<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, 1996
OR
[X] 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 June 30, 1996, 437,771,463 shares of the registrant's Common Stock were
outstanding, after deducting 44,804 shares held in treasury.
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page
- -------- ----
<S> <C>
Part I. Financial Information
1. Financial Statements
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 1996 and 1995..... 2-3
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995........................... 4-5
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 1996 and 1995............... 6
Notes to Condensed Consolidated Financial Statements............ 7-8
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9-19
Part II. Other Information
1. Legal Proceedings................................................. 20
4. Submission of Matters to a Vote of Security Holders............... 20
6. Exhibits and Reports on Form 8-K.................................. 21
</TABLE>
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,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES............................... $ 3,259.5 $ 3,564.5
--------- ---------
OPERATING EXPENSES
Employee costs, including benefits and taxes..... 981.8 1,060.7
Depreciation and amortization.................... 638.8 681.7
Other............................................ 837.8 979.1
--------- ---------
2,458.4 2,721.5
--------- ---------
OPERATING INCOME................................. 801.1 843.0
Equity in Income of Affiliates................... 94.3 22.5
Other Income (Expense), Net...................... (2.1) 5.8
Interest Expense................................. 119.8 147.7
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES......... 773.5 723.6
Provision for Income Taxes....................... 279.2 276.5
--------- ---------
NET INCOME ...................................... $ 494.3 $ 447.1
========= =========
PER COMMON SHARE
- ----------------
NET INCOME....................................... $ 1.12 $ 1.02
========= =========
Cash Dividends Declared.......................... $ .72 $ .70
========= =========
Weighted Average Number of Common Shares and
Equivalent Shares Outstanding (in millions)..... 439.6 437.7
========= =========
</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,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES................................ $ 6,467.1 $ 7,014.2
--------- ---------
OPERATING EXPENSES
Employee costs, including benefits and taxes...... 1,964.2 2,094.9
Depreciation and amortization..................... 1,267.7 1,349.4
Other............................................. 1,625.8 1,895.4
--------- ---------
4,857.7 5,339.7
--------- ---------
OPERATING INCOME.................................. 1,609.4 1,674.5
Equity in Income of Affiliates.................... 165.9 15.8
Other Income (Expense), Net....................... (4.4) 6.9
Interest Expense.................................. 240.6 286.6
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES.......... 1,530.3 1,410.6
Provision for Income Taxes........................ 565.5 549.0
--------- ---------
NET INCOME ....................................... $ 964.8 $ 861.6
========= =========
PER COMMON SHARE
- ----------------
NET INCOME........................................ $ 2.19 $ 1.97
========= =========
Cash Dividends Declared........................... $ 1.44* $ 1.40
========= =========
Weighted Average Number of Common Shares and
Equivalent Shares Outstanding (in millions)...... 439.9 437.6
========= =========
</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.
3
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents....................................... $ 63.7 $ 356.8
Short-term investments.......................................... 97.5 --
Accounts receivable, net of allowances of $200.5 and $189.8..... 2,352.7 2,386.0
Inventories..................................................... 146.4 132.8
Prepaid expenses................................................ 670.4 611.7
Other........................................................... 304.3 385.4
--------- ------------
3,635.0 3,872.7
--------- ------------
PLANT, PROPERTY AND EQUIPMENT................................... 33,916.3 33,553.8
Less accumulated depreciation................................... 18,272.5 17,632.5
--------- ------------
15,643.8 15,921.3
--------- ------------
INVESTMENTS IN AFFILIATES....................................... 3,201.9 2,950.5
OTHER ASSETS.................................................... 1,315.0 1,412.3
--------- ------------
TOTAL ASSETS.................................................... $23,795.7 $ 24,156.8
========= ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
LIABILITIES AND SHAREOWNERS' INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year....................... $ 1,842.6 $ 1,930.2
Accounts payable and accrued liabilities............ 2,316.0 2,723.5
Other............................................... 747.8 719.3
---------- -------------
4,906.4 5,373.0
---------- -------------
LONG-TERM DEBT...................................... 6,130.6 6,407.2
---------- -------------
EMPLOYEE BENEFIT OBLIGATIONS........................ 3,865.9 3,841.3
---------- -------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes............................... 1,155.2 1,213.9
Unamortized investment tax credits................. 135.1 147.3
Other............................................... 368.8 345.5
---------- -------------
1,659.1 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................................. 5,510.7 5,506.4
Reinvested earnings................................. 2,095.7 1,776.5
