<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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, INCLUDING AREA CODE: (212) 395-2121
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
Common Stock, $.10 par value......... New York, Philadelphia, Boston,
Chicago and Pacific Stock Exchanges
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At February 29, 2000, the aggregate market value of the registrant's voting
stock held by nonaffiliates was approximately $75,843,000,000.
At February 29, 2000, 1,550,659,354 shares of the registrant's Common Stock
were outstanding, after deducting 25,586,971 shares held in treasury.
Documents incorporated by reference:
Portions of the registrant's Proxy Statement prepared in connection with the
2000 Annual Meeting of Shareholders (Part III).
================================================================================
<PAGE>
TABLE OF CONTENTS
ITEM NO. PAGE
- -------- ----
PART I
1. Business........................................................... 1
2. Properties......................................................... 15
3. Legal Proceedings.................................................. 16
4. Submission of Matters to a Vote of Security Holders................ 16
Executive Officers of the Registrant...................................... 16
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................................ 17
6. Selected Financial Data............................................ 17
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 17
7A. Quantitative and Qualitative Disclosures About Market Risk......... 17
8. Financial Statements and Supplementary Data........................ 17
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................... 17
PART III
10. Directors and Executive Officers of the Registrant................. 18
11. Executive Compensation............................................. 18
12. Security Ownership of Certain Beneficial Owners and Management..... 18
13. Certain Relationships and Related Transactions..................... 18
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 19
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 28, 2000
<PAGE>
PART I
Item 1. Business
GENERAL
Bell Atlantic Corporation was incorporated in 1983 under the laws of the State
of Delaware and completed a merger with NYNEX Corporation on August 14, 1997.
Our principal executive offices are located at 1095 Avenue of the Americas, New
York, New York 10036 (telephone number 212-395-2121).
Bell Atlantic is a telecommunications company that operates in a region
stretching from Maine to Virginia. Our principal operating subsidiaries are: New
York Telephone Company, Bell Atlantic - New Jersey, Inc., Bell Atlantic -
Pennsylvania, Inc., New England Telephone and Telegraph Company, Bell Atlantic -
Maryland, Inc., Bell Atlantic - Virginia, Inc., Bell Atlantic - West Virginia,
Inc., Bell Atlantic - Delaware, Inc., Bell Atlantic - Washington, D.C., Inc. and
Bell Atlantic Mobile.
We have four reportable segments, which we operate and manage as strategic
business units and organize by products and services. Our segments and their
principal activities consist of the following:
Domestic Telecom Domestic wireline telecommunications services -
primarily our nine operating telephone subsidiaries
that provide local telephone services from Maine to
Virginia, including voice and data transport, enhanced
and custom calling features, network access, directory
assistance, private lines and public telephones. This
segment also provides customer premises equipment
distribution, data solutions and systems integration,
billing and collections, and Internet access services.
Global Wireless Wireless telecommunications services to customers in
24 states in the United States and foreign wireless
investments servicing customers in Latin America,
Europe and the Pacific Rim.
Directory Domestic and international publishing businesses,
including print directories and Internet-based
shopping guides, as well as website creation and other
electronic commerce services. This segment has
operations principally in the United States and
Central Europe.
Other Businesses International wireline telecommunications investments
primarily in Europe and the Pacific Rim and lease
financing and other businesses.
- --------------------------------------------------------------------------------
You can find financial information with respect to our segments in Note 18 to
the consolidated financial statements.
PROPOSED BELL ATLANTIC-GTE MERGER
Bell Atlantic and GTE Corporation (GTE) have announced a proposed merger of
equals under a definitive merger agreement dated as of July 27, 1998. Under the
terms of the agreement, GTE shareholders will receive 1.22 shares of Bell
Atlantic common stock for each share of GTE common stock that they own. Bell
Atlantic shareholders will continue to own their existing shares after the
merger.
We expect the merger to qualify as a pooling of interests, which means that for
accounting and financial purposes, the companies will be treated as if they had
always been combined. At annual meetings held in May of 1999 the shareholders of
each company approved the merger. The completion of the merger is subject to a
number of conditions, including certain regulatory approvals (all of which have
been obtained except that of the Federal Communications Commission (FCC)) and
receipt of opinions that the merger will be tax-free.
We are targeting completion of the merger in the second quarter of 2000.
1
<PAGE>
DOMESTIC TELECOM
OPERATIONS
Our Domestic Telecom segment, primarily comprised of our nine operating
telephone subsidiaries, provided approximately 79% of 1999 operating revenues.
The operating telephone subsidiaries presently serve a territory consisting of
31 LATAs, or local access and transport areas, and provide mainly two types of
telecommunications services:
. Exchange telecommunications service is the transmission of
-----------------------------------
telecommunications among customers located within a local calling area
within a LATA. Examples of exchange telecommunications services include
switched local residential and business services, local private line voice
and data services, and Centrex services. We also provide toll services
within a LATA, including Wide Area Telecommunications Service and intraLATA
toll (long distance) service. In New York State, we also provide interLATA
toll (long distance) services.
. Exchange access service links a customer's premises and the transmission
-----------------------
facilities of other telecommunications carriers, generally interLATA (long
distance) carriers. Examples of exchange access services include switched
access and special access services.
We have organized our Domestic Telecom segment into business units operating
across our telephone subsidiaries. The business units focus on specific market
segments. We are not dependent on any single customer. The telephone
subsidiaries remain responsible within their respective service areas for the
provision of telephone services, financial performance, and regulatory matters.
The Consumer unit markets communications services to residential customers, as
--------
well as operator services, within our territory (22 million households and 63
million people). 1999 revenues were approximately $10 billion, representing
approximately 39% of Domestic Telecom's aggregate revenues. These revenues were
derived primarily from the provision of telephone services to residential users.
The General Business unit markets communications and information services to
----------------
small and medium-sized businesses, as well as pay telephone services, within our
territory. The General Business unit has approximately 2.1 million customers in
our territory and generated approximately $5 billion in revenues in 1999,
representing approximately 19% of Domestic Telecom's aggregate revenues.
The Enterprise Business unit markets communications and information technology
-------------------
and services to large businesses and to departments, agencies and offices of the
executive, judicial and legislative branches of the federal and state
government. These services include voice switching/processing services (e.g.,
dedicated private lines, custom Centrex, call management, and voice messaging),
end-user networking (e.g., credit and debit card transactions and personal
computer-based conferencing, including data and video), internetworking
(establishing links between the geographically disparate networks of two or more
companies or within the same company), network optimization (disaster avoidance,
911 service, and intelligent vehicle highway systems), video services (distance
learning, telemedicine, and videoconferencing) and interactive multimedia
applications services. The Enterprises Business unit also includes the Data
Solutions Group which provides data transmission and network integration
services (integrating multiple geographically disparate networks into one
system), as well as IP-based solutions (communications using internet protocol
and internet services, including high-speed internet access). Global Networks, a
unit of the Data Solutions Group, is building a next generation long distance
network using ATM (asynchronous transfer mode) technology. 1999 revenues were
approximately $5 billion, representing approximately 19% of Domestic Telecom's
aggregate revenues.
The Network Services unit markets (i) switched and special access to the
----------------
telephone subsidiaries' local exchange networks, and (ii) billing and collection
services, including recording, rating, bill processing and bill rendering. 1999
revenues were approximately $6 billion, representing approximately 23% of
Domestic Telecom's aggregate revenues. Approximately 75% of total Network
Services revenues were derived from interexchange carriers. Most of the
remaining revenues came from business customers and government agencies with
their own special access network connections, wireless companies, and other
local exchange carriers which resell network connections to their own customers.
2
<PAGE>
TELECOMMUNICATIONS ACT OF 1996
The Telecommunications Act of 1996 (1996 Act) became effective on February 8,
1996, and replaced the Modification of Final Judgment (MFJ), a consent decree
that arose out of an antitrust action brought by the United States Department of
Justice against AT&T. In general, the 1996 Act includes provisions that open
local exchange markets to competition and permit Bell Operating Companies (BOC),
including ours, to engage in manufacturing and to provide long distance service
under certain conditions.
First, the 1996 Act permitted us to apply immediately for state approval to
offer long distance services originating outside of the states where our
operating telephone subsidiaries operate as local exchange carriers. Our
wireless businesses also were permitted immediately to offer long distance
services without having to comply with the conditions imposed in waivers granted
under the MFJ.
Second, the 1996 Act permits us to offer in-region long distance services (that
is, services originating in the states where our telephone subsidiaries operate
as local exchange carriers), once we have demonstrated to the FCC that we have
satisfied certain requirements. The requirements include a 14-point "competitive
checklist" of steps which we must take to help competitors offer local services
through resale, through purchase of unbundled network elements, or through their
own networks. We must also demonstrate to the FCC that our entry into the
in-region long distance market would be in the public interest.
In-Region Long Distance
On December 22, 1999, the FCC released an order approving our application for
permission to enter the in-region long distance market in New York. The FCC
concluded that we have satisfied the 14-point "competitive checklist" required
under the 1996 Act for entry into the in-region long distance market, and that
our entry into the long distance business in New York would benefit the public
interest. Following the FCC's decision, AT&T and Covad sought a stay of the
Commission's order. The stay request was denied, first by the FCC and later by
the U.S. Court of Appeals. AT&T's and Covad's appeal of the order remains
pending and is proceeding on an accelerated schedule, with argument scheduled
for April 2000.
KPMG LLP (KPMG), which conducted an extensive third-party test of our operations
support systems (OSS) in New York under the supervision of the New York Public
Service Commission, has been retained by the Massachusetts Department of
Telecommunications and Energy to conduct a third-party test of our OSS in
Massachusetts. The Massachusetts test is designed to build on the KPMG test of
the similar systems in New York.
KPMG has also been retained by the Pennsylvania Public Utility Commission to
conduct a third-party test of our OSS in Pennsylvania and by the New Jersey
Board of Public Utilities to conduct a test of the New Jersey OSS that builds on
the concurrent testing of the similar systems in Pennsylvania. The Virginia
State Corporation Commission has also retained KPMG for the same purpose.
The timing of our long distance entry in each of our remaining 13 jurisdictions
depends on the receipt of FCC approval.
We are unable to predict definitively the impact that the 1996 Act will
ultimately have on our business, results of operations, or financial condition.
The financial impact will depend on several factors, including the timing,
extent and success of competition in our markets, the timing and outcome of
various regulatory proceedings and any appeals, and the timing, extent and
success of our pursuit of new opportunities resulting from the 1996 Act.
FCC REGULATION AND INTERSTATE RATES
The operating telephone subsidiaries are subject to the jurisdiction of the FCC
with respect to interstate services and certain related matters. In 1999, the
FCC continued to implement reforms to the interstate access charge system and to
implement the "universal service" and other requirements of the 1996 Act.
3
<PAGE>
Access Charges
Interstate access charges are the rates long distance carriers pay for use and
availability of our operating telephone companies' facilities for the
origination and termination of interstate service. The FCC required a phased
restructuring of access charges, which began in January 1998, so that the
telephone companies' non-usage-sensitive costs will be recovered from long
distance carriers and end-users through flat rate charges, and usage-sensitive
costs will be recovered from long distance carriers through usage-based rates.
In addition, the FCC has required that different levels of usage-based charges
for originating and for terminating interstate traffic be established. The final
phase of this restructuring was completed on January 1, 2000.
Price Caps
Under the FCC price cap rules that apply to interstate access rates, each year
our price cap index is adjusted downward by a fixed percentage intended to
reflect increases in productivity (productivity factor) and adjusted upward by
an allowance for inflation (GDP-PI). Our annual price cap filing, effective July
1, 1999, reflects the effects of the current productivity factor of 6.5%.
In May 1999, the U. S. Court of Appeals reversed the FCC's order that adopted
the 6.5 % productivity factor. The Court concluded that the FCC had not
justified its choice of a productivity factor and directed the FCC to reconsider
and explain the methods used in selecting the productivity factor. The Court
granted the FCC a stay of its order, however, until April 1, 2000. As a result,
the FCC is now conducting a proceeding to determine an appropriate productivity
factor in response to the Court's order.
At the same time, the FCC is considering a proposal to further restructure
access rates by an industry coalition that includes both local exchange carriers
(including Bell Atlantic) and long distance carriers. Among other things, that
proposal would set into place a mechanism to transition to a set target of
$.0055 per minute for switched access services. Once that target rate is
reached, local exchange carriers would no longer be required to make further
annual price cap reductions to their switched access prices. To allow time to
consider this industry proposal, parties have requested that the Court further
extend the stay of its price cap decision order until June 30, 2000.
The FCC has adopted rules for special access services that provide for added
pricing flexibility and ultimately the removal of services from price regulation
when certain competitive thresholds are met. In order to take advantage of this
relief, however, carriers must forego the ability to take advantage of
provisions in the current rules that provide relief in the event earnings fall
below certain thresholds, and we have not filed for this relief. The order also
allows certain services, including those included in the interexchange basket of
services, to be removed from price regulation immediately. In response,
effective in October 1999, we removed approximately $90 million in annual
revenues of our services in the interexchange basket from price regulation and
from the operation of the productivity offset which otherwise would require
annual price reductions.
Universal Service
In July 1999, the U.S. Court of Appeals reversed certain aspects of the FCC's
order implementing the "universal service" provision of the 1996 Act. The
universal service fund includes a multi-billion dollar interstate fund to link
schools and libraries to the Internet and to subsidize high cost areas, low
income consumers and rural healthcare providers. Previously, under the FCC's
rules, all providers of interstate telecommunications services had to contribute
to the schools and libraries fund based on their total interstate and intrastate
retail revenues. The Court reversed the decision to include intrastate revenues
as part of the basis for assessing contributions to that fund. As a result of
this decision, our contributions to the universal service fund were reduced by
approximately $107 million annually beginning on November 1, 1999, and our
interstate access rates will be reduced accordingly because we will no longer
have to recover these contributions in our rates. AT&T and MCI WorldCom, Inc.
have since asked the U.S. Supreme Court to review this latter portion of the
appeals court decision. Other parties have asked the U.S. Supreme Court to
review additional aspects of the court of appeals decision.
In November 1999, the FCC adopted a new mechanism for providing universal
service support to high cost areas served by large local telephone companies.
This funding mechanism will provide additional support for local telephone
services in several states served by Bell Atlantic. State regulatory commissions
must take these funds into account in the ratemaking process.
4
<PAGE>
Unbundling of Network Elements
In November 1999, the FCC announced its decision setting forth new unbundling
requirements. The FCC had previously identified seven elements that had to be
provided to competitors on an unbundled basis. With respect to those seven
elements, the FCC concluded that incumbent local exchange carriers, such as our
operating telephone subsidiaries, do not have to provide unbundled switching (or
combinations of elements that include switching, such as the so-called unbundled
element "platform") under certain circumstances to business customers with four
or more lines in certain offices in the top 50 Metropolitan Statistical Areas
(MSAs). It also held that incumbents do not have to provide unbundled access to
their directory assistance or operator services. The remaining elements on the
FCC's original list still must be provided.
With respect to new elements, the FCC concluded that new equipment to provide
advanced services such as Asymmetric Digital Subscriber Line (ADSL) does not
have to be unbundled as a general matter. On the other hand, the FCC concluded
that incumbents must provide dark fiber as an unbundled element, and that
sub-loop unbundling should be provided. Finally, the FCC ruled that combinations
of loops and transport must be made available under certain circumstances, but
left to a further rulemaking that it initiated certain issues relating to the
use of these combinations to substitute for special access services. While this
rulemaking proceeds, the FCC adopted interim rules limiting the instances in
which such combinations of elements must be made available. The FCC set a target
date of June 30, 2000 to decide the further rulemaking.
In addition to the unbundling requirements released in November 1999, the FCC
released an order on December 9, 1999 in a separate proceeding requiring
incumbent local exchange companies also to unbundle and provide to competitors
the higher frequency portion of their local loop. This provides competitors with
the ability to provision data services on top of incumbent carriers' voice
services.
STATE REGULATION OF RATES AND SERVICES
State public utility commissions regulate our operating telephone subsidiaries
with respect to certain intrastate rates and services and certain other matters.
In most jurisdictions the telephone subsidiaries have been able to replace rate
of return regulation with price regulation plans.
New York Telephone
New York
The New York State Public Service Commission has regulated New York Telephone
under the Performance Incentive Plan since 1995. The plan is performance-based,
replacing rate of return regulation with a form of price regulation and
incentives to improve service, and does not restrict New York Telephone's
earnings. The plan:
. caps prices at current rates for "basic" services such as residence and
business exchange access, residence and business local calling, and
LifeLine Service;
. establishes price reduction commitments for a number of services, including
toll and intraLATA carrier access services;
. adjusts prices annually based on certain costs associated with state
commission mandates and other defined "exogenous" events; and
. establishes service quality targets with stringent rebate provisions if New
York Telephone is unable to meet some or all of the targets.
Connecticut
New York Telephone's operations are subject to rate of return regulation, but an
incentive regulation plan which would eliminate regulation of earnings has been
filed with the Connecticut Department of Public Utility Control.
Bell Atlantic - New Jersey
The 1992 New Jersey Telecommunications Act classifies telecommunications
services as "Competitive" or "Protected." "Protected telephone services" include
basic residence and business local service, touch tone, access services and the
ordering, installation and restoration of these services. Bell Atlantic - New
Jersey provides "Protected telephone services" and other services, including
vertical services (Rate-Regulated Services), under a Plan for Alternative Form
of Regulation, which is scheduled to expire on December 31, 2000.
5
<PAGE>
There is no cap on earnings for Rate-Regulated Services. Under the terms of the
Plan, Bell Atlantic - New Jersey shares equally with ratepayers earnings above a
13.7% return on equity for Rate-Regulated Services.
Bell Atlantic - New Jersey may petition the New Jersey Board of Public Utilities
to reclassify services from "Protected" to "Competitive" and may change prices
for any Competitive service without prior regulatory review or approval.
Bell Atlantic - Pennsylvania
The Pennsylvania Public Utility Commission (PUC) regulates Bell Atlantic -
Pennsylvania under an Alternative Regulation Plan approved in 1994. The plan
provides for a pure price cap plan with no sharing of earnings with customers
and replaces rate base, rate of return regulation.
. Competitive Services, including directory advertising, billing services,
Centrex service, paging, speed calling, repeat calling, and HiCap and
business services provided to larger customers are price deregulated.
. All Noncompetitive Services are price regulated. The plan:
. permits annual price increases up to, but not exceeding, the GDP-PI
minus 2.93%;
. requires annual price decreases when the GDP-PI falls below 2.93%;
. caps prices for protected services, including residential and business
basic exchange services, special access and switched access, through
1999; and
. permits revenue-neutral rate restructuring for noncompetitive services.
The PUC's order approving the Bell Atlantic-GTE merger extended the cap on
residential and business basic exchange services through 2003.
The plan requires Bell Atlantic - Pennsylvania to provide a Lifeline Service for
residential customers. The plan also requires deployment of a universal
broadband network, which must be completed in phases: 20% by 1998; 50% by 2004;
and 100% by 2015. Deployment must be reasonably balanced among urban, suburban
and rural areas.
From September 1998 through February 1999, the PUC sponsored a multi-party
global telecommunications settlement proceeding aimed at resolving issues in a
number of contentious telecommunications regulatory dockets at the PUC. On
September 30, 1999, the PUC issued a final decision in its Global proceeding on
telecommunications competition matters. The decision proposes to require Bell
Atlantic - Pennsylvania, to split into separate retail and wholesale
corporations. It proposes reductions in access charges applicable to services
provided to interexchange carriers and in both unbundled network element rates
and wholesale rates applicable to services and facilities provided to
competitive local exchange carriers. It requires Bell Atlantic - Pennsylvania to
provide combinations of unbundled network elements beyond those required by the
FCC. It reclassifies certain business services as "competitive," but restricts
the pricing freedom that that classification is supposed to give Bell Atlantic -
Pennsylvania. It sets a schedule of prerequisites for state endorsement of a
Bell Atlantic - Pennsylvania application to the FCC for permission to offer
in-region long distance service under Section 271 of the 1996 Act that are
likely to delay that endorsement. Bell Atlantic - Pennsylvania has challenged
the lawfulness of this order in the Pennsylvania Supreme Court, the Commonwealth
Court of Pennsylvania, and the Federal District Court.
On January 18, 2000, Bell Atlantic - Pennsylvania and fourteen other parties
submitted to the PUC a Joint Petition for Settlement to resolve the appeals from
the Global Order. If approved by the PUC, the settlement will eliminate the
wholesale/retail separate subsidiary requirement and replace it with a
requirement to establish an advanced services affiliate. The settlement would
also expedite the process to obtain state endorsement of any Bell Atlantic -
Pennsylvania application to the FCC for permission to offer long distance
service. On February 2, 2000, the Commonwealth Court denied the PUC's request to
consider the settlement and set an expedited briefing schedule for the appeals.
On February 22, 2000, the PUC and Bell Atlantic - Pennsylvania appealed this
determination to the Pennsylvania Supreme Court, and the matter is pending.
New England Telephone
Maine
In 1995, the Maine Public Utilities Commission adopted a five year price cap
plan for New England Telephone, with the provision for a five year extension
after review by the state commission. Overall average prices and specific rate
6
<PAGE>
elements for most services are limited by a price cap formula of inflation minus
a productivity factor plus or minus certain exogenous cost changes. There is no
restriction on New England Telephone's earnings. The Commission also established
a service quality index with penalties in the form of customer rebates to apply
if service quality categories are missed.
Massachusetts
In 1995, the Massachusetts Department of Telecommunications and Energy approved
a price regulation plan for New England Telephone through August 2001, with no
restriction on earnings. Certain residence exchange rates are capped. Pricing
rules limit New England Telephone's ability to increase prices for most
services, including a ceiling on the weighted average price of all tariffed
services based on a formula of inflation minus a productivity factor plus or
minus certain exogenous changes. In addition, New England Telephone's service
quality performance levels in any given month could result in an increase in the
productivity offset by one-twelfth of one percent for purposes of the annual
price cap filing.
New Hampshire
New England Telephone's operations in New Hampshire are subject to rate of
return regulation.
Rhode Island
In 1996, the Rhode Island Public Utilities Commission approved an incentive
regulation plan for New England Telephone. The plan has no set term or
expiration, although there are opportunities for annual review by the state
commission, and there is no earnings cap or sharing mechanism. Other features of
the plan include: more stringent service quality requirements, including a
financial penalty, and no increase in residence or business basic exchange rates
through 1999. On April 28, 1999, the Commission opened dockets to review New
England Telephone's earnings and its form of regulation. To date, those dockets
remain open, but no substantive action has been taken.
Vermont
New England Telephone traditionally has been subject to rate of return
regulation. The Vermont Public Service Board, however, has approved a five year
incentive regulation plan that will provide New England Telephone increased
flexibility to introduce and price new products and services. The plan also
removes most restrictions on New England Telephone's earnings from Vermont
operations during the life of the plan and contains no productivity adjustment.
The plan will limit New England Telephone's ability to raise prices on existing
products and services, and will require revenue reductions of $16.5 million at
the outset of the plan; $6.5 million during the first year of the plan; and
approximately $6.0 million over the subsequent years of the plan. The plan also
will require certain service quality improvements subject to financial penalty.
Bell Atlantic - Maryland
In 1996, the Public Service Commission of Maryland approved a price cap plan for
regulating the intrastate services provided by Bell Atlantic - Maryland. Under
the plan, services are divided into six categories: Access; Basic-Residential;
Basic-Business; Discretionary; Competitive; and Miscellaneous. Rates for Access,
Basic-Residential, Basic-Business and Discretionary Services can be increased or
decreased annually under a formula that is based upon changes in the GDP-PI
minus a productivity offset based upon changes in the rate of inflation (CPI).
Rates for Competitive Services may be increased without regulatory limits.
Regulation of profits is eliminated.
Bell Atlantic - Virginia
Effective in 1995, the Virginia State Corporation Commission approved an
alternative regulatory plan that regulates Bell Atlantic - Virginia's
Noncompetitive Services on a price cap basis and does not regulate Bell Atlantic
- - Virginia's Competitive Services. The plan includes a moratorium on rate
increases for basic local telephone service until 2001 and eliminates regulation
of profits. In its November 1999 Order approving the Bell Atlantic - GTE merger,
the Commission conditioned its approval by extending the moratorium on rate
increases for basic local services to 2004.
Bell Atlantic - West Virginia
In February 1998, the West Virginia Public Service Commission issued an order
extending the Incentive Regulation Plan until December 31, 2000. The Incentive
Regulation Plan includes pricing flexibility for competitive services. Bell
Atlantic - West Virginia is committed to invest at least $225 million in its
network over the three-year period from 1998 through 2000.
7
<PAGE>
Bell Atlantic - Delaware
In 1994, Bell Atlantic - Delaware elected to be regulated under the alternative
regulation provisions of the Delaware Telecommunications Technology Investment
Act of 1993 (Delaware Telecommunications Act). The Delaware Telecommunications
Act provides that:
. the prices of "Basic Telephone Services" (e.g., dial-tone and local usage)
will remain regulated and cannot change in any one year by more than the GDP-
PI less 3%;
. the prices of "Discretionary Services" (e.g., Identa Ring(SM) and Call
Waiting) cannot increase more than 15% per year per service;
. the prices of "Competitive Services" (e.g., voice messaging and message toll
service) are not subject to tariff or regulation; and
. Bell Atlantic - Delaware will develop a technology deployment plan with a
commitment to invest a minimum of $250 million in Delaware's
telecommunications network during the first five years of the plan.
The Delaware Telecommunications Act also provides protections to ensure that
competitors will not be unfairly disadvantaged, including a prohibition on
cross-subsidization, imputation rules, service unbundling and resale service
availability requirements, and a review by the Delaware Public Service
Commission during the fifth year of the plan. In March 1998, the Commission
approved Bell Atlantic - Delaware's request to continue under the Delaware
Telecommunications Act until March 2002.
Bell Atlantic - Washington, D.C.
In 1996, the District of Columbia Public Service Commission approved a price cap
plan for intra-Washington, D.C. services provided by Bell Atlantic - Washington,
D.C. In 1999, the Commission modified the plan and extended it through the end
of 2001. Key provisions of the plan, as extended, include:
. a term of two additional years, through December 31, 2001;
. retention of three service categories: basic, discretionary, and competitive;
. caps on certain basic residential rates for the extended term of the plan and
elimination of the prior rate adjustment formula (GDP-PI minus 3%);
. discretionary service rate increases of up to 15% annually;
. elimination of price limits on competitive service rates;
. elimination of the regulation of profits;
. guaranteed $4.3 million reduction in basic rates during the next two years;
and
. contribution of $1.5 million to the Infrastructure Trust Fund.
RECIPROCAL COMPENSATION
State regulatory decisions have required us to pay "reciprocal compensation"
under the 1996 Act for the increasing volume of one-way traffic from our
customers to customers of other carriers, primarily calls to Internet service
providers. In February 1999, the FCC confirmed that such traffic is largely
interstate but concluded that it would not interfere with state regulatory
decisions requiring payment of reciprocal compensation for such traffic and that
carriers are bound by their existing interconnection agreements. The U.S. Court
of Appeals has vacated and remanded the FCC's decision for a better explanation
of why this traffic is interstate.
Based upon the FCC's February 1999 decision, the Massachusetts Department of
Telecommunications and Energy modified its earlier decision, resulting in a
reduction of our reciprocal compensation obligation. Both the New Jersey Board
of Public Utilities and the West Virginia Public Service Commission also have
issued favorable decisions on reciprocal compensation for Internet-bound
traffic. The New York PSC issued a decision that high volume, convergent traffic
(which includes Internet-bound traffic) has different cost characteristics and
should be compensated at the lower end-office rate. The New York PSC determined
that traffic in excess of a 3:1 ratio is presumed to be high volume, convergent
traffic, although this presumption may be rebutted. The Virginia State
Corporation Commission has denied jurisdiction over compensation for Internet
access and has referred us and other parties to the FCC. Commissions in
Delaware, Maryland, Pennsylvania and Rhode Island have issued decisions
requiring us to continue to pay reciprocal
8
<PAGE>
compensation on Internet-bound traffic. We currently estimate that our
reciprocal compensation payment obligations will be approximately $500 million
to $550 million in 2000.
COMPETITION
Legislative changes, including provisions of the 1996 Act discussed above under
the section "Telecommunications Act of 1996," regulatory changes and new
technology are continuing to expand the types of available communications
services and equipment and the number of competitors offering such services. We
anticipate that these industry changes, together with the rapid growth, enormous
size and global scope of these markets, will attract new entrants and encourage
existing competitors to broaden their offerings. Current and potential
competitors in telecommunication services include long distance companies, other
local telephone companies, cable companies, wireless service providers, foreign
telecommunications providers, electric utilities, Internet service providers and
other companies that offer network services. Many of these companies have a
strong market presence, brand recognition and existing customer relationships,
all of which contribute to intensifying competition and may affect our future
revenue growth. In addition, a number of major industry participants have
announced mergers, acquisitions and joint ventures which could substantially
affect the development and nature of some or all of our markets.
Local Exchange Services
The ability to offer local exchange services has historically been subject to
regulation by state regulatory commissions. Applications from competitors to
provide and resell local exchange services have been approved in every
jurisdiction in our territory. The 1996 Act has significantly increased the
level of competition in our local exchange markets.
One of the purposes of the 1996 Act was to ensure, and accelerate, the emergence
of competition in local exchange markets. Toward this end, the 1996 Act requires
most existing local exchange carriers (incumbent local exchange carriers, or
ILECs), including our operating telephone subsidiaries, to permit potential
competitors (competitive local exchange carriers, or CLEC) to:
. purchase service from the ILEC for resale to CLEC customers
. purchase unbundled network elements from the ILEC, and/or
. interconnect the CLEC network with the ILEC's network.
The 1996 Act provides for arbitration by the state public utility commission if
an ILEC and a CLEC are unable to reach agreement on the terms of the arrangement
sought by the CLEC.
Negotiations between the operating telephone subsidiaries and various CLECs, and
arbitrations before state public utility commissions, have continued. As of
January 31, 2000, the operating telephone subsidiaries had entered into
approximately 1,316 agreements with CLECs covering all of our territory, of
which 1,045 have been approved by state regulators.
We expect that these agreements, and the 1996 Act, will continue to lead to
substantially increased competition in our local exchange markets in 2000 and
subsequent years. We believe that this competition will be both on a facilities
basis and in the form of resale by CLECs of our operating telephone
subsidiaries' service. Under the various agreements and arbitrations discussed
above, our operating telephone subsidiaries are generally required to sell their
services to CLECs at discounts ranging from approximately 14% to 29% from the
prices our operating telephone subsidiaries charge their retail customers.
IntraLATA Toll Services
IntraLATA toll calls originate and terminate within the same LATA, but generally
cover a greater distance than a local call. State regulatory commissions rather
than federal authorities generally regulate these services. All of our state
regulatory commissions (except in the District of Columbia, where intraLATA toll
service is not provided) permit other carriers to offer intraLATA toll services
within the state.
Until the implementation of "presubscription," intraLATA toll calls were
completed by our operating telephone subsidiaries unless the customer dialed a
code to access a competing carrier. Presubscription changed this dialing
9
<PAGE>
method and enabled customers to make these toll calls using another carrier
without having to dial an access code. All of our operating telephone
subsidiaries have implemented presubscription.
Implementation of presubscription for intraLATA toll services has had a material
negative effect on intraLATA toll service revenues. However, the negative effect
has been partially mitigated by an increase in intraLATA network access
revenues.
Alternative Access
A substantial portion of our operating telephone subsidiaries' revenues from
business and government customers is derived from a relatively small number of
large, multiple-line subscribers.
We face competition from alternative communications systems, constructed by
large end-users, interexchange carriers and alternative access vendors, which
are capable of originating and/or terminating calls without the use of our
plant. The FCC's orders requiring us to offer collocated interconnection for
special and switched access services have enhanced the ability of such
alternative access providers to compete with us.
Other potential sources of competition include cable television systems, shared
tenant services and other noncarrier systems which are capable of bypassing our
operating telephone subsidiaries' local plant, either partially or completely,
through substitution of special access for switched access or through
concentration of telecommunications traffic on fewer of our operating telephone
subsidiaries' lines.
Wireless Services
Wireless services also constitute potential sources of competition to our
wireline telecommunications services, especially as wireless carriers continue
to lower their prices to end users. Wireless portable telephone services employ
analog and digital technology that allows customers to make and receive
telephone calls from any location using small handsets, and can also be used for
data transmission. Our investment in wireless services is described below under
the section "Global Wireless."
Public Telephone Services
We face increasing competition in the provision of pay telephone services from
other providers. In addition, the growth of wireless communications decreases
usage of public telephones.
Operator Services
Alternative operator services providers have entered into competition with our
operator services product line.
AGREEMENT WITH METROMEDIA FIBER NETWORK, INC.
On October 7, 1999, we announced a strategic agreement with Metromedia Fiber
Network, Inc. (MFN), a domestic and international provider of fiber optic
networks in major metropolitan markets, pursuant to which we agreed to acquire
approximately $550 million of long-term capacity on MFN's fiber optic networks
and to make an investment of approximately $1.7 billion.
DIRECTORY
Through Bell Atlantic Yellow Pages Company, Bell Atlantic Electronic Commerce
Services, Inc. and other subsidiaries, we publish printed and electronic
directories and provide Internet-based electronic shopping guides, as well as
website creation and other electronic commerce services. Our directory
publishing business produces over 600 domestic and international Yellow Page
directories with over 900,000 advertisers and distributes approximately 80
million copies annually in its regional markets, as well as in Poland, the Czech
Republic, Slovakia, Greece, Gibraltar and China. We provide on-line shopping
services with more than 10,000 advertisers and nearly 23 million visits per
month. 1999 revenues from the Directory segment were approximately $2.3 billion.
10
<PAGE>
GLOBAL WIRELESS
1999 revenues from our Global Wireless segment were approximately $4.5 billion.
United States
We provide wireless communications services in the United States principally
through our subsidiary, Bell Atlantic Mobile (BAM), and PrimeCo Personal
Communications, L.P. (PrimeCo), a joint venture.
BAM provides wireless services to approximately 7.7 million customers in the
Northeast, mid-Atlantic, Southeast and Southwest portions of the United States.
BAM competes with other cellular carriers and personal communications service
(PCS) providers licensed by the FCC. Competing providers offer competitive
pricing plans, digital technology, and enhanced calling features. BAM has
introduced new pricing plans designed to meet this new competition, and offers
digital service as well as enhanced calling features in its markets.
PrimeCo is a partnership between Bell Atlantic and AirTouch Communications which
provides PCS services in over 30 major cities across the United States. At
year-end PrimeCo had approximately 1.4 million customers. Since 1994 we have
invested approximately $2 billion in PrimeCo to fund its operations and the
build-out of its PCS network.
Proposed Domestic Wireless Transactions
On September 21, 1999, we signed a definitive agreement with Vodafone AirTouch
plc (Vodafone AirTouch) to create a national wireless business (Wireless Co.)
composed of both companies' U.S. wireless assets. The completion of this
transaction is subject to a number of conditions, including certain regulatory
approvals. In February 2000, we signed an agreement with ALLTEL Corporation to
exchange certain wireless interests. This agreement eliminates all of the
overlapping cellular operations that would be created by the combination of Bell
Atlantic and Vodafone AirTouch properties. We expect to complete the Vodafone
AirTouch transaction in April 2000.
On August 3, 1999, Bell Atlantic and Vodafone AirTouch announced an agreement to
restructure our ownership interests in PrimeCo. Under the terms of that
agreement, we would assume full ownership of PrimeCo operations in five "major
trading areas" (MTAs) - Richmond, VA, New Orleans, LA and the Florida MTAs of
Jacksonville, Tampa and Miami. Vodafone AirTouch would assume full ownership of
the remaining five PrimeCo MTAs - Chicago, IL, Milwaukee, WI and the Texas MTAs
of Dallas, San Antonio and Houston.
Under the terms of the Wireless Co. agreement described earlier, Bell Atlantic
and Vodafone AirTouch agreed to suspend the August 3, 1999 agreement to
restructure PrimeCo ownership interests, with certain limited exceptions. As a
result, no action will be taken to allocate most PrimeCo markets unless either
we or Vodafone AirTouch give notice to initiate such an allocation. Neither
party has given such notice.
In January 2000, we and Vodafone AirTouch purchased the remaining 20%
partnership interest in the Texas MTAs of Dallas, San Antonio and Houston held
by TXU Communications Holding Company (TXU). We invested $196 million to acquire
55% of the TXU partnership interest. Vodafone AirTouch will own the remaining
45% of the TXU partnership interest.
Mexico
We have a 40.2% economic interest in Nuevo Grupo Iusacell, S.A. de C.V.
(Iusacell), a telecommunications company in Mexico whose primary business is the
provision of wireless telephone service. The Peralta Group, the other principal
shareholder of Iusacell, holds approximately 40.2%, and the remaining 19.6% is
held by public shareholders.
Since 1993, we have invested approximately $1.2 billion in Iusacell. In the
first quarter of 1997, we consummated a restructuring of our investment in
Iusacell to permit us to assume control of its board of directors and
management. At year end, Iusacell had approximately 1.3 million subscribers.
11
<PAGE>
Italy
We have an economic interest of approximately 23% in Omnitel Pronto Italia,
S.p.A. (Omnitel), an Italian digital cellular telecommunications company. Since
1994 we have invested approximately $1.2 billion in Omnitel. At year-end,
Omnitel had approximately 10.4 million subscribers.
Greece
We have a 20% economic interest in STET Hellas Telecommunications S.A. (STET
Hellas), which holds one of three nationwide licenses for cellular services in
Greece. At year-end, STET Hellas had approximately 1.2 million subscribers.
Czech Republic and Slovakia
We have an economic interest of approximately 25% in EuroTel Praha s r.o. and
EuroTel Bratislava a.s., which have been operating cellular systems in the Czech
Republic and Slovakia, respectively, since 1991. At year-end EuroTel Praha had
approximately 1.1 million subscribers and Eurotel Bratislava had approximately
267,000 subscribers.
Indonesia
We have an economic interest of approximately 23% in P.T. Excelcomindo Pratama
(Excelcomindo), which holds a nationwide license to provide cellular service in
Indonesia.
OTHER BUSINESSES
1999 revenues from our Other Businesses were approximately $151 million.
New Zealand
We have a 24.94% economic interest in Telecom Corporation of New Zealand Limited
(TCNZ). TCNZ is the principal provider of telecommunications services in New
Zealand, offering local service, national and international long distance
service, cellular service and Internet access. TCNZ faces increasing competition
in most of its markets. The New Zealand government retains a single share in
TCNZ, which gives the government the right to limit residential local service
price increases to no more than the rate of inflation and requires a flat-rate
local calling option for residential customers.
In February 1998, we monetized our investment in TCNZ and issued approximately
$2.5 billion in five year notes, which are exchangeable into shares of TCNZ at
the option of the holder after September 1, 1999. Upon exchange by the holders,
we retain the option to settle in cash or by delivery of shares. None of the
notes have been exchanged.
Great Britain
We have an 18.6% economic interest in Cable & Wireless Communications, plc
(CWC), which was created in April 1997 through the merger of Mercury
Communications, NYNEX CableComms, and Bell Cablemedia, following the acquisition
of Videotron Holdings by Bell Cablemedia. CWC provides telecommunications and
CATV services.
On July 27, 1999, we announced our agreement to a proposal by Cable & Wireless
plc (Cable & Wireless), NTL Incorporated (NTL) and CWC for the proposed
restructuring of CWC. Under the terms of the agreement, CWC's consumer cable
telephone, television and Internet operations would be separated from its
corporate, business, Internet protocol and wholesale operations. The consumer
operations would be acquired by NTL and the other operations would be acquired
by Cable & Wireless. In exchange for our interest in CWC, we would receive
shares in the two acquiring companies, representing approximately 9.1% of the
NTL shares currently outstanding and approximately 4.6% of the Cable & Wireless
shares currently outstanding.
The completion of the restructuring is subject to a number of conditions and,
assuming satisfaction of those conditions, is expected to close in the first
half of 2000.
12
<PAGE>
In August 1998 we monetized our investment in CWC and issued approximately
$3,180 million in notes which are exchangeable into shares of CWC at the option
of the holder after July 1, 2002. Upon completion of the restructuring, our
previously issued $3,180 million in CWC exchangeable notes would be exchangeable
on and after July 1, 2002 for shares in NTL and Cable & Wireless in proportion
to the shares received in the restructuring. Upon exchange by the holders, we
retain the option to settle in cash or by delivery of shares.
Thailand
We have an economic interest of 18.2% in TelecomAsia Corporation Public Company
Limited (TelecomAsia), which operates a telecommunications network and CATV
system in metropolitan Bangkok. At year-end, TelecomAsia had approximately 1.4
million telephony lines billed. It is anticipated that, on or about March 31,
2000, our economic interest in Telecom Asia will drop to approximately 13.8% in
connection with an increase in capital of the company and the issuance of
preference shares to a major creditor of the company as part of the company's
debt restructuring. Under the terms of the issuance, we would have the right,
commencing March 31, 2002 and continuing for six years thereafter, to purchase
our pro rata portion of common shares from the creditor at a formula price, and
thereby restore our 18.2% interest in TelecomAsia.
Philippines
We have a 19.36% economic interest in Bayan Telecommunications Holdings
Corporation (BayanTel), a local exchange provider. At December 31, 1999,
BayanTel had approximately 252,000 access lines.
FLAG
FLAG Limited (FLAG) owns and operates an undersea fiberoptic cable system,
providing digital communications links between Europe and Asia. FLAG launched
commercial service in the fourth quarter of 1997. We have invested approximately
$227 million in the venture since 1994.
At December 31, 1999, we had an approximately 34% interest in FLAG and an
approximately 5% interest in the parent company of FLAG, FLAG Telecom Holding
Limited (FLAG Telecom). In January 2000, we exchanged our shares in FLAG for an
interest in FLAG Telecom resulting in an aggregate interest in FLAG Telecom of
approximately 38%. There was no impact to our financial statements or our
effective ownership interest as a result of this transaction.
In February 2000, FLAG Telecom conducted an initial public offering. The primary
offering consisted of approximately 28 million of newly issued common shares.
Certain existing shareowners also participated in a secondary offering in which
approximately 8 million of their common shares were sold. We did not acquire any
new shares in the primary offering, nor did we participate in the secondary
offering. As a result, our current ownership interest has been reduced to
approximately 30%.
EMPLOYEES
As of December 31, 1999, Bell Atlantic and its subsidiaries had approximately
145,000 employees. Unions represent approximately 69% of our employees.
Collective bargaining agreements with the unions expire in August 2000.
13
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
In this Annual Report on Form 10-K we have made forward-looking statements.
These statements are based on our estimates and assumptions and are subject to
risks and uncertainties. Forward-looking statements include the information
concerning our possible or assumed future results of operations. Forward-looking
statements also include those preceded or followed by the words "anticipates,"
"believes," "estimates," "hopes" or similar expressions. 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, along with those discussed elsewhere in this
Annual Report, could affect future results 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 us
or by companies in which we have substantial investments;
. material changes in available technology;
. the final outcome of federal, state and local regulatory initiatives and
proceedings, including arbitration proceedings, and judicial review of those
initiatives and proceedings, pertaining to, among other matters, the terms of
interconnection, access charges, universal service, and unbundled network
elements and resale rates;
. the extent, timing, success and overall effects of competition from others in
the local telephone and toll service markets;
. the timing and profitability of our entry into the in-region long distance
market;
. the timing of, and regulatory or other conditions associated with, the
completion of the merger with GTE and our ability to combine operations and
obtain revenue enhancement and cost savings following the merger; and
. the timing of, and regulatory or other conditions associated with, the
completion of the wireless transaction with Vodafone AirTouch, and the
ability of the new wireless enterprise to combine operations and obtain
revenue enhancements and cost savings.
14
<PAGE>
Item 2. Properties
GENERAL
Our principal properties do not lend themselves to simple description by
character and location. Our total investment in plant, property and equipment
was approximately $89.2 billion at December 31, 1999 and $83.1 billion at
December 31, 1998, including the effect of retirements, but before deducting
accumulated depreciation. Our gross investment in plant, property and equipment
consisted of the following at December 31:
1999 1998
----------------------------
Outside communications plant 40.7% 40.5%
Central office equipment 37.9 37.9
Land and buildings 8.3 8.5
Furniture, vehicles and other work equipment 8.9 9.5
Other 4.2 3.6
----------------------------
100.0% 100.0%
============================
Our properties are divided among our operating segments as follows:
1999 1998
---------------------------
Domestic Telecom 87.4% 92.3%
Global Wireless 12.0 7.2
Directory .3 .4
Other Businesses .3 .1
---------------------------
100.0% 100.0%
===========================
"Outside communications plant" consists primarily of aerial cable, underground
cable, conduit and wiring, cellular plant, and telephone poles. "Central office
equipment" consists of switching equipment, transmission equipment and related
facilities. "Land and buildings" consists of land and land improvements, and
principally central office buildings. "Furniture, vehicles and other work
equipment" consists of public telephone instruments and telephone equipment
(including PBXs), furniture, office equipment, motor vehicles and other work
equipment. "Other" property consists primarily of plant under construction,
capital leases, capitalized computer software costs and leasehold improvements.
The customers of our operating telephone subsidiaries are served by electronic
switching systems that provide a wide variety of services. The operating
telephone subsidiaries' network is in a transition from an analog to a digital
network, which provides the capabilities to furnish advanced data transmission
and information management services. At December 31, 1999, approximately 99% of
the access lines were served by digital capability.
Substantially all of the assets of New York Telephone Company, totaling
approximately $14.1 billion at December 31, 1999, are subject to the lien of New
York Telephone Company's refunding mortgage bond indenture.
CAPITAL EXPENDITURES
We continue to make significant capital expenditures to meet the demand for
communications services and to further improve such services. Capital
expenditures for our Domestic Telecom business were approximately $7.5 billion
in 1999, $6.4 billion in 1998 and $5.5 billion in 1997. Capital expenditures for
our Global Wireless, Directory and Other Businesses were approximately $1.2
billion in 1999, $1.0 billion in 1998 and $1.1 billion in 1997. Capital
expenditures exclude additions under capital leases. We expect capital
expenditures in 2000 to be in the range of $8.9 billion to $9.2 billion.
15
<PAGE>
Item 3. Legal Proceedings
The New York State Attorney General's Office is conducting a grand jury
investigation of possible environmental violations and false document charges
relating to the former Orangeburg, New York Material Reclamation Center, which
was operated by NYNEX Material Enterprises Company from 1988 to 1990; by
Telesector Resources Group, Inc. from 1990 to May 1997; and under contract with
Telesector Resources Group, Inc. by an unrelated company from May 1997 to
October 1998, when the facility was closed. The Attorney General's Office has
indicated that its investigation includes Telesector Resources Group, Inc.,
NYNEX Corporation and Bell Atlantic Corporation, but no charges have been filed
against any of the foregoing companies, which are cooperating with the
investigation.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to our executive
officers.
<TABLE>
<CAPTION>
Held
Name Age Office Since
- ------------------------- --- -------------------------------------------------------------- -----
<S> <C> <C> <C>
Ivan G. Seidenberg 53 Chairman and Chief Executive Officer 1998
Lawrence T. Babbio, Jr. 55 President and Chief Operating Officer 1998
James G. Cullen 57 President and Chief Operating Officer 1998
Jacquelyn B. Gates 48 Vice President - Ethics and Corporate Compliance 1998
William F. Heitmann 51 Vice President - Treasurer (Acting) 1999
John F. Killian 45 Vice President - Investor Relations 1999
Mark J. Mathis 52 Executive Vice President and General Counsel (Acting) 2000
Donald J. Sacco 58 Executive Vice President - Human Resources 1997
Frederic V. Salerno 56 Senior Executive Vice President and Chief Financial 1997
Officer/Strategy and Business Development
Dennis F. Strigl 53 President and Chief Executive Officer - Global Wireless Group 1995
Thomas J. Tauke 49 Executive Vice President - External Affairs and Corporate 1999
Communications (Acting)
Doreen A. Toben 50 Vice President - Controller 1998
</TABLE>
Prior to serving as an executive officer, each of the above officers have held
high level managerial positions with the company or one of its subsidiaries for
at least five years.
Officers are not elected for a fixed term of office but are removable at the
discretion of the Board of Directors.
16
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The principal market for trading in the common stock of Bell Atlantic is the New
York Stock Exchange. The common stock is also listed in the United States on the
Boston, Chicago, Pacific, and Philadelphia stock exchanges. As of December 31,
1999, there were 1,028,500 shareowners of record.
High and low stock prices, as reported on the New York Stock Exchange composite
tape of transactions, and dividend data are as follows:
<TABLE>
<CAPTION>
Market Price
-------------------------------- Cash Dividend
High Low Declared
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1999: First Quarter $60 7/16 $50 5/8 $.385
Second Quarter 65 3/8 50 15/16 .385
Third Quarter 68 3/16 60 1/4 .385
Fourth Quarter 69 1/2 59 3/16 .385
1998: First Quarter $53 $42 3/8 $.385
Second Quarter 51 5/8 44 11/16 .385
Third Quarter 50 7/16 40 7/16 .385
Fourth Quarter 61 3/16 47 3/4 .385
</TABLE>
Reflects 2-for-1 stock split declared and paid in second quarter of 1998.
Item 6. Selected Financial Data
The information required by this item is included on page F-23 of this report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is included on pages F-2 through F-21 of
this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is included on pages F-15 through F-17 of
this report.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included on pages F-22 through F-55 of
this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
17
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
For information with respect to our executive officers, see "Executive Officers
of the Registrant" at the end of Part I of this Report. For information with
respect to the Directors and compliance with Section 16(a) of the Securities
Exchange Act of 1934, see the Proxy Statement for our 2000 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A, which is incorporated
herein by reference.
Item 11. Executive Compensation
For information with respect to executive compensation, see the Proxy Statement
for our 2000 Annual Meeting of Shareholders to be filed pursuant to Regulation
14A, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
For information with respect to the security ownership of the Directors and
Executive Officers, see the Proxy Statement for our 2000 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A, which is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
For information with respect to certain relationships and related transactions,
see the Proxy Statement for our 2000 Annual Meeting of Shareholders to be filed
pursuant to Regulation 14A, which is incorporated herein by reference.
18
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
See Index to Financial Information appearing on Page F-1.
(2) Financial Statement Schedule
See Index to Financial Information appearing on Page F-1.
(3) Exhibits
Exhibits identified in parentheses below, on file with the Securities
and Exchange Commission (SEC) in File No. 1-8606 except as otherwise noted, are
incorporated herein by reference as exhibits hereto.
Exhibit
Number
- ------
2 Agreement and Plan of Merger by and among Bell Atlantic Corporation,
Beta Gamma Corporation and GTE Corporation, dated as of July 27, 1998.
(Exhibit 2.01 to Form 8-K, date of report July 30, 1998.)
3a Restated Certificate of Incorporation of Bell Atlantic Corporation
("Bell Atlantic"). (Exhibit 3(i) to Form 8-K, date of report August 14,
1997.)
3b By-Laws of Bell Atlantic, as amended and restated as of January 1,
1999. (Exhibit 3b to Form 10-K for the year ended December 31, 1998.)
4 No instrument which defines the rights of holders of long-term debt of
Bell Atlantic and its consolidated subsidiaries is filed herewith
pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, Bell Atlantic hereby agrees to furnish a copy of any such
instrument to the SEC upon request.
