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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(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, 1998
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.)
1095 AVENUE OF THE AMERICAS 10036
NEW YORK, NEW YORK (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER (212) 395-2121
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, 1998, 1,552,381,264 shares of the registrant's Common Stock were
outstanding, after deducting 23,865,060 shares held in treasury (adjusted to
reflect a two-for-one split on June 1, 1998).
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Items 1 and 2 of Part I of the Company's quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 are amended to reflect the two-for-one split of the
Company's common stock declared by the Board of Directors on May 1, 1998 and
payable on June 29, 1998 to shareowners of record on June 1, 1998.
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Part I - Financial Information
- ------------------------------------
Item 1. Financial Statements
- --------------------------------------------------------------------------------
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
OPERATING REVENUES...................................... $7,651.1 $7,416.5
-------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes............ 2,304.4 2,470.1
Depreciation and amortization........................... 1,410.5 1,371.3
Taxes other than income................................. 371.9 395.0
Other................................................... 1,852.3 1,721.6
-------- --------
5,939.1 5,958.0
-------- --------
OPERATING INCOME........................................ 1,712.0 1,458.5
Income (Loss) from Unconsolidated Businesses............ 22.8 (34.7)
Other Income and (Expense), Net......................... 13.8 9.6
Interest Expense........................................ 310.0 329.5
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEM..................................... 1,438.6 1,103.9
Provision for Income Taxes.............................. 529.0 405.7
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM........................ 909.6 698.2
EXTRAORDINARY ITEM
Extinguishment of debt, net of tax..................... (16.2) ---
-------- --------
NET INCOME.............................................. 893.4 698.2
Redemption of investee preferred stock.................. (2.5) ---
-------- --------
Net income available to common shareowners.............. $ 890.9 $ 698.2
======== ========
BASIC EARNINGS PER COMMON SHARE*
Income before extraordinary item........................ $ .58 $ .45
Extraordinary item...................................... (.01) ---
-------- --------
Net Income.............................................. $ .57 $ .45
======== ========
Weighted-average shares outstanding (in millions)....... 1,553.0 1,551.5
======== ========
DILUTED EARNINGS PER COMMON SHARE*
Income before extraordinary item........................ $ .57 $ .45
Extraordinary item...................................... (.01) ---
-------- --------
Net Income.............................................. $ .56 $ .45
======== ========
Weighted-average shares - diluted (in millions)......... 1,578.6 1,565.2
======== ========
See Notes to Condensed Consolidated Financial Statements.
* For the purposes of computing earnings per share amounts, income before
extraordinary item and net income have been reduced by the amount of the
premium paid on the redemption of preferred stock by an equity investee. All
share and per share amounts have been adjusted to reflect a two-for-one stock
split on June 1, 1998.
1
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BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions)
- ------------------------------------
Assets
- ------------------------------------
March 31, December 31,
1998 1997
--------- ------------
CURRENT ASSETS
Cash and cash equivalents.............................. $ 403.9 $ 322.8
Short-term investments................................. 746.1 720.6
Accounts receivable, net of allowances of $617.4 and
$611.9............................................... 6,277.6 6,340.8
Inventories............................................ 544.5 550.3
Prepaid expenses....................................... 773.2 634.0
Other.................................................. 500.7 432.3
--------- ------------
9,246.0 9,000.8
--------- ------------
PLANT, PROPERTY AND EQUIPMENT.......................... 78,654.7 77,437.2
Less accumulated depreciation.......................... 43,308.2 42,397.8
--------- ------------
35,346.5 35,039.4
--------- ------------
INVESTMENTS IN UNCONSOLIDATED BUSINESSES............... 5,106.7 5,144.2
OTHER ASSETS........................................... 4,615.1 4,779.7
--------- ------------
TOTAL ASSETS........................................... $54,314.3 $ 53,964.1
========= ============
See Notes to Condensed Consolidated Financial Statements.
2
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BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
- -----------------------------------------------
Liabilities and Shareowners' Investment
- -----------------------------------------------
March 31, December 31,
1998 1997
---------- ------------
CURRENT LIABILITIES
Debt maturing within one year...................... $ 4,551.8 $ 6,342.8
Accounts payable and accrued liabilities........... 5,628.0 5,966.4
Other.............................................. 1,300.3 1,355.0
---------- ------------
11,480.1 13,664.2
---------- ------------
LONG-TERM DEBT..................................... 15,678.9 13,265.2
---------- ------------
EMPLOYEE BENEFIT OBLIGATIONS....................... 10,042.7 10,004.4
---------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes.............................. 2,145.3 2,106.2
Unamortized investment tax credits................. 243.5 250.7
Other.............................................. 767.0 772.6
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3,155.8 3,129.5
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MINORITY INTEREST, INCLUDING A PORTION SUBJECT TO
REDEMPTION REQUIREMENTS.......................... 918.6 911.2
---------- ------------
PREFERRED STOCK OF SUBSIDIARY...................... 200.5 200.5
---------- ------------
SHAREOWNERS' INVESTMENT
Series preferred stock ($.10 par value; none
issued)........................................... --- ---
Common stock ($.10 par value; 1,576,246,324 shares
and 1,576,052,790 shares issued)*................. 157.6 157.6
Contributed capital*............................... 13,270.8 13,176.8
Reinvested earnings................................ 1,325.5 1,261.6
Accumulated other comprehensive loss............... (648.7) (553.3)
---------- ------------
14,105.2 14,042.7
Less common stock in treasury, at cost............. 637.5 590.5
Less deferred compensation - employee stock
ownership plans.................................. 630.0 663.1
---------- ------------
12,837.7 12,789.1
---------- ------------
TOTAL LIABILITIES AND SHAREOWNERS' INVESTMENT...... $ 54,314.3 $ 53,964.1
========== ============
* Adjusted to reflect a two-for-one stock split on June 1, 1998.
See Notes to Condensed Consolidated Financial Statements.
