<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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8606
Bell Atlantic Corporation
(Exact name of registrant as specified in its charter)
Delaware 23-2259884
(State of incorporation) (I.R.S. Employer
Identification No.)
1717 Arch Street
Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (215) 963-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
____ _____
At March 31, 1996, 437,676,716 shares of the registrant's Common Stock were
outstanding, after deducting 139,551 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 months ended March 31, 1996 and 1995............ 1
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995.......................... 2-3
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 1996 and 1995............ 4
Notes to Condensed Consolidated Financial Statements........... 5-6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 7-17
Part II. Other Information
1. Legal Proceedings................................................ 18
2. Changes in Securities............................................ 18
6. Exhibits and Reports on Form 8-K................................. 18
<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
March 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING REVENUES.................................. $ 3,207.6 $ 3,449.7
---------- ----------
OPERATING EXPENSES
Employee costs, including benefits and taxes........ 982.4 1,034.2
Depreciation and amortization....................... 628.9 667.7
Other............................................... 788.0 916.3
---------- ----------
2,399.3 2,618.2
---------- ----------
OPERATING INCOME.................................... 808.3 831.5
Equity in Income (Loss) of Affiliates............... 71.6 (6.7)
Other Income (Expense), Net......................... (2.3) 1.1
Interest Expense.................................... 120.8 138.9
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES............ 756.8 687.0
Provision for Income Taxes.......................... 286.3 272.5
---------- ----------
NET INCOME ......................................... $ 470.5 $ 414.5
========== ==========
PER COMMON SHARE
- ----------------
NET INCOME.......................................... $ 1.07 $ .95
========== ==========
Cash Dividends Declared............................. $ .72* $ .70
========== ==========
Weighted Average Number of Common Shares and
Equivalent Shares Outstanding (in millions)........ 440.2 437.4
========== ==========
</TABLE>
*Includes payment of $.005 per common share for redemption of rights under the
Company's Shareholder Rights Plan.
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents..................................... $ 56.8 $ 356.8
Short-term investments........................................ 130.0 --
Accounts receivable, net of allowances of $192.0 and $189.8... 2,285.9 2,386.0
Inventories................................................... 135.5 132.8
Prepaid expenses.............................................. 664.9 611.7
Other......................................................... 357.2 385.4
--------- ------------
3,630.3 3,872.7
--------- ------------
PLANT, PROPERTY AND EQUIPMENT................................. 33,712.0 33,553.8
Less accumulated depreciation................................. 17,946.3 17,632.5
--------- ------------
15,765.7 15,921.3
--------- ------------
INVESTMENTS IN AFFILIATES..................................... 3,070.6 2,950.5
OTHER ASSETS.................................................. 1,342.0 1,412.3
--------- ------------
TOTAL ASSETS.................................................. $23,808.6 $ 24,156.8
========= ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<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,
1996 1995
--------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year................................. $ 1,700.1 $ 1,930.2
Accounts payable and accrued liabilities...................... 2,657.3 2,723.5
Other......................................................... 731.7 719.3
--------- ------------
5,089.1 5,373.0
--------- ------------
LONG-TERM DEBT................................................ 6,164.5 6,407.2
--------- ------------
EMPLOYEE BENEFIT OBLIGATIONS.................................. 3,856.8 3,841.3
--------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes......................................... 1,193.8 1,213.9
Unamortized investment tax credits............................ 141.2 147.3
Other......................................................... 352.4 345.5
--------- ------------
1,687.4 1,706.7
--------- ------------
PREFERRED STOCK OF SUBSIDIARY................................. 145.0 145.0
--------- ------------
SHAREOWNERS' INVESTMENT
Preferred and Preference stock ($1 par value; none issued).... -- --
Common stock ($1 par value; 437,816,267 shares and
437,765,346 shares issued)................................... 437.8 437.8
Contributed capital.......................................... 5,510.5 5,506.4
Reinvested earnings........................................... 1,916.2 1,776.5
Foreign currency translation adjustment....................... (493.3) (515.9)
--------- ------------
7,371.2 7,204.8
Less common stock in treasury, at cost........................ 9.5 3.1
Less deferred compensation-employee stock ownership plans..... 495.9 518.1
--------- ------------
6,865.8 6,683.6
--------- ------------
TOTAL LIABILITIES AND SHAREOWNERS' INVESTMENT................. $23,808.6 $24,156.8
========= ============
</TABLE>
See Notes To Condensed Consolidated Financial Statements.