10a Bell Atlantic Deferred Compensation Plan for Outside Directors, as
amended and restated as of January 1, 1998. (Exhibit 10a to Form 10-K
for the year ended December 31, 1998.)*
10b Description of Bell Atlantic Insurance Plan for Directors.*
10c Description of Bell Atlantic Plan for Non-Employee Directors' Travel
Accident Insurance.*
10d Bell Atlantic Retirement Plan for Outside Directors, as amended and
restated as of January 1, 1996. (Exhibit 10k to Form 10-K for the year
ended December 31, 1995.)*
10e Bell Atlantic Stock Compensation Plan for Outside Directors, as amended
and restated as of January 1, 1998. (Exhibit 10e to Form 10-K for the
year ended December 31, 1998.)*
10f Bell Atlantic Corporation Directors' Charitable Giving Program.
(Exhibit 10p to Form SE dated March 29, 1990.)*
10f(i) Resolutions amending and partially terminating the Program.
(Exhibit 10p to Form SE dated March 29, 1993.)*
10g Description of Changes in Compensation for Outside Directors of Bell
Atlantic, effective August 14, 1997 (Exhibit 10y to Form 10-Q for the
quarter ended September 30, 1997.)*
19
<PAGE>
10h Bell Atlantic Senior Management Short Term Incentive Plan, as amended
and restated effective as of January 22 1996. (Exhibit 10a to Form 10-K
for the year ended December 31, 1996.)*
10h(i) Description of Amendment, effective August 14, 1997. (Exhibit
10a(i) to Form 10-Q for the quarter ended September 30,
1997.)*
10i Bell Atlantic Senior Management Income Deferral Plan, effective as of
January 1, 1998. *
10j Bell Atlantic 1985 Incentive Stock Option Plan, restated as of June 1,
1999 to incorporate amendments adopted through May 31, 1999.*
10k Section 6 from Bell Atlantic Cash Balance Plan regarding limitations on
payment of pension amounts which exceed the limitations contained in
the Employee Retirement Income Security Act of 1974. *
10l Bell Atlantic Senior Management Long-Term Disability and Survivor
Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27,
1986.)*
10l(i) Description of Amendments, effective January 1, 1998, to Bell
Atlantic Senior Management Long Term Disability Plan (formerly
known, as the Bell Atlantic Senior Management Long-Term
Disability and Survivor Protection Plan). (Exhibit 10b(ii) to
Form 10-K for the year ended December 31, 1997.)*
10m Bell Atlantic Salary Program for Senior Managers, effective August 14,
1997. (Exhibit 10x to Form 10-Q for the quarter ended September 30,
1997.)*
10n (reserved)
10o Description of Bell Atlantic Senior Management Estate Management Plan,
effective April 1, 1998. (Exhibit 10rr to Form 10-K for year ended
December 31, 1997.)*
10p Description of Bell Atlantic Senior Management Flexible Spending
Perquisite Account, effective January 1, 1998. (Exhibit 10ss to Form
10-K for year ended December 31, 1997.)*
10q (reserved)
10r NYNEX 1987 Restricted Stock Award Plan (Exhibit No. (28) (i) 1 to
NYNEX's filing on Form SE dated March 23, 1988, File No. 1-8608.)*
10s NYNEX 1990 Stock Option Plan as amended. (Exhibit No. 2 to NYNEX's
Proxy Statement dated March 20, 1995, File No. 1-8608.)*
10t NYNEX 1995 Stock Option Plan as amended. (Exhibit No. 1 to NYNEX's
Proxy Statement dated March 20, 1995, File No. 1-8608.)*
10u (reserved)
10v NYNEX Supplemental Life Insurance Plan. (Exhibit No. 10 iii 21 to
NYNEX's Quarterly Report on Form 10-Q for the period ended June 30,
1996, File No. 1-8608.)*
10w Form of NYNEX Executive Retention Agreement with John Killian and
Thomas J. Tauke. (Exhibit No. 10 iii 35 to NYNEX's Quarterly Report on
Form 10-Q, for the period ended June 30, 1996, File No. 1-8608.)*
10x Employment Agreement, dated June 30, 1995, between Cellco Partnership
and Dennis Strigl, as amended.*
10y Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Lawrence T. Babbio, Jr.. (Exhibit 10a to Form
10-Q for the quarter ended June 30, 1998.)*
10z Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and James G. Cullen. (Exhibit 10b to Form 10-Q for
the quarter ended June 30, 1998.)*
20
<PAGE>
10z(i) Letter, dated November 4, 1999, to James G. Cullen concerning
employment-related issues.*
10aa Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Frederic V. Salerno. (Exhibit 10c to Form 10-Q
for the quarter ended June 30, 1998.)*
10bb Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Donald J. Sacco. (Exhibit 10d to Form 10-Q for
the quarter ended June 30, 1998.)*
10cc Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Morrison DeS. Webb. (Exhibit 10e to Form 10-Q
for the quarter ended June 30, 1998.)*
10dd Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and James R. Young. (Exhibit 10f to Form 10-Q for
the quarter ended June 30, 1998.)*
10ee Form of Amendment, dated as of October 27, 1998, to Employment
Agreements with Lawrence T. Babbio, Jr., James G. Cullen, Frederic V.
Salerno, Donald J. Sacco, Morrison DeS. Webb and James R. Young.
(Exhibit 10ee to Form 10-K for the year ended December 31, 1998.)*
10ff Employment Agreement, dated as of January 1, 1999, by and between Bell
Atlantic Corporation and Ivan G. Seidenberg. (Exhibit 10ff to Form 10-K
for the year ended December 31, 1998.)*
10gg (reserved)
10hh Resolution, dated January 24, 1994, granting Lawrence T. Babbio, Jr.
certain nonqualified stock options to purchase American Depository
Receipts representing Series L shares of the capital stock of Grupo
Iusacell, S.A. de C.V. (Exhibit 10s to Form 10-K for the year ended
December 31, 1993.)*
10ii Form of stock option grant to Lawrence T. Babbio, Jr., dated February
18, 1997, containing terms and conditions of certain nonqualified stock
options to purchase American Depository Receipts representing Series L
shares of the capital stock of Grupo Iusacell, S.A. de C.V. (Exhibit
10q to Form 10-K for the year ended December 31, 1996.)*
10jj Form of Stay Incentive Agreement and Separation and Non-Compete
Agreement with Doreen A. Toben with respect to the Bell Atlantic-NYNEX
merger. (Exhibit 10(f) to Registration Statement on Form S-4 No.
333-11573.)*
10kk Form of Stay Incentive Agreement, dated as of November 23, 1998, with
Doreen A. Toben and Dennis Strigl with respect to the Bell Atlantic -
GTE Merger. (Exhibit 10kk to Form 10-K for the year ended December 31,
1998.)*
10ll Form of Stay Incentive Agreement, dated as of November 23, 1998, with
Thomas J. Tauke, William F. Heitmann, Mark J. Mathis, and John Killian.
(Exhibit 10ll to Form 10-K for the year ended December 31, 1998.)*
10mm Form of Stay Incentive Agreement, dated as of November 23, 1998, with
Jacquelyn B. Gates and Chester N. Watson. (Exhibit 10mm to Form 10-K
for the year ended December 31, 1998.)*
10nn Form of Merger Agreement, dated as of January 29, 1999, with Doreen A.
Toben, William F. Heitmann, and Mark J. Mathis. (Exhibit 10nn to Form
10-K for the year ended December 31, 1998.)*
10oo U.S. Wireless Agreement, dated September 21, 1999, among Bell Atlantic
Corporation and Vodafone AirTouch plc, including the forms of Amended
and Restated Partnership Agreement and the Investment Agreement.
(Exhibit 10 to Form 10-Q for the quarter ended September 30, 1999.)
10pp Form of Merger Agreement, dated as of January 29, 1999, with Jacquelyn
B. Gates and Chester N. Watson. (Exhibit 10pp to Form 10-K for the year
ended December 31, 1998.)*
21
<PAGE>
10qq Stock Option Agreement, dated as of July 27, 1998, between Bell
Atlantic Corporation and GTE Corporation. (Exhibit 10.01 to Form 8-K,
date of report July 30, 1998.)*
10rr Stock Option Agreement, dated as of July 27, 1998, between GTE
Corporation and Bell Atlantic Corporation. (Exhibit 10.02 to Form 8-K,
date of report July 30, 1998.)*
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of subsidiaries of Bell Atlantic.
23 Consent of Independent Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
- -----------
*Indicates management contract or compensatory plan or arrangement.
22
<PAGE>
(b) Current Reports on Form 8-K filed during the quarter ended December 31,
1999:
A Current Report on Form 8-K, dated October 7, 1999, was filed
regarding a strategic agreement with Metromedia Fiber Network, Inc.
A Current Report on Form 8-K, dated October 20, 1999, was filed
regarding Bell Atlantic's third quarter 1999 financial results.
A Current Report on Form 8-K, dated November 16, 1999, was filed
regarding a statement made on November 16, 1999 following an investment
conference.
A Current Report on From 8-K, dated November 19, 1999, was filed
regarding the termination of discussions concerning a potential
combination of the wireless properties of Nuevo Grupo Iusacell, S.A. de
C.V. and cellular properties in Northern Mexico.
A Current Report on Form 8-K, dated December 22, 1999, was filed
regarding the approval by the Federal Communications Commission of our
application to offer long distance service in New York.
A Current Report on Form 8-K, dated December 27, 1999, was filed
containing audited financial statements of Cellco Partnership and
Subsidiaries at and for the years ended December 31, 1996, 1997 and
1998, together with a report of PricewaterhouseCoopers LLP, and
unaudited financial statements at and for the nine months ended
September 30, 1999 and for the nine months ended September 30, 1998.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Doreen A. Toben
-----------------------------
Doreen A. Toben
Vice President -
Controller
March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
Principal Executive Officer: Chairman of the * * *
Ivan G. Seidenberg Board and Chief *
Executive Officer *
*
Principal Financial Officer: Senior Executive Vice *
Frederic V. Salerno President and Chief *
Financial Officer/Strategy and *
Business Development *
*
Principal Accounting Officer: Vice President - Controller *
Doreen A. Toben *
*
Directors: *
*
Lawrence T. Babbio, Jr. * * * By /s/ Doreen A. Toben
Richard L. Carrion * --------------------------
James G. Cullen * Doreen A. Toben
Lodewijk J.R. de Vink * (individually and as
James H. Gilliam, Jr. * attorney-in-fact)
Stanley P. Goldstein * March 28, 2000
Helene L. Kaplan *
Thomas H. Kean *
Elizabeth T. Kennan *
John F. Maypole *
Joseph Neubauer *
Thomas H. O'Brien *
Eckhard Pfeiffer *
Hugh B. Price *
Rozanne L. Ridgway *
Frederic V. Salerno *
Ivan G. Seidenberg *
Walter V. Shipley *
John R. Stafford *
Shirley Young * * * *
</TABLE>
24
<PAGE>
INDEX TO FINANCIAL INFORMATION
Page Number
-----------
Management's Discussion and Analysis of Results of Operations
and Financial Condition ........................................ F-2
Report of Management .............................................. F-22
Report of Independent Accountants ................................. F-22
Selected Financial Data ........................................... F-23
Consolidated Statements of Income
For the years ended December 31, 1999, 1998, and 1997 .......... F-24
Consolidated Balance Sheets
December 31, 1999 and 1998 ..................................... F-25
Consolidated Statements of Changes in Shareowners' Investment
For the years ended December 31, 1999, 1998, and 1997 .......... F-26
Consolidated Statements of Cash Flows
For the years ended December 31, 1999, 1998, and 1997 .......... F-27
Notes to Consolidated Financial Statements ........................ F-28
Schedule II--Valuation and Qualifying Accounts
For the years ended December 31, 1999, 1998, and 1997 .......... F-56
Financial statement schedules other than that listed above have been omitted
because such schedules are not required or applicable.
F-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
We are in the midst of an extraordinarily eventful period in our history as we
continue to transform our business, assembling the assets and capabilities to
compete in a telecommunications industry that is rapidly consolidating and
becoming global in scope. In 1999, we continued to deliver on our financial
targets and made dramatic progress on the strategic front, as well.
Financially, we achieved our fifth consecutive year of double-digit earnings
growth, accelerated our revenue growth to more than 5%, and did an excellent job
of controlling costs and capturing synergy savings from the Bell Atlantic-NYNEX
merger. In addition, we continued to aggressively invest in areas of new growth,
namely data, wireless, and long distance.
On the strategic front, we became the first of our peers to enter the long
distance market, gaining approval to offer long distance service in the State of
New York in late December 1999. We believe that competition expands markets, and
the opening of our network to other providers has created significant
opportunities for us, not just in long distance, but as a wholesale provider, as
well. During the year, we expanded our data capabilities for the large business
customer with some targeted acquisitions and alliances. And we reached a
strategic agreement with Metromedia Fiber Network, Inc. that gives us access to
fiber-optic capacity in 50 cities across the country and several international
locations. On the residential side, we accelerated the roll-out of our
high-speed Internet access service, Digital Subscriber Line, aiming to be able
to serve ten million households in early 2000.
In the wireless business, we announced that we will join the U.S. wireless
assets of Bell Atlantic and Vodafone AirTouch plc which, with the addition of
GTE Corporation's (GTE) U.S. wireless assets, will create a new nationwide
wireless company serving 49 of the top 50 markets in the nation. In addition, we
continued to fill out our regional footprint with a number of small acquisitions
and fully acquired the cellular properties of Frontier Corporation. We extended
digital coverage to 95% of our market and entered the fast-growing wireless data
market with several commercial products in the fall of 1999. Internationally, we
increased our equity stake in Omnitel Pronto Italia S.p.A. (Omnitel), the
fastest growing wireless company in Europe, to 23.14% in 1999.
And we continued to make progress on our most important strategic initiative of
all, the merger with GTE. The state approval process is complete, our
discussions with the Federal Communications Commission (FCC) continue, and we
aim for Bell Atlantic and GTE to be one company in the second quarter of 2000.
- --------------------------------------------------------------------------------
CONSOLIDATED RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
In reviewing our operating performance, we discuss our results of operations on
what we call an adjusted basis. This means we take our as-reported results and
adjust for the effects of special items, which are of a nonoperational nature.
We believe that this will assist readers in better understanding Bell Atlantic
in terms of trends from period to period. A discussion of these special items,
including tables which illustrate their effects on our consolidated statements
of income, follows.
We reported net income of $4,202 million or $2.65 diluted earnings per share for
the year ended December 31, 1999, compared to net income of $2,965 million or
$1.86 diluted earnings per share for the year ended December 31, 1998. In 1997,
we reported net income of $2,455 million or $1.56 diluted earnings per share.
Our reported results for all three years were affected by special items. After
adjusting for such items, net income would have been $4,760 million or $3.01
diluted earnings per share in 1999, $4,323 million or $2.72 diluted earnings per
share in 1998, and $3,847 million or $2.45 diluted earnings per share in 1997.
The table below summarizes reported and adjusted results of operations for each
period.
<TABLE>
<CAPTION>
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 33,174 $ 31,566 $ 30,194
Operating expenses 24,679 24,939 24,853
-------------------------------------------
Operating income 8,495 6,627 5,341
REPORTED NET INCOME 4,202 2,965 2,455
-------------------------------------------
Special items--pre-tax
Mark-to-market adjustment for
exchangeable notes 664 - -
Merger-related costs 205 196 519
Retirement incentive costs - 1,021 513
Other charges and special items - 589 1,041
-------------------------------------------
Total special items--pre-tax 869 1,806 2,073
Tax effect and other tax-related items (311) (448) (681)
-------------------------------------------
Total special items--after-tax 558 1,358 1,392
-------------------------------------------
ADJUSTED NET INCOME $ 4,760 $ 4,323 $ 3,847
===========================================
DILUTED EARNINGS PER SHARE--REPORTED $ 2.65 $ 1.86 $ 1.56
DILUTED EARNINGS PER SHARE--ADJUSTED $ 3.01 $ 2.72 $ 2.45
</TABLE>
F-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
The following table shows how special items are reflected in our consolidated
statements of income for each period.
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
OPERATING REVENUES
Regulatory contingencies $ - $ - $ 179
--------------------------------------
EMPLOYEE COSTS
Retirement incentive costs - 1,021 513
Merger direct incremental costs - - 53
Merger severance costs - - 223
Merger transition costs 58 15 4
Video-related charges - - 12
Other special items - 30 -
DEPRECIATION AND AMORTIZATION
Write-down of assets - 40 300
OTHER OPERATING EXPENSES
Merger direct incremental costs - - 147
Merger transition costs 147 181 92
Video-related charges - 15 69
Real estate consolidation - - 55
Regulatory, tax and legal contingencies
and other special items - 9 347
--------------------------------------
205 1,311 1,815
--------------------------------------
INCOME/LOSS FROM
UNCONSOLIDATED BUSINESSES
Write-down of Asian investments - 485 -
Write-down of video investments - 8 162
Equity share of CWC formation costs - - 59
Gains on sales of investments - - (142)
OTHER INCOME AND EXPENSE, NET
Write-down of assets - (45) -
INTEREST EXPENSE
Write-down of assets - 47 -
MARK-TO-MARKET ADJUSTMENT FOR
EXCHANGEABLE NOTES 664 - -
--------------------------------------
TOTAL SPECIAL ITEMS--PRE-TAX 869 1,806 2,073
PROVISION FOR INCOME TAXES
Tax effect of special items and
other tax-related items (311) (448) (681)
--------------------------------------
TOTAL SPECIAL ITEMS--AFTER-TAX $ 558 $ 1,358 $ 1,392
======================================
What follows is a further explanation of the nature and timing of these special
items.
- --------------------------------------------------------------------------------
Mark-to-Market Adjustment for Exchangeable Notes
- --------------------------------------------------------------------------------
YEAR 1999
In the fourth quarter of 1999, we recorded a loss on a mark-to-market adjustment
of $664 million ($432 million after-tax) related to our $3.2 billion notes
exchangeable into shares of Cable & Wireless Communications plc (CWC). This
noncash, nonoperational adjustment resulted in an increase in the carrying value
of the debt obligation and a charge to income. This mark-to-market adjustment
was required because the CWC exchangeable notes are indexed to the fair market
value of CWC's common stock. At December 31, 1999, the price of CWC shares
exceeded the exchange price established at the offering date. If the share price
of CWC subsequently declines, our debt obligation is reduced (but not to less
than its amortized carrying value) and income is increased. A mark-to-market
adjustment may be recorded monthly, recognizing either a gain or a loss, to
reflect the difference between the CWC market price and the exchange price (no
adjustment is required if the market price is below the exchange price). The CWC
exchangeable notes may be exchanged beginning in July 2002. For additional
information about the CWC exchangeable notes, see Note 10 to the consolidated
financial statements.
- --------------------------------------------------------------------------------
Merger-related Costs
- --------------------------------------------------------------------------------
YEARS 1999, 1998 AND 1997
In connection with the Bell Atlantic-NYNEX merger, which was completed in August
1997, we recorded pre-tax merger-related costs totaling $205 million in 1999,
$196 million in 1998, and $519 million in 1997.
In 1999 and 1998, all merger-related costs were transition and integration
costs. Transition and integration costs represent costs associated with
integrating the operations of Bell Atlantic and NYNEX, such as systems
modifications costs, advertising and branding costs, and costs associated with
the elimination and consolidation of duplicate facilities, relocation and
retraining. Transition and integration costs are expensed as incurred.
In 1997, direct incremental costs consisted of expenses associated with
completing the merger transaction, such as professional and regulatory fees,
compensation arrangements, and shareowner-related costs. Employee severance
costs, as recorded under SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," represent the anticipated benefit costs for the separation by the end
of 1999 of approximately 3,100 management employees who are entitled to benefits
under pre-existing separation pay plans. During 1997, 1998, and 1999, 245, 856,
and 231 management employees were separated with severance benefits. At December
31, 1999, the merger-related separations were completed and the remaining
liability balance represents our obligation for ongoing separations under the
pre-existing separation plan pays in accordance with SFAS No. 112.
Merger-related costs were comprised of the following amounts in each year:
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
TRANSITION AND INTEGRATION COSTS
Systems modifications $ 186 $ 149 $ 36
Advertising - 20 -
Branding 1 11 48
Relocation, training and other 18 16 12
-----------------------------------
TOTAL TRANSITION AND INTEGRATION COSTS 205 196 96
===================================
DIRECT INCREMENTAL COSTS
Professional services 80
Compensation arrangements 54
Shareowner-related 16
Registration and other regulatory 18
Taxes and other 32
-----------
TOTAL DIRECT INCREMENTAL COSTS 200
===========
EMPLOYEE SEVERANCE COSTS 223
-----------------------------------
TOTAL MERGER-RELATED COSTS $ 205 $ 196 $ 519
===================================
F-3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Retirement Incentives
- --------------------------------------------------------------------------------
YEARS 1998 AND 1997
In 1993, we announced a restructuring plan which included an accrual of
approximately $1.1 billion (pre-tax) for severance and postretirement medical
benefits under an involuntary force reduction plan. Beginning in 1994,
retirement incentives were offered under a voluntary program as a means of
implementing substantially all of the work force reductions announced in 1993.
Since the inception of the retirement incentive program, we have recorded
additional costs totaling approximately $3.0 billion (pre-tax) through December
31, 1998. These additional costs and the corresponding number of employees
accepting the retirement incentive offer for each year ended December 31 are as
follows:
(dollars in millions)
Years Amount Employees
- --------------------------------------------------------------------------------
1994 $ 694 7,209
1995 515 4,759
1996 236 2,996
1997 513 4,311
1998 1,021 7,299
-----------------------------
$ 2,979 26,574
=============================
The additional costs were comprised of special termination pension and
postretirement benefit amounts, as well as employee costs for other items. These
costs were reduced by severance and postretirement medical benefit reserves
established in 1993 and transferred to offset the pension and postretirement
benefit liabilities as employees accepted the retirement incentive offer. The
voluntary retirement program covering associate employees was completed in
September 1998. The severance and postretirement medical reserves balances were
fully utilized at December 31, 1998. You can find additional information on
retirement incentive costs in Note 16 to the consolidated financial statements.
- --------------------------------------------------------------------------------
Other Charges and Special Items
- --------------------------------------------------------------------------------
YEAR 1998
During 1998, we recorded other charges and special items totaling $589 million
(pre-tax) in connection with the write-down of Asian investments and obsolete or
impaired assets and for other special items arising during the period. The
remaining liability associated with these charges was $2 million at December 31,
1999 and $8 million at December 31, 1998. These charges are comprised of the
following significant items.
Asian Investments
In the third quarter of 1998, we recorded pre-tax charges of $485 million to
adjust the carrying values of two Asian investments--TelecomAsia, a wireline
investment in Thailand, and Excelcomindo, a wireless investment in Indonesia. We
account for these investments under the cost method.
The charges were necessary because we determined that the decline in the
estimated fair values of each of these investments was other than temporary. We
determined the fair values of these investments by discounting estimated future
cash flows.
In the case of TelecomAsia, we recorded a charge of $348 million to adjust the
carrying value of the investment to its estimated fair value. We considered the
following factors in determining this charge:
. The continued weakness of the Thai currency as compared to historical
exchange rates had placed additional financial burdens on the company in
servicing U.S. dollar-denominated debt.
. The economic instability and prospects for an extended recovery period had
resulted in weaker than expected growth in TelecomAsia's business. This was
indicated by slower than expected growth in total subscribers and usage.
These factors resulted in reduced expectations of future cash flows and,
accordingly, a reduction in the value of our investment.
. The business plan for TelecomAsia contemplated cash flows from several lines
of business. Given TelecomAsia's inclination to focus on its core wireline
business, these other lines of business would not contribute future cash
flows at previously expected levels.
In the case of Excelcomindo, we recorded a charge of $137 million to adjust the
carrying value of the investment to its estimated fair value. We considered the
following factors in determining this charge:
. The continued weakness of the Indonesian currency as compared to historical
exchange rates had placed additional financial burdens on the company in
servicing U.S. dollar-denominated debt. The political unrest in Indonesia
contributed to the currency's instability.
. The economic instability and prospects for an extended recovery period had
resulted in weaker than expected growth in Excelcomindo's business. One
significant factor was the inflexible tariff regulation despite rising costs
due to inflation. This and other factors resulted in reduced expectations of
future cash flows and, accordingly, a reduction in the value of our
investment.
. Issues with cash flow required Excelcomindo's shareholders to evaluate the
future funding of the business.
We continue to monitor the political, economic, and financial aspects of our
remaining investments in Thailand and Indonesia, as well as other investments.
The book value of our remaining Asian investments was approximately $179 million
at December 31, 1999. Should we determine that any further decline in the fair
values of these investments is other than temporary, the impact could be
material to our results of operations.
Video-related Charges
During 1998, we recorded pre-tax charges of $23 million related primarily to
wireline and other nonsatellite video initiatives. We made a strategic decision
in 1998 to focus our video efforts on satellite service offered in conjunction
with DirecTV and USSB. We communicated the decision to stop providing wireline
video services
F-4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
to subscribers and offered them the opportunity to subscribe to the
satellite-based video service that we introduced in 1998. In the third quarter
of 1998, we decided to dispose of these wireline video assets by sale or
abandonment, and we conducted an impairment review under the requirements of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." We based our estimate on an estimate of
cash flows expected to result from the use of the assets prior to their disposal
and the net proceeds (if any) expected to result from the disposal.
Write-down of Other Assets and Other Items
Results for 1998 also included a pre-tax charge, net of minority interest, of
$42 million for the write-down of fixed assets (primarily buildings and wireless
communications equipment) and capitalized interest associated with our Mexican
wireless investment, Grupo Iusacell, S.A. de C.V. (Iusacell), which we account
for as a consolidated subsidiary.
These assets relate to Iusacell's trial of fixed wireless service provided over
the 450 MHz frequency. While continuing this trial, Iusacell has been
considering whether or not to pursue its rights to acquire 450 MHz licenses for
certain areas or to offer new services. Iusacell concluded that, in view of the
capability of CDMA technology and the success it had with its deployment, an
impairment existed with respect to assets related to the 450 MHz technology
since the carrying value of these assets exceeded the sum of the estimated
future cash flows associated with the assets. Iusacell is waiting for a
definitive proposal from the Mexican Federal Telecommunications Commissions
(COFETEL) as to the terms under which it could acquire certain 450 MHz licenses
in 2000. At that time, we should have available the full facts to decide
Iusacell's overall strategy concerning the 450 MHz licenses.
Other items arising in 1998 included charges totaling $39 million principally
associated with the settlement of labor contracts in August 1998.
YEAR 1997
During 1997, we recorded other charges and special items totaling $1,041 million
(pre-tax) in connection with consolidating operations and combining
organizations, and for other special items arising during the year. You can find
additional detail about these accrued liabilities in Note 2 to the consolidated
financial statements.
Video-related Charges
In 1997, we recognized total pre-tax charges of $243 million related to certain
video investments and operations. We determined that we would no longer pursue a
multichannel, multipoint, distribution system (MMDS) as part of our video
strategy. As a result, we recognized liabilities for purchase commitments
associated with the MMDS technology and costs associated with closing the
operations of our Tele-TV partnership because this operation no longer supports
our video strategy. We also wrote-down our remaining investment in CAI Wireless
Systems, Inc.
Write-down of Assets and Real Estate Consolidation
In the third quarter of 1997, we recorded pre-tax charges of $355 million for
the write-down of obsolete or impaired fixed assets and for the cost of
consolidating redundant real estate properties. As part of our merger
integration planning, we reviewed the carrying values of long-lived assets. This
review included estimating remaining useful lives and cash flows and identifying
assets to be abandoned. In the case of impaired assets, we analyzed cash flows
related to those assets to determine the amount of the impairment. As a result
of these reviews, we recorded charges of $275 million for the write-off of some
assets and $25 million for the impairment of other assets. These assets
primarily included computers and other equipment used to transport data for
internal purposes, copper wire used to provide telecommunications service in New
York, and duplicate voice mail platforms. None of these assets is held for
disposal. At December 31, 1998 and 1999, the impaired assets had no remaining
carrying value.
In connection with our merger integration efforts, we consolidated real estate
to achieve a reduction in the total square footage of building space that we
utilize. We sold properties, subleased some of our leased facilities, and
terminated other leases, for which we recorded a charge of $55 million in the
third quarter of 1997. Most of the charge related to properties in Pennsylvania
and New York, where corporate support functions were consolidated into fewer
work locations.
Regulatory, Tax and Legal Contingencies and Other Special Items
In 1997, we also recorded reductions to operating revenues and charges to
operating expenses totaling $526 million (pre-tax), which consisted of the
following:
. Revenue reductions consisted of $179 million for federal regulatory matters.
These matters relate to specific issues that are currently under
investigation by federal regulatory commissions. We believe that it is
probable that the ultimate resolution of these pending matters will result in
refunds to our customers.
. Charges to operating expenses totaled $347 million and consisted of $75
million for interest on federal and other tax contingencies; $55 million for
other tax matters; and $52 million for legal contingencies and a state
regulatory audit issue. These contingencies were accounted for under the
rules of SFAS No. 5, "Accounting for Contingencies." These charges also
included $95 million related to costs incurred in standardizing and
consolidating our directory businesses and $70 million for other post-merger
initiatives.
Other charges arising in 1997 included $59 million for our equity share of
formation costs previously announced by Cable & Wireless Communications plc
(CWC). We own an 18.6% interest in CWC and account for our investment under the
equity method.
In 1997, we recognized pre-tax gains of $142 million on the sales of our
ownership interests of several nonstrategic businesses. These gains included $42
million on the sale of our interest in Sky Network Television Limited of New
Zealand (SkyTV); $54 million on the sale of our 33% stake in an Italian wireline
venture, Infostrada; and $46 million on the sale of our two-sevenths interest in
Bell Communications Research, Inc. (Bellcore).
F-5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEGMENTAL RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
We have four reportable segments, which we operate and manage as strategic
business units and organize by products and services. Our segments are Domestic
Telecom, Global Wireless, Directory and Other Businesses. You can find
additional information about our segments in Note 18 to the consolidated
financial statements.
We measure and evaluate our reportable segments based on adjusted net income,
which excludes undistributed corporate expenses and special items arising during
each period. Special items are transactions that management has excluded from
the business units' results, but are included in reported consolidated earnings.
We previously described these special items in the Consolidated Results of
Operations section. Special items affected our segments as follows:
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
DOMESTIC TELECOM
Reported net income $ 3,332 $ 2,383 $ 2,016
Special items 112 790 977
--------------------------------------------
Adjusted net income $ 3,444 $ 3,173 $ 2,993
============================================
GLOBAL WIRELESS
Reported net income $ 388 $ 50 $ 113
Special items - 178 (18)
--------------------------------------------
Adjusted net income $ 388 $ 228 $ 95
============================================
DIRECTORY
Reported net income $ 712 $ 662 $ 564
Special items 14 22 93
--------------------------------------------
Adjusted net income $ 726 $ 684 $ 657
============================================
OTHER BUSINESSES
Reported net income (loss) $ 67 $ (231) $ 28
Special items - 366 20
--------------------------------------------
Adjusted net income $ 67 $ 135 $ 48
============================================
RECONCILING ITEMS
Reported net income (loss) $ (297) $ 101 $ (266)
Special items 432 2 320
--------------------------------------------
Adjusted net income $ 135 $ 103 $ 54
============================================
Reconciling items consist of corporate operations and intersegment eliminations.
[PIE CHART APPEARS HERE]
- --------------------------------------------------------------------------------
1999 Revenues by Segment
- --------------------------------------------------------------------------------
Directory 7%
Global Wireless 14%
Domestic Telecom 79%
------------------------
- --------------------------------------------------------------------------------
[LOGO APPEARS HERE] Domestic Telecom
- --------------------------------------------------------------------------------
Our Domestic Telecom segment consists primarily of our nine operating telephone
subsidiaries that provide local telephone services from Maine to Virginia,
including voice and data transport, enhanced and custom calling features,
network access, directory assistance, private lines, and public telephones. This
segment also provides customer premises equipment distribution, data solutions
and systems integration, billing and collections, and Internet access services.
Domestic Telecom represents the aggregation of our domestic wireline business
units (consumer, enterprise, general business, and network services) that focus
on specific markets to meet customer requirements.
[PIE CHART APPEARS HERE]
- --------------------------------------------------------------------------------
1999 Domestic Telecom Revenues Components
- --------------------------------------------------------------------------------
Local 55%
Long Distance 7%
Ancillary 8%
Network Access 30%
-----------------------------------------
HIGHLIGHTS
Healthy demand for core communications services and robust demand for new data
services enabled the Domestic Telecom group to increase total operating revenues
3.0% in each of 1999 and 1998 over the respective prior year. Access lines grew
3.1% in 1999 and 4.1% in 1998. Basic access line growth has declined because
customers are now choosing high capacity/high speed services for their
transport. The number of voice-grade equivalents (access lines plus data
circuits) in service grew 13.2% in 1999 and 11.6% in 1998. The number of DSO
circuits in service (digital, high-bandwidth and packet-switched services as
measured in 64-kilobit voice-grade equivalents) increased 39.6% over 1998 and
38.3% over 1997. Growth in access minutes of use was 5.0% in 1999, compared to
7.8% in 1998, reflecting a decline in customer demand due to win-back programs
for long distance services and a shift to wireless calling.
Data revenues (including those from high-bandwidth, packet-switched, and special
access services and network integration businesses) reached over $2.9 billion
for the year 1999, nearly 26% over 1998 levels. Data revenues in 1998 totaled
$2.3 billion, an increase of 33% over 1997.
Adjusted operating expenses totaled $19.8 billion in 1999, 1.2% above 1998
levels and $19.5 billion in 1998, an increase of 2.2% over 1997. Results in all
three years included costs for long distance entry, construction of a regional
long distance network, Year 2000 compliance costs, and interconnection payments
to competitive local exchange carriers.
F-6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
Additional financial information about Domestic Telecom's results of operations
for 1999, 1998, and 1997 follows.
Years Ended December 31, (dollars in millions)
Results of Operations-Adjusted Basis 1999 1998 1997
- --------------------------------------------------------------------------------
OPERATING REVENUES
Local services $ 14,346 $ 13,882 $ 13,256
Network access services 7,924 7,656 7,340
Long distance services 1,816 1,929 2,190
Ancillary services 2,236 2,090 2,023
-------------------------------------------
26,322 25,557 24,809
-------------------------------------------
OPERATING EXPENSES
Employee costs 7,275 7,298 7,436
Depreciation and amortization 5,505 5,195 4,990
Other operating expenses 6,994 7,047 6,696
-------------------------------------------
19,774 19,540 19,122
-------------------------------------------
OPERATING INCOME $ 6,548 $ 6,017 $ 5,687
===========================================
INCOME (LOSS) FROM
UNCONSOLIDATED BUSINESSES $ 14 $ 27 $ (14)
ADJUSTED NET INCOME $ 3,444 $ 3,173 $ 2,993
OPERATING REVENUES
Local Services
Local service 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
that expand the utilization of the network. These services include products such
as Caller ID, Call Waiting and Return Call.
Growth in local service revenues of $464 million or 3.3% in 1999 and $626
million or 4.7% in 1998 was spurred by higher usage of our network facilities.
This growth, generated in part by an increase in access lines in service in each
year, reflects strong customer demand and usage of our data transport and
digital services, such as Frame Relay, Integrated Services Digital Network
(ISDN) and Switched Multi-megabit Data Service (SMDS). Revenues from our
value-added services were boosted in both years by marketing and promotional
campaigns offering new service packages.
In 1999, local service revenue growth was partially offset by the effect of
resold access lines and the provision of unbundled network elements to
competitive local exchange carriers. Lower revenues from our pay phone services
due to the increasing popularity of wireless communications and a rebate to
customers in Massachusetts further reduced revenues in 1999.
In 1998, revenue growth was partially offset by price reductions on certain
local services and the elimination of Touch-Tone service charges by several of
our operating telephone subsidiaries.
You can find additional information on the Telecommunications Act of 1996 (1996
Act) and its impact on the local exchange market under "Other Factors That May
Affect Future Results."
[PIE CHART APPEARS HERE]
- --------------------------------------------------------------------------------
Access Lines by Category
- --------------------------------------------------------------------------------
Residence 63%
Public 1%
Business 36%
43 million
- --------------------------------------------------------------------------------
Network Access Services
Network access revenues are earned from end-user subscribers and long distance
and other competing carriers who use our local exchange facilities to provide
services to their customers. Switched access revenues are derived from fixed and
usage-based charges paid by carriers for access to our local network. Special
access revenues originate from carriers and end-users that buy dedicated local
exchange capacity to support their private networks. End-user access revenues
are earned from our customers and from resellers who purchase dial-tone
services.
Our network access revenues grew $268 million or 3.5% in 1999 and $316 million
or 4.3% in 1998. This growth was mainly attributable to customer demand, as
reflected by growth in access minutes of use. Volume growth also reflects a
continuing expansion of the business market, particularly for high capacity data
services. In 1999 and 1998, demand for special access services increased,
reflecting a greater utilization of the network. Higher network usage by
alternative providers of intraLATA toll services and higher end-user revenues
attributable to an increase in access lines in service further contributed to
revenue growth in both years.
[BAR CHART APPEARS HERE]
- --------------------------------------------------------------------------------
Access Minutes of Use
- --------------------------------------------------------------------------------
1997 160.5 B
1998 173.0 B
1999 181.6 B
1997-1998 7.8% growth
1998-1999 5.0% growth
- --------------------------------------------------------------------------------
In 1999, network access revenues included approximately $90 million received
from customers for the recovery of local number portability (LNP) costs. LNP
allows customers to change local exchange carriers while maintaining their
existing telephone numbers. In December 1998, the FCC issued an order permitting
us to recover costs incurred for LNP in the form of monthly end-user charges for
a five-year period beginning in March 1999.
Volume-related growth was partially offset by price reductions associated with
federal and state price cap filings and other regulatory decisions. State public
utility commissions regulate our operating telephone subsidiaries with respect
to certain intrastate rates and services and certain other matters. State rate
reductions on access services were approximately $104 million in 1999, $79
million in 1998, and $97 million in 1997.
F-7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
The FCC regulates the rates that we charge long distance carriers and end-user
subscribers for interstate access services. We are required to file new access
rates with the FCC each year. In July 1999, we implemented interstate price
decreases of approximately $235 million on an annual basis in connection with
the FCC's Price Cap Plan. The rates included in our July 1999 filing will be in
effect through June 2000. Interstate price decreases were $175 million on an
annual basis for the period July 1998 through June 1999 and $430 million on an
annual basis for the period July 1997 through June 1998. Beginning in January
1998, the rates include amounts necessary to recover our operating telephone
subsidiaries' contribution to the FCC's universal service fund and are subject
to change every quarter due to potential increases or decreases in our
contribution to the universal service fund. The subsidiaries' contributions to
the universal service fund are included in Other Operating Expenses.
You can find additional information on FCC rulemakings concerning access
charges, price caps, and universal service under "Other Factors That May Affect
Future Results."
Long Distance Services
Long distance revenues are earned primarily from calls made to points outside a
customer's local calling area, but within the service area of an operating
telephone subsidiary (intraLATA toll). Other long distance services that we
provide include 800 services, Wide Area Telephone Service (WATS), corridor
services and long distance services originating outside of our region.
IntraLATA toll calls originate and terminate within the same LATA, but generally
cover a greater distance than a local call. These services are regulated by
state regulatory commissions, except where they cross state lines. All of our
state regulatory commissions permit other carriers to offer intraLATA toll
services.
Until the implementation of presubscription, intraLATA toll calls were completed
by our operating telephone subsidiaries unless the customer dialed a code to
access a competing carrier. Presubscription changed this dialing method and
enabled customers to make these toll calls using another carrier without having
to dial an access code. All of our operating telephone companies have
implemented presubscription.
The competitive effects of presubscription for intraLATA toll services
principally caused declines in long distance revenues of $113 million or 5.9% in
1999 and $261 million or 11.9% in 1998. The negative effect of presubscription
on long distance revenues was partially mitigated by increased network access
services for usage of our network by these alternative providers. In response to
presubscription, we have implemented customer win-back and retention initiatives
that include toll calling discount packages and product bundling offers. These
revenue reductions were partially offset by higher calling volumes in both
years.
In December 1999, we won approval to offer in-region long distance service in
the State of New York, which we launched in January 2000. You can find
additional information on our entry into the in-region long distance market
under "Other Factors That May Affect Future Results."
Ancillary Services
Our ancillary services include billing and collections for long distance
carriers, collocation for competitive local exchange carriers, data solutions
and systems integration, voice messaging, Internet access, customer premises
equipment and wiring and maintenance services.
Revenues from ancillary services grew $146 million or 7.0% in 1999 and $67
million or 3.3% in 1998. Revenue growth in both years was attributable to higher
demand for such services as data solutions and systems integration, voice
messaging, and billing and collections. Revenue growth in 1999 was also boosted
by higher payments received from competitive local exchange carriers for
interconnection of their networks with our network. Revenues earned from our
customer premises services increased in 1999, while in 1998 revenues from these
services declined over the prior year. These factors were partially offset in
both years by accruals primarily for regulatory matters.
OPERATING EXPENSES
[BAR CHART APPEARS HERE]
- --------------------------------------------------------------------------------
Domestic Telecom Operating Expenses
- --------------------------------------------------------------------------------
1997 $19.1 B
1998 $19.5 B
1999 $19.8 B
1997-1998 2.2% growth
1998-1999 1.2% growth
- --------------------------------------------------------------------------------
Employee Costs
Employee costs, which consist of salaries, wages and other employee
compensation, employee benefits and payroll taxes, declined by $23 million or
0.3% in 1999 and by $138 million or 1.9% in 1998. These cost reductions were
largely attributable to lower pension and benefit costs of $158 million in 1999
and $286 million in 1998. Our pension and benefit costs have declined in each
year chiefly due to favorable pension plan investment returns and changes in
plan provisions and actuarial assumptions. These factors were partially offset
in 1999 by increased health care costs caused by inflation, savings plan benefit
improvements for certain management employees, as well as benefit improvements
provided for under new contracts with associate employees.
In 1999, the effect of capitalizing employee-related expenses associated with
developing internal use software under the new accounting standard, Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," also contributed approximately $100 million to the
reduction in employee costs. For additional information on SOP No. 98-1, see
Note 1 to the consolidated financial statements.
Cost reductions in both years were partially offset by annual salary and wage
increases for management and associate employees and higher payroll taxes. In
1998, we executed new contracts with unions representing associate employees.
The new contracts provide for wage and pension increases and other benefit
improvements as follows:
F-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
. The wages, pension and other benefits for our associate employees are
negotiated with unions. During 1998, we entered into two-year contracts with
the Communications Workers of America (CWA), representing more than 73,000
associate workers and with the International Brotherhood of Electrical
Workers (IBEW), representing approximately 13,000 associate workers in New
York and the New England states. These contracts, which expire in August
2000, provide for wage increases of up to 3.8% effective August 1998, and up
to 4% effective August 1999. Over the course of this two-year contract
period, pension increases range from 11% to 20%. The contracts also include
cash payments, working condition improvements, and continuation of certain
employment security provisions.
. We also entered into a two-year extension of contracts with the IBEW,
representing approximately 9,000 associate members in New Jersey and
Pennsylvania. These contracts, which expire in August 2002, provide for wage
increases of 4.8% in April 1999, 3% in May 2000, and 3% in May 2001. Pensions
will increase by a total of 11% for the years 1999-2001, and there will be
improvements in a variety of other benefits and working conditions.
Other items affecting the change in employee costs in 1999, but to a lesser
extent, were higher overtime payments due to severe rainstorms experienced
throughout the region and higher work force levels attributable to our recent
entry into the in-region long distance market in New York and service quality
improvement initiatives. A reduction of work force in 1998 contributed to the
decline in employee costs in that year.
You should also read "Other Factors That May Affect Future Results-Pension Plan
Amendments" for additional information on employee benefit costs.
Depreciation and Amortization
Depreciation and amortization expense increased by $310 million or 6.0% in 1999
and by $205 million or 4.1% in 1998, principally due to growth in depreciable
telephone plant and changes in the mix of plant assets. The adoption of SOP No.
98-1 contributed approximately $100 million to the increase in depreciation
expense in 1999. Under this new accounting standard, computer software developed
or obtained for internal use is now capitalized and amortized. Previously, we
expensed most of these software purchases in the period in which they were
incurred. These factors were partially offset in both years by the effect of
lower rates of depreciation.
Other Operating Expenses
Other operating expenses declined by $53 million or 0.8% in 1999, compared to an
increase of $351 million or 5.2% in 1998. The major components that caused the
change in other operating expenses in both years included higher costs
associated with entering new businesses such as long distance and data services,
and higher interconnection payments to competitive local exchange and other
carriers to terminate calls on their networks (reciprocal compensation).
Payments for reciprocal compensation increased over the prior year by
approximately $175 million in each of 1999 and 1998.
In 1999, these factors were largely offset by the effect of SOP No. 98-1, which
reduced other operating expenses by approximately $370 million as a result of
capitalizing expenditures for internal use software previously expensed in 1998
and prior years. Lower costs associated with opening our network to competitors,
including local number portability, and lower spending by our operating
telephone subsidiaries for such expenditures as rent, marketing and advertising
further offset expense increases in 1999.
Other operating expenses in 1998 also included additional Year 2000 readiness
costs, higher material purchases, and additional costs associated with our
contribution to the federal universal service fund which was created by the FCC
in 1998. The cost increases in 1998 were partially offset by lower taxes other
than income due to the effect of a change in New Jersey state tax law. This
state tax law change, which became effective January 1, 1998, repealed the gross
receipts tax for our operating telephone subsidiary in New Jersey and replaced
it with a net income-based tax.
For additional information on reciprocal compensation refer to "Other Factors
That May Affect Future Results."
INCOME (LOSS) FROM UNCONSOLIDATED BUSINESSES
The change in income (loss) from unconsolidated businesses in 1999 and 1998 was
primarily due to the effect of the disposition of our video operations.
F-9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
[LOGO APPEARS HERE] Global Wireless
- --------------------------------------------------------------------------------
Our Global Wireless segment provides wireless telecommunications services to
customers in 24 states in the United States and includes foreign wireless
investments servicing customers in Latin America, Europe and the Pacific Rim.
HIGHLIGHTS
The Global Wireless group's adjusted net income grew $160 million or 70.2% in
1999 and $133 million or 140% in 1998. This growth was fueled by strong
subscriber growth at our domestic wireless subsidiary, Bell Atlantic Mobile
(BAM), and record growth in new customers in the group's international wireless
portfolio. Our international portfolio includes our investments in Omnitel in
Italy, STET Hellas in Greece, EuroTel Praha in the Czech Republic, and our
fully-consolidated Iusacell investment in Mexico.
In December 1999, BAM completed the acquisition of Frontier Corporation's
(Frontier) interests in wireless properties doing business under the Frontier
Cellular name. This acquisition increased BAM's ownership in Frontier from 50%
to 100%. As a result, we changed the accounting for our Frontier Cellular
investment from the equity method to full consolidation.
The Global Wireless group ended the year 1999 with approximately 12.0 million
global proportionate wireless subscribers, up 39.1% over year-end 1998. The 1999
subscriber amount includes 452,000 added through BAM's acquisition of Frontier
Cellular properties. At year-end 1998, our global proportionate wireless
subscribers totaled approximately 8.6 million, an increase of 35.4% over
year-end 1997.
BAM ended 1999 with approximately 7.7 million customers (including Frontier
Cellular subscribers), an increase of 24.0% over year-end 1998. At year-end
1998, BAM customers totaled approximately 6.2 million, an increase of 15.8% over
year-end 1997. Total revenue per subscriber for BAM operations was $51.71 in
1999, $50.84 in 1998, and $53.15 in 1997. PrimeCo Personal Communications, L.P.
(PrimeCo), a personal communications services (PCS) joint venture in the United
States which we account for under the equity method, reported proportionate
subscriber growth of 52.8% in 1999 and 133.1% in 1998.
[BAR CHART APPEARS HERE]
- --------------------------------------------------------------------------------
Global Wireless Proportional Subscribers
- --------------------------------------------------------------------------------
1997 6.3 M
1998 8.6 M
1999 12.0 M
1997-1998 35.4% growth
1998-1999 39.1% growth
- --------------------------------------------------------------------------------
Additional financial information about Global Wireless results of operations for
1999, 1998, and 1997 follows.
Years Ended December 31, (dollars in millions)
Results of Operations--Adjusted Basis 1999 1998 1997
- --------------------------------------------------------------------------------
OPERATING REVENUES
Wireless services revenues $ 4,564 $ 3,798 $ 3,347
-------------------------------------------
OPERATING EXPENSES
Employee costs 604 548 490
Depreciation and amortization 673 592 481
Other operating expenses 2,459 1,942 1,742
-------------------------------------------
3,736 3,082 2,713
-------------------------------------------
OPERATING INCOME $ 828 $ 716 $ 634
===========================================
INCOME (LOSS) FROM UNCONSOLIDATED
BUSINESSES $ 80 $ (96) $ (196)
ADJUSTED NET INCOME $ 388 $ 228 $ 95
OPERATING REVENUES
[PIE CHART APPEARS HERE]
- --------------------------------------------------------------------------------
Sources of Subscriber Growth
- --------------------------------------------------------------------------------
International 52%
Bell Atlantic Mobile 39%
PrimeCo 9%
2.7 million net adds
- --------------------------------------------------------------------------------
Revenues earned from our consolidated wireless businesses grew by $766 million
or 20.2% in 1999 and $451 million or 13.5% in 1998. This revenue growth was
largely attributable to BAM, which contributed $658 million to revenue growth in
1999 and $383 million to revenue growth in 1998. Customer additions and
increased usage of our domestic wireless services drove this growth. New pricing
plans for BAM's digital wireless services fueled subscriber growth in 1999.
Revenues from Iusacell grew $130 million in 1999 and $63 million in 1998,
principally as a result of subscriber growth and higher rates charged for
services.
Revenue growth in 1999 from our consolidated wireless businesses was slightly
offset by the effect of the December 1998 sale of our paging business.
F-10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Employee Costs
Employee costs increased by $56 million or 10.2% in 1999 and $58 million or
11.8% in 1998, principally as a result of higher work force levels at BAM.
Employee costs at Iusacell were lower in 1999 as a result of work force
reductions and higher in 1998 as a result of increased employee levels and
related benefits.
Depreciation and Amortization
Depreciation and amortization expense increased by $81 million or 13.7% in 1999
and by $111 million or 23.1% in 1998. This increase was mainly attributable to
growth in depreciable cellular plant at BAM, contributing $69 million in 1999
and $110 million in 1998 to higher depreciation costs. Higher depreciation costs
at Iusacell also contributed to expense growth in 1999, but to a lesser extent.
These increases were chiefly due to increased capital expenditures to support
the increasing demand for wireless services in both the domestic and
international markets.
Other Operating Expenses
In 1999, other operating expenses increased by $517 million or 26.6%, compared
to $200 million or 11.5% in 1998. These increases were primarily attributable to
our BAM operations as a result of increased service costs due to the growth in
their subscriber base, including additional costs of equipment, higher roaming
payments to wireless carriers, and higher sales commissions. BAM's other
operating expenses, including taxes other than income, increased $459 million in
1999 and $149 million in 1998. Higher service costs at Iusacell also contributed
to expense growth in both years, but to a lesser extent. In 1999, these factors
were slightly offset by the effect of the December 1998 sale of our paging
business.
INCOME (LOSS) FROM UNCONSOLIDATED BUSINESSES
The changes in income (loss) from unconsolidated businesses in 1999 and 1998
were principally due to improved operating results from our wireless investments
in PrimeCo and Omnitel, fueled primarily by strong subscriber growth. Equity
income from Omnitel included the effect of increased goodwill amortization as a
result of increases in our economic ownership in Omnitel in 1999 and 1998.
