<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 March 31, 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 No. 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 (Zip Code)
executive offices)
Registrant's telephone number,
including area code: 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 April 30, 1994, 436,103,073 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 ended March 31, 1994 and 1993 2
Condensed Consolidated Balance Sheets
March 31, 1994 and December 31, 1993 3-4
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 1994 and 1993 5
Notes to Condensed Consolidated Financial Statements 6-7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-16
Part II. Other Information
1. Legal Proceedings 17
6. Exhibits and Reports on Form 8-K 18
-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 March 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
OPERATING REVENUES
Communications and Related Services
Network Services
Local service...................................... $1,283.8 $1,235.6
Network access..................................... 803.9 754.0
Toll service....................................... 411.3 389.5
Directory advertising, billing services and other.. 429.5 416.7
Provision for uncollectibles....................... (46.4) (38.0)
Other Communications and Related Services............ 384.8 286.2
Financial, Real Estate, and Other Services............ 106.3 119.3
-------- --------
3,373.2 3,163.3
-------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes.......... 1,047.9 974.0
Depreciation and amortization......................... 648.6 600.1
Other................................................. 927.9 871.7
-------- --------
2,624.4 2,445.8
-------- --------
OPERATING INCOME...................................... 748.8 717.5
Other Income and Expense, Net......................... 13.8 33.1
Interest Expense, excluding Financial Services........ 143.5 159.2
-------- --------
INCOME BEFORE PROVISION FOR INCOME
TAXES, EXTRAORDINARY ITEM, AND
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES................................ 619.1 591.4
Provision for Income Taxes............................ 223.2 219.2
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES................................ 395.9 372.2
-------- --------
EXTRAORDINARY ITEM
Early Extinguishment of Debt, Net of Tax............. (6.7) (23.2)
-------- --------
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES
Income Taxes........................................ -- 65.2
Postemployment Benefits, Net of Tax................. -- (85.0)
-------- --------
-- (19.8)
-------- --------
NET INCOME............................................ $ 389.2 $ 329.2
======== ========
PER COMMON SHARE
- - ----------------
INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES............................. $ .91 $ .85
EXTRAORDINARY ITEM.................................... (.02) (.05)
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES................................ -- (.04)
-------- --------
NET INCOME............................................ $ .89 $ .76
======== ========
Cash Dividends........................................ $ .69 $ .67
======== ========
Weighted Average Number of Common Shares
and Equivalent Shares Outstanding (in millions)...... 437.3 435.5
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................... $ 255.4 $ 146.1
Short-term investments............................ 10.0 8.5
Accounts receivable, net of allowances of $167.8
and $192.6....................................... 2,124.2 2,135.7
Finance lease and notes receivable, net........... 603.1 626.6
Inventories....................................... 247.3 250.9
Prepaid expenses.................................. 633.6 452.4
Deferred charges and other........................ 243.0 250.6
--------- ---------
4,116.6 3,870.8
--------- ---------
PLANT, PROPERTY AND EQUIPMENT..................... 32,667.1 32,329.9
Less accumulated depreciation..................... 12,476.7 11,964.0
--------- ---------
20,190.4 20,365.9
--------- ---------
EQUIPMENT UNDER OPERATING LEASES, NET............. 176.1 199.3
FINANCE LEASE AND NOTES RECEIVABLE, NET........... 1,905.1 1,888.4
INVESTMENTS IN AFFILIATES......................... 1,360.9 1,394.7
OTHER ASSETS...................................... 1,703.5 1,825.1
--------- ---------
TOTAL ASSETS...................................... $29,452.6 $29,544.2
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
LIABILITIES AND SHAREOWNERS' INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year................... $ 2,914.6 $ 2,677.3
Accounts payable................................ 1,665.7 2,134.9
Accrued expenses................................ 588.6 434.9
Other........................................... 904.2 876.8
--------- ---------
6,073.1 6,123.9
--------- ---------
LONG-TERM DEBT.................................. 7,104.9 7,206.2
--------- ---------
EMPLOYEE BENEFIT OBLIGATIONS.................... 3,454.4 3,396.0
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes........................... 2,863.1 2,913.5
Unamortized investment tax credits.............. 431.8 447.2
Other........................................... 1,189.4 1,233.0
--------- ---------
4,484.3 4,593.7
--------- ---------
SHAREOWNERS' INVESTMENT
Preferred and Preference stock ($1 par value;
none issued)................................... -- --
Common stock ($1 par value; 436,242,577 shares
and 436,130,185 shares issued)................. 436.2 436.1
Common stock issuable (139,348 shares and
142,068 shares)................................ .1 .1