Foreign currency translation adjustment............. (479.2) (515.9)
---------- -------------
7,565.0 7,204.8
Less common stock in treasury, at cost.............. 2.8 3.1
Less deferred compensation-employee stock ownership
plans.............................................. 473.5 518.1
---------- -------------
7,088.7 6,683.6
---------- -------------
TOTAL LIABILITIES AND SHAREOWNERS' INVESTMENT....... $ 23,795.7 $ 24,156.8
========== =============
</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,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 964.8 $ 861.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 1,267.7 1,349.4
Equity in income of affiliates........................ (165.9) (15.8)
Dividends received from affiliates.................... 60.9 5.8
Other items, net...................................... 35.7 46.3
Changes in certain assets and liabilities, net
of effects from acquisition/disposition of
businesses........................................... (279.0) (401.8)
--------- ---------
Net cash provided by operating activities............... 1,884.2 1,845.5
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments.................... (97.5) (102.5)
Additions to plant, property and equipment.............. (972.6) (1,522.6)
Proceeds from sale of plant, property and
equipment.............................................. 4.4 2.1
Investment in notes receivable and preferred
stock.................................................. (.3) (.7)
Proceeds from notes receivable.......................... 68.1 114.1
Acquisition of businesses, less cash acquired........... (2.2) (40.5)
Investment in joint ventures............................ (122.4) (327.0)
Other, net.............................................. 6.7 5.6
--------- ---------
Net cash used in investing activities................... (1,115.8) (1,871.5)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings................................ -- 106.6
Principal repayments of borrowings and capital
lease obligations...................................... (137.0) (220.3)
Net change in short-term borrowings with original
maturities of three months or less..................... (230.5) 682.3
Dividends paid.......................................... (621.6) (606.4)
Proceeds from sale of common stock...................... 58.2 20.7
Purchase of common stock for treasury................... (79.1) (5.6)
Net change in outstanding checks drawn on
controlled disbursement accounts....................... (51.5) (32.7)
--------- ---------
Net cash used in financing activities................... (1,061.5) (55.4)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS................... (293.1) (81.4)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......... 356.8 142.9
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $ 63.7 $ 61.5
========= =========
</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, 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.......................... 964.8
Dividends declared on common stock
and redemption of stock rights..... (630.4)
Purchase of common stock for
treasury........................... 79.1
Common stock issued:
Employee plans..................... -- 2.3 (19.3) (79.4)
Shareowner plans................... -- 1.6
Foreign currency translation
adjustment, net.................... 36.7
Reduction of ESOP obligations....... (44.6)
Tax benefit of dividends
paid to ESOPs...................... 4.1
Other............................... .4
------ ----------- ---------- ----------- -------- ------------
Balance, June 30, 1996.............. $437.8 $ 5,510.7 $ 2,095.7 $ (479.2) $ 2.8 $ 473.5
====== =========== ========== =========== ======== ============
</TABLE>
During the six months ended June 30, 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 1,145,000 shares of its common stock for treasury, and
distributed approximately 1,163,000 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.
7
<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 periods prior to the
formation of the partnership are as follows:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
(Dollars in Millions) 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues............................ $337.7 $629.9
Operating expenses............................ 274.0 532.0
----------------------------
Operating income.............................. 63.7 97.9
Equity in income of unconsolidated affiliates. 15.1 22.6
Other expenses, net........................... .7 .1
Interest expense.............................. 7.4 13.9
----------------------------
Income before income taxes.................... $ 70.7 $106.5
============================
</TABLE>
4. Long-Term Debt - Bell Atlantic Financial Services, Inc.
-------------------------------------------------------
Debt securities of Bell Atlantic Financial Services, Inc. (FSI)
(aggregating $638.6 million at June 30, 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 $4.4 billion at June 30, 1996.
5. Reclassifications
-----------------
Certain reclassifications of the prior year's data have been made to
conform to 1996 classifications.
6. Proposed Bell Atlantic-NYNEX Merger
-----------------------------------
Bell Atlantic and NYNEX Corporation have announced a proposed merger of
equals pursuant to a definitive merger agreement entered into on April 21, 1996,
and amended on July 2, 1996. Under the terms of the amended agreement, a newly-
formed subsidiary will merge with and into NYNEX, with NYNEX becoming a
subsidiary of Bell Atlantic, and each share of NYNEX common stock will be
converted into 0.768 shares of Bell Atlantic common stock. 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 by April
1997.