3
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................... $ 470.5 $ 414.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.............................................. 628.9 667.7
Equity in (income) loss of affiliates...................................... (71.6) 6.7
Dividends received from affiliates......................................... 29.6 3.9
Other items, net........................................................... 16.7 19.7
Changes in certain assets and liabilities, net of effects from
acquisition/disposition of businesses.................................... 95.9 (74.6)
---------- ----------
Net cash provided by operating activities.................................... 1,170.0 1,037.9
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments......................................... (130.0) (135.0)
Additions to plant, property and equipment................................... (459.4) (808.9)
Proceeds from sale of plant, property and equipment.......................... .2 .2
Investment in notes receivable and preferred stock........................... (.3) --
Proceeds from notes receivable............................................... 33.5 100.4
Acquisition of businesses, less cash acquired................................ (2.2) (25.0)
Investment in joint ventures................................................. (64.3) (85.1)
Other, net................................................................... 18.8 .5
---------- ----------
Net cash used in investing activities........................................ (603.7) (952.9)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings..................................................... -- 1.5
Principal repayments of borrowings and capital lease obligations............. (84.5) (123.1)
Net change in short-term borrowings with original
maturities of three months or less......................................... (381.7) 285.8
Dividends paid............................................................... (306.5) (301.0)
Proceeds from sale of common stock........................................... 43.5 12.6
Purchase of common stock for treasury........................................ (66.3) (5.6)
Net change in outstanding checks drawn on controlled disbursement accounts... (70.8) (39.5)
---------- ----------
Net cash used in financing activities........................................ (866.3) (169.3)
---------- ----------
(DECREASE) IN CASH AND CASH EQUIVALENTS...................................... (300.0) (84.3)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................... 356.8 142.9
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................... $ 56.8 $ 58.6
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<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, 1995 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, 1995.
2. Shareowners' Investment
-----------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
------------------------------------------------------------------------
Foreign
Currency Deferred
Common Contributed Reinvested Translation Treasury Compensation
Stock Capital Earnings Adjustment Stock ESOPs
------ ---------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995............. $437.8 $ 5,506.4 $ 1,776.5 $ (515.9) $ 3.1 $ 518.1
Net income............................. 470.5
Dividends declared on common stock
and redemption of stock rights........ (315.2)
Purchase of common stock for
treasury.............................. 66.3
Common stock issued:
Employee plans........................ -- 2.5 (16.5) (59.9)
Shareowner plans...................... -- 1.6
Foreign currency translation
adjustment, net....................... 22.6
Reduction of ESOP obligations.......... (22.2)
Tax benefit of dividends
paid to ESOPs......................... 2.0
Other.................................. (1.1)
------ ---------- ---------- ----------- -------- ------------
Balance, March 31, 1996................ $437.8 $ 5,510.5 $ 1,916.2 $ (493.3) $ 9.5 $ 495.9
====== ========== ========== =========== ======== ============
</TABLE>
During the three months ended March 31, 1996, the Company issued
approximately 27,000 shares of common stock for employee plans and approximately
24,000 shares of common stock for shareowner plans. During the same period, the
Company also repurchased approximately 944,000 shares of its common stock for
treasury, and distributed approximately 867,000 treasury shares for employee
plans.
On January 23, 1996, the Board of Directors adopted a resolution ordering
the redemption of all Rights granted under the Company's Shareholder Rights
Plan, approved by the Board in 1989. Shareholders of record as of April 10, 1996
were paid the redemption price of $.01 per Right ($.005 per share as a result of
a two-for-one stock split declared on March 16, 1990) on May 1, 1996.
5
<PAGE>
3. Formation of Wireless Partnership
---------------------------------
Effective July 1, 1995, Bell Atlantic and NYNEX Corporation (NYNEX)
completed the combination of substantially all of their domestic cellular and
paging businesses and the formation of a partnership, Bell Atlantic NYNEX
Mobile, which owns and operates such businesses. Bell Atlantic NYNEX Mobile
operates as a general partnership and is controlled equally by Bell Atlantic and
NYNEX. Bell Atlantic owns an approximate 62% equity interest in Bell Atlantic
NYNEX Mobile. The Company accounts for its interest in the partnership under the
equity method.
Revenues and expenses of the Company's domestic cellular and paging
businesses reflected in the financial statements for the period prior to the
formation of the partnership are as follows:
<TABLE>
<CAPTION>
Three months
ended March 31,
---------------
(Dollars in Millions) 1995
- --------------------------------------------------------------------------------
<S> <C>
Operating revenues........................................ $292.2
Operating expenses........................................ 258.0
-----------
Operating income.......................................... 34.2
Equity in income of unconsolidated affiliates............. 7.5
Other income, net......................................... .6
Interest expense.......................................... 6.5
-----------
Income before income taxes................................ $ 35.8
===========
</TABLE>
4. Long-Term Debt - Bell Atlantic Financial Services, Inc.
-------------------------------------------------------
Debt securities of Bell Atlantic Financial Services, Inc. (FSI)
(aggregating $691.3 million at March 31, 1996) 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 $4.3 billion at March 31, 1996.
