<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, 1995
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 19103
Philadelphia, Pennsylvania (Zip Code)
(Address of principal executive offices)
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, 1995, 436,599,374 shares of the registrant's Common Stock were
outstanding, after deducting 62,615 shares held in treasury.
================================================================================
<PAGE>
TABLE OF CONTENTS
Item No. Page
- -------- ----
Part I. Financial Information
1. Financial Statements
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 1995 and 1994..... 2-3
Condensed Consolidated Balance Sheets
June 30, 1995 and December 31, 1994........................... 4-5
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 1995 and 1994.............. 6
Notes to Condensed Consolidated Financial Statements............ 7-8
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9-21
Part II. Other Information
1. Legal Proceedings............................................... 22
4. Submission of Matters to a Vote of Security Holders............. 22-23
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 Operations
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended
June 30,
----------------------
1995 1994
-------- --------
<S> <C> <C>
OPERATING REVENUES............................ $3,564.5 $3,430.0
-------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes.. 1,060.7 1,028.8
Depreciation and amortization................. 681.7 649.1
Other......................................... 979.1 954.6
-------- --------
2,721.5 2,632.5
-------- --------
OPERATING INCOME.............................. 843.0 797.5
Equity in Income of Affiliates................ 22.5 17.1
Other Income, Net............................. 5.8 35.7
Interest Expense.............................. 147.7 140.3
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES...... 723.6 710.0
Provision for Income Taxes.................... 276.5 294.6
-------- --------
NET INCOME.................................... $ 447.1 $ 415.4
======== ========
PER COMMON SHARE
- ----------------
NET INCOME.................................... $ 1.02 $ .95
======== ========
Cash Dividends Declared....................... $ .70 $ .69
======== ========
Weighted Average Number of Common Shares and
Equivalent Shares Outstanding (in millions).. 437.7 437.1
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------
1995 1994
-------- --------
<S> <C> <C>
OPERATING REVENUES............................ $7,014.2 $6,849.6
-------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes.. 2,094.9 2,076.7
Depreciation and amortization................. 1,349.4 1,297.7
Other......................................... 1,895.4 1,928.9
-------- --------
5,339.7 5,303.3
-------- --------
OPERATING INCOME.............................. 1,674.5 1,546.3
Equity in Income of Affiliates................ 15.8 39.0
Other Income, Net............................. 6.9 27.6
Interest Expense.............................. 286.6 283.8
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEM........................... 1,410.6 1,329.1
Provision for Income Taxes.................... 549.0 517.8
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM.............. 861.6 811.3
EXTRAORDINARY ITEM
Early Extinguishment of Debt, Net of Tax...... -- (6.7)
-------- --------
NET INCOME.................................... $ 861.6 $ 804.6
======== ========
PER COMMON SHARE
- ----------------
INCOME BEFORE EXTRAORDINARY ITEM.............. $1.97 $1.86
EXTRAORDINARY ITEM............................ -- (.02)
-------- --------
NET INCOME.................................... $1.97 $1.84
======== ========
Cash Dividends Declared....................... $1.40 $1.38
======== ========
Weighted Average Number of Common Shares and
Equivalent Shares Outstanding (in millions).. 437.6 437.2
======== ========
</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,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents..................................... $ 61.5 $ 142.9
Short-term investments........................................ 102.5 --
Accounts receivable, net of allowances of $192.8 and $188.9 .. 2,308.3 2,328.1
Inventories................................................... 289.6 274.6
Prepaid expenses.............................................. 605.1 545.5
Other......................................................... 524.3 492.2
------------ ------------
3,891.3 3,783.3
------------ ------------
PLANT, PROPERTY AND EQUIPMENT................................. 34,851.9 33,745.8
Less accumulated depreciation................................. 17,690.3 16,807.7
------------ ------------
17,161.6 16,938.1
------------ ------------
INVESTMENTS IN AFFILIATES..................................... 1,882.6 1,576.8
OTHER ASSETS.................................................. 1,884.4 1,973.6
------------ ------------
TOTAL ASSETS.................................................. $ 24,819.9 $ 24,271.8
============ ============
</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,
1995 1994
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year................................. $ 2,746.1 $ 2,087.6
Accounts payable.............................................. 1,860.0 2,220.2
Accrued expenses.............................................. 355.9 388.7
Other......................................................... 845.1 880.2
--------- ---------
5,807.1 5,576.7
--------- ---------
LONG-TERM DEBT................................................ 6,743.2 6,805.7
--------- ---------
EMPLOYEE BENEFIT OBLIGATIONS.................................. 3,890.9 3,773.8
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes......................................... 1,320.8 1,305.7
Unamortized investment tax credits............................ 162.4 176.7
Other......................................................... 497.2 466.9
--------- ---------
1,980.4 1,949.3
--------- ---------
PREFERRED STOCK OF SUBSIDIARY................................. 85.0 85.0
--------- ---------
SHAREOWNERS' INVESTMENT
Preferred and Preference stock ($1 par value; none
issued)...................................................... -- --
Common stock ($1 par value; 436,587,078 shares and
436,405,646 shares issued)................................... 436.6 436.4
Common stock issuable (92,899 shares)......................... .1 .1
Contributed capital........................................... 5,439.4 5,428.4
Reinvested earnings........................................... 1,398.7 1,144.4
Foreign currency translation adjustment....................... (406.3) (330.8)
--------- ---------
6,868.5 6,678.5
Less common stock in treasury, at cost........................ 3.1 11.0
Less deferred compensation-employee stock ownership plans..... 552.1 586.2
--------- ---------
6,313.3 6,081.3
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' INVESTMENT................. $24,819.9 $24,271.8
========= =========
</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,
-------------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................................... $ 861.6 $ 804.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................................... 1,349.4 1,297.7
Extraordinary item, net of tax................................................... -- 6.7
Other items, net................................................................. 36.3 (76.0)
Changes in certain assets and liabilities, net of
effects from acquisition/disposition of businesses.............................. (409.6) (505.3)
--------- ---------
Net cash provided by operating activities.......................................... 1,837.7 1,527.7
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............................................... (102.5) 8.5
Additions to plant, property and equipment......................................... (1,522.6) (1,043.5)
Proceeds from sale of plant, property and equipment................................ 2.1 24.1
Investment in finance lease and notes receivable................................... -- (735.8)
Proceeds from finance lease and notes receivable................................... 16.7 687.8
Proceeds from notes receivable..................................................... 114.1 --
Acquisition of businesses, less cash acquired...................................... (40.5) --
Proceeds from Telecom Corporation of New Zealand Limited capital
reduction plan................................................................... -- 67.4
Investment in joint ventures....................................................... (327.0) (20.1)
Proceeds from disposition of businesses............................................ -- 903.5
Other, net......................................................................... (4.0) (20.5)
--------- ---------
Net cash used in investing activities.............................................. (1,863.7) (128.6)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings........................................................... 106.6 249.5
Principal repayments of borrowings and capital lease obligations................... (220.3) (472.2)
Early extinguishment of debt....................................................... -- (350.0)
Net change in short-term borrowings with original
maturities of three months or less................................................ 682.3 (148.3)
Dividends paid..................................................................... (606.4) (593.2)
Proceeds from sale of common stock................................................. 20.7 5.0
Purchase of common stock for treasury.............................................. (5.6) (8.7)
Net change in outstanding checks drawn on controlled disbursement accounts......... (32.7) (59.4)
Proceeds from sale of preferred stock by subsidiary................................ -- 85.0
--------- ---------
Net cash used in financing activities.............................................. (55.4) (1,292.3)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................... (81.4) 106.8
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................................... 142.9 146.1
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................... $ 61.5 $ 252.9
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, 1994 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, 1994.