8
<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 June 30, 1996 was $494.3
million or $1.12 per share compared to $447.1 million or $1.02 per share for the
same period in 1995.
Net income for the six month period ended June 30, 1996 was $964.8 million
or $2.19 per share compared to $861.6 million or $1.97 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 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)
---------------------------------------
Three months Six months
-------------- --------------
For the Period Ended June 30 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Transport Services
Local service $1,179.4 $1,111.8 $2,319.1 $2,199.0
Network access 867.8 872.4 1,745.7 1,693.3
Toll service 350.1 359.3 719.7 726.3
Ancillary Services
Directory publishing 288.8 276.9 575.0 552.9
Other 148.4 139.9 280.0 276.7
Value-added Services 386.4 330.9 758.3 657.6
Other Services 38.6 150.2 69.3 306.5
---------------------------------------
3,259.5 3,241.4 6,467.1 6,412.3
---------------------------------------
OPERATING EXPENSES
Employee costs 981.8 1,014.8 1,964.2 2,005.7
Depreciation and amortization 638.8 642.1 1,267.7 1,270.8
Other 837.8 805.2 1,625.8 1,559.2
---------------------------------------
2,458.4 2,462.1 4,857.7 4,835.7
---------------------------------------
OPERATING INCOME 801.1 779.3 1,609.4 1,576.6
Equity in Income of Affiliates 94.3 78.1 165.9 99.7
Other Income (Expense), Net (2.1) 6.5 (4.4) 7.0
Interest Expense 119.8 140.3 240.6 272.7
---------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 773.5 723.6 1,530.3 1,410.6
Provision for Income Taxes 279.2 276.5 565.5 549.0
---------------------------------------
NET INCOME $ 494.3 $ 447.1 $ 964.8 $ 861.6
=======================================
</TABLE>
For the three and six month periods ended June 30, 1995, previously eliminated
intercompany transactions aggregating $14.6 million and $28.0 million,
respectively, are added back to both operating revenues and operating expenses.
9
<PAGE>
In October 1995, the Company sold its domestic computer maintenance
subsidiary. Total operating revenues and expenses related to this business were
approximately $123 million and $126 million, respectively, for the three month
period ended June 30, 1995, approximately $247 million and $244 million,
respectively, for the six month period ended June 30, 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 are
discussed in the following sections.
- ----------------------------------------
Transport Services Operating Statistics
- ----------------------------------------
<TABLE>
<CAPTION>
Percentage
1996 1995 Increase (Decrease)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At June 30
- ----------
Access Lines in Service (In thousands)
Residence 12,770 12,446 2.6%
Business 7,099 6,741 5.3
Public 276 279 (1.1)
--------------------------
20,145 19,466 3.5
==========================
</TABLE>
<TABLE>
<CAPTION>
Three months Six months Percentage Increase (Decrease)
-------------- ------------ ------------------------------
1996 1995 1996 1995 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 16,276 15,016 32,404 29,632 8.4% 9.4%
Intrastate 4,439 3,955 9,012 7,711 12.2 16.9
-------------------------------------
20,715 18,971 41,416 37,343 9.2 10.9
=====================================
Toll Messages (In millions)
Intrastate 828.8 832.6 1,683.1 1,626.1 (0.5)% 3.5%
Interstate 41.3 41.0 83.9 81.5 0.7 2.9
-------------------------------------
870.1 873.6 1,767.0 1,707.6 (0.4) 3.5
=====================================
</TABLE>
- ----------------------------------------
Operating Revenues
- ----------------------------------------
(Dollars in Millions)
Local Service Revenues
1996-1995 Increase
- --------------------------------------------------------------------------------
Second Quarter $67.6 6.1%
- --------------------------------------------------------------------------------
Six Months $120.1 5.5%
- --------------------------------------------------------------------------------
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 three and
six month periods ended June 30, 1996 compared to the same periods in the prior
year. Access lines in service increased 3.5% from June 30, 1995, reflecting
higher demand in the business market and additional residential lines.
Network Access Revenues
1996-1995 Increase (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $(4.6) (0.5)%
- --------------------------------------------------------------------------------
Six Months $52.4 3.1%
- --------------------------------------------------------------------------------
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
10
<PAGE>
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 decreased in the quarter ended June 30, 1996 due to
the net effect of price reductions under the Federal Communications Commission's
(FCC) Price Cap Plans which became effective during 1995. This decrease was
substantially offset through revenue increases due to volume growth in access
services as reflected by an increase in minutes of use of 9.2% over the same
period in 1995.