5. Reclassifications
-----------------
Certain reclassifications of the prior year's data have been made to
conform to 1996 classifications.
6. Subsequent Event - Proposed Bell Atlantic-NYNEX Merger
------------------------------------------------------
On April 22, 1996, Bell Atlantic and NYNEX Corporation announced a proposed
merger of equals pursuant to a definitive merger agreement dated April 21, 1996,
that provides for the formation of a new company to be named Bell Atlantic
Corporation. Under the terms of the agreement, NYNEX shareholders will receive
one share in the new company for each NYNEX share owned and Bell Atlantic
shareholders will receive 1.302 shares in the new company for each Bell Atlantic
share owned. The merger, which is expected to qualify as a pooling of interests
for accounting purposes, is subject to a number of conditions, including
regulatory approvals, receipt of opinions that the merger will be tax free, and
the approval of the shareholders of both Bell Atlantic and NYNEX. The
transaction is expected to close within 12 months.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
- ----------------------------------------
Results of Operations
- ----------------------------------------
Net income for the three month period ended March 31, 1996 was $470.5
million or $1.07 per share compared to $414.5 million or $.95 per share for the
same period in 1995.
As a result of the formation of the Bell Atlantic NYNEX Mobile partnership,
effective July 1, 1995, the Company discontinued consolidation of the domestic
cellular and paging operations contributed to the partnership. The Company's
investment in the partnership is accounted for under the equity method. Under
this method, the Company's proportionate share of the partnership's pretax
income is included in Equity in Income of Affiliates. The Consolidated
Statements of Operations continue to reflect the results of Bell Atlantic's
domestic cellular and paging businesses on a consolidated basis for all periods
prior to July 1, 1995.
Revenues and expenses of the Company's domestic cellular and paging
businesses reflected in the financial statements for periods prior to the
formation of the partnership are provided in Note 3 to the Condensed
Consolidated Financial Statements.
To facilitate the comparison of financial results for purposes of the
Management's Discussion and Analysis, the net revenues and expenses of the
Company's domestic cellular and paging operations prior to July 1, 1995 are
classified in the statements of operations below as a component of Equity in
Income of Affiliates.
<TABLE>
<CAPTION>
(Dollars in Millions)
---------------------------------
For the Three Month Period Ended March 31 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES
Transport Services
Local service $1,139.7 $1,087.2
Network access 877.9 820.9
Toll service 369.6 367.0
Ancillary Services
Directory publishing 286.2 276.0
Other 131.6 136.8
Value-added Services 371.9 326.7
Other Services 30.7 156.3
---------------------------------
3,207.6 3,170.9
---------------------------------
OPERATING EXPENSES
Employee costs 982.4 990.9
Depreciation and amortization 628.9 628.7
Other 788.0 754.0
---------------------------------
2,399.3 2,373.6
---------------------------------
OPERATING INCOME 808.3 797.3
Equity in Income of Affiliates 71.6 21.6
Other Income (Expense), Net (2.3) .5
Interest Expense 120.8 132.4
---------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 756.8 687.0
Provision for Income Taxes 286.3 272.5
---------------------------------
NET INCOME $ 470.5 $ 414.5
=================================
</TABLE>
For the three month period ended March 31, 1995, previously eliminated
intercompany transactions aggregating $13.4 million are added back to both
operating revenues and operating expenses.
7
<PAGE>
In October 1995, the Company sold its domestic computer maintenance
subsidiary. Total operating revenues and expenses related to this business were
approximately $124 million and $118 million, respectively, for the three month
period ended March 31, 1995 and approximately $402 million and $392 million,
respectively, for the year ended December 31, 1995.
Other items affecting the comparison of the above operating results between
the three month periods ended March 31, 1996 and 1995 are discussed in the
following sections.
- ----------------------------------------
Transport Services Operating Statistics
- ----------------------------------------
<TABLE>
<CAPTION>
Percentage
1996 1995 Increase (Decrease)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At March 31
- -----------
Access Lines in Service (In thousands)
Residence 12,747 12,413 2.7%
Business 7,011 6,663 5.2
Public 275 278 (1.1)
-------------------------
20,033 19,354 3.5
=========================
<CAPTION>
1996 1995 Percentage Increase
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Three Month Period Ended March 31
- -----------------------------------------
Access Minutes of Use (In millions)
Interstate 16,128 14,616 10.3%
Intrastate 4,573 3,756 21.8
-------------------------
20,701 18,372 12.7
=========================
Toll Messages (In millions)
Intrastate 854.2 793.5 7.6%
Interstate 42.6 40.5 5.2
-------------------------
896.8 834.0 7.5
=========================
</TABLE>
- ----------------------------------------
Operating Revenues
- ----------------------------------------
(Dollars in Millions)
Local Service Revenues
1996-1995 Increase
- --------------------------------------------------------------------------------
First Quarter $52.5 4.8%
- --------------------------------------------------------------------------------
Local service revenues are earned by the operating telephone subsidiaries
from the provision of local exchange, local private line and public telephone
services.