Effective August 1, 1994, the Company discontinued accounting for the operations
of its telephone subsidiaries in accordance with Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation."
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, 1994............... $436.4 $.1 $5,428.4 $1,144.4 $(330.8) $11.0 $586.2
Net income............................... 861.6
Dividends declared on common stock....... (611.0)
Purchase of common stock for
treasury................................ 5.6
Common stock issued:
Employee plans.......................... .2 9.6 (1.0) (1.9)
Shareowner plans........................ -- 1.4 (11.6)
Foreign currency translation
adjustment, net......................... (75.5)
Reduction of ESOP obligations............ (34.1)
Tax benefit of dividends
paid to ESOPs........................... 4.7
------- ----- --------- --------- -------- ----- -------
Balance, June 30, 1995................... $436.6 $.1 $5,439.4 $1,398.7 $(406.3) $3.1 $552.1
------- ----- --------- --------- -------- ----- -------
</TABLE>
During the six months ended June 30, 1995, the Company distributed
approximately 173,000 shares of common stock for employee plans and
approximately 8,000 shares of common stock for shareowner plans. During the same
period, the Company repurchased approximately 115,000 shares of its common stock
for treasury, and distributed approximately 39,000 treasury shares for employee
plans and approximately 234,000 treasury shares for shareowner plans.
7
<PAGE>
3. Long-Term Debt - Bell Atlantic Financial Services, Inc.
-------------------------------------------------------
Debt securities of Bell Atlantic Financial Services, Inc. (FSI) in the amount
of $745.6 million at June 30, 1995 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
condensed consolidated financial statements of Bell Atlantic was approximately
$5 billion at June 30, 1995.
4. Subsequent Event - Formation of Wireless Partnership
----------------------------------------------------
Effective July 1, 1995, Bell Atlantic and NYNEX Corporation (NYNEX) completed
the combination of substantially all of their domestic cellular businesses and
the formation of a partnership, Bell Atlantic NYNEX Mobile, that will own and
operate such businesses. The combination represents the consummation of a
transaction that had been agreed to and announced in June 1994. Coincident with,
and as a condition to, the completion of the combination, Bell Atlantic sold
certain cellular properties in Massachusetts and Rhode Island to SNET Cellular,
Inc. The Company will record a pretax gain of approximately $340 million
(subject to post-closing adjustments) in the third quarter of 1995 on the sale
of the cellular properties.
Bell Atlantic NYNEX Mobile operates as a general partnership and is controlled
equally by Bell Atlantic and NYNEX. Bell Atlantic owns an approximate 63% equity
interest and NYNEX owns an approximate 37% equity interest in Bell Atlantic
NYNEX Mobile. The Company will account for its interest in the partnership under
the equity method.
Bell Atlantic contributed certain assets and liabilities of its domestic
cellular operating subsidiaries in exchange for an equity interest in Bell
Atlantic NYNEX Mobile. Subject to post-closing adjustments, as of July 1, 1995,
the Company contributed approximately $1.5 billion of assets and $.3 billion of
liabilities to the partnership. No gain or loss was recognized on the
contribution of the assets and liabilities.
Revenues and operating income related to Bell Atlantic's domestic cellular
operations were as follows:
<TABLE>
<CAPTION>
(Dollars in Millions)
----------------------------
For the Three Months Ended June 30 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues................................ $332.7 $255.7
Operating Income........................ 63.3 34.6
----------------------------
For the Six Months Ended June 30
- --------------------------------
Revenues................................ $620.0 $488.9
Operating Income........................ 97.5 55.1
----------------------------
</TABLE>
Revenues and operating income for the year ended December 31, 1994 were
$1,044.9 million and $112.2 million, respectively.
5. Reclassifications
-----------------
Certain reclassifications of prior year's data have been made to conform to
1995 classifications.
8
<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, 1995 increased $31.7 million or
7.6% from the corresponding period in 1994. Second quarter earnings per share
were $1.02, representing a 7.4% increase over second quarter 1994.
Net income for the six months ended June 30, 1995 increased $57.0 million or
7.1% from the same period last year. Earnings per share were $1.97, representing
a 7.1% increase over the first half of 1994.
Major items affecting the comparison of results are discussed in the following
sections.