The year to date increase in network access revenues was due to higher
customer demand for access services, as reflected by growth in access minutes of
use of 10.9% over the same period in 1995. Revenue growth from volume increases
was partially offset by the net effect of price reductions under the FCC Price
Cap Plans.
It is expected that network access revenue growth in the second half of
1996 relative to the same period last year should be positively impacted by
continued strong volume growth and the net rate increases effective on July 20,
1996. See also "Factors That May Impact Future Results - FCC Interim Price Cap
Plan" below for a discussion of the Company's FCC price cap filing, which became
effective on July 20, 1996.
Toll Service Revenues
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $(9.2) (2.6)%
- --------------------------------------------------------------------------------
Six Months $(6.6) (0.9)%
- --------------------------------------------------------------------------------
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).
Company-initiated price reductions on certain toll services were the
primary reason for the decline in toll service revenues for both periods in
1996. Volume growth continues to be negatively impacted by increased competition
for intraLATA toll, WATS and private line services throughout the region.
The lower six month period revenue decrease reflects increased revenues
during the first quarter of 1996 principally attributable to severe winter storm
related volumes.
The Company expects competition for toll services to continue. See "Factors
That May Impact Future Results" below for a further discussion of toll service
revenue issues.
Directory Publishing Revenues
1996-1995 Increase
- --------------------------------------------------------------------------------
Second Quarter $11.9 4.3%
- --------------------------------------------------------------------------------
Six Months $22.1 4.0%
- --------------------------------------------------------------------------------
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 for the three and six month periods
ended June 30, 1996 compared to the corresponding periods in 1995 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.
11
<PAGE>
Other Ancillary Services Revenues
1996-1995 Increase
- --------------------------------------------------------------------------------
Second Quarter $8.5 6.1%
- --------------------------------------------------------------------------------
Six Months $3.3 1.2%
- --------------------------------------------------------------------------------
Other ancillary services include systems integration services, billing and
collection services provided to IXCs, customer premises equipment distribution,
facilities rental services, and video and information services.
Other ancillary services provided positive revenue growth for the Company
in both periods in 1996 due principally to increases in the number of new
contracts for systems integration services with business customers and higher
demand for customer premises equipment distribution services. These increases
were partially offset by a reduction in billing and collection services revenues
principally as a result of the elimination of certain services from a contract
with an IXC. The lower six month period revenue increase is largely attributable
to the first quarter negative impact of the completion of certain systems
integration contracts with the federal government.
Value-added Services Revenues
1996-1995 Increase
- --------------------------------------------------------------------------------
Second Quarter $55.5 16.8%
- --------------------------------------------------------------------------------
Six Months $100.7 15.3%
- --------------------------------------------------------------------------------
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 for both periods in 1996 was
primarily attributable to continued growth in the network customer base and
higher demand for certain central office and voice messaging services.
Other Services Revenues
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $(111.6) (74.3)%
- --------------------------------------------------------------------------------
Six Months $(237.2) (77.4)%
- --------------------------------------------------------------------------------
Other services include revenues from the Company's computer maintenance,
telecommunications consulting and real estate businesses.
The decline in other services revenues for both periods in 1996 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)
- --------------------------------------------------------------------------------
Second Quarter $(33.0) (3.3)%
- --------------------------------------------------------------------------------
Six Months $(41.5) (2.1)%
- --------------------------------------------------------------------------------
Employee costs consist of salaries, wages, and other employee compensation,
employee benefits and payroll taxes.
Employee costs at the network operations subsidiaries in the three and six
month periods ended June 30, 1996 increased $15.0 million or 1.7% and $50.8
million or 2.8%, respectively, compared with the same periods in 1995. Employee
costs at the Company's nonregulated subsidiaries in the three and six month
12
<PAGE>
periods ended June 30, 1996 decreased $48.0 million or 42.2% and $92.3 million
or 41.7%, respectively, over the corresponding periods in 1995.
The three month and six month increases in employee costs at the network
operations subsidiaries were primarily due to annual salary and wage increases,
as well as increased overtime pay and repair and maintenance activity
principally due to higher business volumes. Severe weather conditions in the
first quarter of 1996 also contributed to higher repair and maintenance activity
for the six month period. The effect of lower work force levels in 1996
substantially offset these increases.
Lower employee costs at the nonregulated subsidiaries in both the three and
six month periods were principally due to the disposition of the Company's
domestic computer maintenance subsidiary in October 1995. This decrease was
offset, in part, by work force increases at the Company's systems integration
subsidiaries and start-up businesses in video, information services and long
distance.