Higher network usage increased local service revenues during the first
quarter of 1996. The increase in calling volumes principally resulted from
growth in the number of access lines in service, which increased 3.5% from March
31, 1995, reflecting higher demand for business and second residential lines.
Network Access Revenues
1996-1995 Increase
- --------------------------------------------------------------------------------
First Quarter $57.0 6.9%
- --------------------------------------------------------------------------------
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.
8
<PAGE>
Network access revenues increased due to higher customer demand for access
services, as reflected by growth in access minutes of use of 12.7% over the same
period in 1995. Revenue growth from volume increases was partially offset by the
net effect of price reductions under Federal Communications Commission's (FCC)
Price Cap Plans.
The net effect of price reductions is expected to have a larger negative
impact on reported revenues, relative to the same period last year, in the
second quarter of 1996. See also "Factors That May Impact Future Results - FCC
Interim Price Cap Plan" below for a discussion of the Company's proposed FCC
price cap filing, which would become effective during the third quarter of 1996.
Toll Service Revenues
1996-1995 Increase
- --------------------------------------------------------------------------------
First Quarter $2.6 .7%
- --------------------------------------------------------------------------------
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area of the Company's telephone
subsidiaries, commonly referred to as Local Access and Transport Areas
("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 increase in toll service revenues was caused by increased network
usage, partially attributable to severe winter storms in early 1996. Toll
message volumes increased by 7.5% over the first quarter of 1995. Revenue growth
from volume increases was substantially offset by company-initiated price
reductions on certain toll services. Volume growth continues to be negatively
impacted by increased competition throughout the region for intraLATA toll, WATS
and private line services.
The Company expects that competition for toll services will continue in
1996. See "Factors That May Impact Future Results" below for a further
discussion of toll service revenue issues.
Directory Publishing Revenues
1996-1995 Increase
- --------------------------------------------------------------------------------
First Quarter $10.2 3.7%
- --------------------------------------------------------------------------------
Directory publishing 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 publishing services
include database and foreign directory marketing.
Growth in directory publishing revenues was principally due to higher rates
charged for these services. Volume growth continues to be negatively impacted by
competition from other directory companies, as well as other advertising media.
Other Ancillary Services Revenues
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $(5.2) (3.8)%
- --------------------------------------------------------------------------------
Other ancillary services include systems integration services, billing and
collection services provided to IXCs, customer premises equipment distribution,
facilities rental services, and video services.
Other ancillary services revenues declined in the first quarter of 1996 due
to a reduction in billing and collection services principally as a result of the
elimination of certain services from a contract with an IXC. Revenues in 1996
were also negatively impacted by the timing of certain contracts for systems
integration services with the federal government.
Higher demand for customer premises equipment distribution services and
increases in the number of new contracts for systems integration services with
business customers continued to provide positive revenue growth for the Company
during the first quarter of 1996.
9
<PAGE>
Value-added Services Revenues
1996-1995 Increase
- --------------------------------------------------------------------------------
First Quarter $45.2 13.8%
- --------------------------------------------------------------------------------
Value-added services represent a family of services which expand the
utilization of the network. These services include recent products such as voice
messaging services, Caller ID and Return Call as well as more mature products
such as Centrex, Touch-Tone, and other customer premises wiring and maintenance
services.
The increase in value-added services revenues during the first quarter of
1996 was primarily attributable to continued growth in network customer base and
higher demand for certain central office and voice messaging services.
Other Services Revenues
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $(125.6) (80.4)%
- --------------------------------------------------------------------------------
Other services include revenues from the Company's computer maintenance,
telecommunications consulting and real estate businesses.
The decline in other services revenues was caused principally by the
disposition of the Company's domestic computer maintenance subsidiary in October
1995.
- ----------------------------------------
Operating Expenses
- ----------------------------------------
(Dollars in Millions)
Employee Costs
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $(8.5) (.9)%
- --------------------------------------------------------------------------------
Employee costs consist of salaries, wages, and other employee compensation,
employee benefits and payroll taxes.
Employee costs at the network operations subsidiaries increased in the
first quarter of 1996 by $35.8 million or 4.1%, compared with the same period in
1995. Employee costs at the Company's nonregulated subsidiaries decreased by
$44.3 million or 41.1% in the first quarter of 1996 over the corresponding
period in 1995.