- ----------------------------------------
Operating Revenues
- ----------------------------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
-----------------------------------------------
Three months Six months
---------------- --------------
For the Period Ended June 30 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transport Services
Local service $1,105.3 $1,081.9 $2,186.6 $2,144.2
Network access 872.4 783.7 1,693.3 1,587.6
Toll service 359.3 401.8 726.3 813.1
Ancillary Services
Directory advertising 276.7 269.0 552.4 536.6
Other 119.4 104.9 244.8 198.9
Value-added Services 330.9 323.4 657.6 631.4
Wireless Services 336.5 259.1 628.0 495.8
Other Services 164.0 206.2 325.2 442.0
-----------------------------------------------
Total $3,564.5 $3,430.0 $7,014.2 $6,849.6
===============================================
</TABLE>
- ----------------------------------------
Transport Services Operating Statistics
- ----------------------------------------
<TABLE>
<CAPTION>
Percentage
1995 1994 Increase (Decrease)
- ----------------------------------------------------------------------------------------------------------------
At June 30
- ----------
<S> <C> <C> <C>
Access Lines in Service (In thousands)
Residence 12,445.7 12,186.9 2.1%
Business 6,740.7 6,408.4 5.2
Public 279.3 281.7 (.9)
--------------------
19,465.7 18,877.0 3.1
====================
</TABLE>
<TABLE>
<CAPTION>
Three months Six months Percentage Increase (Decrease)
------------------ --------------- ------------------------------
1995 1994 1995 1994 Second Quarter Year-to-Date
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Period Ended June 30
- ----------------------------
Access Minutes of Use (In
millions)
Interstate 15,016 14,038 29,632 27,806 7.0% 6.6%
Intrastate 3,954 3,424 7,710 6,865 15.5 12.3
--------------------------------------------
18,970 17,462 37,342 34,671 8.6 7.7
============================================
Toll Messages (In millions)
Intrastate 832.5 844.6 1,626.0 1,704.1 (1.4)% (4.6)%
Interstate 41.9 43.1 83.6 89.2 (2.8) (6.3)
--------------------------------------------
874.4 887.7 1,709.6 1,793.3 (1.5) (4.7)
============================================
</TABLE>
9
<PAGE>
Local Service Revenues
Dollars in Millions Increase
================================================================================
Second Quarter $23.4 2.2%
- --------------------------------------------------------------------------------
Six Months $42.4 2.0%
================================================================================
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 in the three and six month periods ended June
30, 1995 due primarily to growth in network access lines and increased usage and
data transport by business customers. Access lines in service at June 30, 1995
increased 3.1% from June 30, 1994.
Network Access Revenues
Dollars in Millions Increase
================================================================================
Second Quarter $88.7 11.3%
- --------------------------------------------------------------------------------
Six Months $105.7 6.7%
================================================================================
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
service 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
IXCs and end-users who have private networks. End-user access revenues are
earned from local exchange carrier customers who pay for access to the network.
Network access revenues increased in both periods of 1995 due to higher
customer demand for access services as reflected by growth in access minutes of
use, as well as growth in end-user charges attributable to increasing access
lines in service. Access minutes of use for the three and six month periods
ended June 30, 1995 were higher than the corresponding periods of 1994 by 8.6%
and 7.7%, respectively. Revenues in the second quarter of 1995 were also
positively impacted by a temporary rate increase that was in effect from March
17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment
benefit costs.
Revenue growth in both periods of 1995 was partially offset by price
reductions in effect from July 1, 1994 through July 31, 1995. Further, reported
growth in access minutes of use and revenues for the six month period of 1995
was negatively impacted by higher storm-related calling volumes experienced in
the first quarter of 1994.
Effective August 1, 1995, the Company implemented price decreases of
approximately $305 million on an annual basis, principally for interstate access
services, in connection with the Federal Communications Commission's (FCC)
Interim Price Cap Plan Order. These price decreases include the scheduled
expiration of a temporary rate increase of approximately $98 million on an
annualized basis that was in effect from March 17, 1995 through July 31, 1995 to
recover prior years "exogenous" postemployment benefit costs. Approximately 80%
of the remaining $207 million reduction results from compliance with the Interim
Plan. The remaining 20% represents reductions that the Company was required to
make under the prior Price Cap Plan. It is expected that these price decreases
will be partially offset by volume increases. As a result of the Company's
selection of a 5.3% Productivity Factor under the Interim Plan, the Company is
no longer required to share a portion of its interstate earnings. See
"Competitive and Regulatory Environment -Federal Regulation" for a further
discussion of FCC interstate access revenue issues.
10
<PAGE>
Toll Service Revenues
Dollars in Millions Decrease
================================================================================
Second Quarter $(42.5) (10.6)%
- --------------------------------------------------------------------------------
Six Months $(86.8) (10.7)%
================================================================================
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area boundaries of the Company's
telephone subsidiaries, commonly referred to as "LATAs." Other toll services
include 800 services, Wide Area Telephone Service (WATS), and corridor services
(between Northern New Jersey and New York City and between Southern New Jersey
and Philadelphia.)
The decrease in toll service revenues was caused by a decline in toll message
volumes and price reductions on certain toll services. Toll message volumes for
the three and six month periods ended June 30, 1995 decreased 1.5% and 4.7%,
respectively, over the comparable periods last year. The decrease in toll
messages is due primarily to increased competition throughout the region for
intraLATA toll and WATS services. The effect of storm-related usage experienced
in the first quarter of 1994 further impacted volume growth for the six month
period. The Company extended local calling areas in Virginia which also
contributed to the reduction in toll service revenues. Since the commencement of
intraLATA toll competition in Bell Atlantic - New Jersey in July 1994, the
Company has experienced declines in toll message volumes and revenues. The
Company expects that such competition will have less of a negative impact on
toll service revenues for the remainder of 1995, relative to 1994 levels.
Directory Advertising Revenues
Dollars in Millions Increase
================================================================================
Second Quarter $7.7 2.9%
- --------------------------------------------------------------------------------
Six Months $15.8 2.9%
================================================================================
Directory advertising revenues are earned primarily from local advertising and
marketing services provided to businesses in White and Yellow Pages directories
published throughout the region. Other directory advertising services include
database and foreign directory marketing.
Growth in directory advertising revenues in the second quarter and first half
of 1995 was principally due to higher rates charged for these services. Volume
growth continues to be impacted by competition from other directory companies,
as well as other advertising media.
Other Ancillary Services Revenues
Dollars in Millions Increase
================================================================================
Second Quarter $14.5 13.8%
- --------------------------------------------------------------------------------
Six Months $45.9 23.1%
================================================================================
Other ancillary services include systems integration services, billing and
collection services provided to IXCs, and facilities rental services.
Other ancillary services revenues increased in both periods of 1995
principally due to an increase in the number of contracts for systems
integration services provided to the federal government and business customers.
11
<PAGE>
Value-added Services Revenues
Dollars in Millions Increase
================================================================================
Second Quarter $7.5 2.3%
- --------------------------------------------------------------------------------
Six Months $26.2 4.1%
================================================================================
Value-added services represent a family of enhanced services including Call
Waiting, Return Call, Caller ID, Answer Call, and Voice Mail. These services
also include customer premises services such as inside wire installation and
maintenance and other central office services and features.
