10-K 1 FORM 10-K -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 1994 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 or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1717 ARCH STREET 19103 PHILADELPHIA, PENNSYLVANIA (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (215) 963-6000 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, $1 par value............... New York, Philadelphia, Boston, Chicago and Pacific Stock Exchanges Preference Stock Purchase Rights......... 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. ----- At February 28, 1995, the aggregate market value of the registrant's voting stock held by non-affiliates was approximately $23,393,000,000. At February 28, 1995, 436,369,634 shares of the registrant's Common Stock were outstanding, after deducting 62,615 shares held in treasury. Documents incorporated by reference: Portions of the registrant's Annual Report to Shareowners for the year ended December 31, 1994 (Part II). Portions of the registrant's Proxy Statement dated February 28, 1995 prepared in connection with the Annual Meeting of Shareowners (Part III). -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS
ITEM NO. PAGE -------- ---- PART I 1. Business........................................................ 1 2. Properties...................................................... 22 3. Legal Proceedings............................................... 23 4. Submission of Matters to a Vote of Security Holders............. 25 Executive Officers of the Registrant................................. 26
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters............................................. 26 6. Selected Financial Data......................................... 27 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 27 8. Financial Statements and Supplementary Data..................... 27 9. Changes in and Disagreements and with Accountants on Accounting and Financial Disclosure........................................ 27
PART III
10. Directors and Executive Officers of the Registrant.............. 28 11. Executive Compensation.......................................... 28 12. Security Ownership of Certain Beneficial Owners and Management.. 28 13. Certain Relationships and Related Transactions.................. 28
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 29
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 27, 1995 PART I Item 1. Business GENERAL Bell Atlantic Corporation (the "Company" or "Bell Atlantic") is one of the seven regional holding companies ("RHCs") formed in connection with the court- approved divestiture (the "Divestiture"), effective January 1, 1984, of those assets of American Telephone and Telegraph Company ("AT&T") related to exchange telecommunications, exchange access functions, printed directories and cellular mobile communications. Pursuant to the Divestiture, AT&T transferred to the Company, among other assets, its 100% ownership interest in seven Bell System operating companies ("BOCs"): New Jersey Bell Telephone Company; The Bell Telephone Company of Pennsylvania; The Diamond State Telephone Company; The Chesapeake and Potomac Telephone Company; The Chesapeake and Potomac Telephone Company of Maryland; The Chesapeake and Potomac Telephone Company of Virginia; and The Chesapeake and Potomac Telephone Company of West Virginia (collectively, the "Network Services Companies"). In January 1994, to facilitate the creation of a uniform "Bell Atlantic" brand name across the territories served by these seven telephone subsidiaries, the names of the Network Services Companies were changed to Bell Atlantic - New Jersey, Inc. ("Bell Atlantic - New Jersey"), Bell Atlantic - Pennsylvania, Inc. ("Bell Atlantic - Pennsylvania"), Bell Atlantic - Delaware, Inc. ("Bell Atlantic - Delaware"), Bell Atlantic - Washington, D.C., Inc. ("Bell Atlantic - Washington, D.C."), Bell Atlantic - Maryland, Inc. ("Bell Atlantic - Maryland"), Bell Atlantic - Virginia, Inc. ("Bell Atlantic - Virginia") and Bell Atlantic - West Virginia, Inc. ("Bell Atlantic - West Virginia"), respectively. The Company's business currently encompasses one principal segment -- Communications and Related Services -- which includes the Network Services Companies as well as subsidiaries which are engaged in the business of providing wireless communications products and services, including cellular mobile service; selling directory advertising and providing photocomposition services; and servicing and repairing computers. During 1993, Bell Atlantic reorganized certain functions performed by each of the Network Services Companies into nine lines of business ("LOBs") organized across the Network Services Companies around specific market segments. See "The Network Services Companies- Operations". Prior to December 31, 1994, the Company reported segment information for Financial, Real Estate and Other Services, which was comprised of subsidiaries engaged in lease financing of commercial, industrial, medical and high- technology equipment, and other forms of financing; real estate investment and management; and the sale and distribution of liquefied petroleum gas. In 1994, the Company disposed of substantially all of its lease financing business and sold its liquefied petroleum gas business. The Company was incorporated in 1983 under the laws of the State of Delaware and has its principal executive offices at 1717 Arch Street, Philadelphia, Pennsylvania 19103 (telephone number 215-963-6000). 1 LINE OF BUSINESS RESTRICTIONS The consent decree entitled "Modification of Final Judgment" ("MFJ") approved by the United States District Court for the District of Columbia (the "D.C. District Court") which, together with the Plan of Reorganization ("Plan") approved by the D.C. District Court, set forth the terms of Divestiture also established certain restrictions on the post-Divestiture activities of the RHCs, including Bell Atlantic. Currently, the MFJ's principal restrictions on post- Divestiture RHC activities are prohibitions on (i) providing interexchange telecommunications, and (ii) engaging in the manufacture of telecommunications equipment and customer premises equipment ("CPE"). Since Divestiture, the D.C. District Court has retained jurisdiction over the construction, modification, implementation and enforcement of the MFJ. Legislation has been introduced in the current session of Congress pursuant to which the line of business restrictions established by the MFJ could be eliminated or modified. No definitive prediction can be made as to whether or when any such legislation will be enacted, the provisions thereof or the impact on the business or financial condition of the Company. THE NETWORK SERVICES COMPANIES General The Network Services Companies presently serve a territory ("Territory") consisting of 19 Local Access and Transport Areas ("LATAs"). These LATAs are generally centered on a city or based on some other identifiable common geography and, with certain limited exceptions, each LATA marks the boundary within which a Network Services Company may provide telephone service. The Network Services Companies provide two basic types of telecommunications services. First, they transport telecommunications traffic between subscribers located within the same LATA ("intraLATA service"), including both local and toll services. Local service includes the provision of local exchange ("dial tone"), local private line and public telephone services (including dial tone service for pay telephones owned by the Company and other pay telephone providers). Among other local services provided are Centrex (telephone company central office-based switched telephone service enabling the subscriber to make both intercom and outside calls) and a variety of special and custom calling services. Toll service includes message toll service (calling service beyond the local calling area) within LATA boundaries, and intraLATA Wide Area Toll Service (WATS)/800 services (volume discount offerings for customers with highly concentrated demand). As permitted by the Plan, Bell Atlantic - New Jersey and Bell Atlantic - Pennsylvania also earn toll revenue from the provision of telecommunications service between LATAs ("interLATA service") in corridors between the cities (and certain surrounding counties) of (i) New York, New York and Newark, New Jersey and (ii) Philadelphia, Pennsylvania and Camden, New Jersey. Second, the Network Services Companies provide exchange access service, which links a subscriber's telephone or other equipment to the transmission facilities of interexchange carriers which, in turn, provide interLATA service to their customers. Bell Atlantic - Pennsylvania, Bell Atlantic - Delaware, Bell Atlantic - Maryland, Bell Atlantic - West Virginia and Bell Atlantic - New Jersey also provide exchange access service to interexchange carriers which provide intrastate intraLATA long distance telecommunications service. 2 Operations Although the Network Services Companies remain responsible within their respective service areas for the provision of telephone services, financial performance and regulatory matters, during 1993 Bell Atlantic reorganized certain functions formerly performed by each of these companies into LOBs organized across the Network Services Companies around specific market segments. These LOBs are: The Consumer Services LOB markets communications services to residential customers within the Territory (11 million households and 29 million people) and plans to market information services and entertainment programming. 1994 revenues generated by the Consumer Services LOB were approximately $4 billion, representing approximately 34% of the Network Services Companies' aggregate revenues. These revenues were derived primarily from the provision of telephone services to residential users. The Carrier Services LOB markets (i) switched and special access to the Network Services Companies' local exchange networks, and (ii) billing and collection services, including recording, rating, bill processing and bill rendering. 1994 revenues generated by the Carrier Services market were approximately $2.5 billion, representing approximately 21% of the Network Services Companies' aggregate revenues. Approximately 93% of total Carrier Services revenues were derived from interexchange carriers; AT&T is the largest single customer. 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 ("LECs") which resell network connections to their own customers. The Small Business Services LOB markets communications and information services to small businesses (customers having up to 20 access lines or 100 Centrex lines). The Small Business Services LOB has approximately 1.2 million small business customers in the Territory which in 1994 generated approximately $1.8 billion in revenues, representing approximately 15% of the Network Services Companies' aggregate revenues. The Large Business Services LOB markets communications and information services to large businesses (customers having more than 20 access lines or more than 100 Centrex lines). 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 integration (integrating multiple geographically disparate networks into one system), network optimization (disaster avoidance, 911, intelligent vehicle highway systems), video services (distance learning, telemedicine, surveillance, videoconferencing) and integrated multi-media applications services. 1994 revenues from the Large Business Services LOB were approximately $1.5 billion, representing approximately 13% of the Network Services Companies' aggregate revenues. The Directory Services LOB manages the provision of (i) advertising and marketing services to advertisers, and (ii) listing information (e.g., White Pages and Yellow Pages). These services are currently provided primarily through print media, but the Company expects that use of electronic formats will increase in the future. In addition, the Directory Services LOB manages the provision of photocomposition, database management and other related products and services to 3 publishers. 1994 revenues from the Directory Services LOB were approximately $1 billion, representing approximately 9% of the Network Services Companies' aggregate revenues. The Public and Operator Services LOB markets pay telephone and operator services in the Territory to meet consumer needs for accessing public networks, locating and identifying network subscribers, providing calling assistance and arranging billing alternatives (e.g., calling card, collect and third party calls). 1994 revenues from the Public and Operator Services LOB were approximately $700 million, representing approximately 6% of the Network Services Companies' aggregate revenues. The Federal Systems LOB markets communications and information technology and services to departments, agencies and offices of the executive, judicial and legislative branches of the federal government. 1994 revenues from the Federal Systems LOB were approximately $300 million, representing approximately 2% of the Network Services Companies' aggregate revenues. The Network LOB manages the technologies, services and systems platforms required by the other LOBs and the Network Services Companies to meet the needs of their respective customers, including switching, feature development and on-premises installation and maintenance services. The Network Services Companies have been making and expect to continue to make significant capital expenditures to meet the demand for communications services and to further improve such services. Capital expenditures of the Network Services Companies were approximately $2.2 billion in 1992, $2.1 billion in 1993, and $2.2 billion in 1994. The total investment in plant, property and equipment was approximately $29.6 billion at December 31, 1992, $30.6 billion at December 31, 1993, and $33.7 billion at December 31, 1994, in each case after giving effect to retirements, but before deducting accumulated depreciation at such date. The Network Services Companies as a whole are projecting construction expenditures for 1995 at approximately the same level as in the past several years. However, subject to regulatory approvals, the Network Services Companies plan to allocate a greater portion of capital resources to the deployment of broadband network platforms (technologies ultimately capable of providing a switched facility for access to and transport of high-speed data services, video-on-demand, and image and interactive multimedia applications). Most of the funds for these expenditures are expected to be generated internally. Some additional external financing may be necessary or desirable for some of the Network Services Companies. FCC Regulation and Interstate Rates The Network Services Companies are subject to the jurisdiction of the Federal Communications Commission ("FCC") with respect to interstate services and certain related matters. The FCC prescribes a uniform system of accounts for telephone companies, interstate depreciation rates and the principles and standard procedures used to separate plant investment, expenses, taxes and reserves between those applicable to interstate services under the jurisdiction of the FCC 4 and those applicable to intrastate services under the jurisdiction of the respective state regulatory authorities ("separations procedures"). The FCC also prescribes procedures for allocating costs and revenues between regulated and unregulated activities. Interstate Access Charges The Network Services Companies provide intraLATA service and, with certain limited exceptions, do not participate in the provision of interLATA service except through offerings of exchange access service. See "The Network Services Companies-General". The FCC has prescribed structures for exchange access tariffs to specify the charges ("Access Charges") for use and availability of the Network Services Companies' facilities for the origination and termination of interstate interLATA service. In general, the tariff structures prescribed by the FCC provide that interstate costs of the Network Services Companies which do not vary based on usage ("non-traffic sensitive costs") are recovered from subscribers through flat monthly charges ("Subscriber Line Charges"), and from interexchange carriers through usage-sensitive Carrier Common Line ("CCL") charges. Traffic- sensitive interstate costs are recovered from carriers through variable access charges based on several factors, primarily usage. In May 1984, the FCC authorized the implementation of Access Charge tariffs for "switched access service" (access to the local exchange network) and of Subscriber Line Charges for multiple line business customers (up to $6.00 per month per line). In 1985, the FCC authorized Subscriber Line Charges for residential and single-line business customers at the rate of $1.00 per month per line, which increased in installments to $3.50, effective April 1, 1989. FCC Access Charge Pooling Arrangements The FCC previously required that all LECs, including the Network Services Companies, pool revenues from CCL and Subscriber Line Charges that cover the non-traffic sensitive costs of the local exchange network, that is, the interstate costs associated with the lines from subscribers' premises to telephone company central offices. To administer such pooling arrangements, the FCC mandated the formation of the National Exchange Carrier Association, Inc. ("NECA"). All but one of the Network Services Companies received substantially less from the pool than the amount billed to their interexchange carrier customers. The FCC changed its mandatory pooling requirements, effective April 1, 1989. As a result, the Network Services Companies as a group withdrew from the pool and were permitted to charge CCL rates which more closely reflected their non- traffic sensitive costs. The Network Services Companies are still obligated to make contributions of CCL revenues to companies who choose to continue to pool non-traffic sensitive costs so that the pooling companies can charge a CCL rate no greater than the nationwide average CCL rate of price cap companies. In addition to this continuing obligation, the Network Services Companies had a transitional support obligation to high cost companies who left the pool in 1989 and 1990. This transitional support obligation ended in July 1994. In February 1995, the FCC issued an Order to Show Cause with respect to certain findings contained in an independent audit concluded in December 1991 5 with respect to certain filings by the Network Services Companies with NECA. Resolution of these issues is expected in the second half of 1995. Price Caps The price cap system, which has been in effect since 1991, places a cap on overall LEC prices for interstate access services which is modified annually, in inflation-adjusted terms, by a fixed percentage which is intended to reflect increases in productivity. The price cap level can also be adjusted to reflect "exogenous" changes, such as changes in FCC separations procedures or accounting rules. LECs subject to price caps have somewhat increased flexibility to change the prices of existing services within certain groupings of interstate services, known as "baskets". FCC regulations applicable to the Network Services Companies provide for an authorized rate of return of 11.25% for the years 1991 and beyond. To the extent that a company is able to earn a higher rate of return through improved efficiency, the FCC's price cap rules permit them to retain the full amount of this higher return up to 100 basis points above the authorized rate of return (currently, up to a 12.25% rate of return). If a company's rate of return is between 100 and 500 basis points above the authorized rate of return (that is, currently, between 12.25% and 16.25%), the company must share 50% of the earnings above the 100-basis-point level with customers by reducing rates prospectively. All earnings above the 500-basis-point level must be returned to customers in the form of prospective rate decreases. If, on the other hand, a company's rate of return is more than 100 basis points below the authorized rate of return (that is, currently, below 10.25%), the company is permitted to increase rates prospectively to make up the deficiency. Under FCC-approved tariffs, the Network Services Companies are charging uniform rates for interstate access services (with the exception of Subscriber Line Charges) throughout the Territory and are regarded as a single unit by the FCC for rate of return measurement. In February 1994, the FCC initiated a rulemaking proceeding to determine the effectiveness of LEC price cap rules and to decide what changes, if any, should be made to those rules. This rulemaking is expected to be concluded in the first half of 1995. Enhanced Services In 1985, the FCC initiated an examination of its regulations requiring that "enhanced services" (e.g. voice messaging services, electronic mail, videotext gateway, protocol conversion) be offered only through a structurally separated subsidiary. In 1986, the FCC eliminated this requirement, permitting the Network Services Companies to offer enhanced services, subject to compliance with a series of non-structural safeguards. These safeguards include detailed cost accounting, protection of customer information, public disclosure of technical interfaces and certain reporting requirements. In 1990, the U.S. Court of Appeals for the Ninth Circuit (Court of Appeals) vacated and remanded the matter to the FCC. In 1991, the FCC adopted an order which reinstated relief from the separate subsidiary requirement upon a company's compliance with the FCC's Open Network Architecture requirements and strengthened some of the non-structural safeguards. In 1992, the Network Services Companies certified to the FCC that they had complied with applicable requirements, and the FCC granted them structural relief. 6 In October 1994, the Court of Appeals vacated the 1991 order and remanded the matter to the FCC for further proceedings. As a result, the FCC has initiated a broad examination of the state of competition in the enhanced services business and the adequacy of existing non-structural safeguards. The Network Services Companies are permitted to continue to offer existing enhanced services pending further action. FCC Cost Allocation and Affiliate Transaction Rules FCC rules govern: (i) the allocation of costs between the regulated and unregulated activities of a communications common carrier and (ii) transactions between the regulated and unregulated affiliates of a communications common carrier. The cost allocation rules apply to certain unregulated activities: activities that have never been regulated as communications common carrier offerings and activities that have been preemptively deregulated by the FCC. The costs of these activities are removed prior to the separations procedures process and are assigned to unregulated activities in the aggregate, not to specific services, for pricing purposes. Other activities must be accounted for as regulated activities, and their costs are subject to separations procedures. The affiliate transaction rules govern the pricing of assets transferred to and services provided by affiliates. These rules generally require that assets be transferred between affiliates at "market price", if such price can be established through a tariff or a prevailing price actually charged to third parties. In the absence of a tariff or prevailing price, "market price" cannot be established, in which case (i) asset transfers from a regulated to an unregulated affiliate must be valued at the higher of cost or fair market value, and (ii) asset transfers from an unregulated to a regulated affiliate must be valued at the lower of cost or fair market value. The FCC has not attempted to make its cost allocation or affiliate transaction rules preemptive. State regulatory authorities are free to use different cost allocation methods and affiliate transaction rules for intrastate ratemaking and to require carriers to keep separate allocation records. Telephone Company Provision of Video Dial Tone and Video Programming In August 1992, the FCC issued an order permitting telephone companies such as the Network Services Companies to provide "video dial tone" service. Video dial tone permits telephone companies to provide video transport to multiple programmers on a non-discriminatory common carrier basis. In November 1994, the FCC issued an order which stated that jurisdiction for video dial tone service will be divided between the FCC and the states. Over the air services and services transported across state lines will be deemed interstate services subject to regulation by the FCC. Services delivered entirely within a single state will be deemed intrastate services subject to state regulation. The order also generally prohibits telephone companies from acquiring in-region cable television facilities or entering into a joint venture with an in-region cable television company or other video programmer to jointly construct or operate a video dial tone platform. In December 1992, Bell Atlantic - Virginia and Bell Atlantic Video Services Company filed a lawsuit against the federal government in the United States District Court for the Eastern District of Virginia seeking to overturn the 7 prohibition in the Cable Communications Policy Act of 1984 against LECs providing video programming in their respective telephone service areas. In 1993, the court struck down this prohibition as a violation of the First Amendment's freedom of speech protections and enjoined its enforcement against the Company, the Network Services Companies and Bell Atlantic Video Services Company. This decision was affirmed by the United States Court of Appeals for the Fourth Circuit in 1994. The federal government is expected to petition the United States Supreme Court to review the decision. In 1992, Bell Atlantic - New Jersey entered into an agreement with Future Vision of America Corporation ("Future Vision") pursuant to which Bell Atlantic - New Jersey will deploy fiber optic technology in the Dover Township, New Jersey telephone network to establish a video dial tone platform that will allow Future Vision and other video information providers to deliver video programming services. The FCC approved the deployment of this system in late 1994. Service is expected to commence later in 1995. In 1993, the FCC granted the Company authority to test a new technology known as Asynchronous Digital Subscriber Line ("ADSL") for use in delivering video entertainment and information over existing copper telephone lines. Beginning in March 1993, the Company began a one-year technical trial of ADSL serving up to 400 Bell Atlantic employees in northern Virginia. In the Fall of 1993, Bell Atlantic petitioned the FCC for authorization to expand and convert this technical trial, upon its completion, into a six month market trial serving up to 2,000 customers. The FCC approved this application in early 1995. Bell Atlantic has also requested authority to offer a commercial video dial tone service to customers served by 25 central offices in parts of northern Virginia and southern Maryland upon completion of the six month market trial. This application remains pending at the FCC. Interconnection and Collocation In order to encourage greater competition in the provision of interstate special access services, the FCC issued an order in 1992 allowing third parties to collocate their equipment in telephone company offices to provide special access (private line) services to the public. The order permits collocating parties to pay LECs an interconnection charge that is lower than the existing tariffed rates for similar non-collocated services and it allows LECs limited additional pricing flexibility for their own special access services when collocated interconnection is operational. In 1993, the FCC extended collocation to switched access services under terms and conditions similar to those for special access collocation. In June 1994, the U.S. Court of Appeals for the District of Columbia vacated the FCC's special access collocation order insofar as it required physical collocation. In July 1994, the FCC voted to require LECs to offer virtual collocation, with the LECs having the option to offer physical collocation. 8 State Regulation and Competitive Environment The communications services of the Network Services Companies are subject to regulation by the public utility commissions in the jurisdictions in which they operate with respect to intrastate rates and services and other matters. In 1994, there were a number of proceedings dealing with such issues as the adoption of flexible regulation procedures and competition for local exchange and toll services. Bell Atlantic - New Jersey, Inc. The New Jersey Telecommunications Act of 1992 authorized the Board of Public Utilities ("BPU") to adopt alternative regulatory frameworks to address changes in technology and the structure of the telecommunications industry and to promote economic development. It also deregulated services which the BPU found to be competitive. Pursuant to that legislation, Bell Atlantic - New Jersey filed a Plan for Alternative Form of Regulation (the "NJPAR"), which became effective in May 1993. The NJPAR replaced the Rate Stability Plan, which was approved by the BPU in 1987. In general, the Rate Stability Plan separated intrastate services into two categories: Group I (more competitive) and Group II (less competitive). Only Group II services were subject to financial performance monitoring by the BPU. The NJPAR divides Bell Atlantic - New Jersey's services into Rate-Regulated Services (formerly Group II services) and Competitive Services (formerly Group I services and services which have never been regulated by the BPU). Rate- Regulated Services are grouped in two categories: -"Protected Services": Basic residence and business service, Touch-Tone, access services, message toll services and the ordering, installation and restoration of these services. Rates for Protected Services, other than basic residence service, may be increased beginning January 1996 in an amount limited to the prior year's increase in the Gross National Product-Price Index ("GNP-PI") less a 2% productivity offset, as long as the return on equity for Rate-Regulated Services does not exceed 11.7%. Basic residence service rates are frozen through December 1999. -"Other Services": Custom Calling, Custom Local Area Signaling Services ("CLASS" services which utilize Signaling System 7), operator services and 911 enhanced service. Rates for Other Services may be increased beginning January 1996 in an amount limited to the prior year's increase in the GNP-PI less a 2% productivity offset, as long as the return on equity for Rate-Regulated Services does not exceed 12.7%. All earnings above a return on equity of 13.7% for Rate-Regulated Services will be shared equally with customers. There is no point at which the earnings are capped. Competitive Services are deregulated under the New Jersey Telecommunications Act. An appeal of the NJPAR is pending. In May 1994, the BPU approved a settlement of a proceeding addressing intraLATA toll competition. The settlement permitted IXCs to compete for the provision of intraLATA toll services on an access code basis (e.g., customers must dial 10XXX to use an IXC), beginning July 1, 1994, and granted Bell Atlantic - New Jersey substantial flexibility in the pricing and marketing of the services it offers to enable it to compete with the IXCs. In January 1995, the BPU 9 commenced a further proceeding to examine issues of intraLATA toll competition including whether presubscription should be authorized, and if so, under what terms and conditions. Currently, intraLATA toll calls default to the Network Services Companies unless the customer dials a five-digit access code to use an alternate carrier. Presubscription would enable customers to make intraLATA toll calls using the carrier of their choice without having to dial the five-digit access code. The BPU will also address the issue of subsidies embodied in Bell Atlantic - New Jersey's rates. A decision is expected by the end of 1995. In January 1995, MFS - Intelenet filed a petition with the BPU requesting authority to provide local exchange services in areas served by Bell Atlantic - New Jersey. Bell Atlantic - Pennsylvania, Inc. In July 1993, legislation was enacted in Pennsylvania which enabled Bell Atlantic - Pennsylvania to petition the Pennsylvania Public Utility Commission ("PPUC") to regulate Bell Atlantic - Pennsylvania under an alternative form of regulation. In October 1993, Bell Atlantic - Pennsylvania filed its petition and plan with the PPUC. In June 1994, the PPUC approved, with modifications, Bell Atlantic - Pennsylvania's Alternative Regulation Plan, ("PAPAR") which was accepted by Bell Atlantic - Pennsylvania in July 1994. The PAPAR provides for a pure price cap plan with no sharing and replaces rate base rate of return regulation. The PPUC's order confirmed that current rates are just and reasonable, and therefore, required no change to current rates. The PAPAR removed from price and earnings regulation six competitive services, including directory advertising, billing service, Centrex service, paging, speed calling and repeat calling. All remaining noncompetitive services will be price regulated. Under price regulation, annual price increases up to, but not exceeding, the inflation rate (GDP-PI) minus 2.93% will be permitted. Annual price decreases are required when the GDP-PI falls below 2.93%. Protected services in the noncompetitive category, which include residential and business basic exchange services, special access and switched access, are capped through December 31, 1999. However, revenue neutral rate restructuring for non-competitive services is permitted. The PAPAR requires Bell Atlantic - Pennsylvania to propose a Lifeline service for residential customers on a revenue neutral basis 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. An appeal of the PAPAR is pending. Several large competitors have requested authority from the PPUC to provide local exchange service in areas served by Bell Atlantic - Pennsylvania. Applications are currently pending from MFS - Intelenet, MCI Metro ATS and Teleport Communications Group. Decisions on these applications are expected later in 1995. The PPUC is currently conducting a proceeding to examine issues regarding intraLATA toll competition, including whether to authorize presubscription and, if so, under what terms and conditions. A decision is expected later in 1995. 10 Bell Atlantic - Delaware, Inc. In March 1994, Bell Atlantic - Delaware elected to be regulated under the alternative regulation provisions of the Delaware Telecommunications Technology Investment Act of 1993 (the "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 rate of inflation (GDP-PI), less 3%; -that the prices of "Discretionary Services" (e.g., Identa Ring/SM/ and Call Waiting) cannot increase more than 15% per year per service, after an initial one-year cap; -that the prices of "Competitive Services" (e.g., directory advertising and message toll service) will not be subject to tariff; and -that 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 (DPSC) during the fifth year of the plan. The DPSC has initiated a rulemaking docket to develop regulations for the implementation of the Delaware Telecommunications Act. Public hearings were held in March 1995, with a DPSC decision expected during the second quarter of 1995. The DPSC has also initiated a proceeding to examine issues regarding intraLATA toll competition, including whether to authorize presubscription and dialing parity ("1+ dialing") for intrastate toll competitors and, if so, under what terms and conditions. A decision is expected in the second quarter of 1995. Bell Atlantic - Washington, D.C., Inc. In January 1993, the District of Columbia Public Service Commission (DCPSC) adopted a regulatory reform plan ("D.C. Reform Plan") for the intra-Washington, D.C. services of Bell Atlantic - Washington, D.C., for a three year trial period. The D.C. Reform Plan provides a banded rate of return of 100 basis points over or under the authorized return on equity (which was set at 11.45% in December 1993). Bell Atlantic - Washington, D.C. is permitted to seek a rate increase if its return on equity falls below 10.45% and is required to share, through refunds, 50% of any earnings in excess of a return on equity of 12.45%. The D.C. Reform Plan also provides for pricing flexibility, including custom contracting and 14-day tariffing, for certain competitive services, including Centrex, High Speed Private Line Services, Digital Data Services, Paging Services, Speed Calling, Repeat Call, Home Intercom and Home Intercom Extra. In December 1993, the DCPSC approved a $15,800,000 rate increase, effective January 1, 1994. 11 In May 1994, the DCPSC issued an order requiring Bell Atlantic - Washington, D.C. to show cause why it should not refund to its customers $2,300,000, plus interest, related to certain surcharge revenues in 1993. Bell Atlantic - Washington, D.C. has responded to the order. In January 1995, Bell Atlantic - Washington, D.C. filed a petition with the DCPSC seeking approval of a proposed price cap plan to become effective upon the expiration of the D.C. Reform Plan in 1996. The price cap plan would: i) divide services into three categories: basic, discretionary and competitive; (ii) cap basic residential prices through January 1, 2000 and then allow basic prices to be increased annually at one half the rate of inflation (GNP - PI); (iii) permit annual increases of up to 25% for discretionary services; (iv) eliminate price regulation for all competitive services; and (v) classify services among the three categories and establish a process for moving services between categories going forward. Hearings on the proposed price cap plan are expected to commence later in 1995. MFS - Intelenet of Washington, D.C., a subsidiary of MFS Communications Company, Inc., has filed an application with the DCPSC for authority to provide local exchange services. Bell Atlantic - Maryland, Inc. In 1990, the Public Service Commission of Maryland ("MPSC") instituted a regulatory reform plan (the "Reform Plan") for regulation of intrastate services provided by Bell Atlantic - Maryland. The Reform Plan provides for sharing of earnings on other-than-competitive services (e.g., basic business and residential dial tone line and usage, pay telephone services and intraLATA toll services) within a prescribed range (13.6% to 15.6% return on equity), for the direct refund to ratepayers of all earnings above that range and for no sharing of earnings if earnings fall below that range. Earnings on competitive services (e.g., Centrex intercom and high capacity, special access and private line services) are not subject to a rate of return limitation. In connection with its approval of the Reform Plan, the MPSC required Bell Atlantic - Maryland to initiate a rate proceeding to examine Bell Atlantic - Maryland's financial and operating results under the Reform Plan and to serve as a rate case for determining rates and rate structure on a going-forward basis for services that the MPSC has determined are other-than-competitive. In January 1993, the MPSC issued an order directing Bell Atlantic - Maryland to reduce rates prospectively in the aggregate amount of $28.6 million annually. Tariffs reducing rates by that amount became effective on January 23, 1993. The Reform Plan was extended through 1995 and the sharing range was changed to 12.7% to 14.7%. This range was expanded on reconsideration to 12.7% to 16.5%. Legislation was passed by both houses of the Maryland General Assembly that would enable the MPSC to regulate Bell Atlantic - Maryland by a method other than rate base rate of return regulation. If signed into law, the legislation would become effective in June 1995. In April 1994, the MPSC approved an application from MFS-Intelenet of Maryland, Inc. (MFS-I), a subsidiary of MFS Communications Company, Inc.