted in the vote
totals in accordance with the Company's by-laws and therefore have
no effect on the vote. With respect to item (c) above, abstentions
and broker non-votes are counted in the vote totals in accordance
with Securities and Exchange Commission rules and have the same
effect as a vote against.
Item 5. Other Information
-----------------
On August 15, 1994, the Company issued a press release announcing its plans to
record, in the third quarter of 1994, after-tax charges of approximately $2.3
billion. The charges are comprised of a $2.15 billion non-cash, after-tax
extraordinary charge related to the discontinuance of regulated accounting and
the revaluation of telephone plant, a $100 million after-tax charge related to
the recognition of the actuarially determined benefit costs for the separation
of employees who are entitled to benefits under the Company's preexisting
separation pay plans, and a $35 to $45 million after-tax charge related to the
exiting of certain non-strategic investments. The charge for separation pay
plans includes the benefit costs for approximately 5,600 network employees who,
the Company has announced, will be separated through 1997. These charges will
result in reported losses for the third quarter and for the year ending December
31, 1994. Additional information relating to the discontinuance of regulated
accounting and the revaluation of telephone plant, and the workforce reduction
is contained in Note 9 to the Condensed Consolidated Financial Statements and
Management's Discussion and Analysis.
22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit Number
11 Computation of Per Common Share Earnings.
12 Computation of Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K filed during the quarter ended June 30, 1994:
A Current Report on Form 8-K, dated April 20, 1994, was filed regarding
the Company's first quarter 1994 financial results. This report
contained unaudited condensed consolidated statements of income of the
three months ended March 31, 1994 and 1993.
A Current Report on Form 8-K, dated June 30, 1994, was filed reporting
on Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits)
that the Company had entered into a Joint Venture Formation Agreement
with NYNEX Corporation.
23
<PAGE>
SIGNATURES
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.
BELL ATLANTIC CORPORATION
Date: August 15, 1994 By /s/ William O. Albertini
-------------------------
William O. Albertini
Vice President and
Chief Financial Officer
(Principal Financial Officer)
24
<PAGE>
Exhibit 11
1 of 2
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Computation of Per Common Share Earnings
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months
ended June 30,
---------------
1994 1993
---- ----
<S> <C> <C>
Income Before Extraordinary Item.............. $ 415.4 $ 385.5
Extraordinary Item............................ -- (22.9)
------------ ------------
Net Income.................................... $ 415.4 $ 362.6
============ ============
Earnings Per Common Share
- - -------------------------
Weighted Average Shares Outstanding........... 436,247,170 434,762,460
Incremental Shares From Assumed Exercise of
Stock Options and Payment of Performance
Share Awards................................. 894,904 1,061,530
------------ ------------
Total Shares.................................. 437,142,074 435,823,990
============ ============
Income Before Extraordinary Item.............. $ .95 $ .88
Extraordinary Item............................ -- (.05)
------------ ------------
Net Income.................................... $ .95 $ .83
============ ============
Fully Diluted Earnings Per
Common Share*
- - --------------
Weighted Average Shares Outstanding........... 436,247,170 434,762,460
Incremental Shares From Assumed Exercise of
Stock Options and Payment of Performance
Share Awards................................ 1,116,691 1,288,587
------------ ------------
Total Shares.................................. 437,363,861 436,051,047
============ ============
Income Before Extraordinary Item.............. $ .95 $ .88
Extraordinary Item............................ -- (.05)
------------ ------------
Net Income.................................... $ .95 $ .83
============ ============
</TABLE>
* Fully diluted earnings per share calculation is presented in accordance with
Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph
14 of Accounting Principles Board Opinion No. 15 because it results in dilution
of less than 3%.
<PAGE>
Exhibit 11
2 of 2
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Computation of Per Common Share Earnings
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six months
ended June 30,
--------------
1994 1993
---- ----
<S> <C> <C>
Income Before Extraordinary Item and
Cumulative Effect of Changes in Accounting
Principles.................................... $ 811.3 $ 757.7
Extraordinary Item.............................. (6.7) (46.1)
Cumulative Effect of Changes in Accounting
Principles..................................... -- (19.8)
============ ============
Net Income...................................... $ 804.6 $ 691.8
============ ============
Earnings Per Common Share
- - -------------------------
Weighted Average Shares Outstanding............. 436,273,254 434,631,967
Incremental Shares From Assumed Exercise of
Stock Options and Payment of Performance
Share Awards................................... 968,737 1,051,043
------------ ------------
Total Shares.................................... 437,241,991 435,683,010
============ ============
Income Before Extraordinary Item and
Cumulative Effect of Changes in Accounting
Principles.................................... $ 1.86 $ 1.74
Extraordinary Item.............................. (.02) (.11)
Cumulative Effect of Changes in Accounting
Principles..................................... -- (.04)
------------ ------------
Net Income...................................... $ 1.84 $ 1.59
============ ============
Fully Diluted Earnings Per
Common Share*
-------------
Weighted Average Shares Outstanding............. 436,273,254 434,631,967
Incremental Shares From Assumed Exercise of
Stock Options and Payment of Performance
Share Awards................................... 1,078,744 1,231,757
------------ ------------
Total Shares.................................... 437,351,998 435,863,724
============ ============
Income Before Extraordinary Item and
Cumulative Effect of Changes in Accounting
Principles.................................... $ 1.86 $ 1.74
Extraordinary Item.............................. (.02) (.11)
Cumulative Effect of Changes in Accounting
Principles..................................... -- (.04)
------------ ------------
Net Income...................................... $ 1.84 $ 1.59
============ ============
</TABLE>
* Fully diluted earnings per share calculation is presented in accordance with
Regulation S-K item 601(b)(11) although not required by footnote 2 to
paragraph 14 of Accounting Principles Board Opinion No. 15 because it results
in dilution of less than 3%.
<PAGE>
Exhibit 12
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
<TABLE>
<CAPTION>
Six months
ended June 30,
1994
----
<S> <C>
Income before provision for income taxes and extraordinary item... $1,329.1
Equity in income of less than majority-owned subsidiaries......... (39.0)
Dividends from less than majority-owned subsidiaries.............. 4.7
Interest expense, including interest on capital lease obligations. 320.3
Portion of rent expense representative of the interest factor..... 52.1
--------
Income, as adjusted............................................... $1,667.2
========
Fixed charges:
Interest expense, including interest on capital lease obligations. $ 320.3
Portion of rent expense representative of the interest factor..... 52.1
Interest capitalized on construction.............................. 2.4
--------
Fixed charges..................................................... $ 374.8
========
Ratio of Earnings to Fixed Charges................................ 4.45
========
</TABLE>