3
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BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareowners' Investment
(Unaudited)
(Dollars in Millions and Shares in Thousands)
Three Months Ended
March 31, 1998
------------------
COMMON STOCK* Shares Amount
------ ---------
Balance at beginning of period....................... 1,576,053 $ 157.6
Shares issued:
Employee plans.................................... 193 ---
Shareowner plans.................................. --- ---
--------- ---------
Balance at end of period............................. 1,576,246 157.6
--------- ---------
CONTRIBUTED CAPITAL*
Balance at beginning of period....................... 13,176.8
Shares issued:
Employee plans.................................... 90.6
Other................................................ 3.4
---------
Balance at end of period............................. 13,270.8
---------
REINVESTED EARNINGS
Balance at beginning of period....................... 1,261.6
Net income........................................... 893.4
Dividends declared................................... (598.2)
Shares issued:
Employee plans.................................... (231.8)
Tax benefit of dividends paid to ESOPs............... 3.0
Redemption of investee preferred stock............... (2.5)
---------
Balance at end of period............................. 1,325.5
---------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of period....................... (553.3)
Foreign currency translation adjustments, net of tax. (102.1)
Unrealized gains on securities, net of tax........... 6.7
---------
Balance at end of period............................. (648.7)
---------
TREASURY STOCK*
Balance at beginning of period....................... 22,952 590.5
Shares purchased..................................... 12,731 605.0
Shares distributed:
Employee plans.................................... (11,792) (556.8)
Shareowner plans.................................. (26) (1.2)
--------- ---------
Balance at end of period............................. 23,865 637.5
--------- ---------
DEFERRED COMPENSATION - ESOPs
Balance at beginning of period....................... 663.1
Amortization......................................... (33.1)
---------
Balance at end of period............................. 630.0
---------
Total Shareowners' Investment........................ $12,837.7
=========
*Adjusted to reflect a two-for-one stock split on June 1, 1998.
See Notes to Condensed Consolidated Financial Statements.
4
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BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Millions)
Three Months Ended
March 31,
------------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 893.4 $ 698.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 1,410.5 1,371.3
Extraordinary item, net of tax............... 16.2 ---
(Income) loss from unconsolidated businesses. (22.8) 34.7
Dividends received from unconsolidated
businesses.................................. 53.8 49.2
Amortization of unearned lease income........ (29.5) (25.8)
Deferred income taxes, net................... 55.7 (15.3)
Investment tax credits....................... (7.2) (10.6)
Other items, net............................. 60.2 126.5
Changes in certain assets and liabilities,
net of effects from acquisition/disposition
of businesses............................... (227.5) (264.7)
--------- ---------
Net cash provided by operating activities...... 2,202.8 1,963.5
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments........... (17.3) (37.6)
Additions to plant, property and equipment..... (1,659.3) (1,448.2)
Proceeds from sale of plant, property and
equipment..................................... .2 .5
Investment in leased assets.................... (1.5) (9.4)
Proceeds from leasing activities............... 49.8 32.1
Investment in notes receivable................. --- (9.6)
Proceeds from notes receivable................. 2.2 4.0
Proceeds from Telecom Corporation of New
Zealand Limited share repurchase plan......... --- 21.9
Investments in unconsolidated businesses, net.. (128.3) (165.4)
Proceeds from disposition of businesses........ 3.8 ---
Other, net..................................... 35.2 (82.2)
--------- ---------
Net cash used in investing activities.......... (1,715.2) (1,693.9)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings....................... 2,642.4 69.9
Principal repayments of borrowings and capital
lease obligations............................. (36.1) (85.5)
Early extinguishment of debt................... (200.0) ---
Net change in short-term borrowings with
original maturities of three months or less... (1,850.7) 718.6
Dividends paid................................. (593.8) (574.9)
Proceeds from sale of common stock............. 324.6 126.9
Purchase of common stock for treasury.......... (605.0) (166.1)
Minority interest.............................. --- (18.9)
Net change in outstanding checks drawn on
controlled disbursement accounts.............. (87.9) (331.3)
--------- ---------
Net cash used in financing activities.......... (406.5) (261.3)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS.......... 81.1 8.3
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. 322.8 249.4
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 403.9 $ 257.7
========= =========
See Notes to Condensed Consolidated Financial Statements.
5
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BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
- --------------------------------------------------------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared based upon Securities and Exchange Commission rules that permit reduced
disclosure for interim periods. These financial statements reflect all
adjustments which are necessary for a fair presentation of results of operations
and financial position for the interim periods shown including normal recurring
accruals. The results for the interim periods are not necessarily indicative of
results for the full year. For a more complete discussion of significant
accounting policies and certain other information, you should refer to the
financial statements included in our 1997 Annual Report to Shareowners.
In this report, Bell Atlantic Corporation and its consolidated subsidiaries
are referred to as "we" or "Bell Atlantic." Reference to Bell Atlantic is also
made in connection with information about Bell Atlantic prior to the merger with
NYNEX Corporation. NYNEX Corporation is referred to as "NYNEX."
We have reclassified certain amounts from prior year's data to conform with
the 1998 presentation.
2. Comprehensive Income
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Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." The new rules
establish standards for the reporting of comprehensive income and its components
in financial statements. Comprehensive income consists of net income and other
gains and losses affecting shareowners' equity that, under generally accepted
accounting principles, are excluded from net income. For our company, such items
consist primarily of foreign currency translation gains and losses and
unrealized gains and losses on marketable equity investments. The adoption of
SFAS No. 130 did not affect our statement of income, but did affect the
presentation of our statement of changes in shareowners' investment and balance
sheet.
The components of total comprehensive income for interim periods are presented
in the following table:
(Dollars in Millions) Three Months Ended March 31,
- --------------------- --------------------------------------
1998 1997
------- -------
Net income $ 893.4 $ 698.2
------- -------
Other comprehensive income (loss):
Foreign currency translation
adjustments, net of tax (102.1) (100.4)
Unrealized gains (losses) on
securities, net of tax 6.7 (1.0)
------- -------
(95.4) (101.4)
------- -------
Total comprehensive income $ 798.0 $ 596.8
======= =======
6
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3. Earnings Per Share
- --------------------------------------------------------------------------------
The following table is a reconciliation of the numerators and denominators used
in computing earnings per share.
(Dollars and Shares in Millions,
Except Per Share Amounts) Three Months Ended March 31,
- -------------------------------- -----------------------------
1998 1997
------- ------
Net Income Available to Common Shareowners:
Income before extraordinary item $909.6 $698.2
Extraordinary item (16.2) ---
------- -------
Net income 893.4 698.2
Redemption of investee preferred stock (2.5) ---
------- -------
Net income available to common
shareowners* $890.9 $698.2
======= =======
Basic Earnings Per Common Share:
Weighted-average shares outstanding 1,553.0 1,551.5
------- -------
Earnings per share - basic $ .57 $ .45
======= =======
Diluted Earnings Per Common Share:
Weighted-average shares outstanding 1,553.0 1,551.5
Effect of dilutive securities 25.6 13.7
------- -------
Weighted-average shares - diluted 1,578.6 1,565.2
------- -------
Earnings per share - diluted $ .56 $ .45
======= =======
* Net income available to common shareowners is the same for purposes of
calculating basic and diluted earnings per share.