PrimeCo's results in 1999 included a gain on the sale of operations in Hawaii.
Other international wireless investments such as STET Hellas and EuroTel Praha
also reported improved operating results in 1999.
- --------------------------------------------------------------------------------
[LOGO APPEARS HERE] Directory
- --------------------------------------------------------------------------------
Our Directory segment consists of our domestic and international publishing
businesses, including print directories and Internet-based shopping guides, as
well as website creation and other electronic commerce services.
This segment has operations principally in the United States and Central Europe.
Years Ended December 31, (dollars in millions)
Results of Operations-Adjusted Basis 1999 1998 1997
- --------------------------------------------------------------------------------
OPERATING REVENUES
Directory services revenues $ 2,338 $ 2,264 $ 2,215
--------------------------------------------
OPERATING EXPENSES
Employee costs 314 326 215
Depreciation and amortization 36 37 39
Other operating expenses 757 777 886
--------------------------------------------
1,107 1,140 1,140
--------------------------------------------
OPERATING INCOME $ 1,231 $ 1,124 $ 1,075
============================================
INCOME (LOSS) FROM
UNCONSOLIDATED BUSINESSES $ (1) $ 29 $ 23
ADJUSTED NET INCOME $ 726 $ 684 $ 657
OPERATING REVENUES
Operating revenues from our Directory segment improved by $74 million or 3.3% in
1999 and $49 million or 2.2% in 1998, principally as a result of increased
pricing for certain directory services. Higher business volumes, including
revenue from new Internet-based shopping directory and electronic commerce
services, also contributed to revenue growth in both years, but to a lesser
extent.
OPERATING EXPENSES
In 1999, total operating expenses declined $33 million or 2.9% largely due to
lower work force levels. Lower spending for maintenance, repair and other costs
of services also contributed to the decline in operating costs in 1999.
In 1998, total operating expenses were unchanged from 1997. The changes in the
major components of operating expenses include a reclassification of certain
costs from other operating expenses to employee costs, beginning in 1998. For
comparability purposes, had similar costs of approximately $95 million been
reclassified in 1997, employee costs would have increased by approximately $16
million or 5.2% in 1998 and other operating expenses would have declined by
approximately $14 million or 1.8% in 1998. The increase in employee costs was
largely due to salary and wage increases. The reduction in other operating
expenses was principally due to lower general and administrative costs of
service.
INCOME (LOSS) FROM UNCONSOLIDATED BUSINESSES
In 1998 and 1997, income from unconsolidated businesses included gains on the
sale of portions of our ownership interests in certain global directory
businesses. The loss from unconsolidated businesses in 1999 was due to lower
operating results from our international directory businesses.
F-11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO APPEARS HERE] Other Businesses
- --------------------------------------------------------------------------------
Our Other Businesses segment includes international wireline telecommunications
investments in Europe and the Pacific Rim, lease financing and all other
businesses.
HIGHLIGHTS
Effective May 31, 1999, our representatives resigned from the Board of Directors
of Telecom Corporation of New Zealand Limited (TCNZ) and we agreed to vote our
shares neutrally. As a result, we no longer have significant influence over
TCNZ's operating and financial policies and, therefore, have changed the
accounting for our investment in TCNZ from the equity method to the cost method.
The change in the method of accounting for this investment did not have a
material effect on results of operations in 1999. We currently hold a 24.94%
interest in TCNZ.
Coincident with our change to the cost method of accounting, our investment in
TCNZ is now subject to the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under these provisions, our TCNZ
shares are classified as "available-for-sale" securities and, accordingly, our
TCNZ investment has been adjusted from a carrying value of $363 million to its
fair value of $2,103 million at December 31, 1999. The increased value of our
investment is recorded in Investments in Unconsolidated Businesses in our
consolidated balance sheet. The unrealized gain of $1,131 million (net of income
taxes of $609 million) has been recognized in Accumulated Other Comprehensive
Income (Loss).
In the second quarter of 1997, we transferred our interests in cable television
and telecommunications operations in the United Kingdom to CWC in exchange for
an 18.5% ownership interest in CWC. This transaction was accounted for as a
nonmonetary exchange of similar productive assets and as a result no gain or
loss was recorded. We now account for our investment in CWC under the equity
method. Prior to this transfer, we included the accounts of these operations in
our consolidated financial statements. You can find more information about CWC
in Note 3 to the consolidated financial statements.
Years Ended December 31, (dollars in millions)
Results of Operations--Adjusted Basis 1999 1998 1997
- --------------------------------------------------------------------------------
OPERATING REVENUES
Other services revenues $ 151 $ 124 $ 278
------------------------------------
OPERATING EXPENSES
Employee costs 7 14 58
Depreciation and amortization 2 3 48
Other operating expenses 97 105 210
------------------------------------
106 122 316
------------------------------------
OPERATING INCOME (LOSS) $ 45 $ 2 $ (38)
====================================
INCOME FROM UNCONSOLIDATED
BUSINESSES $ 37 $ 86 $ 78
ADJUSTED NET INCOME $ 67 $ 135 $ 48
OPERATING RESULTS
The improvement in operating income between 1999 and 1998 was largely
attributable to improved operating results by our lease financing businesses.
Income from unconsolidated businesses declined in 1999 primarily as a result of
higher equity losses from our investment in CWC and from our investment in
BayanTel, a Philippines-based telecommunications company. BayanTel's 1999
results also included a charge for the write-down of their interest in a joint
venture. These losses were partially offset by improved equity results from our
investment in Fiberoptic Link Around the Globe (FLAG), which owns an undersea
fiberoptic cable system, providing digital communications links between Europe
and Asia. FLAG's 1999 results also reflect the effect of one-time charges
recorded in 1998.
In 1998, the changes in operating revenues, operating expenses, and income from
unconsolidated businesses principally reflect the effect of the change in the
accounting for our CWC investment under the equity method, beginning in the
second quarter of 1997.
- --------------------------------------------------------------------------------
NONOPERATING ITEMS
- --------------------------------------------------------------------------------
The following discussion of nonoperating items is based on the amounts reported
in our consolidated financial statements.
Years Ended December 31, (dollars in millions)
Interest Expense 1999 1998 1997
- --------------------------------------------------------------------------------
Total interest expense--reported $ 1,263 $ 1,335 $ 1,230
Special items--write-down of assets - (47) -
Settlement of tax-related matters - (46) -
-------------------------------------
Interest expense--excluding special
items and tax settlement 1,263 1,242 1,230
Capitalized interest costs 98 90 81
-------------------------------------
Total interest cost on debt balances $ 1,361 $ 1,332 $ 1,311
=====================================
Average debt outstanding $ 20,777 $ 19,963 $ 18,897
Effective interest rate 6.6% 6.7% 6.9%
Our interest cost on debt balances was higher in 1999 and 1998 principally due
to higher average debt levels. These increases were partially offset by the
effect of lower interest rates.
Years Ended December 31, (dollars in millions)
Other Income and (Expense), Net 1999 1998 1997
- --------------------------------------------------------------------------------
Minority interest $ (81) $ (75) $ (95)
Foreign currency gains, net 15 40 28
Interest income 32 81 27
Gains on disposition of assets/businesses,
net 53 44 17
Other, net 35 32 20
----------------------------------
Total $ 54 $ 122 $ (3)
==================================
F-12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
The changes in other income and expense were due to changes in several
components, as shown in the table. The change in minority interest was
largely due to the recognition of minority interest expense in 1999 related to
our investment in Iusacell. In 1998, we recorded minority interest income for
Iusacell, principally resulting from the write-down of fixed assets as described
earlier. Further contributing to the change in minority interest, in 1999, we no
longer record a minority interest expense related to the outside party's share
of the subsidiary's earnings in connection with the sale of our investment in
Viacom Inc. (Viacom).
Foreign exchange gains were affected in 1999 as a result of the discontinuation
of highly inflationary accounting for our Iusacell subsidiary, effective January
1, 1999. As a result of this change, Iusacell now uses the Mexican peso as its
functional currency and we expect that our earnings will continue to be affected
by any foreign currency gains or losses associated with the U.S. dollar
denominated debt issued by Iusacell. Also, in 1998 we recognized higher foreign
exchange gains associated with other international investments. Finally, we
recorded gains on the disposition of assets in 1999, primarily related to the
sale of real estate in New York and gains on the sale of land and our paging
business in 1998. In 1998, we recorded additional interest income in connection
with the settlement of tax-related matters.
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Effective Income Tax Rates 37.8% 40.2% 38.4%
The effective income tax rate is the provision for income taxes as a percentage
of income before the provision for income taxes.
Our reported effective income tax rate for 1999 was lower than 1998, primarily
due to the write-down of certain international investments in 1998 for which no
tax benefit was provided. This factor was partially offset by lower tax credits
in 1999, as well as adjustments to deferred income taxes at certain subsidiaries
in 1998.
The higher reported effective income tax rate in 1998 resulted from higher state
and local income taxes caused by the change in the New Jersey state tax law
described earlier under "Domestic Telecom--Other Operating Expenses," and from
the write-down of certain international investments for which no tax benefits
were provided. These rate increases were partially offset by adjustments to
deferred tax balances at certain subsidiaries and higher tax credits related to
our foreign operations.
You can find a reconciliation of the statutory federal income tax rate to the
effective income tax rate for each period in Note 17 to the consolidated
financial statements.
EXTRAORDINARY ITEM
In 1998, we recorded extraordinary charges associated with the early
extinguishment of debentures and refunding mortgage bonds of our operating
telephone subsidiaries and debt issued by FLAG. These charges reduced net income
by $26 million (net of an income tax benefit of $14 million).
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL CONDITION
- --------------------------------------------------------------------------------
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN)
Operating activities $ 10,656 $ 10,071 $ 8,859
Investing activities (9,629) (7,685) (7,339)
Financing activities (167) (2,472) (1,447)
-------------------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 860 $ (86) $ 73
===========================================
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 December 31, 1999 and 1998, 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 continued to be cash generated from operations.
Improved cash flows from operations during 1999, 1998, and 1997 resulted from
growth in operating income, partially offset by changes in certain assets and
liabilities. In 1999, the change in certain assets and liabilities largely
reflects growth in customer accounts receivable and a reduction in employee
benefit obligations chiefly due to favorable investment returns and changes in
plan provisions and actuarial assumptions.
The change in certain assets and liabilities in 1998 and 1997 reflects the
effect of our retirement incentive program that increased employee benefit
obligations as a result of special charges recorded through the completion of
the program in 1998. An increase in accounts receivable due to subscriber growth
and greater usage of our networks, as well as timing differences in the payment
of accounts payable and accrued liabilities also contributed to the change in
both years.
- --------------------------------------------------------------------------------
Cash Flows Used In Investing Activities
- --------------------------------------------------------------------------------
Capital expenditures continued to be our primary use of capital resources. We
invested approximately $7.5 billion in 1999, $6.4 billion in 1998 and $5.5
billion in 1997 in our Domestic Telecom business to facilitate the introduction
of new products and services, enhance responsiveness to competitive challenges,
and increase the operating efficiency and productivity of the network. We also
invested approximately $1.2 billion in 1999, $1.0 billion in 1998 and $1.1
billion in 1997 in our Wireless, Directory and Other Businesses. We expect
capital expenditures in 2000 to be in the range of $8.9 billion to $9.2 billion.
F-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
We continue to make substantial investments in our unconsolidated businesses.
During 1999, we invested $901 million, which included a cash payment of
approximately $630 million to increase our ownership interest in Omnitel from
19.71% to 23.14%. In 1999, we also invested $202 million in PrimeCo to fund the
build-out and operations of its PCS network and $69 million principally in our
lease financing businesses. In 1998, we invested $603 million, which included an
additional investment of $162 million in Omnitel to increase our ownership
interest from 17.45% to 19.71%, $301 million in PrimeCo, and $140 million in our
lease financing businesses. In 1997, cash investing activities in unconsolidated
businesses totaled $833 million and included $426 million in PrimeCo, $138
million in FLAG, and $269 million in leasing and other partnerships.
In 1999, we invested $505 million to acquire new businesses, including $374
million to fully acquire the cellular properties of Frontier Cellular and $81
million for other wireless properties. We also invested $50 million in data
service businesses in 1999. We invested cash for new businesses of $62 million
in each of 1998 and 1997 in connection with our domestic wireless subsidiaries.
Our short-term investments include principally cash equivalents held in trust
accounts for payment of certain employee benefits. We invested $855 million in
short-term investments in 1999, including $785 million to pre-fund associate
health and welfare benefits. Cash payments for short-term investments totaled
$1,028 million in 1998 and $844 million in 1997, principally to pre-fund
vacation pay and associate health and welfare benefit trusts. Beginning in 1999,
we no longer fund the vacation pay trust for all employees. Proceeds from the
sales of all short-term investments were $795 million in 1999, $968 million in
1998, and $427 million in 1997.
In 1999, we received cash proceeds of $612 million in connection with the
disposition of our remaining investment in Viacom, representing 12 million
shares of their preferred stock (with a book value of approximately $600
million). In 1998, we received cash proceeds of $637 million in connection with
the disposition of investments. These proceeds included $564 million associated
with Viacom's repurchase of one-half of our investment in Viacom and $73 million
from the sales of our paging and other nonstrategic businesses. In 1997, we
disposed of our real estate properties and our interests in Bellcore,
Infostrada, SkyTV and other joint ventures and received cash proceeds totaling
$547 million.
During 1997, we received cash proceeds of $153 million from the TCNZ share
repurchase plan, which was completed in December 1997.
[BAR CHART APPEARS HERE]
- --------------------------------------------------------------------------------
Debt Ratio
- --------------------------------------------------------------------------------
1997 60.5%
1998 61.2%
1999 60.1%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash Flows Used In Financing Activities
- --------------------------------------------------------------------------------
As in prior years, 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 1999 and 1998, we declared quarterly cash dividends of $.385 per
share or $1.54 per share in each year. We declared cash dividends of $.37 per
share in the first and second quarters of 1997 and $.385 per share in the second
half of 1997, or $1.51 per share for the year.
[BAR CHART APPEARS HERE]
- --------------------------------------------------------------------------------
Dividends
- --------------------------------------------------------------------------------
1997 $2.3 B
1998 $2.4 B
1999 $2.4 B
- --------------------------------------------------------------------------------
We increased our total debt (including capital lease obligations) by
approximately $3.3 billion from December 31, 1998, primarily to fund our
investments in Omnitel, PrimeCo, and Frontier Cellular. Our debt balance at
December 31, 1999 also included $664 million for the mark-to-market adjustment
for the CWC exchangeable notes, $456 million of additional debt issued by
Iusacell in 1999, and approximately $105 million of debt assumed from the
acquisition of Frontier Cellular. These factors were partially offset by the use
of cash proceeds received from the disposition of our remaining investment in
Viacom. Our debt level increased by $1,026 million from 1997 to 1998,
principally to fund the capital program and for continued investments in PrimeCo
and Omnitel. The pre-funding of employee benefit trusts and purchases of shares
to fund employee stock option exercises also contributed to the increase in debt
levels in both 1999 and 1998.
In February 1998, our wholly owned subsidiary, Bell Atlantic Financial Services,
Inc. (FSI), issued $2,455 million in 5.75% exchangeable notes due on April 1,
2003 that are exchangeable into ordinary shares of TCNZ stock (TCNZ exchangeable
notes). In August 1998, FSI also issued $3,180 million of 4.25% senior
exchangeable notes due on September 15, 2005 that are exchangeable into ordinary
shares of CWC stock (CWC exchangeable notes). Proceeds of both offerings were
used for the repayment of a portion of our short-term debt and other general
corporate purposes.
Our operating telephone subsidiaries refinanced debentures totaling $257 million
in 1999 and $790 million in 1998.
As of December 31, 1999, we had in excess of $4.0 billion of unused bank lines
of credit and $143 million in bank borrowings outstanding. As of December 31,
1999, our operating telephone subsidiaries and financing subsidiaries had shelf
registrations for the issuance of up to $2.9 billion of unsecured debt
securities. In March 2000, FSI issued approximately $893 million of medium-term
notes, the proceeds of which were used to reduce short-term debt levels and for
other general corporate purposes. The debt securities of those
F-14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
subsidiaries continue to be accorded high ratings by primary rating agencies.
After the announcement of the Bell Atlantic-GTE merger, the rating agencies
placed the ratings of certain of our subsidiaries under review for potential
downgrade. In January 2000, Standard & Poor's revised its regulatory separation
policy as it applies to U.S. telephone companies. Under the revised policy,
Standard & Poor's will no longer assign higher corporate credit ratings to
telephone operating subsidiaries. Rating actions by Standard & Poor's on Bell
Atlantic and its operating telephone subsidiaries reflect both the new policy
and their continued CreditWatch listings, which resulted from the pending Bell
Atlantic-GTE merger.
We also have a $2.0 billion Euro Medium Term Note Program, under which we may
issue notes that are not registered with the Securities and Exchange Commission.
The notes may be issued from time to time by our subsidiary, Bell Atlantic
Global Funding, Inc. (BAGF), and will have the benefit of a support agreement
between BAGF and Bell Atlantic. There have been no notes issued under this
program.
In March 1999, we received cash proceeds of $380 million from a financing
transaction involving cellular assets between BAM and Crown Castle International
Corporation. A joint venture was formed for the primary purpose of financing
BAM's investment in cellular towers. BAM, together with certain partnerships in
which it is the managing partner (the managed entities), contributed to the
joint venture approximately 1,460 cellular towers in exchange for approximately
$380 million in cash and an equity interest of approximately 37.7% in the joint
venture. BAM and the managed entities have leased back a portion of the towers,
and the joint venture will lease the remaining space to third parties. The joint
venture also plans to build new towers.
In 1999, we received cash proceeds totaling $119 million from the public
offerings of Iusacell shares. See Note 4 to the consolidated financial
statements for additional information on Iusacell and the share offerings.
In December 1998, we accepted an offer from Viacom to repurchase one-half of our
investment in Viacom, or 12 million shares of their preferred stock (with a book
value of approximately $600 million), for approximately $564 million in cash.
The cash proceeds, together with additional cash, were used to purchase an
outside party's interest in one of our fully consolidated subsidiaries. This
transaction reduced Minority Interest by $600 million and included certain stock
appreciation rights and costs totaling $32 million.
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents
- --------------------------------------------------------------------------------
Our cash and cash equivalents at December 31, 1999 totaled $1,097 million, an
increase of $860 million over 1998. This increase was primarily attributable to
anticipated funding requirements in early 2000 in connection with an agreement
with Metromedia Fiber Network, Inc. (MFN), a domestic and international provider
of dedicated fiber optic networks in major metropolitan markets.
On March 6, 2000, we invested approximately $1.7 billion in MFN. This investment
included $715 million to acquire approximately 9.5% of the equity of MFN through
the purchase of newly issued shares at $28 per share. We also purchased
approximately $975 million in subordinated debt securities convertible at our
option, upon receipt of necessary government approvals, into common stock at a
conversion price of $34 per share or an additional 9.6% of the equity of MFN.
This investment completed a portion of our previously announced agreement with
MFN, which included the acquisition of approximately $550 million of long-term
capacity in MFN's fiber optic networks, beginning in 1999 through 2002. Of the
$550 million, 10% was paid in November 1999 and 30% will be paid each October
from 2000 through 2002.
- --------------------------------------------------------------------------------
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, changes in equity investment prices and changes in
corporate tax rates. We employ risk management strategies using a variety of
derivatives including interest rate swap agreements, interest rate caps and
floors, foreign currency forwards and options and basis swap agreements. We do
not hold derivatives for trading purposes.
It is our policy to enter into interest rate, foreign currency and other
derivative transactions only to the extent necessary to achieve our desired
objectives in limiting our exposures to the various market risks. Our objectives
include maintaining a mix of fixed and variable rate debt to lower borrowing
costs within reasonable risk parameters, hedging the value of certain
international investments, and protecting against earnings and cash flow
volatility resulting from changes in foreign exchange rates. We do not hedge our
market risk exposure in a manner that would completely eliminate the effect of
changes in interest rates, equity prices and foreign exchange rates on our
earnings. While we do not expect that our liquidity and cash flows will be
materially affected by these risk management strategies, our net income may be
materially affected by certain market risk associated with the TCNZ and CWC
exchangeable notes as discussed below.
- --------------------------------------------------------------------------------
Exchangeable Notes
- --------------------------------------------------------------------------------
In 1998, we issued exchangeable notes as described in Note 10 to the
consolidated financial statements and discussed earlier under "Mark-to-Market
Adjustment for Exchangeable Notes." These financial instruments expose us to
market risk, including:
. Equity price risk, because the notes are exchangeable into shares that are
traded on the open market and routinely fluctuate in value.
. Interest rate risk, because the notes carry fixed interest rates.
. Foreign exchange rate risk, because the notes are exchangeable into shares
that are denominated in a foreign currency.
Periodically, equity price and/or foreign exchange rate movements may require us
to mark to market the exchangeable note liability to reflect the increase in the
current share price over the established exchange price, resulting in a charge
to income.
F-15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
The following sensitivity analysis measures the effect on earnings and financial
condition due to changes in the underlying share prices of the TCNZ and CWC
stock.
. At December 31, 1999, the exchange price for the TCNZ shares (expressed as
American Depositary Receipts) was $44.93 and the exchange price for the CWC
shares (expressed as American Depositary Shares) was $58.03.
. For each $1.00 increase in value of the TCNZ shares or the CWC shares above
the exchange price, our earnings would be reduced by approximately $55
million or $56 million, respectively. A subsequent decrease in value of the
TCNZ shares or the CWC shares would correspondingly increase earnings, but
not to exceed the amount of any previous reduction in earnings. Our earnings
are not affected so long as the TCNZ and CWC share prices are at or below
their exchange prices.
. Our cash flows would not be affected by mark-to-market transactions related
to the exchangeable notes.
. If we decide to deliver shares in exchange for the notes, the exchangeable
note liability (including any mark-to-market adjustments) will be eliminated
and the investment will be reduced by the book value of the related number of
shares delivered. Upon settlement, the excess of the liability over the book
value of the related shares delivered will be recorded as a gain. We also
have the option to settle these liabilities with cash upon exchange.
A proposed restructuring of our investment in CWC, as discussed in Note 3 to the
consolidated financial statements, would change the securities to be delivered
upon exchange for the CWC exchangeable notes. Under this restructuring, we would
receive shares in the two acquiring companies in exchange for our CWC shares.
- --------------------------------------------------------------------------------
Interest Rate Risk
- --------------------------------------------------------------------------------
The table that follows summarizes the fair values of our long-term debt,
interest rate derivatives and exchangeable notes as of December 31, 1999 and
1998. The table also provides a sensitivity analysis of the estimated fair
values of these financial instruments assuming 100-basis-point upward and
downward parallel shifts in the yield curve. Our sensitivity analysis did not
include the fair values of our commercial paper and bank loans because they are
not significantly affected by changes in market interest rates.
(dollars in millions)
Fair Value Fair Value
assuming assuming
+100 basis -100 basis
At December 31, 1999 Fair Value point shift point shift
- --------------------------------------------------------------------------------
Long-term debt and
interest rate derivatives $12,625 $11,923 $13,385
Exchangeable notes 6,417 6,335 6,498
-----------------------------------------------
Total $19,042 $18,258 $19,883
===============================================
At December 31, 1998
- --------------------------------------------------------------------------------
Long-term debt and
interest rate derivatives $14,243 $13,414 $15,098
Exchangeable notes 5,818 5,618 6,018
-----------------------------------------------
Total $20,061 $19,032 $21,116
===============================================
- --------------------------------------------------------------------------------
Equity Price Risk
- --------------------------------------------------------------------------------
The fair values of certain of our investments, primarily in common stock, expose
us to equity price risk. These investments are subject to changes in the market
prices of the securities. As noted earlier, the fair values of our exchangeable
notes are also affected by changes in equity price movements. The table that
follows summarizes the fair values of our investments and exchangeable notes and
provides a sensitivity analysis of the estimated fair values of these financial
instruments assuming a 10% increase or decrease in equity prices.
(dollars in millions)
Fair Value Fair Value
assuming 10% assuming 10%
decrease in increase in
At December 31, 1999 Fair Value equity price equity price
- --------------------------------------------------------------------------------
Cost investments, at fair value $ 2,296 $ 2,066 $ 2,526
Exchangeable notes (6,417) (6,050) (6,822)
--------------------------------------------
Total $(4,121) $(3,984) $(4,296)
============================================
At December 31, 1998
- --------------------------------------------------------------------------------
Cost investments, at fair value $ 29 $ 26 $ 32
Exchangeable notes (5,818) (5,643) (6,023)
--------------------------------------------
Total $(5,789) $(5,617) $(5,991)
============================================
- --------------------------------------------------------------------------------
Foreign Currency Translation
- --------------------------------------------------------------------------------
The functional currency for nearly all of our foreign operations is the local
currency. The translation of income statement and balance sheet amounts of these
entities into U.S. dollars are recorded as cumulative translation adjustments,
which are included in Accumulated Other Comprehensive Income (Loss) in our
consolidated balance sheets. At December 31, 1999, our primary translation
exposure was to the British pound and Italian lira. We have not hedged our
accounting translation exposure to foreign currency fluctuations relative to
these investments, except for our United Kingdom investment which is partially
hedged.
Equity income from our international investments is affected by exchange rate
fluctuations when an equity investee has assets and liabilities denominated in a
currency other than the investee's functional currency. Our investment in the
Philippines is exposed to fluctuations in the U.S. dollar/Filipino peso exchange
rate. Iusacell, our consolidated investment in Mexico, also issues U.S. dollar
denominated debt.
For the period October 1, 1996 through December 31, 1998, we considered Iusacell
to operate in a highly inflationary economy and utilized the U.S. dollar as its
functional currency. Beginning January 1, 1999, we discontinued highly
inflationary accounting for our Iusacell subsidiary and resumed using the
Mexican peso as its functional currency. As a result, in 1999 our earnings were
affected by any foreign currency gains or losses associated with the U.S dollar
denominated debt issued by Iusacell and our equity was affected by the
translation from the Mexican peso.
F-16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Foreign Exchange Risk
- --------------------------------------------------------------------------------
The fair values of our foreign currency derivatives and investments accounted
for under the cost method are subject to fluctuations in foreign exchange rates.
Our most significant foreign currency derivatives contain both a foreign
currency forward and a U.S. dollar interest rate component. These agreements
require an exchange of British pounds and U.S. dollars at the maturity of the
contract.
The table that follows summarizes the fair values of our foreign currency
derivatives, cost investments, and the exchangeable notes as of December 31,
1999 and 1998. The table also provides a sensitivity analysis of the estimated
fair values of these financial instruments assuming a 10% decrease and increase
in the value of the U.S. dollar against the various currencies to which we are
exposed. Our sensitivity analysis does not include potential changes in the
value of our international investments accounted for under the equity method. As
of December 31, 1999, the carrying value of our equity method international
investments totaled approximately $2.2 billion.
(dollars in millions)
Fair Value Fair Value
assuming assuming
10% decrease 10% increase
At December 31, 1999 Fair Value in US$ in US$
- --------------------------------------------------------------------------------
Cost investments and
foreign currency derivatives $ 2,273 $ 2,502 $ 2,091
Exchangeable notes (6,417) (6,822) (6,050)
---------------------------------------------
Total $(4,144) $(4,320) $(3,959)
=============================================
At December 31, 1998
- --------------------------------------------------------------------------------
Cost investments and
foreign currency derivatives $ 154 $ 140 $ 172
Exchangeable notes (5,818) (6,023) (5,643)
---------------------------------------------
Total $(5,664) $(5,883) $(5,471)
=============================================
- --------------------------------------------------------------------------------
OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------------------------------------------------
Proposed Bell Atlantic-GTE Merger
- --------------------------------------------------------------------------------
Bell Atlantic and GTE have announced a proposed merger of equals under a
definitive merger agreement dated as of July 27, 1998. Under the terms of the
agreement, GTE shareholders will receive 1.22 shares of Bell Atlantic common
stock for each share of GTE common stock that they own. Bell Atlantic
shareholders will continue to own their existing shares after the merger.
We expect the merger to qualify as a pooling of interests, which means that for
accounting and financial reporting purposes the companies will be treated as if
they had always been combined. At annual meetings held in May 1999, the
shareholders of each company approved the merger. The completion of the merger
is subject to a number of conditions, including certain regulatory approvals
(all of which have been obtained except that of the FCC) and receipt of opinions
that the merger will be tax-free.
We are targeting completion of the merger in the second quarter of 2000.
Future operating revenues, expenses and net income of the combined company may
not follow the same historical trends, or reflect the same dependence on
economic and competitive factors, as presented in our discussion of our own
historical results of operations and financial condition. You should refer to
Note 22 to the consolidated financial statements for pro forma income statements
for the years ended December 31, 1999, 1998 and 1997 and a pro forma balance
sheet for the year ended December 31, 1999.
- --------------------------------------------------------------------------------
Recent Developments
- --------------------------------------------------------------------------------
PROPOSED DOMESTIC WIRELESS TRANSACTIONS
Vodafone AirTouch
On September 21, 1999, we signed a definitive agreement with Vodafone AirTouch
plc (Vodafone AirTouch) to create a national wireless business (Wireless Co.)
composed of both companies' U.S. wireless assets. The completion of this
transaction is subject to a number of conditions, including certain regulatory
approvals. In February 2000, we signed an agreement with ALLTEL Corporation to
exchange certain wireless interests. This agreement eliminates all of the
overlapping cellular operations that would be created by the combination of Bell
Atlantic and Vodafone AirTouch wireless properties. We expect to complete the
transaction in April 2000. You should also read Note 21 to the consolidated
financial statements for additional information about this proposed domestic
wireless business.
PrimeCo Personal Communications, L.P.
On August 3, 1999, Bell Atlantic and Vodafone AirTouch announced an agreement to
restructure our ownership interests in PrimeCo, a partnership that was formed by
us and Vodafone AirTouch in 1994 and provides personal communications services
in major cities across the United States. Under the terms of that agreement, we
would assume full ownership of PrimeCo operations in five "major trading areas"
(MTAs)-Richmond, VA, New Orleans, LA and the Florida MTAs of Jacksonville, Tampa
and Miami. Vodafone AirTouch would assume full ownership of the remaining five
PrimeCo MTAs-Chicago, IL, Milwaukee, WI and the Texas MTAs of Dallas, San
Antonio and Houston.
Under the terms of the Wireless Co. agreement described earlier, Bell Atlantic
and Vodafone AirTouch agreed to suspend the August 3, 1999 agreement to
restructure PrimeCo ownership interests, with certain limited exceptions. As a
result, no action will be taken to allocate most PrimeCo markets unless either
we or Vodafone AirTouch give notice to initiate such an allocation. Neither
party has given such notice.
In January 2000, we and Vodafone AirTouch purchased the remaining 20%
partnership interest in the Texas MTAs of Dallas, San Antonio and Houston held
by TXU Communications Holding Company (TXU). We invested $196 million to acquire
55% of the TXU partnership interest. Vodafone AirTouch will own the remaining
45% of the TXU partnership interest.
F-17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
PROPOSED RESTRUCTURE OF CABLE & WIRELESS COMMUNICATIONS PLC
On July 27, 1999, we announced our agreement to a proposal by Cable & Wireless
plc (Cable & Wireless), NTL Incorporated (NTL) and CWC for the proposed
restructuring of CWC. We currently have an 18.6% ownership interest in CWC.
Under the terms of the agreement, CWC's consumer cable telephone, television and
Internet operations would be separated from its corporate, business, Internet
protocol and wholesale operations. The consumer operations would be acquired by
NTL and the other operations would be acquired by Cable & Wireless. In exchange
for our interest in CWC, we would receive shares in the two acquiring companies,
representing approximately 9.1% of the NTL shares currently outstanding and
approximately 4.6% of the Cable & Wireless shares currently outstanding. Upon
completion of the restructuring, our previously issued $3,180 million in CWC
exchangeable notes would be exchangeable on and after July 1, 2002 for shares in
NTL and Cable & Wireless in proportion to the shares received in the
restructuring. Upon exchange by investors, we retain the option to settle in
cash or by delivery of the Cable & Wireless and NTL shares. We expect the
restructuring to result in a material non-cash gain.
The completion of the restructuring is subject to a number of conditions and,
assuming satisfaction of those conditions, is expected to close in the first
half of 2000.
PENSION PLAN AMENDMENTS
Effective January 19, 2000, we amended our management cash balance plan to
provide employees having at least 15 years of service as of September 1, 1999
with a pension benefit that is the "greater of" their cash balance account or a
benefit based on our former management pension plan. Employees will be given the
greater of the two benefits when they retire or terminate from the company. In
February 2000, we announced a special lump sum pension payment to management and
associate employees who retired before January 1, 1995 and who are receiving
pension annuities. The payments range from $2,500 to $20,000 depending on years
in retirement and current pension amount. Retirees will have the option of
electing the payment as a lump sum or an annuity. Together these two plan
amendments will increase annual pension costs by approximately $65 million. We
expect that favorable investment returns and changes in actuarial assumptions
will compensate for these cost increases. For additional information about our
employee benefits, see Note 16 to the consolidated financial statements.
THE TELECOMMUNICATIONS ACT OF 1996 AND COMPETITION
The telecommunications industry is undergoing substantial changes as a result of
the 1996 Act, other public policy changes and technological advances. These
changes are bringing increased competitive pressures in our current businesses,
but will also open new markets to us.
The 1996 Act became law on February 8, 1996 and replaced the Modification of
Final Judgment (MFJ). In general, the 1996 Act includes provisions that open
local exchange markets to competition and permit Bell Operating Companies or
their affiliates, including Bell Atlantic, to provide interLATA (long distance)
services and to engage in manufacturing previously prohibited by the MFJ. Under
the 1996 Act, our ability to provide in-region long distance service is largely
dependent on satisfying certain conditions. The requirements include a 14-point
"competitive checklist" of steps we must take which will help competitors offer
local services through resale, through the purchase of unbundled network
elements or through their own networks. We must also demonstrate to the FCC that
our entry into the in-region long distance market would be in the public
interest.
We are unable to predict definitively the impact that the 1996 Act will
ultimately have on our business, results of operations or financial condition.
The financial impact will depend on several factors, including the timing,
extent and success of competition in our markets, the timing and outcome of
various regulatory proceedings and any appeals, and the timing, extent and
success of our pursuit of new opportunities resulting from the 1996 Act.
We anticipate that these industry changes, together with the rapid growth,
enormous size and global scope of these markets, will attract new entrants and
encourage existing competitors to broaden their offerings. Current and potential
competitors in telecommunication services include long distance companies, other
local telephone companies, cable companies, wireless service providers, foreign
telecommunications providers, electric utilities, Internet service providers and
other companies that offer network services. Many of these companies have a
strong market presence, brand recognition and existing customer relationships,
all of which contribute to intensifying competition and may affect our future
revenue growth. In addition, a number of major industry participants have
announced mergers, acquisitions and joint ventures which could substantially
affect the development and nature of some or all of our markets.
In-Region Long Distance
On December 22, 1999, the FCC released an order approving our application for
permission to enter the in-region long distance market in New York. The FCC
concluded that we have satisfied the 14-point "competitive checklist" required
under the 1996 Act for entry into the in-region long distance market, and that
our entry into the long distance business in New York would benefit the public
interest. Following the FCC's decision, AT&T and Covad sought a stay of the
Commission's order. The stay request was denied, first by the FCC and later by
the U.S. Court of Appeals. AT&T's and Covad's appeal of the order remains
pending and is proceeding on an accelerated schedule, with argument scheduled
for April 2000.
KPMG LLP (KPMG), which conducted an extensive third-party test of our operations
support systems (OSS) in New York under the supervision of the New York Public
Service Commission (PSC), has been retained by the Massachusetts Department of
Telecommunications and Energy to conduct a third-party test of our OSS in
Massachusetts. The Massachusetts test is designed to build on the KPMG test of
the similar systems in New York.
F-18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
KPMG has also been retained by the Pennsylvania Public Utility Commission to
conduct a third-party test of our OSS in Pennsylvania and by the New Jersey
Board of Public Utilities to conduct a test of the New Jersey OSS that builds on
the concurrent testing of the similar systems in Pennsylvania. The Virginia
State Corporation Commission has also retained KPMG for the same purpose.
The timing of our long distance entry in each of our remaining 13 jurisdictions
depends on the receipt of FCC approval.
FCC REGULATION AND INTERSTATE RATES
In 1999, the FCC continued to implement reforms to the interstate access charge
system and to implement "universal service" and other requirements of the 1996
Act.
Access Charges
Interstate access charges are the rates long distance carriers pay for use and
availability of our operating telephone companies' facilities for the
origination and termination of interstate service. The FCC required a phased
restructuring of access charges, which began in January 1998, so that the
telephone companies' non-usage-sensitive costs will be recovered from long
distance carriers and end-users through flat rate charges, and usage-sensitive
costs will be recovered from long distance carriers through usage-based rates.
In addition, the FCC has required that different levels of usage-based charges
for originating and for terminating interstate traffic be established. The final
phase of this restructuring was completed on January 1, 2000.
Price Caps
Under the FCC price cap rules that apply to interstate access rates, each year
our price cap index is adjusted downward by a fixed percentage intended to
reflect increases in productivity (productivity factor) and adjusted upward by
an allowance for inflation (GDP-PI). Our annual price cap filing effective July
1, 1999 reflects the effects of the current productivity factor of 6.5%.
In May 1999, the U.S. Court of Appeals reversed the FCC order that adopted the
6.5% productivity factor. The Court concluded that the FCC had not justified its
choice of a productivity factor and directed the FCC to reconsider and explain
the methods used in selecting the productivity factor. The Court granted the FCC
a stay of its order, however, until April 1, 2000. As a result, the FCC is now
conducting a proceeding to determine an appropriate productivity factor in
response to the court's order.
At the same time, the FCC is considering a proposal to further restructure
access rates by an industry coalition that includes both local exchange carriers
(including Bell Atlantic) and long distance carriers. Among other things, that
proposal would set into place a mechanism to transition to a set target of
$.0055 per minute for switched access services. Once that target rate is
reached, local exchange carriers would no longer be required to make further
annual price cap reductions to their switched access prices. To allow time to
consider this industry proposal, parties have requested that the Court further
extend the stay of its price cap decision order until June 30, 2000.
The FCC has adopted rules for special access services that provide for added
pricing flexibility and ultimately the removal of services from price regulation
when certain competitive thresholds are met. In order to take advantage of this
relief, however, carriers must forego the ability to take advantage of
provisions in the current rules that provide relief in the event earnings fall
below certain thresholds, and we have not filed for this relief. The order also
allows certain services, including those included in the interexchange basket of
services, to be removed from price regulation immediately. In response,
effective October 1999, we removed approximately $90 million in annual revenues
of our services in the interexchange basket from price regulation and from the
operation of the productivity offset which otherwise would require annual price
reductions.
Universal Service
In July 1999, the U.S. Court of Appeals reversed certain aspects of the FCC's
order implementing the "universal service" provision of the 1996 Act. The
universal service fund includes a multi-billion dollar interstate fund to link
schools and libraries to the Internet and to subsidize high cost areas, low
income consumers and rural healthcare providers. Previously, under the FCC's
rules, all providers of interstate telecommunications services had to contribute
to the schools and libraries fund based on their total interstate and intrastate
retail revenues. The Court reversed the decision to include intrastate revenues
as part of the basis for assessing contributions to that fund. As a result of
this decision, our contributions to the universal service fund were reduced by
approximately $107 million annually beginning on November 1, 1999, and our
interstate access rates will be reduced accordingly because we will no longer
have to recover these contributions in our rates. AT&T and MCI WorldCom, Inc.
have since asked the U.S. Supreme Court to review this latter portion of the
appeals court decision. Other parties have asked the U.S. Supreme Court to
review additional aspects of the court of appeals decision.
In November 1999, the FCC adopted a new mechanism for providing universal
service support to high cost areas served by large local telephone companies.
This funding mechanism will provide additional support for local telephone
services in several states served by Bell Atlantic. State regulatory commissions
must take these funds into account in the rate-making process.
Unbundling of Network Elements
In November 1999, the FCC announced its decision setting forth new unbundling
requirements. The FCC had previously identified seven elements that had to be
provided to competitors on an unbundled basis. With respect to those seven
elements, the FCC concluded that incumbent local exchange carriers, such as our
operating telephone subsidiaries, do not have to provide unbundled switching (or
combinations of elements that include switching, such as the so-called unbundled
element "platform") under certain circumstances to business customers with four
or more lines in certain offices in the top 50 Metropolitan Statistical Areas
(MSAs). It also held that incumbents do not have to provide unbundled access to
their directory assistance or operator services. The remaining elements on the
FCC's original list still must be provided.
F-19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
With respect to new elements, the FCC concluded that new equipment to provide
advanced services such as Asymmetric Digital Subscriber Line (ADSL) does not
have to be unbundled as a general matter. On the other hand, the FCC concluded
that incumbents must provide dark fiber as an unbundled element, and that
sub-loop unbundling should be provided. Finally, the FCC ruled that combinations
of loops and transport must be made available under certain circumstances, but
left to a further rulemaking that it initiated certain issues relating to the
use of these combinations to substitute for special access services. While this
rulemaking proceeds, the FCC adopted interim rules limiting the instances in
which such combinations of elements must be made available. The FCC set a target
date of June 30, 2000 to decide the further rulemaking.
In addition to the unbundling requirements released in November 1999, the
FCC released an order on December 9, 1999 in a separate proceeding requiring
incumbent local exchange companies also to unbundle and provide to competitors
the higher frequency portion of their local loop. This provides competitors with
the ability to provision data services on top of incumbent carriers' voice
service.
STATE REGULATION
Pennsylvania
On September 30, 1999, the Pennsylvania Public Utility Commission (PUC) issued a
final decision in its "Global" proceeding on telecommunications competition
matters. The decision proposes to require our operating telephone subsidiary in
Pennsylvania, Bell Atlantic-Pennsylvania, to split into separate retail and
wholesale corporations. It proposes reductions in access charges applicable to
services provided to interexchange carriers and in both unbundled network
element rates and wholesale rates applicable to services and facilities provided
to competitive local exchange carriers. It requires Bell Atlantic-Pennsylvania
to provide combinations of unbundled network elements beyond those required by
the FCC. It reclassifies certain business services as "competitive," but
restricts the pricing freedom that that classification is supposed to give Bell
Atlantic-Pennsylvania. It sets a schedule of prerequisites for state endorsement
of a Bell Atlantic-Pennsylvania application to the FCC for permission to offer
in-region long distance service under Section 271 of the 1996 Act that are
likely to delay that endorsement. Bell Atlantic-Pennsylvania has challenged the
lawfulness of this order in the Pennsylvania Supreme Court, the Commonwealth
Court of Pennsylvania and the Federal District Court.
On January 18, 2000, Bell Atlantic-Pennsylvania and fourteen other parties
submitted to the PUC a Joint Petition for Settlement to resolve the appeals from
the "Global" Order. If approved by the PUC, the settlement will eliminate the
wholesale/retail separate subsidiary requirement and replace it with a
requirement to establish an advanced services affiliate. The settlement would
also expedite the process to obtain state endorsement of any Bell Atlantic-
Pennsylvania application to the FCC for permission to offer long distance
service. On February 2, 2000, the Commonwealth Court denied the PUC's request to
consider the settlement and set an expedited briefing schedule for the appeals.
On February 22, 2000, the PUC and Bell Atlantic-Pennsylvania appealed this
determination to the Pennsylvania Supreme Court, and the matter is pending.
RECIPROCAL COMPENSATION
State regulatory decisions have required us to pay "reciprocal compensation"
under the 1996 Act for the increasing volume of one-way traffic from our
customers to customers of other carriers, primarily calls to Internet service
providers. In February 1999, the FCC confirmed that such traffic is largely
interstate but concluded that it would not interfere with state regulatory
decisions requiring payment of reciprocal compensation for such traffic and that
carriers are bound by their existing interconnection agreements. The U.S. Court
of Appeals has remanded the FCC's decision for a better explanation of why this
traffic is interstate.
Based upon the FCC's February 1999 decision, the Massachusetts Department of
Telecommunications and Energy modified its earlier decision, resulting in a
reduction of our reciprocal compensation obligation. Both the New Jersey Board
of Public Utilities and the West Virginia Public Service Commission also have
issued favorable decisions on reciprocal compensation for Internet-bound
traffic. The New York PSC issued a decision that high volume, convergent traffic
(which includes Internet-bound traffic) has different cost characteristics and
should be compensated at the lower end-office rate. The New York PSC determined
that traffic in excess of a 3:1 ratio is presumed to be high volume, convergent
traffic, although this presumption may be rebutted. The Virginia State
Corporation Commission has denied jurisdiction over compensation for Internet
access and has referred us and other parties to the FCC. Commissions in
Delaware, Maryland, Pennsylvania, and Rhode Island have issued decisions
requiring us to continue to pay reciprocal compensation on Internet-bound
traffic. We currently estimate that our reciprocal compensation payment
obligations will be approximately $500 million to $550 million in 2000.
F-20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------
New Accounting Standard-Derivatives and Hedging Activities
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivatives be measured at fair value and recognized
as either assets or liabilities on our balance sheet. Changes in the fair values
of derivative instruments will be recognized in either earnings or comprehensive
income, depending on the designated use and effectiveness of the instruments.
The FASB amended this pronouncement in June 1999 to defer the effective date of
SFAS No. 133 for one year. We must adopt SFAS No. 133 no later than January 1,
2001.
On March 3, 2000, the FASB issued a Proposed SFAS, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which would amend SFAS
No. 133. The proposed amendments address certain implementation issues and
relate to such matters as the normal purchases and normal sales exception, the
definition of interest rate risk, hedging recognized foreign-currency-
denominated debt instruments, and intercompany derivatives.
We are currently evaluating the provisions of SFAS No. 133 and the proposed
amendments. The impact of adoption will be determined by several factors,
including the specific hedging instruments in place and their relationships to
hedged items, as well as market conditions at the date of adoption.
- --------------------------------------------------------------------------------
New Staff Accounting Bulletin-Revenue Recognition
- --------------------------------------------------------------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which currently must be adopted by June 30, 2000. SAB No. 101
provides additional guidance on revenue recognition, as well as criteria for
when revenue is generally realized and earned, and also requires the deferral of
incremental direct selling costs. We are currently assessing the impact of SAB
No. 101 on our results of operations and financial position.
- --------------------------------------------------------------------------------
Year "2000" Update
- --------------------------------------------------------------------------------
We implemented a comprehensive program to evaluate and address the impact of the
Year 2000 date transition on our operations. We did not experience any material
interruption or failure of our normal business functions or operations as a
result of an actual or perceived Year 2000 problem.
From the inception of our Year 2000 project through December 31, 1999, and based
on the cost tracking methods we have historically applied to this project, we
incurred total pre-tax expenses of approximately $230 million, and we have made
capital expenditures of approximately $181 million. For 1999, total pre-tax
expenses for our Year 2000 project were approximately $108 million and total
capital expenditures were approximately $101 million.
- --------------------------------------------------------------------------------
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
In this Management's Discussion and Analysis, and elsewhere in this Annual
Report, we have made forward-looking statements. These statements are based on
our estimates and assumptions and are subject to risks and uncertainties.
Forward-looking statements include the information concerning our possible or
assumed future results of operations. Forward-looking statements also include
those preceded or followed by the words "anticipates," "believes," "estimates,"
"hopes" or similar expressions. 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, along with those discussed elsewhere in this
Annual Report, could affect future results 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
us or by companies in which we have substantial investments;
. material changes in available technology;
. the final outcome of federal, state, and local regulatory initiatives and
proceedings, including arbitration proceedings, and judicial review of
those initiatives and proceedings, pertaining to, among other matters, the
terms of interconnection, access charges, universal service, and unbundled
network element and resale rates;
. the extent, timing, success, and overall effects of competition from others
in the local telephone and toll service markets;
. the timing and profitability of our entry into the in-region long distance
market;
. the timing of, and regulatory or other conditions associated with, the
completion of the merger with GTE and our ability to combine operations and
obtain revenue enhancements and cost savings following the merger; and
. the timing of, and regulatory or other conditions associated with, the
completion of the wireless transaction with Vodafone AirTouch, and the
ability of the new wireless enterprise to combine operations and obtain
revenue enhancements and cost savings.
F-21
<PAGE>
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
We, the management of Bell Atlantic Corporation, are responsible for the
consolidated financial statements and the information and representations
contained in this report. The financial statements have been prepared in
conformity with generally accepted accounting principles and include amounts
based on management's best estimates and judgments. Financial information
elsewhere in this report is consistent with that in the financial statements.
Management has established and maintained a system of internal control which is
designed to provide reasonable assurance that errors or irregularities that
could be material to the financial statements are prevented or would be detected
within a timely period. The system of internal control includes widely
communicated statements of policies and business practices, which are designed
to require all employees to maintain high ethical standards in the conduct of
our business. The internal controls are augmented by organizational arrangements
that provide for appropriate delegation of authority and division of
responsibility and by a program of internal audits.
The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants. Their audit was conducted in accordance with generally
accepted auditing standards and included an evaluation of our internal control
structure and selective tests of transactions. The Report of Independent
Accountants appears on this page.
The Audit Committee of the Board of Directors, which is composed solely of
outside directors, meets periodically with the independent accountants,
management and internal auditors to review accounting, auditing, internal
controls, litigation and financial reporting matters. Both the internal auditors
and the independent accountants have free access to the Audit Committee without
management present.
/s/ Ivan G. Seidenberg
Ivan G. Seidenberg
Chairman of the Board
and Chief Executive Officer
/s/ Frederic V. Salerno
Frederic V. Salerno
Senior Executive Vice President
and Chief Financial Officer/
Strategy and Business Development
/s/ Doreen A. Toben
Doreen A. Toben
Vice President - Controller
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareowners of Bell Atlantic Corporation:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Bell
Atlantic Corporation and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for computer software costs in accordance with
AICPA Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective January 1, 1999.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 14, 2000, except for Note 24,
as to which the date is March 22, 2000.
F-22
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts)
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Operating revenues $ 33,174 $ 31,566 $ 30,194 $ 29,155 $ 27,927
Operating income 8,495 6,627 5,341 6,079 5,418
Income before extraordinary items and cumulative
effect of change in accounting principle 4,208 2,991 2,455 3,129 2,826
Per common share-basic 2.72 1.90 1.58 2.02 1.85
Per common share-diluted 2.66 1.87 1.56 2.00 1.84
Net income (loss) 4,202 2,965 2,455 3,402 (97)
Per common share-basic 2.71 1.89 1.58 2.20 (.06)
Per common share-diluted 2.65 1.86 1.56 2.18 (.06)
Cash dividends declared per common share 1.54 1.54 1.51 1.44 1.40
FINANCIAL POSITION
Total assets $ 62,614 $ 55,144 $ 53,964 $ 53,361 $ 50,623
Long-term debt 18,463 17,646 13,265 15,286 15,744
Employee benefit obligations 9,326 10,384 10,004 9,588 9,388
Minority interest, including a portion subject to
redemption requirements 458 330 911 2,014 1,221
Preferred stock of subsidiary 201 201 201 145 145
Shareowners' investment 15,880 13,025 12,789 12,976 11,214
</TABLE>
Significant events affecting our historical earnings trends include the
following:
. 1999 data include a loss on mark-to-market adjustment for exchangeable notes
(see Note 10) and merger-related costs.