(MFS), to provide and resell local exchange and interexchange telecommunications services to business customers in areas served by Bell Atlantic - Maryland. MFS-I is authorized to be a co-carrier in Maryland and has been assigned its own 12 central office codes for use with its customers, and Bell Atlantic - Maryland is required to provide intrastate switched access collocation. The rates that MFS- I will pay to interconnect with Bell Atlantic - Maryland must include MFS-I's fair share of the joint and common costs that support universal service. On an interim basis, MFS-I will pay 6.1 cents per call to terminate a call on Bell Atlantic - Maryland's network. The MPSC established a schedule, which extends into 1995, for Phase II of this case. Final interconnection rates will be decided in Phase II. In late 1994, MCI Metro ATS and Teleport Communications Group received approval for the same waivers and interconnection rates established in the MFS-I proceeding. An application by SBC Media Ventures (SBC) to provide residential service in Montgomery County was suspended at SBC's request pending completion of Phase II of the MFS-I proceeding. Bell Atlantic - Virginia, Inc. From January 1989 through December 1993, Bell Atlantic - Virginia participated in the Experimental Plan for Alternative Regulation of Virginia telephone companies (the "Experimental Plan"), adopted by the Virginia State Corporation Commission ("VSCC") in December 1988. The Experimental Plan marked a departure from traditional regulation, segregating telephone services into four categories and capping earnings on Bell Atlantic - Virginia's non-competitive services at a 14% return on equity. Refunds of excess earnings are required to be made. In December 1993, following an evaluation of the Experimental Plan, the VSCC adopted a Modified Plan for Alternative Regulation, effective January 1, 1994 (the "Modified Plan"). Under the Modified Plan, Bell Atlantic - Virginia's telephone services remained categorized, but earnings on non-competitive services were capped at a 12.55% return on equity. Additionally, in assessing whether earnings exceeded the permitted cap, the Modified Plan required an imputation to regulated earnings of an amount equal to 25% of the net profits of Yellow Page advertising. Bell Atlantic - Virginia's financial results under the Experimental Plan for the years 1989 through 1993 have been filed with the VSCC. The VSCC issued orders making Bell Atlantic - Virginia's rates final for 1989, 1990 and 1991. Therefore, rates for these years are no longer subject to refunds. Bell Atlantic - Virginia's financial results for 1992 and 1993, which as filed with the VSCC indicate that no refunds are due, are still subject to VSCC audit. Under legislation passed in the 1993 session of the Virginia General Assembly, the VSCC is no longer statutorily required to regulate telephone companies on the basis of rate of return regulation; for example, the VSCC is free to adopt a price cap form of regulation. In February 1994, Bell Atlantic - Virginia filed a proposal to have its non-competitive services regulated on a price cap basis; competitive services would not be regulated. Following public hearings, the VSCC approved a new optional regulatory plan, effective January 1, 1995, which allows Bell Atlantic - Virginia to replace traditional cost-based regulation with a plan that relies on price constraints. The new plan, which eliminates regulation of profits, includes a temporary moratorium on rate increases for basic local telephone service until 2001, eliminates the monthly charge for Touch-Tone service and expands universal telephone service to the poor. In November 1994, Bell Atlantic - Virginia notified the VSCC of its election to participate in the new regulatory plan. An appeal of this plan is pending. 13 During the 1995 session of the Virginia General Assembly, legislation was passed that will allow the VSCC to authorize other telephone companies, beginning January 1, 1996, to compete with Bell Atlantic - Virginia in the provision of local exchange services. These telephone companies will come under the jurisdiction of the VSCC and will be required to comply with rules and regulations which will be determined by the VSCC during 1995. The VSCC is also investigating whether to allow competition in the provision of intraLATA toll services. Bell Atlantic - West Virginia, Inc. In 1988, the Public Service Commission of West Virginia ("WVPSC") approved a plan ("Flexible Regulation Plan") which gave Bell Atlantic - West Virginia flexibility in the pricing of competitive services (e.g., intraLATA toll service, intraLATA "800" service, intraLATA WATS service, billing and collection services and directory advertising) and provided for a freeze on rates for basic local exchange services through December 31, 1990, and a lifting on January 1, 1989 of the moratorium on intraLATA toll competition. The Flexible Regulation Plan was subsequently extended through 1991. In March 1990, the West Virginia legislature enacted legislation, which became effective on January 1, 1991, requiring the WVPSC to cease its regulation of the rates charged by a telephone utility for any service that the WVPSC finds to be subject to "workable competition", unless the WVPSC finds that to do so would adversely affect the continued availability of adequate, economical and reliable local telephone service. In December 1991, the WVPSC approved a new "Incentive Regulation Plan". The Incentive Regulation Plan continued the major provisions of the Flexible Regulation Plan, including pricing flexibility for competitive services and a freeze on rates for basic local exchange service. It also committed Bell Atlantic - West Virginia to invest $450 million from 1991 through 1995 in West Virginia's telecommunications infrastructure. In December 1994, the WVPSC issued an order extending the Incentive Regulation Plan for three years, with certain modifications. Basic rates remain frozen through January 15, 1998 and Touch-Tone charges will be eliminated over a three year period. Bell Atlantic - West Virginia is committed to invest at least $375 million in its network over the next five years. The WVPSC set aside for separate proceedings issues regarding intraLATA presubscription and local service competition. Competition - General Regulatory proceedings, as well as new technology, are continuing to expand the types of available communications services and equipment and the number of competitors offering such services. An increasing amount of this competition is from large companies which have substantial capital, technological and marketing resources, many of which do not face the same regulatory constraints as the Company. 14 Alternative Access A substantial portion of the Network Services Companies' revenues from business and government customers is derived from a relatively small number of large, multiple-line subscribers. The Network Services Companies 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 the local telephone company's plant. MFS has an optical fiber network which currently competes with Bell Atlantic - Pennsylvania and Bell Atlantic - Maryland in the Philadelphia, Pittsburgh and Baltimore metropolitan areas. In the Washington, D.C. metropolitan area, Institutional Communications Company, in which MFS has acquired a controlling interest, has deployed an optical fiber network to compete with Bell Atlantic - Washington, D.C., Bell Atlantic - Maryland and Bell Atlantic - Virginia in the provision of switched and special access services and local services. Eastern TeleLogic Corporation is currently providing service in the Philadelphia area over an optical fiber network, and Digital Direct of Pittsburgh, Inc. (dba Penn Access) has multiple fiber rings in service in the Pittsburgh metropolitan area, with additional fiber rings under construction. In July 1993, Virginia Metrotel Inc. was granted authority by the VSCC to compete against Bell Atlantic - Virginia in the provision of access services in the Richmond metropolitan area. Teleport Communications Group and MFS provide competitive access service in the Princeton-Trenton corridor and northern New Jersey. The ability of such alternative access providers to compete with the Network Services Companies has been enhanced by the FCC's orders requiring the Network Services Companies to offer virtual collocated interconnection for special and switched access services. Other potential sources of competition are cable television systems, shared tenant services and other non-carrier systems which are capable of bypassing the Network Services Companies' local plant, either partially or completely, through substitution of special access for switched access or through concentration of telecommunications traffic on fewer of the Network Services Companies' lines. IntraLATA Toll Competition The ability of interexchange carriers to engage in the provision of intrastate intraLATA toll service in competition with the Network Services Companies is subject to state regulation. Such competition is permitted in New Jersey, Pennsylvania, Delaware, Maryland and West Virginia. The issue is inapplicable to Washington, D.C. since intraLATA toll service is not offered within the District of Columbia. The VSCC has instituted a proceeding to consider whether, and on what terms, to permit intraLATA toll competition in Virginia. See "The Network Services Companies -- State Regulation and Competitive Environment". Personal Communications Services Radio-based personal communications services ("PCS") also constitute potential sources of competition to the Network Services Companies and to Bell Atlantic's cellular communications companies. PCS consists of wireless portable telephone services which would allow customers to make and receive telephone calls from any location using small handsets, and which could also be used for 15 data transmission. The FCC has authorized trials of such services, using a variety of technologies, by numerous companies, including the Company's cellular telecommunications subsidiaries (collectively, "Bell Atlantic Mobile"). In September 1993, the FCC issued an order allocating radio spectrum to be licensed for use in providing PCS. Under the order, seven separate bandwidths of spectrum, ranging in size from 10 MHz to 30 MHz, would be auctioned to potential PCS providers in each geographic area of the United States; five of the spectrum blocks would be auctioned by "basic trading area" and the remaining two would be auctioned by larger "major trading area" (as such trading areas are defined by Rand McNally). LECs and companies with LEC subsidiaries, such as the Company, are eligible to bid for PCS licenses, except that cellular carriers such as the Company are limited to obtaining only 10 MHz of PCS bandwidth in areas where they provide cellular service. Bidders other than cellular providers may obtain multiple licenses aggregating up to 40 MHz of bandwidth in any area. In October 1994, the Company, NYNEX, AirTouch Communications and U S WEST, Inc., formed a partnership to bid jointly in the FCC's auctions for PCS licenses. In March 1995, this partnership was a successful bidder for licenses for spectrum to provide PCS services in the following markets: Chicago; Dallas; Tampa; Houston; Miami; New Orleans; Milwaukee; Richmond; San Antonio; Jacksonville; and Honolulu. The partnership will pay $1.1 billion for these licenses. Centrex The Network Services Companies offer Centrex service, which is a telephone company central office-based communications system for business, government and other institutional customers consisting of a variety of integrated software- based features located in a centralized switch or switches and extended to the customer's premises primarily via local distribution facilities. In the provision of Centrex, the Network Services Companies are subject to significant competition from the providers of CPE systems, such as private branch exchanges ("PBXs"), which perform similar functions with less use of the Network Services Companies' switching facilities. Users of Centrex systems generally require more subscriber lines than users of PBX systems of similar capacity. The FCC increased the maximum Subscriber Line Charge on embedded Centrex lines to $6.00 per month per line, effective April 1, 1989. Increases in Subscriber Line Charges result in Centrex users incurring higher charges than users of comparable PBX systems. Some of the state regulatory commissions having jurisdiction over the Network Services Companies have approved Centrex tariff revisions designed to offset the effects of such higher Subscriber Line Charges and to provide for stability of Centrex rates. Directories The Network Services Companies continue to face significant competition from other providers of directories, as well as competition from other advertising media. In particular, the former sales representative of the Network Services Companies (other than Bell Atlantic - New Jersey) publishes directories in competition with those published by the Network Services Companies in New Jersey, Pennsylvania, Delaware and the Washington, D.C. and Baltimore metropolitan areas. 16 Public Telephone Services The Company faces increasing competition in the provision of pay telephone services from other pay telephone service providers. In addition, the growth of wireless communications negatively impacts usage of public telephones. Operator Services Alternative operator services providers have entered into competition with the Network Services Companies' operator services product line. New Products and Services Bell Atlantic/(R)/IQ/(SM)/ Services The Network Services Companies have introduced the Bell Atlantic/(R)/IQ/(SM)/ Services family of calling features (although not all features are available in all states). These features include Identa Ring/(SM)/, which allows a single line to have multiple telephone numbers, each with a distinctive ring; Repeat Call, which allows customers automatically to redial busy phone numbers; Return Call, which allows customers automatically to return the last incoming call, even without knowing the number; Ultra Forward/(SM)/, which customers can use to program call-forwarding instructions; Home Intercom, which allows for phone-to- phone dialing within the home; Caller ID, which displays the number of the calling party; and Caller ID Deluxe, which displays the name and number of the calling party. Data Services The Network Services Companies have introduced several high speed data transmission services (although not all services are available in all states). Switched Multi-Megabit Data Service ("SMDS", a high-speed, public, packet- switched data transmission service); Fiber Distributed Data Interface Network Service; and Frame Relay Service (which allows high-speed interconnection of a customer's multiple locations). Integrated Services Digital Network Integrated Services Digital Network ("ISDN") is an all digital switched network architecture that allows voice, data and video services to be integrated on one telephone line. The Network Services Companies had approximately 90,000 ISDN lines in service at the end of 1994. All of the Network Services Companies introduced ISDN Anywhere in 1994. This service allows customers in non-equipped ISDN offices to be offered service from a designated host switch until such time as their home office becomes equipped with ISDN. Information Services The Network Services Companies offer various types of information services, such as message storage services, voice mail, electronic mail and Answer Call, a telephone answering service aimed at residential and small business customers. 17 DOMESTIC WIRELESS COMMUNICATIONS Bell Atlantic Mobile provides cellular telecommunications service in certain portions of the Network Services Companies' Territory and in other parts of the United States. These entities market cellular telecommunications service and related equipment directly to consumers, wholesale such service to businesses which resell the service to consumers, and authorize agents to sell such service to consumers. They also resell paging service in some locations. In 1992, the Company acquired Metro Mobile CTS, Inc., then the second-largest independent provider of cellular telecommunications service in the United States. Cellular telecommunications service is subject to FCC regulation and licensing requirements. Some states also regulate the service. To assure competition, the FCC awarded two competitive licenses in each market. Many such competing cellular providers are substantial businesses with experience in broadcasting, telecommunications, cable television and radio common carrier services. Competition is based on the price of cellular service, the quality of the service and the size of the geographic area served. Bell Atlantic Mobile has established cellular telecommunications service in the standard metropolitan statistical areas ("SMSAs") for Washington, D.C.; Wilmington, Delaware; Baltimore, Maryland; Allentown, Philadelphia, Pittsburgh and Reading, Pennsylvania; Trenton, Vineland and Atlantic City, New Jersey; Phoenix and Tucson, Arizona; Bridgeport, Hartford, New Haven, and New London, Connecticut; New Bedford, Pittsfield and Springfield, Massachusetts; Albuquerque and Las Cruces, New Mexico; Charlotte and Hickory, North Carolina; Providence, Rhode Island; Anderson, Columbia and Greenville, South Carolina; and El Paso, Texas. Bell Atlantic Mobile also has established service in the rural service areas of Kent (Dover), Delaware; Kent (Eastern Shore) and Frederick, Maryland; Ocean, Sussex and Hunterdon, New Jersey; Greene, Jefferson, Huntingdon, Lawrence and McKean, Pennsylvania; Madison, Caroline, Frederick (Fauquier) and Lee, Virginia; Wetzel and Mason, West Virginia; Windham, Connecticut; Cabarrus and Anson, North Carolina; Newport, Rhode Island; Cherokee, Lancaster and Oconee, South Carolina; and Gila, Arizona. Bell Atlantic Mobile also owns a significant minority interest in a partnership providing cellular telecommunications service in the New York City metropolitan area and the adjoining SMSAs of New Brunswick and Long Branch, New Jersey. Under reciprocal agreements between Bell Atlantic Mobile and certain other providers of cellular telecommunications service, the customers of Bell Atlantic Mobile may use the services of those other providers in areas where Bell Atlantic Mobile is not licensed to provide service. In June 1994, Bell Atlantic and NYNEX Corporation executed a Joint Venture Formation Agreement which sets forth the terms and conditions under which the parties intend to combine their domestic cellular properties. This transaction, which is subject to regulatory approvals and various other conditions to closing, is expected to close in mid-1995. Upon completion of the merger, Bell Atlantic Mobile will dispose of certain competing properties in Massachusetts and Rhode Island. In October 1994, Bell Atlantic, NYNEX, AirTouch Communications and U S WEST, Inc. formed two partnerships to provide nationwide wireless communications services. The first partnership participated in the FCC auctions for PCS licenses. See "Competition-Personal Communications Services". The second partnership will 18 develop a national brand and provide coordination and centralization of various functions for the companies' cellular and PCS businesses. Bell Atlantic Paging, Inc. markets paging services in portions of the Network Services Companies' Territory. INTERNATIONAL Bell Atlantic International, Inc. and its subsidiaries ("International") serve as the Company's principal vehicle for new business development outside the United States. International provides telecommunications consulting and software systems integration services to telecommunications authorities in several countries, and has entered into business development agreements with various governmental authorities. In 1990, wholly-owned New Zealand subsidiaries of International and Ameritech Corporation ("Ameritech") each purchased approximately 49% of the common shares of Telecom Corporation of New Zealand Limited ("TCNZ") for a purchase price of approximately $2.4 billion. Under the terms of the acquisition and subsequent agreements with the New Zealand government, International and Ameritech were required to sell equity interests in TCNZ such that their combined ownership would, within four years of the acquisition, be reduced to 49.9%. In furtherance of that requirement, International and Ameritech in 1991 sold a portion of their equity shares in TCNZ in a worldwide public offering, thereby reducing their combined ownership in TCNZ to approximately 68%. In 1993, International privately sold an aggregate of 9.8% of TCNZ, reducing its ownership interest in TCNZ to 24.8%, and, together with private sales by Ameritech, completing its sell-down obligations. International is also a shareholder in joint ventures, begun in November 1990, with a subsidiary of U S WEST, Inc. and the telecommunications administrations of The Czech Republic and The Slovak Republic, to build and operate cellular and packet data networks in these republics. In 1993, International acquired for $1.04 billion an interest of approximately 42% in Grupo Iusacell, S.A. de C.V., the second largest telecommunications company in Mexico and the primary business of which is the provision of cellular telephone service. In March 1994, a consortium in which International has the second largest interest (approximately 11.5%) was awarded the second cellular license for Italy. BUSINESS SYSTEMS COMPANIES Bell Atlantic Business Systems Services, Inc. ("Business Systems Services"), which was formerly known as Sorbus Inc., is a computer services company which provides hardware and software maintenance, network support, disaster recovery and other services on over 10,000 hardware and software products. Business Systems Services provides service to more than 80,000 customer sites worldwide. Business Systems Services' major competitors are computer equipment manufacturers which offer to service the equipment they sell as well as other vendors of computer maintenance and service. In some cases, Business Systems Services is 19 dependent on computer manufacturers and distributors for spare parts necessary for the products it services. The Bell Atlantic Computer Technology Services Division of Business Systems Services provides parts repair and sales and refurbishment services for International Business Machines Corporation, Digital Equipment Corporation, Sun Microsystems, Inc. and other computer manufacturers' equipment to end users, manufacturers and service companies throughout the world. VIDEO SERVICES In October 1994, the Company, NYNEX and Pacific Telesis Group formed two companies to deliver nationally branded home entertainment, information and interactive services. A media company will license, acquire and develop entertainment and information services. Creative Artists Agency, Inc. has entered into a consulting arrangement with the media company to develop a branding and marketing strategy and to provide assistance in acquiring programming. A technology and integration company will provide the systems necessary to deliver these services over the companies' networks. CERTAIN CONTRACTS AND RELATIONSHIPS Certain planning, marketing, procurement, financial, legal, accounting, technical support and other management services are provided on behalf of the Network Services Companies on a centralized basis by Bell Atlantic's wholly- owned subsidiary, Bell Atlantic Network Services, Inc. ("NSI"). Bell Atlantic Network Funding Corporation provides short-term financing and cash management services to the Network Services Companies. Certain corporate services also are provided to other subsidiaries on a centralized basis by NSI. Bell Atlantic Financial Services, Inc. provides short-, medium- and long-term financing services and cash management services to subsidiaries of the Company other than the Network Services Companies. The seven RHCs each own (directly or through subsidiaries) a one-seventh interest in Bell Communications Research, Inc. ("Bellcore"). Pursuant to the Plan, Bellcore furnishes the RHCs and their BOC subsidiaries with technical assistance such as network planning, engineering and software development, as well as various other consulting services that can be provided more effectively on a centralized basis. Bellcore is the central point of contact for coordinating the efforts of the RHCs in meeting the national security and emergency preparedness requirements of the federal government. It also helps to mobilize the combined resources of the RHCs in times of natural disasters. 20 EMPLOYEE RELATIONS As of December 31, 1994, the Company and its subsidiaries had approximately 72,300 employees, which represents approximately a 1.8% decrease from the number of employees at December 31, 1993. Approximately 65% of the employees of the Company and its subsidiaries are represented by unions. Of those so represented, approximately 80% are represented by the Communications Workers of America, and approximately 20% are represented by the International Brotherhood of Electrical Workers, which are both affiliated with the American Federation of Labor-Congress of Industrial Organizations. The terms of the contracts ratified in October 1992 by unions representing associate employees of the Network Services Companies and NSI expire in August 1995. 21 Item 2. Properties The principal properties of the Company do not lend themselves to simple description by character and location. The Company's investment in plant, property and equipment, 94% of which was held by the Network Services Companies in 1994 (92% in 1993), consisted of the following at December 31:
1994 1993 ----- ----- Central office equipment.... 36% 36% Cable, wiring, and conduit.. 36 35 Land and buildings.......... 9 9 Other equipment............. 15 16 Other....................... 4 4 ---- ---- 100% 100% ==== ====
"Central office equipment" consists of switching equipment, transmission equipment and related facilities. "Cable, wiring, and conduit" consists primarily of aerial cable, underground cable, conduit and wiring. "Land and buildings" consists of land owned in fee and improvements thereto, principally central office buildings. "Other equipment" consists of public telephone instruments and telephone equipment (including PBXs) used by the Network Services Companies in their operations, poles, furniture, office equipment, vehicles and other work equipment, and cellular plant. "Other" property consists primarily of plant under construction, capital leases and leasehold improvements. The customers of the Network Services Companies are served by electronic switching systems that provide a wide variety of services. The Network Services Companies' 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, 1994, approximately 75% of the access lines were served by digital capability. 22 Item 3. Legal Proceedings Pre-Divestiture Contingent Liabilities and Litigation The Plan provides for the recognition and payment by AT&T and the former BOCs (including the Network Services Companies) of liabilities that are attributable to pre-Divestiture events but do not become certain until after Divestiture. These contingent liabilities relate principally to litigation and other claims with respect to the former Bell System's rates, taxes, contracts and torts (including business torts, such as alleged violations of the antitrust laws). Except to the extent that affected parties otherwise agree, contingent liabilities that are attributable to pre-Divestiture events are shared by AT&T and the BOCs in accordance with formulas prescribed by the Plan, whether or not an entity was a party to the proceeding and regardless of whether an entity was dismissed from the proceeding by virtue of settlement or otherwise. Each company's allocable share of liability under these formulas depends on several factors, including the type of contingent liability involved and each company's relative net investment as of the effective date of Divestiture. Under the formula generally applicable to most of the categories of these contingent liabilities, the Network Services Companies' aggregate allocable share of liability is approximately 10.2%. AT&T and various of its subsidiaries and the BOCs (including in some cases one or more of the Network Services Companies) have been and are parties to various types of litigation relating to pre-Divestiture events, including actions and proceedings involving environmental claims and allegations of violations of equal employment laws. Damages, if any, ultimately awarded in the remaining actions relating to pre-Divestiture events could have a financial impact on the Company whether or not the Company is a defendant since such damages will be treated as contingent liabilities and allocated in accordance with the allocation rules established by the Plan. While complete assurance cannot be given as to the outcome of any contingent liabilities or litigation, in the opinion of the Company's management, any monetary liability or financial impact to which the Company would be subject after final adjudication of all of the remaining potential or actual pre- Divestiture claims would not be material in amount to the financial position of the Company. Other Pending Cases In January 1991, the Company, its Chief Executive Officer and its former Chief Financial Officer were named as defendants in several identical class action complaints. These complaints, which have been consolidated in a single proceeding in the United States District Court for the Eastern District of Pennsylvania and have subsequently been amended, allege that, during a class period from June 14, 1990 through January 22, 1991, the plaintiffs purchased shares of Bell Atlantic stock at inflated prices as a result of the defendants' alleged failure to disclose material information regarding certain aspects of the Company's financial performance and prospects. The trial court's earlier decision granting defendants' motion to dismiss this action was reversed by the United States Court of Appeals for the Third Circuit upon appeal by the plaintiffs. Discovery in this action is in progress. 23 While complete assurance cannot be given as to the outcome of any litigation, in the opinion of the Company's management, any monetary liability or financial impact to which the Company would be subject after final adjudication of the foregoing actions would not be material in amount to the financial position of the Company. Prior Cases On April 12, 1990, a letter was submitted to the Company's Board of Directors by a law firm, purportedly on behalf of a shareowner of the Company, requesting that the Company commence action against any present or former director, officer or employee of the Company or any of its subsidiaries who might be found to have violated any duty to the Company in connection with (i) certain litigation involving Bell Atlantic - Pennsylvania and (ii) a temporary suspension of the Company and Bell Atlantic - Washington, D. C. from eligibility for future federal government contracts (the "Treasury suspension"). As previously reported by the Company in its Quarterly Reports on Form 10-Q for the quarters ended March 31 and September 30, 1990 and its Annual Reports on Form 10-K for the years ended December 31, 1990 and 1991, the Bell Atlantic - Pennsylvania litigation involved allegations that this subsidiary had engaged in improper practices while selling certain optional services, and resulted in a settlement pursuant to which Bell Atlantic - Pennsylvania made payments and refunds aggregating approximately $42 million; the Treasury suspension involved allegations that the Company and Bell Atlantic - Washington, D.C. had misrepresented certain facts in connection with a bid for a particular government contract, and was terminated approximately one month later after the Company agreed to re-emphasize to employees the need to verify information provided to the government, including information supplied to the Company by sub-contractors. In response to the demand letter (a similar letter, purportedly on behalf of a different shareowner, was received shortly thereafter), the Board of Directors of the Company (the "Board") on April 24, 1990 appointed a committee of three outside directors (James H. Gilliam, Jr. (Chairman), William G. Copeland and John F. Maypole) to investigate these matters and present its recommendation to the Board (the "Special Committee"). On May 11, 1990, the Company was served with a complaint filed in the Court of Common Pleas of Philadelphia County, Pennsylvania, naming certain then-current directors and officers as defendants in a shareholder derivative suit. The complaint alleged that the defendants had breached their fiduciary duties to the Company and its shareowners by failing to implement and enforce adequate safeguards to prevent the activities which resulted in the Bell Atlantic - Pennsylvania litigation and the Treasury suspension referred to above. The Company was not a defendant in this litigation. The Special Committee retained independent outside counsel and conducted a five-month investigation. After completion of its investigation, the Special Committee concluded that it would not be in the best interest of the Company and its shareowners to assert claims or take any other action against any director or officer of the Company or any of its subsidiaries with respect to either the Bell Atlantic - Pennsylvania litigation or the Treasury suspension. Accordingly, the Special Committee recommended that the Board reject the demands expressed in the shareowner letters, and the Board on October 23, 1990 adopted this recommendation. Counsel for each of the demanding shareowners was advised of the Board's determination. 24 On June 19, 1991, the Company was served with a complaint filed in the United States District Court for the Eastern District of Pennsylvania naming all of the then-current directors of the Company and one former officer as defendants in a shareowner class action and derivative suit. This lawsuit made allegations very similar to the Court of Common Pleas suit referenced above with respect to the Bell Atlantic - Pennsylvania litigation and Treasury suspension matters and, in addition, alleged that the Company violated federal proxy rules and regulations and its duty of candor under state law by failing to disclose, in its 1987-1991 proxy materials, information about the Bell Atlantic - Pennsylvania litigation, the Treasury suspension, the appointment of the Special Committee and the Court of Common Pleas litigation referenced above. On March 25, 1992, the parties to the federal court action reached an agreement to settle that action, subject to court approval after notice to the Company's shareowners, without the payment of any damages but subject to payment of the plaintiffs' attorneys fees up to $450,000. In June 1992, this settlement agreement was approved by the United States District Court for the Eastern District of Pennsylvania. A single shareowner, who is also the plaintiff in the related Court of Common Pleas litigation, filed an appeal with the United States Court of Appeals for the Third Circuit challenging the approval of the settlement agreement by the lower court. On August 18, 1993, the Third Circuit affirmed the lower court approval of the settlement agreement. After expiration of the time in which to file an appeal of the Third Circuit affirmation, the Company paid the plaintiffs' attorneys fees stipulated by the settlement agreement and the federal court action was dismissed. In March 1995, the parties in the Court of Common Pleas action filed a Consent Order to Settle, Discontinue and End. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 25 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is certain information with respect to the Company's executive officers.
Held Name Age Office Since ------------------------------------------------- ---- ------------------------------------------- ----- Raymond W. Smith.................................. 57 Chairman of the Board and Chief Executive 1989 Officer Lawrence T. Babbio, Jr............................ 50 Vice Chairman 1995 James G. Cullen................................... 52 Vice Chairman 1995 William O. Albertini.............................. 51 Executive Vice President and Chief 1995 Financial Officer Joseph T. Ambrozy................................. 55 Vice President - Strategic Planning 1992 P. Alan Bulliner.................................. 51 Vice President - Corporate Secretary and 1992 Counsel Barbara L. Connor................................. 44 Vice President - Finance, Controller 1993 and Treasurer Charles W. Crist, Jr.............................. 51 Vice President - Corporate Cost Reduction 1995 John F. Gamba..................................... 56 Senior Vice President - Corporate Resources 1995 and Performance Assurance Bruce S. Gordon................................... 49 Group President - Consumer and Small 1993 Business Services, Bell Atlantic Network Services, Inc. Stuart C. Johnson................................. 52 Group President - Large Business and 1993 Information Services, Bell Atlantic Network Services, Inc. Thomas R. McKeough................................ 48 Vice President - Mergers and Acquisitions 1994 and Associate General Counsel Brian D. Oliver................................... 39 Vice President - Corporate Development 1994 James R. Young.................................... 43 Vice President - General Counsel 1992
Prior to serving as an executive officer of the Company, each of the above officers, with the exception of Mr. Johnson, has held high level managerial positions with the Company or one of its subsidiaries for at least five years. From 1987 until joining the Company in 1992, Mr. Johnson served as President, GTE-Contel Federal Sector for GTE Corporation. Officers are not elected for a fixed term of office but are removable at the discretion of the Board of Directors. 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 Corporation 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, 1994, there were 990,652 shareowners of record. 26 High and low stock prices, as reported on the New York Stock Exchange composite tape of transactions, and dividend data are as follows:
Market Price Cash ---------------- Dividend High Low Declared ------- ------- -------- 1994: First Quarter... $59 5/8 $51 $.69 Second Quarter.. 56 3/4 49 .69 Third Quarter... 58 3/8 52 1/4 .69 Fourth Quarter.. 53 1/4 48 3/8 .69 1993: First Quarter... $56 3/4 $49 5/8 $.67 Second Quarter.. 59 3/8 50 3/4 .67 Third Quarter... 64 7/8 55 5/8 .67 Fourth Quarter.. 69 1/8 57 .67
Item 6. Selected Financial Data The Selected Financial and Operating Data on page 2 of the Company's 1994 Annual Report to shareowners is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 6 through 15 of the Company's 1994 Annual Report to shareowners is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Report of Independent Accountants, Consolidated Statements of Operations, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements on pages 17 through 41 of the Company's 1994 Annual Report to shareowners are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 27 PART III Item 10. Directors and Executive Officers of Registrant For information with respect to the executive officers of the Company, see "Executive Officers of the Registrant" at the end of Part I of this Report. For information with respect to the Directors of the Company, see "Election of Directors" on pages 1 through 6 of the Proxy Statement for the Company's 1995 Annual Meeting of Shareowners, which is incorporated herein by reference. For information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, see "Section 16 Reporting" on page 19 of the Proxy Statement for the Company's 1995 Annual Meeting of Shareowners, which is incorporated herein by reference. Item 11. Executive Compensation For information with respect to executive compensation, see "Executive Compensation" on pages 11 through 18, "Stock Performance" on page 19, and "Employment Agreements" on page 20 of the Proxy Statement for the Company's 1995 Annual Meeting of Shareowners, which are 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 of the Company, see "Ownership of Bell Atlantic Common Stock" on pages 18 and 19 of the Proxy Statement for the Company's 1995 Annual Meeting of Shareowners, which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions None. 28 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 Statements and Financial Statement Schedule appearing on Page F-1. (2) Financial Statement Schedules See Index to Financial Statements and Financial Statement Schedule appearing on Page F-1. (3) Exhibits Exhibits identified in parentheses below, on file with the Securities and Exchange Commission (SEC), are incorporated herein by reference as exhibits hereto.