The increase in employee costs at the network operations subsidiaries was
primarily due to annual salary and wage increases, as well as increased overtime
pay and repair and maintenance activity principally attributable to unusually
severe weather conditions in the first quarter of 1996. These cost increases
were partially offset by savings associated with lower work force levels in
1996.
Lower employee costs at the nonregulated subsidiaries in the first three
months of 1996 were due to a reduction in work force levels resulting primarily
from the disposition of the Company's domestic computer maintenance subsidiary
in the fourth quarter of 1995.
Depreciation and Amortization
1996-1995 Increase
- --------------------------------------------------------------------------------
First Quarter $.2 .03%
- --------------------------------------------------------------------------------
Depreciation and amortization expense at the network operations
subsidiaries for the first quarter of 1996 increased $11.1 million or 1.8%,
compared with the same period in 1995, principally due to growth in depreciable
telephone plant and changes in plant composition. This increase was somewhat
offset by lower rates of depreciation. The composite depreciation rate for the
network operations subsidiaries in the first quarter of 1996 was 7.7%, compared
to 7.8% for the three month period ended March 31, 1995.
10
<PAGE>
Depreciation and amortization expense at the nonregulated subsidiaries
decreased by $10.9 million or 53.2%, as compared to the corresponding three
month period of the prior year. The decrease was due primarily to a reduction in
depreciable assets resulting from the disposition of the Company's domestic
computer maintenance business.
Other Operating Expenses
1996-1995 Increase
- --------------------------------------------------------------------------------
First Quarter $34.0 4.5%
- --------------------------------------------------------------------------------
Other operating expenses consist primarily of contract services, rent,
network software costs, the provision for uncollectible accounts receivable and
other costs.
The increase in other operating expenses was largely due to the timing of
telephone network software purchases and additional costs incurred at the
network operations subsidiaries to enhance billing and operating systems,
consolidate work activities and market value-added services.
These cost increases were partially offset by lower expenses incurred at
the Company's nonregulated subsidiaries, principally attributable to the effect
of the disposition of the Company's domestic computer maintenance subsidiary.
Equity in Income of Affiliates
1996-1995 Increase
- --------------------------------------------------------------------------------
First Quarter $50.0
- --------------------------------------------------------------------------------
Equity in income of affiliates includes equity income and losses and
goodwill amortization related to the Company's investments in unconsolidated
businesses. For comparative purposes, the domestic cellular and paging
businesses for periods prior to July 1, 1995 are presented as though accounted
for under the equity method.
Equity in income from the Company's investment in domestic cellular and
paging businesses for the first quarter of 1996 was $77.4 million, compared to
$35.8 million for the same period last year. This increase was driven by strong
revenue growth resulting primarily from an annual growth rate of almost 42% in
the cellular subscriber base.
In the first quarter of 1996, improved operating results from the Company's
investment in Telecom Corporation of New Zealand Limited and the positive effect
of changes in the Mexican peso exchange rate related to certain components of
the Company's investment in Grupo Iusacell, S.A. de C.V. also contributed to the
increase in equity in income of affiliates. It is expected that the Company's
equity in income (loss) of Iusacell will continue to be subject to changes in
the peso exchange rate.
These increases were partially offset by higher equity losses associated
with the Company's investment in a multimedia joint venture, TELE-TV; a personal
communications services joint venture, PrimeCo Personal Communications L.P.; and
an international wireless joint venture, Omnitel-Pronto Italia.
Other Income (Expense), Net
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $(2.8)
- --------------------------------------------------------------------------------
Other income (expense), net, consists primarily of interest and dividend
income, and gains and losses from the disposition of subsidiaries and non-
operating assets and investments.
The change in other income (expense) was caused principally by a reduction
in interest income.
11
<PAGE>
Interest Expense
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $(11.6) (8.8)%
- --------------------------------------------------------------------------------
Lower levels of borrowings and lower interest rates on refinanced long-term
debt contributed to the reduction in the Company's interest expense during the
first quarter of 1996.
Provision for Income Taxes
1996-1995 Increase
- --------------------------------------------------------------------------------
First Quarter $13.8 5.1%
- --------------------------------------------------------------------------------
Effective Income Tax Rates
For the Three Months Ended March 31
- --------------------------------------------------------------------------------
1996 37.8%
- --------------------------------------------------------------------------------
1995 39.7%
- --------------------------------------------------------------------------------
The lower effective income tax rate in the first quarter of 1996, as
compared to the same period in 1995, was principally due to certain foreign
operations, which reduced consolidated pretax income without providing
corresponding tax benefits in the first quarter of 1995. The first quarter 1996
effective income tax rate was also reduced by the effect of a decrease in the
Pennsylvania state income tax rate, which was implemented in the second quarter
of 1995.