Contributed capital............................. 5,421.1 5,415.2
Reinvested earnings............................. 3,184.8 3,093.6
Foreign currency translation adjustment......... (81.7) (83.9)
--------- ---------
8,960.5 8,861.1
Less common stock in treasury, at cost.......... 2.3 2.4
Less deferred compensation-employee stock
ownership plans................................ 622.3 634.3
--------- ---------
8,335.9 8,224.4
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS'
INVESTMENT..................................... $29,452.6 $29,544.2
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months
ended March 31,
--------------------
1994 1993
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 389.2 $ 329.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 648.6 600.1
Extraordinary item related to early
extinguishment of
debt, net of tax benefit................... 6.7 23.2
Cumulative effect of changes in accounting
principles.................................. -- 19.8
Other items, net............................. (22.6) (22.2)
Changes in certain assets and liabilities
net of effects from acquisition/disposition
of businesses............................... (351.6) 110.3
------- --------
Net cash provided by operating activities....... 670.3 1,060.4
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............ (1.5) (121.0)
Additions to plant, property and equipment...... (431.2) (454.6)
Proceeds from sale of plant, property and
equipment...................................... 6.9 .6
Additions to equipment under operating leases... (3.6) (21.9)
Proceeds from sale of equipment under operating
leases......................................... 10.9 13.6
Additions to finance lease and notes receivable. (499.2) (383.5)
Proceeds from sales related to finance lease
and notes receivable........................... 18.0 12.7
Principal payments received under finance lease
and notes receivable........................... 482.5 312.6
Acquisition of businesses, less cash acquired... -- (111.6)
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.................... (5.9) --
Proceeds from disposition of business........... 5.7 --
Other, net...................................... (5.7) (2.3)
------- --------
Net cash used in investing activities........... (355.7) (609.9)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings........................ 249.5 891.4
Principal repayments of borrowings and capital
lease obligations.............................. (93.4) (82.4)
Early extinguishment of debt and related call
premium........................................ (362.0) (253.2)
Net change in short-term borrowings with
original maturities of three months or less.... 359.8 (787.6)
Dividends paid.................................. (292.2) (282.1)
Proceeds from sale of treasury stock............ -- 2.0
Proceeds from sale of common stock.............. 2.0 .8
Purchase of common stock for treasury........... (.7) --
Net change in outstanding checks drawn on
controlled disbursement accounts............... (68.3) (129.0)
------- --------
Net cash used in financing activities........... (205.3) (640.1)
------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 109.3 (189.6)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD............................ 146.1 296.0
------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD.................................. $ 255.4 $ 106.4
======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-5-
<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 Compensa-
Stock Issuable Capital Earnings Adjustment Stock tion-ESOP
------- -------- ---------- ---------- ----------- -------- ---------
<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.............................. 389.2
Dividends declared on common
stock.................................. (300.9)
Acquisition............................. (.1) ( .1)
Purchase of common stock
for treasury.......................... .7
Common stock distributed in connection
with stock incentive plans............. .1 6.0 .1 (.7)
Foreign currency translation
adjustment, net........................ 2.2
Reduction of ESOP obligations........... (12.0)
Tax benefit of dividends paid
to ESOPs............................... 2.8
------- ----- -------- -------- --------- ---- ------
Balance, March 31, 1994................. $ 436.2 $ .1 $5,421.1 $3,184.8 $ (81.7) $2.3 $622.3
======= ===== ======== ======== ========= ==== ======
</TABLE>
-6-
<PAGE>
2. Shareowners' Investment (Continued)
-----------------------
During the three months ended March 31, 1994, the Company distributed 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 13,300 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 March 31, 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 $6
billion at March 31, 1994.
4. Extraordinary Item
------------------
Costs associated with the early extinguishment of debentures called by the
Company's telephone subsidiaries reduced net income by $6.7 million (net of an
income tax benefit of $3.6 million) and $23.2 million (net of an income tax
benefit of $15.9 million) for the three months ended March 31, 1994 and 1993,
respectively.
5. Sale of Leasing Business
------------------------
On April 29, 1994, the Company sold substantially all of the assets of TriCon
Capital Corporation (except for leveraged lease and project finance portfolios)
to GFC Financial Corporation for $344.3 million in cash and approximately $1.4
billion in notes receivable, plus the assumption of approximately $81 million
of liabilities by the purchaser. The Company expects to report an immaterial
gain as a result of this transaction.