Continued growth in the network customer base (access lines) and higher demand
by residence customers for certain value-added central office and voice
messaging services offered by the telephone subsidiaries increased value-added
services revenues in the second quarter and first half of 1995. These revenue
increases were partially offset by the elimination of Touch-Tone service charges
for Bell Atlantic - Virginia customers, effective January 1, 1995. The
elimination of Touch-Tone service charges in Bell Atlantic - Virginia is
expected to reduce value-added services revenues by approximately $25 million
annually.
Wireless Services Revenues
Dollars in Millions Increase
================================================================================
Second Quarter $77.4 29.9%
- --------------------------------------------------------------------------------
Six Months $132.2 26.7%
================================================================================
Wireless services include revenues generated by Bell Atlantic Mobile for
domestic cellular and paging communications services.
Continued growth in the Company's cellular base in excess of 50% was the
primary reason for the increase in wireless services revenues in the second
quarter and first half of 1995. Volume-related revenue growth was negatively
impacted in both periods by an approximate 12% decline in average monthly
revenue per subscriber as a result of increased penetration of the lower-usage
consumer market. Additionally, comparable periods in 1994 included cellular
revenues associated with a reseller operation that, beginning in May 1994, are
included in the operating results of a partnership and reported as equity in
income of affiliates. See Subsequent Event - Formation of Wireless Partnership
for information on the formation of the Bell Atlantic NYNEX Mobile partnership.
Other Services Revenues
Dollars in Millions (Decrease)
================================================================================
Second Quarter $(42.2) (20.5)%
- --------------------------------------------------------------------------------
Six Months $(116.8) (26.4)%
================================================================================
Other services include revenues from the Company's computer maintenance,
software development and support, telecommunications consulting, video services,
real estate, diversified and computer leasing, and liquefied petroleum gas
distribution businesses.
The second quarter and year-to-date decreases in other services revenues were
due primarily to the sale of substantially all of the Company's lease financing
business and a liquefied petroleum gas distribution business during 1994. These
revenue decreases were partially offset by revenue growth from the Company's
third-party computer maintenance business, principally due to higher volumes
resulting from new contracts.
12
<PAGE>
- ----------------------------------------
Operating Expenses
- ----------------------------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
--------------------------------------
Three months Six months
------------ ----------
For the Period Ended June 30 1995 1994 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee costs, including benefits and taxes $1,060.7 $1,028.8 $2,094.9 $2,076.7
Depreciation and amortization 681.7 649.1 1,349.4 1,297.7
Other operating expenses 979.1 954.6 1,895.4 1,928.9
--------------------------------------
Total $2,721.5 $2,632.5 $5,339.7 $5,303.3
======================================
</TABLE>
Employee Costs
Dollars in Millions Increase
================================================================================
Second Quarter $31.9 3.1%
- --------------------------------------------------------------------------------
Six Months $18.2 .9%
================================================================================
Employee costs consist of salaries, wages, and other employee compensation,
employee benefits and payroll taxes.
Employee costs at the network services subsidiaries increased in the second
quarter by $9.7 million or 1.1% and decreased in the first half of 1995 by $16.3
million or .9%, compared with the same periods in 1994. Employee costs at the
Company's nonregulated subsidiaries increased by $22.2 million or 16.1% in the
second quarter and $34.5 million or 12.5% in the first half of 1995 over the
corresponding periods in 1994.
The year-to-date decline in employee costs at the network services
subsidiaries was principally due to decreased overtime pay and repair and
maintenance activity, both of which were higher in the first quarter of 1994 as
a result of unusually severe weather conditions experienced throughout the
region. The effect of lower workforce levels at the network services
subsidiaries also contributed to the year-to-date reduction in employee costs.
These reductions were partially offset by annual salary and wage increases for
management and associate employees, effective April 1995 and August 1994,
respectively, and the recognition of certain contract labor costs in the second
quarter of 1995.
In the second quarter of 1995, employee costs at the network services
subsidiaries were higher as a result of the recognition of costs associated with
the ratification of a new five-year labor contract with one of its two unions.
In June 1995, the Company's network services subsidiaries ratified a contract
with the International Brotherhood of Electrical Workers (IBEW), representing
approximately 9,500 associate employees. The IBEW contract, which was effective
May 21, 1995, provides for a 14.5% wage increase over the five-year contract
period; a ratification bonus; improved benefits and pensions; and certain
employment security provisions. Other employee cost increases in the second
quarter of 1995, principally in salary and wages, were substantially offset by
the effect of lower workforce levels.
The contract with the Company's other union, the Communications Workers of
America (CWA), expired on August 5, 1995. As of August 7, 1995, the CWA has not
called a strike and the Company continues to make work available to associate
employees represented by the CWA at the same wages and benefits as under the
expired contract until further notice.
Higher employee costs at the nonregulated subsidiaries in both the three and
six month periods were principally attributable to an increased workforce at the
wireless, computer maintenance and systems integration companies due to growth
at these business units. These expense increases were offset, in part, by the
effect of the aforementioned disposition of certain non-strategic businesses
during 1994.
13
<PAGE>
Depreciation and Amortization
Dollars in Millions Increase
================================================================================
Second Quarter $32.6 5.0%
- --------------------------------------------------------------------------------
Six Months $51.7 4.0%
================================================================================
Depreciation and amortization expense at the network services subsidiaries for
the second quarter and first half of 1995 increased $38.7 million or 6.6% and
$70.3 million or 6.1%, respectively, compared with the same periods in 1994,
principally due to growth in depreciable telephone plant. The network services
subsidiaries composite depreciation rate was 7.9% for the first half of 1995.
The Company expects the composite depreciation rate to remain substantially
unchanged for the remainder of 1995.
Depreciation and amortization expense at the nonregulated subsidiaries
decreased by $6.1 million or 9.4% and $18.6 million or 13.5%, over the
corresponding second quarter and first half of the prior year, due primarily to
the effect of the sale of substantially all of the assets of the Company's lease
financing business during 1994. The expense decrease was partially offset in
both periods by higher depreciation expense at the Company's wireless subsidiary
resulting from growth in cellular plant.
Other Operating Expenses
Dollars in Millions Increase (Decrease)
================================================================================
Second Quarter $24.5 2.6%
- --------------------------------------------------------------------------------
Six Months $(33.5) (1.7)%
================================================================================
Other operating expenses consist primarily of contracted services, rent,
network software costs, the provision for uncollectible accounts receivable and
other costs.
The year-to-date reduction in other operating expenses was largely due to the
effect of the aforementioned disposition of several non-strategic businesses
during 1994, as well as lower expenses at the network services subsidiaries
attributable to the timing of telephone network software purchases. Second
quarter 1995 other operating expenses were also impacted, but to a lesser
extent, by these cost reductions.