- ----------------------------------------
Factors That May Impact Future Results
- ----------------------------------------
Federal Legislation
The Telecommunications Act of 1996 (the "Act") became effective on February
8, 1996 and replaces the Modification of Final Judgment (MFJ). In general, the
Act includes provisions that would open the telephone subsidiaries' local
exchange market to competition and would permit local exchange carriers, such as
the Company, upon meeting certain conditions, to provide interLATA services
(long distance) and video programming and to engage in manufacturing. However,
the ability of the Company and its subsidiaries to engage in businesses
previously prohibited by the MFJ is largely dependent on satisfying certain
conditions contained in the Act and regulations promulgated thereunder. The
following is a brief discussion regarding certain provisions of the Act.
With regard to the rules governing competition in the interLATA market, the
Act takes a two-fold approach. Effective February 8, 1996, the Company is
permitted to apply for approval to offer interLATA services outside of the
geographic region in which it currently operates as a local exchange carrier.
The Company has announced its plans to offer such services in several states. In
addition, the Company's wireless businesses are now permitted to offer interLATA
services without having to comply with the conditions imposed in waivers granted
under the MFJ.
Secondly, within the Company's geographic region, each of the telephone
subsidiaries must demonstrate to the FCC that it has satisfied certain
requirements in order to be permitted to offer interLATA services within its
jurisdiction. Among the requirements with which a telephone subsidiary must
comply is a 14-point "competitive checklist" which is aimed at ensuring that
competitors have the ability to connect to the telephone subsidiary's network. A
telephone subsidiary must also demonstrate to the FCC that its entry into the
interLATA market would be in the public interest.
12
<PAGE>
The Act also imposes specific requirements on the telephone subsidiaries
that are intended to promote competition in the local exchange markets. These
requirements include the duty to: (i) provide interconnection to any other
carrier for the transmission and routing of telephone exchange service at any
technically feasible point; (ii) provide unbundled access to network elements at
any technically feasible point; (iii) provide retail services at wholesale
prices for resale; (iv) establish reciprocal compensation arrangements for the
origination and termination of telecommunications; and (v) provide physical
collocation.
No definitive prediction can be made as to the specific impact of the Act
on the business or financial condition of the Company. The financial impact on
the Company will be dependent on several factors, including the timing, extent
and success of competition in the Company's markets and the timing, extent and
success of the Company's pursuit of new business opportunities resulting from
the Act.
Competition
IntraLATA Toll Services
Competition to offer intrastate intraLATA toll services is currently
permitted in all of the Company's state jurisdictions where the telephone
subsidiaries provide intraLATA toll services. Increased competition from IXCs
has resulted in a decline in several components of the telephone subsidiaries'
toll service revenues.
Currently, intraLATA toll calls in all of such jurisdictions are completed
by the telephone subsidiaries unless the customer dials a five-digit access
code. Presubscription for intraLATA toll services would enable customers to make
intraLATA toll calls using another carrier without having to dial the five-digit
access code.
In general, the Act prohibits a state from requiring presubscription or
"dialing parity" until the earlier of such time as a local exchange carrier in
the state is authorized to provide long distance services within the state or
three years from the effective date of the Act. This prohibition does not apply
to a final order for presubscription that was issued on or prior to December 19,
1995.
During 1995, state regulatory commissions in Pennsylvania and West Virginia
ordered the telephone subsidiaries in those states to provide intraLATA
presubscription within eighteen months of the orders. However, the order in
Pennsylvania, dated December 14, 1995, stated that a reasonable effort should be
made to coordinate implementation of presubscription with Bell Atlantic -
Pennsylvania's entry into the interLATA market in Pennsylvania. Bell Atlantic -
West Virginia has filed an appeal of its presubscription order with the West
Virginia Supreme Court.
In New Jersey, the Board of Public Utilities (BPU) issued an order on
December 14, 1995 finding that implementation of presubscription for intraLATA
toll services in New Jersey would be in the public interest and proposed rules
for implementation. The BPU is expected to issue final rules in the second
quarter of 1996. On March 26, 1996, the Delaware Public Service Commission
(DPSC) considered the issue of implementation of presubscription and deferred
any decision for six months. A final decision by the DPSC is expected in the
fourth quarter of 1996. Bell Atlantic also expects to offer intraLATA
presubscription in its other state jurisdictions coincident with its offering of
in-region long distance service, as required by the Act.
Implementation of presubscription for intraLATA toll services could have a
material negative impact on toll service revenues, especially if the telephone
subsidiaries are not permitted contemporaneously to offer interLATA services.
The telephone subsidiaries' ability to offset the impact of presubscription will
depend, in part, upon how quickly the Company meets the requirements of the
"competitive checklist."
13
<PAGE>
Local Exchange Services
The ability to offer local exchange service has historically been subject
to regulation by state public utility commissions. In 1994 and 1995,
applications from competitors to provide and resell local exchange services were
approved by the Maryland Public Service Commission and the Pennsylvania Public
Utility Commission. In addition, applications from competitors to provide local
exchange services are pending in Delaware, Maryland, New Jersey and Virginia.