6. Restatement - First Quarter 1993
--------------------------------
Results of operations for the three months ended March 31, 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," effective January 1, 1993.
7. Reclassifications
-----------------
Certain reclassifications of prior years' data have been made to conform to
1994 classifications.
-7-
<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 March 31, 1994 increased $60.0 million or
18.2% from the corresponding period in 1993. First quarter earnings per share
were $.89, representing a 17.1% increase over first quarter 1993. Results for
the first quarter of 1994 and 1993 include extraordinary charges, net of tax,
of $6.7 million or $.02 per share and $23.2 million or $.05 per share,
respectively, for the early extinguishment of debt. Additionally, results for
the first quarter of 1994 included the dilutive effects of the Company's
investment in Grupo Iusacell, S.A. de C.V. (Iusacell) of $9.6 million or $.02
per share. Results for the first quarter of 1993 included the cumulative
effects of adopting Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" and Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Other items affecting the comparison of operating results are discussed in the
following sections.
Operating Revenues
------------------
Total operating revenues for the first quarter of 1994 increased $209.9 million
or 6.6% from the corresponding period last year.
The change in operating revenues was comprised of the following:
<TABLE>
<CAPTION>
Increase (Decrease)
---------------------
(Dollars in Millions)
<S> <C>
Communications and Related Services
Network Services
Local service....................................... $ 48.2
Network access...................................... 49.9
Toll service........................................ 21.8
Directory advertising, billing services and other... 12.8
Provision for uncollectibles........................ (8.4)
Other Communications and Related Services............ 98.6
Financial, Real Estate, and Other Services............. (13.0)
------
$209.9
======
</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 increased $48.2 million or 3.9% compared with the first
quarter of 1993, 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 March 31, 1994 increased 2.6% from March
31, 1993. Revenues from value-added central office services offered by the
telephone subsidiaries increased $17.1 million or 17.3% compared with the first
quarter of 1993.
-8-
<PAGE>
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 $49.9 million or 6.6% over the same period in
the prior year. Access minutes of use were 10.9% higher than the first quarter
of 1993, due to the effects of a recovering economy and inclement weather in
the region. Revenue increases related to volume growth 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 will become effective July 1, 1994, subject to FCC approval. These
revised rates, net of lower support obligations to the National Exchange
Carrier Association interstate common line pool, are not expected to
significantly change current levels of interstate access revenues.
Toll service revenues for the first three months of 1994 increased $21.8
million or 5.6% over the first three months of 1993. Toll message volumes,
which were partially winter storm-driven, were 5.8% higher than the first
quarter of 1993. 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 $12.8 million or 3.1% compared with the first quarter of 1993.
Directory advertising revenues were $8.8 million or 3.3% higher than the first
quarter of 1993. Premises services revenues increased $5.8 million or 8.7%
over the first quarter of 1993, principally as a result of higher business
volumes. Revenues from voice messaging services, primarily Answer Call, were
approximately $6 million higher than the first quarter of last year. These
increases were partially offset by lower facilities rental revenues, and the
effect of favorable claim adjustments recorded in 1993, compared with the first
three months of 1993.
The provision for uncollectibles for the first three months of 1994 increased
$8.4 million or 22.1%. The increase over the corresponding period last year
includes a $9.9 million charge in the first quarter 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. These revenues grew $98.6 million or 34.5% from
the first quarter of 1993. The continued growth of the Company's cellular
customer base was the primary reason for increases in cellular revenues of
$70.6 million or 42.3% over the corresponding period last year. Volume-related
increases in the Company's third-party computer maintenance business of $20.3
million or 21.6% also contributed to the increase in first quarter 1994
revenues compared to the same period last year. Revenue growth of
approximately $19 million from network systems integration operations was
partially offset by lower revenues in the software development businesses, due
to the disposition of two business units at the end of 1993.
-9-
<PAGE>
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 decrease in these
revenues of $13.0 million or 10.9% from the first quarter of 1993 was primarily
as a result of the Company's decreased emphasis on computer leasing. The
decreasing revenue trend is expected to continue throughout 1994.
Operating Expenses
------------------
Total operating expenses for the first quarter of 1994 increased $178.6 million
or 7.3% from the corresponding period last year.