Exhibit Number --------- 3a Certificate of Incorporation of Bell Atlantic Corporation ("Bell Atlantic"), dated October 7, 1983. (Exhibit 3a to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.) 3b Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 9, 1986 and filed May 16, 1986. (Exhibit 3b to Form SE dated March 27, 1987, File No. 1-8606.) 3c Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 6, 1987 and filed May 8, 1987. (Exhibit 3c to Form SE dated March 28, 1988, File No. 1-8606.) 3d Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 10, 1990 and filed June 29, 1990. (Exhibit 3d to Form SE dated March 28, 1991, File No. 1-8606.) 3e By-Laws of Bell Atlantic, as amended through June 23, 1992. (Exhibit 3e to Form SE dated March 29, 1993, File No. 1-8606.) 4 No instrument which defines the rights of holders of long and intermediate term debt, of the Company and all of 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 Senior Management Short Term Incentive Plan, as amended and restated effective as of January 1, 1993. (Exhibit 10c to Form SE dated March 29, 1993, File No. 1-8606.)*
29 10b Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27, 1986, File No. 1-8606.)* 10b (i) Resolutions amending the Plan, effective as of January 1, 1989 (Exhibit 10d to Form SE dated March 29, 1989, File No. 1-8606.)* 10c Bell Atlantic Personal Financial Services Program for Senior and Executive Managers and Key Employees, effective as of July 1, 1990, as amended. (Exhibit 10f to Form SE dated March 28, 1991, File No. 1- 8606.)* 10d Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated as of February 1, 1995.* 10e Bell Atlantic Insurance Plan for Directors. (Exhibit 10hh to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10f Description of Bell Atlantic Plan for Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10g Article V from Bell Atlantic Management Pension Plan regarding limitations on payment of pension amounts which exceed the limitations contained in the Employee Retirement Income Security Act of 1974. (Exhibit 10j to Form SE dated March 26, 1992, File No. 1- 8606.)* 10h Bell Atlantic Senior Management Retirement Income Plan, as amended and restated effective as of January 1, 1993. (Exhibit 10k to Form SE dated March 29, 1993, File No. 1-8606.)* 10h (i) Resolutions amending the Bell Atlantic Senior Management Retirement Income Plan effective as of December 31, 1993. (Exhibit 10k(i) to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10i Bell Atlantic Deferred Compensation Plan (formerly the Bell Atlantic Senior Management Incentive Award Deferral Plan), as amended and restated effective as of January 1, 1993. (Exhibit 101 to Form SE dated March 29, 1993, File No. 1-8606.)* 10i (i) Resolutions amending the Bell Atlantic Deferred Compensation Plan, effective October 25, 1993. (Exhibit 10l(i) to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10i (ii) Resolution amending the Bell Atlantic Deferred Compensation Plan, effective November 21, 1994.* 10j Bell Atlantic Stock Incentive Plan, consisting of (1) The Bell Atlantic 1985 Performance Share Plan as amended and restated effective as of January 1, 1993 and (2) The Bell Atlantic 1985 Incentive Stock Option Plan as amended and restated effective as of January 1, 1993. (Exhibit 10m to Form SE dated March 29, 1993, File No. 1-8606.)* 30 10j (i) Resolutions amending The Bell Atlantic 1985 Incentive Stock Option Plan, (Exhibit 10m(i) to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10k Bell Atlantic Retirement Plan for Outside Directors, as amended and restated as of February 1, 1995.* 10l Bell Atlantic Stock Compensation Plan for Outside Directors, as amended and restated as of October 25, 1994.* 10m Bell Atlantic Corporation Directors' Charitable Giving Program. (Exhibit 10p to Form SE dated March 29, 1990, File No. 1-8606.)* 10m (i) Resolutions amending and partially terminating the Program. (Exhibit 10p to Form SE dated March 29, 1993, File No. 1-8606.)* 10n Employment Agreement dated January 24, 1994 between the Company and William O. Albertini. (Exhibit 10q to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10o Employment Agreement dated January 24, 1994 among the Company, Bell Atlantic Enterprises International, Inc. and Lawrence T. Babbio, Jr. (Exhibit 10n to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10p 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, File No. 1-8606.)* 10q Employment Agreement dated January 24, 1994 between the Company and James G. Cullen. (Exhibit 10t to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10r Non-Compete and Proprietary Information Agreement dated August 10, 1993 between the Company and James G. Cullen. (Exhibit 10u to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10s Employment Agreement dated January 24, 1994 among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson. (Exhibit 10v to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10t Non-Compete and Proprietary Information Agreement dated August 9, 1993 among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson. (Exhibit 10w to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10u Employment Agreement dated January 24, 1994 between the Company and James R. Young. (Exhibit 10x to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 11 Computation of Earnings Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. 31 13 Portions of the Company's Annual Report to shareowners for the year ended December 31, 1994. 21 List of subsidiaries of Bell Atlantic. 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. 99a Annual Report on Form 11-K for the Bell Atlantic Savings Plan for Salaried Employees for the year ended December 31, 1994. (To be filed by amendment.) 99b Annual report on Form 11-K for the Bell Atlantic Savings and Security Plan (Non-Salaried Employees) for the year ended December 31, 1994. (To be filed by amendment.) ----------
*Indicates management contract or compensatory plan or arrangement. Shareowners may request a copy of the exhibits to this Annual Report on Form 10-K by writing to the Corporate Secretary, Bell Atlantic Corporation, 1717 Arch Street, Philadelphia, Pennsylvania 19103. (b) Current Reports on Form 8-K filed during the quarter ended December 31, 1994: A Current Report on Form 8-K, dated October 20, 1994, was filed regarding the Company's third quarter 1994 financial results. This report contained unaudited condensed consolidated statements of income for the three- and nine- month periods ended September 30, 1994 and 1993. 32 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/ William O. Albertini --------------------------- William O. Albertini Executive Vice President and Chief Financial Officer March 29, 1995 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. ++ Principal Executive Officer: + Raymond W. Smith Chairman of the + Board and Chief + Executive Officer + + + Principal Financial Officer: + William O. Albertini Executive Vice + President and Chief + Financial Officer + + Principal Accounting Officer: + Barbara L. Connor Vice President - + Finance, Controller + and Treasurer + ++ By /s/ William O. Albertini + ------------------------- + William O. Albertini Directors: + (individually and as William W. Adams + attorney-in-fact) William O. Albertini + March 29, 1995 Lawrence T. Babbio, Jr. + Thomas E. Bolger + Frank C. Carlucci + William G. Copeland + James G. Cullen + James H. Gilliam, Jr. + Thomas H. Kean + John C. Marous, Jr. + John F. Maypole + Joseph Neubauer + Thomas H. O'Brien + Rozanne L. Ridgway + Raymond W. Smith + Shirley Young + ++
33 BELL ATLANTIC CORPORATION Index to Financial Statements and Financial Statement Schedule
Page Number ------------------- Annual Form Report to 10-K Shareowners ------ ----------- Report of Independent Accountants................. F-2 17 Consolidated Statements of Operations- For the years ended December 31, 1994, 1993 and 1992....................................... -- 18 Consolidated Balance Sheets- December 31, 1994 and 1993..................... -- 19 Consolidated Statements of Cash Flows- For the years ended December 31, 1994, 1993 and 1992....................................... -- 20 Notes to Consolidated Financial Statements........ -- 21-41 Schedule II--Valuation and Qualifying Accounts-- For the years ended December 31, 1994, 1993 and 1992....................................... F-3 --
Financial statement schedules other than that listed above have been omitted because such schedules are not required or applicable. F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareowners of Bell Atlantic Corporation Our report on the consolidated financial statements of Bell Atlantic Corporation and subsidiaries has been incorporated by reference in this Form 10- K from page 17 of the 1994 Annual Report to shareowners of Bell Atlantic Corporation and subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page F-1 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania February 6, 1995 F-2 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1994, 1993, and 1992 (Dollars In Millions)
ADDITIONS --------------------- CHARGED TO BALANCE AT CHARGED OTHER BALANCE BEGINNING TO ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES --NOTE(A) --NOTE(B) OF PERIOD ------------------------ ---------- -------- ---------- ---------- --------- Allowance for Uncollectible Accounts Receivable: Year 1994........... $192.6 $176.8 $197.8 $378.3 $188.9 Year 1993........... $170.4 $176.2 $163.7 $317.7 $192.6 Year 1992........... $166.0 $132.1 $170.5 $298.2 $170.4 Allowance for Uncollectible Finance Lease Receivables: Year 1994........... $ 48.9 $ .2 $ .7 $ 49.8 $ -- Year 1993........... $ 52.2 $ 25.1 $ 9.5 $ 37.9 $ 48.9 Year 1992........... $ 46.3 $ 32.8 $ 6.4 $ 33.3 $ 52.2 Allowance for Obsolete Inventory: Year 1994........... $ 18.3 $ 5.0 $ -- $ 5.0 $ 18.3 Year 1993........... $ 10.4 $ 3.5 $ 11.8 $ 7.4 $ 18.3 Year 1992........... $ 31.9 $ 5.0 $ -- $ 26.5 $ 10.4 Valuation Allowance for Deferred Tax Assets: Year 1994........... $ 74.8 $ 5.6 $ -- $ 58.0 $ 22.4 Year 1993........... $ 39.7(c) $ 35.1 $ -- $ -- $ 74.8 Other Allowances (d): Year 1994........... $ 10.7 $ 4.9 $ -- $ 4.8 $ 10.8 Year 1993........... $ 21.7 $ 4.7 $ .6 $ 16.3 $ 10.7 Year 1992........... $ 45.4 $ 11.8 $ .3 $ 35.8 $ 21.7
____________ (a) Amounts include beginning balances for businesses acquired during the year. 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 the Company. (b) Amounts written off as uncollectible or obsolete or transferred to other accounts (except for the valuation allowance for deferred tax assets). In 1994, amounts include ending balances for businesses sold during the year. (c) Represents the valuation allowance at implementation of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1993. (d) Other Allowances include allowances for obsolete equipment and allowances for probable losses incurred in the directory businesses arising in the normal course of operations. F-3 EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NO. 1-8606 BELL ATLANTIC CORPORATION EXHIBIT INDEX
Exhibit Number ------- 3a Certificate of Incorporation of Bell Atlantic Corporation ("Bell Atlantic"), dated October 7, 1983. (Exhibit 3a to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.) 3b Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 9, 1986 and filed May 16, 1986. (Exhibit 3b to Form SE dated March 27, 1987, File No. 1-8606.) 3c Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 6, 1987 and filed May 8, 1987. (Exhibit 3c to Form SE dated March 28, 1988, File No. 1-8606.) 3d Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 10, 1990 and filed June 29, 1990. (Exhibit 3d to Form SE dated March 28, 1991, File No. 1-8606.) 3e By-Laws of Bell Atlantic, as amended through June 23, 1992. (Exhibit 3e to Form SE dated March 29, 1993, File No. 1-8606.) 4 No instrument which defines the rights of holders of long and intermediate term debt, of the Company and all of 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 Senior Management Short Term Incentive Plan, as amended and restated effective as of January 1, 1993. (Exhibit 10c to Form SE dated March 29, 1993, File No. 1-8606.)* 10b Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27, 1986, File No. 1-8606.)* 10b (i) Resolutions amending the Plan, effective as of January 1, 1989 (Exhibit 10d to Form SE dated March 29, 1989, File No. 1-8606.)* 10c Bell Atlantic Personal Financial Services Program for Senior and Executive Managers and Key Employees, effective as of July 1, 1990, as amended. (Exhibit 10f to Form SE dated March 28, 1991, File No. 1-8606.)* 10d Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated as of February 1, 1995.*
10e Bell Atlantic Insurance Plan for Directors. (Exhibit 10hh to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10f Description of Bell Atlantic Plan for Non-Employee Directors Travel Accident Insurance. (Exhibit 10ii to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10g Article V from Bell Atlantic Management Pension Plan regarding limitations on payment of pension amounts which exceed the limitations contained in the Employee Retirement Income Security Act of 1974. (Exhibit 10j to Form SE dated March 26, 1992, File No. 1- 8606.)* 10h Bell Atlantic Senior Management Retirement Income Plan, as amended and restated effective as of January 1, 1993. (Exhibit 10k to Form SE dated March 29, 1993, File No. 1-8606.)* 10h (i) Resolutions amending the Bell Atlantic Senior Management Retirement Income Plan effective as of December 31, 1993. (Exhibit 10k(i) to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10i Bell Atlantic Deferred Compensation Plan (formerly the Bell Atlantic Senior Management Incentive Award Deferral Plan), as amended and restated effective as of January 1, 1993. (Exhibit 101 to Form SE dated March 29, 1993, File No. 1-8606.)* 10i (i) Resolutions amending the Bell Atlantic Deferred Compensation Plan, effective October 25, 1993. (Exhibit 10l(i) to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10i (ii) Resolution amending the Bell Atlantic Deferred Compensation Plan, effective November 21, 1994.* 10j Bell Atlantic Stock Incentive Plan, consisting of (1) The Bell Atlantic 1985 Performance Share Plan as amended and restated effective as of January 1, 1993 and (2) The Bell Atlantic 1985 Incentive Stock Option Plan as amended and restated effective as of January 1, 1993. (Exhibit 10m to Form SE dated March 29, 1993, File No. 1-8606.)* 10j (i) Resolutions amending The Bell Atlantic 1985 Incentive Stock Option Plan, (Exhibit 10m(i) to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10k Bell Atlantic Retirement Plan for Outside Directors, as amended and restated as of February 1, 1995.* 10l Bell Atlantic Stock Compensation Plan for Outside Directors, as amended and restated as of October 25, 1994.* 10m Bell Atlantic Corporation Directors' Charitable Giving Program. (Exhibit 10p to Form SE dated March 29, 1990, File No. 1-8606.)* 10m (i) Resolutions amending and partially terminating the Program. (Exhibit 10p to Form SE dated March 29, 1993, File No. 1- 8606.)* 10n Employment Agreement dated January 24, 1994 between the Company and William O. Albertini. (Exhibit 10q to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10o Employment Agreement dated January 24, 1994 among the Company, Bell Atlantic Enterprises International, Inc. and Lawrence T. Babbio, Jr. (Exhibit 10n to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10p 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, File No. 1-8606.)* 10q Employment Agreement dated January 24, 1994 between the Company and James G. Cullen. (Exhibit 10t to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10r Non-Compete and Proprietary Information Agreement dated August 10, 1993 between the Company and James G. Cullen. (Exhibit 10u to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10s Employment Agreement dated January 24, 1994 among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson. (Exhibit 10v to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10t Non-Compete and Proprietary Information Agreement dated August 9, 1993 among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson. (Exhibit 10w to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10u Employment Agreement dated January 24, 1994 between the Company and James R. Young. (Exhibit 10x to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 11 Computation of Earnings Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. 13 Portions of the Company's Annual Report to shareowners for the year ended December 31, 1994. 21 List of subsidiaries of Bell Atlantic. 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. 99a Annual Report on Form 11-K for the Bell Atlantic Savings Plan for Salaried Employees for the year ended December 31, 1994. (To be filed by amendment.) 99b Annual report on Form 11-K for the Bell Atlantic Savings and Security Plan (Non-Salaried Employees) for the year ended December 31, 1994. (To be filed by amendment.) ----------
*Indicates management contract or compensatory plan or arrangement. EX-10.D 2 DEF COMPENSATION PLAN EXHIBIT 10d BELL ATLANTIC DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS (As restated February 1, 1995, to incorporate amendments through that date) ARTICLE 1: INTRODUCTION This Deferred Compensation Plan is maintained by Bell Atlantic Corporation and its Operating Telephone Companies for the benefit of Outside Directors (and their Beneficiaries) who are or have been members of the Bell Atlantic Board or an Operating Telephone Company Board (each, a "Participating Board"). It shall be maintained according to the terms of this document. This Plan represents the merger, effective as of April 1, 1989, of eight plans which were formerly maintained separately by Bell Atlantic Corporation and its seven Operating Telephone Companies. The merger of the plans into this Plan is not intended to alter the authority of each Participating Board to determine independently the level of the Director's Fees and other compensation and perquisites for its respective Outside Directors. ARTICLE 2. DEFINITIONS 2.1 DEFINITIONS. WHEN USED IN THIS DOCUMENT, THE FOLLOWING WORDS AND PHRASES SHALL HAVE THE MEANINGS ASSIGNED TO THEM, UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE: (a) AFFILIATED COMPANY MEANS BELL ATLANTIC AND ANY DIRECT OR INDIRECT SUBSIDIARY OF BELL ATLANTIC. (b) BELL ATLANTIC MEANS BELL ATLANTIC CORPORATION, A DELAWARE CORPORATION, WHICH MAINTAINS ITS PRINCIPAL OFFICES IN PHILADELPHIA, PENNSYLVANIA. (c) BELL ATLANTIC BOARD MEANS THE BOARD OF DIRECTORS OF BELL ATLANTIC. (d) BENEFICIARY MEANS THE PERSON OR PERSONS, NATURAL OR OTHERWISE, DESIGNATED BY AN OUTSIDE DIRECTOR UNDER SECTION 8.1 TO RECEIVE ANY DEATH BENEFIT PAYABLE UNDER SECTION 6.3. (e) CASH DEFERRED FEE ACCOUNT MEANS AN ACCOUNT ESTABLISHED UNDER THE PLAN IN THE NAME OF AN OUTSIDE DIRECTOR. THE PARTICIPATING COMPANIES SHALL CREDIT EACH OUTSIDE DIRECTOR'S CASH DEFERRED FEE ACCOUNT WITH (1) ANY DIRECTOR'S FEES THAT ARE DEFERRED BY THE OUTSIDE DIRECTOR UNDER SECTION 3.1(A) AND DIRECTED INTO THE CASH DEFERRED FEE ACCOUNT UNDER SECTION 3.1(D), AND (2) ANY INTEREST THAT IS CREDITED UNDER ARTICLE 4. THE COMPANY SHALL DEBIT FROM EACH OUTSIDE DIRECTOR'S CASH DEFERRED FEE ACCOUNT PAYMENTS MADE FROM IT UNDER ARTICLE 6. (f) DEFERRED FEE ACCOUNTS MEANS THE AGGREGATE OF AN OUTSIDE DIRECTOR'S CASH DEFERRED FEE ACCOUNT AND STOCK DEFERRED FEE ACCOUNT. (g) DEFERRED FEE AGREEMENT MEANS THE WRITTEN AGREEMENT BETWEEN THE COMPANY AND AN OUTSIDE DIRECTOR THAT, TOGETHER WITH THIS PLAN, GOVERNS THE OUTSIDE ------------------------------------------------------------------------------ Deferred Compensation Plan -1- Restated February 1, 1995 DIRECTOR'S RIGHTS TO DEFERRAL AND SUBSEQUENT DISTRIBUTION OF DEFERRED DIRECTOR'S FEES (ADJUSTED FOR INVESTMENT PERFORMANCE) UNDER THIS PLAN. (h) DIRECTOR MEANS A MEMBER OF THE BOARD OF DIRECTORS. (i) DIRECTOR'S FEES MEANS THE CASH PORTION OF THE ANNUAL RETAINER PAID TO AN OUTSIDE DIRECTOR, ANY FEES PAID TO AN OUTSIDE DIRECTOR FOR ATTENDING MEETINGS OF THE PARTICIPATING COMPANY BOARD OR ANY COMMITTEE OF THE PARTICIPATING COMPANY BOARD, AND ANY FEES PAID TO AN OUTSIDE DIRECTOR FOR SERVING AS CHAIRMAN OF A COMMITTEE OF THE PARTICIPATING COMPANY BOARD. (j) INTEREST MEANS THE AMOUNT OF INTEREST CREDITED TO AN OUTSIDE DIRECTOR'S CASH DEFERRED FEE ACCOUNT AT AN ANNUAL RATE DETERMINED IN ACCORDANCE WITH SECTION 4.2. (k) OPERATING TELEPHONE COMPANY MEANS, WITH REFERENCE TO ANY TIME PERIOD BEFORE OR AFTER DIVESTITURE, ANY OF THE FOLLOWING COMPANIES: . Bell Atlantic Delaware, Inc.; . Bell Atlantic Maryland, Inc.; . Bell Atlantic New Jersey, Inc.; . Bell Atlantic Pennsylvania, Inc.; . Bell Atlantic Virginia, Inc.; . Bell Atlantic Washington, D.C., Inc.; and . Bell Atlantic West Virginia, Inc. (l) OPERATING TELEPHONE COMPANY BOARD SHALL MEAN THE BOARD OF DIRECTORS OF ANY OPERATING TELEPHONE COMPANY, AS ANY SUCH BOARD MAY BE OR MAY HAVE BEEN CONSTITUTED EITHER BEFORE OR AFTER DIVESTITURE. (m) OUTSIDE DIRECTOR MEANS A DIRECTOR OF A PARTICIPATING COMPANY WHO IS NOT ALSO AN EMPLOYEE OF THE PARTICIPATING COMPANY OR ANY AFFILIATED COMPANY. (n) PARTICIPATING COMPANY MEANS BELL ATLANTIC AND EACH OPERATING TELEPHONE COMPANY. (o) PLAN MEANS THE BELL ATLANTIC DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS, AS SET FORTH IN THIS DOCUMENT, AND AS IT MAY BE AMENDED FROM TIME TO TIME. (p) PLAN ADMINISTRATOR SHALL HAVE THE MEANING STATED IN SECTION 9.4. (q) SECRETARY SHALL REFER TO EACH OF THE RESPECTIVE OFFICERS OF THE PARTICIPATING COMPANIES WHO HAVE BEEN ELECTED CORPORATE SECRETARY, OR ANY ASSISTANT SECRETARY TO WHOM RESPONSIBILITIES UNDER THIS PLAN HAVE BEEN DELEGATED BY THE SECRETARY. (r) SHARES MEANS PHANTOM SHARES OF BELL ATLANTIC COMMON STOCK CREDITED TO AN OUTSIDE DIRECTOR'S STOCK DEFERRED FEE ACCOUNT UNDER THE PLAN. (s) STOCK MEANS THE COMMON STOCK OF BELL ATLANTIC. (t) STOCK DEFERRED FEE ACCOUNT MEANS AN ACCOUNT ESTABLISHED UNDER THE PLAN IN THE NAME OF AN OUTSIDE DIRECTOR. A PARTICIPATING COMPANY SHALL CREDIT ITS OUTSIDE DIRECTOR'S STOCK DEFERRED FEE ACCOUNT WITH (1) SHARES FOR ANY DIRECTOR'S FEES THAT ARE DEFERRED BY THE OUTSIDE DIRECTOR UNDER SECTION 3.1(A) AND DIRECTED INTO ------------------------------------------------------------------------------ Deferred Compensation Plan -2- Restated February 1, 1995 THE STOCK DEFERRED FEE ACCOUNT UNDER SECTION 3.1(D), AND (2) ANY ADDITIONAL SHARES THAT ARE CREDITED UNDER ARTICLE 5. THERE SHALL BE DEBITED FROM EACH OUTSIDE DIRECTOR'S STOCK DEFERRED FEE ACCOUNT PAYMENTS MADE FROM IT UNDER ARTICLE 6. ARTICLE 3. DEFERRAL OF DIRECTOR'S FEES 3.1 ELECTION TO DEFER FEES. (a) Before the beginning of any calendar year, an Outside Director may elect to defer all or part of his or her Director's Fees to be earned in that calendar year, in accordance with either (i), (ii) or (iii) hereof: (i) the Outside Director may defer such fees to any date not earlier than the first anniversary of the final payment date for the Directors' Fees for such calendar year; (ii) the Outside Director may defer such fees to the first business day of January following the year the Outside Director attains age 70; or (iii) the Outside Director may defer such fees to the January 1 following the year in which the Outside Director terminates his service as a director or, if later, the year in which the Outside Director terminates his service as a director of an Affiliated Company. In the case of a newly elected Outside Director, a Deferral Agreement may be submitted to the Secretary of the Participating Company no later than the thirtieth day after the date on which the Outside Director is elected to serve on the Board. (b) At any time earlier than 12 months prior to the date on which a distribution of a portion (or all) of an Outside Director's Deferred Fee Account would be payable under the terms of an existing Deferred Fee Agreement, an Outside Director may elect to extend the deferral of all of his Deferred Fee Account, or of such portion of his account as would otherwise be distributed. At the election of the Outside Director, such a second deferral under this Section 3.1(b) may extend the date of distribution of all, or such portion, of the Deferred Fee Account to the first business day of January which first follows either: (i) the calendar year in which the Outside Director terminates service as an Outside Director (or, if later, the calendar year in which the Outside Director terminates service as a director of an Affiliated Company); (ii) any calendar year subsequent to the year stated in the previous paragraph; or (iii) the calendar year in which the Outside Director attains age 70. (c) At any time earlier than 12 months prior to the date on which a distribution of a portion (or all) of an Outside Director's Deferred Fee Account would be payable under the terms of an existing Deferred Fee Agreement, an Outside Director may modify his or her prior election of a distribution option for the account. An Outside Director may modify the distribution option for each and any Deferred Fee Account once, but not more than once. A modification of the distribution option may, but need not, be elected at the same time as the Outside Director submits any election under Section 3.1(b). ------------------------------------------------------------------------------ Deferred Compensation Plan -3- Restated February 1, 1995 (d) When an Outside Director elects to defer Director's Fees under Section 3.1(a), the Outside Director shall also elect whether amounts deferred should be credited to his Cash Deferred Fee Account, to his Stock Deferred Fee Account, or equally to both. (e) An election under Sections 3.1(a), (b), (c) or (d) shall be made by an Outside Director by executing a Deferred Fee Agreement with the Participating Company and delivering it to the Secretary or Plan Administrator. 3.2 CREDITING TO DEFERRED FEE ACCOUNTS. (a) When an Outside Director elects under Section 3.1(d) to have deferred Director's Fees credited to his Cash Deferred Fee Account, the Participating Company shall credit the Outside Director's Cash Deferred Fee Account with the amount of such deferred Director's Fees as of the day such deferred Director's Fees would have been paid to the Outside Director were they not deferred under the Plan. (b) When an Outside Director elects under Section 3.1(d) to have deferred Director's Fees credited to his Stock Deferred Fee Account, the Participating Company shall credit the Outside Director's Stock Deferred Fee Account with a number of Shares as of the day such deferred Director's Fees would have been paid to the Outside Director were they not deferred under the Plan. The number of Shares credited to the Stock Deferred Fee Account shall be the quotient of (1) the amount of deferred Director's Fees to be credited to the Stock Deferred Fee Account, and (2) the mean between the highest and lowest selling prices of Bell Atlantic Stock on the first day of the calendar quarter in which such Shares are credited, as reported on the New York Stock Exchange Composite Tape. However, if there are no sales on the first day of such calendar quarter, the average of the means between the highest and lowest selling prices of the stock on the nearest trading day before and the nearest trading day after the first day of the quarter will be used. 3.3 ELECTIONS FOR A SUBSEQUENT YEAR. (a) An Outside Director may, on a prospective basis for a future calendar year, change the amount of the Director's Fees to be deferred, or elect not to defer any of such Director's Fees for such future year, by executing a new Deferred Fee Agreement. No such Deferred Fee Agreement shall be effective for the year in which it is executed or for any prior year. (b) Notwithstanding anything in Section 3.3(a) to the contrary, a newly elected Outside Director shall have thirty days from the date on which he is elected to serve on a Participating Company Board to deliver a Deferred Fee Agreement which shall be applicable to his first calendar year of service. 