Depreciation and Amortization
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $(3.3) (0.5)%
- --------------------------------------------------------------------------------
Six Months $(3.1) (0.2)%
- --------------------------------------------------------------------------------
Depreciation and amortization expense at the network operations
subsidiaries for the three month and six month periods ended June 30, 1996
increased $6.0 million or 1.0% and $17.1 million or 1.4%, respectively, compared
with the same periods in 1995, principally due to growth in depreciable
telephone plant and changes in plant composition. The plant related increases
were substantially offset by lower rates of depreciation and amortization. The
composite depreciation rate for the network operations subsidiaries in the first
half of 1996 was 7.7%, compared to 7.9% for the six month period ended June 30,
1995.
Depreciation and amortization expense at the nonregulated subsidiaries for
the three month and six month periods ended June 30, 1996 decreased $9.3 million
or 46.5% and $20.2 million or 49.9%, respectively, as compared to the
corresponding periods 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 subsidiary.
Other Operating Expenses
1996-1995 Increase
- --------------------------------------------------------------------------------
Second Quarter $32.6 4.0%
- --------------------------------------------------------------------------------
Six Months $66.6 4.3%
- --------------------------------------------------------------------------------
Other operating expenses consist of contract services, rent, network
software costs, the provision for uncollectible accounts receivable and other
costs.
The increase in other operating expenses for both periods in 1996 was
largely due to additional costs incurred at the network operations subsidiaries
to upgrade network software, enhance billing and operating systems, market
value-added services and comply with the Telecommunications Act of 1996. The
Company has also incurred increased expenses in its systems integration
subsidiaries and start-up expenses for its long distance, information services
and video business ventures.
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
- --------------------------------------------------------------------------------
Second Quarter $16.2
- --------------------------------------------------------------------------------
Six Months $66.2
- --------------------------------------------------------------------------------
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
13
<PAGE>
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 three and six month periods ended June 30, 1996 was
$91.7 million and $169.1 million, respectively, compared to $70.7 million and
$106.5 million, respectively, for the same periods last year. These increases
were driven by strong revenue growth resulting primarily from an annual growth
rate of approximately 39% in the cellular subscriber base and improved operating
margins.
Also contributing to the increase during the first half of 1996 were
improved operating results from the Company's investment in Telecom Corporation
of New Zealand Limited and net foreign exchange gains and reduced amortization
expense related to the Company's investment in Grupo Iusacell, S.A. de C.V.
(Iusacell). The Company's equity in income (loss) of Iusacell will continue to
be subject to foreign exchange gains and losses due to fluctuations in the
Mexican peso exchange rate.
Higher equity losses associated with the Company's investments in several
start-up ventures such as a personal communications services joint venture,
PrimeCo Personal Communications L.P.; an international wireless joint venture,
Omnitel-Pronto Italia; and a multimedia joint venture, TELE-TV; partially offset
the increases in both periods.
Other Income (Expense), Net
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $(8.6)
- --------------------------------------------------------------------------------
Six Months $(11.4)
- --------------------------------------------------------------------------------
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) for both periods was caused
principally by a reduction in interest income.
Interest Expense
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $(20.5) (14.6)%
- --------------------------------------------------------------------------------
Six Months $(32.1) (11.8)%
- --------------------------------------------------------------------------------
Lower levels of borrowings and lower interest rates on refinanced long-term
debt contributed to the reduction in the Company's interest expense during 1996.
Provision for Income Taxes
1996-1995 Increase
- --------------------------------------------------------------------------------
Second Quarter $2.7 1.0%
- --------------------------------------------------------------------------------
Six Months $16.5 3.0%
- --------------------------------------------------------------------------------
Effective Income Tax Rates
For the Three Months Ended June 30
- --------------------------------------------------------------------------------
1996 36.1%
- --------------------------------------------------------------------------------
1995 38.2%
- --------------------------------------------------------------------------------
For the Six Months Ended June 30
- --------------------------------------------------------------------------------
1996 37.0%
- --------------------------------------------------------------------------------
1995 38.9%
- --------------------------------------------------------------------------------
The lower effective income tax rates for both periods in 1996 resulted
primarily from the effects of changes in certain unconsolidated foreign entity
results for which there are no corresponding tax benefits or expense. The change
in the rates was also impacted by adjustments to federal and state income taxes
at the network operations companies and state deferred income taxes associated
with the Company's leveraged lease portfolio.