The increase in operating expenses was comprised of the following:
<TABLE>
<CAPTION>
Increase
---------------------
(Dollars in Millions)
<S> <C>
Employee costs.................. $ 73.9
Depreciation and amortization... 48.5
Other operating expenses........ 56.2
------
$178.6
======
</TABLE>
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes. Employee costs increased $73.9 million or
7.6% over the first quarter of 1993, due to a combination of salary and wage
increases and overtime, higher postretirement benefit costs, and an increase in
the number of employees at certain nonregulated subsidiaries. The effect of
winter storms on repair and maintenance activity contributed to the increase in
employee costs.
The Company continues to evaluate ways to streamline and restructure its
operations and reduce its workforce requirements in an effort to improve its
cost structure.
Depreciation and amortization expense increased $48.5 million or 8.1% compared
with the first quarter of 1993. Depreciation and amortization expense at the
telephone subsidiaries increased by approximately $51 million, of which
approximately $42 million was attributable to represcribed depreciation rates
and certain regulator-approved amortizations. Also contributing to the
increase was growth in the level of depreciable telephone and cellular plant.
These increases were partially offset by a reduction in depreciation and
amortization expense at the financial services and real estate companies of
approximately $9 million due to the de-emphasis on computer leasing. The
Company continues to seek additional capital recovery at the telephone
subsidiaries which, if achieved, would result in increased depreciation expense
in 1994.
Other operating expenses increased $56.2 million or 6.4% compared with the
first three months of last year, primarily due to the volume of business-
related expenses at the Company's cellular, computer maintenance and network
integration subsidiaries, as well as video services development expenses. Also
in the first quarter of 1994, the Company recorded a non-recurring
charge of approximately $13 million for legal, consulting and investment
banking fees incurred
-10-
<PAGE>
in connection with the termination of the proposed merger between the Company,
Tele-Communications, Inc. and Liberty Media Corporation. The total effect of
these increases was partially offset by lower expenses in the network, software
development and financial services businesses.
Other Income and Expense
------------------------
Other income and expense includes equity income and losses and goodwill
amortization related to investments in unconsolidated businesses, interest and
dividend income, and gains and losses from the disposition of assets and
investments. Other income, net of expense, was $13.8 million for the first
quarter of 1994 and $33.1 million for the first quarter of 1993.
The first quarter of 1993 included a pretax gain of $63.0 million related to
the private sale of a portion of the Company's investment in Telecom
Corporation of New Zealand Limited (Telecom). The first quarter of 1993 also
included a charge of approximately $42 million representing the Company's share
of non-recurring charges taken by Telecom. In 1994, the Company experienced
increases in equity income from unconsolidated wireless businesses as well as
its investment in Telecom, both due to improvements in their respective results
of operations.
Interest Expense, excluding Financial Services
----------------------------------------------
Interest expense decreased $15.7 million or 9.9% compared with the first
quarter of 1993, principally due to the effect of long-term debt refinancings
at the telephone subsidiaries. Decreases also resulted from lower interest
costs associated with the Telecom investment, as proceeds from the Company's
sale of Telecom shares were used to reduce a portion of the acquisition-related
debt.
Income Taxes
------------
The provision for income taxes increased $4.0 million or 1.8% over the first
quarter of 1993.
The Company's effective income tax rate was 36.0% for the first quarter of
1994, compared with 37.1% for the corresponding period in the prior year. The
first quarter 1994 effective tax rate reflects the effect of federal tax
legislation enacted in the third quarter of 1993, which increased the federal
corporate tax rate from 34% to 35%. Income tax expense in the first quarter of
1994 also includes a one-time tax benefit of approximately $11 million in
connection with the capital reduction plan by Telecom (see Financial
Condition). The effective tax rate in the first quarter of 1993 reflects the
Company's recognition of its share of Telecom non-recurring charges, which
reduced pretax income and had a related tax benefit that was recorded at a rate
substantially less than the Company's effective income tax rate.
Extraordinary Item
------------------
During the first quarter 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 debt, the
Company incurred after-tax charges of $6.7 million,
-11-
<PAGE>
as compared with after-tax charges of $23.2 million in the first quarter of
1993. The debt refinancing in first quarter 1994 is expected to reduce interest
costs on the refinanced debt by approximately $5 million annually over the next
10 years.
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 some
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 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, 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.
-12-
<PAGE>
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, 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 local exchange carriers 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, may be larger than from
special access collocation. The Company and certain other parties have
appealed both the special and switched access collocation orders. Appeals of
the switched access collocation order have been stayed pending a decision on
the appeal of the special access collocation order. Bell Atlantic expects the
appeal on the special access collocation order to be decided in 1994.