These cost reductions were more than offset in the second quarter of 1995 and
partially offset year-to-date by increased costs at the Company's computer
maintenance and systems integration subsidiaries due to higher business volumes,
and to additional costs incurred by the network services subsidiaries to enhance
systems and consolidate work activities.
Equity in Income of Affiliates
Dollars in Millions Increase (Decrease)
================================================================================
Second Quarter $5.4
- --------------------------------------------------------------------------------
Six Months $(23.2)
================================================================================
Equity in income of affiliates includes equity income and losses, goodwill
amortization and financing costs related to the Company's investments in
unconsolidated businesses.
Equity in income of affiliates decreased in the first half of 1995 due
principally to the effects of goodwill amortization and equity losses associated
with the Company's video services joint venture and its investment in Grupo
Iusacell, S. A. de C.V. (Iusacell). These decreases were partially offset by
improved operating results and the favorable effect of foreign exchange rates
associated with the Company's investment in Telecom Corporation of New Zealand
Limited (Telecom).
The year-to-date equity loss, including goodwill amortization, in Iusacell was
$37.4 million, compared to an equity loss of $19.5 million for the same period
in 1994. The higher equity loss in Iusacell in the first half of 1995 was
largely attributable to a net charge of $14.3 million for the Company's
estimated proportionate share of the impact of the Mexican peso devaluation on
Iusacell's net liabilities, primarily debt, denominated in U.S. dollars. During
the first quarter of 1995, the Company recognized a charge of $19.6 million as a
result of the devaluation of the Mexican peso. Improvements in the Mexican peso
exchange rate during the second quarter of 1995 resulted in the recognition of a
$5.3 million gain. The Company's equity in income of Iusacell will
14
<PAGE>
continue to be impacted by changes in the Mexican peso exchange rate. The
increase in the Company's economic interest in Iusacell from 23.2% in the first
half of 1994 to 41.9% in August 1994 also impacted the equity loss in Iusacell
in 1995.
The second quarter 1995 equity in income of affiliates was higher than the
corresponding period in 1994, principally as a result of the favorable effect of
the Mexican peso exchange rate associated with the Company's Iusacell
investment. The second quarter equity loss, including goodwill amortization, in
Iusacell was $6.5 million, compared to a $14.0 million equity loss for the
second quarter of 1994. The three month period ended June 30, 1995 also included
higher equity income from the Company's Telecom investment and additional equity
losses from its video services joint venture.
Other Income, Net
Dollars in Millions Decrease
================================================================================
Second Quarter $(29.9) (83.8)%
- --------------------------------------------------------------------------------
Six Months $(20.7) (75.0)%
================================================================================
Other income, net, principally includes interest and dividend income, and
gains and losses from the disposition of subsidiaries and non-operating assets
and investments.
The decrease in other income, net, in both the three and six month periods
ended June 30, 1995 is principally attributable to the effect of a $38.5 million
pretax gain, recognized in the second quarter of 1994, related to the sale of
substantially all of the Company's lease financing business. The decrease was
partially offset in both periods by additional interest income of $8.2 million
for the second quarter and $16.8 million for the first half of 1995 related to
notes receivable held by the Company in connection with the sale of a lease
financing subsidiary and the sale of real estate in 1994.
Interest Expense
Dollars in Millions Increase
================================================================================
Second Quarter $7.4 5.3%
- --------------------------------------------------------------------------------
Six Months $2.8 1.0%
================================================================================
Interest expense increased in both periods of 1995 due to higher short-term
borrowings and higher interest rates. Interest expense was reduced by the
recognition of capitalized interest costs at the telephone subsidiaries. Upon
the discontinued application of regulatory accounting principles, effective
August 1, 1994, the Company began recognizing capitalized interest costs as a
reduction of interest expense. Previously, the Company recorded an allowance for
funds used during construction as an item of other income.
15
<PAGE>
Provision for Income Taxes
Dollars in Millions Increase (Decrease)
================================================================================
Second Quarter $(18.1) (6.1%)
- --------------------------------------------------------------------------------
Six Months $31.2 6.0%
================================================================================
Effective Income Tax Rates
For the Three Months Ended June 30
================================================================================
1995 38.2%
- --------------------------------------------------------------------------------
1994 41.5%
================================================================================
For the Six Months Ended June 30
================================================================================
1995 38.9%
- --------------------------------------------------------------------------------
1994 39.0%
================================================================================
The lower effective income tax rates in 1995 resulted from the effect of
recording, in the second quarter of 1994, an adjustment to the provision for
deferred state income taxes on the Company's remaining leveraged lease
portfolio. This adjustment increased the effective income tax rates in both the
three and six month periods ended June 30, 1994.
The effective tax rates in 1995 were impacted by the reduction in the
amortization of investment tax credits and the elimination of the benefit of the
income tax rate differential applied to reversing timing differences at the
telephone subsidiaries, both as a result of the discontinued application of
regulatory accounting principles in August 1994.
- ----------------------------------------
Competitive and Regulatory Environment
- ----------------------------------------
The communications industry continues to undergo fundamental changes which may
have a significant impact on future financial performance of telecommunications
companies. These changes are being driven by a number of factors, including the
accelerated pace of technological innovation, the convergence of the
telecommunications, cable television, information services and entertainment
businesses and a regulatory environment in which traditional barriers are being
lowered or eliminated and competition permitted or encouraged.
The Company's telecommunications business is subject to competition from
numerous sources. An increasing amount of this competition is from companies
that have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company. The entry of
well-financed competitors has the potential to adversely affect multiple revenue
streams of the telephone subsidiaries, including toll, local exchange and
network access services in the markets and geographical areas in which the
competitors operate. The amount of revenue reductions will depend, in part, on
the competitors' success in marketing these services and the conditions
established by regulatory authorities. 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 respond to competitive challenges by intensely
focusing on meeting customer requirements and by reducing its cost structure
through efficiency and productivity initiatives. In addition, the Company
continues to seek growth opportunities in businesses where it possesses core
competencies. Several examples of the Company's recent initiatives to address
competition are described below.
To expand its geographic presence in the wireless business, the Company
combined substantially all of its domestic cellular operations with those of
NYNEX Corporation, effective July 1, 1995, and formed a partnership, Bell
Atlantic NYNEX Mobile, that will own and operate such businesses (also see
Subsequent Event - Formation of Wireless Partnership section).