. 1998 and 1997 data include retirement incentive costs (see Note 16),
merger-related costs and other special items (see Note 2).
. 1996 data include retirement incentive costs (see Note 16), other special
items, and the adoption of a change in accounting for directory publishing.
. 1995 data include retirement incentive costs (see Note 16), and an
extraordinary charge for the discontinuation of regulatory accounting
principles.
Per share amounts have been adjusted to reflect a two-for-one stock split on
June 1, 1998.
F-23
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME Bell Atlantic Corporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES $ 33,174 $ 31,566 $ 30,194
OPERATING EXPENSES
Employee costs, including benefits and taxes 8,241 9,266 9,047
Depreciation and amortization 6,221 5,870 5,865
Other operating expenses 10,217 9,803 9,941
-------------------------------------------------
24,679 24,939 24,853
-------------------------------------------------
OPERATING INCOME 8,495 6,627 5,341
Income (loss) from unconsolidated businesses 143 (415) (124)
Other income and (expense), net 54 122 (3)
Interest expense 1,263 1,335 1,230
Mark-to-market adjustment for exchangeable notes (664) - -
-------------------------------------------------
Income before provision for income taxes and extraordinary item 6,765 4,999 3,984
Provision for income taxes 2,557 2,008 1,529
-------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 4,208 2,991 2,455
Extraordinary item
Early extinguishment of debt, net of tax (6) (26) -
-------------------------------------------------
NET INCOME 4,202 2,965 2,455
Redemption of minority interest - (30) -
Redemption of investee preferred stock - (2) -
-------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREOWNERS $ 4,202 $ 2,933 $ 2,455
=================================================
BASIC EARNINGS PER COMMON SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ 2.72 $ 1.90 $ 1.58
Extraordinary item (.01) (.01) -
-------------------------------------------------
NET INCOME $ 2.71 $ 1.89 $ 1.58
=================================================
Weighted-average shares outstanding (in millions) 1,553 1,553 1,552
=================================================
DILUTED EARNINGS PER COMMON SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ 2.66 $ 1.87 $ 1.56
Extraordinary item (.01) (.01) -
-------------------------------------------------
NET INCOME $ 2.65 $ 1.86 $ 1.56
=================================================
Weighted-average shares-diluted (in millions) 1,583 1,578 1,571
=================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-24
<PAGE>
CONSOLIDATED BALANCE SHEETS Bell Atlantic Corporation and Subsidiaries
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts)
At December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,097 $ 237
Short-term investments 839 786
Accounts receivable, net of allowances of $619 and $593 7,025 6,560
Inventories 664 566
Prepaid expenses 673 522
Other 298 411
--------------------------------------------
10,596 9,082
--------------------------------------------
Plant, property and equipment 89,238 83,064
Less accumulated depreciation 49,939 46,248
--------------------------------------------
39,299 36,816
--------------------------------------------
Investments in unconsolidated businesses 6,275 4,276
Other assets 6,444 4,970
--------------------------------------------
Total assets $ 62,614 $ 55,144
============================================
LIABILITIES AND SHAREOWNERS' INVESTMENT
Current liabilities
Debt maturing within one year $ 5,455 $ 2,988
Accounts payable and accrued liabilities 6,465 6,105
Other 1,547 1,438
--------------------------------------------
13,467 10,531
--------------------------------------------
Long-term debt 18,463 17,646
--------------------------------------------
Employee benefit obligations 9,326 10,384
--------------------------------------------
Deferred credits and other liabilities
Deferred income taxes 3,892 2,254
Unamortized investment tax credits 197 222
Other 730 551
--------------------------------------------
4,819 3,027
--------------------------------------------
Minority interest, including a portion subject to redemption requirements 458 330
--------------------------------------------
Preferred stock of subsidiary 201 201
--------------------------------------------
Commitments and contingencies (Notes 2, 3, 8, and 9)
Shareowners' investment
Series preferred stock ($.10 par value; none issued) - -
Common stock ($.10 par value; 1,576,246,325 shares and 1,576,246,325 shares issued) 158 158
Contributed capital 13,550 13,368
Reinvested earnings 2,806 1,371
Accumulated other comprehensive income (loss) 450 (714)
--------------------------------------------
16,964 14,183
Less common stock in treasury, at cost 640 593
Less deferred compensation-employee stock ownership plans 444 565
--------------------------------------------
15,880 13,025
--------------------------------------------
Total liabilities and shareowners' investment $ 62,614 $ 55,144
============================================
</TABLE>
See Notes to Consolidated Financial Statements
F-25
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' INVESTMENT Bell Atlantic
Corporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts, and shares in thousands)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Balance at beginning of year 1,576,246 $ 158 1,576,053 $ 157 1,574,001 $ 157
Shares issued
Employee plans - - 193 1 2,044 -
Shareowner plans - - - - 8 -
------------------------------------------------------------------
Balance at end of year 1,576,246 158 1,576,246 158 1,576,053 157
------------------------------------------------------------------
CONTRIBUTED CAPITAL
Balance at beginning of year 13,368 13,177 13,216
Shares issued
Employee plans 138 178 (22)
Issuance of stock by subsidiaries 44 13 -
Other - - (17)
------------------------------------------------------------------
Balance at end of year 13,550 13,368 13,177
------------------------------------------------------------------
REINVESTED EARNINGS
Balance at beginning of year 1,371 1,262 1,282
Net income 4,202 2,965 2,455
Dividends declared ($1.54, $1.54, and $1.51 per share) (2,391) (2,392) (2,363)
Shares issued
Employee plans (359) (443) (121)
Tax benefit of dividends paid to ESOPs 9 11 13
Redemption of minority interest - (30) -
Redemption of investee preferred stock - (2) -
Other (26) - (4)
------------------------------------------------------------------
Balance at end of year 2,806 1,371 1,262
------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of year (714) (553) (321)
------------------------------------------------------------------
Foreign currency translation adjustment (68) (146) (234)
Unrealized gains on marketable securities 1,225 2 2
Minimum pension liability adjustment 7 (17) -
------------------------------------------------------------------
Other comprehensive income (loss) 1,164 (161) (232)
------------------------------------------------------------------
Balance at end of year 450 (714) (553)
------------------------------------------------------------------
TREASURY STOCK
Balance at beginning of year 22,887 593 22,952 591 22,540 589
Shares purchased 12,142 723 20,743 1,002 24,148 920
Shares distributed
Employee plans (11,446) (675) (20,779) (999) (23,260) (899)
Shareowner plans (14) (1) (26) (1) (52) (2)
Acquisition agreements - - (3) - (424) (17)
------------------------------------------------------------------
Balance at end of year 23,569 640 22,887 593 22,952 591
------------------------------------------------------------------
DEFERRED COMPENSATION-ESOPS
Balance at beginning of year 565 663 769
Amortization (121) (98) (106)
------------------------------------------------------------------
Balance at end of year 444 565 663
------------------------------------------------------------------
Total Shareowners' Investment $15,880 $13,025 $12,789
==================================================================
COMPREHENSIVE INCOME
Net income $ 4,202 $ 2,965 $ 2,455
Other comprehensive income (loss) per above 1,164 (161) (232)
------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 5,366 $ 2,804 $ 2,223
==================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-26
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Bell Atlantic Corporation and Subsidiaries
<TABLE>
<CAPTION>
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,202 $ 2,965 $ 2,455
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 6,221 5,870 5,865
Deferred income taxes, net 928 264 237
Mark-to-market adjustment for exchangeable notes 664 - -
Loss (income) from unconsolidated businesses (143) 415 124
Dividends received from unconsolidated businesses 116 170 192
Amortization of unearned lease income (151) (120) (110)
Investment tax credits (25) (29) (38)
Extraordinary item, net of tax 6 26 -
Other items, net 169 227 88
Changes in certain assets and liabilities, net of effects from
acquisition/disposition of businesses
Accounts receivable (423) (220) (140)
Inventories (92) (111) (74)
Other assets (379) (108) 65
Employee benefit obligations (1,046) 354 416
Accounts payable and accrued liabilities 345 376 (93)
Other liabilities 264 (8) (128)
---------------------------------------
Net cash provided by operating activities 10,656 10,071 8,859
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (8,675) (7,446) (6,638)
Proceeds from sale of plant, property and equipment 211 12 6
Purchases of short-term investments (855) (1,028) (844)
Proceeds from sale of short-term investments 795 968 427
Investments in unconsolidated businesses, net (901) (603) (833)
Acquisition of businesses, less cash acquired (505) (62) (62)
Proceeds from disposition of businesses 612 637 547
Investment in leased assets (170) (269) (162)
Proceeds from leasing activities 110 155 83
Proceeds from Telecom Corporation of New Zealand Limited share repurchase plan - - 153
Other, net (251) (49) (16)
---------------------------------------
Net cash used in investing activities (9,629) (7,685) (7,339)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (2,399) (2,379) (2,340)
Net change in short-term borrowings with original maturities of three months or less 2,645 (4,038) 1,580
Proceeds from borrowings 662 6,328 633
Principal repayments of borrowings and capital lease obligations (942) (651) (902)
Early extinguishment of debt (257) (790) -
Proceeds from financing of cellular assets 380 - -
Proceeds from sale of common stock 314 559 711
Purchase of common stock for treasury (723) (1,002) (920)
Minority interest - (632) -
Reduction in preferred stock of subsidiary - - (10)
Proceeds from sale of stock of subsidiary 119 - -
Proceeds from sale of preferred stock by subsidiary - - 66
Net change in outstanding checks drawn on controlled disbursement accounts 34 133 (265)
---------------------------------------
Net cash used in financing activities (167) (2,472) (1,447)
---------------------------------------
Increase (decrease) in cash and cash equivalents 860 (86) 73
Cash and cash equivalents, beginning of year 237 323 250
---------------------------------------
Cash and cash equivalents, end of year $ 1,097 $ 237 $ 323
=======================================
</TABLE>
See Notes to Consolidated Financial Statements
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Bell Atlantic Corporation and
Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 1
Description of Business and Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS
Bell Atlantic is an international telecommunications company that operates in
four segments: Domestic Telecom, Global Wireless, Directory and Other
Businesses. For further information concerning our business, see Note 18.
The telecommunications industry is undergoing substantial changes as a result of
new legislation, public policy changes, technological advances, and various
mergers and alliances. We are participating in this transformation in several
ways, including:
. The provision of in-region long distance service in New York beginning in
January 2000.
. Our forthcoming merger of equals with GTE Corporation (see Note 22).
. The combination of the U.S. wireless assets of both our company and
Vodafone AirTouch plc (see Note 21).
CONSOLIDATION
The consolidated financial statements include our controlled or majority-owned
subsidiaries. Investments in businesses which we do not control, but have the
ability to exercise significant influence over operating and financial policies,
are accounted for using the equity method. Investments in which we do not have
the ability to exercise significant influence over operating and financial
policies are accounted for under the cost method. Certain of our cost method
investments are classified as available-for-sale securities and adjusted to fair
value under Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
All significant intercompany accounts and transactions have been eliminated.
Telecom Corporation of New Zealand Limited
Effective May 31, 1999, our representatives resigned from the Board of Directors
of Telecom Corporation of New Zealand Limited (TCNZ), an unconsolidated business
in which we hold a 24.94% ownership interest, and we agreed to vote our shares
neutrally. As a result, we no longer have significant influence over TCNZ's
operating and financial policies and, therefore, have changed the accounting for
our investment from the equity method to the cost method. You can find
additional information about our TCNZ investment in Notes 3 and 10.
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 prior period financial information
(including share and per share data) contained in this report has been adjusted
to give retroactive recognition to this common stock split.
USE OF ESTIMATES
We prepare our financial statements under generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amounts or certain disclosures. Actual results could differ
from those estimates.
REVENUE RECOGNITION
We recognize wireline and wireless services revenues based upon usage of our
network and facilities and contract fees. We recognize products and other
services revenues when the products are delivered and accepted by the customers
and when services are provided in accordance with contract terms.
MAINTENANCE AND REPAIRS
We charge the cost of maintenance and repairs, including the cost of replacing
minor items not constituting substantial betterments, to Operating Expenses.
EARNINGS PER COMMON SHARE
Basic earnings per common share are based on the weighted-average number of
shares outstanding during the year. Diluted earnings per common share include
the dilutive effect of shares issuable under our stock-based compensation plans,
which represent the only potential dilutive common shares.
CASH AND CASH EQUIVALENTS
We consider all highly liquid investments with a maturity of 90 days or less
when purchased to be cash equivalents, except cash equivalents held as
short-term investments. Cash equivalents are stated at cost, which approximates
market value.
SHORT-TERM INVESTMENTS
Our short-term investments consist primarily of cash equivalents held in trust
to pay for certain employee benefits. Short-term investments are stated at cost,
which approximates market value.
INVENTORIES
We include in inventory new and reusable materials of the operating telephone
subsidiaries which are stated principally at average original cost, except that
specific costs are used in the case of large individual items. Inventories of
our other subsidiaries are stated at the lower of cost (determined principally
on either an average or first-in, first-out basis) or market.
PLANT AND DEPRECIATION
We state plant, property and equipment at cost. Our operating telephone
subsidiaries' depreciation expense is principally based on the composite group
remaining life method and straight-line composite rates. This method provides
for the recognition of the cost of the remaining net investment in telephone
plant, less anticipated net salvage value, over the remaining asset lives. This
method requires the periodic revision of depreciation rates.
The asset lives used by our operating telephone subsidiaries are presented in
the following table:
Average Lives (in years)
- --------------------------------------------------------------------------------
Buildings 20-60
Central office equipment 5-12
Outside communications plant 8-65
Furniture, vehicles and other 3-15
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 1 continued
When we replace or retire depreciable telephone plant, we deduct the carrying
amount of such plant from the respective accounts and charge accumulated
depreciation. Gains or losses on disposition are amortized with the remaining
net investment in telephone plant.
Plant, property and equipment of our other subsidiaries is depreciated on a
straight-line basis over the following estimated useful lives: buildings, 20 to
40 years, and other equipment, 1 to 20 years.
When the depreciable assets of our other subsidiaries are retired or otherwise
disposed of, the related cost and accumulated depreciation are deducted from the
plant accounts, and any gains or losses on disposition are recognized in income.
We capitalize interest associated with the acquisition or construction of plant
assets. Capitalized interest is reported as a cost of plant and a reduction in
interest cost.
COMPUTER SOFTWARE COSTS
Effective January 1, 1999, we adopted Statement of Position (SOP) No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Under SOP No. 98-1, we capitalize the cost of internal-use
software which has a useful life in excess of one year. Subsequent additions,
modifications or upgrades to internal use software are capitalized only to the
extent that they allow the software to perform a task it previously did not
perform. Software maintenance and training costs are expensed in the period in
which they are incurred. Also, we capitalize interest associated with the
development of internal-use software. Capitalized computer software costs are
amortized using the straight-line method over a period of 3 to 5 years. The
effect of adopting SOP No. 98-1 was an increase in net income of approximately
$230 million in 1999. We also capitalized approximately $600 million as an
intangible asset in 1999.
Prior to 1999, our operating telephone subsidiaries capitalized initial
right-to-use fees for central office switching equipment, including initial
operating system and initial application software costs. For noncentral office
equipment, only the initial operating system software was capitalized.
Subsequent additions, modifications, or upgrades of initial software programs,
whether operating or application packages, were expensed as incurred.
COSTS OF START-UP ACTIVITIES
Effective January 1, 1999, we adopted SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." Under this accounting standard, we expense costs of
start-up activities as incurred, including pre-operating, pre-opening and other
organizational costs. The adoption of SOP No. 98-5 did not have a material
effect on our results of operations or financial condition because our policy
has been generally to expense all start-up activities.
GOODWILL AND OTHER INTANGIBLES
Goodwill is the excess of the acquisition cost of businesses over the fair value
of the identifiable net assets acquired. We amortize goodwill and other
identifiable intangibles on a straight-line basis over their estimated useful
life, not exceeding 40 years. We assess the impairment of other identifiable
intangibles and goodwill related to our consolidated subsidiaries under SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. A determination of
impairment (if any) is made based on estimates of future cash flows. In
instances where goodwill has been recorded for assets that are subject to an
impairment loss, the carrying amount of the goodwill is eliminated before any
reduction is made to the carrying amounts of impaired long-lived assets and
identifiable intangibles. On a quarterly basis, we assess the impairment of
enterprise level goodwill under Accounting Principles Board (APB) Opinion No. 17
"Intangible Assets." A determination of impairment (if any) is made based
primarily on estimates of market value.
SALE OF STOCK BY SUBSIDIARY
We recognize in consolidation changes in our ownership percentage in a
subsidiary caused by issuances of the subsidiary's stock as adjustments to
Contributed Capital.
INCOME TAXES
Bell Atlantic and its domestic subsidiaries file a consolidated federal income
tax return. For periods prior to the Bell Atlantic - NYNEX merger, NYNEX filed
its own consolidated federal income tax return.
Our operating telephone subsidiaries use the deferral method of accounting for
investment tax credits earned prior to the repeal of investment tax credits by
the Tax Reform Act of 1986. We also defer certain transitional credits earned
after the repeal. We amortize these credits over the estimated service lives of
the related assets as a reduction to the Provision for Income Taxes.
ADVERTISING COSTS
We expense advertising costs as they are incurred.
STOCK-BASED COMPENSATION
We account for stock-based employee compensation plans under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, and
follow the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation."
FOREIGN CURRENCY TRANSLATION
The functional currency for nearly all of our foreign operations is the local
currency. For these foreign entities, we translate income statement amounts at
average exchange rates for the period, and we translate assets and liabilities
at end-of-period exchange rates. We record these translation adjustments in
Accumulated Other Comprehensive Income (Loss) in our consolidated balance
sheets. We report exchange gains and losses on intercompany foreign currency
transactions of a long-term nature in Accumulated Other Comprehensive Income
(Loss). Other exchange gains and losses are reported in income.
When a foreign entity operates in a highly inflationary economy, we use the U.S.
dollar as the functional currency rather than the local currency. We translate
nonmonetary assets and liabilities and related expenses into U.S. dollars at
historical exchange rates. We translate all other income statement amounts using
average exchange rates for the period. Monetary assets and liabilities are
translated at end-of-period exchange rates, and any gains or losses are reported
in income. For the period October 1, 1996, through December 31, 1998, we
considered Grupo Iusacell S.A. de C.V., a fully consolidated subsidiary in
Mexico, to operate in a highly inflationary economy and utilized the U.S. dollar
as its functional
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 1 continued
currency. Beginning January 1, 1999, we discontinued highly inflationary
accounting for this entity and resumed using the Mexican peso as its functional
currency.
DERIVATIVE INSTRUMENTS
We have entered into derivative transactions to manage our exposure to
fluctuations in foreign currency exchange rates, interest rates, and corporate
tax rates. We employ risk management strategies using a variety of derivatives
including foreign currency forwards and options, interest rate swap agreements,
interest rate caps and floors, and basis swap agreements. We do not hold
derivatives for trading purposes.
Fair Value Method
We use the fair value method of accounting for our foreign currency derivatives,
which requires us to record these derivatives at fair value in our consolidated
balance sheets, and changes in value are recorded in income or Shareowners'
Investment. Depending upon the nature of the derivative instruments, the fair
value of these instruments may be recorded in Current Assets, Other Assets,
Current Liabilities, and Deferred Credits and Other Liabilities in our
consolidated balance sheets.
Gains and losses and related discounts or premiums arising from foreign currency
derivatives (which hedge our net investments in consolidated foreign
subsidiaries and investments in foreign entities accounted for under the equity
method) are included in Accumulated Other Comprehensive Income (Loss) and
reflected in income upon sale or substantial liquidation of the investment.
Certain of these derivatives also include an interest element, which is recorded
in Interest Expense over the lives of the contracts. Gains and losses from
derivatives which hedge our short-term transactions and cost investments are
included in Other Income and Expense, Net, and discounts or premiums on these
contracts are included in income over the lives of the contracts. Gains and
losses from derivatives hedging identifiable foreign currency commitments are
deferred and reflected as adjustments to the related transactions. If the
foreign currency commitment is no longer likely to occur, the gain or loss is
recognized immediately in income.
Earnings generated from our leveraged lease portfolio may be affected by changes
in corporate tax rates. In order to hedge a portion of this risk, we use basis
swap agreements, which we account for using the fair value method of accounting.
Under this method, these agreements are carried at fair value and included in
Other Assets or Deferred Credits and Other Liabilities in our consolidated
balance sheet. Changes in the unrealized gain or loss are included in Other
Income and Expense, Net.
Accrual Method
Interest rate swap agreements and interest rate caps and floors that qualify as
hedges are accounted for under the accrual method. An instrument qualifies as a
hedge if it effectively modifies and/or hedges the interest rate characteristics
of the underlying fixed or variable interest rate debt. Under the accrual
method, no amounts are recognized in our consolidated balance sheets related to
the principal balances. The interest differential to be paid or received, which
is accrued as interest rates change, and premiums related to caps and floors,
are recognized as adjustments to Interest Expense over the lives of the
agreements. These interest accruals are recorded in Current Assets and Current
Liabilities in our consolidated balance sheets. If we terminate an agreement,
the gain or loss is recorded as an adjustment to the basis of the underlying
liability and amortized over the remaining original life of the agreement. If
the underlying liability matures, or is extinguished and the related derivative
is not terminated, that derivative would no longer qualify for accrual
accounting. In this situation, the derivative is accounted for at fair value,
and changes in the value are recorded in income.
NEW ACCOUNTING STANDARD-DERIVATIVES AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivatives be measured at fair value and recognized
as either assets or liabilities on our balance sheet. Changes in the fair values
of derivative instruments will be recognized in either earnings or comprehensive
income, depending on the designated use and effectiveness of the instruments.
The FASB amended this pronouncement in June 1999 to defer the effective date of
SFAS No. 133 for one year. We must adopt SFAS No. 133 no later than January 1,
2001.
On March 3, 2000, the FASB issued a Proposed SFAS, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which would amend SFAS
No. 133. The proposed amendments address certain implementation issues and
relate to such matters as the normal purchases and normal sales exception, the
definition of interest rate risk, hedging recognized
foreign-currency-denominated debt instruments, and intercompany derivatives.
We are currently evaluating the provisions of SFAS No. 133 and the proposed
amendments. The impact of adoption will be determined by several factors,
including the specific hedging instruments in place and their relationships to
hedged items, as well as market conditions at the date of adoption.
NEW STAFF ACCOUNTING BULLETIN-REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which currently must be adopted by June 30, 2000. SAB No. 101
provides additional guidance on revenue recognition, as well as criteria for
when revenue is generally realized and earned, and also requires the deferral of
incremental direct selling costs. We are currently assessing the impact of SAB
No. 101 on our results of operations and financial position.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 2
Bell Atlantic - NYNEX Merger
- --------------------------------------------------------------------------------
On August 14, 1997, Bell Atlantic Corporation and NYNEX Corporation completed a
merger of equals under a definitive merger agreement entered into on April 21,
1996 and amended on July 2, 1996. Under the terms of the amended agreement,
NYNEX became a wholly owned subsidiary of Bell Atlantic. NYNEX stockholders
received 0.768 of a share of Bell Atlantic common stock for each share of NYNEX
common stock that they owned. This resulted in the issuance of 700.4 million
shares of Bell Atlantic common stock.
The merger qualified as a tax-free reorganization and has been accounted for as
a pooling of interests. Under this method of accounting, the companies are
treated as if they had always been combined for accounting and financial
reporting purposes and, therefore, we restated our financial information for all
dates and periods prior to the merger.
BELL ATLANTIC-NYNEX MERGER-RELATED COSTS
In the third quarter of 1997, we recorded merger-related pre-tax costs of $200
million for direct incremental costs, and $223 million for employee severance
costs.
Direct incremental costs consist of expenses associated with completing the
merger transaction, such as professional and regulatory fees, compensation
arrangements, and shareowner-related costs.
Employee severance costs, as recorded under SFAS No. 112, "Employers' Accounting
for Postemployment Benefits," represent the anticipated benefit costs for the
separation by the end of 1999 of approximately 3,100 management employees who
are entitled to benefits under pre-existing separation pay plans. During 1997,
1998, and 1999, 245, 856, and 231 management employees were separated with
severance benefits. Accrued postemployment benefit liabilities are included in
our consolidated balance sheets as a component of Employee Benefit Obligations.
OTHER INITIATIVES
During 1997, we recorded other charges and special items totaling $1,041 million
(pre-tax) in connection with consolidating operations and combining
organizations, and for other special items arising during the year.
Video-Related Charges
In 1997, we recognized total pre-tax charges of $243 million related to certain
video investments and operations. We determined that we would no longer pursue a
multichannel, multipoint, distribution system (MMDS) as part of our video
strategy. As a result, we recognized liabilities for purchase commitments
associated with the MMDS technology and costs associated with closing the
operations of our Tele-TV partnership because this operation no longer supports
our video strategy. We also wrote-down our remaining investment in CAI Wireless
Systems, Inc.
Write-Down of Assets and Real Estate Consolidation
In the third quarter of 1997, we recorded pre-tax charges of $355 million for
the write-down of obsolete or impaired fixed assets and for the cost of
consolidating redundant real estate properties. As part of our merger
integration planning, we reviewed the carrying values of long-lived assets. This
review included estimating remaining useful lives and cash flows and identifying
assets to be abandoned. In the case of impaired assets, we analyzed cash flows
related to those assets to determine the amount of the impairment. As a result
of these reviews, we recorded charges of $275 million for the write-off of some
assets and $25 million for the impairment of other assets. These assets
primarily included computers and other equipment used to transport data for
internal purposes, copper wire used to provide telecommunications service in New
York, and duplicate voice mail platforms. None of these assets is held for
disposal. At December 31, 1999 and 1998, the impaired assets had no remaining
carrying value.
In connection with our merger integration efforts, we consolidated real estate
to achieve a reduction in the total square footage of building space that we
utilize. We sold properties, subleased some of our leased facilities, and
terminated other leases, for which we recorded a charge of $55 million in the
third quarter of 1997. Most of the charge related to properties in Pennsylvania
and New York, where corporate support functions were consolidated into fewer
work locations.
Regulatory, Tax and Legal Contingencies and Other Special Items
In 1997, we also recorded reductions to operating revenues and charges to
operating expenses totaling $526 million (pre-tax), which consisted of the
following:
. Revenue reductions consisted of $179 million for federal regulatory
matters. These matters relate to specific issues that are currently under
investigation by federal regulatory commissions. We believe that it is
probable that the ultimate resolution of these pending matters will result
in refunds to our customers.
. Charges to operating expenses totaled $347 million and consisted of $75
million for interest on federal and other tax contingencies; $55 million
for other tax matters; and $52 million for legal contingencies and a state
regulatory audit issue. These contingencies were accounted for under the
rules of SFAS No. 5, "Accounting for Contingencies." These charges also
included $95 million related to costs incurred in standardizing and
consolidating our directory businesses and $70 million for other
post-merger initiatives.
Other charges arising in 1997 included $59 million for our equity share of
formation costs previously announced by Cable & Wireless Communications plc
(CWC). We own an 18.6% interest in CWC and account for our investment under the
equity method of accounting.
In 1997, we recognized pre-tax gains of $142 million on the sales of our
ownership interests of several nonstrategic businesses. These gains included $42
million on the sale of our interest in Sky Network Television Limited of New
Zealand; $54 million on the sale of our 33% stake in an Italian wireline
venture, Infostrada; and $46 million on the sale of our two-sevenths interest in
Bell Communications Research, Inc.
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 2 continued
The following table provides a reconciliation of the liabilities associated with
Bell Atlantic-NYNEX merger-related costs and other charges and special items
described above:
<TABLE>
<CAPTION>
(dollars in millions)
1997 1998
--------------------------------------------------------------------------------------------------------
Charged to
Beginning Expense or
of Year Revenue Deductions Adjustments End of Year Deductions Adjustments End of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MERGER-RELATED
Direct incremental costs $ - $ 200 $ (165)a $ - $ 35 $ (5)a $ (26) $ 4
Severance obligation 111 223 (24)a 20 330 (61)a 47 316
OTHER INITIATIVES
Video-related costs - 243 (227)b 5 21 (3)a (12) 6
Write-down of fixed
assets and real estate
consolidation - 355 (312)b - 43 (18)b (2) 23
Regulatory, tax and legal
contingencies, and
other special items - 526 (144)b - 382 (118)c (15) 249
-------------------------------------------------------------------------------------------------------
$ 111 $1,547 $ (872) $ 25 $ 811 $ (205) $ (8) $ 598
=======================================================================================================
<CAPTION>
(dollars in millions)
1999
------------------------------------------
Deductions Adjustments End of Year
------------------------------------------
<S> <C> <C> <C>
MERGER-RELATED
Direct incremental costs $ (1)a $ (3) $ -
Severance obligation (35)a (15) 266
OTHER INITIATIVES
Video-related costs (2)a (4) -
Write-down of fixed
assets and real estate
consolidation (8)d (13) 2
Regulatory, tax and legal
contingencies, and
other special items (7)e (37) 205
---------------------------------------
$ (53) $ (72) $ 473
=======================================
</TABLE>
. Adjustments refer to deductions to the liability that reduced expense, or
additions to the liability that increased expense resulting from changes in
circumstances or experience in implementing the planned activities. In
1999, adjustments include the favorable settlement of tax matters.
. Deductions refer to the utilization of the liability through payments,
asset write-offs, or refunds to customers.
a-primarily comprised of cash payments
b-primarily comprised of asset write-offs
c-comprised of cash payments of $66 million, refunds to customers of $42
million, and asset write-offs of $10 million
d-comprised of cash payments of $3 million and asset write-offs of $5
million
e-comprised of cash payments of $4 million and asset write-offs of $3
million
At December 31, 1999, direct incremental and video-related liabilities were
fully utilized through either payments or adjustments. We expect that the
remaining real estate liabilities will extend through 2003. Liabilities for
regulatory, tax and legal contingencies, and other special items will be
utilized as the respective matter is settled. The obligation for severance
benefits, which has been determined under SFAS No. 112, represents expected
payments to employees who leave the company with benefits provided under
pre-existing separation pay plans. The severance obligation is adjusted through
annual costs, which are actuarially determined based upon financial market
interest rates, experience, and management's best estimate of future benefit
payments. In 1997, the merger-related severance costs increased our existing
severance obligation. At December 31, 1999, the merger-related separations were
completed and the remaining liability balance represents our obligation for
ongoing separations under the pre-existing separation pay plans, in accordance
with SFAS No. 112.
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 3
Investments in Unconsolidated Businesses
- --------------------------------------------------------------------------------
Our investments in unconsolidated businesses comprise the following:
<TABLE>
<CAPTION>
(dollars in millions)
1999 1998
At December 31, Ownership Investment Ownership Investment
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY INVESTEES
Omnitel Pronto Italia S.p.A 23.14% $ 1,262 19.71% $ 521
PrimeCo Personal
Communications, L.P. 50.00 1,078 50.00 1,012
Cable & Wireless
Communications plc 18.59 643 18.50 675
FLAG 37.67 161 37.67 178
Telecom Corporation of
New Zealand Limited - - 24.95 373
Other Various 723 Various 739
---------- ----------
Total equity investees 3,867 3,498
---------- ----------
COST INVESTEES
Telecom Corporation of
New Zealand Limited 24.94 2,103 - -
Viacom Inc. - - - 603
Other Various 305 Various 175
---------- ----------
Total cost investees 2,408 778
---------- ----------
Total $ 6,275 $ 4,276
========== ==========
</TABLE>
Dividends received from investees amounted to $116 million in 1999, $170 million
in 1998, and $192 million in 1997.
OMNITEL PRONTO ITALIA S.p.A.
Omnitel Pronto Italia S.p.A. (Omnitel) operates a wireless mobile telephone
network in Italy. We account for this investment under the equity method because
we have significant influence over Omnitel's operating and financial policies.
Since 1994, we have invested approximately $1.2 billion in Omnitel.
Approximately $630 million of this amount was invested in June 1999, which
increased our ownership interest from 19.71% to 23.14%. Goodwill related to this
investment totals approximately $995 million which is being amortized on a
straight-line basis over a period of 25 years. At December 31, 1999, remaining
goodwill was approximately $900 million.
PRIMECO PERSONAL COMMUNICATIONS, L.P.
PrimeCo Personal Communications, L.P. (PrimeCo) is a partnership established in
1994 between Bell Atlantic and Vodafone AirTouch plc (Vodafone AirTouch), which
provides personal communications services (PCS) in major cities across the
United States.
Since 1994, we have invested approximately $2 billion in PrimeCo to fund its
operations and the build-out of its PCS network. Under the terms of the
partnership agreement, PrimeCo entered into a leveraged lease financing
arrangement for certain equipment which has been guaranteed by the partners in
the joint venture. Our share of this guarantee is approximately $126 million.
On August 3, 1999, Bell Atlantic and Vodafone AirTouch announced an agreement to
restructure our ownership interests in PrimeCo. Under the terms of that
agreement, we would assume full ownership of PrimeCo operations in five "major
trading areas" (MTAs) - Richmond, VA, New Orleans, LA and the Florida MTAs of
Jacksonville, Tampa and Miami. Vodafone AirTouch would assume full ownership of
the remaining five PrimeCo MTAs - Chicago, IL, Milwaukee, WI and the Texas MTAs
of Dallas, San Antonio and Houston.
Under the terms of the Wireless Co. agreement (see Note 21), Bell Atlantic and
Vodafone AirTouch agreed to suspend the August 3, 1999 agreement to restructure
PrimeCo ownership interests, with certain limited exceptions. As a result, no
action will be taken to allocate most PrimeCo markets unless either we or
Vodafone AirTouch give notice to initiate such an allocation. Neither party has
given such notice.
In January 2000, we and Vodafone AirTouch purchased the remaining 20%
partnership interest in the Texas MTAs of Dallas, San Antonio and Houston held
by TXU Communications Holding Company (TXU). We invested $196 million to acquire
55% of the TXU partnership interest. Vodafone AirTouch will own the remaining
45% of the TXU partnership interest.
CABLE & WIRELESS COMMUNICATIONS plc
In the second quarter of 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.
This transaction was accounted for as a nonmonetary exchange of similar
productive assets and, as a result, no gain or loss was recorded. We account for
our investment in CWC under the equity method because we have significant
influence over CWC's operating and financial policies. Prior to the transfer, we
included the accounts of these operations in our consolidated financial
statements.
On July 27, 1999, we announced our agreement to a proposal by Cable & Wireless
plc (Cable & Wireless), NTL Incorporated (NTL) and CWC for the proposed
restructuring of CWC. Under the terms of the agreement, CWC's consumer cable
telephone, television and Internet operations would be separated from its
corporate, business, Internet protocol and wholesale operations. The consumer
operations would be acquired by NTL and the other operations would be acquired
by Cable & Wireless. In exchange for our interest in CWC, we would receive
shares in the two acquiring companies, representing approximately 9.1% of the
NTL shares currently outstanding and approximately 4.6% of the Cable & Wireless
shares currently outstanding. Our investments in NTL and Cable & Wireless will
be accounted for under the cost method.
We expect the restructuring to result in a material non-cash gain. The
completion of the restructuring is subject to a number of conditions and,
assuming satisfaction of those conditions, is expected to close in the first
half of 2000.
In August 1998 we issued $3,180 million of 4.25% senior exchangeable notes due
on September 15, 2005. Prior to the proposed restructuring described above, the
notes are exchangeable into 277.6 million ordinary shares of CWC stock at the
option of the holder, beginning on July 1, 2002. However, upon completion of the
proposed restructuring, the CWC exchangeable notes would be exchangeable on and
after July 1, 2002 for shares in NTL and Cable
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
NOTE 3 continued
& Wireless in proportion to the shares received in the restructuring. Upon
exchange by investors, we retain the option to settle in cash or by delivery of
the Cable & Wireless and NTL shares. You can find additional information on the
CWC exchangeable notes in Note 10.
FLAG
Fiberoptic Link Around the Globe (FLAG) is an undersea fiberoptic cable system,
providing digital communications links between Europe and Asia. FLAG launched
commercial service in the fourth quarter of 1997. We have invested approximately
$227 million in FLAG since 1994. At December 31, 1999, our ownership interest
was comprised of our interest in FLAG Ltd. and our interest in its parent
company, FLAG Telecom Holdings Limited (FLAG Telecom). In January 2000, we
exchanged our shares in FLAG Ltd. for an interest in FLAG Telecom resulting in
an aggregate interest in FLAG Telecom of approximately 38%. There was no impact
to our financial statements or our effective ownership interest as a result of
this transaction.
In February 2000, Flag Telecom conducted an initial public offering. The primary
offering consisted of approximately 28 million newly issued common shares.
Certain existing shareowners also participated in a secondary offering in which
approximately 8 million of their common shares were sold. We did not acquire any
new shares in the primary offering, nor did we participate in the secondary
offering. As a result, our current ownership interest has been reduced to
approximately 30%.
FLAG had outstanding borrowings of $615 million as of December 31, 1997 under a
limited recourse debt facility, which it refinanced in the first quarter of 1998
through a new $800 million credit facility. This refinancing resulted in an
after-tax extraordinary charge of $15 million. The refinancing also released us
from certain obligations under a contingent sponsor support agreement signed in
connection with the debt facility outstanding in 1997.
OTHER EQUITY INVESTMENTS
We also have global wireless investments in the Czech Republic, Slovakia,
Greece, and Indonesia. These investments are in joint ventures to build and
operate wireless networks in these countries. We also have an investment in a
company in the Philippines which provides telecommunications services in certain
regions of that country. The remaining investments include real estate
partnerships, publishing joint ventures, and several other domestic and
international joint ventures.
In 1998, other equity investees also included Bell Atlantic Mobile's (BAM)
investment in domestic wireless properties doing business under the Frontier
Cellular name. Frontier Cellular was a joint venture between BAM and Frontier
Corporation (Frontier). In December 1999, BAM completed its purchase of
Frontier's interests for $374 million and assumed approximately $105 million in
debt, resulting in purchased goodwill of approximately $265 million. As a result
of this transaction, we increased our ownership interest from 50% to 100% and,
therefore, have changed the accounting for our investment in Frontier Cellular
from the equity method to full consolidation. The change in accounting
methodology resulted in a reduction to Investments in Unconsolidated Businesses
of $87 million in 1999.
SUMMARIZED FINANCIAL INFORMATION
The following tables display the summarized audited financial information for
our equity investees. These amounts are shown on a 100 percent basis.
(dollars in millions)
Years Ended December 31, 1999 1998
- ----------------------------------------------------------------------------
Results of operations
Operating revenues $10,584 $ 8,832
Operating income 2,124 1,474
Income before extraordinary item 698 577
Net income 698 520
Bell Atlantic's equity share of income $ 72 $ 25
At December 31, 1999 1998
- ----------------------------------------------------------------------------
Financial position
Current assets $ 3,736 $ 4,680
Noncurrent assets 18,613 18,986
Current liabilities 4,484 4,830
Noncurrent liabilities 8,877 10,027
Minority interest 169 155
Stockholders' equity 8,819 8,654
Bell Atlantic's equity share of investees $ 3,867 $ 3,498
COST INVESTEES
Certain of our cost investments are carried at their fair value, principally our
investment in Telecom Corporation of New Zealand Limited (TCNZ), as described
below. Other cost investments are carried at their original cost, except in
cases where we have determined that a decline in the estimated fair value of an
investment is other than temporary as described below under the section "Other
Cost Investments."
Telecom Corporation of New Zealand Limited
TCNZ is that country's principal provider of telecommunications services. We
account for our investment in TCNZ under the cost method because we do not have
significant influence over TCNZ's operating and financial policies (see Note 1).
In February 1998, we issued $2,455 million of 5.75% senior exchangeable notes
due on April 1, 2003. The notes were exchangeable into 437.1 million ordinary
shares of TCNZ stock at the option of the holder, beginning September 1, 1999.
As of December 31, 1999, no notes have been delivered for exchange. You can find
additional information on the TCNZ exchangeable notes in Note 10.
Viacom Inc.
Since 1993, we have held an investment in Viacom Inc. (Viacom), an entertainment
and publishing company. This investment consisted of 24 million shares of Viacom
Series B Cumulative Preferred Stock that we purchased for $1.2 billion. The
preferred stock, which carried an annual dividend of 5%, was convertible into
shares of Viacom Class B nonvoting common stock at a price of $70 per share.
In December 1998, we accepted an offer from Viacom to repurchase one-half of our
Viacom investment, or 12 million shares of the preferred stock (with a book
value of approximately $600 million) for approximately $564 million in cash.
This transaction resulted in a small loss, which was recorded in Income (Loss)
from Unconsolidated Businesses in 1998. This preferred stock had been held by a
fully
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 3 continued
consolidated subsidiary, which had been created as part of a transaction to
monetize a portion of our Viacom investment during 1995 and 1996. This
monetization transaction involved entering into nonrecourse contracts whereby we
raised $600 million based, among other things, on the value of our investment in
Viacom. To accomplish the monetization, two fully consolidated subsidiaries were
created to manage and protect certain assets for distribution at a later date.
In addition, an outside party contributed $600 million in cash in exchange for
an interest in one of these subsidiaries, and we contributed a $600 million note
that was collateralized by certain financial assets, including the 12 million
shares of Viacom preferred stock and 22.4 million shares of our common stock.
The outside party's contribution was reflected in Minority Interest, and the
issuance of common stock was reflected as Treasury Stock.
The cash proceeds from the repurchase of the 12 million shares of Viacom
preferred stock, together with additional cash, was used to repay the note that
had been contributed to one of the subsidiaries. The total amount of cash was
distributed to the outside party, under a pre-existing agreement, to redeem most
of that party's interest in the subsidiary. We then purchased the remaining
portion of the outside party's interest. The transaction was accounted for as a
charge to Reinvested Earnings and a reduction from Net Income in calculating Net
Income Available to Common Shareowners in the amount of $30 million. As a result
of our purchase of the outside party's interest, we reduced Minority Interest by
$600 million in 1998. However, the subsidiaries continue to hold shares of our
common stock, which have been reported as Treasury Stock at December 31, 1999.
The remaining 12 million shares of preferred stock were repurchased by Viacom in
a second transaction in January 1999 for approximately $612 million in cash.
This transaction did not have a material effect on our consolidated results of
operations.
Other Cost Investments
Other cost investments include our Asian investments - TelecomAsia, a wireline
investment in Thailand, and Excelcomindo, a wireless investment in Indonesia. In
the third quarter of 1998, we recorded pre-tax charges of $485 million to Income
(Loss) From Unconsolidated Businesses to adjust our carrying values of
TelecomAsia and Excelcomindo. The charges were necessary because we determined
that the decline in the estimated fair values of each of these investments were
other than temporary. We determined the fair values of these investments by
discounting estimated future cash flows.
In the case of TelecomAsia, we recorded a charge of $348 million to adjust the
carrying value of the investment to its estimated fair value. We considered the
following factors in determining the charge:
. The continued weakness of the Thai currency as compared to historical
exchange rates had placed additional financial burdens on the company in
servicing U.S. dollar-denominated debt.
. The economic instability and prospects for an extended recovery period had
resulted in weaker than expected growth in TelecomAsia's business. This was
indicated by slower than expected growth in total subscribers and usage.
These factors resulted in reduced expectations of future cash flows and,
accordingly, a reduction in the value of our investment.
. The business plan for TelecomAsia contemplated cash flows from several lines
of business. Given TelecomAsia's inclination to focus on its core wireline
business, these other lines of business would not contribute future cash
flows at previously expected levels.
In the case of Excelcomindo, we recorded a charge of $137 million to adjust the
carrying value of the investment to its estimated fair value. We considered the
following factors in determining this charge:
. The continued weakness of the Indonesian currency as compared to historical
exchange rates had placed additional financial burdens on the company in
servicing U.S. dollar-denominated debt. The political unrest in Indonesia
contributed to the currency's instability.
. The economic instability and prospects for an extended recovery period had
resulted in weaker than expected growth in Excelcomindo's business. One
significant factor was the inflexible tariff regulation despite rising costs
due to inflation. This and other factors resulted in reduced expectations of
future cash flows and, accordingly, a reduction in the value of our
investment.
. Issues with cash flow required Excelcomindo's shareholders to evaluate the
future funding of the business.
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 4
Grupo Iusacell, S.A. de C.V.
- --------------------------------------------------------------------------------
Since 1993, we have invested $1.2 billion in Iusacell, a wireless
telecommunications company in Mexico. Goodwill related to this investment
totaled approximately $810 million and is being amortized on a straight-line
basis over a period of 25 years. At December 31, 1999, remaining goodwill, net
of amortization and cumulative translation adjustments, was approximately $260
million. In the first quarter of 1997, we consummated a restructuring of our
investment in Iusacell to permit us to assume control of the Board of Directors
and management of Iusacell. As a result of the restructuring, we changed the
accounting for our Iusacell investment from the equity method to full
consolidation.
Iusacell and its principal shareholders entered into an agreement (the 1998
Restructuring Agreement) to reorganize ownership of the company. This
reorganization provided for the formation of a new holding company, Nuevo Grupo
Iusacell, S.A. de C.V. (New Iusacell), with two classes of shares, one of which
is traded publicly. The intention of the reorganization was to raise capital,
increase the availability of debt financing, and increase the liquidity of its
publicly traded shares.
As contemplated in the reorganization plan, during 1998 and 1999, Iusacell
borrowed $133 million from us, as a bridge loan, under a $150 million
subordinated convertible debt facility that expired in June 1999 (the Facility).
In accordance with the Facility and the 1998 Restructuring Agreement, we
converted the debt into additional Series A shares at a price of $.70 per share.
We also sold a portion of those shares to the Peralta Group, the other principal
shareholder of Iusacell, for $.70 per share and received proceeds of
approximately $15 million in 1999 and $15 million in 1998. As a result of these
interim steps of the reorganization plan, our ownership of Iusacell temporarily
increased to 47.2%.
On August 4, 1999, the reorganization plan was finalized when New Iusacell
concluded an exchange and rights offering to existing Iusacell shareholders.
These offerings permitted shareholders to exchange their shares in Iusacell for
shares in New Iusacell and to subscribe to additional shares of New Iusacell
based on their current ownership. In addition, New Iusacell launched primary and
secondary share offerings. We and the Peralta Group participated in the
secondary share offering. We received approximately $73 million of proceeds from
the secondary share offering and New Iusacell received approximately $31 million
of proceeds from the primary share and rights offerings. As a result of the
reorganization, we have recorded an adjustment to increase our contributed
capital by $43 million, which recognizes the ultimate change in our ownership
percentage resulting from these transactions. As of December 31, 1999, we own
40.2% of New Iusacell, which we continue to control and consolidate.
- --------------------------------------------------------------------------------
Note 5
Minority Interest
- --------------------------------------------------------------------------------
(dollars in millions)
At December 31, 1999 1998
- -------------------------------------------------------------------------
Portion subject to
redemption requirements $ 121 $ 41
Portion nonredeemable 337 289
-------------------------------------
$ 458 $ 330
=====================================
Minority interest primarily consists of certain partnerships consolidated by our
domestic wireless subsidiary, Bell Atlantic Mobile, and the other shareowners'
interest in Iusacell. A portion of our minority interest is subject to
redemption requirements, primarily the ownership interest held by the Peralta
Group. Under an agreement dated February 22, 1999, the Peralta Group can require
us to purchase from it approximately 517 million Iusacell shares for $.75 per
share, or approximately $388 million in the aggregate, by giving notice of
exercise between November 15, 2001, and December 15, 2001. You can find
additional information about our Iusacell investment in Note 4.
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 6
Marketable Securities
- --------------------------------------------------------------------------------
We have investments in marketable securities, primarily common stocks, which are
considered "available-for-sale" under SFAS No. 115. These investments have been
included in our balance sheet in Investments in Unconsolidated Businesses and
Short-term Investments.
Under SFAS No. 115, available-for-sale securities are required to be carried at
their fair value, with unrealized gains and losses (net of income taxes)
recorded in Accumulated Other Comprehensive Income (Loss). The fair values of
our investments in marketable securities are determined based on market
quotations.
The following table shows certain summarized information related to our
investments in marketable securities:
(dollars in millions)
Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1999
Investments in
unconsolidated
businesses $ 367 $1,892 $ -- $2,259
Short-term investments 38 1 (2) 37
----------------------------------------------------
$ 405 $1,893 $ (2) $2,296
====================================================
AT DECEMBER 31, 1998
Investments in
unconsolidated
businesses $ 1 $ 6 $ -- $ 7
Short-term investments 23 -- (1) 22
----------------------------------------------------
$ 24 $ 6 $ (1) $ 29
====================================================
Our investments in unconsolidated businesses increased from December 31, 1998 as
a result of a change in accounting for our investment in TCNZ from the equity
method to the cost method. Certain other investments in marketable securities
that we hold are not carried at their fair values because those values are not
readily determinable. We have, however, adjusted the carrying values of these
securities in situations where we believe declines in value below cost were
other than temporary. The carrying values for these investments were $169
million at December 31, 1999 and $771 million at December 31, 1998. The decrease
from December 31, 1998 was principally due to the disposition of our remaining
investment in Viacom in January 1999 (see Note 3).
- --------------------------------------------------------------------------------
Note 7
Plant, Property and Equipment
- --------------------------------------------------------------------------------
The following table displays the details of plant, property and equipment, which
is stated at cost:
(dollars in millions)
AT DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
Land $ 447 $ 412
Buildings 6,954 6,667
Central office equipment 33,822 31,441
Outside communications plant 36,252 33,605
Furniture, vehicles, and
other work equipment 7,972 7,870
Other 1,646 1,356
Construction-in-progress 2,145 1,713
--------------------------------
89,238 83,064
Accumulated depreciation (49,939) (46,248)
--------------------------------
Total $ 39,299 $ 36,816
================================
Plant, property and equipment at December 31, 1999 and 1998 includes real estate
property and equipment under operating leases (or held for lease) of $76 million
and $97 million, and accumulated depreciation of $38 million and $22 million.
- --------------------------------------------------------------------------------
Note 8
Leasing Arrangements
- --------------------------------------------------------------------------------
AS LESSOR
We are the lessor in leveraged and direct financing lease agreements under which
commercial aircraft, rail equipment, industrial equipment, power generating
facilities, real estate property, and telecommunications and other equipment are
leased for remaining terms of 1 to 47 years. Minimum lease payments receivable
represent unpaid rentals, less principal and interest on third-party nonrecourse
debt relating to leveraged lease transactions. Since we have no general
liability for this debt, the related principal and interest have been offset
against the minimum lease payments receivable. Minimum lease payments receivable
are subordinate to the debt and the holders of the debt have a security interest
in the leased equipment.
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 8 continued
Finance lease receivables, which are included in Current Assets-Other and
Noncurrent Assets-Other Assets in our consolidated balance sheets comprise the
following:
<TABLE>
<CAPTION>
(dollars in millions)
At December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Direct Direct
Leveraged Finance Leveraged Finance
Leases Leases Total Leases Leases Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Minimum lease payments receivable $ 3,178 $ 138 $ 3,316 $ 2,986 $ 190 $ 3,176
Estimated residual value 2,262 29 2,291 2,187 36 2,223
Unearned income (2,151) (44) (2,195) (2,132) (58) (2,190)
---------------------------------------------------------------------------------------------
$ 3,289 $ 123 3,412 $ 3,041 $ 168 3,209
============================ ============================
Allowance for doubtful accounts (37) (37)
------------ -------------
Finance lease receivables, net $ 3,375 $ 3,172
------------ -------------
Current $ 32 $ 37
------------ -------------
Noncurrent $ 3,343 $ 3,135
============ =============
</TABLE>
Accumulated deferred taxes arising from leveraged leases, which are included in
Deferred Income Taxes, amounted to $2,531 million at December 31, 1999 and
$2,445 million at December 31, 1998.