The Act is expected to significantly increase the level of competition in all of
the telephone subsidiaries' local exchange markets. However, increased
competition in the local exchange markets will facilitate FCC approval of the
telephone subsidiaries' entry into the interLATA markets.
FCC Interim Price Cap Plan
On April 2, 1996, the Company filed its Annual Access Tariff Filing of
Interstate Rates, as required by the FCC's Interim Price Cap Plan. In the
filing, the Company selected the 5.3% Productivity Factor for the July 1996 to
June 1997 tariff period. Companies selecting the 5.3% Productivity Factor are
not required to share earnings in excess of allowed rates of return. The
reduction in the price cap index resulting from the 5.3% Productivity Factor was
more than offset by the reversal of prior year exogenous rate reductions and the
FCC's partial annulment of ratemaking requirements related to the Company's
adoption of Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The rates included
in the April 2, 1996 filing propose actual price increases totaling
approximately $18 million on an annual basis, which would become effective
July 1, 1996.
In 1995, Bell Atlantic filed an appeal with the Court of Appeals for the
D.C. Circuit for review of the FCC's Interim Price Cap Plan. On March 29, 1996,
the U.S. Court of Appeals denied the Company's petition.
By the end of 1996, the Company expects the FCC to replace the Interim
Price Cap Plan for interstate access charges with a revised price cap plan.
Other State Regulatory Matters
In response to a proposed price cap plan filed by Bell Atlantic - Maryland
in December 1995, MCI Telecommunications, the Maryland Public Service Commission
Staff and the Office of People's Counsel, argued that Bell Atlantic - Maryland's
rates should be reduced by $85 million, over $100 million, and over $200
million, respectively. Bell Atlantic - Maryland has responded that its existing
rates are reasonable and there is no basis to reduce them. All of these issues
are being considered in a single evidentiary proceeding, which is expected to
conclude by mid-year 1996.
14
<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 the 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 situations 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 - Proposed Bell Atlantic - NYNEX Merger
On April 22, 1996, Bell Atlantic and NYNEX Corporation announced a proposed
merger of equals pursuant to a definitive merger agreement dated April 21, 1996,
that provides for the formation of a new company to be named Bell Atlantic
Corporation. Under the terms of the agreement, NYNEX shareholders will receive
one share in the new company for each NYNEX share owned and Bell Atlantic
shareholders will receive 1.302 shares in the new company for each Bell Atlantic
share owned. The merger, which is expected to qualify as a pooling of interests
for accounting purposes, is subject to a number of conditions, including
regulatory approvals, receipt of opinions that the merger will be tax free, and
the approval of the shareholders of both Bell Atlantic and NYNEX. The
transaction is expected to close within 12 months.
It is expected that the new combined company will recognize recurring
expense savings of approximately $600 million annually by the third year
following the closing as a result of consolidating operating systems and other
administrative functions and reducing work force levels. Of these savings, $300
million are expected to be achieved in the first year following the closing with
an additional $150 million in each of the two succeeding years. Transition and
integration charges of approximately $500 million are anticipated in the first
year following the completion of the merger. An additional $200 million to $400
million in charges are anticipated over the two succeeding years. Annual capital
expenditures for the new combined company should reflect approximately $250
million to $300 million of incremental purchasing efficiencies.
Information contained above with respect to the expected financial impact
of the proposed merger is forward-looking. These statements represent the
companies' reasonable judgment with respect to future events and are subject to
risks and uncertainties that could cause actual results to differ materially.
Such factors include: materially adverse changes in economic conditions in the
markets served by the companies; substantial delay in the expected closing of
the merger; and a significant change in the timing of when the companies expect
to be permitted to offer long distance services within their regions.
15
<PAGE>
- ----------------------------------------
Financial Condition
- ----------------------------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
---------------------------------
For the Three Months Ended March 31 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From (Used In):
Operating Activities $1,170.0 $1,037.9
Investing Activities (603.7) (952.9)
Financing Activities (866.3) (169.3)
=================================
</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.
In its definitive merger agreement with NYNEX, Bell Atlantic agreed,
pending closing of the merger, that its quarterly dividend payments will not
exceed $.72 per share through the February 1, 1997 payment date and $.74 per
share beginning with the May 1, 1997 payment date. The initial annual dividend
of the combined company is expected to be $2.36 per share. The exact amount of
future dividend payments will be determined by the boards of directors of the
respective companies.
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 trading
purposes.
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 three
months of 1996 resulted principally from improved accounts receivable
collections and timing differences in the payment of accounts payable.