16
<PAGE>
Bell Atlantic and NYNEX in 1994 also formed two partnerships with U S WEST,
Inc. and AirTouch Communications to provide nationwide wireless communications
services. The first partnership (PCS PrimeCo) participated in the FCC's
auctions for personal communications services (PCS) licenses. In March 1995,
PCS PrimeCo was a successful bidder for licenses for spectrum to provide PCS
services in 11 major markets across the United States. The partnership paid
approximately $1.1 billion for these licenses. The Company has invested
approximately $268 million in the partnership through the first half of 1995,
primarily to fund the purchase of these PCS licenses. The second partnership
will develop a national branding and marketing strategy and wireless
communications services standards.
To expedite its entry into the video services market, Bell Atlantic formed two
new partnerships with NYNEX and Pacific Telesis Group. TELE-TV Media, L.P. will
license, acquire, and develop entertainment and information services. TELE-TV
Systems, L.P. will provide the systems necessary to deliver these services over
the partners' networks. Over the 1995 to 1997 period, each of the partners will
contribute approximately $100 million in cash or assets to the new joint
ventures.
In March 1995, Bell Atlantic and NYNEX , through a jointly-owned partnership,
signed an agreement to invest collectively up to $100 million in CAI Wireless
Systems Inc., a wireless cable television company, which in turn has entered
into several agreements to acquire the stock or assets of other wireless cable
television companies. The investment will occur in two stages. In the first
stage, which closed in May 1995, Bell Atlantic and NYNEX each invested $15.0
million in CAI Wireless. In exchange for this investment, the partnership holds
senior debt bearing 12.5% interest maturing in the first quarter of 1996. In
the second stage, which is expected to close later in 1995, Bell Atlantic and
NYNEX would each invest $35.0 million in CAI Wireless. As part of this
transaction, Bell Atlantic and NYNEX receive the right to acquire up to a total
of 45% of CAI Wireless through the exercise of warrants. Bell Atlantic and
NYNEX have also entered into an agreement with CAI Wireless which gives each of
them the right (but not the obligation) to use, for specified charges, the
distribution systems of CAI Wireless to begin offering digital video programming
to customers.
Federal Regulation
On August 4, 1995, the U.S. House of Representatives passed a bill which
includes provisions that would open the telephone subsidiaries' local exchange
markets to competitors and would permit local exchange carriers, such as the
Company, to provide interLATA services and engage in manufacturing upon meeting
certain conditions. The Senate passed a similar bill in June of 1995. A
conference committee is expected to work through the differences between the two
bills in September and October of 1995. No definitive prediction can be made as
to whether or when such legislation will be enacted, the provisions thereof, or
the impact on the business or financial condition of the Company.
On April 28, 1995, the U.S. District Court, which administers the Modification
of Final Judgment (MFJ), granted the Regional Bell Operating Companies' (RBOCs)
joint motion for a waiver of the MFJ permitting them to provide interLATA
wireless telecommunications services. The Court's decision contained a number
of restrictions limiting the extent and manner in which the RBOCs may provide
interLATA wireless services. While the Company plans to comply with the
requirements of the Court's decision so that it may provide the services
authorized therein, it has appealed the decision to the U.S. Court of Appeals
for the District of Columbia Circuit.
In February 1995, the FCC issued an Order to Show Cause with respect to
certain findings contained in an independent audit of the network services
companies' 1988 and first quarter 1989 reported adjustments to the National
Exchange Carrier Association (NECA) interstate common line pool. On May 2, 1995,
the Company filed its response to the Show Cause Order, asserting that there is
no legal basis for the FCC to institute enforcement proceedings with respect to
these findings. Resolution of this matter is expected later in 1995.
17
<PAGE>
FCC Interim Price Cap Orders
On March 30, 1995, the FCC adopted its Report and Order approving an Interim
Price Cap Plan for interstate access charges. The Interim Plan, which was
effective August 1, 1995, replaces the Price Cap Plan that the FCC adopted in
1990.
Under the Interim Plan, the Company's Price Cap Index must be adjusted by an
inflation index (GDP-PI), less a fixed percentage, either 4.0%, 4.7% or 5.3%,
which is intended to reflect increases in productivity ("Productivity Factor").
Companies selecting the 4.0% or 4.7% Productivity Factor are required to reduce
future prices and share a portion of their interstate return in excess of
12.25%. Companies selecting the 5.3% Productivity Factor are also required to
reduce prices but are not required to share. The Interim Plan also provides for
a reduction in the Price Cap Index of 2.8% to adjust for what the FCC believes
was an underestimate in its calculation of the Productivity Factor in prior
years. The Interim Plan also eliminates the recovery of certain "exogenous"
cost changes, including changes in accounting costs that the FCC believes have
no economic consequences.
On March 30, 1995, the FCC also adopted an Order relating to the Price Cap
Plan requiring local exchange carriers to include in their calculation of
interstate earnings an adjustment to add back to revenues the amounts that were
required to be shared with ratepayers in the prior year. This adjustment, which
is effective for determination of sharing relating to earnings for 1994 and
subsequent years, increased 1994 calculated interstate returns for the purpose
of determining sharing amounts that were reflected in rate reductions that
became effective August 1, 1995.
On May 9, 1995, the Company filed its Transmittal of Interstate Rates as
required by the March 30, 1995 Orders. In the filing, the Company selected the
5.3% Productivity Factor for the August 1995 to June 1996 tariff period. The
rates included in the May 9, 1995 filing resulted in price decreases totaling
approximately $305 million on an annual basis. These price decreases include the
scheduled expiration of a temporary rate increase of approximately $98 million
on an annualized basis that was in effect from March 17, 1995 through July 31,
1995 to recover prior years "exogenous" postemployment benefit costs.
Approximately 80% of the remaining $207 million reduction results from
compliance with the Interim Plan. The remaining 20% represents reductions that
the Company was required to make under the prior Price Cap Plan. It is expected
that these price decreases will be partially offset by volume increases.
Bell Atlantic appealed the Orders to the Court of Appeals for the D.C. Circuit
and petitioned the Court for a stay of certain aspects of the Orders pending the
results of the appeals. On July 31, 1995, the Court of Appeals denied the
Company's request for a stay.
State Regulation
The ability of IXCs to offer intrastate intraLATA toll services is subject to
state regulation. Such competition is currently permitted in all of the
Company's state jurisdictions that provide intraLATA toll services, except
Virginia. In July 1995, the Virginia State Corporation Commission issued an
order permitting intraLATA toll competition in Virginia, beginning October 1,
1995. Increased competition from IXCs has resulted in a continued decline in
several components of the telephone subsidiaries' toll service revenues.