3.4 INVESTMENT DIRECTION FOR A SUBSEQUENT YEAR'S DEFERRALS. AN OUTSIDE DIRECTOR MAY, BY EXECUTING A DEFERRED FEE AGREEMENT ON A PROSPECTIVE BASIS FOR A SUBSEQUENT CALENDAR YEAR, DIRECT THE INVESTMENT OF THE DIRECTOR'S FEES TO BE EARNED AND DEFERRED IN SUCH SUBSEQUENT YEAR, WITHOUT REGARD TO THE INVESTMENT DIRECTION THEN APPLICABLE TO ANY DEFERRED DIRECTOR'S FEES FOR THE THEN-CURRENT YEAR. NO SUCH INVESTMENT DIRECTION SHALL APPLY RETROACTIVELY TO AMOUNTS PREVIOUSLY DEFERRED. ------------------------------------------------------------------------------ Deferred Compensation Plan -4- Restated February 1, 1995 ARTICLE 4: INTEREST 4.1 INTEREST. INTEREST SHALL ACCRUE ON AN AMOUNT CREDITED TO THE CASH DEFERRED FEE ACCOUNT FROM AND AFTER THE DATE ANY SUCH AMOUNT IS CREDITED TO SUCH ACCOUNT PURSUANT TO SECTION 3.2(A). INTEREST SHALL BE CREDITED TO EACH OUTSIDE DIRECTOR'S CASH DEFERRED FEE ACCOUNT, AS OF THE END OF EACH MONTH, AT AN ANNUAL RATE DETERMINED PURSUANT TO SECTION 4.2, ON THE AMOUNT CREDITED TO THE ACCOUNT ON THE FIRST DAY OF THE MONTH, OR, ON SUCH OTHER PERIODIC BASIS AS THE PLAN ADMINISTRATOR, IN COOPERATION WITH THE SECRETARIES OF THE OPERATING TELEPHONE COMPANIES, MAY FIND APPROPRIATE. INTEREST SHALL BE CREDITED DURING EACH SUCH PERIOD THAT AN OUTSIDE DIRECTOR HAS ANY AMOUNT CREDITED TO HIS CASH DEFERRED FEE ACCOUNT UNDER THE PLAN. 4.2 RATE OF INTEREST. INTEREST SHALL BE CREDITED AT A RATE EQUAL TO THE AVERAGE YIELD FOR TEN-YEAR U.S. TREASURY NOTES FOR THE PREVIOUS QUARTER. ARTICLE 5: DIVIDENDS 5.1 DIVIDEND REINVESTMENT. ADDITIONAL SHARES SHALL BE CREDITED TO EACH OUTSIDE DIRECTOR'S STOCK DEFERRED FEE ACCOUNT, AS OF EACH PAYMENT DATE FOR DIVIDENDS ON BELL ATLANTIC STOCK, IN AN AMOUNT DETERMINED PURSUANT TO SECTION 5.2, ON THE BASIS OF THE NUMBER OF SHARES CREDITED TO THE OUTSIDE DIRECTOR'S STOCK DEFERRED FEE ACCOUNT ON THE RECORD DATE FOR SUCH DIVIDENDS. ADDITIONAL SHARES SHALL BE CREDITED FOR EACH RECORD DATE THAT AN OUTSIDE DIRECTOR HAS ANY AMOUNT CREDITED TO HIS STOCK DEFERRED FEE ACCOUNT UNDER THE PLAN. 5.2 NUMBER OF DIVIDEND REINVESTMENT SHARES. THE NUMBER OF ADDITIONAL SHARES CREDITED TO AN OUTSIDE DIRECTOR'S STOCK DEFERRED FEE ACCOUNT AS OF ANY DIVIDEND PAYMENT DATE SHALL BE THE QUOTIENT OF : (1) THE PRODUCT OF THE NUMBER OF SHARES CREDITED TO THE OUTSIDE DIRECTOR'S STOCK DEFERRED FEE ACCOUNT ON THE DIVIDEND RECORD DATE FOR SUCH DIVIDEND AND THE DIVIDEND PER SHARE ON BELL ATLANTIC STOCK, DIVIDED BY (2) THE FAIR MARKET VALUE OF BELL ATLANTIC STOCK ON THE DIVIDEND PAYMENT DATE. THE FAIR MARKET VALUE OF BELL ATLANTIC STOCK ON THE DIVIDEND PAYMENT DATE SHALL BE THE MEAN BETWEEN THE HIGHEST AND LOWEST SELLING PRICES OF THE STOCK ON THE DIVIDEND PAYMENT DATE, AS REPORTED ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE. HOWEVER, IF THERE ARE NO SALES ON THE DIVIDEND PAYMENT DATE, 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 DIVIDEND PAYMENT DATE, AS REPORTED ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE; THE AVERAGE IS TO BE WEIGHTED INVERSELY BY THE RESPECTIVE NUMBER OF TRADING DAYS BETWEEN THE SELLING DAYS AND THE DIVIDEND PAYMENT DATE. ARTICLE 6: PAYMENT OF DEFERRED FEES 6.1 DEFERRED FEES AND INTEREST. AT THE TIME AND IN THE MANNER PROVIDED IN SECTION 6.2 OR 6.3, (a) amounts credited to an Outside Director's Cash Deferred Fee Account shall be paid in cash, and ------------------------------------------------------------------------------ Deferred Compensation Plan -5- Restated February 1, 1995 (b) amounts credited to an Outside Director's Stock Deferred Fee Account shall be paid in an equal number of shares of Bell Atlantic Stock, and any fractional share of Stock shall be paid in cash. 6.2 PAYMENT. (a) Unless an Outside Director elects under Section 3.1 to receive the distribution of his deferred fees for a calendar year in installments, the appropriate portion of the amount credited to the Outside Director's Deferred Fee Accounts for that calendar year shall be paid in a lump sum. (b) At the election of an Outside Director, as described in Section 3.1, the appropriate portion of the amount credited to the Outside Director's Deferred Fee Accounts shall be paid either in a single total distribution, or in approximately equal annual distributions for a number of years elected by the Outside Director. The first such installment shall be payable on the distribution commencement date determined under Section 3.1. In the case of a distribution in the form of two or more annual installments, an Outside Director's Deferred Fee Accounts shall bear interest at the rate specified in Article 4, or be credited with dividends in accordance with Article 5 (whichever is applicable), during the installment payout period. (c) Notwithstanding the terms of any elections pursuant to Section 3.1, the entire balance of the accounts of an Outside Director shall be distributed, with interest and earnings to date, in the event that the Bell Atlantic Board determines that any of the following circumstances has occurred: (i) the Outside Director, at any time after he ceases to serve as a director of a Participating Company, becomes employed by any governmental agency having regulatory jurisdiction over the business of an Operating Telephone Company; (ii) the Outside Director has engaged in knowing and willful misconduct in connection with his or her service as a director; or (iii) the Outside Director, without the consent of the Bell Atlantic Board, has at any time during the period from the last day he or she served as a director on a Participating Company Board (the "Director's Cessation of Service Date") to the second anniversary of such date, personally engaged in managing, planning, or advising in any manner whatever an activity which directly competes with any of the businesses in which a Bell Atlantic Company was engaged on the Director's Cessation of Service Date, or any business which was in the planning stage at a Bell Atlantic Company on such date. For the purposes of this paragraph, a "Bell Atlantic Company" means either (a) the one or more Operating Telephone Companies on the board of which the Outside Director served, in the case of an Outside Director who served on one or more Operating Telephone Company Boards but not the Bell Atlantic Board, or (b) Bell Atlantic or any Affiliated Company, in the case of an Outside Director who last served on the Bell Atlantic Board . 6.3 DEATH OF A DIRECTOR. IF AN OUTSIDE DIRECTOR DIES WITH ANY AMOUNT CREDITED TO HIS DEFERRED FEE ACCOUNTS, THEN HIS BENEFICIARY SHALL BE ENTITLED TO RECEIVE THE ENTIRE AMOUNT IN A LUMP SUM. THE PAYMENT SHALL BE MADE NO LATER THAN SIXTY DAYS FOLLOWING THE OUTSIDE DIRECTOR'S DEATH. ------------------------------------------------------------------------------ Deferred Compensation Plan -6- Restated February 1, 1995 ARTICLE 7: EARLY WITHDRAWALS SUBJECT TO PENALTY 7.1 WITHDRAWALS FROM DEFERRED FEE ACCOUNTS. EXCEPT AS PROVIDED IN SECTION 7.1(B), NEITHER THE OUTSIDE DIRECTOR, HIS BENEFICIARY, NOR ANY OTHER INDIVIDUAL OR ENTITY SHALL HAVE ANY RIGHT TO MAKE ANY WITHDRAWALS FROM THE OUTSIDE DIRECTOR'S DEFERRED FEE ACCOUNTS CONTRARY TO THE INITIAL ELECTIONS OR MODIFIED ELECTIONS MADE IN ACCORDANCE WITH SECTION 3.1. 7.2 EARLY WITHDRAWAL PENALTY. AN OUTSIDE DIRECTOR MAY AT ANY TIME DIRECT THE PLAN ADMINISTRATOR TO DISTRIBUTE, AS SOON AS ADMINISTRATIVELY PRACTICABLE, ALL OR ANY PORTION OF THE BALANCE OF ANY ONE OR MORE OF THE DIRECTOR'S DEFERRED FEE ACCOUNTS WHICH THE OUTSIDE DIRECTOR THEN DESIGNATES; PROVIDED, HOWEVER, THAT, IN EACH SUCH INSTANCE OF A DISTRIBUTION PRIOR TO THE DATE ON WHICH THE ACCOUNT WOULD OTHERWISE BE DISTRIBUTED, A SIX PERCENT EARLY WITHDRAWAL PENALTY SHALL APPLY TO THE AMOUNT OF THE REQUESTED EARLY WITHDRAWAL. ARTICLE 8: BENEFICIARIES 8.1 DESIGNATION OF BENEFICIARY. EACH OUTSIDE DIRECTOR MAY DESIGNATE FROM TIME TO TIME ANY PERSON OR PERSONS, NATURAL OR OTHERWISE, AS HIS BENEFICIARY OR BENEFICIARIES TO WHOM BENEFITS UNDER SECTION 6.3 ARE TO BE PAID IF HE DIES WHILE ENTITLED TO BENEFITS. EACH BENEFICIARY DESIGNATION SHALL BE MADE EITHER IN THE DEFERRED FEE AGREEMENT OR ON A FORM PRESCRIBED BY THE PLAN ADMINISTRATOR AND SHALL BE EFFECTIVE ONLY WHEN FILED WITH THE SECRETARY OR PLAN ADMINISTRATOR DURING THE OUTSIDE DIRECTOR'S LIFETIME. EACH BENEFICIARY DESIGNATION FILED WITH THE SECRETARY OR PLAN ADMINISTRATOR SHALL REVOKE ALL BENEFICIARY DESIGNATIONS PREVIOUSLY MADE BY THE PARTICIPANT. THE REVOCATION OF A BENEFICIARY DESIGNATION SHALL NOT REQUIRE THE CONSENT OF ANY DESIGNATED BENEFICIARY. ARTICLE 9: ADMINISTRATION 9.1 RIGHT TO AMEND OR TERMINATE. THE BELL ATLANTIC BOARD MAY AMEND OR TERMINATE THE PLAN AT ANY TIME IN WHOLE OR IN PART. THE NOMINATING COMMITTEE OF THE BELL ATLANTIC BOARD SHALL HAVE AUTHORITY TO RECOMMEND PLAN AMENDMENTS FOR APPROVAL BY THE BELL ATLANTIC BOARD; PROVIDED, HOWEVER, THAT THE BELL ATLANTIC BOARD RETAINS AUTHORITY TO AMEND OR TERMINATE THE PLAN IN THE ABSENCE OF A RECOMMENDATION BY THE NOMINATING COMMITTEE. NO AMENDMENT OR TERMINATION OF THE PLAN SHALL REDUCE THE AMOUNT CREDITED TO AN OUTSIDE DIRECTOR'S DEFERRED FEE ACCOUNTS, THE AMOUNT OWED TO HIM UNDER THE PLAN AS OF THE DATE OF AMENDMENT OR TERMINATION, OR THE AMOUNT OF INTEREST OR NUMBER OF SHARES TO BE CREDITED TO HIS ACCOUNT. THE VICE PRESIDENT - HUMAN RESOURCES OF BELL ATLANTIC SHALL HAVE THE AUTHORITY TO ADOPT AMENDMENTS TO THE PLAN WHICH THAT OFFICER 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. 9.2 NO FUNDING OBLIGATION. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION 9.2, THE OBLIGATION OF THE PARTICIPATING COMPANIES TO PAY BENEFITS UNDER THIS PLAN SHALL BE UNFUNDED AND UNSECURED, AND, IN ALL EVENTS, ANY PAYMENTS UNDER THIS PLAN SHALL BE ------------------------------------------------------------------------------ Deferred Compensation Plan -7- Restated February 1, 1995 MADE SOLELY FROM THOSE ASSETS OF A PARTICIPATING COMPANY WHICH WOULD BE AVAILABLE TO SATISFY THE CLAIMS OF THE PARTICIPATING COMPANY'S GENERAL CREDITORS IN THE EVENT OF BANKRUPTCY. THE TREASURER OF BELL ATLANTIC (a) may, in that officer's discretion, and (b) shall, if and when either (i) said Treasurer is directed to do so by a committee of officers of the Corporation chaired by the Chief Executive Officer, or (ii) there occurs a "Hostile Change of Control" as defined in the Bell Atlantic Senior Management Retirement Income Plan, cause Bell Atlantic and the Participating Companies to set aside assets, including, without limitation, assets which may be held under the Bell Atlantic Rabbi Trust Agreement, or to purchase annuity or life insurance contracts, and to apply such assets or the proceeds of such contracts to discharge all or part of the benefit obligations under this Plan. 9.3 APPLICABLE LAW. THIS PLAN SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCEPT TO THE EXTENT SUPERSEDED BY FEDERAL LAW. 9.4 ADMINISTRATION AND INTERPRETATION. THE VICE PRESIDENT - HUMAN RESOURCES OF BELL ATLANTIC (THE "PLAN ADMINISTRATOR") SHALL HAVE THE AUTHORITY AND RESPONSIBILITY TO ADMINISTER AND INTERPRET THIS PLAN. THE DAY TO DAY ADMINISTRATION OF THE PLAN SHALL BE CARRIED OUT BY THE PLAN ADMINISTRATOR, OR BY A PERSON TO WHOM THE PLAN ADMINISTRATOR DELEGATES DISCRETION FOR THE DAY-TO-DAY ADMINISTRATION OF THE PLAN, IN COOPERATION WITH THE SECRETARIES OF EACH OF THE OPERATING TELEPHONE COMPANIES. BENEFITS DUE AND OWING TO AN OUTSIDE DIRECTOR OR BENEFICIARY UNDER THE PLAN SHALL BE PAID WHEN DUE WITHOUT ANY REQUIREMENT THAT A CLAIM FOR BENEFITS BE FILED. HOWEVER, OUTSIDE DIRECTORS AND BENEFICIARIES WHO HAVE NOT RECEIVED THE BENEFITS TO WHICH THEY FEEL ENTITLED MAY FILE A WRITTEN CLAIM WITH THE PLAN ADMINISTRATOR, WHO SHALL ACT ON THE CLAIM WITHIN THIRTY DAYS. THE PLAN ADMINISTRATOR'S ACTION ON ANY SUCH CLAIM MAY BE APPEALED BY THE CLAIMANT TO THE BELL ATLANTIC BOARD, WHICH IS HEREBY EMPOWERED AS A FIDUCIARY WITH FULL DISCRETION TO INTERPRET THE PLAN AND APPLY ITS TERMS TO THE FACTS OF THE CLAIMANT'S CASE. THE DECISION OF THE BELL ATLANTIC BOARD, IN THE EVENT OF ANY SUCH APPEAL, SHALL BE FINAL AND BINDING TO THE FULL EXTENT PERMITTED UNDER APPLICABLE LAW, UNLESS AND TO THE EXTENT THAT A CLAIMANT SUBSEQUENTLY PROVES AN ABUSE OF DISCRETION. ------------------------------------------------------------------------------ Deferred Compensation Plan -8- Restated February 1, 1995 EX-10.I 3 DEFERRED COMPENSATION PLAN EXHIBIT 10i(ii) Human Resources Committee November 21, 1994 STOCK OWNERSHIP IN DEFERRED COMPENSATION PLAN WHEREAS, this Committee at its last meeting adopted stock ownership guidelines for certain officers; and WHEREAS, those stock ownership guidelines take into account, among other ownership interests of the officer in Bell Atlantic shares, any account balance in the Bell Atlantic Deferred Compensation Plan (the "Plan") which is credited with investment earnings based solely on the total return on Bell Atlantic shares, and which is ultimately distributable solely in the form of the Corporations common stock; and WHEREAS, under the current terms of the Plan, those stock ownership guidelines would not take account of any optional deferral of salary or other cash compensation because such deferrals are allocated to an investment contract (a "dual investment account") based on the better of two alternate measures of investment return, and are distributable in either cash or shares, at the election of the participant; RESOLVED, that, with respect to any election tendered by any Plan participant on or after this date to defer salary or other cash compensation, the Plan is hereby amended to allow the participant to waive the right to defer that compensation to a dual investment account, and instead to allow the participant to make an irrevocable election to defer the salary or other cash compensation into a "Share Deferral Account" under the Plan which is credited with investment earnings based solely on the total return on the Corporations shares and which is distributable solely in the form of shares of the Corporations common stock; and it is FURTHER RESOLVED, that the Assistant Vice President - Compensation and Benefits of Bell Atlantic Network Services, Inc., as administrator of the Plan, is hereby authorized, with the advice and assistance of counsel, to take such further action as he considers necessary or appropriate to implement these resolutions. EX-10.K 4 RETIREMENT PLAN EXHIBIT 10k BELL ATLANTIC RETIREMENT PLAN FOR OUTSIDE DIRECTORS (Restated as of February 1, 1995 to incorporate amendments through that date) ARTICLE 1: INTRODUCTION This Plan is maintained by Bell Atlantic Corporation and its Operating Telephone Companies for the benefit of Outside Directors (and their Beneficiaries) who are, or have been, members of the Bell Atlantic Board or an Operating Telephone Company Board (each, a "Participating Board"), and who retire from (or otherwise cease to serve as a director on) a Participating Board at any time on or after January 1, 1987. The Plan shall be maintained according to the terms of this document, as it may be amended from time to time. This Plan represents the merger of eight plans which were formerly maintained separately by Bell Atlantic Corporation and the seven Operating Telephone Companies. The merger of the Plan is not intended to alter the authority of each Participating Board to determine independently the level of directors' fees and other compensation and perquisites for its Outside Directors. ARTICLE 2: DEFINITIONS 2.1 DEFINITIONS. WHEN USED IN THIS DOCUMENT, THE FOLLOWING WORDS AND PHRASES SHALL HAVE THE MEANING ASSIGNED TO THEM, UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE: (a) AFFILIATED COMPANY MEANS BELL ATLANTIC AND ANY DIRECT OR INDIRECT SUBSIDIARY OF BELL ATLANTIC. (b) BELL ATLANTIC MEANS BELL ATLANTIC CORPORATION, A DELAWARE CORPORATION, WHICH MAINTAINS ITS PRINCIPAL OFFICES IN PHILADELPHIA, PENNSYLVANIA. (c) BELL ATLANTIC BOARD MEANS THE BOARD OF DIRECTORS OF BELL ATLANTIC. (d) BENEFICIARY MEANS THE PERSON OR PERSONS, NATURAL OR OTHERWISE, DESIGNATED BY AN OUTSIDE DIRECTOR UNDER SECTION 4.2 TO RECEIVE ANY DEATH BENEFIT PAYABLE UNDER SECTION 4.1. (e) OPERATING TELEPHONE COMPANY MEANS, WITH REFERENCE TO ANY TIME PERIOD BEFORE OR AFTER DIVESTITURE, ANY OF THE FOLLOWING COMPANIES: . Bell Atlantic Delaware, Inc.; . Bell Atlantic Maryland, Inc.; . Bell Atlantic New Jersey, Inc.; . Bell Atlantic Pennsylvania, Inc.; . Bell Atlantic Virginia, Inc.; . Bell Atlantic Washington, D.C., Inc.; and . Bell Atlantic West Virginia, Inc. ------------------------------------------------------------------------------- Bell Atlantic Retirement Plan Page 1 Restated February 1, 1995 (f) OPERATING TELEPHONE COMPANY BOARD SHALL MEAN THE BOARD OF DIRECTORS OF ANY OPERATING TELEPHONE COMPANY, AS ANY SUCH BOARD MAY BE OR MAY HAVE BEEN CONSTITUTED EITHER BEFORE OR AFTER DIVESTITURE. (g) OUTSIDE DIRECTOR MEANS A PERSON WHO (AT THE TIME OF REFERENCE) SERVED OR IS SERVING AS A DIRECTOR ON A PARTICIPATING COMPANY BOARD, AND WHO, AT SUCH TIME, IS NOT AN EMPLOYEE OF THE PARTICIPATING COMPANY OR ANY AFFILIATED COMPANY. (h) PARTICIPANT MEANS AN OUTSIDE DIRECTOR WHO HAS SATISFIED THE ELIGIBILITY REQUIREMENTS OF SECTION 3.1 HEREOF. (i) PARTICIPATING COMPANY MEANS BELL ATLANTIC AND EACH OPERATING TELEPHONE COMPANY. (j) PARTICIPATING COMPANY BOARD MEANS THE BELL ATLANTIC BOARD AND EACH OPERATING TELEPHONE COMPANY BOARD. (k) PLAN MEANS THIS BELL ATLANTIC RETIREMENT PLAN FOR OUTSIDE DIRECTORS, AS SET FORTH IN THIS DOCUMENT AND AS IT MAY BE AMENDED BY THE BELL ATLANTIC BOARD FROM TIME TO TIME. (l) PLAN ADMINISTRATOR SHALL MEAN THE ASSISTANT VICE PRESIDENT - COMPENSATION AND BENEFITS OF BELL ATLANTIC NETWORK SERVICES, INC., OR THE PERSON TO WHOM THAT INDIVIDUAL DELEGATES RESPONSIBILITY FOR ADMINISTERING THIS PLAN, AS MORE FULLY DESCRIBED IN SECTION 5.3. (m) PREDECESSOR PLAN MEANS ANY OF THE EIGHT RETIREMENT PLANS FOR OUTSIDE DIRECTORS WHICH WERE FORMERLY MAINTAINED SEPARATELY BY THE PARTICIPATING COMPANIES AND WHICH WERE MERGED INTO THIS PLAN EFFECTIVE AS OF APRIL 1, 1989. ARTICLE 3: RETIREMENT BENEFITS 3.1 ELIGIBILITY. AN OUTSIDE DIRECTOR SHALL BECOME A PARTICIPANT UPON THE COMPLETION OF FIVE (OR MORE) TWELVE-MONTH PERIODS OF SERVICE (WHETHER OR NOT SUCH PERIODS ARE CONSECUTIVE) AS AN OUTSIDE DIRECTOR, WHETHER SUCH SERVICE IS RENDERED ON ONE PARTICIPATING COMPANY BOARD OR A COMBINATION OF TWO OR MORE PARTICIPATING COMPANY BOARDS; PROVIDED, HOWEVER, THAT SOLELY THOSE PERIODS OF SERVICE AS A NON-EMPLOYEE DIRECTOR (AND NOT PERIODS OF SERVICE WHEN SUCH DIRECTOR WAS CONCURRENTLY EMPLOYED BY THE PARTICIPATING COMPANY OR ANY AFFILIATED COMPANY) SHALL BE COUNTED FOR PURPOSES OF ELIGIBILITY AND BENEFIT ACCRUAL UNDER THIS PLAN. FOR THE PERIOD ENDING WITH THE DATE ON WHICH AN OUTSIDE DIRECTOR CEASES TO SERVE ON ANY AND ALL PARTICIPATING COMPANY BOARD'S, ANY FINAL FRACTION OF A YEAR SHALL BE ROUNDED UP TO THE NEXT WHOLE YEAR IN THE SAME MANNER PROVIDED IN SECTION 3.3. NOTWITHSTANDING THE OTHER PROVISIONS OF THIS SECTION 3.1, ANY OUTSIDE DIRECTOR WHO RESIGNS OR RETIRES FROM AN OPERATING TELEPHONE COMPANY BOARD AT ANY TIME IN 1994 OR 1995 SHALL BE DEEMED TO SATISFY THE ELIGIBILITY REQUIREMENTS OF THIS SECTION 3.1. ------------------------------------------------------------------------------- Bell Atlantic Retirement Plan Page 2 Restated February 1, 1995 3.2 WHEN PAYABLE. (a) NORMAL PENSION: A PARTICIPANT SHALL BE ENTITLED TO A NORMAL PENSION BENEFIT (A "NORMAL PENSION") COMMENCING ON THE FIRST BUSINESS DAY OF THE CALENDAR QUARTER NEXT FOLLOWING THE LATEST OF (A) THE PARTICIPANT'S RETIREMENT FROM, OR OTHER CESSATION OF SERVICE AS A DIRECTOR ON, A PARTICIPATING COMPANY BOARD, (B) ATTAINMENT OF AGE 65, OR (C) THE FIRST ANNIVERSARY OF THE DATE OF DELIVERY OF THE PARTICIPANT'S WRITTEN NOTICE OF HIS OR HER ELECTION OF THE FORM AND TIMING OF THE BENEFIT DISTRIBUTION PURSUANT TO SECTION 3.5. (b) DEFERRED PENSION: A PARTICIPANT MAY ELECT, AT THE TIME AND IN THE MANNER DESCRIBED IN SECTION 3.5(A), TO DEFER THE COMMENCEMENT DATE FOR THE DISTRIBUTION OF BENEFITS UNDER THIS PLAN TO THE FIRST BUSINESS DAY OF JANUARY OF THE YEAR NEXT FOLLOWING THE LATER OF THE DATE ON WHICH SUCH PARTICIPANT ATTAINS AGE 70, OR THE DATE OF CESSATION OF SERVICE AS A DIRECTOR ON A PARTICIPATING COMPANY BOARD. IN THE CASE OF SUCH A "DEFERRED PENSION," THE AMOUNT OF THE BENEFIT SHALL BE THE NORMAL PENSION AMOUNT INCREASED BY THE PRODUCT OF (A) NINE PERCENT (9%) FOR EACH YEAR (AND BY 0.75% FOR EACH MONTH IN EXCESS OF A WHOLE NUMBER OF YEARS), TIMES (B) THE NUMBER OF YEARS (AND MONTHS) FROM THE DATE ON WHICH A NORMAL PENSION WOULD HAVE COMMENCED FOR SUCH PARTICIPANT (IN THE ABSENCE OF SUCH A DEFERRAL) TO THE DEFERRED PENSION COMMENCEMENT DATE. (c) EARLY PENSION: A PARTICIPANT MAY ELECT, AT THE TIME AND IN THE MANNER DESCRIBED IN SECTION 3.5(A), TO RECEIVE A REDUCED PENSION BENEFIT (AN "EARLY PENSION") COMMENCING ON THE FIRST BUSINESS DAY OF THE CALENDAR QUARTER NEXT FOLLOWING THE LATEST OF (A) THE PARTICIPANT'S CESSATION OF SERVICE AS A DIRECTOR ON THE PARTICIPATING COMPANY BOARD, (B) THE DATE ON WHICH THE PARTICIPANT ATTAINS AGE 55 (BUT HAS NOT YET ATTAINED AGE 65), OR (C) THE FIRST ANNIVERSARY OF THE DATE OF DELIVERY OF THE PARTICIPANT'S WRITTEN NOTICE OF HIS OR HER ELECTION OF THE FORM AND TIMING OF THE BENEFIT DISTRIBUTION PURSUANT TO SECTION 3.5. IN SUCH A CASE, THE AMOUNT OF SUCH EARLY PENSION BENEFIT SHALL BE THE NORMAL PENSION AMOUNT REDUCED BY THE PRODUCT OF (A) SIX PERCENT (6%) FOR EACH YEAR (AND 0.5% FOR EACH MONTH IN EXCESS OF A WHOLE NUMBER OF YEARS), TIMES (B) THE NUMBER OF YEARS (AND MONTHS) FROM THE EARLY PENSION COMMENCEMENT DATE TO THE DATE ON WHICH A NORMAL PENSION WOULD HAVE COMMENCED FOR SUCH PARTICIPANT (IN THE ABSENCE OF SUCH AN ELECTION). (d) SUSPENSION OF BENEFITS. (1) SUSPENSION. THE PAYMENT OF PENSION BENEFITS UNDER THIS PLAN SHALL BE SUSPENDED THROUGHOUT ANY PERIOD (AND NO CASH-OUT UNDER THIS PLAN SHALL THEN BE PAID) WHEN THE PARTICIPANT IS SERVING AS AN OUTSIDE DIRECTOR ON A PARTICIPATING COMPANY BOARD. (2) RESUMPTION OF BENEFIT. SUBSEQUENT TO ANY SUCH PERIOD OF BENEFIT SUSPENSION FOR SERVICE ON A PARTICIPATING COMPANY BOARD, SUCH PARTICIPANT'S PENSION BENEFIT UNDER THIS PLAN SHALL BE RECALCULATED WITH REFERENCE TO ALL SERVICE AS AN OUTSIDE DIRECTOR, INCLUDING THE DIRECTORS' RETAINER EARNED AND THE YEARS OF SERVICE ACCRUED DURING SUCH PERIOD OF BENEFIT SUSPENSION, AND THE PARTICIPANT'S PENSION BENEFIT SHALL BE PAID OR RESUMED AT THE NEWLY CALCULATED HIGHER RATE. ------------------------------------------------------------------------------- Bell Atlantic Retirement Plan Page 3 Restated February 1, 1995 (e) NON-DUPLICATION OF BENEFITS. (1) BENEFITS UNDER ONLY ONE PENSION PLAN. A PARTICIPANT WHO AT ANY TIME WOULD BE ELIGIBLE FOR BENEFITS UNDER THIS PLAN AND UNDER ANY OF THE PREDECESSOR PLANS SHALL RECEIVE BENEFITS SOLELY UNDER THIS PLAN. THE BENEFIT UNDER THIS PLAN SHALL, HOWEVER, TAKE ACCOUNT OF ALL SERVICE RENDERED AS AN OUTSIDE DIRECTOR FOR ALL PARTICIPATING COMPANIES. (2) BENEFITS MAY NOT EXCEED 100 PERCENT. IN THE EVENT THAT (I) A PARTICIPANT IS PAID A CASH-OUT DISTRIBUTION UNDER THIS PLAN OR ANY OF THE PREDECESSOR PLANS, AND (II) SUCH A PARTICIPANT SUBSEQUENTLY SERVES AS AN OUTSIDE DIRECTOR ON A PARTICIPATING COMPANY BOARD, THEN THE SUM OF THE PERCENTAGE AMOUNTS UTILIZED FOR PURPOSES OF CALCULATING SUCH PARTICIPANT'S BENEFITS UNDER SECTION 3.3 OF THIS PLAN AND THE CORRESPONDING PROVISION OF ANY OTHER SUCH PLAN SHALL NOT EXCEED 100 PERCENT. (f) DEFERRED COMPENSATION PLAN. NOTHING IN THIS PLAN SHALL AFFECT ELIGIBILITY FOR OR BENEFITS UNDER THE BELL ATLANTIC DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS OR ANY PREDECESSOR OF THAT MERGED PLAN. 3.3 AMOUNT. A PARTICIPANT'S NORMAL PENSION, AS DEFINED IN SECTION 3.2(A), SHALL BE AN ANNUAL AMOUNT EQUAL TO THE PRODUCT OF (A) 10 PERCENT, TIMES (B) THE RATE OF THE PARTICIPANT'S ANNUAL DIRECTORS' RETAINER (EXCLUSIVE OF MEETING FEES OR COMMITTEE CHAIRMEN'S RETAINERS) WHICH IS PREVAILING AT THE TIME THE PARTICIPANT RETIRES FROM (OR OTHERWISE CEASES TO SERVE ON) THE PARTICIPATING COMPANY BOARD AS AN OUTSIDE DIRECTOR, TIMES (C) THE NUMBER OF TERMS OF SERVICE (ROUNDING UP ANY FRACTION OF A ONE-YEAR TERM AS THOUGH IT WERE A WHOLE TERM), NOT TO EXCEED 10, THAT SUCH PARTICIPANT HAS THEN RENDERED AS AN OUTSIDE DIRECTOR ON ALL PARTICIPATING COMPANY BOARDS. 3.4 FORFEITURE OF BENEFITS. ALL BENEFITS NOT YET PAID FOR WHICH AN OUTSIDE DIRECTOR WOULD BE OTHERWISE ELIGIBLE UNDER THIS PLAN SHALL BE FORFEITED IN THE EVENT THAT THE BELL ATLANTIC BOARD DETERMINES THAT ANY OF THE FOLLOWING CIRCUMSTANCES HAS OCCURRED: (a) the Outside Director has engaged in knowing and willful misconduct in connection with his or her service as a director; or (b) the Outside Director, without the consent of the Bell Atlantic Board, has at any time during the period from the last day he or she served as a director on a Participating Company Board (the "Director's Cessation of Service Date") to the second anniversary of such date, personally engaged in managing, planning, or advising in any manner whatever an activity which directly competes with any of the businesses in which a Bell Atlantic Company was engaged on the Director's Cessation of Service Date, or any business which was in the planning stage at a Bell Atlantic Company on such date. For the purposes of this paragraph, a "Bell Atlantic Company" means either (a) the one or more Operating Telephone Companies on the board of which the Outside Director served, in the case of an Outside Director who served on one or more Operating Telephone Company Boards but not the Bell Atlantic Board, or (b) Bell ------------------------------------------------------------------------------- Bell Atlantic Retirement Plan Page 4 Restated February 1, 1995 Atlantic or any Affiliated Company, in the case of an Outside Director who last served on the Bell Atlantic Board. 3.5 FORM OF PAYMENT. (a) ELECTION OF FORM OF PAYMENT. IN THE ABSENCE OF ANY WRITTEN ELECTION BY A PARTICIPANT, SUCH PARTICIPANT'S BENEFIT SHALL BE PAID AS A NORMAL PENSION IN THE FORM OF A LIFE ANNUITY COMMENCING AT THE TIME STATED IN SECTION 3.2(A). THE PARTICIPANT MAY ELECT FROM AMONG THE ALTERNATIVE TIMES AND FORMS OF BENEFIT DISTRIBUTION AS DESCRIBED UNDER SECTIONS 3.2(B) AND (C), AND 3.5(B). ANY SUCH ELECTION OF THE TIME AND FORM OF DISTRIBUTION SHALL BE DELIVERED IN WRITING TO THE PLAN ADMINISTRATOR AT ANY TIME BEFORE, AND NOT LATER THAN 30 DAYS AFTER THE DATE ON WHICH THE OUTSIDE DIRECTOR RETIRES FROM, OR OTHERWISE CEASES TO SERVE ON, THE PARTICIPATING COMPANY BOARD. IN NO EVENT MAY A BENEFIT COMMENCE LESS THAT 12 MONTHS FOLLOWING THE DATE ON WHICH THE OUTSIDE DIRECTOR DELIVERS HIS OR HER WRITTEN ELECTION OF THE FORM AND TIMING OF DISTRIBUTION. (b) ALTERNATIVE FORMS OF BENEFIT DISTRIBUTION. EACH PARTICIPANT MAY, IF HE OR SHE SO ELECTS, DELIVER EITHER OR BOTH OF TWO TYPES OF ELECTIONS UNDER THE PLAN, IN THE MANNER DESCRIBED IN SECTION 3.5(A): (I) WHETHER TO RECEIVE HIS OR HER BENEFIT, AS DESCRIBED IN SECTION 3.2, IN LIEU OF A NORMAL PENSION, IN THE FORM OF A DEFERRED PENSION (IN THE CASE OF A PARTICIPANT RETIRING AS AN OUTSIDE DIRECTOR PRIOR TO ATTAINING AGE 70), OR AN EARLY PENSION (IN THE CASE OF A PARTICIPANT WHO RETIRES AS AN OUTSIDE DIRECTOR PRIOR TO AGE 65); AND (II) WHETHER TO RECEIVE HIS OR HER BENEFIT, IN LIEU OF A LIFE ANNUITY, IN THE FORM OF EITHER A JOINT AND SURVIVOR ANNUITY OR A SINGLE-SUM CASH- OUT, AS FOLLOWS: (1) LIFE ANNUITY. THIS FORM OF BENEFIT SHALL CONSIST OF A SERIES OF QUARTERLY PAYMENTS TO THE PARTICIPANT, COMMENCING ON THE APPLICABLE DATE UNDER SECTIONS 3.5 (A) AND 3.2, AND CONTINUING UNTIL HIS OR HER DEATH. A LIFE ANNUITY IS THE DEFAULT FORM OF BENEFIT IN THE ABSENCE OF AN ALTERNATIVE ELECTION BY A PARTICIPANT. (2) JOINT AND 50-PERCENT SURVIVOR ANNUITY FOR SPOUSE. THIS FORM OF BENEFIT SHALL CONSIST OF A SERIES OF QUARTERLY PAYMENTS TO THE PARTICIPANT, COMMENCING ON THE APPLICABLE DATE UNDER SECTIONS 3.5(A) AND 3.2, AND EQUAL TO 90 PERCENT OF THE AMOUNT THAT WOULD HAVE BEEN PAYABLE ON THAT DATE TO THE PARTICIPANT IF THE PARTICIPANT HAD ELECTED A BENEFIT IN THE FORM OF A LIFE ANNUITY, AND CONTINUING FOR THE PARTICIPANT'S LIFE, AND, IF THE PARTICIPANT IS SURVIVED BY THE PERSON WHO WAS HIS OR HER SPOUSE ON THE LAST DATE HE OR SHE SERVED AS AN OUTSIDE DIRECTOR, A SERIES OF QUARTERLY PAYMENTS TO SAID SPOUSE FOR HIS OR HER LIFE, COMMENCING ON THE PARTICIPANT'S DEATH, EACH SUCH PAYMENT BEING IN AN AMOUNT EQUAL TO 50 PERCENT OF THE QUARTERLY AMOUNTS PREVIOUSLY PAID TO THE PARTICIPANT. IN THE EVENT THAT SAID SPOUSE PREDECEASES THE OUTSIDE DIRECTOR, OR IN THE EVENT OF A DIVORCE OF SAID SPOUSE AND THE FORMER OUTSIDE DIRECTOR, THE BENEFIT SHALL THEREAFTER AUTOMATICALLY BE PAID IN THE FORM OF A LIFE ANNUITY, AND THE 10 PERCENT REDUCTION ATTRIBUTABLE TO THE ELECTION OF THE JOINT AND SURVIVOR ANNUITY SHALL THEREAFTER CEASE TO APPLY. (3) SINGLE-SUM CASH-OUT PAYMENT. THIS FORM OF BENEFIT SHALL CONSIST OF A SINGLE-SUM PAYMENT IN CASH, IN AN AMOUNT DETERMINED WITH REFERENCE TO THE ------------------------------------------------------------------------------- Bell Atlantic Retirement Plan Page 5 Restated February 1, 1995 PENSION BENEFIT THAT WOULD BE PAYABLE ON THE NORMAL PENSION, EARLY PENSION, OR DEFERRED PENSION BENEFIT COMMENCEMENT DATE, WHICHEVER THE PARTICIPANT HAS ELECTED, WHERE SUCH BENEFIT IS CONVERTED TO A SINGLE-SUM CASH-OUT BY UTILIZING (I) THE IMMEDIATE ANNUITY INTEREST RATE ASSUMPTION PUBLISHED BY THE FEDERAL PENSION BENEFIT GUARANTY CORPORATION FOR THE CALENDAR MONTH IMMEDIATELY PRECEDING THE MONTH IN WHICH THE PARTICIPANT RESIGNS OR RETIRES AS AN OUTSIDE DIRECTOR, AND (II) UNISEX TABLES TO DETERMINE THE LIFE EXPECTANCY OF THE PARTICIPANT AS OF THE DATE ON WHICH THE CASH-OUT IS PAYABLE. (c) QUARTERLY PAYMENTS. IN THE CASE OF ANY ANNUITY PURSUANT TO SUBSECTION (B)(1) OR (B)(2) ABOVE, THE QUARTERLY DISTRIBUTION SHALL BE PAYABLE ON THE FIRST BUSINESS DAY OF EACH CALENDAR QUARTER DURING THE PRESCRIBED PAYMENT PERIOD. ARTICLE 4: DEATH PRIOR TO COMMENCING BENEFITS 4.1 DEATH OF DIRECTOR. IF ANY PARTICIPANT DIES PRIOR TO THE DATE ON WHICH HIS OR HER BENEFIT DISTRIBUTION COMMENCES, THEN HIS OR HER BENEFICIARY SHALL BE ENTITLED TO RECEIVE A DEATH BENEFIT. THE DEATH BENEFIT SHALL BE A SINGLE-SUM CASH-OUT, PAYABLE ON THE FIRST BUSINESS DAY OF THE CALENDAR QUARTER NEXT FOLLOWING THE DATE OF DEATH (EVEN IF SUCH DEATH OCCURRED PRIOR TO THE PARTICIPANT'S ATTAINING AGE 55), AND SHALL BE IN AN AMOUNT EQUAL TO THE LUMP SUM (IF ANY) THAT WOULD HAVE BEEN PAYABLE ON SUCH DATE (AFTER TAKING ACCOUNT OF ANY EARLY PENSION REDUCTION WHICH MAY BE APPLICABLE AS DESCRIBED IN SECTION 3.2(C)); PROVIDED, HOWEVER, THAT, IN THE CASE OF A DEATH OF SUCH A PARTICIPANT WHICH OCCURS PRIOR TO AGE 55, THE AMOUNT OF THE EARLY PENSION (EXPRESSED AS A SINGLE LIFE ANNUITY) SHALL BE DETERMINED BY USING THE LESSER OF (A) THE SIX PERCENT PER ANNUM REDUCTION FACTOR DESCRIBED IN SECTION 3.2(C), OR (B) THE APPLICABLE ACTUARIAL REDUCTION FACTOR DERIVED IN THE MANNER DESCRIBED IN ATTACHMENT 1. 4.2 DESIGNATION OF BENEFICIARY. EACH PARTICIPANT MAY DESIGNATE FROM TIME TO TIME, AT ANY TIME NOT LATER THAN THE BENEFIT COMMENCEMENT DATE, ANY PERSON OR PERSONS, NATURAL OR OTHERWISE, AS HIS OR HER BENEFICIARY OR BENEFICIARIES TO WHOM ANY DEATH BENEFITS WHICH MAY BE PAYABLE UNDER SECTION 4.1 ARE TO BE PAID. EACH BENEFICIARY DESIGNATION SHALL BE MADE ON A FORM PRESCRIBED BY THE PLAN ADMINISTRATOR AND SHALL BE EFFECTIVE ONLY WHEN FILED WITH THE CORPORATE SECRETARY OR ASSISTANT SECRETARY OF THE PARTICIPATING COMPANY DURING THE PARTICIPANT'S LIFETIME. EACH BENEFICIARY DESIGNATION FILED WITH THE PLAN ADMINISTRATOR SHALL REVOKE ALL BENEFICIARY DESIGNATIONS PREVIOUSLY MADE BY THE PARTICIPANT. NEITHER THE APPOINTMENT OF A BENEFICIARY NOR THE REVOCATION OF A BENEFICIARY DESIGNATION SHALL REQUIRE THE CONSENT OF ANY PERSON. ARTICLE 5: ADMINISTRATION 5.1 NO FUNDING OBLIGATION. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION 5.1, THE OBLIGATION OF THE PARTICIPATING COMPANIES TO PAY BENEFITS UNDER THIS PLAN SHALL BE UNFUNDED AND UNSECURED, AND, IN ALL EVENTS, ANY PAYMENTS UNDER THIS PLAN SHALL BE MADE SOLELY FROM THOSE ASSETS OF A PARTICIPATING COMPANY WHICH WOULD BE AVAILABLE TO SATISFY THE CLAIMS OF THE PARTICIPATING COMPANY'S GENERAL CREDITORS IN THE ------------------------------------------------------------------------------- Bell Atlantic Retirement Plan Page 6 Restated February 1, 1995 EVENT OF BANKRUPTCY. THE TREASURER OF BELL ATLANTIC (A) MAY, IN THAT OFFICER'S DISCRETION, AND (B) SHALL, IF AND WHEN EITHER (I) SAID TREASURER IS DIRECTED TO DO SO BY A COMMITTEE OF OFFICERS OF THE CORPORATION CHAIRED BY THE CHIEF EXECUTIVE OFFICER, OR (II) THERE OCCURS A "HOSTILE CHANGE OF CONTROL" AS DEFINED IN THE BELL ATLANTIC SENIOR MANAGEMENT RETIREMENT INCOME PLAN, CAUSE BELL ATLANTIC AND THE PARTICIPATING COMPANIES TO SET ASIDE ASSETS, INCLUDING, WITHOUT LIMITATION, ASSETS WHICH MAY BE HELD UNDER THE BELL ATLANTIC RABBI TRUST AGREEMENT, OR TO PURCHASE ANNUITY OR LIFE INSURANCE CONTRACTS, AND TO APPLY SUCH ASSETS OR THE PROCEEDS OF SUCH CONTRACTS TO DISCHARGE ALL OR PART OF THE BENEFIT OBLIGATIONS UNDER THIS PLAN. 5.2 APPLICABLE LAW. THIS PLAN SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, TO THE EXTENT NOT SUPERSEDED BY FEDERAL LAW. 5.3 ADMINISTRATION AND INTERPRETATION. THE ASSISTANT VICE PRESIDENT - COMPENSATION AND BENEFITS OF BELL ATLANTIC NETWORK SERVICES, INC., OR THE PERSON TO WHOM THAT INDIVIDUAL DELEGATES RESPONSIBILITY FOR ADMINISTERING THIS PLAN (THE "PLAN ADMINISTRATOR"), SHALL HAVE THE AUTHORITY AND RESPONSIBILITY TO ADMINISTER AND INTERPRET THIS PLAN. THE DAY TO DAY ADMINISTRATION OF THE PLAN SHALL BE CARRIED OUT BY THE PLAN ADMINISTRATOR IN COOPERATION WITH THE CORPORATE SECRETARIES AND ASSISTANT SECRETARIES OF BAC AND EACH OF THE OPERATING TELEPHONE COMPANIES. BENEFITS DUE AND OWING TO AN OUTSIDE DIRECTOR OR BENEFICIARY UNDER THE PLAN SHALL BE PAID WHEN DUE WITHOUT ANY REQUIREMENT THAT A CLAIM FOR BENEFITS BE FILED. HOWEVER, OUTSIDE DIRECTORS AND BENEFICIARIES WHO HAVE NOT RECEIVED THE BENEFITS TO WHICH THEY FEEL ENTITLED MAY FILE A WRITTEN CLAIM WITH THE PLAN ADMINISTRATOR, WHO SHALL ACT ON THE CLAIM WITHIN THIRTY DAYS. THE PLAN ADMINISTRATOR'S ACTION ON ANY SUCH CLAIM MAY BE APPEALED BY THE CLAIMANT TO THE BELL ATLANTIC BOARD, WHICH IS HEREBY EMPOWERED AS A FIDUCIARY WITH FULL DISCRETION TO INTERPRET THE PLAN AND APPLY ITS TERMS TO THE FACTS OF THE CLAIMANT'S CASE. THE DECISION OF THE BELL ATLANTIC BOARD, IN THE EVENT OF ANY SUCH APPEAL, SHALL BE FINAL AND BINDING TO THE FULL EXTENT PERMITTED UNDER APPLICABLE LAW, UNLESS AND TO THE EXTENT THAT A CLAIMANT SUBSEQUENTLY PROVES AN ABUSE OF DISCRETION. ------------------------------------------------------------------------------- Bell Atlantic Retirement Plan Page 7 Restated February 1, 1995 ATTACHMENT 1 Reduction Factor for Single-Sum Cash-Out In the Event of Death of an Outside Director Prior to Age 55 For computing death benefits pursuant to Section 4.1 of this Plan For the designated beneficiary(ies) of an Outside Director who dies prior to commencing benefits under this Plan on a date prior to attaining age 55, the single-sum cash-out shall be determined in two steps: first, by determining the applicable Early Pension benefit amount (expressed as a single-life annuity), and, second, by determining the single-sum cash-out amount in accordance with Section 3.5(b)(3). The Early Pension benefit amount shall be based on an Early Pension reduction factor which shall be equal to the lesser of: (a) 0.06 (i.e. 6%) for each year (and 0.005 (i.e. 0.5%) for each month) by which the Outside Director's age on the date of death is less than age 65, or (b) the result of subtracting from 1.00 (i.e. 100%) the factor in the attached table which corresponds to the years and months of age attained by an Outside Director on his or her date of death. ------------------------------------------------------------------------------- Bell Atlantic Retirement Plan Attachment 1 Restated February 1, 1995 EX-10.L 5 STOCK COMP. PLAN EXHIBIT 10l BELL ATLANTIC STOCK COMPENSATION PLAN FOR OUTSIDE DIRECTORS (Restated as of October 25, 1994) 1. NAME OF PLAN. THE PLAN SHALL BE KNOWN AS THE BELL ATLANTIC STOCK COMPENSATION PLAN FOR OUTSIDE DIRECTORS (AND IS REFERRED TO HEREIN AS THE "PLAN"). 2. OBJECTIVES OF THE PLAN. THE OBJECTIVES OF THE PLAN ARE TO ENCOURAGE OWNERSHIP OF SHARES OF THE COMMON STOCK (THE "STOCK") OF BELL ATLANTIC CORPORATION (THE "CORPORATION"), AND TO FURTHER ALIGN THE INTERESTS OF NON- EMPLOYEE MEMBERS OF THE BOARDS OF DIRECTORS OF PARTICIPATING COMPANIES WITH THE INTERESTS OF SHAREOWNERS OF THE CORPORATION. 3. EFFECTIVE DATE. THE EFFECTIVE DATE OF THE PLAN IS JULY 1, 1991. THE PLAN WAS SUBMITTED TO, AND WAS APPROVED BY, SHAREOWNERS AT THE ANNUAL MEETING OF THE CORPORATION IN APRIL 1991. 4. PARTICIPATING COMPANIES. THE "PARTICIPATING COMPANIES" IN THE PLAN SHALL BE THE CORPORATION AND THE DOMESTIC OPERATING TELEPHONE COMPANY SUBSIDIARIES OF THE CORPORATION (THE "OTCS"). 5. ELIGIBLE PARTICIPANTS. EACH MEMBER OF THE BOARD OF DIRECTORS OF A PARTICIPATING COMPANY WHO IS, AS OF THE DATE OF ANY AWARD OR GRANT HEREUNDER, IN ACTIVE SERVICE AS A DIRECTOR, BUT WHO IS NOT THEN AN EMPLOYEE OF THE CORPORATION OR ANY SUBSIDIARY OF THE CORPORATION (EACH, AN "OUTSIDE DIRECTOR"), SHALL BE ELIGIBLE TO RECEIVE AN AWARD OR GRANT UNDER THE PLAN. 6. STOCK OPTIONS (a) ANNUAL GRANT OF OPTIONS. COMMENCING IN JANUARY 1995, AND ANNUALLY THEREAFTER, EACH INDIVIDUAL WHO, AT THE CLOSE OF THE REGULAR JANUARY MEETING OF THE BOARD OF DIRECTORS OF THE CORPORATION (THE "BOARD"), IS THEN SERVING AS AN OUTSIDE DIRECTOR OF THE CORPORATION SHALL RECEIVE A GRANT OF 1,000 NONQUALIFIED STOCK OPTIONS ("OPTIONS") TO PURCHASE SHARES OF STOCK AT AN EXERCISE PRICE PER OPTION EQUAL TO THE FAIR MARKET VALUE OF THE STOCK ON THE DATE OF GRANT. "FAIR MARKET VALUE", FOR PURPOSES OF THE PREVIOUS SENTENCE, SHALL HAVE THE SAME MEANING AS STATED IN THE BELL ATLANTIC 1985 INCENTIVE STOCK OPTION PLAN, AS THAT PLAN MAY BE AMENDED FROM TIME TO TIME (THE "ISO PLAN"). OPTIONS GRANTED UNDER THIS PLAN SHALL BE GRANTED ON THE SAME DATE, AND WITH THE SAME EXERCISE PRICE, AS THE PRINCIPAL ANNUAL GRANT OF OPTIONS BY THE HUMAN RESOURCES COMMITTEE ("HRC") OF THE BOARD UNDER THE ISO PLAN. OPTIONS SHALL BE GRANTED UNDER THIS PLAN AUTOMATICALLY, AND NO ACTION BY THE BOARD SHALL BE REQUIRED. THE BOARD SHALL RETAIN THE AUTHORITY IN ITS SOLE DISCRETION TO REVISE, FROM TIME TO TIME, THE NUMBER OF OPTIONS TO BE AUTOMATICALLY GRANTED ANNUALLY UNDER THIS PLAN, PROVIDED, HOWEVER, THAT NO SUCH ACTION SHALL BE TAKEN WITHOUT FIRST OBTAINING THE ADVICE OF COUNSEL. ------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 1 of 5 (b) INITIAL GRANT UPON ELECTION TO THE BOARD. EFFECTIVE AS OF THE FIRST DAY ON WHICH STOCK IS PUBLICLY TRADED IN THE CALENDAR MONTH FIRST FOLLOWING THE MONTH IN WHICH AN INDIVIDUALS INITIAL ELECTION TO THE BOARD, AS AN OUTSIDE DIRECTOR, BECOMES EFFECTIVE, THE OUTSIDE DIRECTOR SHALL RECEIVE A GRANT OF 1,000 OPTIONS, WITH AN EXERCISE PRICE EQUAL TO THE FAIR MARKET VALUE OF THE STOCK ON SAID FIRST TRADING DAY OF SAID MONTH. (c) TERMS OF OPTIONS. OPTIONS SHALL BE SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS: (i) Options shall expire not later than the tenth anniversary of the date of grant; (ii) Options shall be subject to a waiting period of one year, and shall first become exercisable on the first anniversary of the date of grant; (iii) In the event of the retirement of an Outside Director from the Board upon having attained mandatory retirement age, or on account of disability, any outstanding Options which are not yet exercisable shall become exercisable on the day following the Outside Directors retirement, and all outstanding Options shall expire on the earlier of the fifth anniversary of the date of retirement or the tenth anniversary of the date of grant; (iv) In the event of a resignation or a termination of the service of an Outside Director from the Board for any reason other than disability or retirement upon having attained mandatory retirement age, any outstanding Options shall expire at the close of business on the effective date of said resignation; provided, however, that the Board may, in its discretion, take action to cause the Options of such an Outside Director to become exercisable, and/or to remain exercisable, for a period of time subsequent to said resignation or termination, but in no event may the Options remain exercisable after the later of the fifth anniversary of the last date of service as an Outside Director or the tenth anniversary of the date of grant; (v) In the event of the death of an Outside Director at a time when Options are outstanding, any such Options shall be exercisable until the earlier of the first anniversary of the date of death or the tenth anniversary of the date of grant; and (vi) The exercise price for Options shall be payable solely in cash. (d) OPTION AGREEMENTS. WITH RESPECT TO EACH GRANT OF OPTIONS, THE PLAN ADMINISTRATOR, WITH THE ADVICE AND ASSISTANCE OF COUNSEL, SHALL HAVE THE AUTHORITY, RESPONSIBILITY AND DISCRETION TO PREPARE A FORM OF AGREEMENT (THE "OPTION AGREEMENT") WHICH SHALL STATE THE TERMS AND CONDITIONS STATED IN SECTION 6(C) HEREOF, AND SUCH ADDITIONAL ------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 2 of 5 TERMS AND CONDITIONS AS THE PLAN ADMINISTRATOR DETERMINES ARE APPROPRIATE. IN EACH CASE, THE GRANT OF OPTIONS TO AN OUTSIDE DIRECTOR SHALL BE CONDITIONED ON THE OUTSIDE DIRECTOR SIGNING THE CORRESPONDING OPTION AGREEMENT WITHIN A PERIOD DETERMINED BY THE PLAN ADMINISTRATOR. IN THE EVENT THAT AN OPTIONEE DOES NOT DELIVER TO THE PLAN ADMINISTRATOR A SIGNED OPTION AGREEMENT WITHIN AN APPLICABLE PERIOD, OR SIGNS AN OPTION AGREEMENT WHICH HAS BEEN MODIFIED IN A MANNER UNACCEPTABLE TO THE PLAN ADMINISTRATOR, THE OPTIONEE SHALL FORFEIT THE OPTIONS STATED ON SAID OPTION AGREEMENT . 7. STOCK AWARDS. (a) ANNUAL AWARDS. ON THE FIRST BUSINESS DAY OF JULY OF EACH YEAR, EACH PARTICIPATING COMPANY EXCEPT THE CORPORATION SHALL CAUSE TO BE TRANSFERRED TO EACH OF ITS OUTSIDE DIRECTORS WHO IS ON THAT DAY IN ACTIVE SERVICE AS AN ELECTED OUTSIDE DIRECTOR OF THE PARTICIPATING COMPANY, AN AWARD OF STOCK (AND CASH IN LIEU OF ANY FRACTIONAL SHARE) FOR SERVICES TO BE RENDERED AS AN OUTSIDE DIRECTOR FOR THE TWELVE-MONTH PERIOD ON AND AFTER THAT DATE (OR FOR ANY PORTION OF SAID TWELVE-MONTH PERIOD DURING WHICH THE OUTSIDE DIRECTOR REMAINS ON THE RESPECTIVE BOARD). (b) VALUE OF AWARDS. FOR OUTSIDE DIRECTORS OF PARTICIPATING COMPANIES OTHER THAN THE CORPORATION, THE ANNUAL STOCK AWARD SHALL BE A NUMBER OF WHOLE SHARES (AND CASH IN LIEU OF ANY FRACTIONAL SHARE) THE VALUE OF WHICH SHALL EQUAL $1,000. FOR PURPOSES OF COMPUTING THE NUMBER OF SHARES TO BE AWARDED, THE VALUE OF A SHARE OF STOCK AT THE TIME OF AN AWARD SHALL BE DEEMED TO BE EQUAL TO THE AVERAGE OF THE CLOSING PRICES OF THE STOCK FOR EACH OF THE LAST FIVE TRADING DAYS OF THE MONTH OF JUNE IMMEDIATELY PRECEDING THE DATE OF THE AWARD. (c) ELECTION TO TRANSFER SHARES TO DRSPP. EACH OUTSIDE DIRECTOR WHO IS ELIGIBLE FOR AN AWARD OF STOCK UNDER THIS SECTION 7 SHALL, PRIOR TO THE DATE OF THE AWARD FOR A GIVEN YEAR, HAVE THE RIGHT TO ELECT WHETHER TO RECEIVE THE AWARD IN THE FORM OF A SHARE CERTIFICATE, WHICH SHALL BE SOLELY IN THE NAME OF THE OUTSIDE DIRECTOR, OR TO HAVE THE CORPORATION DEPOSIT THE SHARE AWARD DIRECTLY INTO AN ACCOUNT, WHICH SHALL BE SOLELY IN THE NAME OF THE OUTSIDE DIRECTOR, UNDER THE CORPORATION'S DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN ("DRSPP"). FOR AN OUTSIDE DIRECTOR WHO ELECTS TO DEPOSIT THE AWARD IN A DRSPP ACCOUNT, THE TERMS OF DRSPP SHALL THEREAFTER APPLY AND THE SHARES AWARDED UNDER THIS PLAN SHALL BE TREATED NO DIFFERENTLY THAN ANY OTHER SHARES HELD UNDER DRSPP. (d) NO ACCRUED INTEREST IN SUBSEQUENT AWARDS. UNTIL THE APPLICABLE AWARD DATE UNDER THE PLAN, AN ELIGIBLE OUTSIDE DIRECTOR SHALL HAVE NO ACCRUED RIGHT TO RECEIVE ALL OR ANY PORTION OF ANY SUBSEQUENT AWARD, EXCEPT TO THE EXTENT PROVIDED IN ANY PLAN AMENDMENT ADOPTED BY THE PLAN ADMINISTRATOR PURSUANT TO SECTION 12(C)(III). AN ELIGIBLE OUTSIDE DIRECTOR SHALL HAVE NO RIGHT TO ASSIGN OR ALIENATE ANY INTEREST IN ANY AWARD WHICH HAS NOT YET BEEN PRESENTED UNDER THIS PLAN. ------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 3 of 5 8. SOURCE OF STOCK. SHARES OF STOCK AWARDED UNDER THE PLAN, AND STOCK TRANSFERRED TO AN OUTSIDE DIRECTOR UPON EXERCISE OF OPTIONS, MAY BE TREASURY SHARES, OR AUTHORIZED BUT UNISSUED SHARES, OR OUTSTANDING SHARES OF STOCK ACQUIRED BY THE CORPORATION IN THE OPEN MARKET OR ELSEWHERE. 9. TAXES. ANY AND ALL TAX CONSEQUENCES FOR AN OUTSIDE DIRECTOR WHICH ARE ASSOCIATED WITH AN AWARD OF SHARES OR AN EXERCISE OF OPTIONS UNDER THIS PLAN SHALL BE THE SOLE RESPONSIBILITY OF THE PARTICIPATING OUTSIDE DIRECTOR. 10. AUTHORIZED NUMBER OF SHARES. THE AGGREGATE NUMBER OF SHARES OF STOCK WHICH MAY BE AWARDED UNDER THIS PLAN, OR TRANSFERRED UPON EXERCISE OF OPTIONS, SHALL BE 100,000. SAID LIMIT SHALL BE ADJUSTED, IN THE MANNER DETERMINED APPROPRIATE BY THE PLAN ADMINISTRATOR WITH THE ADVICE OF COUNSEL, IN THE EVENT OF ANY STOCK SPLIT, STOCK DIVIDEND, RECAPITALIZATION, OR OTHER CHANGE AFFECTING THE STOCK. 11. NO EFFECT ON RETIREMENT PLAN OR DEFERRED FEE PLAN. THE AWARDS OF STOCK, AND TRANSFERS OF STOCK UPON EXERCISE OF OPTIONS, UNDER THIS PLAN SHALL NOT BE TREATED AS A PORTION OF THE OUTSIDE DIRECTORS' RETAINER, OR AS BENEFIT BEARING COMPENSATION OF ANY KIND, FOR PURPOSES OF DETERMINING THE AMOUNT OF ANY BENEFIT UNDER THE BELL ATLANTIC RETIREMENT PLAN FOR OUTSIDE DIRECTORS. NEITHER THE OPTIONS NOR THE STOCK RECEIVED UNDER THIS PLAN SHALL BE ELIGIBLE FOR DEFERRAL UNDER THE BELL ATLANTIC DEFERRED FEE PLAN FOR OUTSIDE DIRECTORS. 12. ADMINISTRATION; AMENDMENT AND TERMINATION. (a) AUTHORITY OF THE BOARD. THE BOARD OF THE CORPORATION SHALL HAVE THE AUTHORITY TO AMEND AND TO TERMINATE THE PLAN AT ANY TIME IN ITS DISCRETION; PROVIDED, HOWEVER, THAT ANY AMENDMENT ADOPTED BY THE BOARD MAY BE SUBMITTED FOR APPROVAL BY THE SHAREOWNERS OF THE CORPORATION IF, IN THE OPINION OF COUNSEL, SUCH APPROVAL IS REQUIRED TO EXEMPT THE AWARDS OF STOCK, AND THE GRANT OR EXERCISE OF OPTIONS, UNDER THIS PLAN FROM THE SHORT-SWING TRADING PROVISIONS OF SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934, OR TO PRESERVE THE STATUS OF OUTSIDE DIRECTORS AS "DISINTERESTED ADMINISTRATORS" (WITHIN THE MEANING OF REGULATIONS ISSUED PURSUANT TO SAID SECTION 16) FOR PURPOSES OF THE CORPORATIONS COMPENSATION PLANS FOR OFFICERS AND KEY EMPLOYEES. THE NOMINATING COMMITTEE OF THE BOARD MAY RECOMMEND AMENDMENTS TO THE PLAN FOR THE APPROVAL OF THE FULL BOARD. (b) AUTHORITY OF BOARD OF DIRECTORS OF OPERATING TELEPHONE COMPANIES. THE BOARD OF DIRECTORS OF AN OTC SHALL HAVE THE AUTHORITY TO ADOPT THE PLAN ON BEHALF OF THE OTC, AND TO WITHDRAW FROM PARTICIPATION IN THE PLAN AT ANY TIME IN ITS SOLE DISCRETION. (c) AUTHORITY OF PLAN ADMINISTRATOR. THE VICE PRESIDENT HUMAN RESOURCES OF THE CORPORATION, OR ANY PERSON TO WHOM THAT OFFICER DELEGATES ADMINISTRATIVE RESPONSIBILITY FOR THE PLAN, SHALL BE THE "PLAN ADMINISTRATOR" (AS THAT TERM ------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 4 of 5 IS USED HEREIN), WITH THE AUTHORITY (I) TO ADMINISTER AND INTERPRET THE PLAN, (II) TO PREPARE AND DISTRIBUTE OPTION AGREEMENTS AND ADMINISTER THE EXERCISE OF OPTIONS, (III) TO ADOPT MINOR AND ADMINISTRATIVE MODIFICATIONS OF THE PLAN AND AMENDMENTS WHICH THE PLAN ADMINISTRATOR BELIEVES, WITH THE ADVICE OF COUNSEL, TO BE NECESSARY OR APPROPRIATE TO COMPLY WITH CHANGES IN APPLICABLE LAW OR TO ENSURE THAT TRANSACTIONS UNDER THE PLAN REMAIN EXEMPT FROM SECTION 16(B) OF THE SECURITIES EXCHANGE ACT OF 1934 TO THE MAXIMUM EXTENT PRACTICABLE, (IV) TO ADOPT PLAN PROVISIONS FOR THE AWARDING OF PRORATED AMOUNTS OF STOCK IN APPROPRIATE CIRCUMSTANCES, AND (V) WITH ADVICE OF COUNSEL, TO SUBMIT THE PLAN, OR AMENDMENTS TO THE PLAN, TO THE SHAREOWNERS OF THE CORPORATION FOR APPROVAL . (d) AUTHORITY OF CORPORATE SECRETARIES OF OTCS. THE CORPORATE SECRETARY OF EACH OTC SHALL HAVE THE STATUS OF DEPUTY ADMINISTRATOR OF THE PLAN, WITH AUTHORITY TO ASSIST THE PLAN ADMINISTRATOR WITH COMMUNICATIONS AND CORRESPONDENCE WITH OUTSIDE DIRECTORS OF THE RESPECTIVE OTC. ------------------------------------------------------------------------------ Stock Compensation Plan for Outside Directors Page 5 of 5 EX-11 6 COMPUTATION PER SHARE EARNINGS EXHIBIT 11 File No. 1-8606 BELL ATLANTIC CORPORATION AND SUBSIDIARIES Computation of Per Common Share Earnings (Dollars in Millions, Except Per Share Amounts)
Years Ended December 31, ------------------------------------------- 1994 1993 1992 ------------ ------------ ------------ Income before extraordinary items and cumulative effect of changes in accounting principles.............. $ 1,401.9 $ 1,481.6 $ 1,382.2 Tax benefit of dividends paid on shares held by employee stock ownership plans...................... -- -- 14.8 ------------ ------------ ------------ Income before extraordinary items and cumulative effect of changes in accounting principles applicable to common shareowners....................... 1,401.9 1,481.6 1,397.0 Extraordinary items...................................... (2,156.7) (58.4) (41.6) Cumulative effect of changes in accounting principles............................................. -- (19.8) -- ------------ ------------ ------------ Net income (loss) applicable to common shareowners....... $ (754.8) $ 1,403.4 $ 1,355.4 ============ ============ ============ EARNINGS (LOSS) PER COMMON SHARE Weighted average shares outstanding...................... 436,283,155 435,136,371 432,167,257 Incremental shares from assumed exercise of stock options and payment of performance share awards........ 952,652 1,170,838 876,819 ------------ ------------ ------------ Total shares............................................. 437,235,807 436,307,209 433,044,076 ============ ============ ============ Income before extraordinary items and cumulative effect of changes in accounting principles............. $ 3.21 $ 3.39 $ 3.23 Extraordinary items...................................... (4.94) (.13) (.10) Cumulative effect of changes in accounting principles.... -- (.04) -- ------------ ------------ ------------ Net income (loss)........................................ $ (1.73) $ 3.22 $ 3.13 ============ ============ ============ FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE* Weighted average shares outstanding...................... 436,283,155 435,136,371 432,167,257 Incremental shares from assumed exercise of stock options and payment of performance share awards........ 1,007,218 1,298,288 1,027,069 ------------ ------------ ------------ Total shares............................................. 437,290,373 436,434,659 433,194,326 ============ ============ ============ Income before extraordinary items and cumulative effect of changes in accounting principles.................... $ 3.21 $ 3.39 $ 3.23 Extraordinary items...................................... (4.94) (.13) (.10) Cumulative effect of changes in accounting principles.... -- (.04) -- ------------ ------------ ------------ Net income (loss)........................................ $ (1.73) $ 3.22 $ 3.13 ============ ============ ============
________ *Fully diluted earnings per share calculation is presented in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of Accounting Principles Board Opinion No. 15 because it results in dilution of less than 3%. EX-12 7 COMPUTATION OF RATIOS EXHIBIT 12 File No. 1-8606 BELL ATLANTIC CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (Dollars in Millions)
Years Ended December 31, ---------------------------------------------------- 1994 1993 1992 1991 1990 --------- --------- --------- --------- -------- Income before provision for income taxes, extraordinary items, and cumulative effect of changes in accounting principles............... $2,286.8 $2,273.6 $2,025.7 $1,894.7 $1,900.1 Equity in income of less than majority-owned subsidiaries......... (41.1) (48.3) (52.4) (79.5) (52.5) Dividends from less than majority-owned subsidiaries......... 101.0 73.4 48.3 64.6 41.2 Interest expense, including interest on capital lease obligations........ 624.6 719.6 828.7 1,000.8 960.8 Portion of rent expense representative of the interest factor..................... 95.2 102.6 98.6 99.4 100.8 -------- -------- -------- -------- -------- Income, as adjusted................... $3,066.5 $3,120.9 $2,948.9 $2,980.0 $2,950.4 ======== ======== ======== ======== ======== Fixed charges: Interest expense, including interest on capital lease obligations........ $ 624.6 $ 719.6 $ 828.7 $1,000.8 $ 960.8 Portion of rent expense representative of the interest factor..................... 95.2 102.6 98.6 99.4 100.8 Interest capitalized on construction.. 19.1 1.1 3.2 6.4 14.2 Preferred stock dividend requirement.. 5.7 -- -- -- -- -------- -------- -------- -------- -------- Fixed charges......................... $ 744.6 $ 823.3 $ 930.5 $1,106.6 $1,075.8 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges.... 4.12 3.79 3.17 2.69 2.74 ======== ======== ======== ======== ========
EX-13 8 ANNUAL REPORT EXHIBIT 13 Bell Atlantic Corporation and Subsidiaries 2 ------------------------------------- Selected Financial and Operating Data -------------------------------------
(Dollars in Millions, Except Per Share Amounts) ------------------------------------------------------------------------- 1994(b) 1993(c) 1992 1991(d) 1990 -------------------------------------------------------------------------------------------------------------------------------- For the Year Operating Revenues(a) $ 13,791.4 $ 13,145.6 $ 12,836.0 $ 12,659.7 $ 12,649.8 Operating Income $ 2,804.6 $ 2,797.6 $ 2,506.2 $ 2,525.3 $ 2,614.3 Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $ 1,401.9 $ 1,481.6 $ 1,382.2 $ 1,229.9 $ 1,230.5 Net Income (Loss) $ (754.8) $ 1,403.4 $ 1,340.6 $ (324.4) $ 1,230.5 Per Common Share Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $ 3.21 $ 3.39 $ 3.23 $ 2.91 $ 2.92 Net Income (Loss) $ (1.73) $ 3.22 $ 3.13 $ (.72) $ 2.92 Cash Dividends Declared $ 2.76 $ 2.68 $ 2.60 $ 2.52 $ 2.36 At Year-End Total Assets $ 24,271.8 $ 29,544.2 $ 28,099.5 $ 28,305.8 $ 28,391.8 Long-Term Debt $ 6,805.7 $ 7,206.2 $ 7,348.2 $ 7,984.0 $ 8,928.5 Employee Benefit Obligations $ 3,773.8 $ 3,396.0 $ 3,058.7 $ 2,985.1 $ 216.0 Preferred Stock of Subsidiary $ 85.0 - - - - Shareowners' Investment $ 6,081.3 $ 8,224.4 $ 7,816.3 $ 7,367.6 $ 8,531.5 Debt Ratio 59.4% 54.6% 56.3% 59.5% 57.5% Book Value Per Common Share $ 13.94 $ 18.85 $ 18.00 $ 17.12 $ 19.96 Network Access Lines (in thousands) 19,168 18,645 18,181 17,750 17,484 Number of Employees 72,300 73,600 71,400 76,900 82,700 Other Data Return on Average Common Equity (9.8)% 17.3% 17.4% (4.4)% 14.4% Additions to Plant, Property and Equipment $ 2,699.0 $ 2,519.0 $ 2,546.8 $ 2,644.1 $ 2,692.1 --------------------------------------------------------------------------------------------------------------------------------
(a) Certain amounts have been reclassified to conform to 1994 classifications. (b) 1994 includes an extraordinary charge for the discontinuation of regulatory accounting principles at the telephone subsidiaries. (c) 1993 includes the adoption of changes in accounting for income taxes and postemployment benefits. (d) 1991 includes the adoption of a change in accounting for postretirement benefits other than pensions. Bell Atlantic Corporation and Subsidiaries 6 -------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations -------------------------------------------------------------------------- --------------------- Results of Operations ---------------------
(Dollars in Millions, Except Per Share Amounts) ------------------------------------------------------------------------- For the Years Ended December 31 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------------------------ Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $ 1,401.9 $ 1,481.6 $ 1,382.2 Extraordinary Items Discontinuation of regulatory accounting principles, net of tax (2,150.0) - - Early extinguishment of debt, net of tax (6.7) (58.4) (41.6) Cumulative Effect of Changes in Accounting Principles Income taxes - 65.2 - Postemployment benefits, net of tax - (85.0) - ------------------------------------------------------------------------ Net Income (Loss) $ (754.8) $ 1,403.4 $ 1,340.6 ======================================================================== Per Common Share: Income Before Extraordinary Items and Cumulative $ 3.21 $ 3.39 $ 3.23 Effect of Changes in Accounting Principles Extraordinary Items (4.94) (.13) (.10) Cumulative Effect of Changes in Accounting Principles - (.04) - ------------------------------------------------------------------------ Net Income (Loss) $ (1.73) $ 3.22 $ 3.13 ========================================================================
The Company reported a loss in 1994 of $754.8 million or $1.73 per share, compared to net income of $1,403.4 million or $3.22 per share in 1993 and net income of $1,340.6 million or $3.13 per share in 1992. Results for 1994 included a noncash, after-tax extraordinary charge of $2,150.0 million, or $4.92 per share, in connection with the Company's decision to discontinue application of regulatory accounting principles required by Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71). The discontinued application of Statement No. 71 required the Company, for financial reporting purposes, to eliminate its regulatory assets and liabilities, resulting in an after-tax charge of $157.3 million. In addition, the Company recorded an after-tax charge of $1,992.7 million, net of related investment tax credits of $136.2 million, to adjust the carrying amount of its telephone plant and equipment. On August 1, 1994, the Company began using shorter asset lives to depreciate its telephone plant and equipment. The shorter asset lives resulted in additional depreciation expense of approximately $37 million over the amount that would have been recorded using asset lives prescribed by regulators at the time of the discontinued application of Statement No. 71. See Notes 1, 2 and 3 to the Consolidated Financial Statements for additional information on the discontinuation of regulatory accounting principles. Results for each of the three years included extraordinary charges for the early extinguishment of debt, net of tax, of $6.7 million, $58.4 million, and $41.6 million in 1994, 1993, and 1992, respectively. Results for 1993 included the cumulative effects of adopting Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement No. 112) and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." In the third quarter of 1994, the Company recorded a pretax charge of $161.9 million ($99.5 million after-tax), or $.23 per share, in accordance with Statement No. 112, to recognize benefit costs for the separation of employees who are entitled to benefits under preexisting separation pay plans. The charge, which was actuarially determined, represents benefits earned through July 1, 1994 for employees who are expected to receive separation payments in the future. The Company separated approximately 400 management and associate employees in 1994 and expects to separate an additional 5,200 employees through 1997, pursuant to initiatives announced in August 1994. The separation benefit costs associated with this workforce reduction are included in the charge. These workforce reductions will be made possible by changes in provisioning systems and customer service processes, increased spans of control, and consolidation and centralization of administrative and staff groups. Costs to enhance systems and consolidate work activities will be 7 charged to expense as incurred. The Company will continue to evaluate ways to streamline and restructure its operations and reduce its workforce to improve its future cost structure. The results for 1994 also included pretax charges aggregating $38.9 million ($25.8 million after-tax) in connection with the disposition of a subsidiary that sells and distributes liquefied petroleum gas and a foreign cellular operation. The effect of these dispositions will not have a significant impact on results of operations in the future. In 1994, the Company sold the assets of Bell Atlantic TriCon Leasing Corporation (TriCon), except for the leveraged lease and project finance portfolios, resulting in a pretax gain of $42.0 million ($22.7 million after-tax). Revenues and expenses related to the portion of the portfolio that was sold were $245.3 million and $191.6 million, respectively, for the year ended December 31, 1993, and $71.6 million and $60.7 million, respectively, for the four-month period ended April 30, 1994. The Company's investment in Grupo Iusacell, S.A. de C.V. (Iusacell) reduced earnings by $.19 per share in 1994 and $.01 per share in 1993. The loss resulted from the recognition of carrying costs, goodwill amortization, and equity losses. These and other items affecting the comparison of operating results are discussed in the following sections. ------------------- Operating Revenues -------------------
(Dollars in Millions) -------------------------------------------------------------------------- For the Years Ended December 31 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------------------------ Transport Services Local service $ 4,312.4 $ 4,187.4 $ 4,046.4 Network access 3,237.6 3,070.9 2,953.1 Toll service 1,555.5 1,558.0 1,556.2 Ancillary Services Directory advertising 1,082.0 1,049.0 1,021.8 Other 441.9 363.3 361.5 Value-added Services 1,284.4 1,193.6 1,127.9 Wireless Services 1,059.8 785.5 602.6 Other Services 817.8 937.9 1,166.5 -------------------------------------------------------------------------- Total $ 13,791.4 $ 13,145.6 $ 12,836.0 ==========================================================================
--------------------------------------- Transport Services Operating Statistics ---------------------------------------
---------------------------------------------------------------------------- Percentage Increase (Decrease) ----------------------------- 1994 1993* 1992 1994 vs 1993 1993 vs 1992 ------------------------------------------------------------------------------------------------------------------------------------ Access Lines in Service (In thousands, at year-end ) Residence 12,324 12,072 11,856 2.1% 1.8% Business 6,565 6,293 6,042 4.3 4.2 Public 279 280 283 (.4) (1.1) -------------------------------------- 19,168 18,645 18,181 2.8 2.6 ====================================== Access Minutes of Use (In millions) Interstate 56,555 52,541 49,982 7.6 5.1 Intrastate 14,309 12,539 10,916 14.1 14.9 -------------------------------------- 70,864 65,080 60,898 8.9 6.9 ====================================== Toll Messages (In millions) Intrastate 3,333 3,275 3,189 1.8 2.7 Interstate 175 170 160 2.9 6.3 -------------------------------------- 3,508 3,445 3,349 1.8 2.9 ======================================
* 1993 reflects the restatement of access minutes of use. 8 Local Service Revenues
Dollars in Millions Increase ================================================================= 1994 - 1993 $ 125.0 3.0% ----------------------------------------------------------------- 1993 - 1992 $ 141.0 3.5% =================================================================
Local service revenues are earned by the telephone subsidiaries from the provision of local exchange, local private line and public telephone services. Local service revenues increased in 1994 and 1993 due primarily to growth in the number of access lines in service of 2.8% and 2.6%, respectively, as well as higher usage of basic calling services by both business and residence customers. Network Access Revenues
Dollars in Millions Increase ================================================================= 1994 - 1993 $ 166.7 5.4% ----------------------------------------------------------------- 1993 - 1992 $ 117.8 4.0% =================================================================
Network access revenues are received from interexchange carriers (IXCs) for their use of the Company's local exchange facilities in providing long-distance services to IXCs' customers and from end-user subscribers. Switched access service revenues are derived from usage-based charges paid by IXCs for access to the Company's network. Special access revenues arise from access charges paid by customers who have private lines, and end-user access revenues are earned from local exchange carrier customers who pay for access to the network. Network access revenues increased in 1994 and 1993 principally due to higher customer demand for access services as reflected by growth in access minutes of use of 8.9% and 6.9%, respectively, as well as growth in revenues from end-user charges attributable to increasing access lines in service. Volume-related increases in both years were partially offset by the effect of price reductions. Toll Service Revenues