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, the
adoption of alternative regulation plans and rates of return. Six of the
seven state jurisdictions currently operate under alternative regulation
plans instead of traditional rate of return regulation. The seventh telephone
subsidiary, Bell Atlantic - Pennsylvania, Inc. (Pennsylvania), is currently
pursuing regulatory reform. A three judge panel recently issued a non-binding
recommendation that state regulators reject Pennsylvania's plan for
alternative regulation. The state public utility commission has until June
30, 1994 to approve, reject or modify Pennsylvania's alternative regulation
plan.
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 of 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. Bell Atlantic - Maryland, Inc.
expects some loss of market share as a result of this decision.
-13-
<PAGE>
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. Competition from long-
distance companies has resulted in a decline in toll service 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. In
New Jersey, the Board of Regulatory Commissioners (BRC) initiated a
proceeding to consider whether, and under what terms, to permit intraLATA
toll service competition. In May 1994, parties participating in this
proceeding reached a settlement that, if approved by the BRC, would permit
intraLATA toll services by dialing an access code, beginning July 1, 1994,
and would give Bell Atlantic - New Jersey, Inc. substantial flexibility in
the pricing and marketing of the services it offers to enable it to compete
with the IXCs. In September 1994, the BRC is expected to commence a further
proceeding to examine issues of intraLATA toll service competition in New
Jersey including whether, and under what terms and conditions,
presubscription should be authorized, and to address the issue of subsidies
embodied in rates. An order on presubscription in New Jersey is expected in
December 31, 1995. The Virginia State Corporation Commission is considering
whether, and under what terms, to permit intraLATA toll service competition
in Virginia.
Regulatory Accounting
The Company conducts ongoing evaluations of its accounting practices, many of
which have been prescribed by regulators. These evaluations include the
assessment of whether costs that have been deferred as a result of actions of
regulators and the cost of the Company's telephone plant will be recoverable in
the future. In the event recoverability of costs becomes unlikely due to
changes in cost-based regulation to another form of regulation, decisions by
the Company to accelerate deployment of new technology, or increasing levels of
competition, the Company may no longer apply the provisions of 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 would require the Company to write off its regulatory assets
and liabilities and may require the Company to adjust the carrying amount of
its telephone plant should it determine that such amount is not recoverable.
The Company believes that it continues to meet the criteria for continued
financial reporting under Statement No. 71. A determination in the future that
such criteria are no longer met may result in a significant one-time, non-cash,
extraordinary charge, if the Company determines that a substantial portion of
the carrying value of its telephone plant may not be recoverable.
Other Matters
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. 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.
-14-
<PAGE>
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.
Subsequent Events
-----------------
On April 29, 1994, the Company sold substantially all of the assets of TriCon
Capital Corporation (other than leveraged lease and project finance
portfolios) to GFC Financial Corporation for $344.3 million in cash and
approximately $1.4 billion in notes receivable, plus the assumption of
approximately $81 million of liabilities by the purchaser. The Company
expects to report an immaterial gain as a result of this transaction. Future
periods will no longer include a significant portion of revenues and expenses
from this business. Revenues and expenses related to the portion of the
business that was sold were approximately $53 million and $45 million,
respectively, for the three months ended March 31, 1994 and approximately $56
million and $50 million, respectively, for the three months ended March 31,
1993. Such amounts are included in the Company's Financial, Real Estate, and
Other Services industry segment.
On April 22, 1994, the Company announced that it had entered into a definitive
agreement for the sale of one of its software development subsidiaries. This
sale is expected to close during the second quarter of 1994. This transaction
is not expected to have a material effect on the Company's future 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.
As of March 31, 1994, the Company and its subsidiaries had in excess of $1.5
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 quarter 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 $670.3 million for the three months ended March 31, 1994. Cash
provided by operations decreased $390.1 million versus the corresponding period
last year due chiefly to cash payments in the first quarter of 1994
-15-
<PAGE>
related to significant purchases made late in the fourth quarter of 1993. In
addition, a change in a New Jersey tax law required the Company to make an
accelerated tax payment of approximately $99 million in the first quarter of
1994.
Cash proceeds from investing activities in the first quarter of 1994 included
$67.4 million resulting from a 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 ownership percentage
of Telecom.
The primary use of capital resources in the first quarter of 1994 continued to
be capital expenditures. The Company invested approximately $380 million in
the three months ended March 31, 1994 in the telephone subsidiaries' network.