State regulatory commissions in Pennsylvania, New Jersey, West Virginia, and
Delaware have initiated proceedings to determine whether, and under what
conditions, to authorize presubscription for intraLATA toll services. Currently,
intraLATA toll calls default to the network services companies unless the
customer dials a five-digit access code to use an alternate carrier.
Presubscription would enable customers to make intraLATA toll calls using the
carrier of their choice without having to dial the five-digit access code. The
telephone subsidiaries' ability to offset the impact of presubscription, if
ordered, will depend, in part, upon the terms and conditions under which
presubscription for intraLATA toll services may be authorized, as well as the
telephone subsidiaries ability to offer interLATA services.
18
<PAGE>
- ----------------------------------------
Other Matters
- ----------------------------------------
Environmental Issues
The Company is subject to a number of environmental proceedings as a result of
the operations of its subsidiaries and shared liability provisions in the Plan
of Reorganization related to the MFJ. Certain of these environmental matters
relate to Superfund sites for which the Company's subsidiaries have been
designated as potentially responsible parties by the U.S. Environmental
Protection Agency or joined as third-party defendants in pending Superfund
litigation. Such designation or joinder 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 liabilities reflect 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 additional potential liability would not have a material
effect on the Company's results of operations or financial condition.
Subsequent Event - Formation of Wireless Partnership
As a result of the formation of the Bell Atlantic NYNEX Mobile partnership,
effective July 1, 1995, the Company will no longer include its domestic cellular
operations in operating revenues and expenses. The partnership, which is
controlled equally by Bell Atlantic and NYNEX, will be accounted for under the
equity method. Revenues and operating income related to Bell Atlantic's domestic
cellular operations were as follows:
<TABLE>
<CAPTION>
(Dollars in Millions)
----------------------------------
For the Three Months Ended June 30 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $332.7 $255.7
Operating Income 63.3 34.6
----------------------------------
For the Six Months Ended June 30
- --------------------------------
Revenues $620.0 $488.9
Operating Income 97.5 55.1
----------------------------------
</TABLE>
Revenues and operating income for the year ended December 31, 1994 were
$1,044.9 million and $112.2 million, respectively.
Coincident with, and as a condition to, the completion of the combination,
Bell Atlantic sold certain cellular properties in Massachusetts and Rhode Island
to SNET Cellular, Inc. The Company will record a pretax gain of approximately
$340 million (subject to post-closing adjustments) in the third quarter of 1995
on the sale of the cellular properties. For additional information on the
formation of the Bell Atlantic NYNEX Mobile partnership, see Note 4 to the
Condensed Consolidated Financial Statements.
19
<PAGE>
- ----------------------------------------
Financial Condition
- ----------------------------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
----------------------------------
For the Six Months Ended June 30 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From (Used In):
Operating Activities $1,837.7 $1,527.7
Investing Activities (1,863.7) (128.6)
Financing Activities (55.4) (1,292.3)
----------------------------------
</TABLE>
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization and the payment of dividends. Management expects
that presently foreseeable capital requirements will be financed primarily
through internally generated funds. Additional long-term debt and equity
financing may be needed to fund additional 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 use of derivatives by the Company is limited to managing risk that could
endanger the financing and operating flexibility of the Company, making cash
flows more stable over the long run, and achieving savings over traditional
means of financing. Derivative agreements are tied to a specific liability or
asset and hedge the related economic exposures. The use of these hedging
agreements has not had a material impact on the Company's financial condition or
results of operations. The Company does not use derivatives for speculative
purposes and has not hedged its accounting translation exposure to foreign
currency fluctuations relative to its net investment position in foreign
affiliates.
Cash Flows From Operating Activities
The Company's primary source of funds continued to be cash generated from
operations. Improved cash flows from operating activities during the first half
of 1995 resulted principally from strong operating income growth.
Cash Flows Used in Investing Activities
Capital expenditures continued to be the primary use of capital resources in
1995. During the six month period ended June 30, 1995, the Company invested
$1,341.1 million in its telecommunications core business to facilitate the
introduction of new products and services, enhance responsiveness to competitive
challenges and increase the operating efficiency and productivity of the
network. Further, capital spending in the cellular business during the first
half of 1995 was $152.4 million to support the continued expansion of the
wireless infrastructure. With the change in accounting for the Company's
domestic cellular operations to the equity method, future funding provided by
Bell Atlantic for the continued expansion of the domestic cellular network will
not be classified as capital expenditures, but will appear in the Consolidated
Statements of Cash Flows as investments in joint ventures and partnerships.
During the first half of 1995, the Company invested $367.5 million in joint
ventures and acquisitions including a $254.3 million investment in PCS PrimeCo
primarily to fund the purchase of PCS licenses, $40.5 million for the purchase
of cellular properties, and $72.7 million invested in other domestic and
international joint ventures.
During the first three months of 1995, the Company prefunded a trust with the
purchase of $135.0 million in short-term investments for the purpose of
compensating employees for vacation pay earned during 1994. Cash proceeds from
the sale of these short-term investments amounted to $32.5 million at the end of
June 1995.
20
<PAGE>
Cash proceeds from investing activities in the first six months of 1995 also
included approximately $85 million received in connection with a note receivable
resulting from the sale of substantially all of the Company's lease financing
business in 1994.
On July 1, 1995, the Company received $362.5 million in cash proceeds from the
sale of certain of its cellular properties (see Subsequent Event -Formation of
Wireless Partnership section). These cash proceeds were used principally to fund
the Company's proportionate share of PCS license fees.
Cash Flows Used in Financing Activities
Dividend payments in the first half of 1995, as in prior years, were also a
significant use of capital resources. The Company decreased its long-term debt
by $62.5 million and increased its short-term borrowings by $658.5 million
principally as a result of additional funding requirements for the vacation pay
and retiree health trusts, increased construction expenditures at the network
and wireless companies, and the financing of investments in joint ventures and
acquisitions including the purchase of PCS licenses.
As of June 30, 1995, 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 $1.9 billion of unsecured debt securities.
The Company's debt ratio was 60.0% at June 30, 1995 and 59.4% at December 31,
1994. The debt securities of Bell Atlantic's subsidiaries continue to be
accorded high ratings by primary rating agencies.