Stock options to purchase .8 million shares and 30.0 million shares of common
stock were outstanding at March 31, 1998 and 1997, which were not included in
the computation of diluted earnings per share because the option's exercise
price was greater than the average market price of the common shares.
4. Debt
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On February 10, 1998, our wholly owned subsidiary, Bell Atlantic Financial
Services, Inc. (FSI) issued $2,455.0 million of 5.75% exchangeable notes (TCNZ
Exchangeable Notes) due on April 1, 2003. The notes are exchangeable into shares
of Telecom Corporation of New Zealand Limited (TCNZ) stock at the option of the
holder beginning on September 1, 1999. Upon exchange by investors, we retain the
option to settle in cash or by delivery of TCNZ shares. During the period from
April 1, 2001 to March 31, 2002, the notes are callable at our option at 102.3%
of the principal amount, and thereafter and prior to maturity at 101.15%. The
proceeds of the offering were used for the repayment of a portion of our short-
term debt.
The TCNZ Exchangeable Notes have the benefit of a Support Agreement, dated
February 1, 1998, between Bell Atlantic and FSI in which Bell Atlantic
guarantees for payment of interest, premium (if any), principal and the cash
value of exchange property related to these notes should FSI fail to pay.
Another Support Agreement between Bell Atlantic and FSI, dated October 1, 1992,
guarantees payment of interest, premium (if any) and principal on FSI's medium-
term notes (aggregating $498.6 million at March 31, 1998) should FSI fail to
pay. The holders of FSI's debt do not have recourse to the stock or assets of
our operating telephone subsidiaries or TCNZ, however, they do have recourse to
dividends paid to Bell Atlantic by any of our consolidated subsidiaries as well
as assets not covered by the exclusion. The carrying value of the available
assets reflected in our condensed consolidated financial statements was
approximately $14.0 billion at March 31, 1998.
7
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In the first quarter of 1998, we recorded extraordinary charges associated
with early extinguishments of long-term debt. In January 1998, New York
Telephone Company, an operating telephone subsidiary, issued $250.0 million of
6.125% debentures due on January 15, 2010. The proceeds of this issuance were
used in February 1998 to redeem at a premium $200.0 million of 7.75% refunding
mortgage bonds due in 2006. In addition, Fiberoptic Link Around the Globe, Ltd.,
an affiliate accounted for under the equity method, redeemed $615.0 million of
debt at a premium in February 1998. Together, these redemptions resulted in
extraordinary charges that reduced net income by $16.2 million (net of an income
tax benefit of $8.8 million).
On April 7, 1998, New York Telephone Company issued $250.0 million of 6.0%
debentures due on April 15, 2008 and $100.0 million of 6.5% debentures due on
April 15, 2028. The proceeds of these issuances will be used in May 1998 to
redeem $200.0 million of 7.875% debentures due in 2017 and $150.0 million of
7.5% refunding mortgage bonds due in 2009. In connection with these redemptions,
we recorded extraordinary charges of $6.0 million in the second quarter of 1998.
5. Commitments and Contingencies
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In connection with certain incentive plan commitments with state regulatory
commissions, we have deferred revenues which will be recognized as the
commitments are met or obligations are satisfied under the plans. In addition,
several state and federal regulatory proceedings may require our operating
telephone subsidiaries to refund a portion of the revenues collected in the
current and prior periods. There are also various legal actions pending to which
we are a party. We have established reserves for specific liabilities in
connection with regulatory and legal matters which we currently deem to be
probable and estimable.
We do not expect that the ultimate resolution of pending regulatory and legal
matters in future periods will have a material effect on our financial
condition, but it could have a material effect on results of operations.
6. Recent Accounting Pronouncements
- --------------------------------------------------------------------------------
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," (SOP 98-1). We are required to adopt
SOP 98-1 effective January 1, 1999, although earlier adoption is permitted. SOP
98-1 provides, among other things, guidance for determining whether computer
software is for internal use and when the cost related to such software should
be expensed as incurred or capitalized and amortized. We are currently
evaluating the provisions of SOP 98-1 and have not yet determined what the
impact of adopting this statement will be on our future results of operations or
financial position.
The Financial Accounting Standards Board issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," in February 1998.
The new standard does not change the measurement or recognition of costs for
pension or other postretirement plans. It standardizes disclosures and
eliminates those that are no longer useful. We are required to provide the new
disclosures for the first time in our 1998 Annual Report. The adoption of SFAS
No. 132 will have no impact on our consolidated results of operations, financial
position or cash flows.
8
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7. Subsequent Event - Common Stock Split
- --------------------------------------------------------------------------------
On May 1, 1998, the Board of Directors declared a two-for-one split of Bell
Atlantic common stock, effected in the form of a 100% stock dividend to
shareholders of record on June 1, 1998 and payable on June 29, 1998.
Shareholders of record received an additional share of common stock for each
share of common stock held at the record date. We retained the par value of $.10
per share for all shares of common stock. The financial information (including
share and per share data) contained in this report has been adjusted to give
retroactive recognition of this common stock split.
9
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
(Tables shown in Dollars in Millions, Except Per Share Amounts)
- ------------------------------------
RESULTS OF OPERATIONS
- ------------------------------------
Our financial results for the first quarter of 1998 as compared to the first
quarter of 1997 are summarized as follows:
Three months ended March 31 1998 1997 % Change
- --------------------------------------------------------------------------------
Operating revenues $7,651.1 $7,416.5 3.2%
Operating expenses 5,939.1 5,958.0 (.3)
-------------------
Operating income 1,712.0 1,458.5 17.4
Income (loss) from unconsolidated businesses 22.8 (34.7) ---
Other income and (expense), net 13.8 9.6 43.8
Interest expense 310.0 329.5 (5.9)
Provision for income taxes 529.0 405.7 30.4
-------------------
Income before extraordinary item 909.6 698.2 30.3
Extraordinary item (16.2) --- ---
-------------------
Net income 893.4 698.2 28.0
Redemption of investee preferred stock (2.5) --- ---
-------------------
Net income available to common shareowners $ 890.9 $ 698.2 27.6
===================
Basic earnings per share $ .57 $.45 26.7%
Diluted earnings per share .56 .45 24.4
- --------------------------------------------------------------------------------
In the first quarter of 1998, our reported results included retirement incentive
charges of $240.3 million ($146.8 million after-tax) compared to $386.8 million
($243.6 million after-tax) in the first quarter of 1997. For additional
information about our retirement incentive program, see "Retirement Incentives"
on page 14.