Dollars in Millions Increase (Decrease) ==================================================================== 1994 - 1993 $ (2.5) (.2)% -------------------------------------------------------------------- 1993 - 1992 $ 1.8 .1% ====================================================================
Toll service revenues are earned from calls made outside a customer's local calling area, but within the same service area boundaries of the Company's telephone subsidiaries, commonly referred to as "LATAs." Other toll services include 800 services, Wide Area Telephone Service (WATS), and corridor services (between Northern New Jersey and New York City and between Southern New Jersey and Philadelphia.) Toll service revenues grew in the first half of 1994 by $37.0 million, but declined by $39.5 million during the second half of 1994 over comparable periods in 1993. Growth in the first half of the year was primarily the result of the recovering economy and harsh weather conditions. The decline in revenues in the second half of the year reflects increased competition throughout the region, including the July 1, 1994 commencement of intraLATA toll competition in New Jersey. The Company also implemented price reductions on certain toll services as part of its competitive response and extended local calling service areas in Virginia, both of which contributed to the decline in revenues in the second half of 1994. Price reductions and competition for WATS, private line and interstate toll services resulted in a revenue decline for the year of $20.9 million. The Company expects that competition for toll services will continue to intensify in 1995 (see State Regulation section). Toll service revenues increased slightly in 1993 due to growth in toll message volumes of 2.9%. Volume-related revenue increases were partially offset by declines in revenues from WATS and private line services, principally due to competitive pressures. Revenue growth was further offset by the effects of rate reductions at one of the telephone subsidiaries. Directory Advertising Revenues
Dollars in Millions Increase ================================================================ 1994 - 1993 $ 33.0 3.1% ---------------------------------------------------------------- 1993 - 1992 $ 27.2 2.7% ================================================================
Directory advertising revenues are earned primarily from local advertising and marketing services provided to businesses in White and Yellow Page directories published throughout the region. Other directory advertising services include database and foreign directory marketing. Growth in directory advertising revenues in 1994 and 1993 was principally due to higher rates charged for these services. Volume growth continues to be impacted by competition from other directory companies, as well as other advertising media. Other Ancillary Services Revenues
Dollars in Millions Increase ================================================================= 1994 - 1993 $ 78.6 21.6% ----------------------------------------------------------------- 1993 - 1992 $ 1.8 .5% =================================================================
Other ancillary services include systems integration services, billing and collection services provided to IXCs, and facilities rental services. 9 Other ancillary services revenues increased in 1994 principally due to an increase in the number of contracts for systems integration services provided to the federal government and business customers. The increase in other ancillary services revenues in 1993 resulted from higher volumes of systems integration services. This revenue increase was substantially offset by a decrease in billing and collection revenues as a result of reductions in services provided under long-term contracts with certain IXCs and the effect of favorable claims adjustments recorded in 1992, which reduced year-over-year growth in reported revenues. Value-added Services Revenues
Dollars in Millions Increase ================================================================ 1994 - 1993 $ 90.8 7.6% ---------------------------------------------------------------- 1993 - 1992 $ 65.7 5.8% ================================================================
Value-added services represent a family of enhanced services including Call Waiting, Return Call, Caller ID, Answer Call, and Voice Mail. These services also include customer premises services such as inside wire installation and maintenance and other central office services and features. Continued growth in the network customer base (access lines) and higher demand by residence customers for value-added central office and voice messaging services offered by the telephone subsidiaries increased value-added services revenues in 1994 and 1993. Value-added services revenues in both years were positively impacted by increased demand and higher rates for inside wire installation and maintenance services. These revenue increases were offset, in part, by lower revenues generated from certain maturing central office services and features. The Virginia State Corporation Commission approved a new regulatory plan for Bell Atlantic - Virginia, effective January 1, 1995 (see State Regulation section). This plan includes the elimination of touch-tone service charges, which is expected to reduce revenues by approximately $25 million annually. Wireless Services Revenues
Dollars in Millions Increase ================================================================== 1994 - 1993 $ 274.3 34.9% ------------------------------------------------------------------ 1993 - 1992 $ 182.9 30.4% ==================================================================
Wireless services include revenues generated from Bell Atlantic Mobile (BAM) and its affiliates that provide domestic cellular and paging communications services. The continued growth in the Company's cellular customer base of 57.9% in 1994 and 48.8% in 1993 was the primary reason for the increase in wireless revenues in both years. On May 1, 1994, the New York SMSA Limited Partnership agreement between BAM and NYNEX Mobile Communications Company was restructured. Beginning in May 1994, wireless revenues no longer include cellular revenues associated with BAM's reseller operation in the northern New Jersey area. These reseller revenues for the four- and twelve-month periods ended April 30, 1994 and December 31, 1993 were $30.0 million and $66.1 million, respectively. Cellular revenues, excluding these reseller amounts, were $1,014.9 million in 1994 and $707.3 million in 1993, an increase of $307.6 million or 43.5%. See Wireless Joint Venture section for a discussion of the proposed merger of the domestic cellular properties of Bell Atlantic and NYNEX Corporation. Other Services Revenues
Dollars in Millions (Decrease) =============================================================== 1994 - 1993 $(120.1) (12.8)% --------------------------------------------------------------- 1993 - 1992 $(228.6) (19.6)% ===============================================================
Other services include revenues from the Company's computer maintenance, software development and support, telecommunications consulting, video services, real estate, diversified and computer leasing, and liquefied petroleum gas distribution businesses. The decrease in other services revenues in 1994 is due primarily to the April 1994 sale of a majority of the leasing portfolio owned by TriCon and the disposition of Bell Atlantic Systems Leasing International, Inc. in November of 1994 (see Note 5 to the Consolidated Financial Statements). The Company is no longer providing new leasing services and expects the decreasing revenue trend to continue. The reduction in revenues in 1994 also reflects the impact of the disposition of the Company's software development and liquefied petroleum gas distribution businesses at the end of 1993 and during 1994. These revenue decreases were partially offset by growth in revenues of approximately 21% from the Company's third-party computer maintenance business, principally due to higher volumes resulting from new contracts. Other services revenues decreased in 1993 due primarily to the effect of the transfer, effective December 31, 1992, of the Bell Atlanticom Systems, Inc. (Atlanticom) business to a partnership in which the Company owns a minority interest. The Company's decreased emphasis on computer leasing and real estate operations further contributed to the decrease in other services revenues. Volume-related increases in the Company's third-party computer maintenance business partially offset these revenue decreases. 10 ------------------- Operating Expenses -------------------
(Dollars in Millions) ---------------------------------------------------------------------- For the Years Ended December 31 1994 1993 1992 ---------------------------------------------------------------------------------------------------------------------------------- Employee costs, including benefits and taxes $ 4,333.1 $ 4,027.6 $ 3,941.5 Depreciation and amortization 2,652.1 2,545.1 2,417.4 Other operating expenses 4,001.6 3,775.3 3,970.9 --------------------------------------------------------------------- Total $ 10,986.8 $ 10,348.0 $ 10,329.8 =====================================================================
Employee Costs
Dollars in Millions Increase =============================================================== 1994 - 1993 $ 305.5 7.6% ---------------------------------------------------------------- 1993 - 1992 $ 86.1 2.2% ================================================================
Employee costs consist of salaries, wages, and other employee compensation, employee benefits and payroll taxes. The increase in employee costs in 1994 is largely attributable to the aforementioned charge of $161.9 million to recognize benefit costs for the separation of employees. The third and fourth quarters of 1994 also included approximately $11 million representing the ongoing recognition of costs under separation pay plans. In addition, employee costs increased due to salary and wage increases, increased overtime pay, and an increase in the number of employees at the wireless, computer maintenance, and video services subsidiaries. Higher repair and maintenance activity caused by unusually severe weather conditions experienced during the year contributed to the overall increase in employee costs. These expense increases were offset, in part, by lower workforce levels at the network services subsidiaries and the effect of the disposition of several nonregulated subsidiaries at the end of 1993 and during 1994. In 1993, higher costs from salary and wage increases and overtime at the telephone subsidiaries were offset, in part, by savings of approximately $160 million resulting from workforce reduction programs implemented in 1992 at the network services subsidiaries. Workforce increases at certain nonregulated subsidiaries also contributed to higher employee costs. The effect of these workforce increases were offset, in part, by a reduction in workforce resulting from the transfer of the Atlanticom business to a partnership. Depreciation and Amortization
Dollars in Millions Increase ================================================================= 1994 - 1993 $ 107.0 4.2% ----------------------------------------------------------------- 1993 - 1992 $ 127.7 5.3% =================================================================
Depreciation and amortization expense increased in 1994 due principally to growth in telephone and cellular plant and increased rates of depreciation at the telephone subsidiaries, including depreciation increases resulting from the Company's aforementioned discontinued application of Statement No. 71. On August 1, 1994, the Company began using shorter asset lives for certain categories of telephone plant and equipment which reflect the Company's expectations as to the revenue-producing lives of the assets. The use of the shorter asset lives increased depreciation in 1994 by approximately $37 million, for financial reporting purposes, over the amount that would have been recorded using asset lives prescribed by regulators at the time of the discontinued application of Statement No. 71. Future depreciation represcriptions by regulators will not affect depreciation expense recognized for financial reporting purposes. These expense increases were partially offset by a reduction in depreciation and amortization expense at the Company's leasing subsidiaries as a result of the partial disposition of these businesses during 1994. Depreciation and amortization expense increased in 1993 due primarily to approximately $135 million of additional expense resulting from represcribed depreciation rates at three of the telephone subsidiaries. Also contributing to the increase was growth in the level of depreciable plant at the telephone and cellular subsidiaries in 1993. Partially offsetting these increases was a reduction in depreciation and amortization expense at the leasing and real estate subsidiaries due to the decreased emphasis of these operations. 11 Other Operating Expenses
Dollars in Millions Increase (Decrease) ================================================================= 1994 - 1993 $ 226.3 6.0% ----------------------------------------------------------------- 1993 - 1992 $(195.6) (4.9)% =================================================================
Other operating expenses consist primarily of contracted services, rent, network software costs, provision for uncollectible accounts receivable and other costs. Other operating expenses increased in 1994 principally from higher volumes of business at the Company's network services, wireless, computer maintenance, and systems integration subsidiaries. In addition, the Company incurred higher expenses for video services development. The total effect of these increases was partially offset by the effect of the disposition of several nonregulated subsidiaries at the end of 1993 and during 1994, and reimbursements of approximately $50 million of previously recognized costs as a result of the decision by other Bell Communications Research, Inc. (Bellcore) owners to participate in the Advanced Intelligent Network (AIN) project. This project previously had been supported entirely by the Company. The decrease in other operating expenses in 1993 is largely attributable to a decrease of approximately $184 million resulting from the transfer of the Atlanticom business to a partnership. The decrease also included the effect of the recognition in 1992 of approximately $47 million of one-time costs associated with the Company's merger with Metro Mobile CTS, Inc. (Metro Mobile). Equity in Income of Affiliates
Dollars in Millions (Decrease) =========================================================== 1994 - 1993 $(7.2) (14.9)% ----------------------------------------------------------- 1993 - 1992 $(4.1) (7.8)% ===========================================================
Equity in income of affiliates includes equity income and losses and goodwill amortization related to the Company's investments in unconsolidated businesses. Equity in income of affiliates decreased in 1994 due principally to the effects of goodwill amortization and equity losses of approximately $62 million associated with the Company's investment in Iusacell. The equity loss in Iusacell includes a fourth quarter 1994 charge of approximately $19 million for the Company's estimated proportionate share of the impact of the Mexican peso devaluation on Iusacell's net liabilities, primarily debt, denominated in U.S. dollars. The Iusacell equity loss was substantially offset by improved operating results from the Company's investment in Telecom Corporation of New Zealand Limited (Telecom) and the effect of non-recurring charges recorded by Telecom in 1993. The Company's equity in income of Iusacell will continue to be impacted by changes in the Mexican peso exchange rate. In 1993, improved operating results from the Company's unconsolidated investments in wireless partnerships and Telecom were more than offset by a pretax charge of approximately $42 million, representing the Company's share of non-recurring charges taken by Telecom. Other Income and Expense, Net
For the Years Ended December 31 Dollars in Millions ================================================================== 1994 $ 23.2 ------------------------------------------------------------------ 1993 $ 39.8 ------------------------------------------------------------------ 1992 $162.0 ==================================================================
Other income and expense, net principally includes interest and dividend income, and gains and losses from the disposition of subsidiaries and non-operating assets and investments. Other income and expense, net in 1994 included pretax gains and losses related to the dispositions of TriCon, a liquefied petroleum gas distribution business, and a foreign cellular operation. In addition, the Company recorded approximately $33 million of interest income related to notes receivable held by the Company in connection with the TriCon sale (see Note 5 to the Consolidated Financial Statements). The discontinued recognition of an allowance for funds used during construction resulting from the discontinued application of Statement No. 71 reduced other income by approximately $12 million in 1994. Other income and expense, net in 1993 included a pretax gain of approximately $65 million related to the private sale of a portion of the Company's investment in Telecom, and a pretax charge of approximately $26 million associated with the planned disposition of the Company's software development businesses. Other income and expense, net in 1992 included gains on the sales of shares of HCA-Hospital Corporation of America and real estate, and interest income recognized in connection with the favorable settlement of various federal income tax matters related to prior periods. Interest Expense
Dollars in Millions (Decrease) ================================================================== 1994 - 1993 $ (30.0) (4.9)% ------------------------------------------------------------------ 1993 - 1992 $ (82.8) (11.9)% ==================================================================
Interest expense decreased in 1994 due to the effects of long-term debt refinancings and lower levels of debt. Interest expense was further reduced by the recognition of $15.3 million in capitalized interest costs at the telephone subsidiaries, subsequent to the discontinued application of Statement No. 71. Partially offsetting these decreases were the effect of rising interest rates during the year and the recognition of $27.0 million of interest 12 expense related to retained TriCon debt instruments. The principal and interest payments on the retained debt match the principal and interest received on a note receivable from the purchaser (see Note 5 to the Consolidated Financial Statements). Additionally, 1994 included interest expense of approximately $19 million related to the debt incurred to purchase the Company's investment in Iusacell. Interest expense decreased in 1993 principally due to the effects of long-term debt refinancings and lower short-term interest rates. Decreases also resulted from lower interest costs associated with the Telecom investment, as proceeds from the sale of Telecom shares in 1993 were used to reduce a portion of the acquisition-related debt. Provision for Income Taxes
Dollars in Millions Increase ============================================================== 1994 - 1993 $ 92.9 11.7% -------------------------------------------------------------- 1993 - 1992 $ 148.5 23.1% ==============================================================
Effective Income Tax Rates
For the Years Ended December 31 ============================================================== 1994 38.7% -------------------------------------------------------------- 1993 34.8% -------------------------------------------------------------- 1992 31.8% ==============================================================
The Company's effective income tax rate was higher in 1994 due principally to the reduction in the amortization of investment tax credits and the elimination of the benefit of the rate differential applied to reversing timing differences at the telephone subsidiaries as a result of the discontinued application of Statement No. 71. The 1993 effective income tax rate reflects the effect of federal tax legislation enacted in 1993, which increased the federal corporate tax rate from 34% to 35%. The lower effective income tax rate in 1992 resulted from certain adjustments to deferred taxes. A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is provided in Note 14 to the Consolidated Financial Statements. --------------------------------------- Competitive and Regulatory Environment --------------------------------------- The communications industry continues to undergo fundamental changes which may have a significant impact on future financial performance of telecommunications companies. These changes are being driven by a number of factors, including the accelerated pace of technological innovation, the convergence of the telecommunications, cable television, information services and entertainment businesses and a regulatory environment in which traditional barriers are being lowered or eliminated and competition permitted or encouraged. The Company's telecommunications business is subject to competition from numerous sources. An increasing amount of this competition is from companies that have substantial capital, technological and marketing resources, many of which do not face the same regulatory constraints as the Company. The entry of well-financed competitors has the potential to adversely affect multiple revenue streams of the telephone subsidiaries, including toll, local exchange and network access services in the market segments and geographical areas in which the competitors operate. The amount of revenue reductions will depend, in part, on the competitors' success in marketing these services, and the conditions established by regulatory authorities. The potential impact is expected to be offset, to some extent, by revenues from interconnection charges to be paid to the telephone subsidiaries by these competitors. The Company continues to respond to competitive challenges by intensely focusing on meeting customer requirements and by reducing its cost structure through efficiency and productivity initiatives. In addition, the Company continues to seek growth opportunities in businesses where it possesses core competencies. Several examples of the Company's recent initiatives to address competition are described below. In the network services business, the Company announced plans in August 1994 to separate approximately 5,600 employees by the end of 1997. To expand its presence in the wireless business, the Company agreed to merge its domestic cellular operations with those of NYNEX Corporation. This merger is expected to be completed in mid-1995. Bell Atlantic and NYNEX also formed partnerships with U S WEST, Inc. and AirTouch Communications to bid jointly in the FCC's auctions of licenses to provide personal communications services and to develop a national branding and marketing strategy and wireless communications services standards. To expedite its entry into the video services market and reduce business risks, Bell Atlantic formed two new jointly-owned partnerships with NYNEX and Pacific Telesis Group. A media company will license, acquire, and develop entertainment and information services, and a technol- 13 ogy and integration company will provide the systems necessary to deliver these services over the partnerships' networks. Over the next three years, each of the partners will contribute approximately $100 million in cash or assets to the new joint ventures. Federal Regulation Legislation is expected to be introduced in the current session of the United States Congress that would remove barriers to entry in the local exchange markets and would permit local exchange carriers, such as the Company, to provide interLATA services. The impact of the enactment of such legislation on the Company's future financial performance will depend on a number of factors, including the degree of parity under which competition is permitted in the local and long-distance markets. In February 1994, the FCC initiated a rulemaking proceeding to determine the effectiveness of the price cap rules affecting local exchange carriers, including the Company, and to decide what changes, if any, should be made to those rules. This rulemaking is expected to be concluded in the first half of 1995. Recent FCC rulings have sought to expand competition for special and switched access services. The FCC ordered local exchange carriers, including the Company, to provide virtual collocation in the telephone subsidiaries' central offices to competitors, with the option of offering physical collocation, for the purpose of providing special and switched access transport services. The Company does not expect the net revenue impact of collocation to be material. State Regulation The ability of IXCs to offer intrastate intraLATA toll services is subject to state regulation. Such competition is permitted in all of the Company's state jurisdictions, except Virginia. The Virginia State Corporation Commission is considering whether, and under what terms, to permit such competition. Increased competition from IXCs in 1994 resulted in a continued decline in several components of the telephone subsidiaries' toll service revenues. State regulatory commissions in Pennsylvania, New Jersey, West Virginia, and Delaware have initiated proceedings to determine whether, and under what conditions, to authorize presubscription for intraLATA toll services. The Company expects the level of intraLATA toll service competition to increase in 1995. The telephone subsidiaries' ability to offset such competition will depend, in part, upon the terms and conditions under which presubscription for intraLATA toll services may be authorized. In 1994, several competitors sought authority from state regulatory commissions to provide and resell local exchange telecommunications services in areas served by the Company's telephone subsidiaries. The Maryland Public Service Commission has approved applications from MFS-Intelenet of Maryland, Inc., a subsidiary of MFS Communications Company, Inc., and from MCI Metro ATS, a subsidiary of MCI, to provide and resell local exchange services to business customers in Maryland. Similar applications are pending from competitors in Maryland, New Jersey, and Pennsylvania. The Company's telephone subsidiaries continue to seek the most favorable regulatory plans from their state commissions to keep pace with the rapid changes occurring in the telecommunications industry. The following is a summary of significant state regulatory developments in 1994. Bell Atlantic - Pennsylvania received approval in June of 1994 to implement an alternative regulation plan, which replaces rate base rate of return regulation and allows Bell Atlantic - Pennsylvania to operate under a pure price cap plan with no sharing provisions. In March 1994, Bell Atlantic - Delaware elected to be regulated under a new law pursuant to which the prices of competitive services will not be regulated, rate increases for discretionary services will be limited to 15% annually, basic local service rate increases will be limited to inflation minus 3%, and profits will not be regulated. In December 1994, the West Virginia Public Service Commission extended the incentive regulation plan applicable to West Virginia, which phases out the touch-tone rate and lowers other basic local service rates. The Virginia State Corporation Commission approved a new regulation plan for Bell Atlantic - Virginia, effective January 1, 1995, which eliminates regulation of profits, with provisions that cap basic local service rates until the year 2001, eliminate monthly touch-tone charges, and expand eligibility for lifeline telephone service. -------------- Other Matters -------------- Environmental Issues The Company is subject to a number of environmental proceedings as a result of the operations of its subsidiaries and shared liability provisions in the Plan of Reorganization related to the Modification of Final Judgment. Certain of these environmental matters relate to Superfund sites for which the Company's subsidiaries have been designated as potentially responsible parties by the U.S. Environmental Protection Agency or joined as third-party defendants in pending Superfund litigation. Such designation or joinder subjects the named company to potential liability for costs relating to cleanup of the 14 affected sites. The Company is also responsible for the remediation of sites with underground fuel storage tanks and other expenses associated with environmental compliance. The Company continually monitors its operations with respect to potential environmental issues, including changes in legally mandated standards and remediation technologies. The Company's recorded liabilities reflect those specific issues where remediation activities are currently deemed to be probable and where the cost of remediation is estimable. Management believes that the aggregate amount of any additional potential liability would not have a material effect on the Company's results of operations or financial condition. Wireless Joint Venture Following completion of the proposed merger of the domestic cellular properties of Bell Atlantic and NYNEX Corporation, which is expected to close in mid-1995 (see Note 16 to the Consolidated Financial Statements), the cellular operations of the Company will no longer be included in operating revenues and expenses. The joint venture will be controlled equally by both parties and, therefore, will be accounted for by the Company under the equity method. Revenues and operating income related to the Company's cellular operations were $1,044.9 million and $112.2 million in 1994, and $773.4 million and $43.9 million in 1993, respectively. -------------------- Financial Condition --------------------
(Dollars in Millions) ------------------------------------------------------ For the Years Ended December 31 1994 1993 1992 ---------------------------------------------------------------------------------------------------- Cash Flows From (Used In): Operating Activities $3,752.6 $ 4,154.8 $ 3,924.5 Investing Activities (1,669.8) (2,953.5) (2,004.5) Financing Activities (2,086.0) (1,351.2) (1,755.7)