21
<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, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's 1995 Annual Meeting of Shareowners was held on April 28,
1995. At the meeting, the following items were submitted to a vote of
Shareowners.
(a) The following nominees were elected to serve on the Board of
Directors:
Name of Nominee Votes Cast For Votes Withheld
--------------- -------------- --------------
William W. Adams 340,224,797 7,888,246
William O. Albertini 340,281,745 7,831,298
Lawrence T. Babbio, Jr. 340,311,922 7,801,121
Thomas E. Bolger 340,254,611 7,858,432
Frank C. Carlucci 340,073,004 8,040,039
William G. Copeland 340,253,199 7,859,844
James G. Cullen 340,267,501 7,845,542
James H. Gilliam, Jr. 340,064,783 8,048,260
Thomas H. Kean 340,016,344 8,096,699
John C. Marous, Jr. 340,147,960 7,965,083
John F. Maypole 340,338,912 7,774,131
Joseph Neubauer 340,203,242 7,909,801
Thomas H. O'Brien 340,254,084 7,867,959
Rozanne L. Ridgway 340,114,232 7,998,811
Raymond W. Smith 339,378,689 8,734,354
Shirley Young 340,160,639 7,952,404
(b) The appointment of Coopers & Lybrand L.L.P. as independent
accountants of the Company for 1995 was ratified with 340,864,162 votes
for and 4,500,995 votes against.
(c) A management proposal to approve Amendments to the Bell Atlantic
Stock Compensation Plan for Outside Directors was approved with
303,346,124 votes for, 34,792,384 votes against and 9,974,535
abstentions.
(d) A shareowner proposal regarding additional disclosure of executive
officer compensation was defeated with 39,178,568 votes for, and
253,986,220 votes against.
(e) A shareowner proposal regarding the number of nominees for Director
was defeated with 30,606,767 votes for, and 261,788,504 votes against.
(f) A shareowner proposal regarding Directors' other board affiliations
was defeated with 44,289,973 votes for, and 245,419,314 votes against.
22
<PAGE>
(g) A shareowner proposal regarding outside Directors' pensions was
defeated with 76,589,431 votes for, and 215,379,475 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.
The Company's 1996 Annual Meeting of Shareowners will be held on April
26, 1996 in Wilmington, Delaware. For information regarding
requirements for the submission of shareowner proposals and director
nominations, see the Company's Proxy Statement dated February 28, 1995
or contact the Vice President-Corporate Secretary and Counsel, Bell
Atlantic Corporation, 1717 Arch Street, 32nd Floor, Philadelphia, PA
19103.
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.
27 Financial Data Schedule.
(b) Report on Form 8-K filed during the quarter ended June 30, 1995:
A Current Report on Form 8-K, dated April 21, 1995, was filed regarding
the Company's first quarter 1995 financial results.
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 10, 1995 By /s/ William O. Albertini
------------------------
William O. Albertini
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 7, 1995.
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,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net income..................................................... $ 447.1 $ 415.4
============ ============
Earnings Per Common Share
- -------------------------
Weighted average shares outstanding............................ 436,512,006 436,247,170
Incremental shares from assumed exercise of stock
options and payment of performance share awards............... 1,216,307 894,904
------------ ------------
Total shares................................................... 437,728,313 437,142,074
============ ============
Net income..................................................... $ 1.02 $ .95
============ ============
Fully Diluted Earnings Per Common Share*
- ----------------------------------------
Weighted average shares outstanding............................ 436,512,006 436,247,170
Incremental shares from assumed exercise of stock
options and payment of performance share awards............... 1,365,721 1,116,691
------------ ------------
Total shares................................................... 437,877,727 437,363,861
============ ============
Net income..................................................... $ 1.02 $ .95
============ ============
</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,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Income before extraordinary item............................... $ 861.6 $ 811.3
Extraordinary item............................................. -- (6.7)
------------ ------------
Net income..................................................... $ 861.6 $ 804.6
============ ============
Earnings Per Common Share
- ---------------------------
Weighted average shares outstanding............................ 436,446,888 436,273,254
Incremental shares from assumed exercise of stock
options and payment of performance share awards.............. 1,109,480 968,737
------------ ------------
Total shares................................................... 437,556,368 437,241,991
============ ============
Income before extraordinary item............................... $ 1.97 $ 1.86
Extraordinary item............................................. -- (.02)
------------ ------------
Net income..................................................... $ 1.97 $ 1.84
============ ============
Fully Diluted Earnings Per Common Share*
- ----------------------------------------
Weighted average shares outstanding............................ 436,446,888 436,273,254
Incremental shares from assumed exercise of stock
options and payment of performance share awards.............. 1,198,521 1,078,744
------------ ------------
Total shares................................................... 437,645,409 437,351,998
============ ============
Income before extraordinary item............................... $ 1.97 $ 1.86
Extraordinary item............................................. -- (.02)
------------ ------------
Net income..................................................... $ 1.97 $ 1.84
============ ============
</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, 1995
----------------
<S> <C>
Income before provision for income taxes.................................. $1,410.6
Equity in income of less than majority-owned subsidiaries................. (15.8)
Dividends from less than majority-owned subsidiaries...................... 5.8
Interest expense, including interest on capital lease obligations......... 296.3
Portion of rent expense representative of the interest factor............. 44.4
--------
Income, as adjusted....................................................... $1,741.3
========
Fixed charges:
Interest expense, including interest on capital lease obligations......... $ 296.3
Portion of rent expense representative of the interest factor............. 44.4
Capitalized interest...................................................... 30.3
Preferred stock dividend requirement...................................... 4.9
--------
Fixed charges............................................................. $ 375.9
========
Ratio of Earnings to Fixed Charges........................................ 4.63
========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND
THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 62
<SECURITIES> 103
<RECEIVABLES> 2,501
<ALLOWANCES> 193
<INVENTORY> 290
<CURRENT-ASSETS> 3,891
<PP&E> 34,852
<DEPRECIATION> 17,690
<TOTAL-ASSETS> 24,820
<CURRENT-LIABILITIES> 5,807
<BONDS> 6,743
<COMMON> 437
0
0
<OTHER-SE> 5,876
<TOTAL-LIABILITY-AND-EQUITY> 24,820
<SALES> 0
<TOTAL-REVENUES> 7,014
<CGS> 0
<TOTAL-COSTS> 5,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287
<INCOME-PRETAX> 1,411
<INCOME-TAX> 549
<INCOME-CONTINUING> 862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 862
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 0
</TABLE>