We also incurred merger-related transition and integration costs of $8.4
million ($5.2 million after-tax) in the first quarter of 1998. Transition and
integration costs consist of costs associated with integrating the operations of
Bell Atlantic and NYNEX following the completion of the merger in August 1997,
and we expect over the three years following the closing of the merger that such
costs will aggregate between $400 million to $500 million (pre-tax).
These and other items affecting the comparison of our results of operations
for the three month periods ended March 31, 1998 and 1997 are discussed in the
following sections. You should read this Management's Discussion and Analysis in
conjunction with our 1997 Annual Report.
- ------------------------------------
Operating Revenues
- ------------------------------------
In the first quarter of 1998, we reported total operating revenues of $7,651.1
million, an increase of 3.2% from $7,416.5 million from the corresponding period
in 1997. We reported our operating revenues in the following categories.
10
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Three months ended March 31 1998 1997
- --------------------------------------------------------------------------------
Local services $3,331.6 $3,110.3
Network access services 1,906.5 1,858.8
Long distance services 501.9 570.0
Ancillary services 469.7 455.7
Directory and information services 557.7 530.9
Wireless services 856.4 774.1
Other services 27.3 116.7
--------------------
Total Operating Revenues $7,651.1 $7,416.5
====================
Local Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
First Quarter $221.3 7.1%
- --------------------------------------------------------------------------------
Local services revenues are earned by our operating telephone subsidiaries from
the provision of local exchange, local private line, public telephone (pay
phone) and value-added services. Value-added services are a family of services
which expand the utilization of the network. These services include products
such as Caller ID, Call Waiting and Return Call.
Higher usage of our network facilities was the primary reason for the increase
in local services revenues in the first quarter of 1998. This growth was
generated by an increase in access lines in service of 4.3% from March 31, 1997.
We had 40,424,000 access lines in service at March 31, 1998, compared to
38,766,000 access lines in service at March 31, 1997. Access line growth
reflects primarily higher demand for Centrex services and an increase in
additional residential lines. Access line numbers have been restated to include
Primary Rate ISDN (Integrated Services Digital Network) channels. Higher
revenues from private line and switched data services also contributed to the
revenue growth in the first three months of 1998.
We also recognized higher revenues from our public telephone, directory
assistance and value-added services. Our value-added and directory assistance
services revenues grew principally as a result of higher customer demand and
usage, while price increases for usage of our pay phones were the principal
reason for the improvement in public telephone services revenues.
In addition, local services revenue growth was attributable, in part, to a
prior year refund to customers resulting from the settlement of a state
regulatory matter. The growth effect on revenues was offset entirely by a
corresponding increase in Other Operating Expenses due to the prior year
reversal of an accrual.
Network Access Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
First Quarter $47.7 2.6%
- --------------------------------------------------------------------------------
Network access services revenues are earned from carriers for their use of our
local exchange facilities in providing usage services to their customers. In
addition, end-user subscribers pay flat rate access fees to connect to our
network.
Our network access services revenues grew in the first three months of 1998
primarily as a result of higher customer demand as reflected by growth in access
minutes of use of 8.5% from March 31, 1997. Volume growth was boosted by the
expansion of the business market, particularly for high capacity services.
Demand for special access services grew as Internet service providers and other
high-capacity users increased their utilization of our network. Growth in
access revenues also reflects higher network usage by alternative providers of
intraLATA toll services. In addition, higher end-user revenues attributable to
an increase in access lines in service contributed to revenue growth in the
first quarter of 1998.
Volume-related growth was partially offset by net price reductions mandated by
federal and state price cap and incentive plans. Price decreases of
approximately $430 million annually were implemented under the Federal
Communications Commission's (FCC) Interim Price Cap Plan, effective July 1,
1997. An additional price reduction
11
<PAGE>
of $49.5 million was implemented in December 1997, following the resolution of
certain issues previously under review by the FCC. The rates included in our
1997 filings will be in effect through June 1998. In addition, effective
January 1, 1998, our operating telephone subsidiaries increased their annual
rates to recover the contributions that they owe to the new universal service
fund. These revenues are being entirely offset by the universal service fund
contribution amount, which is included in Other Operating Expenses. Under an
FCC order, all providers of telecommunications services must contribute to a
universal service fund. The new rules create a multi-billion dollar interstate
fund for linking schools and libraries to the Internet and subsidizing low-
income consumers and rural health care providers. Finally, our operating
telephone subsidiaries increased certain end-user subscriber line rates,
effective January 1, 1998, as ordered by the FCC.
In April 1998, the New York State Public Service Commission ordered New York
Telephone Company, an operating telephone subsidiary, to reduce access charges
on intrastate toll calls by approximately $85 million annually, beginning in the
third quarter of 1998. This reduction is, in part, an acceleration of access
revenue reductions expected under the New York Performance Regulation Plan and,
in addition, will be partially offset by increased revenues from the federal
universal service fund.
Long Distance Services Revenues
- --------------------------------------------------------------------------------
1998-1997 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $(68.1) (11.9)%
- --------------------------------------------------------------------------------
Long distance services revenues are earned primarily from calls made outside a
customer's local calling area, but within the same service area of our operating
telephone subsidiaries (intraLATA toll). Other long distance services that we
provide include 800 services, Wide Area Telephone Service (WATS), corridor
services and long distance services outside of our region.
The reduction in long distance services revenues in the first quarter of 1998
was caused principally by increased competition for intraLATA toll services as a
result of the introduction of presubscription during 1997 in many states
throughout the region, including New Jersey in May 1997, Pennsylvania in July
1997, West Virginia in August 1997 and Delaware in September 1997. In those
states where presubscription has been implemented, customers may now use an
alternative provider of their choice for intraLATA toll calls without dialing a
special access code when placing a call. The adverse impact on revenues as a
result of presubscription was partially mitigated by increased network access
services revenues for usage of our network from these alternative providers.