AS LESSOR
The following table is a summary of the components of income from leveraged
leases:
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Pre-tax lease income $ 138 $ 99 $ 97
Income tax expense 49 47 31
Investment tax credits 2 5 3
This table displays the future minimum lease payments to be received from
noncancelable leases, net of nonrecourse loan payments related to leveraged and
direct financing leases in excess of debt service requirements, for the periods
shown at December 31, 1999:
(dollars in millions)
Capital Operating
Years Leases Leases
- --------------------------------------------------------------------------------
2000 $ 68 $ 20
2001 72 1
2002 86 1
2003 79 1
2004 83 -
Thereafter 2,928 -
----------------------------------
Total $3,316 $ 23
==================================
AS LESSEE
We lease certain facilities and equipment for use in our operations under both
capital and operating leases. Total rent expense under operating leases amounted
to $572 million in 1999, $556 million in 1998, and $573 million in 1997. We
incurred initial capital lease obligations of $1 million in 1999, $3 million in
1998, and $11 million in 1997.
Capital lease amounts included in Plant, Property and Equipment are as follows:
(dollars in millions)
At December 31, 1999 1998
- --------------------------------------------------------------------------------
Capital leases $ 222 $ 296
Accumulated amortization (151) (169)
----------------------------------
Total $ 71 $ 127
==================================
This table displays the aggregate minimum rental commitments under noncancelable
leases for the periods shown at December 31, 1999:
(dollars in millions)
Capital Operating
Years Leases Leases
- --------------------------------------------------------------------------------
2000 $ 35 $ 234
2001 26 217
2002 20 186
2003 11 159
2004 9 131
Thereafter 56 648
----------------------------------
Total minimum rental commitments 157 $1,575
===========
Less interest and executory costs 60
-----------
Present value of minimum lease payments 97
Less current installments 22
-----------
Long-term obligation at December 31, 1999 $ 75
===========
As of December 31, 1999, the total minimum sublease rentals to be received in
the future under noncancelable operating subleases was $236 million.
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 9
Commitments and Contingencies
- --------------------------------------------------------------------------------
In connection with certain state regulatory incentive plan commitments, 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 and claims
which, if asserted, may lead to other legal actions. 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 our results of operations.
- --------------------------------------------------------------------------------
Note 10
Debt
- --------------------------------------------------------------------------------
DEBT MATURING WITHIN ONE YEAR
The following table displays the details of debt maturing within one year:
(dollars in millions)
At December 31, 1999 1998
- --------------------------------------------------------------------------------
Notes payable
Commercial paper $4,310 $1,384
Bank loans 143 300
Short-term note 22 -
Long-term debt maturing within one year 980 1,304
-------------------------------
Total debt maturing within one year $5,455 $2,988
===============================
Weighted-average interest rates
for notes payable outstanding
at year-end 6.0% 5.6%
Capital expenditures (primarily construction of telephone plant) are partially
financed, pending long-term financing, through bank loans and the issuance of
commercial paper payable within 12 months.
At December 31, 1999, we had in excess of $4.0 billion of unused bank lines of
credit. The availability of these lines, for which there are no formal
compensating balances, is at the discretion of each bank. Certain of these lines
of credit contain requirements for the payment of commitment fees.
Substantially all of the assets of Iusacell, totaling approximately $1,252
million at December 31, 1999, are subject to lien under credit facilities with
certain bank lenders.
LONG-TERM DEBT
This table shows our outstanding long-term debt obligations:
<TABLE>
<CAPTION>
(dollars in millions)
At December 31, Interest Rates % Maturities 1999 1998
- -------------------------------------------------------------------------------------------------------------------- --------------
<S> <C> <C> <C> <C>
Telephone subsidiaries' debentures 4.375 - 7.00 2000-2033 $ 4,427 $ 4,572
7.125 - 7.75 2002-2033 2,265 2,465
7.85 - 9.375 2010-2031 1,922 1,979
Unamortized discount, net of premium (51) (56)
------------- --------------
8,563 8,960
Exchangeable notes, net of unamortized discount of $212 and $244 4.25 - 5.75 2003-2005 6,341 5,645
Notes payable 5.30 - 12.00 2000-2012 3,082 3,036
Refunding mortgage bonds 4.25 - 7.375 2000-2011 635 635
Employee stock ownership plan loans (Note 16)
NYNEX debentures 9.55 2010 281 305
Bell Atlantic senior notes 8.17 2000 70 200
Capital lease obligations (average rate 10.2% and 11.0%) and
other (average rate 6.2%) 471 152
Mortgage and installment notes 10.50 - 11.00 - 17
------------- --------------
Total long-term debt, including current maturities 19,443 18,950
Less maturing within one year 980 1,304
------------- --------------
Total long-term debt $ 18,463 $ 17,646
============= ==============
</TABLE>
F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 10 continued
Telephone Subsidiaries' Debt
The telephone subsidiaries' debentures outstanding at December 31, 1999 include
$2,247 million that are callable. The call prices range from 101.72% to 100.00%
of face value, depending upon the remaining term to maturity of the issue. All
of our refunding mortgage bonds are also callable as of December 31, 1999. In
addition, our long-term debt includes $350 million that will become redeemable
for limited periods at the option of the holders. Of this amount, $175 million
becomes redeemable in 2002. One debenture totaling $175 million becomes
redeemable in 2000 and again in 2002. The redemption prices will be 100.0% of
face value plus accrued interest.
Substantially all of the assets of New York Telephone Company, totaling
approximately $14.1 billion at December 31, 1999, are subject to lien under New
York Telephone Company's refunding mortgage bond indenture.
Exchangeable Notes
In February 1998, our wholly owned subsidiary Bell Atlantic Financial Services,
Inc. (FSI) issued $2,455 million of 5.75% senior exchangeable notes due on April
1, 2003 (TCNZ exchangeable notes). The TCNZ exchangeable notes are exchangeable
into 437.1 million ordinary shares of TCNZ 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 pricing date of the offering. 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 TCNZ
exchangeable 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 TCNZ
exchangeable notes offering were used for the repayment of a portion of our
short-term debt. As of December 31, 1999, no notes have been delivered for
exchange.
In August 1998, FSI issued $3,180 million of 4.25% senior exchangeable notes due
on September 15, 2005 (CWC exchangeable notes). The CWC exchangeable notes were
issued at a discount and at December 31, 1999 the notes had a carrying value of
$3,886 million, including a loss on a mark-to-market adjustment of $664 million.
The CWC exchangeable notes are exchangeable into 277.6 million ordinary shares
of CWC stock at the option of the holder beginning on July 1, 2002. The exchange
price was established at a 28% premium to the CWC share price at the pricing
date of the offering. Upon exchange by investors, we retain the option to settle
in cash or by delivery of CWC shares. The CWC exchangeable notes are redeemable
at our option, beginning September 15, 2002, at escalating prices from 104.2% to
108.0% of the principal amount. If the CWC exchangeable notes are not called or
exchanged prior to maturity, they will be redeemable at 108.0% of the principal
amount at that time. The proceeds of the CWC exchangeable notes offering were
used for the repayment of a portion of our short-term debt and other general
corporate purposes.
The CWC and TCNZ exchangeable notes are indexed to the fair market value of each
company's common stock. If the price of the shares exceeds the exchange price
established at the offering date, a mark-to-market adjustment is recorded,
recognizing an increase in the carrying value of the debt obligation and a
charge to income. If the price of the shares subsequently declines the debt
obligation is reduced (not to less than its amortized carrying value).
At December 31, 1999, the CWC share price exceeded the exchange price and we
recorded an increase in the carrying value of the CWC exchangeable notes of $664
million and a corresponding charge to income ($432 million after-tax). We
recorded no mark-to-market adjustment for the TCNZ exchangeable notes at
December 31, 1999. During 1998, no mark-to-market adjustments were recorded.
A proposed restructuring of our investment in CWC, as discussed in Note 3, would
change the securities to be delivered upon exchange for the CWC exchangeable
notes. Under this restructuring, we would receive shares of two companies
acquiring the businesses of CWC in exchange for our CWC shares. After the
restructuring, we would account for these investments under the cost method.
Support Agreements
The TCNZ exchangeable notes have the benefit of a Support Agreement dated
February 1, 1998, and the CWC exchangeable notes have the benefit of a Support
Agreement dated August 26, 1998, both of which are between Bell Atlantic and
FSI. In each of the Support Agreements, Bell Atlantic guarantees the payment of
interest, premium (if any), principal, and cash value of exchange property
related to the 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 $184
million at December 31, 1999 and $245 million at December 31, 1998) should FSI
fail to pay. The holders of FSI 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 consolidated financial statements was approximately $17
billion at December 31, 1999.
In 1998, we established a $2.0 billion Euro Medium Term Note Program under which
we may issue notes that are not registered with the Securities and Exchange
Commission. The notes will be issued from time to time from our subsidiary, Bell
Atlantic Global Funding, Inc. (BAGF), and will have the benefit of a support
agreement between BAGF and Bell Atlantic. There have been no notes issued under
this program.
Maturities of Long-Term Debt
Maturities of long-term debt outstanding at December 31, 1999, excluding capital
lease obligations and unamortized discount and premium, are $958 million in
2000, $536 million in 2001, $882 million in 2002, $3,581 million in 2003, $1,030
million in 2004 and $12,632 million thereafter. These amounts include the
redeemable debt at the earliest possible redemption dates.
F-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 10 continued
Early Extinguishment of Debt
In 1999, we recorded charges associated with the early extinguishment of
debentures of the telephone subsidiaries. These charges reduced net income by $6
million (net of an income tax benefit of $4 million). In 1998, we recorded
extraordinary charges associated with the early extinguishment of debentures and
refunding mortgage bonds of the operating telephone subsidiaries and debt issued
by FLAG, an investment accounted for under the equity method. These charges
reduced net income by $26 million (net of an income tax benefit of $14 million)
in 1998.
- --------------------------------------------------------------------------------
Note 11
Financial Instruments
- --------------------------------------------------------------------------------
DERIVATIVES
We limit our use of derivatives to managing risk that could negatively impact
our financing and operating flexibility, making cash flows more stable over the
long run and achieving savings over other means of financing. Our risk
management strategy is designed to protect against adverse changes in interest
rates, foreign currency exchange rates, and corporate tax rates, as well as
facilitate our financing strategies. We use several types of derivatives in
managing these risks, including interest rate swap agreements, interest rate
caps and floors, foreign currency forwards and options, and basis swap
agreements. Derivative agreements are linked to specific liabilities or assets
and hedge the related economic exposures. We do not hold derivatives for trading
purposes.
We recognized pre-tax income (expense) of $13 million in 1999, $(4) million in
1998, and $17 million in 1997 in our statements of income related to our risk
management activities involving derivatives.
INTEREST RATE RISK MANAGEMENT
The table that follows provides additional information about our interest rate
risk management. The notional amounts shown are used to calculate interest
payments to be exchanged. These amounts are not actually paid or received, nor
are they a measure of our potential gains or losses from market risks. They do
not represent our exposure in the event of nonperformance by a counterparty or
our future cash requirements. Our financial instruments are grouped based on the
nature of the hedging activity.
(dollars in millions)
Weighted-Average Rate
---------------------------------
Notional
At December 31, Amount Maturities Receive Pay
- --------------------------------------------------------------------------------
INTEREST RATE SWAP AGREEMENTS
Foreign Currency Forwards/Interest Rate Swaps
1999 $ 232 2000 - 2002 5.8% 6.6%
1998 $ 303 1999 - 2002 5.3% 6.0%
Other Interest Rate Swaps
Pay fixed
1999 $ 285 2000 - 2005 6.1% 5.9%
1998 $ 260 1999 - 2005 5.0% 5.9%
Pay variable
1999 $ 553 2000 - 2006 6.4% 6.1%
1998 $ 784 1999 - 2006 6.6% 5.3%
STRUCTURED NOTE SWAP AGREEMENTS
1999 $ - -
1998 $ 60 1999
INTEREST RATE CAP/FLOOR AGREEMENTS
1999 $ 147 2001 - 2002
1998 $ 297 1999 - 2002
BASIS SWAP AGREEMENTS
1999 $ 1,001 2003 - 2004
1998 $ 1,001 2003 - 2004
We use foreign currency forwards/interest rate swap agreements to hedge the
value of certain international investments. The agreements generally require us
to receive payments based on fixed interest rates and make payments based on
variable interest rates.
The structured note swap agreements converted structured medium-term notes to
conventional fixed rate liabilities while reducing financing costs. The
effective fixed interest rate on these notes averaged 6.1% at December 31, 1998.
These contracts expired in 1999.
Other interest rate swap agreements, which sometimes incorporate options, and
interest rate caps and floors are all used to adjust the interest rate profile
of our debt portfolio and allow us to achieve a targeted mix of fixed and
variable rate debt.
Earnings generated from our leveraged lease portfolio may be affected by changes
in corporate tax rates. In order to hedge a portion of this risk, we entered
into several basis swap agreements which require us to receive payments based on
a variable interest rate (LIBOR-based) and make payments based on a tax-exempt
market index (J.J. Kenney). We account for these basis swap agreements at fair
value and recognized income (expense) of $12 million in 1999, $(4) million in
1998, and $4 million in 1997 related to mark-to-market adjustments.
FOREIGN EXCHANGE RISK MANAGEMENT
Our foreign exchange risk management includes the use of foreign currency
forward contracts, options and foreign currency swaps. Forward contracts and
options call for the sale or purchase, or the option to sell or purchase,
certain foreign currencies on a specified future date. These contracts are
typically used to hedge short-term foreign currency transactions and
commitments. The total notional amounts of our foreign currency forward
contracts and option
F-41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 11 continued
contracts were $77 million at December 31, 1999, $2 million at December 31,
1998, and $15 million at December 31, 1997. The contracts outstanding at
December 31, 1999 have maturities ranging from four to sixteen months. Contracts
outstanding in 1998 and 1997 had maturities of six months or less.
Certain of the interest rate swap agreements shown in the table contain both a
foreign currency forward and a U.S. dollar interest rate swap component. These
agreements require the exchange of payments in U.S. dollars based on specified
interest rates in addition to the exchange of currencies at the maturity of the
contract. The required payments for both components are based on the notional
amounts of the contracts.
Our net equity position in unconsolidated foreign businesses as reported in our
consolidated balance sheets totaled $2,218 million at December 31, 1999 and
$1,917 million at December 31, 1998. Our most significant investments at
December 31, 1999 and 1998 had operations in Italy and the United Kingdom. We
have not hedged our accounting translation exposure to foreign currency
fluctuations relative to these investments, except for our United Kingdom
investment which is partially hedged.
Our equity income is subject to exchange rate fluctuations when our equity
investee has balances denominated in a currency other than the investees'
functional currency. We recognized $(8) million in 1999, $11 million in 1998,
and $(30) million in 1997, related to such fluctuations in Income (Loss) From
Unconsolidated Businesses. Our consolidated subsidiary, Iusacell, recognized a
gain of $15 million in 1999 related to balances denominated in a currency other
than its functional currency, the Mexican peso. Amounts recognized in 1998 and
1997 were immaterial.
We continually monitor the relationship between gains and losses recognized on
all of our foreign currency contracts and on the underlying transactions being
hedged to mitigate market risk.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject us to concentrations of credit risk consist
primarily of temporary cash investments, short-term investments, trade
receivables, certain notes receivable, preferred stock, and derivative
contracts. Our policy is to place our temporary cash investments with major
financial institutions. Counterparties to our derivative contracts are also
major financial institutions and organized exchanges. The financial institutions
have all been accorded high ratings by primary rating agencies. We limit the
dollar amount of contracts entered into with any one financial institution and
monitor our counterparties' credit ratings. We generally do not give or receive
collateral on swap agreements due to our credit rating and those of our
counterparties. While we may be exposed to credit losses due to the
nonperformance of our counterparties, we consider the risk remote and do not
expect the settlement of these transactions to have a material effect on our
results of operations or financial condition.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The tables that follow provide additional information about our material
financial instruments:
Financial Instrument Valuation Method
- --------------------------------------------------------------------------------
Cash and cash equivalents Carrying amounts
and short-term investments
Short-and long-term debt Market quotes for similar terms
(excluding capital leases and and maturities or future cash
exchangeable notes) flows discounted at current rates
Exchangeable notes Market quotes
Cost investments in Future cash flows discounted
unconsolidated businesses at current rates, market
and notes receivable quotes for similar instruments
or other valuation models
Interest rate swap and other Future cash flows discounted
agreements; foreign currency at current rates
forwards and option contracts
(dollars in millions)
1999 1998
------------------------------------------------------
Carrying Fair Carrying Fair
At December 31, Amount* Value Amount* Value
- --------------------------------------------------------------------------------
Short-and
long-term debt $17,480 $17,088 $14,837 $15,928
Exchangeable notes 6,341 6,417 5,645 5,818
Cost investments
in unconsolidated
businesses 2,406 2,430 777 797
Notes receivable, net 13 13 18 18
Interest rate swap
and other agreements
Assets 8 8 6 27
Liabilities 14 20 26 40
Foreign currency
forward and
option contracts
Assets - - - -
Liabilities - 1 - -
* The carrying amounts shown for derivatives include deferred gains and losses.
The increase in our cost investments in unconsolidated businesses resulted from
a change in the method of accounting for our TCNZ investment, as described in
Note 3. In January 1999, we accepted an offer from Viacom to repurchase their
preferred stock from us. Our investment in Viacom is included in the table under
"Cost investments in unconsolidated businesses." We used the sale price as the
fair value of our Viacom investment at December 31, 1998. We were unable to
determine the fair value of other investments, with carrying values of $2
million and $1 million at December 31, 1999 and 1998, without incurring
excessive costs.
F-42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 12
Preferred Stock of Subsidiary
- --------------------------------------------------------------------------------
Our subsidiary Bell Atlantic New Zealand Holdings, Inc. (BANZHI) has the
authority to issue 5,000,000 shares of Serial Preferred Stock. BANZHI has issued
three series of preferred stock. BANZHI owns a portion of our investment in
Iusacell and, with another subsidiary, indirectly owns our investment in TCNZ
and a portion of our investment in CWC.
In 1994, BANZHI issued 850,000 shares of Series A Preferred Stock at $100 per
share with an annual dividend rate of $7.08 per share. In 1995, 600,000 shares
of Series B Preferred Stock were issued at $100 per share with an annual
dividend rate of $5.80 per share. At December 31, 1999 and 1998, 95,000 shares
($9 million) of Series B Preferred Stock were held by a wholly owned subsidiary.
Both series are subject to mandatory redemption on May 1, 2004 at a redemption
price per share of $100, together with any accrued and unpaid dividends.
In 1997, 650,000 shares of Series C Variable Term Preferred Stock were issued at
$100 per share. At December 31, 1999, these shares had an annual dividend rate
of 4.80%.
- --------------------------------------------------------------------------------
Note 13
Shareowners' Investment
- --------------------------------------------------------------------------------
Our certificate of incorporation provides authority for the issuance of up to
250 million shares of Series Preferred Stock, $.10 par value, in one or more
series, with such designations, preferences, rights, qualifications, limitations
and restrictions as the Board of Directors may determine.
We are authorized to issue up to 2.25 billion shares of common stock.
- --------------------------------------------------------------------------------
Note 14
Earnings Per Share
- --------------------------------------------------------------------------------
The following table is a reconciliation of the numerators and denominators used
in computing earnings per share:
<TABLE>
<CAPTION>
(dollars and shares in millions, except per share amounts)
Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME AVAILABLE TO COMMON SHAREOWNERS
Income before extraordinary item $ 4,208 $ 2,991 $ 2,455
Redemption of minority interest - (30) -
Redemption of investee preferred stock - (2) -
-------------------------------------------------------
Income available to common shareowners* 4,208 2,959 2,455
Extraordinary item (6) (26) -
-------------------------------------------------------
Net income available to common shareowners* $ 4,202 $ 2,933 $ 2,455
=======================================================
BASIC EARNINGS PER COMMON SHARE
Weighted-average shares outstanding 1,553 1,553 1,552
-------------------------------------------------------
Income before extraordinary item $ 2.72 $ 1.90 $ 1.58
Extraordinary item (.01) (.01) -
-------------------------------------------------------
Net income $ 2.71 $ 1.89 $ 1.58
=======================================================
DILUTED EARNINGS PER COMMON SHARE
Weighted-average shares outstanding 1,553 1,553 1,552
Effect of dilutive securities 30 25 19
-------------------------------------------------------
Weighted-average shares - diluted 1,583 1,578 1,571
-------------------------------------------------------
Income before extraordinary item $ 2.66 $ 1.87 $ 1.56
Extraordinary item (.01) (.01) -
-------------------------------------------------------
Net income $ 2.65 $ 1.86 $ 1.56
=======================================================
</TABLE>
* Income and Net income available to common shareowners is the same for
purposes of calculating basic and diluted earnings per share.
For the years ended December 31, 1999, 1998 and 1997, the number of stock
options excluded from the calculation of diluted earnings per share because they
were antidilutive was not material.
F-43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 15
Stock Incentive Plans
- --------------------------------------------------------------------------------
We have stock-based compensation plans that include fixed stock option,
performance-based, and phantom share plans. We recognize no compensation expense
for our fixed stock option plans. Compensation expense charged to income for our
performance-based and phantom share plans was $57 million in 1999, $29 million
in 1998, and $27 million in 1997. If we had elected to recognize compensation
expense based on the fair value at the grant dates for 1997 and subsequent fixed
plan awards consistent with the provisions of SFAS No. 123, net income and
earnings per share would have been changed to the pro forma amounts indicated
below:
(dollars in millions, except per share amounts)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Net income As reported $4,202 $2,965 $2,455
Pro forma 4,129 2,918 2,394
Basic earnings per As reported $ 2.71 $ 1.89 $ 1.58
share Pro forma 2.66 1.86 1.54
Diluted earnings per As reported $ 2.65 $ 1.86 $ 1.56
share Pro forma 2.61 1.83 1.52
These results may not be representative of the effects on pro forma net income
for future years.
We determined the pro forma amounts using the Black-Scholes option-pricing model
based on the following weighted-average assumptions:
1999 1998 1997
- --------------------------------------------------------------------------------
Dividend yield 3.98% 4.59% 4.86%
Expected volatility 21.51% 18.63% 14.87%
Risk-free interest rate 4.82% 5.55% 6.35%
Expected lives (in years) 5 5 5
The weighted-average value of options granted was $9.60 per option during 1999,
$6.47 per option during 1998 and $4.30 per option during 1997.
The NYNEX stock options outstanding and exercisable at the date of the merger
were converted to Bell Atlantic stock options. The NYNEX option activity and
share prices have been restated, for all years presented, to Bell Atlantic
shares using the exchange ratio of 0.768 per share of Bell Atlantic common stock
to one share of NYNEX common stock. Our stock incentive plans are described
below:
FIXED STOCK OPTION PLANS
We have fixed stock option plans for key management employees under which
options to purchase Bell Atlantic common stock are granted at a price equal to
the market price of the stock at the date of grant.
Under the 1985 Incentive Stock Option Plan (ISO Plan), key employees (including
employees of the former NYNEX companies, after the merger) may be granted
incentive and/or nonqualified stock options to purchase shares of common stock
and certain key employees may receive reload options upon tendering shares of
common stock to exercise options. In 1994, we adopted the Options Plus Plan.
Under this plan, we granted nonqualified stock options to approximately 800
managers below the officer level in place of a portion of each manager's annual
cash bonus in 1994 and 1995. The Options Plus Plan was discontinued after the
January 1995 grant. The Stock Compensation Plan for Outside Directors entitles
each outside director to receive up to 5,000 stock options per year. Options are
exercisable after three years or less and the maximum term is ten years.
Fixed stock option plans covering key management employees of the former NYNEX
companies include the 1990 and the 1995 Stock Option Plans. The 1990 Stock
Option Plan, which expired on December 31, 1994, permitted the grant of options
through December 1994 to purchase shares of common stock. In January 1995, NYNEX
established the 1995 Stock Option Plan. Options under the 1995 Stock Option Plan
are exercisable after three years or less and the maximum term is ten years.
Since the merger with NYNEX, the new options granted under this plan are reload
options. Both the 1990 and 1995 plans will continue to exist until the last
outstanding option has been exercised or has expired.
In 1992, 1994 and 1996, NYNEX established stock option plans for associates and
management employees other than those eligible to participate in the other stock
option plans. These employees were granted options (with the number of options
granted varying according to employee level) to purchase a fixed number of
shares of common stock at the market price of the stock on the grant date.
Options granted under these plans are exercisable after two years or less and
the maximum term is ten years.
This table is a summary of the status of the fixed stock option plans:
Weighted-Average
Stock Options Exercise Price
- --------------------------------------------------------------------------------
Outstanding, December 31, 1996 90,593 $ 27.93
Granted 15,670 33.10
Exercised (26,238) 26.40
Canceled/forfeited (885) 29.39
-------------
Outstanding, December 31, 1997 79,140 29.28
Granted 24,061 46.40
Exercised (23,373) 29.01
Canceled/forfeited (1,744) 36.88
-------------
Outstanding, December 31, 1998 78,084 34.87
Granted 22,021 56.23
Exercised (13,430) 30.94
Canceled/forfeited (2,037) 38.21
-------------
Outstanding, December 31, 1999 84,638 40.55
=============
Options exercisable, December 31,
1997 63,651 28.27
1998 55,396 30.17
1999 53,683 33.62
F-44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 15 continued
The following table summarizes information about fixed stock options outstanding
as of December 31, 1999:
<TABLE>
<CAPTION>
Stock Options Outstanding Stock Options Exercisable
------------------------------------------------------------------------------------------------------------
Weighted-Average
Range of Shares Remaining Weighted-Average Shares Weighted-Average
Exercise Prices (in thousands) Contractual Life Exercise Price (in thousands) Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 20.00 - 24.99 5,991 2.5 years $ 23.05 5,991 $ 23.05
25.00 - 29.99 12,238 4.6 25.74 12,238 25.74
30.00 - 34.99 22,687 6.4 33.02 22,687 33.02
35.00 - 39.99 1,190 7.6 37.78 946 37.78
40.00 - 44.99 237 8.0 43.24 237 43.24
45.00 - 49.99 19,895 8.1 46.11 9,121 46.17
50.00 - 54.99 1,356 8.8 52.15 930 52.19
55.00 - 59.99 19,434 9.1 55.86 1,478 56.70
60.00 - 64.99 1,432 9.7 62.51 55 61.44
65.00 - 69.99 178 9.6 65.99 - -
--------------- ---------------
Total 84,638 7.0 40.55 53,683 33.62
=============== ===============
</TABLE>
PERFORMANCE-BASED SHARE PLANS
Our performance-based share plans provided for the granting of awards to certain
key employees, including employees of the former NYNEX companies in the form of
Bell Atlantic common stock. Authority to make new grants expired in December
1994. Final awards were credited to pre-merger employees of Bell Atlantic in
January 1996 and to employees of the former NYNEX companies in March 1994.
Effective January 1, 1998, the Income Deferral Plan replaced the deferred
compensation plans, including deferred performance shares, and expands the award
distribution options for those employees. Employees who were active as of
January 1, 1998 had their performance share balances transferred to the Income
Deferral Plan. Those employees who were inactive as of that date continue to
hold deferred share balances.
We also have deferred compensation plans that allow members of the Board of
Directors to defer all or a portion of their compensation. Some of these plans
provide for returns based on the performance of, and eventual settlement in,
Bell Atlantic common stock. Compensation expense for all of these plans is
recorded based on the fair market value of the shares as they are credited to
participants' accounts. The Income Deferral Plan is accounted for with our
pension plans.
The number of shares outstanding in the performance share plans were 387,000 at
December 31, 1999, 393,000 at December 31, 1998, and 1,100,000 at December 31,
1997.
A total of 230,560,000 shares may be distributed under the fixed stock option
plans and the performance-based share plans. As of December 31, 1999 and 1998, a
total of 94,666,000 and 56,579,000 shares of common stock were available for the
granting of stock options under the fixed stock option plans and for
distributions of shares under the performance-based share plans.
In addition to plans described above, Iusacell maintains a separate stock option
plan for its key employees in which it awards options to acquire Iusacell common
stock. The effect of this plan on our consolidated results of operations was not
significant.
- --------------------------------------------------------------------------------
Note 16
Employee Benefits
- --------------------------------------------------------------------------------
We maintain noncontributory defined benefit pension plans for substantially all
management and associate employees, as well as postretirement healthcare and
life insurance plans for our retirees and their dependents. We also sponsor
defined contribution savings plans to provide opportunities for eligible
employees to save for retirement on a tax-deferred basis and to encourage
employees to acquire and maintain an equity interest in our company.
In 1998, following the completion of the merger with NYNEX, the assets of the
Bell Atlantic and NYNEX pension and savings plans were commingled in a master
trust, and effective January 1, 1998 we established common pension and savings
plan benefit provisions for all management employees. The disclosures provided
for 1997 were determined using weighted-average assumptions for the combined
Bell Atlantic and NYNEX benefit plans.
PENSION AND OTHER POSTRETIREMENT BENEFITS
At December 31, 1999, shares of our common stock accounted for less than 1% of
the plan assets. Substantive commitments for future amendments are reflected in
the pension costs and benefit obligations. Pension and other postretirement
benefits for our associate employees (approximately 68% of our work force) are
subject to collective bargaining agreements. Modifications in associate benefits
have been bargained from time to time, and we may also periodically amend the
benefits in the management plans.
The following tables summarize benefit costs, as well as the benefit
obligations, plan assets, funded status and rate assumptions associated with
pension and postretirement healthcare and life insurance benefit plans.
F-45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 16 continued
BENEFIT COST
<TABLE>
<CAPTION>
(dollars in millions)
Pension Healthcare and Life
------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 394 $ 389 $ 356 $ 111 $ 101 $ 98
Interest cost 1,899 1,855 1,877 613 593 626
Expected return on plan assets (2,763) (2,545) (2,347) (331) (287) (249)
Amortization of transition asset (82) (82) (82) - - -
Amortization of prior service cost (118) (133) (136) 52 53 50
Actuarial (gain), net (176) (111) (62) (66) (102) (40)
------------------------------------------------------------------------------
Net periodic (income) benefit cost (846) (627) (394) 379 358 485
------------------------------------------------------------------------------
Special termination benefits - 1,029 688 - 58 60
Curtailment (gain) loss (including recognition
of prior service cost) - (134) (222) - 150 118
Release of severance and postretirement
medical reserves - (39) (69) - (55) (88)
------------------------------------------------------------------------------
Retirement incentive cost, net* - 856 397 - 153 90
------------------------------------------------------------------------------
Total (income) cost $ (846) $ 229 $ 3 $ 379 $ 511 $ 575
==============================================================================
</TABLE>
* See "Retirement Incentives" section for additional information
ASSUMPTIONS
The actuarial assumptions used are based on financial market interest rates,
past experience, and management's best estimate of future benefit changes and
economic conditions. Changes in these assumptions may impact future benefit
costs and obligations. The weighted-average assumptions used in determining
expense and benefit obligations are as follows:
<TABLE>
<CAPTION>
Pension Healthcare and Life
------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate at end of year 8.00% 7.00% 7.25% 8.00% 7.00% 7.25%
Long-term rate of return on
plan assets for the year 9.00 8.90 8.90 9.00 8.90 8.70
Rate of future increases in
compensation at end of year 4.00 4.00 4.00 4.20 4.00 4.00
Medical cost trend rate at end of year 5.50 6.00 6.50
Ultimate (year 2001) 5.00 5.00 5.00
Dental cost trend rate at end of year 3.50 3.50 3.50
Ultimate (year 2002) 3.00 3.00 3.00
</TABLE>
The medical cost trend rate significantly affects the reported postretirement
benefit costs and benefit obligations. A one-percentage-point change in the
assumed healthcare cost trend rate would have the following effects:
<TABLE>
<CAPTION>
(dollars in millions)
One-Percentage-Point Increase One-Percentage-Point Decrease
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total service and interest cost $ 63 $ (50)
Effect on postretirement benefit obligation 609 (495)
</TABLE>
F-46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 16 continued
<TABLE>
<CAPTION>
(dollars in millions)
Pension Healthcare and Life
------------------------------------------------------------------------
At December 31, 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BENEFIT OBLIGATION
Beginning of year $ 28,080 $ 26,732 $ 9,063 $ 8,852
Service cost 394 389 111 101
Interest cost 1,899 1,855 613 593
Plan amendments 272 38 (1) 11
Actuarial (gain) loss, net (2,534) 350 (881) (91)
Benefits paid (2,713) (2,371) (635) (550)
Curtailments - (96) - 89
Special termination benefits - 1,029 - 58
Transfers 40 154 - -
------------------------------------------------------------------------
End of year 25,438 28,080 8,270 9,063
------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS
Beginning of year 36,966 35,253 4,463 3,825
Actual return on plan assets 6,214 4,019 652 722
Company contribution 33 61 187 173
Benefits paid (2,713) (2,371) (301) (257)
Transfers 2 4 - -
------------------------------------------------------------------------
End of year 40,502 36,966 5,001 4,463
------------------------------------------------------------------------
FUNDED STATUS
End of year 15,064 8,886 (3,269) (4,600)
Unrecognized
Actuarial (gain), net (16,343) (10,534) (3,093) (1,952)
Prior service cost (928) (1,317) 91 143
Transition asset (275) (357) - -
------------------------------------------------------------------------
Net amount recognized $ (2,482) $ (3,322) $ (6,271) $ (6,409)
========================================================================
Amounts recognized on the balance sheet
Employee benefit obligations $ (2,521) $ (3,373) $ (6,271) $ (6,409)
Other assets 24 24 - -
Accumulated other comprehensive loss 15 27 - -
------------------------------------------------------------------------
Net amount recognized $ (2,482) $ (3,322) $ (6,271) $ (6,409)
========================================================================
</TABLE>
The changes in benefit obligations from year to year were caused by a number of
factors, including changes in actuarial assumptions (see Assumptions), plan
amendments and special termination benefits.
Effective January 19, 2000, we amended our management cash balance plan to
provide employees having at least 15 years of service as of September 1, 1999
with a pension benefit that is the "greater of" their cash balance account or a
benefit based on our former management pension plan. Employees will be given the
greater of the two benefits when they retire or terminate from the company. In
February 2000, we announced a special lump sum pension payment to management and
associate employees who retired before January 1, 1995 and who are receiving
pension annuities. The payments range from $2,500 to $20,000 depending on years
in retirement and current pension amount. Retirees will have the option of
electing the payment as a lump sum or an annuity.
RETIREMENT INCENTIVES
In 1993, we announced a restructuring plan which included an accrual of
approximately $1.1 billion (pre-tax) for severance and postretirement medical
benefits under an involuntary force reduction plan. Beginning in 1994,
retirement incentives have been offered under a voluntary program as a means of
implementing substantially all of the work force reductions announced in 1993.
Since the inception of the retirement incentive program, we have recorded
additional costs totaling approximately $3.0 billion (pre-tax) through December
31, 1998. These additional costs and the corresponding number of employees
accepting the retirement incentive offer for each year ended December 31 are as
follows:
F-47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 16 continued
(dollars in millions)
Years Amount Employees
- --------------------------------------------------------------------------------
1994 $ 694 7,209
1995 515 4,759
1996 236 2,996
1997 513 4,311
1998 1,021 7,299
----------------------------------
$ 2,979 26,574
==================================
The retirement incentive costs are included in Employee Costs in our statements
of income and the accrued liability is a component of Employee Benefit
Obligations reported in our consolidated balance sheets. The additional costs
are comprised of special termination pension and postretirement benefit amounts,
as well as employee costs for other items. These costs have been reduced by
severance and postretirement medical benefit reserves established in 1993 and
transferred to offset the pension and postretirement benefit liabilities as
employees accepted the retirement incentive offer.
The voluntary program covering associate employees was completed in September
1998.
The following table provides the amounts transferred from the 1993 reserve
balance to pension and postretirement benefits (OPEB) liabilities:
(dollars in millions)
Years Pension OPEB Total
- --------------------------------------------------------------------------------
1994 $ 293 $ 179 $ 472
1995 82 72 154
1996 91 126 217
1997 82 88 170
1998 38 55 93
---------------------------------------------------------
$ 586 $ 520 $ 1,106
=========================================================
The remaining severance and postretirement medical reserves balances associated
with the 1993 restructuring plan were as follows at December 31, 1997 and 1998:
(dollars in millions)
1997 1998
- --------------------------------------------------------------------------------
Beginning of year $ 263 $ 93
Utilization (170) (93)
----------------------------------
End of year $ 93 $ -
==================================
SAVINGS PLANS AND EMPLOYEE STOCK OWNERSHIP PLANS
We maintain three leveraged employee stock ownership plans (ESOPs). Under these
plans, we match a certain percentage of eligible employee contributions with
shares of our common stock. In 1989, two leveraged ESOPs were established by
Bell Atlantic to purchase Bell Atlantic common stock and fund matching
contributions. In 1990, NYNEX established a leveraged ESOP to fund matching
contributions to management employees and purchased shares of NYNEX common
stock. At the date of the merger, NYNEX common stock outstanding was converted
to Bell Atlantic shares using an exchange ratio of 0.768 per share of Bell
Atlantic common stock to one share of NYNEX common stock.
The Bell Atlantic leveraged ESOP trusts were funded by the issuance of $790
million in senior notes. The annual interest rate on the senior notes is 8.17%.
The senior notes are payable in semiannual installments, which began on January
1, 1990 and end in the year 2000. The company funded $64 million for the January
2000 debt service payment in December 1999. The NYNEX leveraged ESOP trust was
established through a company loan of $450 million, the proceeds of which were
used to purchase common shares of NYNEX stock held in treasury. NYNEX issued and
guaranteed $450 million of 9.55% debentures, the proceeds of which were
principally used to repurchase common shares in the open market. The debentures
require annual payments of principal and are due on May 1, 2010. Interest
payments are due semiannually. All of the leveraged ESOP trusts repay the debt,
including interest, with funds from our contributions to the ESOP trusts, as
well as dividends received on unallocated and allocated shares of common stock.
The obligations of the leveraged ESOP trusts, which we guarantee, are recorded
as Long-Term Debt and the offsetting deferred compensation is classified as a
reduction of Shareowners' Investment. As the ESOP trusts make principal
payments, we reduce the long-term debt balance. The deferred compensation
balance is reduced by the amount of employee compensation recognized as the ESOP
shares are allocated to participants.
Common stock is allocated from all leveraged ESOP trusts based on the proportion
of principal and interest paid on ESOP debt in a year to the remaining principal
and interest due over the term of the debt. At December 31, 1999, the number of
unallocated and allocated shares of common stock was 15 million and 36 million.
All leveraged ESOP shares are included in earnings per share computations.
We recognize leveraged ESOP cost based on the modified shares allocated method
for the Bell Atlantic leveraged ESOP trusts which held securities before
December 15, 1989 and the shares allocated method for the NYNEX leveraged ESOP
trust which held securities after December 15, 1989.
ESOP cost and trust activity consist of the following:
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Compensation $ 121 $ 98 $ 105
Interest incurred 36 49 57
Dividends (26) (34) (37)
--------------------------------------
Net leveraged ESOP cost 131 113 125
Reduced ESOP cost (43) (9) (2)
--------------------------------------
Total ESOP cost $ 88 $ 104 $ 123
======================================
Dividends received for debt service $ 84 $ 66 $ 67
Total company contributions to
leveraged ESOP trusts $ 210 $ 144 $ 137
In addition to the ESOPs described above, we maintain savings plans for
associate employees of the former NYNEX companies, and employees of certain
other subsidiaries. Compensation expense associated with these savings plans was
$134 million in 1999, $81 million in 1998, and $71 million in 1997.
F-48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 17
Income Taxes
- --------------------------------------------------------------------------------
The components of income tax expense from continuing operations are presented in
the following table:
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Current
Federal $ 1,454 $ 1,514 $ 1,208
State and local 315 368 222
---------------------------------------------
1,769 1,882 1,430
---------------------------------------------
Deferred
Federal 733 178 279
State and local 195 86 (42)
---------------------------------------------
928 264 237
---------------------------------------------
Investment tax credits (25) (29) (38)
Other credits (115) (109) (100)
---------------------------------------------
Total income tax expense $ 2,557 $ 2,008 $ 1,529
=============================================
During 1997, two states in our operating region enacted significant changes in
their tax laws. In New Jersey, a law was enacted that repealed the gross
receipts tax applicable to telephone companies and extended the net-income-based
corporate business tax to include telephone companies. This resulted in a
decrease in deferred state income tax expense of $75 million. In Maryland, a law
was enacted that changed the determination of taxable income. This resulted in
an increase in deferred state income tax expense of $8 million.
The following table shows the principal reasons for the difference between the
effective income tax rate and the statutory federal income tax rate:
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal tax benefits 4.6 5.5 2.6
Write-down of foreign investments - 3.8 -
Other, net (1.8) (4.1) .8
-------------------------------------
Effective income tax rate 37.8% 40.2% 38.4%
=====================================
Deferred taxes arise because of differences in the book and tax bases of certain
assets and liabilities. Significant components of deferred tax liabilities
(assets) are shown in the following table:
(dollars in millions)
At December 31, 1999 1998
- --------------------------------------------------------------------------------
Deferred tax liabilities
Depreciation $ 3,886 $ 3,634
Leveraged leases 2,732 2,437
Net unrealized gains on marketable securities 664 3
Partnership investments 528 471
Other 539 628
--------------------------
8,349 7,173
--------------------------
Deferred tax assets
Employee benefits (3,818) (4,123)
Investment tax credits (78) (84)
Allowance for uncollectible accounts receivable (129) (94)
Other (865) (985)
--------------------------
(4,890) (5,286)
Valuation allowance 326 317
--------------------------
Net deferred tax liability $ 3,785 $ 2,204
==========================
Deferred tax assets include approximately $2,632 million at December 31, 1999
and $2,609 million at December 31, 1998 related to postretirement benefit costs
recognized under SFAS No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions." This deferred tax asset will gradually be
realized over the estimated lives of current retirees and employees. At December
31, 1999, undistributed earnings of our foreign subsidiaries amounted to
approximately $285 million. Deferred income taxes are not provided on these
earnings as it is intended that the earnings are indefinitely invested in these
entities. It is not practical to estimate the amount of taxes that might be
payable upon the remittance of the undistributed earnings.
The valuation allowance primarily represents the tax benefits of certain state
net operating loss carryforwards and other deferred tax assets which may expire
without being utilized. During 1999, the valuation allowance increased $9
million. This increase primarily relates to state net operating loss
carryforwards and a federal net operating loss carryforward for which we do not
anticipate receiving a benefit in future periods.
F-49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 18
Segment Information
- --------------------------------------------------------------------------------
We have four reportable segments, which we operate and manage as strategic
business units and organize by products and services. We measure and evaluate
our reportable segments based on adjusted net income, which excludes
undistributed corporate expenses and special items arising during each period.
Special items are transactions that management has excluded from the business
units' results, but are included in reported consolidated earnings. We generally
account for intersegment sales of products and services and asset transfers at
current market prices. We are not dependent on any single customer.
Our segments and their principal activities consist of the following:
- --------------------------------------------------------------------------------
Segment Description
- --------------------------------------------------------------------------------
DOMESTIC TELECOM Domestic wireline telecommunications services-primarily our
nine operating telephone subsidiaries that provide local
telephone services from Maine to Virginia including voice
and data transport, enhanced and custom calling features,
network access, directory assistance, private lines and
public telephones. This segment also provides customer
premises equipment distribution, data solutions and systems
integration, billing and collections, and Internet access
services. Domestic Telecom represents the aggregation of our
domestic wireline business units (consumer, enterprise,
general, and network services), which focus on specific
markets to meet customer requirements.
- --------------------------------------------------------------------------------
GLOBAL WIRELESS Wireless telecommunications services to customers in 24
states in the United States and foreign wireless investments
servicing customers in Latin America, Europe and the Pacific
Rim.
- --------------------------------------------------------------------------------
DIRECTORY Domestic and international publishing businesses including
print directories and Internet-based shopping guides, as
well as website creation and other electronic commerce
services. This segment has operations principally in the
United States and Central Europe.
- --------------------------------------------------------------------------------
OTHER BUSINESSES International wireline telecommunications investments in
Europe and the Pacific Rim and lease financing and other
businesses.
- --------------------------------------------------------------------------------
GEOGRAPHIC AREAS
Our foreign investments are located principally in Europe, Latin America and the
Pacific Rim. Domestic and foreign operating revenues are based on the location
of customers. Long-lived assets consist of property, plant and equipment (net of
accumulated depreciation) and investments in unconsolidated businesses. The
table below presents financial information by major geographic area:
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
DOMESTIC
Operating revenues $ 32,636 $ 31,168 $ 29,760
Long-lived assets 40,444 38,528 37,432
FOREIGN
Operating revenues 538 398 434
Long-lived assets 5,130 2,564 2,752
CONSOLIDATED
Operating revenues 33,174 31,566 30,194
Long-lived assets 45,574 41,092 40,184
F-50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 18 continued
REPORTABLE SEGMENTS
<TABLE>
<CAPTION>
(dollars in millions)
Domestic Global Other Total Segments
1999 Telecom Wireless Directory Businesses Adjusted
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
External revenues $ 26,168 $ 4,543 $ 2,331 $ 136 $ 33,178
Intersegment revenues 154 21 7 15 197
--------------------------------------------------------------------------
Total operating revenues 26,322 4,564 2,338 151 33,375
Depreciation and amortization 5,505 673 36 2 6,216
Income (loss) from unconsolidated businesses 14 80 (1) 37 130
Interest income 20 5 1 2 28
Interest expense 951 340 18 57 1,366
Income tax expense 2,224 151 474 (35) 2,814
Extraordinary items (6) - - - (6)
Net income 3,444 388 726 67 4,625
Assets 43,080 10,468 1,730 7,420 62,698
Investments in unconsolidated businesses 2 2,515 15 3,591 6,123
Capital expenditures 7,498 1,100 31 22 8,651
<CAPTION>
(dollars in millions)
Domestic Global Other Total Segments
1998 Telecom Wireless Directory Businesses Adjusted
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
External revenues $ 25,435 $ 3,780 $ 2,258 $ 104 $ 31,577
Intersegment revenues 122 18 6 20 166
--------------------------------------------------------------------------
Total operating revenues 25,557 3,798 2,264 124 31,743
Depreciation and amortization 5,195 592 37 3 5,827
Income (loss) from unconsolidated businesses 27 (96) 29 86 46
Interest income 45 11 1 24 81
Interest expense 972 276 20 38 1,306
Income tax expense 1,959 115 437 (35) 2,476
Extraordinary items (10) - - (16) (26)
Net income 3,173 228 684 135 4,220
Assets 41,217 7,739 1,741 5,353 56,050
Investments in unconsolidated businesses - 1,768 15 1,868 3,651
Capital expenditures 6,409 996 35 3 7,443
<CAPTION>
(dollars in millions)
Domestic Global Other Total Segments
1997 Telecom Wireless Directory Businesses Adjusted
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
External revenues $ 24,669 $ 3,328 $ 2,210 $ 255 $ 30,462
Intersegment revenues 140 19 5 23 187
--------------------------------------------------------------------------
Total operating revenues 24,809 3,347 2,215 278 30,649
Depreciation and amortization 4,990 481 39 48 5,558
Income (loss) from unconsolidated businesses (14) (196) 23 78 (109)
Interest income 15 9 1 13 38
Interest expense 906 268 17 33 1,224
Income tax expense 1,792 65 410 (40) 2,227
Net income 2,993 95 657 48 3,793
Assets 39,429 7,090 1,474 5,583 53,576
Investments in unconsolidated businesses 4 1,571 22 2,080 3,677
Capital expenditures 5,486 988 34 134 6,642
Noncash financing and investing activities:
Contributions of net assets to unconsolidated businesses - - - 682 682
Contributions to partnerships - - - 73 73
</TABLE>
F-51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
Note 18 continued
RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION
The following is a reconciliation of the adjusted results for the operating
segments to the applicable line items in the consolidated financial statements.
(dollars in millions)
1999 1998 1997
- --------------------------------------------------------------------------------
OPERATING REVENUES
Total reportable
segments - adjusted $ 33,375 $ 31,743 $ 30,649
Reconciling items (201) (177) (192)
Special items -- -- (263)
-------------------------------------------
Consolidated operating revenues $ 33,174 $ 31,566 $ 30,194
===========================================
NET INCOME
Total reportable
segments - adjusted $ 4,625 $ 4,220 $ 3,793
Reconciling items 135 103 54
Special items (558) (1,358) (1,392)
-------------------------------------------
Consolidated net income $ 4,202 $ 2,965 $ 2,455
===========================================
ASSETS
Total reportable segments $ 62,698 $ 56,050 $ 53,576
Reconciling items (84) (906) 388
-------------------------------------------
Consolidated assets $ 62,614 $ 55,144 $ 53,964
===========================================
Reconciling items include undistributed corporate expenses, corporate assets and
intersegment eliminations. Special items in 1999 included costs associated with
our 1997 merger with NYNEX Corporation and a loss on a mark-to-market adjustment
for exchangeable notes. Special items in 1998 and 1997 included merger-related
costs, retirement incentives, and other charges.
- --------------------------------------------------------------------------------
Note 19
Additional Financial Information
- --------------------------------------------------------------------------------
The tables that follow provide additional financial information related to our
consolidated financial statements:
INCOME STATEMENT INFORMATION
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Taxes other than income $ 1,484 $ 1,466 $ 1,607
Interest expense incurred,
net of amounts capitalized 1,285 1,376 1,275
Capitalized interest 98 90 81
Advertising expense 379 394 397
Interest expense incurred includes $22 million in 1999, $41 million in 1998, and
$45 million in 1997 related to our lease financing business. Such interest
expense is classified as Other Operating Expenses.
BALANCE SHEET INFORMATION
(dollars in millions)
At December 31, 1999 1998
- --------------------------------------------------------------------------------
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable $ 3,753 $ 3,401
Accrued expenses 1,148 1,272
Accrued vacation pay 641 634
Accrued salaries and wages 282 232
Interest payable 292 329
Accrued taxes 349 237
----------------------------
$ 6,465 $ 6,105
============================
OTHER CURRENT LIABILITIES
Advance billings and customer deposits $ 635 $ 696
Dividends payable 602 610
Other 310 132
----------------------------
$ 1,547 $ 1,438
============================
CASH FLOW INFORMATION
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
CASH PAID
Income taxes, net of
amounts refunded $ 1,352 $ 1,369 $ 1,403
Interest, net of amounts
capitalized 1,247 1,201 1,215
F-52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 20
Comprehensive Income
- --------------------------------------------------------------------------------
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.
Changes in the components of other comprehensive income (loss), net of income
tax expense (benefit), are as follows:
<TABLE>
<CAPTION>
(dollars in millions)
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS, net of taxes of $1, $2 and $(2) $ (68) $ (146) $ (234)
--------------------------------------------
UNREALIZED GAINS ON MARKETABLE SECURITIES
Unrealized gains, net of taxes of $661, $16 and $0 1,226 12 3
Less: reclassification adjustments for gains realized in net income,
net of taxes of $0, $13 and $1 1 10 1
--------------------------------------------
Net unrealized gains on marketable securities 1,225 2 2
--------------------------------------------
MINIMUM PENSION LIABILITY ADJUSTMENT, net of taxes of $5 and $(10) 7 (17) --
--------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) $ 1,164 $ (161) $ (232)
============================================
</TABLE>
The components of accumulated other comprehensive income (loss) are as follows:
(dollars in millions)
At December 31, 1999 1998
- --------------------------------------------------------------------------------
Foreign currency translation adjustments $ (767) $ (699)
Unrealized gains on marketable securities 1,227 2
Minimum pension liability adjustment (10) (17)
----------------------------
Accumulated other comprehensive income (loss) $ 450 $ (714)
============================
In 1999, unrealized gains included $1,131 million (net incomes taxes of $609
million) related to our investment in TCNZ, for which we changed our accounting
from the equity method to the cost method (see Note 1).