14
<PAGE>
- ----------------------------------------
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 local exchange market to competition
and would permit local exchange carriers, such as the Company's operating
telephone subsidiaries, upon meeting certain conditions, to provide interLATA
services (long distance) and video programming and to engage in manufacturing.
However, the ability of the Company 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 Bell Atlantic
operating telephone subsidiaries and affiliates are permitted to apply for
approval to offer interLATA services outside of the geographic region in which
they currently operate as a local exchange carrier. As of July 31, 1996, a
subsidiary of Bell Atlantic has been marketing such services in three states
outside its region and plans to offer such services in several other states. In
addition, Bell Atlantic'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 Bell Atlantic's geographic region, the Company's operating
telephone subsidiaries must demonstrate to the FCC that they have 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 offer competitive local service, either through
resale, the purchase of unbundled network elements, or through their own
networks. The Company's operating telephone subsidiaries must also demonstrate
to the FCC that their entry into the interLATA market would be in the public
interest.
The Act also imposes specific requirements that are intended to promote
competition in the local exchange markets. These requirements (collectively
known as interconnection 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. The specific terms
under which the carriers interconnect are to be negotiated between those
carriers.
On August 1, 1996, the FCC adopted an order establishing guidelines for
implementation of the interconnection requirements set forth in the Act. The
FCC's guidelines set the parameters for rules and regulations that state
commissions have established, or will establish, to govern interconnection
agreements that are reached through state arbitrations, when negotiations fail.
The FCC stated that it plans to issue regulations regarding universal service
obligations and access charges in a subsequent order.
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, the timing, extent and
success of the Company's pursuit of new business opportunities resulting from
the Act and the provisions of the regulations to be issued by the FCC.
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
15
<PAGE>
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 with the West Virginia Supreme Court regarding
a presubscription order issued in October 1995.
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. On June 19, 1996, the BPU stated that it would require
presubscription nine months after the date that it publishes its final rules.
The Delaware Public Service Commission (DPSC) stated on March 26, 1996, that it
would defer issuing a decision regarding implementation of presubscription 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."
Local Exchange Services
The ability to offer local exchange services has historically been subject
to regulation by state public utility commissions. Applications from competitors
to provide and resell local exchange services have been approved in the District
of Columbia, Delaware, Maryland, New Jersey, Pennsylvania and Virginia.
Legislation is pending in the District of Columbia which would spur local
exchange competition and is expected to become law by the end of 1996.
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
As required by the FCC's Interim Price Cap Plan, the Company filed its
Annual Access Tariff Filing of Interstate Rates on April 2, 1996 and amended the
filing on June 27, 1996. 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 June 27,
1996 filing resulted in actual price increases totaling approximately $21
million on an annual basis, which became effective on July 20, 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.
16
<PAGE>
Before the 1997 Annual Access Tariff Filing, 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 later in 1996.
- ---------------------------------------
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.
Proposed Bell Atlantic - NYNEX Merger
Bell Atlantic and NYNEX Corporation have announced a proposed merger of
equals pursuant to a definitive merger agreement entered into on April 21, 1996,
and amended on July 2, 1996. Under the terms of the amended agreement, a newly-
formed subsidiary will merge with and into NYNEX, with NYNEX becoming a
subsidiary of Bell Atlantic, and each share of NYNEX common stock will be
converted into 0.768 shares of Bell Atlantic common stock. 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 by April
1997.
As a result of the merger, the merged companies will incur certain
transition costs, currently estimated at $700 million to $900 million (pretax),
in connection with consummating the transaction and integrating the operations
of Bell Atlantic and NYNEX. The transition costs consist principally of
professional and registration fees, systems modification costs, costs associated
with the elimination and consolidation of duplicate facilities and employee
severance and relocation resulting from the merger. While the exact timing,
nature and amount of these transaction costs is subject to change, the Company
anticipates that a one-time pretax charge of approximately $200 million for the
direct incremental merger related costs will be recorded in the quarter in which
the merger is consummated.
In addition to the one-time pretax charge of approximately $200 million for
direct incremental merger costs, the Company also expects to record a one-time
charge for severance costs in the quarter in which the merger is consummated.
Such pretax charge is currently estimated to be in the range of $200 million
17
<PAGE>
to $300 million. The amount of the charge will vary depending on a number of
factors including: (i) the number of employees that will be terminated under
severance arrangements, (ii) the timing of employee terminations, and (iii)
changes, if any, to severance plan provisions.