Price reductions on certain toll services as part of our response to
competition also contributed to the decline in long distance services revenues.
These revenue reductions were partially offset by higher calling volumes
generated by an increase in access lines in service.
We believe that competition for long distance services, including competitive
pricing and customer selection of alternative providers of intraLATA toll
services in the states currently offering presubscription, will continue to
adversely affect revenue trends.
Ancillary Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
First Quarter $14.0 3.1%
- --------------------------------------------------------------------------------
We provide ancillary services which include systems integration services,
equipment and construction services provided to other telecommunications
carriers, billing and collection services provided to long distance carriers,
customer premises equipment (CPE) services, facilities rental services and voice
messaging services.
In the first quarter of 1998, we recognized higher ancillary services revenues
due to increased business volumes resulting from contracts with business
customers for systems integration services. We also recognized higher revenues
in the first three months of 1998 as a result of increased demand by long
distance carriers for billing and collection services and increased market
penetration of our voice messaging services, principally Home Voice Mail.
12
<PAGE>
Directory and Information Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
First Quarter $26.8 5.0%
- --------------------------------------------------------------------------------
We earn directory and information services revenues primarily from local
advertising and marketing services provided to businesses in our White and
Yellow Pages directories within our region, international directory services and
electronic publishing services. We also provide database services and directory
marketing services outside of our region. Revenues from our Internet services
businesses are also included in this revenue category.
Our directory and information services revenues grew in the first three months
of 1998 because of higher volumes and rates charged for directory services and
improved revenue growth from our Internet services.
Wireless Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
First Quarter $82.3 10.6%
- --------------------------------------------------------------------------------
Wireless services include revenues generated from our consolidated subsidiaries
that provide cellular and paging communications services.
Our wireless services revenues increased principally as a result of continued
growth in our domestic cellular customer base of 18.3%. Volume-related revenue
growth from our domestic wireless subsidiary was partially offset by the effect
of competitive pricing factors in response to competition. Higher revenues
earned by our international wireless subsidiary in Mexico also contributed to
improved revenues during the first quarter of 1998.
Other Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Decrease
- --------------------------------------------------------------------------------
First Quarter $(89.4) (76.6)%
- --------------------------------------------------------------------------------
Other services include revenues from our telecommunications consulting and
financing businesses. In April 1997, we transferred our interests in cable
television and telecommunications operations in the United Kingdom to Cable &
Wireless Communications PLC (CWC) in exchange for an 18.5% ownership interest in
CWC ("the CWC transaction"). We now account for our investment in CWC under the
equity method. Prior to the transfer, we included the accounts of these
operations in our consolidated financial statements.
The decline in other services revenues was caused primarily by the reduction
of approximately $76 million of revenues in the first quarter of 1998 due to the
effect of the CWC transaction.
- -----------------------------------
Operating Expenses
- -----------------------------------
In the first quarter of 1998, we reported total operating expenses of $5,939.1
million, a decrease of .3% from $5,958.0 million from the corresponding period
in 1997. For purposes of the following discussion, our network subsidiaries
include our operating telephone subsidiaries, subsidiaries that provide
centralized services and support, and network-related subsidiaries providing
systems integration, CPE distribution, inside wiring, long distance, and
directory and information services.
Three months ended March 31 1998 1997
- --------------------------------------------------------------------------------
Employee costs $2,304.4 $2,470.1
Depreciation and amortization 1,410.5 1,371.3
Taxes other than income 371.9 395.0
Other operating expenses 1,852.3 1,721.6
---------------------
Total Operating Expenses $5,939.1 $5,958.0
=====================
13
<PAGE>
Employee Costs
- --------------------------------------------------------------------------------
1998-1997 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $ (165.7) (6.7)%
- --------------------------------------------------------------------------------
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes.
Our employee costs were lower in the first three months of 1998 principally as
a result of a decline in costs incurred in connection with our retirement
incentive program. (For a further discussion of retirement incentives, see
below.) The effect of the CWC transaction also contributed to the employee cost
reduction during the first quarter of 1998.
In addition, pension and benefit costs were lower in the first quarter of 1998
because of a number of factors, including changes in actuarial assumptions,
favorable pension plan asset returns, lower than expected medical claims and
plan amendments including the conversion of a pension plan to a cash balance
plan. Effective January 1, 1998, we established common pension and savings plan
benefit provisions for all management employees. As a result, continuing NYNEX
management employees receive the same benefit levels as previously given under
Bell Atlantic management benefit plans. This change included the conversion of
the NYNEX management pension plan to a cash balance plan.
Employee cost reductions were offset, in part, by higher overtime pay for
repair and maintenance activity due to unusually severe winter storms
experienced in New York and the New England states during the first three months
of 1998. We recognized $35 million to $40 million in storm-related costs in the
first quarter of 1998. The effects of increased work force levels, primarily at
the network subsidiaries, and annual salary and wage increases for management
and associate employees further offset employee cost reductions.
Associate employee wages and pension and other employee benefits are
determined under contracts ratified by unions representing associate employees
of the network subsidiaries. All contracts with the Communications Workers of
America and the contract with the International Brotherhood of Electrical
Workers for associate employees of the former NYNEX companies will expire in
August 1998.
Retirement Incentives
In the first quarter of 1998, we recognized a pre-tax charge of $240.3 million
as a result of 1,731 associate employees electing to leave our company under the
retirement incentive program. Since the inception of the retirement incentive
program in 1993, we have incurred additional costs totaling approximately $2.2
billion (pre-tax) as of March 31, 1998. As of the first quarter 1998, the
number of employees who have left the business under the retirement incentive
program totaled 21,006, consisting of 9,329 management and 11,677 associate
employees. The program covering the management employees ended on March 31,
1997 and the program covering the associate employees is scheduled to end in
August 1998.
We had previously estimated that we would incur additional costs totaling
approximately $2.2 billion through the completion of the retirement incentive
program. This determination was based on the expectation that the total number
of employees who would elect to leave under the program through August 1998
would be in the range of 19,000 to 21,000 employees.
Based on the experience of employee take rates under the program and
management's recent assessment of work volume and productivity trends, we are
currently considering and discussing with the unions possible changes in the
program for associate employees. We now expect that, if the current program is
fully implemented, the total number of employees electing to leave under the
program, and the associated additional charges, would be substantially greater
than previously estimated.