In January 1994, the Company invested approximately $5.9 million as a member of
the Omnitel-Pronto Italia consortium that was awarded the second cellular
license in Italy in March 1994.
The Company's debt ratio was 54.6% at both March 31, 1994 and December 31,
1993. The debt offerings of the telephone subsidiaries and Bell Atlantic
Financial Services, Inc. have been accorded high ratings by primary bond rating
agencies.
-16-
<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.
-17-
<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 March 31, 1994:
A Current Report on Form 8-K, dated January 20, 1994, was filed reporting on
Item 5 (Other Events) certain matters pertaining to the proposed merger with
Tele-Communications, Inc. (TCI) and Liberty Media Corporation (Liberty).
A Current Report on Form 8-K, dated January 21, 1994, was filed regarding the
Company's 1993 financial results. The report contained unaudited condensed
consolidated statements of income for the three months and years ended December
31, 1993 and 1992.
A Current Report on Form 8-K, dated February 1, 1994, was filed reporting on
Item 5 (Other Events) the status of the negotiations concerning the proposed
merger with TCI and Liberty.
A Current Report on Form 8-K, dated February 14, 1994, was filed reporting on
Item 5 (Other Events) the status of the negotiations concerning the proposed
merger with TCI and Liberty.
A Current Report on Form 8-K, dated February 24, 1994, was filed reporting on
Item 5 (Other Events) that the Company, TCI, and Liberty, had terminated their
merger negotiations.
A Current Report on Form 8-K, dated March 22, 1994, was filed reporting on Item
5 (Other Events) and Item 7 (Financial Statements and Exhibits) that the
Company had increased the per share amount of its quarterly dividend.
-18-
<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: May 12, 1994 By /s/ William O. Albertini
------------------------
William O. Albertini
Vice President and
Chief Financial Officer
(Principal Financial Officer)
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MAY 9, 1994.
-19-
<PAGE>
Exhibit 11
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Computation of Per Common Share Earnings
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------------------
1994 1993
------------- ---------------
<S> <C> <C>
Income Before Extraordinary Item and
Cumulative Effect of Changes in Accounting
Principles................................. $ 395.9 $ 372.2
Extraordinary Item........................... (6.7) (23.2)
Cumulative Effect of Changes in Accounting
Principles.................................. -- (19.8)
------------ --------------
Net Income................................... $ 389.2 $ 329.2
============ ==============
Earnings Per Common Share
- - ---------------------------
Weighted Average Shares
Outstanding................................ 436,299,626 434,500,024
Incremental Shares From Assumed Exercise of
Stock Options and Payment of Performance
Share Awards............................... 1,041,399 1,040,387
------------ --------------
Total Shares................................. 437,341,025 435,540,411
============ ==============
Income Before Extraordinary Item and
Cumulative Effect of Changes in Accounting
Principles................................ $ .91 $ .85
Extraordinary Item........................... (.02) (.05)
Cumulative Effect of Changes in Accounting
Principles.................................. -- (.04)
------------ --------------
Net Income................................... $ . 89 $ .76
============ ==============
Fully Diluted Earnings Per
Common Share*
- - ---------------------------
Weighted Average Shares
Outstanding................................. 436,299,626 434,500,024
Incremental Shares From Assumed Exercise of
Stock Options and Payment of Performance
Share Awards............................... 1,041,399 1,174,011
------------ --------------
Total Shares................................. 437,341,025 435,674,035
============ ==============
Income Before Extraordinary Item and
Cumulative Effect of Changes in Accounting
Principles................................. $ . 91 $ .85
Extraordinary Item........................... (.02) (.05)
Cumulative Effect of Changes in Accounting
Principles.................................. -- (.04)
------------ --------------
Net Income................................... $ .89 $ .76
============ ==============
</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>
Three months
ended March 31,
1994
---------------
<S> <C>
Income before provision for income taxes
and extraordinary item.................. $619.1
Equity in income of less than majority-
owned subsidiaries...................... (21.9)
Dividends from less than majority-owned
subsidiaries............................ 1.7
Interest expense, including interest on
capital lease obligations............... 166.1
Portion of rent expense representative
of the interest factor.................. 27.0
------
Income, as adjusted....................... $792.0
======
Fixed charges:
Interest expense, including interest on
capital lease obligations............... $166.1
Portion of rent expense representative
of the interest factor.................. 27.0
Interest capitalized on construction...... .7
------
Fixed charges............................. $193.8
======
Ratio of Earnings to Fixed Charges........ 4.09
======
</TABLE>