Cash Flows Used in Investing Activities
Capital expenditures continued to be the primary use of capital resources
in 1996. During the three month period ended March 31, 1996, the Company
invested approximately $440 million, as compared to approximately $730 million
in the first quarter of 1995, in its network core businesses to facilitate the
introduction of new products and services, enhance responsiveness to competitive
challenges and increase the operating efficiency and productivity of the
network. The reduction in telephone plant additions in the first quarter of 1996
is principally due to the timing of construction plans.
During the first quarter of 1996 and 1995, the Company prefunded a trust
with the purchase of approximately $130 million and $135 million, respectively,
in short-term investments for the purpose of compensating employees for
vacation pay earned during the prior year.
Cash investing activities during the first three months of 1996 also
included additional investments of approximately $22 million in Omnitel-Pronto
Italia and approximately $20 million in PrimeCo Personal Communications L.P.
16
<PAGE>
Cash Flows Used in Financing Activities
Dividend payments in the first quarter of 1996 continued to be a
significant use of capital resources. During 1996, the Company also decreased
its long-term debt (including capital lease obligations) and short-term
borrowings by $472.8 million.
As of March 31, 1996, the Company and its subsidiaries had in excess of
$2.2 billion of unused bank lines of credit. The Company and its telephone
subsidiaries also have shelf registrations for the issuance of up to $1.9
billion of unsecured debt securities.
The Company's debt ratio was 53.4% at March 31, 1996 and 55.5% at December
31, 1995. The debt securities of Bell Atlantic's subsidiaries continue to be
accorded high ratings by primary rating agencies.
17
<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, 1995.
Item 2. Changes in Securities
---------------------
On January 23, 1996, the Board of Directors adopted a resolution
ordering the redemption of all Rights granted under the Company's
Shareholder Rights Plan, approved by the Board in 1989. Shareholders of
record as of April 10, 1996 were paid the redemption price of $.01 per
Right ($.005 per share as a result of a two-for-one stock split
declared on March 16, 1990) on May 1, 1996.
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) Reports on Form 8-K filed during the quarter ended March 31, 1996:
A Current Report on Form 8-K, dated January 23, 1996, was filed
regarding the Company's 1995 financial results.
A Current Report on Form 8-K, dated January 23, 1996, was filed
regarding the redemption of all rights granted under the Company's
Shareholder Rights Plan.
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 8, 1996 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 MAY 3, 1996.
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,
----------------------------
1996 1995
------------ -------------
<S> <C> <C>
Net income........................................... $ 470.5 $ 414.5
============ =============
Earnings Per Common Share
- -------------------------
Weighted average shares outstanding.................. 437,697,319 436,381,047
Incremental shares from assumed exercise of stock
options and payment of performance share awards.... 2,523,938 1,002,653
------------ -------------
Total shares......................................... 440,221,257 437,383,700
============ =============
Net income........................................... $ 1.07 $ .95
============ =============
Fully Diluted Earnings Per Common Share*
- ----------------------------------------
Weighted average shares outstanding.................. 437,697,319 436,381,047
Incremental shares from assumed exercise of stock
options and payment of performance share awards..... 2,523,938 1,031,322
------------ -------------
Total shares......................................... 440,221,257 437,412,369
============ =============
Net income........................................... $ 1.07 $ .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 12
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months ended
March 31, 1996
------------------
<S> <C>
Income before provision for income taxes........................... $ 756.8
Equity in income of less than majority-owned subsidiaries.......... (71.6)
Dividends from less than majority-owned subsidiaries............... 29.6
Interest expense, including interest on capital lease obligations.. 122.7
Portion of rent expense representative of the interest factor...... 22.2
------------
Income, as adjusted................................................ $ 859.7
============
Fixed charges:
Interest expense, including interest on capital lease obligations.. $ 122.7
Portion of rent expense representative of the interest factor...... 22.2
Capitalized interest............................................... 14.1
Preferred stock dividend........................................... 3.8
------------
Fixed charges...................................................... $ 162.8
============
Ratio of Earnings to Fixed Charges................................. 5.28
============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 57
<SECURITIES> 130
<RECEIVABLES> 2,478
<ALLOWANCES> 192
<INVENTORY> 136
<CURRENT-ASSETS> 3,630
<PP&E> 33,712
<DEPRECIATION> 17,946
<TOTAL-ASSETS> 23,809
<CURRENT-LIABILITIES> 5,089
<BONDS> 6,165
0
0
<COMMON> 438
<OTHER-SE> 6,428
<TOTAL-LIABILITY-AND-EQUITY> 23,809
<SALES> 0
<TOTAL-REVENUES> 3,208
<CGS> 0
<TOTAL-COSTS> 2,399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> 757
<INCOME-TAX> 286
<INCOME-CONTINUING> 471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 0
</TABLE>