In the second quarter of 1998, we expect 300 to 400 associate employees to
elect to leave under the retirement incentive program based on the estimated
take rate through May 1, 1998. These retirements are expected to result in a
pre-tax charge in the range of $40 million to $60 million in the second quarter
of 1998. Discussions with the unions may affect actual second quarter
retirements and associated charges.
14
<PAGE>
Depreciation and Amortization
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
First Quarter $39.2 2.9%
- --------------------------------------------------------------------------------
Depreciation and amortization expense increased in the first quarter of 1998
over the same period in 1997 principally as a result of growth in depreciable
telephone plant and changes in the mix of plant assets at our network and
wireless subsidiaries.
This expense increase was partially offset by lower rates of depreciation at
our network subsidiaries and the effect of the CWC transaction.
Taxes Other Than Income
- --------------------------------------------------------------------------------
1998-1997 Decrease
- --------------------------------------------------------------------------------
First Quarter $(23.1) (5.8)%
- --------------------------------------------------------------------------------
Taxes other than income consist principally of taxes for gross receipts,
property, capital stock and business licenses.
The decline in taxes other than income is principally attributable to the
enactment of a New Jersey tax law that repealed the gross receipts tax
applicable to telephone companies and extended the net-income-based corporate
business tax to include telephone companies formerly subject to the gross
receipts tax. This state tax law change, which became effective on January 1,
1998, resulted in the reduction of gross receipts tax of approximately $18
million in the first three months of 1998 for our operating telephone
subsidiary, Bell Atlantic - New Jersey. This reduction was offset by higher
state income taxes of approximately $22 million attributable to the enactment of
the law.
Other Operating Expenses
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
First Quarter $130.7 7.6%
- --------------------------------------------------------------------------------
Other operating expenses consist of contract services, rent, network software
costs, the provision for uncollectible accounts receivable, and other costs.
The rise in other operating expenses in the first quarter of 1998 was largely
attributable to increased costs at our operating telephone subsidiaries. These
increases included higher interconnection payments to competitive local exchange
and other carriers to terminate calls on their networks, higher costs associated
with opening our network to competitors, including local number portability, and
higher network software purchases. We also recognized additional costs in the
first quarter of 1998 as a result of our contribution to the federal universal
service fund, as described earlier. In addition, the prior year reversal of an
accrual for the settlement of a state regulatory matter contributed to the rise
in other operating expenses.
We also reported higher expenses at our network systems integration and
domestic wireless subsidiaries largely due to higher business volumes. The
effect of the CWC transaction offset, in part, the expense increases at our
network and wireless subsidiaries.
Income (Loss) from Unconsolidated Businesses
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
First Quarter $57.5 165.7%
- --------------------------------------------------------------------------------
Income from unconsolidated businesses includes equity income and losses from
investments accounted for under the equity method and goodwill amortization
related to these investments. As described earlier, beginning in the second
quarter of 1997 we account for our investment in CWC under the equity method.
15
<PAGE>
The increase in income (loss) from unconsolidated businesses was attributable
to improved operating results from our international wireless joint venture,
Omnitel Pronto Italia S.p.A. (Omnitel), the change in accounting treatment for
our investment in CWC, and the positive effects resulting from the disposition
of certain international investments and the write-down of our video investments
during 1997.
These factors were offset, in part, by higher equity losses associated with
our investment in a personal communications services (PCS) joint venture,
PrimeCo Personal Communications, L.P. (PrimeCo), principally as a result of
increased customer acquisition costs. Results for the first quarter of 1998, as
compared to the same period in 1997, were also negatively affected by a pre-tax
gain recognized in the first quarter of 1997 on the sale of a global directory
investee.
Other Income and Expense, Net
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
First Quarter $4.2 43.8%
- --------------------------------------------------------------------------------
Other income and expense, net, consists primarily of interest and dividend
income, minority interest in net income (loss) of consolidated subsidiaries, and
gains and losses from the disposition of subsidiaries and non-operating assets
and investments.
There were no items that were individually significant in the three month
periods ended March 31, 1998 and 1997.
Interest Expense
- --------------------------------------------------------------------------------
1998-1997 Decrease
- --------------------------------------------------------------------------------
First Quarter $(19.5) (5.9)%
- --------------------------------------------------------------------------------
Interest expense decreased in the first quarter of 1998 principally as a result
of prior year one-time interest costs of approximately $32 million in connection
with the settlement of a sales tax audit and state regulatory issues. Excluding
the effect of these items, interest expense in the first quarter of 1998
increased $12.5 million or 4.2% over the same period in 1997. This increase was
primarily attributable to higher average borrowing levels at our network
subsidiaries.
Effective Income Tax Rates
- --------------------------------------------------------------------------------
First Quarter 1998 36.8%
- --------------------------------------------------------------------------------
First Quarter 1997 36.8%
- --------------------------------------------------------------------------------
The effective income tax rate is the provision for income taxes as a percentage
of income before the provision for income taxes and extraordinary items.
The effective income tax rate for the quarter ended March 31, 1998 was
unchanged, as compared to the same period last year. During the first quarter
of 1998, our effective income tax rate was increased as a result of higher state
and local income taxes caused principally by the aforementioned change in the
New Jersey tax law. This increase was offset by higher tax credits, primarily
for research and development and foreign operations, which resulted in a
reduction in the effective income tax rate.
Extraordinary Item
- --------------------------------------------------------------------------------
In the first quarter of 1998, we recorded extraordinary charges of $16.2
million, net of tax, associated with the early extinguishments of long-term
debt. See Note 4 to the condensed consolidated financial statements for
additional information on debt refinancings.
16
<PAGE>
- -----------------------------------
FINANCIAL CONDITION
- -----------------------------------
Three months ended March 31 1998 1997 Change
- --------------------------------------------------------------------------------
Cash Flows From (Used In):
Operating activities $ 2,202.8 $ 1,963.5 $ 239.3
Investing activities (1,715.2) (1,693.9) (21.3)
Financing activities (406.5) (261.3) (145.2)
- --------------------------------------------------------------------------------
We use the net cash generated from our operations and from external financing to
fund capital expenditures for network expansion and modernization, pay
dividends, and invest in new businesses. While current liabilities exceeded
current assets at both March 31, 1998 and 1997 and December 31, 1997, our
sources of funds, primarily from operations and, to the extent necessary, from
readily available external financing arrangements, are sufficient to meet
ongoing operating and investing requirements. We expect that presently
foreseeable capital requirements will continue to be financed primarily through
internally generated funds. Additional debt or equity financing may be needed
to fund additional development activities or to maintain our capital structure
to ensure our financial flexibility.