- --------------------------------------------------------------------------------
Note 21
Proposed Domestic Wireless Transaction
- --------------------------------------------------------------------------------
On September 21, 1999, we signed a definitive agreement with Vodafone AirTouch
plc (Vodafone AirTouch) to create a national wireless business (Wireless Co.)
composed of both companies' U.S. wireless assets.
Assuming that all of the assets are contributed as provided for in the
agreement, Wireless Co. will be 55% owned by Bell Atlantic and 45% owned by
Vodafone AirTouch. We will control the venture and, accordingly, consolidate the
results of Wireless Co. into our financial results. The transaction will be
accounted for as a purchase method business combination.
The completion of this transaction is subject to a number of conditions,
including certain regulatory approvals. In January 2000, the transaction was
approved by shareholders of Vodafone AirTouch. In February 2000, we signed an
agreement with ALLTEL Corporation to exchange certain wireless interests. This
agreement eliminates all of the overlapping cellular operations that would be
created by the combination of Bell Atlantic and Vodafone AirTouch wireless
properties.
Wireless Co. will initially assume or incur up to $10 billion in existing and
new debt. Vodafone AirTouch has the right to require that up to $20 billion
worth of its interest in Wireless Co. be purchased by Bell Atlantic and/or
Wireless Co. between the third and seventh years following the closing of the
transaction. We expect to complete the transaction in April 2000.
F-53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 22
Proposed Bell Atlantic - GTE Merger
- --------------------------------------------------------------------------------
Bell Atlantic and GTE Corporation (GTE) have announced a proposed merger of
equals under a definitive merger agreement dated as of July 27, 1998. Under the
terms of the agreement, GTE shareholders will receive 1.22 shares of Bell
Atlantic common stock for each share of GTE common stock that they own. Bell
Atlantic shareholders will continue to own their existing shares after the
merger.
We expect the merger to qualify as a pooling of interests, which means that for
accounting and financial reporting purposes the companies will be treated as if
they had always been combined. At annual meetings held in May 1999, the
shareholders of each company approved the merger. The completion of the merger
is subject to a number of conditions, including certain regulatory approvals
(all of which have been obtained except that of the Federal Communications
Commission) and receipt of opinions that the merger will be tax-free.
We are targeting completion of the merger in the second quarter of 2000.
We have provided the following unaudited pro forma combined condensed financial
statements. These financial statements are presented assuming that the merger
will be accounted for as a pooling of interests, and include certain
reclassifications to conform to the presentation that will be used by the
combined company and certain pro forma adjustments that conform the companies'
methods of accounting. This information is presented for illustration purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the merger had been completed at the period
indicated. This information does not give pro forma effect to the proposed
domestic wireless transaction described in Note 21. The information does not
necessarily indicate the future operating results or financial position of the
combined company.
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)(unaudited)
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Operating revenues $ 58,510 $ 57,039 $ 53,454
Operating expenses 42,643 45,284 42,613
-----------------------------------------
Operating income 15,867 11,755 10,841
Income (loss) from unconsolidated
businesses 575 (175) 93
Other income and (expense), net (7) (39) (178)
Interest expense 2,616 2,705 2,465
Mark-to-market adjustment for
exchangeable notes (664) - -
Provision for income taxes 4,862 3,482 3,111
-----------------------------------------
Income from continuing operations $ 8,293 $ 5,354 $ 5,180
=========================================
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ 3.03 $ 1.95 $ 1.90
Weighted-average shares outstanding
(in millions) 2,739 2,728 2,720
-----------------------------------------
DILUTED EARNINGS PER COMMON SHARE
Income from continuing operations $ 2.99 $ 1.93 $ 1.89
Weighted-average shares - diluted
(in millions) 2,777 2,759 2,745
-----------------------------------------
PRO FORMA COMBINED CONDENSED BALANCE SHEET
At December 31, 1999 (dollars in millions)(unaudited)
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and temporary cash investments $ 3,068
Receivables, net 12,083
Net assets available for sale 1,802
Other current assets 2,919
-------------
19,872
Plant, property and equipment, net 62,366
Investments in unconsolidated businesses 10,207
Other assets 20,668
-------------
Total assets $113,113
=============
LIABILITIES AND SHAREOWNERS' INVESTMENT
Current liabilities
Debt maturing within one year $ 15,063
Accounts payable and accrued liabilities 12,247
Other current liabilities 2,635
-------------
29,945
-------------
Long-term debt 32,420
-------------
Employee benefit obligations 13,744
-------------
Deferred credits and other liabilities 10,710
-------------
Shareowners' investment
Common stock (2,756,484,606 shares) 276
Contributed capital 20,135
Reinvested earnings 7,346
Accumulated other comprehensive income 74
-------------
27,831
Less common stock in treasury, at cost 640
Less deferred compensation -
employee stock ownership plans 897
-------------
26,294
-------------
Total liabilities and shareowners' investment $113,113
=============
We anticipate that the combined company will record a pre-tax charge of
approximately $375 million for direct incremental merger-related costs in the
quarter in which the merger is completed. Merger-related costs anticipated to be
incurred have been reflected as an increase to Other Current Liabilities and
amounts already incurred by GTE and Bell Atlantic have been shown as a reduction
to Other Current Assets. The after-tax cost of this anticipated charge
(approximately $310 million) has been reflected as a reduction in Reinvested
Earnings in the unaudited pro forma combined condensed balance sheet as of
December 31, 1999.
F-54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 23
Quarterly Financial Information (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts)
Income (Loss)Before Extraordinary Item
-------------------------------------------------
Operating Operating Per Share - Per Share - Net Income
Quarter Ended Revenues Income Amount Basic Diluted (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
March 31 $ 7,967 $ 2,078 $ 1,142 $ .74 $ .72 $ 1,142
June 30 8,295 2,147 1,173 .76 .75 1,167
September 30 8,304 2,118 1,174 .76 .74 1,174
December 31* 8,608 2,152 719 .46 .45 719
1998
March 31 $ 7,651 $ 1,712 $ 910 $ .58 $ .57 $ 893
June 30 7,928 1,953 1,027 .66 .65 1,021
September 30** 7,910 1,130 (7) (.01) (.01) (8)
December 31 8,077 1,832 1,061 .66 .65 1,059
</TABLE>
* Results of operations for the fourth quarter of 1999 include a $432 million
(after-tax) loss on mark-to-market adjustment for exchangeable notes and a
credit of $19 million (after-tax) for the favorable settlement of a
litigation matter.
** Results of operations for the third quarter of 1998 include approximately
$1,100 million (after-tax) of costs associated with the completion of our
retirement incentive program, as well as charges to adjust the carrying
values of two Asian investments and to write-down assets.
Income (loss) before extraordinary item per common share is computed
independently for each quarter and the sum of the quarters may not equal the
annual amount.
- --------------------------------------------------------------------------------
Note 24
Subsequent Events
- --------------------------------------------------------------------------------
COMMON STOCK BUYBACK PROGRAM
On March 1, 2000, our Board of Directors authorized a new share buyback program
through which we may repurchase up to 80 million shares of our common stock over
time in the open market. The Board of Directors also rescinded a previous
authorization to repurchase up to $1.4 billion in company shares.
AGREEMENT WITH METROMEDIA FIBER NETWORK, INC.
On March 6, 2000, we invested approximately $1.7 billion in Metromedia Fiber
Network, Inc. (MFN), a domestic and international provider of dedicated fiber
optic networks in major metropolitan markets. This investment included $715
million to acquire approximately 9.5% of the equity of MFN through the purchase
of newly issued shares at $28 per share. We also purchased approximately $975
million in subordinated debt securities convertible at our option, upon receipt
of necessary government approvals, into common stock at a conversion price of
$34 per share or an additional 9.6% of the equity of MFN. This investment
completed a portion of our previously announced agreement with MFN, which
included the acquisition of approximately $550 million of long-term capacity on
MFN's fiber optic networks, beginning in 1999 through 2002. Of the $550 million,
10% was paid in November 1999 and 30% will be paid each October from 2000
through 2002.
F-55
<PAGE>
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in Millions)
<TABLE>
<CAPTION>
Additions
---------------------------
Charged to
Balance at Other Balance at
Beginning Charged To Accounts-- Deductions-- End of
Description of Period Expenses Note (a) Note (b) Period
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Uncollectible
Accounts Receivable:
Year 1999 $593 $536 $571 $1,081 $619
Year 1998 612 460 578 1,057 593
Year 1997 567 531 557 1,043 612
Valuation Allowance for
Deferred Tax Assets:
Year 1999 $317 $ 9 $ -- $ -- $326
Year 1998 79 276 -- 38 317
Year 1997 45 65 -- 31 79
Restructuring Reserves:
Year 1999 $ 55 $ -- $ -- $ 55 $ --
Year 1998 150 -- -- 95 55
Year 1997 330 -- -- 180 150
Allowance for Uncollectible
Finance Lease Receivables:
Year 1999 $ 37 $ 6 $ -- $ 6 $ 37
Year 1998 25 5 7 -- 37
Year 1997 24 13 -- 12 25
</TABLE>
- ------------
(a) Allowance for Uncollectible Accounts Receivable includes (1) amounts
previously written off which were credited directly to this account
when recovered, and (2) accruals charged to accounts payable for
anticipated uncollectible charges on purchases of accounts receivable
from others which were billed by us. Allowance for Uncollectible
Finance Lease Receivables includes amounts transferred from other
accounts.
(b) Amounts written off as uncollectible or transferred to other accounts
or utilized (except for the valuation allowance for deferred tax
assets).
F-56
<PAGE>
INDEX TO EXHIBITS
Exhibits identified in parentheses below, on file with the Securities
and Exchange Commission (SEC) in File No. 1-8606 except as otherwise noted, are
incorporated herein by reference as exhibits hereto.
Exhibit
Number
- ------
2 Agreement and Plan of Merger by and among Bell Atlantic Corporation,
Beta Gamma Corporation and GTE Corporation, dated as of July 27, 1998.
(Exhibit 2.01 to Form 8-K, date of report July 30, 1998.)
3a Restated Certificate of Incorporation of Bell Atlantic Corporation
("Bell Atlantic"). (Exhibit 3(i) to Form 8-K, date of report August 14,
1997.)
3b By-Laws of Bell Atlantic, as amended and restated as of January 1,
1999. (Exhibit 3b to Form 10-K for the year ended December 31, 1998.)
4 No instrument which defines the rights of holders of long-term debt of
Bell Atlantic and its consolidated subsidiaries is filed herewith
pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, Bell Atlantic hereby agrees to furnish a copy of any such
instrument to the SEC upon request.
10a Bell Atlantic Deferred Compensation Plan for Outside Directors, as
amended and restated as of January 1, 1998. (Exhibit 10a to Form 10-K
for the year ended December 31, 1998.)*
10b Description of Bell Atlantic Insurance Plan for Directors.*
10c Description of Bell Atlantic Plan for Non-Employee Directors' Travel
Accident Insurance.*
10d Bell Atlantic Retirement Plan for Outside Directors, as amended and
restated as of January 1, 1996. (Exhibit 10k to Form 10-K for the year
ended December 31, 1995.)*
10e Bell Atlantic Stock Compensation Plan for Outside Directors, as amended
and restated as of January 1, 1998. (Exhibit 10e to Form 10-K for the
year ended December 31, 1998.)*
10f Bell Atlantic Corporation Directors' Charitable Giving Program.
(Exhibit 10p to Form SE dated March 29, 1990.)*
10f(i) Resolutions amending and partially terminating the Program.
(Exhibit 10p to Form SE dated March 29, 1993.)*
10g Description of Changes in Compensation for Outside Directors of Bell
Atlantic, effective August 14, 1997 (Exhibit 10y to Form 10-Q for the
quarter ended September 30, 1997.)*
10h Bell Atlantic Senior Management Short Term Incentive Plan, as amended
and restated effective as of January 22, 1996. (Exhibit 10a to
Form 10-K for the year ended December 31, 1996.)*
10h(i) Description of Amendment, effective August 14, 1997. (Exhibit
10a(i) to Form 10-Q for the quarter ended September 30,
1997.)*
10i Bell Atlantic Senior Management Income Deferral Plan, effective as of
January 1, 1998.*
10j Bell Atlantic 1985 Incentive Stock Option Plan, restated as of June 1,
1999 to incorporate amendments adopted through May 31, 1999.*
10k Section 6 from Bell Atlantic Cash Balance Plan regarding limitations on
payment of pension amounts which exceed the limitations contained in
the Employee Retirement Income Security Act of 1974.*
<PAGE>
10l Bell Atlantic Senior Management Long-Term Disability and Survivor
Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27,
1986.)*
10l(i) Description of Amendments, effective January 1, 1998, to Bell
Atlantic Senior Management Long Term Disability Plan (formerly
known, as the Bell Atlantic Senior Management Long-Term
Disability and Survivor Protection Plan). (Exhibit 10b(ii) to
Form 10-K for the year ended December 31, 1997.)*
10m Bell Atlantic Salary Program for Senior Managers, effective August 14,
1997. (Exhibit 10x to Form 10-Q for the quarter ended September 30,
1997.)*
10n (reserved)
10o Description of Bell Atlantic Senior Management Estate Management Plan,
effective April 1, 1998. (Exhibit 10rr to Form 10-K for year ended
December 31, 1997.)*
10p Description of Bell Atlantic Senior Management Flexible Spending
Perquisite Account, effective January 1, 1998. (Exhibit 10ss to Form
10-K for year ended December 31, 1997.)*
10q (reserved)
10r NYNEX 1987 Restricted Stock Award Plan (Exhibit No. (28) (i) 1 to
NYNEX's filing on Form SE dated March 23, 1988, File No. 1-8608.)*
10s NYNEX 1990 Stock Option Plan as amended. (Exhibit No. 2 to NYNEX's
Proxy Statement dated March 20, 1995, File No. 1-8608.)*
10t NYNEX 1995 Stock Option Plan as amended. (Exhibit No. 1 to NYNEX's
Proxy Statement dated March 20, 1995, File No. 1-8608.)*
10u (reserved)
10v NYNEX Supplemental Life Insurance Plan. (Exhibit No. 10 iii 21 to
NYNEX's Quarterly Report on Form 10-Q for the period ended June 30,
1996, File No. 1-8608.)*
10w Form of NYNEX Executive Retention Agreement with John Killian and
Thomas J. Tauke. (Exhibit No. 10 iii 35 to NYNEX's Quarterly Report on
Form 10-Q, for the period ended June 30, 1996, File No. 1-8608.)*
10x Employment Agreement, dated June 30, 1995, between Cellco Partnership
and Dennis Strigl, as amended.*
10y Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Lawrence T. Babbio, Jr. (Exhibit 10a to Form
10-Q for the quarter ended June 30, 1998.)*
10z Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and James G. Cullen. (Exhibit 10b to Form 10-Q for
the quarter ended June 30, 1998.)*
10z(i) Letter, dated November 4, 1999, to James G. Cullen concerning
employment-related issues.*
10aa Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Frederic V. Salerno. (Exhibit 10c to Form 10-Q
for the quarter ended June 30, 1998.)*
10bb Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Donald J. Sacco. (Exhibit 10d to Form 10-Q for
the quarter ended June 30, 1998.)*
10cc Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Morrison DeS. Webb. (Exhibit 10e to Form 10-Q
for the quarter ended June 30, 1998.)*
<PAGE>
10dd Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and James R. Young. (Exhibit 10f to Form 10-Q for
the quarter ended June 30, 1998.)*
10ee Form of Amendment, dated as of October 27, 1998, to Employment
Agreements with Lawrence T. Babbio, Jr., James G. Cullen, Frederic V.
Salerno, Donald J. Sacco, Morrison DeS. Webb and James R. Young.
(Exhibit 10ee to Form 10-K for the year ended December 31, 1998.)*
10ff Employment Agreement, dated as of January 1, 1999, by and between Bell
Atlantic Corporation and Ivan G. Seidenberg. (Exhibit 10ff to Form 10-K
for the year ended December 31, 1998.)*
10gg (reserved)
10hh Resolution, dated January 24, 1994, granting Lawrence T. Babbio, Jr.
certain nonqualified stock options to purchase American Depository
Receipts representing Series L shares of the capital stock of Grupo
Iusacell, S.A. de C.V. (Exhibit 10s to Form 10-K for the year ended
December 31, 1993.)*
10ii Form of stock option grant to Lawrence T. Babbio, Jr., dated February
18, 1997, containing terms and conditions of certain nonqualified stock
options to purchase American Depository Receipts representing Series L
shares of the capital stock of Grupo Iusacell, S.A. de C.V. (Exhibit
10q to Form 10-K for the year ended December 31, 1996.)*
10jj Form of Stay Incentive Agreement and Separation and Non-Compete
Agreement with Doreen A. Toben with respect to the Bell Atlantic-NYNEX
merger. (Exhibit 10(f) to Registration Statement on Form S-4 No.
333-11573.)*
10kk Form of Stay Incentive Agreement, dated as of November 23, 1998, with
Doreen A. Toben and Dennis Strigl with respect to the Bell Atlantic -
GTE Merger. (Exhibit 10kk to Form 10-K for the year ended December 31,
1998.)*
10ll Form of Stay Incentive Agreement, dated as of November 23, 1998, with
Thomas J. Tauke, William F. Heitmann, Mark J. Mathis, and John Killian.
(Exhibit 10ll to Form 10-K for the year ended December 31, 1998.)*
10mm Form of Stay Incentive Agreement, dated as of November 23, 1998, with
Jacquelyn B. Gates and Chester N. Watson. (Exhibit 10mm to Form 10-K
for the year ended December 31, 1998.)*
10nn Form of Merger Agreement, dated as of January 29, 1999, with Doreen A.
Toben, William F. Heitmann, and Mark J. Mathis. (Exhibit 10nn to Form
10-K for the year ended December 31, 1998.)*
10oo U.S. Wireless Agreement, dated September 21, 1999, among Bell Atlantic
Corporation and Vodafone AirTouch plc, including the forms of Amended
and Restated Partnership Agreement and the Investment Agreement.
(Exhibit 10 to Form 10-Q for the quarter ended September 30, 1999.)
10pp Form of Merger Agreement, dated as of January 29, 1999, with Jacquelyn
B. Gates and Chester N. Watson. (Exhibit 10pp to Form 10-K for the year
ended December 31, 1998.)*
10qq Stock Option Agreement, dated as of July 27, 1998, between Bell
Atlantic Corporation and GTE Corporation. (Exhibit 10.01 to Form 8-K,
date of report July 30, 1998.)*
10rr Stock Option Agreement, dated as of July 27, 1998, between GTE
Corporation and Bell Atlantic Corporation. (Exhibit 10.02 to Form 8-K,
date of report July 30, 1998.)*
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of subsidiaries of Bell Atlantic.
23 Consent of Independent Accountants.
<PAGE>
25 Powers of Attorney.
27 Financial Data Schedule.
- -----------
*Indicates management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 10b
[BELL ATLANTIC LOGO]
================================================================================
DIRECTORS' GROUP LIFE
INSURANCE (OPTIONAL)
SUMMARY
Non-employee Directors are covered through a rider on Bell Atlantic Network
Services, Inc.'s Group Life policy.
$100,000 coverage.
Term insurance, convertible at retirement, with no residuals.
The carrier is Metropolitan Life.
Director can accept coverage, elect to make an irrevocable assignment, or
decline coverage entirely.
TAX IMPLICATIONS OF LIFE INSURANCE OPTIONS
While the following is the Company's view of the tax implications of your
options under this life insurance program, a tax or financial advisor should be
consulted when considering an irrevocable assignment of your insurance coverage,
since an assignment would be an integral part of your estate and financial
planning.*
LIFE INSURANCE COVERAGE FOR OUTSIDE DIRECTORS
The Board of Directors has authorized $100,000 of life insurance coverage for
each outside director. However, the resolution also allows each outside director
to decline the life insurance coverage, which he might do for income tax
reasons. The actual premium cost of providing an outside director with $100,000
of life insurance coverage will have to be included in the outside director's
income, even though he receives no cash. Since an outside director is not an
employee of Bell Atlantic Corporation, the special income tax rules for group-
term life insurance coverage would not apply, even though the actual coverage
for outside directors may be provided through a Bell Atlantic group-term life
insurance policy. As a consequence, the actual premium cost to Bell Atlantic is
taxable as income. For example, if it costs Bell Atlantic Corporation $.75 per
month to provide a 58-year old director $1,000 of coverage, then the director
would have to report as income $900 for each year of coverage ($.75/$1,000 x
$100,000 coverage x 12 months/year). Similarly, if it cost $1.17 per month to
provide a 63-year old director $1,000 of coverage, the director would have to
report $1404 as income for each year of coverage.
*See Commentary for the Benefit of the Director and His Attorney On Some Aspects
of Absolute Assignments of Group Term Insurance", following in this section.
<PAGE>
[BELL ATLANTIC LOGO]
================================================================================
COMMENTARY FOR THE BENEFIT OF THE DIRECTOR AND HIS* ATTORNEY ON SOME ASPECTS OF
ABSOLUTE ASSIGNMENTS OF GROUP TERM LIFE INSURANCE.
A. INTRODUCTION
The assignment of the ownership of life insurance, especially group term life
insurance such as that provided by Bell Atlantic to its Directors, is a popular
and effective estate planning tool. However, because the tax and state law rules
in this area are quite complicated, it is essential that the Director secure
advice from his own attorney before executing any assignment. Such advice cannot
be given to the Director by the Insurance Company or by representatives of Bell
Atlantic Corporation. Neither Bell Atlantic Corporation nor the Insurance
Company assumes any responsibility for the adequacy or effect of an assignment
for any purpose. These comments are for the purpose of informing the Director of
some of the considerations and problems involved in determining whether to make
an assignment.
B. RIGHTS IRREVOCABLY TRANSFERRED UNDER AN ASSIGNMENT
The Director who makes an assignment of Group Life Insurance irrevocably
transfers to the assignee and loses all control over all rights, title, interest
and incidents of ownership, both present and future, relating to the assigned
Group Life Insurance. The assigned rights over which the assignor loses all
control include but are not limited to the following:
1. The right to designate and change beneficiaries and contingent beneficiaries.
2. The right to elect or revise any Optional Mode of Settlement.
3. The right to make any application or election when and if the Director would
otherwise be eligible to make such application or election.
4. The right to elect any optional increases in the amounts of insurance.
5. All other rights or incidents of ownership of any nature relating to the
assigned insurance.
All the above rights, which would otherwise be exercisable by the Director
would, following an assignment, be exercisable by the assignee.
C. FEDERAL ESTATE TAX CONSEQUENCES
The Internal Revenue Service has ruled that an absolute assignment by an insured
party of all of his incidents of ownership in a Group Term Life Insurance policy
wholly paid for by the Company is effective to prevent the insurance death
proceeds from being included in his gross estate for Federal Estate Tax purposes
under Internal Revenue Code Section 2042, provided that both the applicable
state law and the policy itself permit the insured party to make such
assignment, and that the assignment was made at least three years prior to the
death of the insured party, as required by Section 2035 of the Code.
D. ASSIGNABILITY UNDER STATE LAW
The laws of almost all states permit the assignment of Group Term Life
Insurance. Nonetheless, a Director contemplating an assignment should consult an
attorney to determine any particular requirements of applicable state law.
E. ASSIGNMENTS CANNOT BE REVOKED
Once done, an assignment cannot be undone without the cooperation of the
assignee. Therefore, a Director should reflect on the undesirable complications
and loss of control which might result-if an assignment is followed by changes
in family circumstances such as death of the assignee, divorce, remarriage,
incompetency, etc. Also, there could possibly be changes in the Federal tax law
that could
*For the sake of grammatical convenience, the masculine pronoun is used
throughout the commentary.
<PAGE>
[BELL ATLANTIC LOGO]
================================================================================
change some of the tax aspects involved.
F. DISPOSITION OF ASSIGNEE'S INTEREST BY WILL OR INTESTACY
If the assignee is an individual, when he dies the value of the assigned policy
will be included in his estate for death tax purposes. However, should the
assignee die before the insured Director--so that at the assignee's death the
insurance will not yet have been converted to cash proceeds-- the policy will
have only minimal value. A problem might arise in such a case, however, if the
assignee's Will, or in the absence of a Will the applicable state intestacy
laws, caused the policy to revert to the insured Director. In such a case, the
Director would again be the owner of the policy and on the Director's death the
full value of the proceeds of the policy would be included in his estate for
death tax purposes. Further problems along these lines might arise if the
assignee should by Will or under the intestate laws leave all or a portion of
the policy to a minor or an incompetent who would be unable without the
appointment of a guardian to exercise his ownership rights.
G. ADDITIONAL TAX CONSIDERATIONS--GIFT, ESTATE AND INCOME
The following very general Gift, Estate and Income Tax consequences should be
considered: 1. A gratuitous assignment of a policy constitutes a gift for
Federal gift tax purposes. However, as noted in F above, the value of the
assigned policy is likely to be minimal. In addition, each premium payment with
respect to the assigned policy made by the Company on behalf of the Director
will also constitute a gift by the Director to the assignee. Whether the policy
assignment or subsequent premium payments made on behalf of the Director will
qualify for the annual gift tax exclusion (currently $10,000 per donee), depends
on whether the assignment and subsequent premium payments are gifts of a
"present interest" as defined in the Internal Code. An assignment to a trust
(see 3 below), may not be a gift of a present interest, unless the trust is
carefully drafted to comply with the Code's requirements. 2. If the Director
should die within three years of making an assignment, the proceeds of the
assigned policy will be included in his estate for Federal estate tax purposes.
3. An irrevocable trust can be the assignee of a Director's Group Term Life
Insurance Policy. As noted above, if the Director lives for three years after
making the assignment to such a trust the proceeds of the policy will not be
included in his estate for Federal estate tax purposes. If the Director is
married, even though the trust is designed so that after his death the policy
proceeds are held in trust for his spouse and then for his children, the
proceeds will not be included in his spouse's estate on her death, provided, of
course, that the trust complies with the Internal Revenue Code's rules in this
area. 4. The Director's or his assignee's group life insurance proceeds payable
at his death are free from Federal income tax. If the policy beneficiary elects
payment of the proceeds in installments or in an annuity, the interest element
of the installment will constitute taxable income.
H. COMMUNITY PROPERTY LAW CONSIDERATIONS
In community property states, Arizona, California, Idaho, Louisiana, Nevada, New
Mexico, Texas and Washington, generally when any part of a life insurance
premium is paid from community funds during marriage, all or a part of the
insurance proceeds may be considered community property.
*For the sake of grammatical convenience, the masculine pronoun is used
throughout the commentary.
<PAGE>
[BELL ATLANTIC LOGO]
================================================================================
Where an assignment is made to an assignee other than the spouse, consideration
should be given to the rights of the Director's spouse under such laws in that
the insured Director may not make a gift of his spouse's interest without her
consent. These considerations apply to assignments made in states which have
community property laws. They may also apply to an assignment previously made in
a non-community property State if the Director subsequently becomes domiciled in
a community property State and premium contributions are paid from community
funds.
Since under community property laws a Director's spouse is considered a part
owner of the policy, the Federal tax consequences of an assignment governed by
community property law may be different from the consequences of an assignment
made in a common law jurisdiction.
*For the sake of grammatical convenience, the masculine pronoun is used
throughout the commentary.
<PAGE>
EXHIBIT 10c
[LOGO OF BELL ATLANTIC]
================================================================================
INDEMNIFICATION AND
TRAVEL ACCIDENT INSURANCE
INDEMNIFICATION
The Company indemnifies directors to the full extent permitted under
applicable law.
Liability insurance policies cover the Company for many losses arising from
a claim made against directors for a "wrongful act" or certain matters claimed
solely by reason of being in a position of a Director of the Company. The
policies also directly cover the directors for certain losses for which the
Company cannot legally provide indemnification.
TRAVEL ACCIDENT INSURANCE
This insurance provides financial compensation to beneficiaries of non-
employee directors in the case of death, disability, or dismemberment from an
accident while the non-employee director is away from home or permanent
employment and on company business.
Beneficiary cards are available from the Corporate Secretary's
organization.
================================================================================
ABSOLUTE ASSIGNMENT OF
TRAVEL ACCIDENT INSURANCE
A Director may choose to make an irrevocable assignment of his Travel
Accident Insurance. Since the same conditions which apply to the assignment of
Group Life Insurance also apply to the life insurance portion (but not the
dismemberment or disability portion) of the Travel Accident Insurance, a
Director considering an assignment of Travel Accident Insurance should first
review "Commentary for the Benefit of the Director and His Attorney on Some
Aspects of Absolute Assignments of Group Term Life Insurance", in Part B,
Section 5 of this Handbook. As always, a tax advisor should be consulted when
considering an irrevocable assignment of insurance.
Assignment forms are available from the Corporate Secretary's organization.
<PAGE>
EXHIBIT 10i
BELL ATLANTIC
SENIOR MANAGEMENT
INCOME DEFERRAL PLAN
Effective January 1, 1998
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
1. Purpose 1
2. Definitions 1
3. Participation 4
4. Deferral Elections 4
5. Ongoing Company Credits 6
6. Conversion and Other Transitional Credits 7
7. Section 415 Credits 8
8. Account Investments 9
9. Distribution Rules 11
10. Vesting, Forfeiture and Non-Compete 15
11. Unfunded Plan 17
12. Administration, Amendment and Termination 17
</TABLE>
<PAGE>
BELL ATLANTIC
SENIOR MANAGEMENT INCOME DEFERRAL PLAN
1. PURPOSE.
-------
The Bell Atlantic Senior Management Income Deferral Plan (the "Plan") is a
nonqualified deferred compensation and supplemental retirement plan. Its
purpose is to enable Participants to defer voluntarily the receipt of certain
compensation, and to provide retirement and other benefits to Participants
through a defined contribution, individual account program.
2. DEFINITIONS.
-----------
(a) Base Salary and Eligible Base Salary. "Base Salary" is the gross
------------------------------------
amount (before reduction for tax withholding, pre-tax or after-tax contributions
to any employee benefit plans, or other special payroll reductions) of total
annual base recurring salary. "Eligible Base Salary" is the portion of Base
Salary for a Plan Year in excess of the Qualified Plan Compensation Limit for
that Plan Year, provided, however, that (i) the Plan Administrator shall have
the discretion to calculate Eligible Base Salary without regard to any merit
increases in Base Salary which occur during a Plan Year, (ii) in the case of a
newly hired, newly promoted, or newly demoted Senior Manager, Eligible Base
Salary for the year of hiring, promotion, or demotion shall be prorated and
calculated in a reasonable manner as determined by the Plan Administrator, and
(iii) Eligible Base Salary shall also include any pre-tax contribution to the
Bell Atlantic Savings Plan for Salaried Employees which exceeds the limitations
set forth in Sections 401, 402, or 415 of the Internal Revenue Code (plus the
earnings on any such excess contribution).
(b) Bell Atlantic, Bell Atlantic Company and Company. "Bell Atlantic"
------------------------------------------------
means Bell Atlantic Corporation or any successor. "Bell Atlantic Company" or
"Company" means (i) Bell Atlantic, (ii) each corporation and partnership in
which Bell Atlantic has a direct or indirect ownership interest of at least 50%,
and (iii) any other corporation, partnership or other entity which the Plan
Administrator determines shall be treated as a Bell Atlantic Company for
purposes of this Plan.
(c) Bonus Compensation and Eligible Bonus Compensation.
--------------------------------------------------
"Bonus Compensation" is the gross amount (before reduction for tax withholding,
pre-tax or after-tax contributions to any employee benefit plans, or other
special payroll reductions) of (i) a short-term incentive award under the Bell
Atlantic Senior Management Short Term Incentive Plan, (ii) a short-term
incentive award under the Bell Atlantic Attorney Incentive Plan, and (iii) any
other incentive award paid by a Participating Company which is designated by the
Plan Administrator as Bonus
<PAGE>
Compensation for purposes of this Plan. All Bonus Compensation shall be
"Eligible Bonus Compensation" provided, however, that in the case of a newly
promoted or newly demoted Senior Manager, Eligible Bonus Compensation for the
year of promotion or demotion shall be determined and calculated in a reasonable
manner as determined by the Plan Administrator.
(d) Company Balance. The term "Company Balance" is defined in section
---------------
9(a) of this Plan.
(e) Change in Control. The term "Change in Control" shall be an event
-----------------
which results in funding of the Bell Atlantic Rabbi Trust or any successor trust
or other financial arrangement which is designed to provide Participants in this
Plan with additional assurance that the obligation to pay benefits under this
Plan will be honored.
(f) Employee Balance. The term "Employee Balance" is defined in Section
----------------
9(a) of this Plan.
(g) HRC. "HRC" means the Human Resources Committee of the Board of
---
Directors of Bell Atlantic.
(h) Investment Funds. The term "Investment Funds" is defined in Section
----------------
8(a) of this Plan.
(i) Internal Revenue Code. "Internal Revenue Code" means the Internal
---------------------
Revenue Code of 1986, as amended.
(j) Other Eligible Compensation. "Other Eligible Compensation" shall mean
---------------------------
any form of compensation, other than Eligible Base Salary and Eligible Bonus
Compensation, which the Plan Administrator determines is eligible to be deferred
or credited to a Participant's Account under the terms of this Plan.
(k) Participant. The term "Participant" includes an "Active Participant"
-----------
and an "Inactive Participant" as those terms are defined in Section 3 of this
Plan.
(l) Participant's Account. The term "Participant's Account" shall refer,
---------------------
collectively, to the unfunded book-entry sub-accounts which represent a
Participant's deferred compensation, retirement benefits, and other benefits
under this Plan, as adjusted from time to time to reflect credits to such sub-
accounts, withdrawals from such sub-accounts, and earnings and losses derived
from the performance of the Investment Funds to which sub-account balances have
been allocated. Each Participant's Account, and the credits reflected in such
account, shall consist of the aggregate of the following sub-accounts and
credits.
2
<PAGE>
(1) Personal Deferral Sub-Account and Personal Deferral Credits. The
-----------------------------------------------------------
"Personal Deferral Sub-Account" shall consist of (i) certain conversion credits
as provided for in Section 6 of the Plan, (ii) credits pursuant to a
Participant's voluntary election to defer the receipt of Eligible Base Salary,
Eligible Bonus Compensation, or Other Eligible Compensation as provided for in
Section 4 of the Plan, and (iii) credits pursuant to any employment, retention,
stay incentive, or other agreement between a Participant and any Bell Atlantic
Company which provides for a credit of Other Eligible Compensation to this sub-
account in accordance with Section 5(c) of the Plan. All credits described in
this sub-paragraph (1), and all earnings and losses with respect to such
credits, are collectively referred to in this Plan as "Personal Deferral
Credits".
(2) Matching Contribution Sub-Account and Matching Contribution
-----------------------------------------------------------
Credits. The "Matching Contribution Sub-Account" shall consist of (i) certain
- -------
conversion credits as provided for in Section 6 of the Plan, and (ii) matching
credits provided by the Company in accordance with Section 5(a) of the Plan. All
credits described in this sub-paragraph (2), and all earnings and losses with
respect to such credits, are collectively referred to in this Plan as "Matching
Contribution Credits".
(3) Retirement Contribution Sub-Account and Retirement Contribution
---------------------------------------------------------------
Credits. The "Retirement Contribution Sub-Account" shall consist of (i) certain
- -------
conversion and other credits as provided for in Section 6 of the Plan, (ii)
retirement credits provided by the Company in accordance with Section 5(b) of
the Plan, (iii) certain other retirement credits provided by the Company in
accordance with Section 7 of the Plan, and (iv) credits pursuant to any
employment, retention, stay incentive or other agreement between a Participant
and any Bell Atlantic Company which provides for a credit of Other Eligible
Compensation to this sub-account in accordance with Section 5(c) of the Plan.
All credits described in this sub-paragraph (3), and all earnings and losses
with respect to such credits, are collectively referred to in this Plan as
"Retirement Contribution Credits".
(m) Participating Company. Each Bell Atlantic Company which employs one
---------------------
or more Senior Managers at any time during a Plan Year, or which was the last
employing company of one or more Inactive Participants in this Plan, shall be a
"Participating Company" in this Plan.
(n) Plan Year The "Plan Year" shall be the calendar year.
---------
(o) Qualified Plan Compensation Limit. The "Qualified Plan Compensation
---------------------------------
Limit" is the limit under Section 401(a)(17) of the Internal Revenue Code.
(p) Senior Manager. A "Senior Manager" is any active employee of a Bell
--------------
Atlantic Company who (i) is designated, or has previously been designated, as a
"Senior Manager" in accordance with procedures approved by the HRC (or is an
attorney with a
3
<PAGE>
compensation grade comparable to Senior Manager), and (ii) has not subsequently
been demoted below the rank of Senior Manager.
3. PARTICIPATION.
-------------
(a) Active Participation. Each actively employed Senior Manager on January
--------------------
1, 1998 shall be an "Active Participant" in the Plan effective January 1, 1998
and shall continue to be an Active Participant for so long as he or she remains
a Senior Manager. Each Senior Manager hired or promoted into Senior Manager
status after January 1, 1998 shall be an Active Participant in the Plan
effective on the date on which the Senior Manager was hired or promoted into
that status and shall continue to be an Active Participant for so long as he or
she remains a Senior Manager.
(b) Promotion to Senior Management. Each employee who is promoted to a
------------------------------
Senior Manager position will forfeit any future right to benefits, after the
date of promotion and while remaining an Active Participant, under the Bell
Atlantic Supplemental Retirement Plan for non-Senior Managers ("SRP") and any
other plan of any Bell Atlantic Company in which the Plan Administrator
determines that Senior Managers shall not participate. Upon any such promotion,
the account balance (or accrued benefit) of the Participant under any such plan
referred to in this paragraph shall be transferred to this Plan in accordance
with Section 6(b) of the Plan.
(c) Consequences of Demotion. If an Active Participant is demoted so that
------------------------
he or she ceases to be a Senior Manager, such individual shall cease to be a
Participant as of the effective date of the demotion. The Participant's Account
of any such individual shall be transferred and credited to the SRP, and shall
become subject to the terms and conditions of that plan.
(d) Other Participation. Any employee who has separated from service on or
-------------------
after January 1, 1998 and who, at the time of such separation, was an Active
Participant with an account balance under the Plan, shall be an "Inactive
Participant" in the Plan as of the date of such separation. Any employee who
separated from service on or before December 31, 1997 with an account balance
governed by the provisions of the Bell Atlantic Deferred Compensation Plan (the
predecessor to this Plan) or the Bell Atlantic Incentive Award Deferral Plan
(the predecessor to the Bell Atlantic Deferred Compensation Plan) shall continue
to have his or her account balance governed by the Plan provisions that were in
effect on the date he or she separated from service.
4. DEFERRAL ELECTIONS.
------------------
(a) Voluntary Deferrals. Each Participant may elect to defer the receipt
-------------------
of Eligible Base Salary, Eligible Bonus Compensation, and Other Eligible
Compensation in accordance with this Section 4.
4
<PAGE>
(b) Timing of Elections to Defer Eligible Base Salary and Eligible Bonus
--------------------------------------------------------------------
Compensation. An election by a Participant to defer the receipt of Eligible
- ------------
Base Salary or Eligible Bonus Compensation shall be delivered to the Plan
Administrator as follows.
(1) General Rule. Except as provided in sub-paragraph (2) below,
------------
for each Plan Year, an election by a Participant to defer Eligible Base Salary
or Eligible Bonus Compensation shall be delivered to the Plan Administrator not
later than the date specified by the Plan Administrator, which date shall be on
or before the last business day of December prior to the Plan Year in which the
compensation to be deferred would have been paid. Any such election may be
changed or revoked by the Participant on or before, but not after, such last day
of December. During the Plan Year, a Participant shall not have the right to
modify the rate or amount of deferral of Eligible Base Salary or Eligible Bonus
Compensation.
(2) Newly Hired and Newly Promoted Participants. Newly hired and
-------------------------------------------
newly promoted Participants shall have a 30-day period, following the effective
date of such hiring or promotion, in which to deliver an election to defer
Eligible Base Salary or Eligible Bonus Compensation. Any such deferral election
shall become irrevocable seven calendar days after the Participant delivers such
election to the Plan Administrator. Deferral elections for subsequent years
shall be governed by the general rule set forth in sub-paragraph (1) above.
(c) Timing of Elections to Defer Other Eligible Compensation. An election
--------------------------------------------------------
by a Participant to defer the receipt of Other Eligible Compensation shall be
delivered to the Plan Administrator not later than the date determined by the
Plan Administrator.
(d) Election Forms. The deferral election, and any permitted change to or
--------------
revocation of such election, shall be completed and signed by the Participant on
a form provided by the Plan Administrator (an "Election Form") or shall be made
by the Participant, in writing, in such other manner as the Plan Administrator
may approve. An Election Form shall permit the Participant to make separate
deferral elections for Eligible Base Salary, Eligible Bonus Compensation and
Other Eligible Compensation, subject to the following rules.
(1) Eligible Base Salary. In accordance with the terms of the
--------------------
Election Form, the Participant may elect to defer a whole percentage or a stated
amount of Eligible Base Salary, provided that the amount deferred equals or
exceeds 6 percent of Eligible Base Salary.
(2) Eligible Bonus Compensation. In accordance with the terms of
---------------------------
the Election Form, the Participant may elect to defer a whole percentage or a
stated amount of Eligible Bonus Compensation, provided that the amount deferred
equals or exceeds 6 percent of Eligible Bonus Compensation.
5
<PAGE>
(3) Other Eligible Compensation. The Participant may elect to defer
---------------------------
any whole percentage or stated amount of Other Eligible Compensation that is
permitted by the terms of the Election Form.
(e) Credits to Personal Deferral Sub-Account. If a Participant makes a
----------------------------------------
deferral election pursuant to this Section 4, Personal Deferral Credits for the
amounts deferred shall be calculated and made to the Participant's Personal
Deferral Sub-Account in accordance with procedures established by the Plan
Administrator.
5. ONGOING COMPANY CREDITS.
-----------------------
(a) Matching Contribution Credits. Each Active Participant shall be
-----------------------------
entitled to have Matching Contribution Credits made to his or her Matching
Contribution Sub-Account on the following basis.
(1) Matching Base Salary Credits. If the Participant elects to defer
----------------------------
6 percent or more of his or her Eligible Base Salary for the Plan Year, the
Matching Contribution Credits shall be equal to 83 1/3 percent of the first 6
percent of Eligible Base Salary. Throughout the Plan Year, such Matching
Contribution Credits shall be calculated by the Plan Administrator and made to
the Participant's Matching Contribution Sub-Account as of the same date as the
associated Personal Deferral Credits provided for in Section 4(e) of the Plan.
(2) Matching Bonus Credits. Subject to paragraph (d) below, if the
----------------------
Participant elects to defer 6 percent or more of his or her Eligible Bonus
Compensation for the Plan Year, the Matching Contribution Credits shall be equal
to 83 1/3 percent of the first 6 percent of Eligible Bonus Compensation. Such
Matching Contribution Credits shall be calculated by the Plan Administrator and
made to the Participant's Matching Contribution Sub-Account as of the same date
as the associated Personal Deferral Credits provided for in Section 4(e) of the
Plan.
(b) Retirement Contribution Credits. Each Active Participant shall be
-------------------------------
entitled to have Retirement Contribution Credits made to his or her Retirement
Contribution Sub-Account on the following basis.
(1) Retirement Base Salary Credits. Annual Retirement Contribution
------------------------------
Credits equal to 32 percent of a Participant's Eligible Base Salary for the Plan
Year shall be made to the Participant's Retirement Contribution Sub-Account for
the first 240 months following commencement of participation in the Plan,
provided that such 240 month period shall be reduced by the number of months (if
any) during which the Participant previously participated in the NYNEX Senior
Management Nonqualified Defined Contribution Pension Plan (the "NYNEX Defined
Contribution Plan"). After such 240 month period, annual Retirement
Contribution Credits equal to 7 percent of the Participant's Eligible Base
Salary for the Plan Year shall be made to the Participant's Retirement
Contribution Sub-Account. The Retirement Contribution Credits provided
6
<PAGE>
for in this paragraph shall be calculated in accordance with guidelines
established by the Plan Administrator and made to the Participant's Retirement
Contribution Sub-Account as of the last day of each month of the Plan Year.
(2) Retirement Bonus Credits. Subject to Paragraph (d) below, annual
------------------------
Retirement Contribution Credits equal to 32 percent of a Participant's Eligible
Bonus Compensation for the Plan Year shall be made to the Participant's
Retirement Contribution Sub-Account for the first 240 months following
commencement of participation in the Plan, provided that such 240 month period
shall be reduced by the number of months (if any) during which the Participant
previously participated in the NYNEX Defined Contribution Plan. After such 240
month period, annual Retirement Contribution Credits equal to 7 percent of the
Participant's Eligible Bonus Compensation for the Plan Year shall be made to the
Participant's Retirement Contribution Sub-Account. The Retirement Contribution
Credits provided for in this paragraph shall be made to the Participant's
Retirement Contribution Sub-Account as of the date that the associated Eligible
Bonus Compensation is paid (or would have been paid in the absence of a deferral
election under this Plan.)
(c) Credits of Other Eligible Compensation. If a Participant has entered
--------------------------------------
into an agreement or arrangement with any Bell Atlantic Company that provides
for Other Eligible Compensation to be credited to the Participant's Account,
such credits shall be made in accordance with the terms of such agreement or
arrangement, and in a manner approved by the Plan Administrator.
(d) Special Rule for Inactive Participants. If a Participant is an
--------------------------------------
Inactive Participant at the time Eligible Bonus Compensation becomes payable (or
would otherwise become payable in the absence of a deferral election under this
Plan), the Plan Administrator shall determine, in his or her sole discretion,
whether the Participant shall receive the Matching Contribution Credits and
Retirement Contribution Credits provided for in paragraphs (a)(2) and (b)(2)
with respect to such Eligible Bonus Compensation.
6. CONVERSION AND OTHER TRANSITIONAL CREDITS.
-----------------------------------------
(a) Conversion Credits as of January 1, 1998. Active Participants on
----------------------------------------
January 1, 1998 shall receive opening conversion credits under the Plan equal to
the amount of any account balance and any accrued benefits they may have under
(i) the Bell Atlantic Deferred Compensation Plan; (ii) the Bell Atlantic Senior
Management Retirement Income Plan; (iii) the Bell Atlantic Executive Management
Retirement Income Plan; (iv) the NYNEX Supplemental Savings Plan; (v) the NYNEX
Defined Contribution Plan; (vi) the NYNEX Incentive Award Deferral Program;
(vii) the NYNEX Supplemental Pension Plan; or (viii) the NYNEX Mid Career
Pension Plan. The Plan Administrator shall determine the amount of any accrued
benefits under any such plan, and shall further determine, based on the
character of the account balance or accrued benefits under the applicable plan,
whether conversion credits under this Plan shall be made as Personal Deferral
Credits, Matching Contribution Credits, or Retirement Contribution Credits.
7
<PAGE>
(b) Conversion Credits after January 1, 1998. Employees who are promoted to
----------------------------------------
a Senior Manager position after January 1, 1998 shall receive opening
conversion credits under the Plan equal to the amount of any account balance and
any accrued benefits they may have under (i) the Supplemental Savings Part of
the SRP; (ii) the Supplemental Cash Balance Part of the SRP; or (iii) any other
nonqualified deferred compensation plan or arrangement of a Bell Atlantic
Company if the Plan Administrator determines that the employee shall no longer
participate in such plan or arrangement. Such conversion credits shall be made
by the Plan Administrator as soon as practicable following the date of
promotion. The Plan Administrator shall determine the amount of any accrued
benefits under any such plan, and shall further determine, based on the
character of the account balance or accrued benefits under the applicable plan
or arrangement, whether such conversion credits shall be made as Personal
Deferral Credits, Company Matching Credits, or Retirement Contribution Credits.
(c) Annual Transition Credits. If a Participant is entitled to an annual
-------------------------
transition credit for a Plan Year, such transition credit shall be made to the
Participant's Retirement Contribution Sub-Account as of December 31 of such
year, unless the Participant is separating from service during such year, in
which case the transition credit shall be made as soon as practicable following
the Participant's separation from service.
(d) Potential Interim Amount. If a Participant is entitled to a potential
------------------------
interim amount ("PIA") credit for the year in which the Participant separates
from service, the amount of such PIA shall be credited to the Participant's
Retirement Contribution Sub-Account as soon as practicable following the
Participant's separation from service.
7. SECTION 415 CREDITS.
-------------------
(a) General. Subject to paragraph (b) below, if a Participant's accrued
-------
benefit under the Bell Atlantic Cash Balance Plan, upon commencement of benefits
thereunder, exceeds the benefit permitted by Section 415 of the Internal Revenue
Code ("Section 415"), the excess amount shall be credited to the Participant's
Retirement Contribution Sub-Account as of the Participant's benefit commencement
date. Any such credit pursuant to this paragraph or paragraph (b) below shall
be in full satisfaction of any right to similar credits or benefits which the
Participant may have under any NYNEX benefit plan.
(b) Participants Who Previously Received Section 415 Credits. For those
--------------------------------------------------------
Participants who previously received a Section 415 credit to their account
balance under the NYNEX Defined Contribution Plan, the calculation described in
paragraph (a) above shall be made upon the Participant's commencement of
benefits under the Bell Atlantic Cash Balance Plan. If the amount calculated
under paragraph (a) exceeds the Section 415 credit that was previously made to
the Participant's account under such NYNEX plan, as determined by the Plan
Administrator, the excess amount shall be credited to the
8
<PAGE>
Participant's Retirement Contribution Sub-Account as of the Participant's
benefit commencement date.
8. ACCOUNT INVESTMENTS.
--------------------
(a) General. The balance in a Participant's Account shall be allocated by
-------
the Participant to the Investment Funds under the Plan in accordance with this
Section 8. The Investment Funds shall consist of a set of unfunded book-entry
investment accounts. Except as provided below, (i) each Investment Fund shall
correspond to, and shall mirror the earnings and valuation performance of, an
investment fund under the Bell Atlantic Savings Plan for Salaried Employees
("BASP"); (ii) each Investment Fund shall be available as an investment choice
for the balance in a Participant's Account; and (iii) in the event that there is
a change in, addition to, or deletion of any of the investment funds in the
BASP, a corresponding change, addition, or deletion shall be made in the
Investment Funds offered under this Plan.
(1) Telecommunications Fund. The Plan shall continue to maintain an
-----------------------
Investment Fund known as the "Telecommunications Fund" for any Participant who,
as of December 31, 1997, had an account balance invested in the
telecommunications fund under any prior nonqualified deferred compensation plan
maintained by NYNEX Corporation and who elected to transfer all or any portion
of such balance into the "Telecommunications Fund" in this Plan as of January 1,
1998. Amounts allocated to such fund shall be limited to account balances
described in the preceding sentence, and no new credits may be allocated or
transferred to the Telecommunications Fund. Any or all of the balance of a
Participant's Account allocated to the Telecommunications Fund may be
transferred to any other Investment Fund in accordance with paragraph (b)(2)
below, provided that balances transferred out of the Telecommunications Fund may
not be transferred back into such fund. Any balance remaining in the
Telecommunications Fund at the time a Participant separates from service must be
transferred to another Investment Fund no later than December 31 of the year
such separation occurs.