It is expected that the new combined company will recognize recurring
expense savings of approximately $600 million annually by the third year
following the consummation of the merger as a result of consolidating operating
systems and other administrative functions and reducing management positions. Of
these savings, $300 million are expected to be achieved in the first year
following the consummation of the merger with an additional $150 million in each
of the two succeeding years. Incremental savings in annual capital expenditures
for the new combined company should grow to approximately $250 million to $300
million, including efficiencies relating to purchasing, marketing trials and
equipment testing.
Cautionary Statement Concerning Forward-Looking Statements
Information contained above with respect to the expected financial impact
of the proposed merger is forward-looking and subject to risks and
uncertainties. For those statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. The following important factors could affect the future
results of the new combined company and could cause those results to differ
materially from those expressed in the forward-looking statements: materially
adverse changes in economic conditions in the markets served by the companies; a
significant delay in the expected closing of the merger; future regulatory
actions and conditions in both the companies' operating areas; competition from
others in the local telephone and toll service markets; and the timing of entry
and profitability of the new combined company in the long-distance market.
18
<PAGE>
- ---------------------------------------
Financial Condition
- ---------------------------------------
<TABLE>
<CAPTION>
(Dollars in Millions)
-----------------------------------
For the Six Months Ended June 30 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From (Used In):
Operating Activities $ 1,884.2 $ 1,845.5
Investing Activities (1,115.8) (1,871.5)
Financing Activities (1,061.5) (55.4)
===================================
</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 $3.08 per share.
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 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 six month period ended June 30, 1996, the Company invested
approximately $940 million, as compared to approximately $1,340 million in the
first half 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 capital expenditures in the first half of 1996 is
principally due to the timing of construction plans. The Company expects that
capital expenditures for 1996 will be approximately $2.5 billion.
During the first half 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 six months of 1996 included
additional investments of approximately $22 million in Omnitel-Pronto Italia and
approximately $63 million in PrimeCo Personal Communications L.P.
19
<PAGE>
Cash Flows Used in Financing Activities
Dividend payments in the first half 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 $364.2
million.
For the six months ended June 30, 1996, short-term borrowings decreased by
approximately $231 million reflecting lower levels of construction funding while
in the corresponding period in 1995 short-term borrowings increased by
approximately $682 million primarily to fund the Company's investment in PrimeCo
Personal Communications L.P.
As of June 30, 1996, the Company and its subsidiaries had in excess of $2.3
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 52.9% at June 30, 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.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
For background concerning the Company's contingent liabilities under
the Plan of Reorganization governing the divestiture by AT&T Corp.
(formerly American Telephone and Telegraph Company) of certain assets
of the former Bell System Operating Companies with respect to private
actions relating to pre-divestiture events, including pending antitrust
cases, see Item 3 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's 1996 Annual Meeting of Shareowners was held on April 26,
1996. 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:
<TABLE>
<CAPTION>
Name of Nominee Votes Cast For Votes Withheld
--------------- -------------- --------------
<S> <C> <C>
William W. Adams 346,643,102 8,038,860
William O. Albertini 346,337,722 8,344,240
Lawrence T. Babbio, Jr. 346,050,145 8,631,817
Thomas E. Bolger 345,466,996 9,214,966
Frank C. Carlucci 343,864,840 10,817,122
James G. Cullen 346,194,756 8,487,206
James H. Gilliam, Jr. 346,369,500 8,312,462
Thomas H. Kean 345,956,508 8,725,454
John F. Maypole 346,650,239 8,031,723
Joseph Neubauer 346,700,636 7,981,326
Thomas H. O'Brien 346,756,503 7,925,459
Eckhard Pfeiffer 345,675,542 8,006,420
Rozanne L. Ridgway 345,340,147 9,341,815
Raymond W. Smith 343,685,667 10,996,295
Shirley Young 346,553,436 8,128,526
</TABLE>
(b) The appointment of Coopers & Lybrand L.L.P. as independent
accountants of the Company for 1996 was ratified with 347,081,742 votes
for and 5,028,354 votes against.
(c) A management proposal to approve Amendments to the Bell Atlantic
Stock Compensation Plan for Outside Directors was approved with
313,001,168 votes for, 33,617,714 votes against and 8,063,080
abstentions.
(d) A shareowner proposal regarding additional disclosure of executive
officer compensation was defeated with 43,059,493 votes for, and
259,933,134 votes against.
(e) A shareowner proposal regarding Directors' annual meeting
attendance was defeated with 74,657,719 votes for, and 227,262,610
votes against.
(f) A shareowner proposal regarding executive incentive compensation
was defeated with 47,109,113 votes for, and 255,293,747 votes against.