Cash Flows From Operating Activities
- --------------------------------------------------------------------------------
Our primary source of funds continues to be cash generated from operations.
Cash flows from operations were higher in the first quarter of 1998, as compared
to the same period in 1997, principally as a result of improved operating income
and timing differences in the payment of accounts payable and accrued taxes.
Cash Flows Used In Investing Activities
- --------------------------------------------------------------------------------
Capital expenditures continue to be our primary use of capital resources. The
majority of the capital expenditures are to support our network businesses in
order to facilitate the introduction of new products and services, enhance
responsiveness to competitive challenges, and increase the operating efficiency
and productivity of the network. We invested $1,487.8 million in our network
subsidiaries during the first quarter of 1998, as compared to $1,106.1 million
in the first quarter of 1997. We also invested $171.5 million in our wireless
and other businesses in the first three months of 1998, compared to $342.1
million during the same period last year. The increase in total capital
expenditures during the first three months of 1998 is due to an expansion of our
capital investment program in 1998. We expect capital expenditures in 1998 to
aggregate to approximately $7.0 billion, including approximately $6.0 billion to
be invested in our network subsidiaries. In 1997, capital expenditures totaled
approximately $6.6 billion, including $5.5 billion in our network subsidiaries.
During the first quarter of 1998, we invested $128.3 million in unconsolidated
businesses, principally in PrimeCo to fund the build-out of its PCS network. In
the first three months of 1997, we invested $165.4 million in unconsolidated
businesses, including $78.8 million in PrimeCo and $86.6 million in
international investments and other partnerships.
Our short-term investments principally include cash equivalents held in trust
accounts for the payment of certain employee benefits. During the first quarter
of 1998, we invested $265.0 million in a vacation pay trust, compared to $140.0
million in the first quarter of 1997. We increased our pre-funding in 1998 to
cover employees of the former NYNEX companies. Proceeds from the sales of all
short-term investments were $248.5 million in the first three months of 1998,
compared to $102.4 million in the corresponding period of 1997.
During the first quarter of 1997, we received cash proceeds of $21.9 million
from the Telecom Corporation of New Zealand Limited (TCNZ) repurchase plan.
TCNZ completed its repurchase plan in December 1997.
In April 1998, we increased our ownership interest in Omnitel from 17.45% to
19.71%, resulting in a cash payment of $162.5 million in the second quarter of
1998.
17
<PAGE>
Cash Flows Used In Financing Activities
- --------------------------------------------------------------------------------
As in prior quarters, dividend payments were a significant use of capital
resources. We determine the appropriateness of the level of our dividend
payments on a periodic basis by considering such factors as long-term growth
opportunities, internal cash requirements, and the expectations of our
shareowners. In the first quarter of 1998, we announced a quarterly cash
dividend of $.385 per share.
In February 1998, our wholly owned subsidiary, Bell Atlantic Financial
Services, Inc. (FSI) issued $2,455.0 million of 5.75% exchangeable notes (TCNZ
Exchangeable Notes) due on April 1, 2003. The proceeds from the offering were
used for the repayment of a portion of our short-term debt. For additional
information about the TCNZ Exchangeable Notes, see Note 4 to the condensed
consolidated financial statements and the "Market Risk" section below.
We increased our total debt (including capital lease obligations) by
approximately $623 million from December 31, 1997, principally due to an
increase in our capital investment program, higher purchases of shares to fund
employee stock option exercises, and continued funding of investments in
PrimeCo. Additional pre-funding of benefit trusts also contributed to the
increase in debt levels during the first quarter of 1998. Our debt ratio was
61.2% as of March 31, 1998, compared to 59.4% as of March 31, 1997 and 60.5% as
of December 31, 1997. In 1998, we expect our debt level to increase slightly
over the current level at March 31, 1998, as we continue to invest in our
capital program and in our unconsolidated subsidiaries, primarily PrimeCo.
As of March 31, 1998, we had unused bank lines of credit in excess of $4.9
billion. Our subsidiaries had shelf registrations for the issuance of up to
$3.2 billion of unsecured debt securities. We also had $437.9 million in
borrowings outstanding under bank lines of credit at March 31, 1998. The debt
securities of our subsidiaries continue to be accorded high ratings by primary
rating agencies.
Financing activities in the first three months of 1998 also included the early
extinguishment of $200.0 million of refunding mortgage bonds and the issuance of
$250.0 million of debentures by one of our operating telephone subsidiaries, New
York Telephone Company. In April 1998, New York Telephone Company also issued
$350.0 million of debentures, and in May 1998 the proceeds will be used to
redeem an equivalent amount of long-term debt. The issuance of the debentures
reduced our available shelf registrations to $2.9 billion.
Market Risk
- --------------------------------------------------------------------------------
We are exposed to various types of market risk in the normal course of our
business, including the impact of interest rate changes, foreign currency
exchange rate fluctuations and changes in corporate tax rates. We employ risk
management strategies including the use of derivatives such as interest rate
swap agreements, interest rate caps and floors, foreign currency forwards and
options, and basis swap agreements to manage those exposures. We do not hold
derivatives for trading purposes.
It is our policy to enter into interest rate, foreign currency and other
transactions only to the extent necessary to achieve the desired objectives of
our management in limiting our exposures to the various market risks discussed
above. We do not hedge all of our market risk exposure in a manner that would
completely eliminate the impact of changes in interest rates and foreign
exchange rates on our net income. We do not expect that our results of
operations or liquidity will be materially affected by these risk management
strategies.
Interest Rate Risk Management
Our fixed interest rate debt portfolio has increased by $2,455.0 million as a
result of the issuance of the TCNZ Exchangeable Notes in the first quarter of
1998, as described below.
The TCNZ Exchangeable Notes have a maturity of five years, carry a fixed
interest rate of 5.75%, and are exchangeable into shares of TCNZ common stock at
the option of the holder beginning on September 1, 1999. The exchange price was
established at a 20% premium to the TCNZ share price at the time of the
offering. Upon exchange, we retain the option to settle in cash or by delivery
of TCNZ shares.