(2) Tandem Investment Fund. The Plan shall continue to maintain an
----------------------
Investment Fund known as the "Tandem Investment Fund" for any Participant who,
as of December 31, 1997, had an account balance invested in the tandem account
under any prior nonqualified deferred compensation plan maintained by Bell
Atlantic Corporation and who elected to transfer all or any portion of such
balance into the "Tandem Investment Fund" in this Plan as of January 1, 1998.
This fund shall track the earnings and valuation performance, as determined by
the Plan Administrator over the life of the Participant's selection of this
fund, of the greater of (i) Bell Atlantic common stock, and (ii) the investment
performance of ten year U.S. Treasury notes. Amounts allocated to this fund
shall be limited to account balances described in the first sentence of this
sub-paragraph, and no new credits may be allocated or transferred to the Tandem
Investment Fund. Any or all of the balance of a Participant's Account allocated
to the Tandem Investment Fund may be transferred to any other Investment Fund,
provided that such a transfer shall be permitted on only one occasion per year
(unless the Plan Administrator
9
<PAGE>
decides to permit more frequent transfers), and provided further, that balances
transferred out of the Tandem Investment Fund may not be transferred back into
such fund. Any balance remaining in the Tandem Investment Fund at the time a
Participant separates from service must be transferred to another Investment
Fund no later than December 31 of the year such separation occurs.
(3) Bell Atlantic Shares Fund. The Plan shall maintain an Investment
-------------------------
Fund known as the "Bell Atlantic Shares Fund" which shall mirror the earnings
and valuation performance of Bell Atlantic common stock. The entire balance in a
Participant's Matching Contribution Sub-Account shall initially be allocated to
the Bell Atlantic Shares Fund, provided, however, that a Participant may
thereafter transfer all or any portion of such balance out of the Bell Atlantic
Shares Fund and into any other available Investment Fund in accordance with
paragraph (b)(2) below.
(4) Additional Investment Funds. In addition to the Investment Funds
---------------------------
described above, the HRC may from time to time provide for alternative
investment funds or choices under the Plan, subject to such restrictions on
eligibility to select an alternative investment fund or choice and such other
terms and conditions as the HRC may establish.
(5) Discontinuation of BASP. Notwithstanding any other provision of
-----------------------
this paragraph (a), in the event that the BASP is discontinued, (i) a single
Investment Fund shall be established under this Plan which shall track the
earnings and valuation performance of ten year U.S. Treasury notes, and (ii) the
entire balance in each Participant's Account shall be transferred to such
Investment Fund as of the date the BASP is discontinued.
(b) Investment Elections. Elections to allocate balances in a
--------------------
Participant's Account to the available Investment Funds shall be made by
Participants in whole percentage units, subject to the following rules.
(1) Initial Elections. Senior Managers who will be Active
-----------------
Participants on January 1, 1998 shall submit their initial investment elections,
on a form provided by the Plan Administrator, no later than December 31, 1997.
Newly hired or promoted Participants shall submit their initial investment
elections, on a form provided by the Plan Administrator, within 30 days of the
effective date of being hired or promoted. Investment elections may allocate
balances in a Participant's Account to any Investment Fund, and elections shall
be applied uniformly to the balance in each of the Participant's sub-accounts,
except that (i) allocations to the Telecommunications Fund and the Tandem
Investment Fund shall be subject to the limitations described in paragraphs
(a)(1) and (2) above, and (ii) balances in the Matching Contribution Sub-Account
shall initially be allocated to the Bell Atlantic Shares Fund as provided in
paragraph (a)(3) above.
(2) Changes in Investment Elections. Except as provided in paragraph
-------------------------------
(a)(2) above with respect to the Tandem Investment Fund, Participants shall be
permitted
10
<PAGE>
to change their investment elections at least once per month, and may be
permitted to change their elections more frequently if the Plan Administrator so
determines. Changes in investment elections and the consequent transfers to
different Investment Funds shall be applied uniformly to balances in a
Participant's Account that are eligible to be transferred. From the period
January 1, 1998 until March 31, 1999, any change in investment elections will be
effective on the first day of the calendar month succeeding such change.
Beginning April 1, 1999, any change in investment elections will be effective on
the first day following such change.
9. DISTRIBUTION RULES.
------------------
(a) General Rules for Distribution Elections. Each Participant shall be
----------------------------------------
permitted to make a separate distribution election with respect to (i) vested
balances in the Participant's Personal Deferral Sub-Account (an "Employee
Balance") and (ii) vested balances in the Participant's Matching Contribution
Sub-Account and Retirement Contribution Sub-Account (a "Company Balance"). Each
such election must be submitted on a form provided by the Plan Administrator and
shall be subject to the following rules.
(1) Commencement of Distributions. Subject to sub-paragraphs (2) and
-----------------------------
(5) below, the Participant may elect to begin receiving distributions of the
Employee Balance during active service or upon or after separation from service.
Subject to sub-paragraphs (2) and (5) below, and also subject to Section 10(e)
of the Plan, the Participant may elect to begin receiving distributions of the
Company Balance upon or after separation from service; provided further, that
following a Change in Control of Bell Atlantic, distributions of the Company
Balance shall also be permitted (subject to sub-paragraphs (2) and (5) below)
during active service.
(2) Twelve Months Between Election and Commencement Date. The date
----------------------------------------------------
elected by the Participant for distributions to commence must be at least twelve
months from the date the election form is submitted. If the Participant elects
to commence distributions at separation from service, and separation occurs
within twelve months of such election, distributions will begin twelve months
after the election is submitted, provided the election is not invalidated by
sub-paragraph (5) below. Notwithstanding this requirement, (i) if a Participant
makes an election, prior to January 1, 1998, to receive a distribution upon
separation from service and such separation occurs within twelve months of the
election, such election shall be honored, and (ii), if a newly hired or newly
promoted Participant makes an election, within 30 days of being hired or
promoted, to receive a distribution upon separation from service and such
separation occurs within twelve months of the election, such election shall also
be honored.
(3) Bifurcation of Employee Balance and Company Balance. The
---------------------------------------------------
Participant shall be allowed to divide his or her Employee Balance into two
portions (with each portion consisting of a whole percentage of the total
balance) and make a separate distribution election for each portion of the
balance so divided. Subject to
11
<PAGE>
Section 10(e) of the Plan, the Participant shall also be allowed to divide his
or her Company Balance into two portions (with each portion consisting of a
whole percentage of the total balance) and make a separate distribution election
for each portion of the balance so divided. If the Participant elects to have
distributions of the Employee Balance commence prior to separation from service,
any additional deferrals after the earliest elected commencement date and before
the later elected commencement date will be subject to the form and timing of
the later elected commencement date; any additional deferrals after the later
elected commencement date will be subject to the default rules under paragraph
(c) below for form and timing of distributions.
(4) Five Day Waiting Period for Irrevocability. An election shall
------------------------------------------
become irrevocable at the close of the fifth business day following delivery to
the Plan Administrator of a signed election form.
(5) Invalid Elections. Any election will be invalid if it is
-----------------
delivered to the Plan Administrator less than twelve months prior to the date on
which, in the absence of such election, the Participant would begin to receive a
distribution of the Employee Balance or Company Balance covered by such
election.
(6) Death of Participant. If the Participant dies, his or her
--------------------
distribution election shall be canceled and any ongoing distribution arrangement
shall cease. The death benefit distribution rules under paragraph (d) below
shall then apply.
(7) One-Time Modification. A Participant shall be allowed one
---------------------
opportunity to modify a previously delivered distribution election with respect
to the Participant's Employee Balance and one opportunity to modify a previously
delivered distribution election with respect to the Participant's Company
Balance. Such modifying elections may be made on separate occasions, on a form
provided by the Plan Administrator, provided that each such election shall be
subject to the rules set forth in sub-paragraphs (1) through (6) above.
(8) Non-Compete Requirements. A distribution election with respect
------------------------
to a Participant's Company Balance is subject to the non-compete requirements of
Section 10 of this Plan.
(b) Form of Distributions. The Participant may elect to receive
---------------------
distributions of his or her vested Employee Balance or vested Company Balance
(or portions of such balances) as follows.
(1) Single Sum. The Participant may elect to receive a single sum
----------
distribution of the Participant's Employee Balance or Company Balance covered by
the election. At the time such distribution is due, the amount of the
distribution shall be calculated by the Plan Administrator and shall be paid as
soon as administratively practicable following such calculation.
12
<PAGE>
(2) Annual Installments from Two to Thirty Years. Alternatively, the
--------------------------------------------
Participant may elect to receive installment distributions which shall be paid
annually, over a period of two to thirty years as elected by the Participant.
Each installment shall be equal to (i) the undistributed portion of the Employee
Balance or Company Balance covered by the election, multiplied by (ii) a
fraction, the numerator of which shall be one, and the denominator of which
shall be the number of remaining annual installments. At the time each
installment is due, the amount of the installment shall be calculated by the
Plan Administrator and shall be paid as soon as administratively practicable
following such calculation.
(3) Appreciation Only. Alternatively, the Participant may elect to
-----------------
receive distributions of appreciation with respect to the Employee Balance or
Company Balance covered by an election. Under this option, distributions shall
be paid to the Participant each month, up to and including the month of the
Participant's death, at which time the balance covered by this election
(adjusted to reflect such monthly distributions) shall be paid in accordance
with paragraph (d). Each monthly distribution during the Participant's lifetime
shall be equal to the greater of (i) a fixed amount equal to two-thirds of one
percent of the balance covered by the election immediately prior to the first
distribution, and (ii) the amount by which the current balance covered by the
election exceeds such balance immediately after the first distribution. At the
time each monthly distribution is due, the amount of the distribution shall be
calculated by the Plan Administrator and shall be paid as soon as
administratively practicable following such calculation.
(c) Default for Form and Timing of Distributions. If, with respect to all
--------------------------------------------
or a portion of a Participant's Employee Balance or Company Balance, a
Participant does not make a distribution election, or if his or her distribution
election is determined to be invalid and is not subject to a prior valid
election, the entire vested portion of such Employee Balance and/or Company
Balance shall be distributed in a single sum on the later of (i) the end of the
month in which the Participant's 60th birthday occurs, or (ii) the Participant's
separation from service from all Bell Atlantic Companies; provided, further,
that any distribution of the balance in the Participant's Retirement
Contribution Sub-Account shall be subject to Section 10(e) of the Plan.
(d) Death of Participant. If a Participant dies with a vested balance in
--------------------
his or her Participant's Account, any distribution elections pursuant to
paragraphs (a) and (b) above shall be cancelled and the following rules shall
apply.
(1) Election of Form of Distribution in the Event of Death. Each
------------------------------------------------------
Participant shall be entitled to make or change a distribution election, which
shall become effective upon his or her death, that provides for annual
installments to be paid to the Participant's beneficiary or beneficiaries over a
period of two to ten years. Any such election must be submitted on a form
provided by the Plan Administrator, and shall include a designation of
beneficiaries. Each installment paid to a particular beneficiary shall be equal
to (i) the undistributed portion of the Participant's Account to which the
13
<PAGE>
beneficiary is entitled, multiplied by (ii) a fraction, the numerator of which
shall be one, and the denominator of which shall be the number of remaining
annual installments. The first installment shall be calculated by the Plan
Administrator and paid as soon as administratively practicable following the
date of the Participant's death, and each subsequent installment shall be paid
on or about the anniversary of the first installment.
(2) Default Distribution. If a Participant dies without having made
--------------------
the death-benefit election described in sub-paragraph (1), the entire vested
balance of his or her Participant's Account shall be paid in a single sum to the
Participant's beneficiaries or estate as soon as administratively practicable
following the date of death.
(e) Early Withdrawals Subject to Penalty. Except as provided in this
------------------------------------
paragraph, neither the Participant, a beneficiary, nor the estate of a
Participant shall have any right to receive a distribution or make any
withdrawal from the Plan, other than in accordance with the terms of the Plan
which apply to elective distributions, default distributions or distributions in
the event of death. Prior to the commencement date or dates of any elective or
mandatory distributions under paragraphs (a) through (c) above, a Participant
may withdraw all or any portion of the vested balance of the Participant's
Account (an "Early Withdrawal"), subject to the following rules.
(1) Early Withdrawal from Personal Deferral Sub-Account. A
---------------------------------------------------
Participant may at any time submit a written notice directing the Plan
Administrator to distribute, as soon as practicable, all or any portion of any
vested balance in the Participant's Personal Deferral Sub-Account; provided,
however, that in each such instance of an Early Withdrawal, the Participant's
Personal Deferral Sub-Account shall be reduced by six percent of the amount of
the Early Withdrawal. In the event that the Early Withdrawal would not leave a
balance in the Personal Deferral Sub-Account equal to at least six percent of
the Early Withdrawal amount (prior to giving effect to the six percent penalty),
the Early Withdrawal amount shall be reduced by the Plan Administrator to the
extent necessary to give full effect to such penalty.
(2) Early Withdrawal from Matching Contribution Sub-Account or
----------------------------------------------------------
Retirement Contribution Sub-Account. Subject to Section 10(e) of the Plan, at
- -----------------------------------
any time following a Participant's separation from service, the Participant may
submit a written notice directing the Plan Administrator to distribute, as soon
as practicable, all or any portion of any vested balance in the Participant's
Retirement Contribution Sub-Account or Matching Contribution Sub-Account;
provided, however, that in each such instance of an Early Withdrawal, the
Participant's applicable sub-account shall be reduced by six percent of the
amount of the Early Withdrawal. In the event that the Early Withdrawal would
not leave a balance in such sub-account equal to at least six percent of the
Early Withdrawal amount (prior to giving effect to the six percent penalty), the
Early Withdrawal amount shall be reduced by the Plan Administrator to the extent
necessary to give full effect to such penalty.
14
<PAGE>
(f) Prior Plan Distribution Rules. The distribution rules of this
-----------------------------
Section 9 and any distribution elections made hereunder shall supercede the
distribution rules and any elections made under the prior plans described in
Section 6 of this Plan, except as follows. Notwithstanding any other provision
of this Section 9, in the event that any Participant made an election under a
prior plan, before the fourth quarter of 1997, to receive an in-service
distribution from such plan in 1998 with respect to an account balance or
accrued benefit that was transferred to this Plan pursuant to Section 6, such
distribution election for 1998 (but not for subsequent years) shall be honored.
10. VESTING, FORFEITURE AND NON-COMPETE.
-----------------------------------
(a) Personal Deferral Sub-Account. Except as otherwise provided in
-----------------------------
an agreement between the Participant and a Bell Atlantic Company regarding the
crediting of Other Eligible Compensation to the Participant's Personal Deferral
Sub-Account, each Participant shall at all times be fully vested in the balance
in his or her Personal Deferral Sub-Account, and such balance shall under no
circumstances be subject to forfeiture. The rights of the Participant to such
sub-account balance shall not be assignable or subject to alienation.
(b) Matching Contribution and Retirement Contribution Sub-Account.
-------------------------------------------------------------
Each Participant shall be fully vested in the balance in his or her Matching
Contribution Sub-Account after attaining three years of service with any Bell
Atlantic Company. Except as otherwise provided in an agreement between the
Participant and a Bell Atlantic Company regarding the crediting of Other
Eligible Compensation to the Participant's Retirement Contribution Sub-Account,
and subject to paragraph (c) below, each Participant shall be fully vested in
the balance in his or her Retirement Contribution Sub-Account. The rights of
the Participant to each such sub-account balance shall not be assignable or
subject to alienation.
(c) Potential Forfeiture and Other Remedies. Bell Atlantic shall have the
---------------------------------------
discretion to cause a forfeiture of all or part of the balance in a
Participant's Retirement Contribution Sub-Account if Bell Atlantic determines
that (i) the Participant has engaged in "Competitive Activities" as described in
paragraph (d) below, or (ii) while an active employee, the Participant has
engaged in serious misconduct contrary to written policies and harmful to Bell
Atlantic or its affiliated companies or their reputation; provided, however,
that under no circumstances shall the Plan Administrator, the HRC, or any other
officer or director of any Bell Atlantic Company, take any action on or after
the occurrence of a Change in Control of Bell Atlantic to cause forfeiture of
any such sub-account balance. In addition, the Chairman of Bell Atlantic shall
have the discretion to cause a forfeiture of any PIA credit made to a
Participant's Retirement Contribution Sub-Account if the Chairman determines
that the Participant's separation from service is seriously detrimental to the
interests of any Bell Atlantic Company; provided, however, that the Chairman may
not cause such a forfeiture on or after the occurrence of a Change in Control of
Bell Atlantic.
15
<PAGE>
(d) Competitive Activities. A Participant will be considered to have
----------------------
engaged in "Competitive Activities" if, during the period of the Participant's
employment with any Bell Atlantic Company, through the second anniversary of the
Participant's separation from service for any reason from all Bell Atlantic
Companies, the Participant, without the prior written consent of the Plan
Administrator, (i) personally engages in "Competitive Activities" (as
hereinafter defined); or (ii) works for, owns, manages, operates, controls or
participates in the ownership, management, operation or control of, or provides
consulting or advisory services to, any individual, partnership, firm,
corporation or institution engaged in Competitive Activities; provided, however,
that the Participant's purchase or holding, for investment purposes, of
securities of a publicly-traded company shall not constitute "ownership" or
"participation in ownership" for purposes of this paragraph so long as the
Participant's equity interest in any such company is less than a controlling
interest. "Competitive Activities" means business activities relating to
products or services of the same or similar type as the products or services
which (i) are sold (or, pursuant to an existing business plan, will be sold) to
paying customers of one or more Bell Atlantic Companies, and (ii) for which the
Participant had responsibility to plan, develop, manage, market or oversee
within the prior 24 months, or, in the case of an Inactive Participant, within
the 24 months preceding his or her separation from service. Notwithstanding the
previous sentence, a business activity will not be treated as a Competitive
Activity if the geographic marketing area of the relevant products or services
does not overlap with the Bell Atlantic territory (in the case of an Inactive
Participant, as such territory existed when he or she separated from service).
The Plan Administrator shall have the authority to determine whether a
Participant has engaged in Competitive Activities and, if so, what remedies to
invoke.
(e) Non-Compete Agreement Upon or After Separation from Service. If (i) a
-----------------------------------------------------------
Participant has elected to receive distributions from his or her Retirement
Contribution Sub-Account to commence upon separation from service or within two
years of such separation, or (ii) distributions from such Retirement
Contribution Sub-Account would otherwise commence upon separation from service
under the default distribution rule of Section 9(c) of the Plan, or (iii) the
Participant has directed the Plan Administrator to make distributions from such
Retirement Contribution Sub-Account under the Early Withdrawal rule of Section
9(e) of the Plan, any such distributions will be made only if the Participant
executes an agreement provided by Bell Atlantic that (x) prohibits the
Participant from engaging in Competitive Activities within two years following
separation from service, (y) gives Bell Atlantic the right to obtain injunctive
relief if the Participant violates such agreement, and (z) includes such other
terms and conditions as may be determined by the Plan Administrator; provided,
further, that following a Change in Control of Bell Atlantic, no such non-
compete agreement shall be required as a condition to making a distribution to a
Participant, and any such non-compete agreement that has been executed by a
Participant shall become null and void as of the effective date of the Change in
Control. If the Participant does not execute a non-compete agreement required
by this paragraph (e), (i) no distributions may be made from the Participant's
Retirement Contribution Sub-Account for two years following the Participant's
separation from service, and (ii) at the conclusion of such two-year period, the
balance in the Participant's Retirement Contribution Sub-
16
<PAGE>
Account shall be distributed in accordance with the Participant's distribution
election or, if applicable, the default distribution rule of Section 9(c) of the
Plan.
11. UNFUNDED PLAN.
-------------
Except as required by the Bell Atlantic Rabbi Trust, no Participating
Company shall be required to fund any obligations under this Plan to the
Participants or their beneficiaries. Any assets which may be accumulated by a
Participating Company to meet its obligations under this Plan shall for all
purposes be part of the general assets of such Participating Company. To the
extent that any Participant or beneficiary acquires a right to receive
distributions under this Plan for which any Participating Company is liable,
such rights shall be no greater than the rights of any unsecured general
creditor of the applicable Participating Company.
12. ADMINISTRATION, AMENDMENT AND TERMINATION.
-----------------------------------------
(a) Plan Administrator. The Executive Vice President - Human Resources of
------------------
Bell Atlantic (or, if that position is vacant, the most senior officer in the
Human Resources organization of Bell Atlantic) shall have the authority and
responsibility to act as "Plan Administrator", as that term is used in this
Plan, including, without limitation, the authority and responsibility to develop
administrative guidelines, distribute summary descriptions of the Plan, notify
Participants of their rights and obligations under the Plan, and calculate
balances of Participant's Accounts and the amount of distributions from the
Plan. The Plan Administrator, with the advice of counsel, shall have the right
to delegate to one or more persons the authority to decide any dispute raised in
any written claim by any Participant or beneficiary. Any appeal from such a
claim shall be decided by the Plan Administrator, in his or her sole discretion,
and the decision of the Plan Administrator shall be final and binding for the
Plan and the Participant or beneficiary.
(b) Allocation of Administrative and Other Expenses. Participants shall
-----------------------------------------------
not be charged for their participation in the Plan or their withdrawals from the
Plan, except that (i) Participants who make an Early Withdrawal shall be subject
to the six percent penalty provided for in Section 9(e) of the Plan, and (ii)
the reasonable expenses of administering the Plan may be offset against the
earnings of the Investment Funds under the Plan. The Plan Administrator, with
the advice of the officers of Bell Atlantic who have responsibility for legal,
treasury and accounting matters, shall have authority to establish and maintain
cost allocation guidelines which shall govern the allocation of accrued expenses
under the Plan for financial accounting purposes, and the determination of any
amounts by which Participating Companies are obligated to reimburse each other
for disbursements and other expenditures under the Plan. Any such guidelines
shall allocate to each Participating Company its reasonable and appropriate
share of the direct benefit cost of the Plan, plus any associated administrative
cost to the extent such cost is not offset against Investment Fund earnings.
17
<PAGE>
(c) Amendment and Termination of Plan by HRC. The HRC may at any time amend
----------------------------------------
or terminate the Plan, and a Plan amendment or termination under this paragraph
(c), or an administrative amendment under paragraph (d) below, may affect
Participants at the time of the amendment or termination as well as future
Participants, provided, however, that no amendment or termination of the Plan
may adversely affect the rights of any Participant (or beneficiary or estate, in
the case of a deceased Participant), without his or her consent, to any benefit
under the Plan to which such Participant (or beneficiary or estate) may have
previously become entitled prior to the effective date of such amendment or
termination. In addition to this general rule protecting the prior rights of
Participants, the following specific rules shall apply in the case of certain
Plan amendments or termination of the Plan.
(1) Certain Plan Amendments. If Section 8 of the Plan is amended in a
-----------------------
manner that allows Investments Funds to differ from the investment funds under
the BASP, the Investments Funds under the Plan immediately prior to the
effective date of such amendment shall continue to be made available with
respect to the entire amount of each then existing balance in a Participant's
Account until such time as such existing balance (plus future earnings thereon)
has been distributed to the Participant and/or the Participant's estate or
beneficiaries in accordance with Section 9 of the Plan. If Section 9 of the Plan
is amended to change or eliminate a distribution option, such distribution
option, as it existed immediately prior to the effective date of the amendment,
shall continue to be made available with respect to the entire amount of each
then existing balance in a Participant's Account (plus future earnings thereon).
(2) Plan Termination. If the Plan is terminated, (i) any existing
----------------
deferral elections under Section 4 of the Plan shall be disregarded with respect
to compensation earned by Participants after the termination date, and (ii)
Participants shall no longer be entitled to the credits provided for in Sections
5 and 7 of the Plan with respect to compensation earned after the termination
date. However, the remaining provisions of the Plan shall remain in effect until
such time as the entire balance in each Participant's Account has been
distributed to the Participant and/or the Participant's estate or beneficiaries
in accordance with Section 9 of the Plan.
(d) Administrative Amendments; Authority to Deny Reinvestment Requests
------------------------------------------------------------------
Which Would Result in Short-Swing Profits. The Plan Administrator, with advice
- -----------------------------------------
of counsel, may develop additional terms and conditions for the administration
of the Plan, and may modify the administrative terms and conditions of the Plan
from time to time; provided, however, that the Plan Administrator shall not have
the authority to amend the Plan in any manner which alters the amount of
compensation or benefits provided by the Plan. Notwithstanding any other
provision of this Plan, the Plan Administrator shall have the authority (i) to
adopt amendments to the Plan which the Plan Administrator determines, with the
advice of counsel, are necessary or appropriate to ensure that transactions
under the Plan are exempt, to the maximum extent practicable, from the short-
swing trading provisions of Section 16(b) of the Securities Exchange Act of
1934, and (ii) to refuse any investment redirection request by a Participant who
is subject to the
18
<PAGE>
reporting obligations of Section 16 of the Securities Exchange Act of 1934 if
the Plan Administrator determines, with the advice of counsel, that fulfilling
such investment redirection request would cause the Participant to have engaged
in matching purchase and sale transactions which give rise to a short-swing
profit which the Participant would have a legal obligation to disgorge to Bell
Atlantic.
(e) Determination and Withholding of Taxes. The Plan Administrator shall
--------------------------------------
have full authority, with or without the consent of a Participant, to withhold
from any compensation being deferred under this Plan, and to withhold from a
Participant's other compensation from any and all sources, any taxes applicable
to deferred amounts including, without limitation, any FICA taxes and any income
taxes occasioned by the withholding of FICA taxes. The Plan Administrator shall
also have full authority to determine whether any FICA taxes apply with respect
to credits made to a Participant's Matching Contribution Sub-Account or
Retirement Contribution Sub-Account and, in the event that any such taxes apply,
to withhold such taxes from the Participant's other compensation from any and
all sources. The Plan Administrator shall furthermore have full authority to
satisfy the responsibility of any Bell Atlantic Company to withhold taxes with
respect to a Participant, including FICA taxes, by withholding such taxes from
any elective distributions under the Plan to the Participant or his
beneficiaries or estate or, if necessary, by directing a distribution from the
Plan to satisfy such withholding responsibility.
19
<PAGE>
EXHIBIT 10j
BELL ATLANTIC
1985 INCENTIVE STOCK OPTION PLAN
Re-adopted by the Committee on January 24, 1994 and March 23, 1999
Re-approved by Shareholders of the Company on April 29, 1994 and May 19, 1999
Restated as of June 1, 1999, to incorporate amendments adopted
through May 31,1999
Section 1. Purpose. The Bell Atlantic 1985 Incentive Stock Option Plan (the
"Plan") is intended to provide key employees of Bell Atlantic Corporation (the
"Company") and its subsidiaries an opportunity to acquire common stock of the
Company. The Plan is expected to help the Company and its subsidiaries attract,
retain, and motivate key employees to work for the success of the Company and
its subsidiaries. With the exception of options granted under section 6 of the
Plan, options granted under the Plan are intended to be incentive stock options
as defined in section 422(b) of the Internal Revenue of 1986 (the "Code").
Options granted under section 6 of the Plan are intended to be nonqualified
stock options.
Section 2. Administration.
(a) In General. The Plan shall be administered by the Human Resources
Committee of the Company's Board of Directors (the "Committee") and the Plan
Administrator (as hereafter defined). The Committee may delegate some or all of
its administrative responsibility under the Plan to one or more persons.
(b) Plan Administrator. The Executive Vice President - Human Resources of
the Company shall have the authority and responsibility to act as "Plan
Administrator" (as that term is used in this Plan), including, without
limitation, the authority and responsibility, with the advice of counsel, to do
the following: to distribute summary descriptions of the Plan; to enter into
stock option Agreements (as hereafter defined) on behalf of the Company; to
establish, modify and revoke, from time to time, terms, conditions and
administrative rules applicable to options which are consistent with the terms
and conditions established by the Committee pursuant to paragraph 2(c); to
maintain records of options granted and outstanding; and to administer
transactions in connection with the exercise of options by Optionees (as
hereafter defined). The Plan Administrator, with the advice of counsel, shall
have the authority to cause any outstanding incentive stock options to be
recharacterized as nonqualified stock options if and when so required in order
to comply with the requirements of applicable law. Moreover, the Plan
Administrator, with the advice of counsel, shall have the right to respond to
and decide any claims or appeals under the Plan and to interpret the Plan. In
the event of any such appeal, the action of the Plan Administrator shall be
final and binding.
(c) Committee. The Committee shall determine the key employees of the
Company and its subsidiaries to whom options may be granted under this Plan. The
Committee shall also establish the time at which options shall be granted under
the Plan, the number of shares for which these options shall be granted, the
time at which these options may be exercised, the conditions under which these
options may be exercised, and other terms and conditions it considers
appropriate for these options.
- --------------------------------------------------------------------------------
Bell Atlantic 1985 Incentive Stock Option Plan (5/31/99) Page 1
<PAGE>
(d) Agreements. Each stock option granted under the Plan will be evidenced
by a stock option agreement between the Company and the individual to whom the
option is granted ("Optionee") or by such other written documentation reciting
the date and number of options granted and their respective terms and conditions
as the Plan Administrator may distribute from time to time. Any such agreement
or other documentation, as it may be amended by the Plan Administrator from time
to time, is collectively referred to herein as an "Agreement".
(e) Liability. No member of the Committee may be held accountable for any
action taken under this Plan in good faith.
Section 3. Eligibility.
(a) In General. Options may be granted to key employees of either the
Company, any affiliate in which the Company holds a direct or indirect ownership
interest of 50 percent of more, or any company in which the Company holds an
ownership interest of less than 50 percent but which, in the discretion of the
Committee, is treated as a participating company in this Plan (collectively,
such companies shall be referred to as "Subsidiaries"); provided, however, that
only those employees who are employed by a Subsidiary which meets the definition
of a "Subsidiary Corporation" (as defined in section 424(f) of the Code) shall
be potentially eligible to receive a grant of "incentive stock options" (within
the meaning of Section 422 of the Code) under this Plan.
(b) Directors. Options may not be granted to any member of the board of
directors of the Company or its Subsidiaries unless any such director is also a
key employee of the Company or any of its Subsidiaries.
(c) Ten-Percent Shareholders. Incentive stock options may not be granted
under this Plan to shareholders of the Company or any of its Subsidiaries who
own more than ten percent of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, unless the special requirements
of paragraphs 5(a) and 5(c) relating to ten-percent shareholders are met.
(d) No Options for Committee. Options may not be granted under this Plan to
members of the Committee.
Section 4. Stock.
(a) Common Stock. Options may be granted under this Plan for shares of the
$0.10 par value common stock of the Company (the "Stock"). In the discretion of
the Treasurer of the Company, Stock distributed under this Plan may be
authorized but unissued shares or treasury shares; it may also be outstanding
shares acquired by the Company in the open market or elsewhere.
(b) Aggregate Share Limitation. The aggregate number of shares of Stock
(restated to take into account the stock splits of record on March 31, 1986,
April 10, 1990 and June 29, 1998) which may be distributed upon the exercise of
options under this Plan may not exceed 100 million shares, less the number of
shares (restated to take account of such splits) distributed under the Bell
Atlantic 1985 Performance Share Plan. The expiration or termination of an option
will not reduce the number of shares which may be distributed under this Plan;
but the exercise of a stock
- --------------------------------------------------------------------------------
Bell Atlantic 1985 Incentive Stock Option Plan (5/31/99) Page 2
<PAGE>
appreciation right and the cancellation of the related option shall reduce the
number of shares which may be distributed under this Plan by the number of
shares for which the canceled option was granted. For purposes of determining
whether the aggregate share limitation of this paragraph has been exceeded, the
total number of shares distributed under this Plan shall be reduced by the
number of shares tendered by key employees in Stock-for-Stock Exercises (as
defined in paragraph 5(d)) which occur after January 1, 1991.
(c) Individual Option Grant Limitation. In the absence of a Plan amendment
approved by the shareowners of the Company, the aggregate number of options to
purchase a class of stock of the Company which may be granted under this Plan to
any individual in any single calendar year shall be a number not greater than
one-half of one percent of the number of shares of that class of stock which are
issued and outstanding as of the first day of that calendar year.
(d) Reorganization of the Company. The limitation on the aggregate number
of shares that may be distributed or granted under this Plan may be adjusted in
accordance with section 8 of the Plan (relating to recapitalizations, etc., of
the Company).
Section 5. Terms and Conditions of Incentive Stock Options. Each incentive
stock option granted under the Plan will comply with the following conditions:
(a) Option Price. The option price of an incentive stock option will not be
less than the fair market value of the Stock at the time an option is granted.
However, in the case of an Optionee who owns more than ten percent of the total
combined voting power of all classes of stock of the Company or any of its
Subsidiaries, the option price will not be less than one-hundred-ten percent of
the fair market value of the Stock at the time the option is granted. The fair
market value of the Stock shall be the mean between the highest and lowest
selling prices of the Stock on the day an option is granted, as reported by the
New York Stock Exchange. However, if there are no sales on the day an option is
granted, the fair market value of the Stock shall be a weighted average of the
means between the highest and lowest selling prices of the Stock on the nearest
day before and the nearest day after the day the option is granted, as reported
by the New York Stock Exchange.
(b) Dollar Limitation. The aggregate fair market value (determined at the
time the option is granted) of the Stock with respect to which any such
incentive stock options are exercisable for the first time by the Optionee
during any calendar year shall not exceed $100,000. For purposes of the dollar
limitation under this paragraph 5(b), all incentive stock options which are
granted on or after January 1, 1987 by the Company or any of its Subsidiaries,
and which first become exercisable in the applicable year, shall be treated as
granted under this Plan and shall be subject to the aggregate fair market value
limit under this paragraph 5(b) for such year.
(c) Ten-Year Limitation. No incentive stock option may be exercised more
than ten years after it is granted. However, in the case of an Optionee who owns
more than ten percent of the combined voting power of all classes of stock of
the Company or any of its Subsidiaries, no incentive stock option may be
exercised more than five years after it is granted. Each Agreement must contain
this ten-year (or five-year) limitation. However, the Committee may grant
options which may only be exercised during a period of less than ten (or five)
years. In the case of any options which may only be exercised during a period of
less than ten (or five) years, each Agreement must contain this shorter
limitation.
- --------------------------------------------------------------------------------
Bell Atlantic 1985 Incentive Stock Option Plan (5/31/99) Page 3
<PAGE>
(d) Exercise of Options. The Committee will determine the time at which
incentive stock options may be exercised and the conditions under which
incentive stock options may be exercised. Any restrictions upon exercise of an
option will be contained in the Agreement. Subject to these limitations, if any,
options may be exercised in whole or in part. They may be exercised on any New
York Stock Exchange trading day until they expire. However, no option may be
exercised for fewer than 100 shares (or such other minimum number as may be
established by the Plan Administrator) unless fewer than 100 shares (or such
other number established by the Plan Administrator) are outstanding, and the
option is exhausted upon its exercise. When an option is exercised, and before
shares are transferred to an Optionee upon his or her exercise of the option,
the option price must be paid in full. In the discretion of the Committee, the
option price may be paid in cash, with Stock, or in any combination of cash and
Stock. If the option price may be paid other than in cash, then the Agreement or
other administrative guidelines will specify the acceptable methods of payment.
If the option price may be paid in Stock (a "Stock-for-Stock Exercise"), the
Optionee may tender Stock in accordance with rules established by the Plan
Administrator. An Optionee will not have any of the rights of a shareholder by
reason of an option until it is exercised. The Committee in its sole discretion
may accelerate the time at which options may be exercised when it is in the best
interests of the Company and its Subsidiaries to do so.
(e) Seriatim Exercise. [No longer applicable; rescinded.]
(f) Termination of Employment.
(i) In the case of any stock options which are not yet exercisable,
the remaining waiting period shall be waived, and a 90-day exercise period
shall commence, on the day following the effective date of either (1) an
Optionee's termination of employment under a company-initiated, voluntary
or involuntary, force management or force reduction program or initiative,
or (2) an Optionee's cessation of employment by Bell Atlantic or any
Subsidiary as a direct consequence of the sale of the business unit or
Subsidiary which then employs the Optionee; provided, however, that this
paragraph will not apply to an Optionee whose employment is terminated for
unsatisfactory performance, misconduct, or refusal to accept a reassignment
that involves no relocation or downgrade. In case of a termination or
cessation of employment as described in clause "(1)" or "(2)" of the prior
sentence, any outstanding stock options which are exercisable on the date
of such termination or cessation of employment shall remain exercisable
until the earlier of (a) the 90th day following the date of such
termination or cessation of employment, or (b) the tenth anniversary of the
date of grant. For a separation from service occurring between August 15,
1997 and December 31, 1999, and which is of a type described in clause
"(1)" or "(2)" of the first sentence of this paragraph, the period of five
years shall be substituted for the 90-day period referred to in the prior
two sentences, provided the Optionee executes and complies with a legal
release provided by the Plan Administrator. Nothing in this paragraph is
intended to cause the post-employment exercise period to be shorter than
may be provided for under any other applicable sections of this Plan, such
as those relating either to retirement, death or termination of employment
due to disability. For an Optionee who retires (within the meaning of
paragraph 5(g)), dies (as described in paragraph 5(h)), or separates from
service on account of disability (within the meaning of paragraph 5(i)),
the provisions of those respective paragraphs shall apply in lieu of the
provisions of this paragraph.
- --------------------------------------------------------------------------------
Bell Atlantic 1985 Incentive Stock Option Plan (5/31/99) Page 4
<PAGE>
(ii) Except as provided in paragraphs 5(j), 5(f)(i), 5(g) (relating to
retirement of an Optionee), 5(h) (relating to death of an Optionee), and
5(i) (relating to disability of an Optionee), no incentive stock option may
be exercised by an Optionee after termination of the employment
relationship between the Optionee and the Company, or between the Optionee
and a Subsidiary, as the case may be. In the case of an Optionee who is
transferred to the Company or to a Subsidiary, the termination of the
employment relationship shall not be deemed to occur until the first date
on which the Optionee is employed neither by the Company or a Subsidiary.
(g) Retirement. Except as provided in paragraph 5(j) or this paragraph
5(g), in the case of an Optionee who either:
(i) separates from service with a combination of age and years of
service (as calculated for retirement-eligibility purposes) that equals or
exceeds any of the following combinations:
Age equal to or greater than: Service equal to or greater than:
----------------------------- ---------------------------------
Any age 30 years
50 25 years
55 20 years
60 15 years
65 10 years, or
(ii) at the time of termination of employment satisfies such age and
service criteria for retirement as the Committee may have established, in
its discretion, on a case-by-case basis at the time of granting options to
said Optionee,
incentive stock options which are exercisable on the day of retirement may be
exercised during the remaining option term, but not more than five years after
the day of retirement. The Committee may, in its discretion, at the time of
granting options to some or all key employees, establish a permissible exercise
period following retirement which is shorter than the five-year period stated in
the previous sentence.
(h) Death. Except as provided in paragraph 5(j) or this paragraph 5(h), in
the case of the death of an Optionee while employed by the Company or a
Subsidiary, an incentive stock option may be exercised during the remaining
option term, but not more than one year after the day of death, by the person
entitled to exercise the option under the Optionee's will or under the laws of
descent and distribution. The Committee may, in its discretion, at the time of
granting options to some or all key employees, establish a permissible exercise
period following death which is shorter than the one-year period stated in the
previous sentence.
(i) Disability. Except as provided in paragraph 5(j) or this paragraph
5(i), in the case of an Optionee who separates from service due to disability,
upon expiration of short term disability benefits (as disability is defined
under the terms of the short term disability plan in which the Optionee
participates), incentive stock options which are exercisable on the date of such
separation for disability may be exercised during the remaining option term, but
not more than five years after the date of such separation for disability, and
options which are not exercisable on the date of such separation for disability
may never be exercised. The Committee may, in its discretion, at the time of
granting options to some or all key employees, establish a permissible
- --------------------------------------------------------------------------------
Bell Atlantic 1985 Incentive Stock Option Plan (5/31/99) Page 5
<PAGE>
exercise period following termination for disability which is shorter than the
five-year period stated in the previous sentence.
(j) Waiver of Limitations; Acceleration of Options. Upon an Optionee's
termination of employment, retirement, death, or disability, the Committee in
its sole discretion may waive the limitations on exercise of an incentive stock
option contained in paragraphs 5(f) through 5(i) when it is in the best
interests of the Company and its Subsidiaries to do so. Upon an Optionee's
termination of employment, retirement, death, or disability, the Committee may
also waive any requirements of paragraphs 5(d) and 5(l) that an incentive stock
option may not be exercised within a certain time of its grant when it is in the
best interests of the Company and its Subsidiaries to do so. However, the
Committee may not extend the period during which an incentive stock option could
otherwise be exercised.
(k) Transferability of Option. Except as provided in this paragraph 5(k),
no incentive stock option will be transferable. Upon the death of an Optionee,
an incentive stock option may be transferred as provided in paragraph 5(h)
(relating to death of an Optionee). Moreover, an Optionee may designate the
person or persons who may exercise and benefit from the option after the
Optionee's death. During an Optionee's lifetime, an incentive stock option may
only be exercised by the Optionee. Each Agreement will contain these
restrictions on transferability.
(l) No Exercise within One Year of Grant. Except as provided in this
paragraph 5(l) or in paragraph 5(f)(i), 8(b) or 6(b) of this Plan, no option
granted under the Plan may be exercised within one year of its grant. The
Committee may, in its discretion, waive this limitation in the case of any or
all options granted to any or all Optionees when it is in the best interests of
the Company and its Subsidiaries to do so. The Committee may grant options with
a period of more than one year from the date of grant to the date of exercise.
Section 6. Terms and Conditions of Nonqualified Options.
(a) General Provisions. Each nonqualified option granted under this Plan
shall be subject to all the terms and conditions of this Plan with the exception
of paragraph 5(b) (relating to the dollar limitation) and paragraph 5(c)
(relating to the ten-year limitation); provided, further, that paragraphs 5(d)
(relating to exercise of options) and 5(k) (relating to transferability) shall
apply to nonqualified options except as modified by paragraph 6(d) below. No
nonqualified stock option may be exercised more than ten years after it is
granted, except in the case of an Optionee who separates from service due to
disability as described in paragraph 5(i), in which case the nonqualified option
shall remain exercisable for (i) five years after the date of separation from
service for disability (without regard to the ten-year limitation), or (ii) such
shorter time limit as the Committee may, in its discretion, prescribe at the
time the option is granted. Each Agreement must contain these limitations on
exercise.
(b) Reload Options. Except as provided in paragraph 6(d)(ii), the Committee
may provide for the automatic granting of nonqualified stock options ("reload
options") to all or one or more classifications of key employees, as designated
by the Committee, upon the exercise by any such designated key employees of
options in transactions in which Stock is tendered to pay the option price. In
such a case, the number of reload options which shall automatically be granted
by the Company to a designated key employee shall be equal to the number of
shares of Stock tendered by the designated key employee. The option price of
each such reload option shall be equal to the fair market value of the Stock on
the date on which the reload option is automatically
- --------------------------------------------------------------------------------
Bell Atlantic 1985 Incentive Stock Option Plan (5/31/99) Page 6
<PAGE>
granted, and such reload options shall expire on the same date as the options
then being exercised would have expired in the absence of being exercised.
Reload options shall be exercisable by the Optionee after the date on which they
are granted, subsequent to any waiting period that the Plan Administrator with
the advice of counsel determines is necessary or appropriate to conform with
legal or accounting requirements. Except as provided in this paragraph 6(b) to
the contrary, the terms and conditions applicable to reload options shall be the
same as those that apply to other nonqualified options as described in paragraph
6(a).
(c) Deferral Feature. The Committee may provide a deferral feature (as
hereafter described) with respect to any nonqualified option granted to an
Optionee who is a Senior Manager (as hereafter defined). If a nonqualified
option has a deferral feature, the Optionee may elect, pursuant to procedures
adopted by the Plan Administrator, to defer the delivery of the additional
shares of Stock that otherwise would be issued to the Optionee upon a Stock for
Stock Exercise of such option. Such deferral election must (i) be effected while
the Optionee is a Senior Manager, (ii) be delivered to the Plan Administrator
not later than six months before the expiration date of the option, (iii) state
the date of grant and number of options subject to the deferral election, (iv)
acknowledge that the deferral election is not revocable by the Optionee, (v)
acknowledge that options subject to the election may thereafter be exercised
solely through a Stock-for-Stock Exercise, (vi) designate whether dividends on
the deferred shares will be deferred or distributed in cash, and (vii) otherwise
comply with the applicable election procedures adopted by the Plan
Administrator. A "Senior Manager" is any active employee of the Company or any
of its Subsidiaries who is designated, or has previously been designated, as a
Senior Manager (or an attorney with a compensation grade comparable to a Senior
Management compensation band) according to the governance procedures approved by
the Committee, and whose position has not subsequently been downgraded below the
rank of Senior Manager.
(d) Transfers to Immediate Family Members. The Committee shall have
discretion to modify outstanding grants of nonqualified options, and to grant
nonqualified options in the future, to permit any one or more categories of
Optionees ("Eligible Optionees"), as may be specified by the Committee from time
to time, to transfer outstanding nonqualified options by way of gift to one or
more "Immediate Family Members." "Immediate Family Members" shall consist of the
lawful civil law or common law spouse of the Eligible Optionee; the natural,
adopted, or step children or grandchildren of the Eligible Optionee; a trust or
trusts for the exclusive benefit of one or more of the foregoing; and any other
person which the Plan Administrator determines should be treated as an Immediate
Family Member. The transfer of nonqualified options to Immediate Family Members
shall be subject to administrative guidelines adopted by the Plan Administrator,
as well as the following specific terms and conditions.
(i) No consideration may be paid for any transfer of a nonqualified
option, the transferree may not exercise such an option by means of a
Stock-for-Stock Exercise, and no reload options shall be granted as a
result of the exercise of a transferred option.
(ii) The transferee may not make a deferral election with respect to a
transferred option, and an Eligible Optionee may not transfer an option
which is, at the time of a proposed transfer, then subject to a deferral
election.
(iii) It shall not be permissible for an Eligible Optionee to
designate joint transferrees for a nonqualified option, and it shall not be
permissible for a transferee to further transfer any nonqualified option to
any person except upon death of the transferee,
- --------------------------------------------------------------------------------
Bell Atlantic 1985 Incentive Stock Option Plan (5/31/99) Page 7
<PAGE>
in which case the option may be transferred pursuant to a beneficiary
designation under the Plan or by will or by the laws of descent and
distribution.
(iv) The Eligible Optionee shall remain liable for any applicable
payroll taxes due upon the exercise of a transferred option.
Section 7. Stock Appreciation Rights. Incentive stock options and
nonqualified stock options granted under the Plan may, in the discretion of the
Committee, be coupled with stock appreciation rights in the same number of
shares of Stock for which the options are granted. Stock appreciation rights may
be exercised at the same time, and under the same conditions, as the incentive
stock options or nonqualified stock options to which they relate. Upon an
Optionee's exercise of a stock appreciation right, the Optionee shall be
entitled to a cash payment from the Company in an amount equal to the difference
between the fair market value of one share of Stock on the day the stock
appreciation right is exercised, as determined under section 5(a), and the
option price of the related incentive stock option or nonqualified stock option,
and the related incentive stock option or nonqualified stock option shall be
canceled.
Section 8. Recapitalization of Company.
(a) Adjustments in Stock. In a transaction to which section 424(a) of the
Code applies, the share and option limitations of sections 4(b) and 4(c) may be
adjusted and the Stock subject to option under section 4(a) may be changed. The
Committee will determine the adjustments to be made in the case of
reorganization, recapitalization, stock split, stock dividend, combination of
shares, or any other change affecting the Stock. Adjustments in the shares
subject to option under the Plan may be in the aggregate number of shares
subject to option under the Plan; the number of shares for which any Optionee
has options; the option price of any options; and the type of stock subject to
option under the Plan.
(b) Acceleration of Options. In connection with a transaction to which
section 424(a) of the Code applies, the Committee may waive any requirements of
sections 5(d) and 5(l) that an incentive stock option may not be exercised
within a certain time of its grant. The Committee may waive these requirements
in the case of any or all Optionees. It may waive these requirements with
respect to any or all options granted to an Optionee. The Committee may take
this action either before or after the transaction to which section 424(a) of
the Code applies. If this action is taken by the Committee before the
transaction occurs, the action must be contingent upon the transaction
occurring.
- --------------------------------------------------------------------------------
Bell Atlantic 1985 Incentive Stock Option Plan (5/31/99) Page 8
<PAGE>
Section 9. Amendment and Termination. To the extent permitted by law, the
Committee or the Company's Board of Directors ("Board") may amend or suspend,
and the Board may terminate, this Plan. The Plan Administrator may make
administrative modifications to the Plan to comply with changes in applicable
law or to ensure effective and consistent administration of the Plan; provided,
however, that the Plan Administrator shall not amend the Plan in any manner
which alters the amount of the benefit provided under the Plan. Unless an
Optionee consents to an amendment, suspension, or termination of the Plan which
is adopted by the Board, the Committee or the Plan Administrator, no amendment,
suspension, or termination of the Plan will adversely affect the rights of an
Optionee with respect to any option granted to the Optionee. Moreover, without
approval of the owners of a majority of the shares of the Stock voting either in
person or by proxy at a duly convened meeting of the Company's shareowners, no
amendment to the Plan may (i) except as provided in section 8(a), increase the
aggregate number of shares subject to option under section 4(b) of the Plan or
the number of options which may be granted to an individual in a single calendar
year under section 4(c) of the Plan; (ii) except as provided in section 8(a),
decrease the option price at which options may be granted under section 5(a) of
the Plan; (iii) extend the period during which any option may be exercised
beyond the limits stated in Section 5(c); or (iv) extend the period during which
options may be granted under section 10 of the Plan. The Executive Vice
President - Human Resources of the Company, with the advice of counsel, has the
authority to amend the Plan or modify the administration of the Plan to the
extent required to ensure that transactions under the Plan are exempt to the
maximum extent possible from the short-swing profit provisions of Section 16(b)
of the Securities Exchange Act of 1934.
Section 10. Effective Date. Pursuant to the re-adoption of this Plan by the
Committee on March 23, 1999 and the re-approval of this Plan by the shareholders
of the Company on May 19, 1999, the effective date of this Plan is March 23,
1999. No options may be granted under the Plan following the tenth anniversary
of the effective date.
Section 11. Miscellaneous Provisions.
(a) No Right to Employment. No grant of an incentive stock option,
nonqualified stock option, or stock appreciation right under this plan shall
give an Optionee a right to continued employment by the Company or any
Subsidiary or otherwise interfere with the Company's or any Subsidiary's right
to discharge an Optionee, whether or not for cause.
(b) Tax Withholding. When the Company has an obligation to withhold any
federal, state, or local tax upon the exercise of an incentive stock option or a
nonqualified stock option under the Plan, the Optionee may pay the Company the
amount of the required withholding, in cash, at the time of exercising the
option, in lieu of the Company withholding the amount through the sale of
shares.
(c) Governing Law. This Plan shall be construed and enforced in accordance
with the laws of the State of Delaware (without regard to the legislative or
judicial conflict of laws rules of any state), except to the extent superseded
by federal law.