(g) A shareowner proposal regarding Directors' other board affiliations
was defeated with 42,267,500 votes for, and 257,273,684 votes against.
21
<PAGE>
With respect to item (b) and items (d) through (g) above, abstentions
and broker non-votes are not counted in the vote totals in accordance
with the Company's by-laws and, therefore, have no effect on the vote.
With respect to item (c) above, abstentions and broker non-votes are
counted in the vote totals in accordance with Securities and Exchange
Commission rules and have the same effect as a vote against.
Item 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 June 30, 1996:
A Current Report on Form 8-K, dated April 18, 1996, was filed regarding
the Company's first quarter 1996 financial results.
A Current Report on Form 8-K, dated April 21, 1996, was filed regarding
(i) the Agreement and Plan of Merger, dated as of April 21, 1996, by
and among Bell Atlantic Corporation, NYNEX Corporation and Seaboard
Merger Company, and (ii) the Joint Press Release, dated April 22, 1996,
issued by Bell Atlantic Corporation and NYNEX Corporation.
22
<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 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 AUGUST 5, 1996.
23
<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,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net income......................................... $ 494.3 $ 447.1
============ ============
Earnings Per Common Share
- -------------------------
Weighted average shares outstanding................ 437,751,400 436,512,006
Incremental shares from assumed exercise of stock
options and payment of performance share awards... 1,804,543 1,216,307
------------ ------------
Total shares....................................... 439,555,943 437,728,313
============ ============
Net income......................................... $ 1.12 $ 1.02
============ ============
Fully Diluted Earnings Per Common Share*
- ----------------------------------------
Weighted average shares outstanding................ 437,751,400 436,512,006
Incremental shares from assumed exercise of stock
options and payment of performance share awards.. 1,909,055 1,365,721
------------ ------------
Total shares....................................... 439,660,455 437,877,727
============ ============
Net income......................................... $ 1.12 $ 1.02
============ ============
</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,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net income......................................... $ 964.8 $ 861.6
============ ============
Earnings Per Common Share
- -------------------------
Weighted average shares outstanding................ 437,724,359 436,446,888
Incremental shares from assumed exercise of stock
options and payment of performance share awards... 2,164,240 1,109,480
------------ ------------
Total shares....................................... 439,888,599 437,556,368
============ ============
Net income......................................... $ 2.19 $ 1.97
============ ============
Fully Diluted Earnings Per Common Share*
- ----------------------------------------
Weighted average shares outstanding................ 437,724,359 436,446,888
Incremental shares from assumed exercise of stock
options and payment of performance share awards.. 2,216,496 1,198,521
------------ ------------
Total shares....................................... 439,940,855 437,645,409
============ ============
Net income......................................... $ 2.19 $ 1.97
============ ============
</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, 1996
-------------------
<S> <C>
Income before provision for income taxes.................... $ 1,530.3
Equity in income of less than majority-owned subsidiaries... (165.9)
Dividends from less than majority-owned subsidiaries........ 60.9
Interest expense, including interest on capital lease
obligations................................................ 244.7
Portion of rent expense representative of the interest
factor..................................................... 43.6
------------
Income, as adjusted......................................... $ 1,713.6
============
Fixed charges:
Interest expense, including interest on capital lease
obligations................................................ $ 244.7
Portion of rent expense representative of the interest
factor..................................................... 43.6
Capitalized interest........................................ 27.2
Preferred stock dividend.................................... 7.5
------------
Fixed charges............................................... $ 323.0
============
Ratio of Earnings to Fixed Charges.......................... 5.31
============
</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, 1996 AND
THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 64
<SECURITIES> 98
<RECEIVABLES> 2,553
<ALLOWANCES> 200
<INVENTORY> 146
<CURRENT-ASSETS> 3,635
<PP&E> 33,916
<DEPRECIATION> 18,272
<TOTAL-ASSETS> 23,796
<CURRENT-LIABILITIES> 4,906
<BONDS> 6,131
0
0
<COMMON> 438
<OTHER-SE> 6,651
<TOTAL-LIABILITY-AND-EQUITY> 23,796
<SALES> 0
<TOTAL-REVENUES> 6,467
<CGS> 0
<TOTAL-COSTS> 4,858
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 241
<INCOME-PRETAX> 1,530
<INCOME-TAX> 565
<INCOME-CONTINUING> 965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 965
<EPS-PRIMARY> 2.19
<EPS-DILUTED> 0
</TABLE>