18
<PAGE>
As of March 31, 1998, the fair value of our long-term debt and interest rate
derivatives was approximately $17.0 billion. The aggregate hypothetical fair
value of the portfolio assuming a 100-basis-point upward parallel shift in the
yield curve is estimated to be $15.9 billion. The aggregate hypothetical fair
value of the portfolio assuming a 100-basis-point downward parallel shift in the
yield curve is estimated to be $18.2 billion. The fair values of our commercial
paper and bank loans are not significantly affected by changes in market
interest rates.
Foreign Exchange Risk Management
The fair values of our foreign currency derivatives and investments accounted
for under the cost method continue to be subject to fluctuations in foreign
exchange rates. The fair value of the TCNZ Exchangeable Notes is also affected
by changes in the U.S. dollar/ New Zealand dollar exchange rate. As of March
31, 1998, the net fair value of our foreign currency derivatives, cost method
investments and the TCNZ Exchangeable Notes was a liability of approximately
$2.2 billion. The aggregate hypothetical change in the net fair value of our
foreign currency derivatives, cost method investments and the TCNZ Exchangeable
Notes from a 10% increase or decrease in the value of the U.S. dollar against
the various currencies that we are exposed to at March 31, 1998 was estimated to
be $64 million and $(83) million, respectively. This calculation does not
include potential changes in the value of our international investments
accounted for under the equity method. As of March 31, 1998, the carrying value
of our equity method international investments totaled approximately $1.7
billion.
Other Risk Management
The fair value of the TCNZ Exchangeable Notes is affected by changes in the
price of TCNZ shares. The hypothetical fair value of the TCNZ Exchangeable
Notes assuming a 10% increase or decrease in the value of TCNZ shares at March
31, 1998 was estimated to be $2,694 million and $2,432 million, respectively.
Other than the issuance of the TCNZ Exchangeable Notes, there has been no
material change in our exposure to other market risks since December 31, 1997.
The TCNZ Exchangeable Notes also expose us to a potential earnings impact.
Should the aggregate value of the TCNZ shares rise to greater than 120% of the
share price at the time of the offering, our earnings would be affected as a
result of adjusting the debt liability to its fair value. Our cash flows would
not be affected by changes in the price of the TCNZ shares, unless we elect to
pay the noteholders in cash.
- ----------------------------------------------------
OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS
- ----------------------------------------------------
Recent Regulatory Development
- --------------------------------------------------------------------------------
In April 1998, New York Telephone Company filed with the New York State Public
Service Commission (NYSPSC) a statement setting forth additional commitments
that it will make to the FCC in connection with our anticipated application for
permission to enter the in-region long distance market in New York. Those
commitments include additional operations support systems capabilities, enhanced
interconnection options to stimulate facilities-based competitive alternatives,
and detailed performance standards with prescribed adjustments to wholesale
prices if standards are not met. In addition, New York Telephone Company will
offer combinations of unbundled network elements and an Unbundled Network
Element Platform (UNE-P) to competitors wishing to provide basic local and ISDN
service to business or residential customers. New York Telephone Company
estimates that the UNE-P will provide competitors with discounts from its retail
rates of 30-40 percent on residential lines and 50-60 percent on business lines.
New York Telephone Company will offer UNE-P throughout its New York operating
area, but UNE-P will not be available to competitors for service to business
customers in those parts of New York City where there is a defined level of
local competition from two or more competitive local exchange carriers. New
York Telephone Company's commitment to offer the discounted UNE-P will be for
four years in New York City and other major urban areas and for six years in the
rest of the state. Following New York Telephone Company's filing, the chairman
of the NYSPSC announced that, subject to New York Telephone Company meeting its
commitments, he would recommend that our application to the FCC be approved. We
expect to file our application with the FCC by the fourth quarter of 1998, with
the goal of entering the New York in-region long distance market by year-end,
but there can be no assurance that any approval will be forthcoming in time to
permit us to do so.
19
<PAGE>
Cautionary Statement Concerning Forward-Looking Statements
- --------------------------------------------------------------------------------
Information contained above in this Management's Discussion and Analysis with
respect to expected financial results and future events and trends is forward-
looking, based on our estimates and assumptions 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 our company
and could cause those results to differ materially from those expressed in the
forward-looking statements: (i) materially adverse changes in economic
conditions in the markets served by us or by companies in which we have
substantial investments, or changes in available technology; (ii) the final
outcome of FCC rulemakings, and judicial review of those rulemakings, with
respect to the access and interconnection that we must provide other carriers
under the Telecommunications Act of 1996; (iii) the final outcome of FCC
rulemakings with respect to access charge reform and universal service; (iv)
future state regulatory actions in our operating areas; (v) the extent, timing
and success of competition from others in the local telephone and intraLATA toll
service markets; (vi) the timing and profitability of our entry into the in-
region long distance market; (vii) the success and expense of the remediation
efforts of our company and suppliers in achieving year 2000 compliance and
(viii) the outcome of collective bargaining with the unions.
- -----------------------------------
OTHER MATTERS
- -----------------------------------
Recent Accounting Pronouncements
- --------------------------------------------------------------------------------
For a discussion of recent accounting pronouncements and their impact on our
financial statements, you should read Note 6 to the condensed consolidated
financial statements.
20
<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: June 29, 1998 By /s/ Mel Meskin
------------------------
Mel Meskin
Vice President - Comptroller
(Principal Accounting Officer)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,150
<SECURITIES> 0
<RECEIVABLES> 6,895
<ALLOWANCES> 617
<INVENTORY> 545
<CURRENT-ASSETS> 9,246
<PP&E> 78,655
<DEPRECIATION> 43,308
<TOTAL-ASSETS> 54,314
<CURRENT-LIABILITIES> 11,480
<BONDS> 15,679
0
0
<COMMON> 158<F1>
<OTHER-SE> 12,680<F1>
<TOTAL-LIABILITY-AND-EQUITY> 54,314
<SALES> 0
<TOTAL-REVENUES> 7,651
<CGS> 0
<TOTAL-COSTS> 5,939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 310
<INCOME-PRETAX> 1,438
<INCOME-TAX> 529
<INCOME-CONTINUING> 909
<DISCONTINUED> 0
<EXTRAORDINARY> (16)
<CHANGES> 0
<NET-INCOME> 893
<EPS-PRIMARY> .57<F1>
<EPS-DILUTED> .56<F1>
<FN>
<F1> Adjusted to reflect a two-for-one stock split on June 1, 1998.
</FN>
</TABLE>