- --------------------------------------------------------------------------------
Bell Atlantic 1985 Incentive Stock Option Plan (5/31/99) Page 9
<PAGE>
EXHIBIT 10k
Bell Atlantic Cash Balance Plan - Effective January 1, 1999 (12/01/99 edition)
Section 6
6. LIMITATIONS ON CONTRIBUTIONS AND BENEFITS
6.1 Conditional Contributions.
In no event, shall Plan assets be diverted for any purpose other than for the
exclusive benefit of Plan Participants and beneficiaries; provided, however,
that to the extent permitted under ERISA and the Code, all contributions to the
Plan are subject to the following conditions:
6.1.1 Contributions Conditioned on Deductibility.
All contributions made to the Plan by each Participating Employer shall be
conditioned upon the deductibility of such contributions under the Code. To
the extent that any such deduction is disallowed by the Internal Revenue
Service, or such contribution is otherwise nondeductible and recovery
thereof is permitted, each Participating Employer, upon the approval of the
Treasurer of Bell Atlantic, shall have the right to demand and receive from
the Trustee the related contribution to the extent disallowed within one
year after the disallowance of said deduction or as otherwise permitted by
applicable administrative rules.
6.1.2 Mistaken Contributions.
If a Participating Employer makes a contribution, or any part thereof, by
mistake of fact, such contribution or part thereof shall be returned to the
Participating Employer within one year after such contribution is made.
6.2 Special Limitation on Benefits for Higher-Paid Employees.
6.2.1 Nondiscrimination upon Plan Termination.
In the event of Plan termination, the benefit payable to any highly
compensated employee or any highly compensated former employee (as defined
in Section 414(q) of the Code and regulations thereunder) shall be limited
to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code.
If payment of benefits is restricted in accordance with this paragraph,
assets in excess of the amount required to provide such restricted benefits
shall become a part of the assets available under Section 10.4 for
allocation among Participants and their beneficiaries whose benefits are
not restricted under this paragraph.
6.2.2 Restrictions on Highly Compensated Participants.
The restrictions of this paragraph shall apply prior to termination of the
Plan to any Participant who is a highly compensated employee or a highly
compensated former employee and who is one of the 25 highest paid employees
or former employees of all Participating Employers and all Bell Atlantic
Affiliates for any Plan Year. The annual payments to or on behalf of any
such Participant shall be limited to an amount equal to the sum of: (1) the
payment that would have been made to the Participant under a single life
annuity that is the Actuarial Equivalent of the sum of the Participant's
Accrued Benefit and any other benefits under the Plan (other than a social
security supplement), plus (2) the payment that the Participant is entitled
to receive under any applicable social security supplement.
6.2.3 Exception to Restrictions on Highly Compensated Participants.
<PAGE>
The restrictions in Section 6.2.2 shall not apply:
(a) if, after the payment of benefits to or on behalf of such Participant,
the value of the Plan assets equals or exceeds 110% of the value of the
current liabilities (within the meaning of Section 412(l)(7) of the Code);
(b) if the value of the benefits payable to or on behalf of the Participant
is less than 1% of the value of current liabilities before distribution;
(c) if the value of the benefits payable to or on behalf of the Participant
does not exceed $5,000; or
(d) such Participant has entered into an agreement with the Plan
Administrator as described in Section 6.2.4.
6.2.4 Further Exception from Restrictions on a Highly Compensated Participant.
Notwithstanding Section 6.2.2, a Participant described in that Section (a
"restricted Participant") may receive one or more distributions without regard
to the restrictions described in that Section, provided that the following
requirements are met:
(a) The "restricted amount" (which may be required to be repaid to the
Plan) is the excess of the accumulated amount of distributions made to the
restricted Participant over the accumulated amount of the Participant's
nonrestricted limit. The Participant's "nonrestricted limit" is equal to
the payments that could have been distributed to the Participant pursuant
to subsection (b). An "accumulated amount" is the amount of a payment
increased by a reasonable amount of interest from the date the payment was
made (or would have been made) until the date for the determination of the
restricted amount.
(b) Prior to receipt of a distribution from the Plan, the restricted
Participant shall deposit in escrow with a depository acceptable to the
Plan Administrator property having a fair market value equal to at least
125% of the restricted amount. Alternatively, the Participant may either:
(i) post a bond from an insurance company, bonding company or other surety
approved by the U.S. Treasury Department as an acceptable surety for
federal bonds, or (ii) obtain a bank letter of credit in an amount equal to
at least 100% of the restricted amount.
(c) Amounts in the escrow account in excess of 125% of the restricted
amount may be withdrawn on behalf of the Participant. If the market value
of the property in the escrow account falls below 110% of the restricted
amount, the Participant shall deposit additional property to bring the
value of the property up to 125% of the restricted amount. The Participant
may receive any income from the property placed in escrow, provided that
the 125% minimum is maintained. Similar rules shall apply to the release of
any liability in excess of 100% of the restricted amount where the
repayment obligation has been secured by a bond or a letter of credit.
(d) A depository may not redeliver to a Participant any property held under
the agreement, other than amounts in excess of 125% of the restricted
amount and a surety or bank may not release any liability on a bond or
letter of credit unless the Plan Administrator certifies that the
restricted Participant (or the Participant's estate) is no longer obligated
to repay any amount under the agreement. The Plan Administrator shall make
such certification at any time after the distribution commences if either:
(i) the conditions of paragraphs "(a)" to "(c)" above are met; or (ii) the
Plan is terminated and the requirement of subsection "(a)" is met; or (iii)
the Participant is no longer a restricted
<PAGE>
Participant. Such certification shall terminate the agreement between
the Participant and the Plan Administrator.
6.3 Code Section 415 Limits on Benefits.
6.3.1 Code Section 415 Single Plan Limits.
A Participant's benefit under this Plan shall not be payable to the extent
it exceeds the amount set forth in Section 415 of the Code, the limitations
of which are hereby incorporated by reference into the Plan. For purposes
of applying these limitations, changes to Section 415(b)(2)(E) of the Code
made by the Retirement Protection Act of 1994 as amended by the Small
Business Job Protection Act of 1996 were implemented effective January 1,
1995.
6.3.2 Section 415 Combined Plan Limits.
If a Participant is a participant in one or more defined contribution plans
sponsored by a Participating Employer or a Bell Atlantic Affiliate, the
annual benefit under this Plan shall be reduced to the extent necessary to
meet the combined plan limits of Section 415(e) of the Code. Except as
otherwise provided in Section 6.3.5, this limit does not apply to payments
from the Plan for months after December, 1999.
6.3.3 Application of Section 415 to Surviving Spouses.
Unless this adjustment is not applicable to a Surviving Spouse described in
Section 5.2.2(b) pursuant to Section 6.3.5, if a Participant's benefit is
limited by the limitations set forth in Code Section 415, the benefit
payable to the Participant's Surviving Spouse under Section 5.2.2(b) or 5.5
shall be determined on the basis of the Participant's benefit calculated
under Section 4 without regard to the Section 415 limitations, and such
limitations shall be applied instead to the resulting benefit payable to
the Surviving Spouse. If this adjustment is not applicable, the benefit
payable to the Surviving Spouse will be determined based on the
Participant's benefit calculated taking the Code Section 415 limits into
account.
6.3.4 Annual Adjustments.
Except as otherwise provided in Section 6.3.5: (a) the limitation of
Section 415(b)(1)(A) of the Code will be automatically adjusted for each
Terminated Vested Participant by multiplying such limit by the cost of
living adjustment factor prescribed by the Secretary of the Treasury under
Section 415(d) of the Code in such manner as the Secretary shall prescribe;
and (b) the limitation of Section 415(b)(1)(B) of the Code shall be
automatically adjusted for Terminated Vested Participants to reflect the
cost of living adjustment factor prescribed by the Secretary of the
Treasury under Section 415(d) of the Code in such manner as the Secretary
shall prescribe. The new limitation will apply to Limitation Years ending
within the calendar year of the date of the adjustment. The pension paid to
any Terminated Vested Participant (or his or her Surviving Spouse or other
beneficiary) shall be automatically adjusted to reflect the maximum amount
allowable under Section 415 of the Code for such Limitation Year.
6.3.5 Benefits Not Eligible for Adjustments.
Notwithstanding anything in the Plan or any predecessor plan to the
contrary, the adjustments described in Sections 6.3.3 and 6.3.4 shall not
be applied to a benefit paid to a Terminated Vested Participant or his
Surviving Spouse or other beneficiary that has previously started on a
Benefit Commencement Date under the Plan, the North Plan, BAMPP or the
NYNEX Plan if:
(a) as of such Benefit Commencement Date, the Participant or beneficiary
had a Code Section 415 excess benefit under the Bell Atlantic Senior
Management Income Deferral Plan; or
<PAGE>
(b) as of such Benefit Commencement Date, the Participant or beneficiary
had a benefit under the Code Section 415 excess benefit provisions of the
Bell Atlantic Supplemental Retirement Plan; or
(c) as of such Benefit Commencement Date, the Participant or beneficiary
had a benefit under the NYNEX Corporation Executive Retirement Account; or
(d) the benefit was paid from the Plan, the North Plan, BAMPP or the NYNEX
Plan in a lump-sum cashout; or
(e) as of such Benefit Commencement Date the Participant or beneficiary had
a Code Section 415 excess benefit provided through a non-qualified plan
maintained by his or her Participating Employer, and the Participant or
beneficiary received payment of such excess benefit in a form other than a
life annuity (based on the Participant's, the beneficiary's or the
Participant's and beneficiary's life).
In the event a Terminated Vested Participant originally took payment of his
benefit partly in the form of a lump-sum cashout and partly in the form of
an annuity, the annuity (but not the lump-sum cashout) shall be eligible
for adjustment under Sections 6.3.3 and 6.34 if it is not part of a benefit
described in Section 6.3.5(a), (b), (c) or (e); provided, however, that the
adjustment shall be prorated to exclude that portion of the adjustment
allocable to the benefit paid in a lump-sum. In addition, the limit
described in Section 6.3.2 of the Plan shall continue to apply to payments
of benefits for months after December, 1999 if, as of December 31, 1999,
the benefits were ineligible for adjustment under Sections 6.3.3 and 6.3.4
under the provisions of this Section 6.3.5.
<PAGE>
EXHIBIT 10x
CONFIDENTIAL
------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT between CELLCO PARTNERSHIP ("Cellco"), and
DENNIS STRIGL (the "Executive"), is made this 30th day of June, 1995.
WHEREAS, Cellco contemplates a closing (referred to herein as the
"Closing") of certain transactions involving contributions to Cellco of assets
and liabilities of the NYNEX Mobile and Bell Atlantic Mobile businesses; and
WHEREAS, the Executive is currently serving as President and Chief
Executive Officer of Bell Atlantic Mobile Systems, Inc. ("BAM") under the terms
of an Employment Agreement, dated September 30, 1994, between BAM and the
Executive (the "BAM Employment Agreement"); and the BAM Employment Agreement
contemplates the Closing and imposes no impediment to the Executive ceasing
employment with BAM and commencing employment with Cellco; and
WHEREAS, subject to the occurrence of the Closing, Cellco wishes to
employ the Executive as its Chief Executive Officer; and Cellco and the
Executive wish to state the terms and conditions of employment which shall apply
during the term of this Agreement;
NOW, THEREFORE, the parties hereto, acknowledging the mutual
consideration embodied in the terms and conditions of this Agreement and
intending to be legally bound, hereby agree as follows:
1. Employment: Term of Agreement. Subject to the terms of this Agreement,
-----------------------------
and subject to the occurrence of the Closing on June 30, 1995 or any
date in the third or fourth quarter of 1995, the Executive agrees to
commence employment with Cellco effective as of the Closing Date.
Moreover, the Executive agrees to serve as Chief Executive Officer of
Cellco, and Cellco agrees to employ the Executive as its Chief
Executive Officer, for the period from the date of Closing to the
second anniversary of that date (said two-year period is referred to
herein as the "Term" of this Agreement).
2. Compensation. During the Term of this Agreement, the compensation
------------
program for the Executive shall consist of the following components:
a) Salary: The Executive's base salary which shall initially be
------
at an annual rate of $265,400, and such salary shall be
subject to review and adjustment from time to time, as
determined by the Managing General Partner of Cellco (the
"General Partner"), and shall not be reduced below that rate
during the Term of the Agreement; and
b) Short Term Incentive:
--------------------
I) The Executive shall participate in a short term
incentive plan for Cellco executives, in accordance
with a plan to be adopted by the Managing Partner on
or about the date of Closing, and which may be
amended from time to time. The Managing Partner shall
set a target incentive at the beginning of each year
(or, in 1995, as of the Closing), and shall determine
the award, subject to company and individual
performance results, after the end of each year.
- --------------------------------------------------------------------------------
Private and Confidential Page 1
<PAGE>
ii) On an annualized basis for 1995, the target incentive
shall be $149,300, subject to proration by twelfths
for the number of months from the Closing through the
end of 1995.
iii) In January 1996, Cellco shall also pay the Executive
a short term incentive for 1995 service at BAM prior
to the Closing, based on an annualized target
incentive of $98,200, subject to proration by
twelfths for the number of months from the beginning
of 1995 to the Closing.
c) Long Term Incentive:
-------------------
i) The Executive shall participate in a long term
incentive plan for Cellco executives, in accordance
with a plan to be adopted by the Managing Partner
within 90 days after the Closing and which may be
amended from time to time. The Managing Partner shall
grant a long term incentive at the beginning of each
year (or, in 1995, as of the Closing).
ii) For 1995, the value on an annualized basis (before
any applicable proration) of the Cellco long term
incentive shall be $273,000, less the value of any
1995 long-term incentive granted by Bell Atlantic
which remains outstanding.
iii) With respect to the treatment of stock options
granted by Bell Atlantic for 1995, vis a vis the
Cellco long term incentive grant for 1995, the
Executive shall have the same rights and elections as
other former BAM executives who received such Bell
Atlantic stock options and are eligible for a Cellco
1995 long term incentive.
d) Benefits: The Executive shall be eligible to participate in
--------
all employee benefit plans which are offered to similarly
situated employees of Cellco, in accordance with the terms of
the plans adopted by the Managing Partner, as those plans may
be amended from time to time.
3. Non-Compete and Proprietary Information Agreement: As consideration for
-------------------------------------------------
the offer of employment by Cellco as its Chief Executive Officer and
the promotional increase in compensation associated with that
appointment, the Executive agrees that, on the date he commences
employment with Cellco, he will execute and deliver to Cellco the
Non-Compete and Proprietary Information Agreement (the "Non-Compete
Agreement") attached to this Agreement.
4. Employment Duties. The Executive will, during the Term of this
-----------------
Agreement:
a) faithfully and diligently perform all acts and duties required
of a Chief Executive Officer, and furnish such services as the
Managing Partner of Cellco shall direct, and shall perform all
acts in the ordinary course of Cellco's business necessary and
conducive to Cellco's best interest; and
b) devote his full time, energy, and skill to the business of
Cellco and to the promotion of Cellco's best interests, except
for vacations and absences allowed under company policies; and
c) abide by high standards of business ethics and fair
competition, comply with federal, state, and local laws and
any applicable foreign laws known to the Executive in
consultation with Cellco legal counsel, and abide by the
policies of Cellco which are applicable to its employees and
officers, when carrying out his obligations under this
Agreement and conducting Cellco's business.
- --------------------------------------------------------------------------------
Private and Confidential Page 2
<PAGE>
5. Obligations of Cellco: Subject to Section 6 of this Agreement, for the
---------------------
Term of the Executive's employment with Cellco:
a) Cellco shall retain the Executive in the position of Chief
Executive Officer, with authority and responsibilities
commensurate with that position;
b) Cellco shall not reduce the base salary of the Executive below
$265,400 per annum; and
c) except for short-term travel obligations in the ordinary
course of business, Cellco shall not assign the Executive to a
principal place of work outside the United States.
6. Termination.
-----------
a) The Executive's employment with Cellco may be terminated by
Cellco, without any obligation to pay liquidated damages
(including, without limitation, "Liquidated Damages" as
defined in Section 7(a)) or other severance benefits, either
by reason of his death, by reason of his continuing disability
on the date on which his short-term disability benefits
expire, or for Cause.
b) For purposes of this Agreement, "Cause" means any of the
following: a breach by the Executive of any of his covenants
or obligations under this Agreement or under the Non-Compete
Agreement; insubordination or failure to perform job
responsibilities with full-time and good-faith efforts;
violation of law (other than a traffic citation or minor
misdemeanor); material violation of any policy or code of
conduct adopted by Cellco, including, by way of example, a
knowing violation of the employer's voucher or expense
reimbursement rules; or engaging in some form of misconduct
which, if it were known by the public, could harm the
reputation of Cellco.
c) If there is "Good Reason" (as defined in paragraph (d) below),
and if the Executive gives Cellco 90 days notice of his intent
to resign for Good Reason, the Executive shall be eligible,
subject to the terms and conditions of this Agreement, to
receive Liquidated Damages (as defined in Section 7(a) of the
Agreement) upon such a resignation.
d) A termination for "Good Reason" means a resignation by the
Executive under circumstances in which the Executive is not in
breach of this Agreement or the Non-Compete Agreement, no
event has occurred which would permit Cellco to terminate his
employment pursuant to paragraph (a) of this Section, and in
which Cellco has breached any of its obligations under Section
1, 2 or 5 of this Agreement.
e) Cellco may terminate the Executive's employment at any time
for any reason other than as stated in paragraph (a) of this
Section, providing, that, in such a case the Executive shall
be eligible to receive Liquidated Damages, as defined in, and
subject to the terms of, Section 7 of this Agreement.
7. Liquidated Damages.
------------------
a) Subject to paragraphs (b) through (d) of this Section, in the
event that, during the Term of this Agreement, Cellco
terminates the Executive's employment other than pursuant to
Section 6(a), or in the event that the Executive resigns for
Good Reason, Cellco shall pay "Liquidated Damages" to the
Executive in the nature of severance benefits as follows, and
such amounts shall be the sole and exclusive severance
benefits or damages that Cellco shall be required to
- --------------------------------------------------------------------------------
Private and Confidential Page 3
<PAGE>
pay to the Executive in the event of any such termination
(other than any savings, retirement, deferred compensation,
disability or death benefits which may be applicable under any
benefit plans in which the Executive participates):
i) One Year's Salary: Cellco shall pay the Executive 12
-----------------
monthly installments of cash at a rate equal to the
Executive's base salary at the time of termination of
employment, less applicable withholding taxes.
ii) Most Recent Short Term Award: Cellco shall pay the
----------------------------
Executive, within 30 days of the termination of
employment, an amount equal to the gross amount of
the annual short term award which was most recently
paid to the Executive, less applicable withholding
taxes.
iii) Pay in Lieu of Vacation: Cellco shall pay the
-----------------------
Executive cash in lieu of any accrued but unused
vacation days, at a daily rate equal to 1/260th of
his base salary rate, less applicable withholding
taxes.
b) No Liquidated Damages shall be payable under this Agreement if
the Executive is in breach of this Agreement at the time of
his termination of employment. The Executive shall forfeit any
right to receive any further payments of Liquidated Damages if
and when he breaches any of his covenants or continuing
obligations under the Non-Compete Agreement.
c) A condition to the Executive's right to receive any Liquidated
Damages hereunder shall be his signing, on or about the date
of his termination of employment, a release in the form shown
at Exhibit A of this Agreement (the "Release").
d) In the event that the Executive's employment terminates under
circumstances which make him eligible (subject to the signing
of a Release) to receive Liquidated Damages, the Executive
hereby acknowledges that any such Damages are in lieu of any
right he may otherwise have had to receive benefits under any
severance or separation pay plan, program or practice which
may otherwise have been applicable to him, and, under such
circumstances, the Executive hereby waives any right to
receive any such severance benefit under any such plan,
program or practice.
e) If and when the Executive resigns or retires, or his
employment terminates for any reason, he shall, prior to the
last day of active employment and without charge, return to
Cellco all company property, including, without limitation,
credit cards; building passes and identification cards;
computer hardware and software; communications and office
equipment; and records, files and documents (whether in paper
or machine-readable form).
8. Intellectual Property. The Executive shall disclose promptly to Cellco
----------------------
or its nominee(s) any and all inventions, discoveries, improvements,
works of authorship, and computer or other apparatus programs
(collectively "Innovations") whether or not patentable or susceptible
to copyright or other forms of protection, conceived of or made by him
in the course of his employment. The Executive assigns and agrees to
assign all interest in any such Innovations to Cellco or its
nominee(s). An Innovation will be deemed to have been made in the
course of employment unless the Innovation (1) was developed on the
Executive's own time, (2) was developed outside the Executive's regular
or assigned duties for Cellco, and (3) no Employer equipment, facility,
or proprietary information was used. The Executive further agrees,
without charge to Cellco, to execute as and when determined appropriate
by Cellco, a specific assignment to Cellco or its nominee(s) of all
rights, title, and interest to any such Innovations, and the
- --------------------------------------------------------------------------------
Private and Confidential Page 4
<PAGE>
Executive agrees to execute all applications or other forms of
protection for such Innovations in the United States and in other
countries.
9. Confidentiality. The Executive agrees not to disclose or discuss, other
---------------
than with his legal counsel, personal tax or financial advisors, or
spouse, either the existence of or any details of this Agreement. The
Executive will use his best efforts to ensure that any such legal
counsel, personal tax or financial advisor, or spouse will not disclose
or discuss the existence or any details of this Agreement with any
other person.
10. Duty to Disclose Acceptance of Offers of Employment by a Competitor.
--------------------------------------------------------------------
The Executive acknowledges that Cellco has an ongoing interest in being
in a position to determine whether any of its employees or former
employees who have, or had, access to proprietary information intend to
provide services as an employee, consultant or in any other capacity to
a company which Cellco considers to be a competitor or potential
competitor. Accordingly, during the period of the Executive's
employment by Cellco, the Executive shall give written notice to Cellco
not later than the earliest date on which he gives his preliminary or
final written or oral acceptance of an offer of employment, or offer of
compensation in exchange for advice, information or consulting
services. Said notice shall state the name of the offering company, the
role or position accepted, and a brief summary of the responsibilities
and the geographic location or scope of that role or position.
11. Miscellaneous Provisions.
------------------------
a) Assignment by Cellco. Cellco may assign this Agreement to any
company that acquires all or substantially all of the assets
of Cellco, or into which or with which Cellco is merged or
consolidated. If and when the Executive transfers from Cellco
to any affiliate of Cellco, this Agreement shall be deemed to
be assigned to the transferee company. This Agreement may not
be assigned by the Executive.
b) Waiver. The waiver by Cellco of a breach by the Executive of
------
any provision of this Agreement shall not be construed as a
waiver of any prior or subsequent breach.
c) Severability. If any clause, phrase or provision of this
------------
Agreement or the Non-Compete Agreement or Release, or the
application thereof to any person or circumstance, shall be
invalid or unenforceable under any applicable law, such event
shall not affect or render invalid or unenforceable the
remainder of this Agreement, Non-Compete Agreement or Release.
d) Governing Law. This Agreement shall be construed and enforced
-------------
in accordance with the laws of the State of New Jersey.
e) Notices. Whenever this Agreement requires or permits notice to
-------
be given to Cellco, the notice should be given in writing to
the Chairman of the Board of the Managing Partner.
f) Entire Agreement: Supersedes Employment Agreement. Except
--------------------------------------------------
for the terms and conditions of the Non-Compete Agreement and
the compensation and benefit plans applicable to the Executive
(as such plans may be amended by Cellco from time to time),
this Agreement sets forth the entire understanding of the
parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, pertaining to the
subject matter hereof, including without limitation the BAM
Employment Agreement; provided,
- --------------------------------------------------------------------------------
Private and Confidential Page 5
<PAGE>
however, that the BAM Employment Agreement shall remain in
effect unless and until the date of Closing, at which time the
parties contemplate that the Signing Bonus shall be payable to
the Executive by BAM under the terms of the BAM Employment
Agreement, and the BAM Employment Agreement shall thereupon be
rescinded and superseded by this Agreement and the Non-Compete
Agreement. This Agreement shall not be modified or amended
except by written agreement of Cellco and the Executive.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
hereby execute this Agreement.
CELLCO PARTNERSHIP
Date: 6/16 /95 By: /s/ Frederic V. Salerno
------------------------------ --------------------------
Frederic V. Salerno
Chairman of the Board,
Cellco Management Corporation, as
Managing General Partner of
Cellco Partnership
THE EXECUTIVE
Date: 6/30/95 By: /s/ Dennis Strigl
------------------------------ --------------------------
Dennis Strigl
- --------------------------------------------------------------------------------
Private and Confidential Page 6
<PAGE>
AMENDMENT AND EXTENSION OF TERM OF
EMPLOYMENT AGREEMENT
This AMENDMENT AND EXTENSION OF TERM OF EMPLOYMENT AGREEMENT is made between
CELLCO PARTNERSHIP ("Cellco") and DENNIS F. STRIGL (the "Executive") is made
this 10th of June, 1996.
WHEREAS, Cellco and the Executive are parties to that certain
EMPLOYMENT AGREEMENT made the 30th day of June, 1995, including the Exhibits and
attachments thereto including that certain NON-COMPETE AND PROPRIETARY
INFORMATION AGREEMENT attached thereto and executed by the parties in connection
therewith (collectively, the "Employment Agreement"); and
WHEREAS, Cellco and the Executive wish to extend the term of
the Employment Agreement, subject to certain changes set forth in this AMENDMENT
AND EXTENSION OF TERM OF EMPLOYMENT AGREEMENT ("Amendment to Employment
Agreement"); and
WHEREAS, the Closing of the Cellco Partnership contemplated by
the Employment Agreement has occurred; and
WHEREAS, Bell Atlantic Corporation and NYNEX Corporation
contemplate a merger of the two companies during the extended term of the
Employment Agreement (the "Merger"), and Cellco and the Executive wish to
address the Merger in connection with the Employment Agreement;
WHEREAS, Cellco and the Executive wish to make other changes
in the terms and conditions of the Employment Agreement as set forth herein and
to extend and reaffirm all other terms and conditions of the Employment
Agreement (including without limitation the terms and conditions of the
NON-COMPETE AND PROPRIETARY INFORMATION AGREEMENT), except as specifically
changed in this Amendment to Employment Agreement;
NOW THEREFORE, the parties hereto, acknowledging the mutual
consideration embodied in the terms and conditions of this Amendment to
Employment Agreement and intending to be legally bound, hereby agree as follows:
1. The Employment Agreement is incorporated herein by
reference, and all of the terms and conditions of the Employment Agreement,
except to the extent amended by this Amendment to Employment Agreement, remain
in full force and effect according to their terms. The defined terms of the
Employment Agreement shall have the same meaning in this Amendment to Employment
Agreement as in the Employment Agreement, unless otherwise defined herein. Any
provisions of this Amendment to Employment Agreement which are inconsistent with
or conflict with the Employment Agreement shall control. (The Employment
Agreement and the Amendment to Employment Agreement may be collectively referred
to as the "Amended Employment Agreement.")
<PAGE>
-2-
2. The "Term" of the Employment Agreement is hereby extended
to the fourth anniversary of the signing of this Amendment to Employment
Agreement.
3. The Executive's annual base salary beginning with execution
of this Amendment to Employment Agreement is hereby increased to be $400,000.
The base salary increase shall be retroactive to January 1, 1996, and Cellco
shall promptly pay Executive the retroactive amount of increase.
4. The Executive's base salary shall be increased by a minimum
of $50,000 annually, effective January 1 of each year of the Term of the Amended
Employment Agreement.
5. The Executive's short term incentive target described in
Section 2 (b)(i) of the Employment Agreement is hereby set as follows: for 1996,
$250,000; for 1997, $285,000; for 1998, $320,000; for 1999, $350,000.
6. In view of the Merger, and in addition to other
compensation provided for in the Employment Agreement and this Amendment to
Employment Agreement, Executive shall receive and Cellco shall pay to Executive
a "Merger Stay Bonus" as follows:
(a) If the Merger closes during the Term of the
Amended Employment Agreement, the Merger Stay Bonus shall be
one times the Executive's then current base salary plus the
Executive's then applicable short term incentive target,
payable at the date of the closing of the Merger. (Example: If
the Merger closes on December 31, 1996, Executive's base
salary is $400,000, Executive's 1996 target bonus is $250,000,
hence the Merger Stay Bonus is $650,000.)
(b) If Merger fails to close during the Term of the
Amended Employment Agreement, or is canceled by Bell Atlantic
Corporation and/or NYNEX Corporation, the Merger Stay Bonus
shall be 25% of the Executive's then current base salary plus
25% of the Executive's then applicable short term incentive
target, payable at the earlier of the date upon which the
Merger is canceled, or at the end of the Term. (Example: If
the Merger is canceled on December 31, 1996, Executive's base
salary is $400,000, Executive's 1996 target bonus is $250,000,
hence the Merger Stay Bonus is 25% of $650,000, namely
$162,500.)
7. Executive shall be eligible to participate in the current
executive retirement, savings, and life insurance plans during the Term of the
Amended Employment Agreement, in accordance with the terms of the plans adopted
by the Managing Partner, as those plans may be amended from time to time.
8. At the expiration of the Term, Cellco shall pay the
Executive (in addition to other compensation then due to Executive) an
"Expiration Bonus" in an amount equal to
Private and Confidential
<PAGE>
-3-
Executive's then current base salary and short term incentive target, but only
if the following conditions are then true: (i) the Amended Employment Agreement
has not been terminated, (ii) the Executive remains employed as President and
Chief Executive Officer and has not resigned or been terminated for any reason,
including for Cause or Good Reason, and (iii) Executive has not received
Liquidated Damages. (Example: The Term expires at the fourth anniversary of the
signing of this Amendment to Employment Agreement; Executive then remains
employed as President and Chief Executive Officer of Cellco at a base salary of
$550,000 and a short term incentive target of $350,000; the Expiration Bonus is
payable at the amount of $900,000.)
9. Notwithstanding Section 6(a) of the Employment Agreement,
Cellco shall be obligated to pay Liquidated Damages if Executive's employment
with Cellco is terminated by Cellco by reason of Executive's death or by reason
of his continuing disability (to be established by reference to the provisions
of Cellco's long term disability plan) after the date on which his short-term
disability benefits expire. In the event of such death or continuing disability,
the entire applicable amount of the Liquidated Damages shall be payable by
Cellco in a lump sum within six months of such death or the establishment of
such continuing disability, notwithstanding any other provisions of the Amended
Employment Agreement.
10. Section 6(d) of the Employment Agreement is amended as
follows (new material underlined):
"d) A termination for "Good Reason" means a resignation by the
Executive under circumstances in which the Executive is not in
breach of this Agreement or the Non-Compete Agreement, no event has
occurred which would permit Cellco to terminate his employment
pursuant to paragraph (a) of this Section, and in which Cellco has
either (i) breached any of its obligations under Section 1, 2, or S
----------
of this Agreement, or (ii) approved a voluntary termination by
-- -----------------------------------
action of the Board of its Managing Partner."
-------------------------------------------
11. Section 7 of the Employment Agreement ("Liquidated
Damages") is amended by striking paragraphs 7(a)(i) ("One Year's Salary") and
-----------------
7(a)(ii) ("Most Recent Short Term Award") and replacing them with the following:
----------------------------
"i) Two Years' Salary: Cellco shall pay the Executive
-----------------
24 monthly installments of cash at a rate equal to the Executive's
base salary at the time of termination of employment, less
applicable withholding taxes.
ii) Two Times Most Recent Short Term Award: Cellco
--------------------------------------
shall pay the Executive, within 30 days of the termination of
employment, an amount equal to the gross amount of the annual short
term award which was most recently paid to the Executive, less
applicable withholding taxes. Twelve months thereafter, Cellco
shall pay Executive a further amount equal to the amount payable
under the preceding sentence, less applicable withholding taxes."
Private and Confidential
<PAGE>
-4-
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
hereby execute this Amendment to Employment Agreement.
CELLCO PARTNERSHIP
Date: 6-10-96 By:
------------------- -------------------------------
Bell Atlantic NYNEX Mobile, Inc., as
Managing General Partner of
Cellco Partnership
Date: 6-10-96 By: /s/ Dennis F. Strigl
------------------- -------------------------------
Dennis F. Strigl
Private and Confidential
<PAGE>
Dennis F. Strigl
Amendment of Employment Agreement effective 8th of September, 1998.
. Terms and conditions of page 2, section 5.
-- The Executive's short term incentive target described in Section 2 (b)(i)
of the Employment Agreement is hereby set as follows: for the 1996
performance year with payout in 1997, S250,000; for the 1997 performance
year with payout in 1998, $285,000; for the 1998 performance year with
payout in 1999, $320,000; for the 1999 performance year with payout in
2000, $350,000; for the 2000 performance year with payout in 2001,
$400,000.
. Terms and conditions of pages 2 and 3, section 8.
-- At the expiration of the Term, Cellco shall pay the Executive (in addition
to other compensation then due to the Executive) an "Expiration Bonus" in
an amount equal to Executive's then current base salary and short term
incentive target, but only if the following conditions are then true:
(i) the Amended Employment Agreement has not been terminated, (ii) the
Executive remains employed as President and Chief Executive Officer of
Bell Atlantic Global Wireless and has not resigned or been terminated for
any reason, including for Cause or Good Reason, and (iii) Executive has
not received Liquidated Damages. (Example: The Term expires at the fourth
anniversary of the signing of this Amendment to Employment Agreement;
Executive then remains employed as President and Chief Executive Officer
of Bell Atlantic Global Wireless at a base salary of $600,000 and a short
term incentive target of $400,000, the Expiration Bonus is payable at the
amount of $1,000,000).
All other terms and conditions remain intact as agreed to on June 10, 1996.
Cellco Partnership
Date: 9-15-98 By: [ILLEGIBLE SIGNATURE]
-------------- -----------------------------
Bell Atlantic Mobile Inc.,
as Managing General Partner of
Cellco Partnership
Date: Sept 8, 1998 By: /s/ Dennis F. Strigl
-------------- -----------------------------
Dennis F. Strigl
Private and Confidential
<PAGE>
EXHIBIT 10z(i)
[LOGO OF BELL ATLANTIC]
November 4, 1999
Mr. James G. Cullen
1310 North Court House Road
11th Floor
Arlington, Virginia 22201
Dear Jim,
The purpose of this letter is to confirm that Bell Atlantic Corporation
(the "Company") has offered you an additional stay bonus in the amount of $1.7
million (the "Additional Bonus") on the same terms and conditions as the stay
bonus provided for in your Amendment to Employment Agreement, dated as of
October 27, 1998 (the "Amendment"), except as follows:
(i) for purposes of the Additional Bonus, you will not be considered to be
an "Employee in Good Standing" (as that term is used in the Amendment
and defined in Section 5(d) of your Employment Agreement with the
Company dated as of June 1, 1998), and you will therefore not be
entitled to receive the Additional Bonus if, prior to completion of
the Company's merger with GTE, you terminate your employment with the
Company on grounds of "Constructive Discharge" (as that term is
defined in Section 7(d) of your Employment Agreement with the Company,
dated as of June 1, 1998); and
(ii) if you become entitled to the Additional Bonus, it will be credited to
your Personal Deferral sub-account under the Bell Atlantic Senior
Management Income Deferral Plan ("IDP") as of the date you separate
from service from the Company.
In addition, the Company agrees that, upon your separation from service
following completion of the GTE merger, the Company will enter into a letter
agreement with you substantially in the form of Attachment 1. (For purposes of
illustration, Attachment 1 assumes your separation date will be June 1, 2000;
your actual separation date will be used in the final letter agreement.)
Finally, this letter confirms that you have elected to defer, into your
Personal Deferral sub-account under the IDP, the full amount of any stay bonus
you become entitled to pursuant to the Amendment.
<PAGE>
Please indicate your acceptance of the terms of this letter by signing and
dating it in the spaces provided below.
Sincerely yours,
Donald J. Sacco
______________________
James G. Cullen
______________________
Dated
2
<PAGE>
[LOGO OF BELL ATLANTIC]
Attachment 1
Form of Letter Agreement
June 1, 2000
Mr. James G. Cullen
1310 North Court House Road
11th Floor
Arlington, Virginia 22201
Dear Jim,
The purpose of this letter is to confirm our mutual understanding regarding
the terms of your separation from service from Bell Atlantic Corporation (the
"Company").
Your separation will be considered to be an involuntary termination of
employment, without cause, effective as of the close of business on June 1, 2000
(the "Separation Date"). Accordingly, subject to your signing and not revoking
the Release attached as Exhibit A, and your fulfillment of the non-compete and
other terms of your Employment Agreement with the Company, dated as of June 1,
1998 (the "Employment Agreement"), you will be entitled to receive, as
liquidated damages, the payments, credits, and benefits provided for in Section
7(c) of your Employment Agreement. In addition, because you have fulfilled your
obligations to the Company under your Amendment to Employment Agreement, dated
October 27, 1998 (the "Amendment") and your letter agreement with the Company
dated as of November 4, 1999 (the "Letter Agreement"), you will be entitled to
receive the stay bonuses provided for in the Amendment and the Letter Agreement.
More specifically, you will be entitled to receive:
(1) payments in lieu of salary, as provided in Section 7(c)(i) of your
Employment Agreement;
(2) payments in lieu of short-term incentives, as provided in Section
7(c)(ii) of your Employment Agreement, which payments, upon your
submission to the Company of a timely deferral election, may be
deferred into the Bell Atlantic Income Deferral Plan ("IDP";
(3) a payment equal to the value of your Phantom Shares as of the
Separation Date, as provided in Section 7(c)(iii) of your Employment
Agreement;
(4) a payment in lieu of a stock option grant, as provided in Section
7(c)(iv) of your Employment Agreement; provided further, with respect
to your outstanding stock options, that (i) any options that are
unexerciseable on the Separation Date shall become exerciseable on
June 2, 2000; (ii) each outstanding option shall remain exercisable
until June 1, 2006, (or, if earlier, the first anniversary of your
death or the tenth anniversary of the date of grant); and (iii) for
the period through June 1, 2001, each outstanding option shall be
exercisable on the same terms and conditions
<PAGE>
as if you were still an active employee of the Company (for example,
if you undertake a stock-for-stock exercise, you will be entitled to
receive reload options and to elect to defer your receipt of gain
shares, subject to the terms of the Bell Atlantic 1985 Incentive Stock
Option Plan and the applicable administrative guidelines thereunder);
(5) credits to your IDP account, as provided in Section 7(c)(v) of your
Employment Agreement, which credits shall be calculated by the Company
and allocated to your IDP account (i) as of the Separation Date, for
credits due this year, and (ii) as of February 1, for each subsequent
year in which such credits are due;
(6) split-dollar life insurance benefits, as provided in Section 7(c)(vi)
of your Employment Agreement.
(7) payments in lieu of flexible perquisites, as provided in Section
7(c)(vii) of your Employment Agreement;
(8) a payment in lieu of up to five weeks of unused vacation, provided
that all management personal days and floating holidays must be used
by the Separation Date;
(9) in accordance with the Letter Agreement and Section 2(a) of the
Amendment, credits to your Personal Deferral sub-account under the IDP
in the amounts of $1.7 million (which shall be made as of the
Separation Date) and $1.969 million (which shall be made as of [insert
closing date for BA/GTE merger]);
(10) retiree medical and dental benefits; and
(11) outplacement services for a period of up to one year from the date you
begin to use such services.
Except for the points of clarification outlined above, this letter does not
amend or supersede your Employment Agreement, the Amendment, or the Letter
Agreement, each of which shall remain in full force and effect. To confirm that
this letter accurately describes the terms of your separation from service,
please sign and date the letter in the space provided below, and return the
letter to me. Also, please return to me an executed original of the attached
Release.
Sincerely yours,
Donald J. Sacco
___________________________
James G. Cullen
_________________
Dated
2
<PAGE>
EXHIBIT A
---------
THIS RELEASE (the "Release") is entered into by James G. Cullen (the "Key
Executive"), for the benefit of BELL ATLANTIC CORPORATION (the "Company"), and
all companies, and their officers, directors and employees, which are affiliated
with the Company or in which the Company owns a substantial economic interest,
and any benefit plan maintained by any Bell Atlantic Company (or any plan
administrator of any such plan). Capitalized terms in this document which are
not otherwise defined herein shall have the respective meanings assigned to them
in the Employment Agreement between the Company and the Key Executive, dated as
of June 1, 1998 (the "Agreement"), and the Amendment to Employment Agreement
dated October 27, 1998 (the "Amendment").
WHEREAS, the Key Executive has separated from service with the Company on
June 1, 2000 (the "Separation Date") pursuant to the terms of (i) the Agreement,
(ii) the Amendment, (iii) the letter agreement between the Company and the Key
Executive dated as of November 4, 1999 (the "First Letter Agreement"), and (iv)
the letter agreement between the Key Executive and the Company, dated June 1,
2000 (the "Second Letter Agreement"); and
WHEREAS, the Key Executive wishes to execute this Release as contemplated
under the terms of the Agreement.
NOW, THEREFORE, the Key Executive affirms as follows:
1. The Key Executive hereby waives any and all claims which the Key
Executive might have against any Bell Atlantic Company, and any benefit plan
maintained by any Bell Atlantic Company (or any plan administrator of any such
plan), for salary payments, vacation pay, incentives, bonuses, or other
remuneration or employee benefits of any kind, with the exception of any
obligations of the Company arising after the Separation Date under Sections 7
and 8 of the Agreement, Section 2 of the Amendment, or any provisions of the
First Letter Agreement or the Second Letter Agreement.
2. Except as provided in Section 1 hereof, the Key Executive hereby
voluntarily releases and discharges each and every Bell Atlantic Company and
their successors and assigns, and the directors, officers, employees, and agents
of each of them, and any benefit plan maintained by any Bell Atlantic Company
(or any plan administrator of any such plan), of and from any and all debts,
obligations, claims, demands, judgments or causes of action of any kind
whatsoever, known or unknown, in tort, contract, by statute or on any other
basis, for equitable relief, compensatory, punitive or other damages, expenses
(including attorneys' fees), reimbursements or costs of any kind which the Key
Executive might have or assert against any of said entities or persons as of the
Separation Date by reason of the Key Executive's employment by any Bell Atlantic
Company or the termination of said employment, and all circumstances related
thereto, including but not limited to, any and all claims, demands, rights and
causes of action, including those which might arise out of allegations relating
to a claimed breach of an alleged oral or written employment contract, or
relating to purported employment discrimination or civil rights violations, such
as, but not limited to, those arising under Title VII of the Civil Rights Act of
1964 (42 U.S.C. Section 2000e et seq.), the Civil Rights Acts of 1866 and 1871
-- ---
(42 U.S.C. Sections 1981 and 1983), Executive Order 11246, as amended, the Age
Discrimination in Employment Act of 1967, as amended (29 U.S.C. Section 621 et
--
seq.), the Equal Pay Act of 1963 (29 U.S.C. Section 206(d)(1)), the
- ---
Rehabilitation Act of 1973 (29 U.S.C. Sections 701-794), the Civil Rights Act of
1991, the Americans with Disabilities Act, the Employee Retirement Income
Security Act ("ERISA") or any other applicable federal, state or local
employment discrimination statute or ordinance.
3
<PAGE>
3. The Key Executive hereby reaffirms all covenants and promises given
by the Key Executive under the Agreement, and all other terms and conditions of
the Agreement, in all respects.
4. Should any provision of this Release be declared or be determined by
any court to be illegal or invalid, the validity of the remaining parts, terms
or provisions shall not be affected thereby, and said illegal or invalid part,
term or provision shall be deemed not to be a part of this Release.
STATEMENT BY THE KEY EXECUTIVE WHO IS SIGNING BELOW: THE COMPANY HAS
---------------------------------------------------
ADVISED ME IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS
RELEASE. THE COMPANY HAS FULFILLED ITS DUTIES TO ME UNDER THE OLDER WORKERS
BENEFITS PROTECTION ACT, AND I ACKNOWLEDGE THAT THIS RELEASE IS LEGALLY
ENFORCEABLE BY THE COMPANY. I HAVE CAREFULLY READ AND FULLY UNDERSTAND THE
PROVISIONS OF THIS RELEASE AND HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (OVER A
PERIOD OF SUBSTANTIALLY MORE THAN 21 DAYS) TO CONSULT WITH MY PERSONAL TAX,
FINANCIAL AND LEGAL ADVISORS PRIOR TO EXECUTING THIS DOCUMENT, AND I INTEND TO
BE LEGALLY BOUND BY ITS TERMS. I UNDERSTAND THAT I MAY REVOKE THIS RELEASE
WITHIN SEVEN (7) DAYS FOLLOWING MY SIGNING, AND THIS RELEASE WILL NOT BECOME
ENFORCEABLE OR EFFECTIVE UNTIL THAT SEVEN-DAY PERIOD HAS EXPIRED.
THE UNDERSIGNED, intending to be legally bound, has executed this Release
as of the lst day of June, 2000, that being the Key Executive's Separation Date.
THE KEY EXECUTIVE
Signed:___________________________
James G. Cullen
THIS IS A RELEASE
READ CAREFULLY BEFORE SIGNING
4
<PAGE>
EXHIBIT 12
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------
<S> <C> <C> <C> <C> <C>
Income before provision for income taxes,
extraordinary items, and cumulative effect of
change in accounting principle $6,765 $4,999 $3,984 $4,911 $4,536
Minority interest 82 32 46 131 130
Loss (income) from unconsolidated businesses (143) 415 124 (14) 22
Dividends from unconsolidated businesses 116 170 192 195 179
Interest expense, including interest related to
lease financing activities 1,285 1,376 1,275 1,124 1,305
Portion of rent expense representing interest 191 185 191 177 177
Amortization of capitalized interest 28 21 16 10 5
------------------------------------------
Income, as adjusted $8,324 $7,198 $5,828 $6,534 $6,354
==========================================
Fixed charges:
Interest expense, including interest related to
lease financing activities $1,285 $1,376 $1,275 $1,124 $1,305
Portion of rent expense representing interest 191 185 191 177 177
Capitalized interest 98 90 81 129 73
Priority distributions -- -- 19 58 47
Preferred stock dividend requirement 20 21 15 15 10
------------------------------------------
Fixed Charges $1,594 $1,672 $1,581 $1,503 $1,612
==========================================
Ratio of Earnings to Fixed Charges 5.22 4.31 3.69 4.35 3.94
==========================================
</TABLE>
<PAGE>
EXHIBIT 21
Principal Subsidiaries of Bell Atlantic Corporation
----------------------------------------------------
Name Jurisdiction of Organization
- ---- ----------------------------
Bell Atlantic - Delaware, Inc. Delaware
Bell Atlantic - Maryland, Inc. Maryland
Bell Atlantic - New Jersey, Inc. New Jersey
Bell Atlantic - Pennsylvania, Inc. Pennsylvania
Bell Atlantic - Virginia, Inc. Virginia
Bell Atlantic - Washington, D.C., Inc. New York
Bell Atlantic - West Virginia, Inc. West Virginia
New England Telephone and Telegraph Company New York
(d/b/a Bell Atlantic - New England)
New York Telephone Company New York
(d/b/a Bell Atlantic - New York)
Cellco Partnership Delaware
(d/b/a Bell Atlantic Mobile)
Grupo Iusacell, S.A. de C.V. Mexico
Bell Atlantic Credit Corporation Delaware
Bell Atlantic International, Inc. Delaware
Bell Atlantic Holdings Limited Bermuda
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements of Bell Atlantic Corporation on Form S-8 (File No. 333-66785), Form
S-8 (File No. 333-66459), Form S-8 (File No. 333-66349), Form S-3 (File No. 33-
49085), Form S-3 (File No. 333-48083), Form S-3 (File No. 33-30642), Form S-3
(File No. 33-8451), Form S-8 (File No. 33-10377), Form S-8 (File No. 33-10378),
Form S-8 (File No. 33-58681), Form S-8 (File No. 33-58683), Form S-8 (File No.
333-00409), Form S-8 (File No. 33-36551), Form S-3 (File No. 33-62393), Form S-4
(File No. 333-11573), Form S-8 (File No. 333-33747), Form S-8 (File No. 333-
41593), Form S-3 (File No. 333-42801), Form S-8 (File No. 333-45985), Form S-8
(File No. 333-75553), Form S-8 (File No. 333-81619), and Form S-3 (File No. 333-
78121-01) of our report dated February 14, 2000, except for Note 24, as to which
the date is March 22, 2000, on our audits of the consolidated financial
statements and financial statement schedule of the Company and its subsidiaries
as of December 31, 1999 and December 31, 1998, and for each of the three years
in the period ended December 31, 1999, which report is included in this Annual
Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 28, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Lawrence T. Babbio, Jr.
---------------------------
Lawrence T. Babbio, Jr.
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Richard L. Carrion
----------------------
Richard L. Carrion
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ James G. Cullen
-------------------
James G. Cullen
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Lodewijk J.R. de Vink
-------------------------
Lodewijk J.R. de Vink
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ James H. Gilliam, Jr.
-------------------------
James H. Gilliam, Jr.
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Stanley P. Goldstein
------------------------
Stanley P. Goldstein
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Helene L. Kaplan
--------------------
Helene L. Kaplan
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Thomas H. Kean
------------------
Thomas H. Kean
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Elizabeth T. Kennan
-----------------------
Elizabeth T. Kennan
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ John F. Maypole
-------------------
John F. Maypole
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Joseph Neubauer
-------------------
Joseph Neubauer
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Eckhard Pfeiffer
--------------------
Eckhard Pfeiffer
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Hugh B. Price
-----------------
Hugh B. Price
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Rozanne L. Ridgway
----------------------
Rozanne L. Ridgway
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben and
Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing
and filing such Annual Report and any amendment or amendments or other necessary
documents, hereby giving to each said attorney full authority to perform all
acts necessary thereto as fully as the undersigned could do if personally
present, and hereby ratifying all that said attorney may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Frederic V. Salerno
-----------------------
Frederic V. Salerno
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben and
Frederic V. Salerno as attorney for the undersigned for the purpose of executing
and filing such Annual Report and any amendment or amendments or other necessary
documents, hereby giving to each said attorney full authority to perform all
acts necessary thereto as fully as the undersigned could do if personally
present, and hereby ratifying all that said attorney may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Ivan G. Seidenberg
----------------------
Ivan G. Seidenberg
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Walter V. Shipley
---------------------
Walter V. Shipley
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Thomas H. O'Brien
---------------------
Thomas H. O'Brien
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ John R. Stafford
--------------------
John R. Stafford
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben,
Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for
the purpose of executing and filing such Annual Report and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Shirley Young
-----------------
Shirley Young
<PAGE>
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOW, THEREFORE, the undersigned hereby appoints each of Frederic V. Salerno
and Ivan G. Seidenberg as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 28th day of March, 2000.
/s/ Doreen A. Toben
-------------------
Doreen A. Toben
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,899
<SECURITIES> 37
<RECEIVABLES> 7,644
<ALLOWANCES> 619
<INVENTORY> 664
<CURRENT-ASSETS> 10,596
<PP&E> 89,238
<DEPRECIATION> 49,939
<TOTAL-ASSETS> 62,614
<CURRENT-LIABILITIES> 13,467
<BONDS> 18,463
0
0
<COMMON> 158
<OTHER-SE> 15,722
<TOTAL-LIABILITY-AND-EQUITY> 62,614
<SALES> 0
<TOTAL-REVENUES> 33,174
<CGS> 0
<TOTAL-COSTS> 24,679
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,263
<INCOME-PRETAX> 6,765
<INCOME-TAX> 2,557
<INCOME-CONTINUING> 4,208
<DISCONTINUED> 0
<EXTRAORDINARY> (6)
<CHANGES> 0
<NET-INCOME> 4,202
<EPS-BASIC> 2.71
<EPS-DILUTED> 2.65
</TABLE>