Management believes that the Company has adequate internal and external resources available to meet ongoing operating requirements, including network expansion and modernization, business development, and the payment of dividends. Management expects that presently foreseeable capital requirements will be financed primarily through internally generated funds. Additional long-term debt and equity financing may be needed to fund development activities and to maintain the Company's capital structure within management's guidelines. The Company determines the appropriateness of the level of its dividend payments on a periodic basis by considering such factors as long-term growth opportunities, internal requirements of the Company, and the expectations of shareowners. The use of derivatives by the Company is limited to managing risk that could endanger the financing and operating flexibility of the Company, making cash flows more stable over the long run, and achieving savings over traditional means of financing. Derivative agreements are tied to a specific liability or asset and hedge the related economic exposures. The use of these hedging agreements has not had a material impact on the Company's financial condition or results of operations. The Company does not use derivatives for speculative purposes and has not hedged its accounting translation exposure to foreign currency fluctuations relative to its net position in foreign subsidiaries. Additional information with respect to hedging agreements is provided in Note 9 to the Consolidated Financial Statements. As of December 31, 1994, the Company and its subsidiaries had in excess of $1.9 billion of unused bank lines of credit and shelf registrations for the issuance of up to $2.0 billion of unsecured debt securities. The Company and its subsidiaries had $666.9 million in borrowings outstanding under bank lines of credit at December 31, 1994. During 1994, as in prior years, the Company's primary source of funds continued to be cash generated from operations. Cash provided from operations in 1994 decreased versus 1993 due principally to higher income tax payments in 1994. Cash proceeds from investing activities in 1994 included $1,323.8 million from the April 1994 sale of TriCon and $123.0 million from the disposition of certain nonregulated subsidiaries. Additionally, the Company received $67.4 million under a special capital reduction plan implemented by Telecom in which 20% of Telecom's outstanding shares were canceled and shareowners received one New Zealand Dollar for each share canceled. Telecom's capital reduction did not change the Company's percentage ownership of Telecom. In 1993, the sale of a portion of the Company's interest in Telecom provided 15 cash proceeds from investing activities of $253.7 million. In 1992, sales of shares of HCA-Hospital Corporation of America and real estate, and the disposition of businesses provided net cash proceeds from investing activities of approximately $393 million. The primary use of capital resources continued to be capital expenditures and the payment of dividends. The Company invested approximately $2.2 billion in 1994, $2.1 billion in 1993, and $2.2 billion in 1992 in the telephone subsidiaries' network. During 1994, Bell Atlantic purchased additional Iusacell shares for $524.0 million, thereby increasing the Company's total investment in Iusacell to $1,044.0 million, and used $37.5 million for the acquisition of a cellular property and a minority interest in a directory business. The Company also invested approximately $31 million in 1994 as a member of the Omnitel-Pronto Italia consortium that was awarded the second cellular license in Italy in March 1994. In 1993, the Company used $710.0 million of cash in connection with the initial investment in Iusacell, and the acquisition of two directory sales companies and certain other investments. On June 2, 1994, Bell Atlantic New Zealand Holdings, Inc., a subsidiary of the Company, issued 850,000 shares of Series A Preferred Stock at a price per share of $100, with a dividend rate of $7.08 per share per annum, pursuant to a private placement resulting in a cash inflow from financing activities of $85.0 million. The preferred stock is subject to mandatory redemption on May 1, 2004 at a redemption price per share of $100. The Company reduced long-term debt (including capital leases) and short- term debt by $990.2 million in 1994, $168.2 million in 1993, and $764.4 million in 1992. Approximately $250 million, $1.7 billion, and $1.8 billion of debt in 1994, 1993, and 1992, respectively, was refinanced at more favorable interest rates. The Company's debt ratio was 59.4% as of December 31, 1994, compared to 54.6% as of December 31, 1993 and 56.3% as of December 31, 1992. The 1994 debt ratio was impacted significantly by the equity reduction associated with the discontinued application of Statement No. 71. Excluding this effect, the debt ratio would have been 51.9% at December 31, 1994. The debt securities of the Bell Atlantic telephone subsidiaries continue to be accorded high ratings by primary rating agencies. As a result of the discontinued application of Statement No. 71, the Consolidated Balance Sheet at December 31, 1994 reflects significant changes due to the elimination of regulatory assets and liabilities, the revaluation of plant and equipment, and the accelerated amortization of investment tax credits (see Note 2 to the Consolidated Financial Statements). The Company's investment in Iusacell at December 31, 1994 has been reduced by approximately $330 million for foreign currency translation losses which are reported as foreign currency translation adjustments in Shareowners' Investment. 17 ---------------------------------- Report of Independent Accountants ---------------------------------- To the Board of Directors and Shareowners of Bell Atlantic Corporation: We have audited the accompanying consolidated balance sheets of Bell Atlantic Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bell Atlantic Corporation and subsidiaries as of December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 2 to the consolidated financial statements, the Company discontinued accounting for the operations of its telephone subsidiaries in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," effective August 1, 1994. Also, as discussed in Notes 1, 13 and 14 to the consolidated financial statements, the Company changed its method of accounting for income taxes and postemployment benefits in 1993. /s/ Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania February 6, 1995 Bell Atlantic Corporation and Subsidiaries 18 -------------------------------------- Consolidated Statements of Operations --------------------------------------
(Dollars in Millions, Except Per Share Amounts) ----------------------------------------------------------------- For the Years Ended December 31 1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Operating Revenues $13,791.4 $13,145.6 $12,836.0 Operating Expenses Employee costs, including benefits and taxes 4,333.1 4,027.6 3,941.5 Depreciation and amortization 2,652.1 2,545.1 2,417.4 Other 4,001.6 3,775.3 3,970.9 ----------------------------------------------------------------- 10,986.8 10,348.0 10,329.8 ----------------------------------------------------------------- Operating Income 2,804.6 2,797.6 2,506.2 Equity in Income of Affiliates 41.1 48.3 52.4 Other Income and Expense, Net 23.2 39.8 162.0 Interest Expense 582.1 612.1 694.9 ----------------------------------------------------------------- Income Before Provision for Income Taxes, Extraordinary Items, and Cumulative Effect of Changes in Accounting Principles 2,286.8 2,273.6 2,025.7 Provision for Income Taxes 884.9 792.0 643.5 ----------------------------------------------------------------- Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles 1,401.9 1,481.6 1,382.2 ----------------------------------------------------------------- Extraordinary Items Discontinuation of regulatory accounting principles, net of tax (2,150.0) - - Early extinguishment of debt, net of tax (6.7) (58.4) (41.6) ----------------------------------------------------------------- (2,156.7) (58.4) (41.6) ----------------------------------------------------------------- Cumulative Effect of Changes in Accounting Principles Income taxes - 65.2 - Postemployment benefits, net of tax - (85.0) - ----------------------------------------------------------------- - (19.8) - ----------------------------------------------------------------- Net Income (Loss) $ (754.8) $ 1,403.4 $ 1,340.6 ================================================================= Per Common Share: Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $ 3.21 $ 3.39 $ 3.23 Extraordinary Items (4.94) (.13) (.10) Cumulative Effect of Changes in Accounting Principles - (.04) - ----------------------------------------------------------------- Net Income (Loss) $ (1.73) $ 3.22 $ 3.13 ================================================================= Weighted Average Number of Common Shares and Equivalent Shares Outstanding (in millions) 437.2 436.3 433.0 =================================================================
See Notes to Consolidated Financial Statements. Bell Atlantic Corporation and Subsidiaries 19 ---------------------------- Consolidated Balance Sheets ----------------------------
(Dollars in Millions, Except Per Share Amounts) --------------------------------------------------------- December 31, 1994 1993 ------------------------------------------------------------------------------------------------------------------------------ Assets Current Assets Cash and cash equivalents $ 142.9 $ 146.1 Short-term investments - 8.5 Accounts receivable, net of allowances of $188.9 and $192.6 2,328.1 2,135.7 Inventories 274.6 250.9 Prepaid expenses 545.5 452.4 Other 492.2 877.2 --------------------------------------------------------- 3,783.3 3,870.8 --------------------------------------------------------- Plant, Property and Equipment 33,745.8 33,181.6 Less accumulated depreciation 16,807.7 12,616.4 --------------------------------------------------------- 16,938.1 20,565.2 --------------------------------------------------------- Investments in Affiliates 1,576.8 1,394.7 Other Assets 1,973.6 3,713.5 --------------------------------------------------------- Total Assets $24,271.8 $29,544.2 ========================================================= Liabilities and Shareowners' Investment Current Liabilities Debt maturing within one year $ 2,087.6 $ 2,677.3 Accounts payable 2,220.2 2,134.9 Accrued taxes 137.2 190.9 Advance billings and customer deposits 450.7 443.0 Accrued vacation pay 251.5 244.0 Dividend payable 301.0 292.2 Other 128.5 141.6 --------------------------------------------------------- 5,576.7 6,123.9 --------------------------------------------------------- Long-Term Debt 6,805.7 7,206.2 --------------------------------------------------------- Employee Benefit Obligations 3,773.8 3,396.0 --------------------------------------------------------- Deferred Credits and Other Liabilities Deferred income taxes 1,305.7 2,913.5 Unamortized investment tax credits 176.7 447.2 Other 466.9 1,233.0 --------------------------------------------------------- 1,949.3 4,593.7 --------------------------------------------------------- Preferred Stock of Subsidiary 85.0 - --------------------------------------------------------- Commitments (Notes 7, 11 and 16) Shareowners' Investment Preferred and Preference stock ($1 par value; none issued) - - Common stock ($1 par value; 436,405,646 shares and 436,130,185 shares issued) 436.4 436.1 Common stock issuable (92,899 shares and 142,068 shares) .1 .1 Contributed capital 5,428.4 5,415.2 Reinvested earnings 1,144.4 3,093.6 Foreign currency translation adjustment (330.8) (83.9) --------------------------------------------------------- 6,678.5 8,861.1 Less common stock in treasury, at cost 11.0 2.4 Less deferred compensation-employee stock ownership plans 586.2 634.3 --------------------------------------------------------- 6,081.3 8,224.4 --------------------------------------------------------- Total Liabilities and Shareowners' Investment $24,271.8 $29,544.2 =========================================================
See Notes to Consolidated Financial Statements. Bell Atlantic Corporation and Subsidiaries 20 -------------------------------------- Consolidated Statements of Cash Flows --------------------------------------
(Dollars in Millions) ------------------------------------------------------------------- For the Years Ended December 31 1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income (loss) $ (754.8) $ 1,403.4 $ 1,340.6 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,652.1 2,545.1 2,417.4 Extraordinary items, net of tax 2,156.7 58.4 41.6 Cumulative effect of changes in accounting principles, net of tax - 19.8 - Other items, net 1.2 (96.2) (56.5) Changes in certain assets and liabilities, net of effects from acquisition/disposition of businesses: Accounts receivable (208.3) (87.8) (13.8) Inventories (80.8) (31.7) (35.0) Other assets (235.3) 3.8 157.0 Accounts payable and accrued taxes 53.9 328.2 (56.3) Deferred income taxes, net (270.5) (105.8) (26.1) Unamortized investment tax credits (49.4) (66.2) (80.0) Employee benefit obligations 382.8 193.3 63.6 Other liabilities 105.0 (9.5) 172.0 ------------------------------------------------------------------- Net cash provided by operating activities 3,752.6 4,154.8 3,924.5 ------------------------------------------------------------------- Cash Flows From Investing Activities Purchases of short-term investments (10.0) (8.5) (159.3) Proceeds from sale of short-term investments 18.5 34.0 241.3 Additions to plant, property and equipment (2,648.3) (2,517.4) (2,560.4) Proceeds from sale of plant, property and equipment 102.1 47.4 426.9 Investment in finance lease and notes receivable (741.6) (1,862.5) (1,467.0) Proceeds from finance lease and notes receivable 721.8 1,801.2 1,474.7 Acquisition of businesses, less cash acquired (37.5) (146.9) (.3) Investment in Grupo Iusacell, S.A. de C.V. (524.0) (520.0) - Proceeds from sale of ownership interest in Telecom Corporation of New Zealand Limited - 253.7 - Proceeds from Telecom Corporation of New Zealand Limited capital reduction plan 67.4 - - Investment in joint ventures (46.0) (43.1) (17.0) Proceeds from disposition of businesses 1,446.8 - 26.5 Proceeds from sale of investment - - 58.9 Other, net (19.0) 8.6 (28.8) ------------------------------------------------------------------- Net cash used in investing activities (1,669.8) (2,953.5) (2,004.5) ------------------------------------------------------------------- Cash Flows From Financing Activities Proceeds from borrowings 249.6 2,148.1 1,340.7 Principal repayments of borrowings and capital lease obligations (621.1) (949.0) (1,875.5) Early extinguishment of debt (350.0) (1,575.0) (987.5) Net change in short-term borrowings with original maturities of three months or less (287.6) 186.7 700.4 Dividends paid (1,195.1) (1,156.5) (1,069.7) Proceeds from sale of common stock 6.9 33.7 122.1 Purchase of common stock for treasury (8.7) - (.1) Net change in outstanding checks drawn on controlled disbursement accounts 35.0 (39.2) 13.9 Proceeds from sale of preferred stock by subsidiary 85.0 - - ------------------------------------------------------------------- Net cash used in financing activities (2,086.0) (1,351.2) (1,755.7) ------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (3.2) (149.9) 164.3 Cash and cash equivalents, beginning of year 146.1 296.0 131.7 ------------------------------------------------------------------- Cash and cash equivalents, end of year $ 142.9 $ 146.1 $ 296.0 ===================================================================
See Notes to Consolidated Financial Statements. Bell Atlantic Corporation and Subsidiaries 21 -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- ------------------------------------------------ 1 Summary of Significant Accounting Policies ------------------------------------------------ Consolidation and Basis of Presentation The consolidated financial statements include the accounts of Bell Atlantic Corporation (Bell Atlantic) and its majority-owned subsidiaries (together with Bell Atlantic, the Company). Investments in businesses in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Other investments are accounted for by the cost method. All significant intercompany accounts and transactions have been eliminated. As a result of the disposition of a significant portion of its lease financing and other non-strategic businesses in 1994 (see Note 5), the Company operates predominantly in a single industry segment - communications and related services. Effective August 1, 1994, the telephone subsidiaries discontinued accounting for their operations under the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71) (see Note 2). Revenue Recognition Revenues are recognized as earned on the accrual basis. The telephone subsidiaries recognize revenues when services are rendered based on usage of the Company's local exchange network and facilities. Other subsidiaries recognize revenues when products are delivered or services are rendered to customers. Cellular operations revenues include access and usage, equipment, and gross roamer revenues into and out of the Company's markets. Revenues recognized from leasing transactions are recorded in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases." Direct finance lease receivables consist of the gross minimum lease payments receivable under the leases plus the estimated residual value of the leased property less the unearned income. Unearned income represents the excess of the gross minimum lease payments receivable plus the estimated residual value over the cost of the equipment leased. Unearned income is amortized to income over the term of the lease by methods that provide an approximately level rate of return on the net investment in the lease. Leveraged lease receivables consist of the aggregate minimum rentals receivable under the leases, net of related nonrecourse debt, plus the estimated residual value of the leased property less unearned income. The unearned income represents the estimated pretax lease income and unamortized investment tax credits. Accumulated deferred income taxes arising from leveraged leases are deducted from leveraged lease receivables to determine the net investment in leveraged leases. Unearned income is recognized at a rate that will distribute income to years in which the net investment in the leveraged lease is positive. Operating lease income is recognized in equal monthly amounts over the term of the lease. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. Short-term Investments Short-term investments consist of investments that mature 91 days to 12 months from the date of purchase. Short-term investments are stated at cost, which approximates market value. Inventories New and reusable materials of the telephone subsidiaries are carried in inventory, principally at average original cost, except that specific costs are used in the case of large individual items. Inventories of other subsidiaries are carried at the lower of cost (determined principally on either an average or first-in, first-out basis) or market. Prepaid Directory Costs of directory production and advertising sales are principally deferred until the directory is published. Such costs are amortized to expense and the related advertising revenues are recognized over the average life of the directory, which is generally 12 months. Plant and Depreciation The telephone subsidiaries' provision for depreciation is based principally on the composite group remaining life method of depreciation and straight-line composite rates. This method provides for the recovery of the remaining net investment in telephone plant, less anticipated net salvage value, over the remaining asset lives. In connection with the discontinued application of Statement No. 71, the Company began recording depreciation expense based on 22 expected revenue-producing asset lives. The following asset lives were used, effective August 1, 1994: buildings, 18 to 40 years; central office equipment, 4 to 12 years; cable, wiring, and conduit, 14 to 50 years; and other equipment, 6 to 38 years. Previously, depreciation expense of the telephone subsidiaries was based on asset lives that were authorized by regulatory commissions (see Note 3) and included regulator-approved amortization of certain classes of telephone plant. When depreciable plant of the telephone subsidiaries is replaced or retired, the amounts at which such plant has been carried in plant, property and equipment are removed from the respective accounts and charged to accumulated depreciation, and any gains or losses on disposition are amortized over the remaining asset lives of the remaining net investment in telephone plant. Plant, property and equipment of other subsidiaries is depreciated principally on a straight-line basis over the following estimated useful lives: buildings, 15 to 40 years; and other equipment, 2 to 15 years. When the depreciable assets of these subsidiaries are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gains or losses on disposition are recognized in income. Equipment under operating leases is depreciated to estimated residual value, principally by using a sum-of-the-years-digits method. Maintenance and Repairs The cost of maintenance and repairs, including the cost of replacing minor items not constituting substantial betterments, is charged to operating expense. Capitalized Interest Cost Upon the discontinued application of Statement No. 71, effective August 1, 1994, the telephone subsidiaries began reporting capitalized interest as a cost of telephone plant and equipment and a reduction in interest expense, in accordance with the provisions of Statement of Financial Accounting Standards No. 34, "Capitalization of Interest Cost" (Statement No. 34). The Company's other subsidiaries account for capitalized interest in accordance with Statement No. 34 provisions. Prior to the discontinued application of Statement No. 71, the telephone subsidiaries recorded an allowance for funds used during construction, which included both interest and equity return components, as a cost of plant and as an item of other income. Cost in Excess of Net Assets Acquired The excess of the acquisition cost over the fair value of net assets of businesses acquired is amortized by the straight-line method over periods not exceeding 40 years. The carrying amount is reviewed whenever events or changes in circumstances indicate that the carrying value may not be recoverable and a determination of impairment (if any) is made based on estimates of future cash flows of the businesses acquired. Foreign Currency Assets and liabilities of foreign subsidiaries and equity investees are translated into U.S. dollars at exchange rates in effect at the end of the reporting period. Foreign entity revenues and expenses are translated into U.S. dollars at the average rates that prevailed during the period. The resultant net translation gains and losses are reported as foreign currency translation adjustments in Shareowners' Investment. Exchange gains and losses on transactions of the Company and its equity investees denominated in a currency other than their functional currency are generally included in results of operations as incurred. Exchange gains and losses on intercompany foreign currency transactions of a long-term investment nature are reported as foreign currency translation adjustments in Shareowners' Investment. Hedging Instruments The Company periodically enters into hedging agreements to reduce its exposure to fluctuations in foreign exchange rates and interest rates. Forward exchange contracts are generally used to hedge the exposure to currency fluctuations on certain short-term transactions denominated in a currency other than the entities' functional currency. Gains and losses on these contracts generally offset the foreign exchange gains and losses on the underlying hedged transactions and are included in results of operations. The discount or premium on these contracts is included in results of operations over the life of the contract. Gains and losses and related discounts or premiums arising from financial instruments that hedge foreign balances of a long-term investment nature are included as foreign currency translation adjustments in Shareowners' Investment. Hedging instruments are sometimes used to manage the exposure to currency fluctuations associated with identifiable foreign currency commitments. Gains and losses from these instruments are deferred and reflected as adjustments of the related transactions. 23 The Company periodically enters into interest rate hedge agreements which involve the exchange of fixed and variable interest rate payments over the life of the agreement without exchange of the underlying principal amounts. The differential to be paid or received under these agreements is accrued as interest rates change and is recognized as an adjustment to interest expense over the life of the agreements. Employee Benefits Pension Plans Substantially all employees of the Company are covered under noncontributory defined benefit pension plans. Amounts contributed to the Company's pension plans are actuarially determined, principally under the aggregate cost actuarial method, and are subject to applicable federal income tax regulations. Postretirement Benefits Other Than Pensions Substantially all employees of the Company are covered under postretirement health and life insurance benefit plans. Amounts contributed to 501(c)(9) trusts and 401(h) accounts under applicable federal income tax regulations to pay certain postretirement benefits are actuarially determined, principally under the aggregate cost actuarial method. Postemployment Benefits The Company provides employees with postemployment benefits such as disability benefits, workers' compensation, and severance pay. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting for the estimated cost of benefits provided to former or inactive employees after employment but before retirement. Prior to 1993, the cost of these benefits was primarily charged to expense as the benefits were paid. Savings Plans and Employee Stock Ownership Plans The Company maintains savings plans which cover substantially all of its employees. A substantial portion of the Company's matching contribution is provided through employee stock ownership plans (ESOPs). The Company recognizes expense based on accounting rules applicable to companies with ESOP trusts that held securities prior to December 15, 1989. Under this method, the Company recognizes 80 percent of the cumulative expense that would have been recognized under the shares allocated method. The obligations of the ESOP trusts, which are guaranteed by the Company, 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, the Company reduces 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. Income Taxes Bell Atlantic Corporation and its domestic subsidiaries file a consolidated federal income tax return. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement No. 109), which requires the determination of deferred taxes using the asset and liability method. Under the asset and liability method, deferred taxes are provided on book and tax basis differences and deferred tax balances are adjusted to reflect enacted changes in income tax rates. Prior to 1993, the Company accounted for income taxes based on the provisions of Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes" (APB No. 11). Under APB No. 11, deferred taxes were generally provided to reflect the effect of timing differences on the recognition of revenue and expense determined for financial and income tax reporting purposes. The Tax Reform Act of 1986 repealed the investment tax credit (ITC) as of January 1, 1986, subject to certain transitional rules. ITCs of the telephone subsidiaries were deferred and are being amortized as a reduction to income tax expense over the estimated service lives of the related assets. Earnings Per Common Share Earnings per common share calculations are based on the weighted average number of shares and equivalent shares outstanding during the year. Prior to January 1, 1993, for purposes of computing earnings per common share, net income attributable to common shares included the income tax benefit resulting from dividends paid on shares held by the Company's ESOPs. As a result of implementing Statement No. 109, the Company no longer includes the income tax benefit resulting from dividends paid on unallocated shares held by ESOPs in net income attributable to common shares for purposes of computing earnings per share. Pursuant to the provisions of Statement No. 109, the income tax benefit resulting from dividends paid on allocated shares is included in net income. Reclassifications Certain reclassifications of prior years' data have been made to conform to 1994 classifications. 24 --------------------------------------------------------- 2 Discontinuation of Regulatory Accounting Principles --------------------------------------------------------- In the third quarter of 1994, the Company determined that it was no longer eligible for continued application of the accounting required by Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71). In connection with the decision to discontinue regulatory accounting principles under Statement No. 71, the Company recorded a noncash, after-tax extraordinary charge of $2,150.0 million, which is net of an income tax benefit of $1,498.4 million. The Company's determination that it was no longer eligible for continued application of the accounting required by Statement No. 71 was based on the belief that the convergence of competition, technological change (including the Company's technology deployment plans), actual and potential regulatory, legislative and judicial actions, and other factors are creating fully open and competitive markets. In such markets, the Company does not believe it can be assured that prices can be maintained at levels that will recover the net carrying amount of existing telephone plant and equipment, which has been depreciated over relatively long regulator-prescribed lives. In addition, changes from cost-based regulation to various forms of incentive regulation in all jurisdictions contributed to the determination that the continued application of Statement No. 71 is inappropriate. The components of the charge recognized as a result of the discontinued application of Statement No. 71 follow:
(Dollars in Millions) ------------------------------------ Pre-tax After-tax ---------------------------------------------------------------------------- Increase in plant and equipment depreciation reserve $ 3,463.0 $ 2,128.9 Accelerated investment tax credit amortization - (136.2) Tax-related regulatory asset and liability elimination - 42.5 Other regulatory asset and liability elimination 185.4 114.8 ------------------------------------ Total $ 3,648.4 $ 2,150.0 ====================================
The increase in the accumulated depreciation reserve of $3,463.0 million was supported by both an impairment analysis, which identified estimated amounts not recoverable from future discounted cash flows, and a depreciation study, which identified inadequate depreciation reserve levels which the Company believes resulted principally from the cumulative underdepreciation of plant as a result of the regulatory process. Investment tax credit amortization was accelerated as a result of the reduction in remaining asset lives of the associated telephone plant and equipment. Upon adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the effects of required adjustments to deferred tax balances were deferred on the balance sheet as regulatory assets and liabilities and amortized at the time the related deferred taxes were recognized in the ratemaking process. As of August 1, 1994, tax-related regulatory assets of $757.2 million and tax-related regulatory liabilities of $714.7 million were eliminated. The elimination of other regulatory assets and liabilities relates principally to deferred debt refinancing and vacation pay costs, which were being amortized as they were recognized in the ratemaking process. ----------------------------------- 3 Plant, Property and Equipment ----------------------------------- Plant, property and equipment, which is stated at cost, is summarized as follows at December 31:
(Dollars in Millions) -------------------------------- 1994 1993 -------------------------------------------------------------------- Land $ 273.5 $ 262.0 Buildings 2,741.7 2,606.7 Central office equipment 12,261.8 11,905.5 Cable, wiring, and conduit 12,074.9 11,635.4 Other equipment 4,976.2 5,391.2 Other 510.6 696.2 Construction-in-progress 907.1 684.6 -------------------------------- 33,745.8 33,181.6 Accumulated depreciation (16,807.7) (12,616.4) -------------------------------- Total $ 16,938.1 $ 20,565.2 ================================
The increase in accumulated depreciation in 1994 included $3,463.0 million attributable to the adjustment to the carrying value of telephone plant and equipment resulting from the discontinued application of Statement No. 71 (see Note 2). The components of the adjustment to the accumulated depreciation reserve are summarized as follows:
(Dollars in Millions) --------------------------------------------------------------------- Buildings $ 194.4 Central office equipment 1,252.0 Cable, wiring, and conduit 1,625.6 Other equipment 391.0 ----------- Total $ 3,463.0 ===========
25 In connection with the discontinued application of Statement No. 71, effective August 1, 1994, for financial reporting purposes, the Company began using estimated asset lives for certain categories of plant and equipment that are shorter than those approved by regulators prior to the discontinuance of Statement No. 71. The shorter lives result from the Company's expectation as to the revenue-producing lives of the assets. A comparison of the regulator- approved asset lives to the shorter new asset lives for the most significantly impacted categories of plant and equipment of the telephone subsidiaries follows:
---------------------------- Regulator- Approved New Average Lives (in years) Asset Lives Asset Lives ---------------------------------------------------------------------- Buildings 18-60 18-40 Digital switch 17-19 12 Digital circuit 11-13 9-11 Conduit 50-60 50 Copper cable 20-30 14-19 Fiber cable 20-30 20-25 ----------------------------
------------------------------- 4 Investments in Affiliates ------------------------------- The Company's investments in affiliates, which are accounted for principally under the equity method, consist of the following at December 31:
(Dollars in Millions) ------------------------------------------------------------- 1994 1993 ------------------------------ -------------------------- Ownership Investment Ownership Investment ----------------------------------------------------------------------------------------------------------------- Telecom Corporation of New Zealand Limited 24.8% $ 625.6 24.8% $ 610.2 Grupo Iusacell, S.A. de C.V. 41.9% 646.4 23.2% 517.0 Other Various 304.8 Various 267.5 ------------------------------------------------------------- Total $1,576.8 $1,394.7 =============================================================
Telecom Corporation of New Zealand Limited (Telecom) is the principal provider of telecommunications services in that country. At the date of acquisition in 1990, the Company's interest in Telecom exceeded the recorded value of the proportionate share of the underlying net assets by approximately $285 million. This amount is being amortized by the straight-line method over a period of 40 years. During 1993, the Company recorded an after-tax gain of $44.7 million as a result of the sale of Telecom stock. Through the purchase of stock in 1993 and 1994 totaling $1,044.0 million, the Company acquired an economic interest in Grupo Iusacell, S.A. de C.V. (Iusacell), the second largest telecommunications company in Mexico. Shares held by Bell Atlantic represent approximately 44% of the voting rights pertaining to Iusacell stock. At acquisition, the cumulative investment in Iusacell exceeded the recorded value of the underlying net assets by approximately $760 million. This amount is being amortized by the straight-line method over a period of 25 years. The Company's investment in Iusacell has been reduced by approximately $330 million for foreign currency translation losses which are reported as foreign currency translation adjustments in Shareowners' Investment. The Company's other investments consist principally of cellular mobile communications and real estate partnerships, a one-seventh interest in Bell Communications Research, Inc. (Bellcore), and several other domestic and international joint ventures. 26 ------------------------------- 5 Disposition of Businesses ------------------------------- Lease Financing In the second quarter of 1994, the Company sold the assets of Bell Atlantic TriCon Leasing Corporation (TriCon), except for leveraged lease and project finance portfolios, to GFC Financial Corporation (GFC). The sale price consisted of $344.2 million in cash and $835.9 million in notes receivable, plus the assumption of $81.8 million of liabilities by GFC. In addition, the Company retained $586.7 million of debt instruments of TriCon and received a note of an equal amount from GFC. The principal and interest payments on the retained debt match the principal and interest payments received on the note from GFC. At December 31, 1994, the remaining balance of a note receivable from GFC was $435.0 million. The Company recorded a pretax gain of $42.0 million as a result of this transaction. In the fourth quarter of 1994, the Company sold substantially all of the assets of a leasing subsidiary, Bell Atlantic Systems Leasing International, Inc., including the Company's 50% ownership interest in Pacific Atlantic Systems Leasing, Inc. This sale did not have a material effect on the Company's results of operations or financial position. Other In 1994, the Company recorded pretax charges aggregating $38.9 million in connection with the disposition of a subsidiary that sells and distributes liquefied petroleum gas and a foreign cellular operation. ------------------------------------ 6 Leasing Arrangements as Lessor ------------------------------------ During 1994, the Company sold substantially all of its lease financing business, except for leveraged lease and project finance portfolios (see Note 5). The Company is no longer providing new leasing services. Finance lease receivables, net, which are included in Other (current assets) and Other Assets (noncurrent assets) in the Consolidated Balance Sheets, consist of the following components at December 31:
(Dollars in Millions) -------------------------------------------------------------------------- 1994 1993 ---------------------------------- ------------------------------------ Direct Direct Leveraged Finance Leveraged Finance Leases Leases Total Leases Leases Total ---------------------------------------------------------------------------------------------------------------------------- Minimum lease payments receivable $ 852.3 $ 41.6 $ 893.9 $ 879.9 $ 736.1 $ 1,616.0 Estimated residual value 548.7 5.6 554.3 584.1 136.9 721.0 Unearned income (505.0) (18.1) (523.1) (542.8) (156.8) (699.6) -------------------------------------------------------------------------- $ 896.0 $ 29.1 925.1 $ 921.2 $ 716.2 1,637.4 ====================== ====================== Allowance for doubtful accounts - (48.9) --------- ------------ Finance lease receivables, net $ 925.1 $ 1,588.5 ========= ============ Current $ 35.8 $ 271.1 ========= ============ Noncurrent $ 889.3 $ 1,317.4 ========= ============
27 Minimum lease payments receivable for the leveraged leases are shown net of principal and interest on the associated nonrecourse debt. Accumulated deferred taxes arising from leveraged leases, which are included in deferred income taxes, amounted to $779.5 million and $799.8 million at December 31, 1994 and 1993, respectively. Plant, property and equipment at December 31, 1994 and 1993 includes real estate property under operating leases, or held for lease, of $313.4 million and $434.3 million, less accumulated depreciation of $71.0 million and $67.9 million, respectively, and equipment under operating leases of $27.5 million and $851.7 million, less accumulated depreciation of $14.5 million and $652.4 million, respectively. Future minimum lease payments to be received from noncancelable leases, net of nonrecourse loan payments related to leveraged leases, for the periods shown are as follows at December 31, 1994:
(Dollars in Millions) ------------------------------------- Years Capital Leases Operating Leases ------------------------------------------------------------------------------- 1995 $ 19.1 $ 32.5 1996 8.4 30.5 1997 12.0 26.5 1998 17.0 21.6 1999 16.6 12.3 Thereafter 820.8 17.1 ------------------------------------- Total $ 893.9 $ 140.5 =====================================
------------------------------------ 7 Leasing Arrangements as Lessee ------------------------------------ The Company has entered into both capital and operating leases for facilities and equipment used in operations. Plant, property and equipment included capital leases of $171.6 million and $221.2 million and related accumulated amortization of $82.8 million and $112.7 million at December 31, 1994 and 1993, respectively. In 1994, 1993, and 1992, the Company incurred initial capital lease obligations of $11.9 million, $13.6 million, and $15.2 million, respectively. Total rent expense amounted to $285.5 million in 1994, $307.8 million in 1993, and $295.7 million in 1992. At December 31, 1994, the aggregate minimum rental commitments under noncancelable leases for the periods shown are as follows:
(Dollars in Millions) ------------------------------------- Years Capital Leases Operating Leases ------------------------------------------------------------------------------- 1995 $ 24.5 $ 109.6 1996 24.8 104.1 1997 20.7 97.1 1998 18.1 86.7 1999 16.7 78.2 Thereafter 103.8 797.6 ------------------------------------- Total 208.6 $ 1,273.3 ================ Less imputed interest and executory costs 88.5 -------------- Present value of net minimum lease payments 120.1 Less current installments 11.3 -------------- Long-term obligation at December 31, 1994 $ 108.8 ==============
As of December 31, 1994, the total minimum sublease rentals to be received in the future under noncancelable operating subleases was $89.5 million. 28 ---------- 8 Debt ---------- Long-Term Long-term debt consists of the following at December 31:
(Dollars in Millions) ------------------------------------------------------------------- Interest Rates Maturities 1994 1993 --------------------------------------------------------------------------------------------------------------------------------- Telephone subsidiaries' debentures 3.25% - 7.00% 1995-2025 $ 2,222.0 $ 1,972.0 7.125% - 7.75% 2002-2033 1,955.0 2,105.0 7.85% - 8.75% 2009-2031 1,280.0 1,480.0 ------------------------------------------------------------------- 5,457.0 5,557.0 Notes payable 4.025% - 12.42% 1995-2005 1,175.7 1,733.0 Mortgage and installment notes 5.53% - 11.00% 1995-2011 18.1 33.4 Employee Stock Ownership Plan loans - senior notes 8.17% 2000 571.3 633.7 Capital lease obligations - average rate 10.6% and 10.6% 120.1 125.8 Unamortized discount and premium, net (34.1) (116.0) -------------------------- Total long-term debt, including current maturities 7,308.1 7,966.9 Less maturing within one year 502.4 760.7 -------------------------- Total long-term debt $ 6,805.7 $ 7,206.2 ==========================
Maturities of long-term debt outstanding at December 31, 1994, excluding unamortized discount and premium and capital lease obligations, are: $491.1 million due in 1995, $303.2 million due in 1996, $279.4 million due in 1997, $340.6 million due in 1998, $291.4 million due in 1999, and $5,516.4 million thereafter. Telephone subsidiaries' debentures outstanding at December 31, 1994 include $1,822.0 million that are callable. The call prices range from 104.0% to 100.0% of face value, depending upon the remaining term to maturity of the issue. In addition, the telephone subsidiaries' debentures include $640.0 million that will become redeemable for a limited period at the option of the holders between the years 1996 and 2002. The redemption prices will be 100.0% of face value plus accrued interest. Notes payable include $435.0 million of retained debt instruments of TriCon, of which $221.2 million was classified as current and $213.8 million as noncurrent at December 31, 1994 (see Note 5). Installment notes in the amount of $6.3 million at December 31, 1994 were collateralized by finance lease receivables and equipment. Mortgage notes in the amount of $11.8 million at December 31, 1994 were collateralized by land and buildings. Included in notes payable are medium-term notes issued by Bell Atlantic Financial Services, Inc. (FSI), a wholly owned subsidiary that provides financing for Bell Atlantic and certain of its subsidiaries. FSI debt securities (aggregating $700.1 million at December 31, 1994) have the benefit of a Support Agreement dated October 1, 1992 between Bell Atlantic and FSI, under which Bell Atlantic has committed to make payments of interest, premium, if any, and principal on the FSI debt in the event of FSI's failure to pay. The Support Agreement provides that the holders of FSI debt shall not have recourse to the stock or assets of Bell Atlantic's telephone subsidiaries. However, in addition to dividends paid to Bell Atlantic by any of its consolidated subsidiaries, assets of Bell Atlantic that are not subject to such exclusion are available as recourse to holders of FSI debt. The carrying value of the available assets reflected in the consolidated financial statements of Bell Atlantic was approximately $5 billion at December 31, 1994. See Note 13 for information on the Employee Stock Ownership Plan Loans. The Company has recorded extraordinary charges associated with the early extinguishment of debentures called by the Company's telephone subsidiaries prior to the balance sheet date. These charges reduced net income by $6.7 million (net of an income tax benefit of $3.6 million) in 1994, $58.4 million (net of an income tax benefit of $36.2 million) in 1993, and $41.6 million (net of an income tax benefit of $25.2 million) in 1992. 29 Debt Maturing Within One Year Debt maturing within one year consists of the following at December 31:
(Dollars in Millions) -------------------------- 1994 1993 ------------------------------------------------------------------------ Notes payable: Bank loans $ 666.9 $ 582.0 Commercial paper 918.3 1,334.6 Long-term debt maturing within one year 502.4 760.7 -------------------------- Total $2,087.6 $2,677.3 ========================== Weighted average interest rates for notes payable outstanding at year-end 6.0% 3.5% --------------------------
Construction of telephone plant and the operations of the Company's real estate and cellular subsidiaries are partially financed, pending long-term financing, through bank loans and the issuance of commercial paper payable within 12 months. At December 31, 1994, the Company had in excess of $1.9 billion of unused bank lines of credit. The availability of these lines, for which there are no formal compensating balances or commitment fee agreements, is at the discretion of each bank. --------------------------- 9 Financial Instruments --------------------------- Derivatives The use of derivatives by the Company is limited to managing risk that could endanger the financing and operating flexibility of the Company, making cash flows more stable over the long run and achieving savings over traditional means of financing. Derivative agreements are tied to a specific liability or asset and hedge the related economic exposures. The use of these hedging agreements has not had a material impact on the Company's financial condition or results of operations. The Company does not use derivatives for speculative purposes and has not hedged its accounting translation exposure to foreign currency fluctuations relative to its net position in foreign subsidiaries. Interest Rate Hedge Agreements The Company periodically enters into interest rate hedge agreements to reduce interest rate risks and costs inherent in its debt portfolio. These agreements involve the exchange of fixed and variable interest rate payments periodically over the life of the agreement without exchange of the underlying principal amounts. The notional amounts outstanding, maturity dates, and the weighted average receive and pay rates of interest rate hedge agreements by type are as follows:
(Dollars in Millions) -------------------------------------------------------------------- Weighted Average Rate Notional --------------------- Amount Maturities Receive Pay --------------------------------------------------------------------------------------------------------------------------- December 31, 1994: Variable to Fixed $ 70.0 1995 to 1999 5.4% 5.6% December 31, 1993: Variable to Fixed $ 185.0 1994 to 1999 6.6% 4.1% ---------------------------------------------------------------------------------------------------------------------------
The notional amounts are used to calculate contractual payments to be exchanged and are not actually paid or received. Interest rate hedge agreements have not significantly impacted the Company's relative proportion of variable and fixed interest expense. At December 31, 1993, interest rate hedge agreements on direct finance lease receivable transfer agreements, which had the effect of fixing interest rates on floating rate direct finance lease receivable transfer agreements amounted to $414.4 million. Due to the sale of TriCon (see Note 5), the Company no longer has interest rate hedge agreements on finance lease receivables. 30 The Company has entered into forward interest rate hedge agreements with a notional amount of $50.3 million in connection with a specific lease. Maturities on the forward agreements range from February to May of the year 2000. Foreign Exchange Contracts The Company enters into foreign exchange hedging agreements to reduce its exposure to fluctuations in foreign exchange rates that will directly impact cash flows. Foreign exchange hedging agreements have generally been limited to forward contracts to exchange the U.S. dollar for a foreign currency at some future date, usually within 30 days. Exchange gains and losses on these contracts substantially offset the foreign exchange gains and losses on the underlying hedged transactions in 1994 and 1993. At December 31, 1994, the outstanding face amounts of these contracts totaled $27.6 million, representing commitments to sell seven foreign currencies with no currency exceeding $16.1 million, and $5.6 million, representing commitments to buy six foreign currencies with no currency exceeding $2.1 million. Substantially all contracts expire on or before January 27, 1995. The gain or loss on the individual contracts at December 31, 1994 was substantially offset by the gain or loss on the underlying hedged balances. Exposure to foreign currency gains or losses as a result of these transactions was not material to the Company's results of operations or financial condition. At December 31, 1993, the outstanding face amounts of these contracts totaled $38.0 million, representing commitments to sell ten foreign currencies with no currency exceeding $15.8 million, and $24.2 million, representing commitments to buy six foreign currencies with no currency exceeding $14.3 million. The gain or loss on the individual contracts at December 31, 1993 was substantially offset by the gain or loss on the underlying hedged balances. Exposure to foreign currency gains or losses as a result of these transactions was not material to the Company's results of operations or financial condition. At December 31, 1994, Bell Atlantic and its consolidated subsidiaries do not have material cash flow exposures to foreign currency fluctuations resulting from monetary assets and liabilities, firm commitments, or highly anticipated cash flow exposures denominated in a currency other than the Company's functional currency that are not hedged. The Company's net equity position in its principal unconsolidated foreign subsidiaries at December 31, 1994 was $1,335.7 million and $1,167.6 million at December 31, 1993. These subsidiaries have operations primarily in New Zealand and Mexico. The Company has not hedged its accounting translation exposure to foreign currency fluctuations relative to this net equity position since it does not represent actual cash flow exposure. Certain unconsolidated foreign subsidiaries accounted for using the equity method have net liabilities, primarily debt, denominated in a currency other than the investees' functional currency. The Company is subject to fluctuations in its equity income from these subsidiaries related to foreign currency gains and losses on such net liabilities. Foreign currency losses on such net liabilities included in equity income totaled $21.5 million for the year ended December 31, 1994. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments, trade receivables, certain notes receivable, interest rate hedge agreements and forward exchange contracts. The Company places its temporary cash investments with high-credit-quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables other than those from AT&T are limited due to the large number of customers in the Company's customer base. For the years ended December 31, 1994, 1993, and 1992, revenues generated from services provided to AT&T, primarily network access, billing and collection, and sharing of network facilities, were $1,352.6 million, $1,368.4 million, and $1,518.0 million, respectively. At December 31, 1994 and 1993, Accounts receivable, net, included $153.0 million and $162.4 million, respectively, from AT&T. At December 31, 1994, the Company had an uncollateralized note receivable from GFC of $435.0 million in connection with the disposition of TriCon (see Note 5). Counterparties to the interest rate hedge agreements are major financial institutions. Counterparties to the forward exchange agreements are major international financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties, and limits the amount of contracts with any one party. The Company believes the risk of incurring losses related to credit risk is remote and any losses would not be material to results of operations or financial condition. The Company also continually monitors the performance of the underlying risks being hedged to ensure correlation with the hedging vehicle. 31 Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments. Cash and Cash Equivalents, Short-Term Investments, Accounts Receivable, Accounts Payable, Accrued Liabilities and Forward Exchange Contracts The carrying amount approximates fair value. Debt Maturing Within One Year and Long-Term Debt Fair value is estimated based on the quoted market prices for the same or similar issues or is based on the net present value of the expected future cash flows using current interest rates. Notes Receivable Fair value is based on the present value of the future expected cash flows using current interest rates or on quoted market prices for similar instruments, if available. Interest Rate Hedge Agreements Fair value is the estimated amount that the Company would have to pay or receive to terminate the hedge agreements as of December 31, 1994 and 1993, taking into account the current interest rates and the creditworthiness of the counterparties. The estimated fair values of the Company's financial instruments are as follows at December 31:
(Dollars in Millions) ------------------------------------------------------------ 1994 1993 -------------------------- -------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------------------------------------------------------------------------------------------------------------------------------- Financial Instruments on the Balance Sheets: Debt maturing within one year, excluding capital lease obligations $ 2,076.3 $ 2,080.9 $ 2,666.5 $ 2,696.3 Long-term debt, excluding unamortized discount and premium and capital lease obligations 6,731.0 6,161.5 7,207.2 7,512.0 Notes receivable, net 482.7 478.4 926.5 924.5 Financial Instruments with Off-Balance-Sheet Risk: Unrealized gain (loss) on interest rate hedge agreements - 1.8 - (4.8) ------------------------------------------------------------
------------------------------------------- 10 Sale of Preferred Stock by Subsidiary ------------------------------------------- On June 2, 1994, Bell Atlantic New Zealand Holdings, Inc. (BANZHI), a subsidiary of the Company, issued 850,000 shares of Series A Preferred Stock at a price per share of $100 with a dividend rate of $7.08 per share per annum, pursuant to a private placement. The preferred stock is subject to mandatory redemption on May 1, 2004 at a redemption price per share of $100. BANZHI and another subsidiary of the Company indirectly own the Company's investment in Telecom Corporation of New Zealand Limited. 32 ----------------------------- 11 Shareowners' Investment -----------------------------
Common Stock Common Stock Issuable Contri- Shares (in Shares (in buted Reinvested (Dollars in Millions, Except Per Share Amounts) Thousands) Amount Thousands) Amount Capital Earnings --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1991 433,818 $433.8 - $ - $5,327.0 $ 2,600.3 Net income 1,340.6 Dividends declared ($2.60 per share) (1,102.3) Purchase of common stock Common stock issued: Employee plans (3.5) Shareowner plans (6.8) Acquisition agreements 337 .4 186 .2 23.0 Foreign currency translation adjustment, net of tax benefit of $5.3 Reduction of ESOP obligations Tax benefit of dividends paid to ESOPs 14.8 Metro Mobile CTS, Inc. premerger acquisition activities 17.0 Other .2 --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 434,155 434.2 186 .2 5,356.9 2,853.4 Net income 1,403.4 Dividends declared ($2.68 per share) (1,166.6) Common stock issued: Employee plans 844 .7 47.0 (8.2) Shareowner plans 200 .2 11.6 Acquisition agreements 47 .1 (44) (.1) .6 Former Metro Mobile CTS, Inc. shareowners 884 .9 (.9) Foreign currency translation adjustment, net of tax benefit of $6.3 Reduction of ESOP obligations Tax benefit of dividends paid to ESOPs 11.6 --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 436,130 436.1 142 .1 5,415.2 3,093.6 Loss (754.8) Dividends declared ($2.76 per share) (1,203.9) Purchase of common stock Common stock issued: Employee plans 230 .2 13.2 (.9) Acquisition agreements 46 .1 (49) - Foreign currency translation adjustment, net of tax benefit of $.9 Reduction of ESOP obligations Tax benefit of dividends paid to ESOPs 10.4 --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 436,406 $436.4 93 $ .1 $5,428.4 $ 1,144.4 =========================================================================================================================== Foreign Deferred Currency Treasury Stock Compen- Translation Shares (in sation- (Dollars in Millions, Except Per Share Amounts) Adjustment Thousands) Amount ESOPs ---------------------------------------------------------------------------------------------------- Balance at December 31, 1991 $(100.5) 3,442 $ 171.6 $721.4 Net income Dividends declared ($2.60 per share) Purchase of common stock 3 .1 Common stock issued: Employee plans (1,216) (59.7) Shareowner plans (2,043) (102.9) Acquisition agreements Foreign currency translation adjustment, net of tax benefit of $5.3 (39.6) Reduction of ESOP obligations (42.2) Tax benefit of dividends paid to ESOPs Metro Mobile CTS, Inc. premerger acquisition activities Other ---------------------------------------------------------------------------------------------------- Balance at December 31, 1992 (140.1) 186 9.1 679.2 Net income Dividends declared ($2.68 per share) Common stock issued: Employee plans (66) (3.3) Shareowner plans Acquisition agreements (70) (3.4) Former Metro Mobile CTS, Inc. shareowners Foreign currency translation adjustment, net of tax benefit of $6.3 56.2 Reduction of ESOP obligations (44.9) Tax benefit of dividends paid to ESOPs ---------------------------------------------------------------------------------------------------- Balance at December 31, 1993 (83.9) 50 2.4 634.3 Loss Dividends declared ($2.76 per share) Purchase of common stock 209 10.5 Common stock issued: Employee plans (13) (.7) Acquisition agreements (26) (1.2) Foreign currency translation adjustment, net of tax benefit of $.9 (246.9) Reduction of ESOP obligations (48.1) Tax benefit of dividends paid to ESOPs ---------------------------------------------------------------------------------------------------- Balance at December 31, 1994 $(330.8) 220 $ 11.0 $586.2 ====================================================================================================
Bell Atlantic Corporation is authorized to issue up to 12.5 million shares each of Preferred and Preference stock and 1.5 billion shares of common stock. A cellular telephone acquisition closed during 1992 requires the Company to deliver 92,899 shares of its common stock in 1995. In 1993, the Company issued 883,832 shares of common stock to settle certain litigation arising from the merger in 1992 with Metro Mobile CTS, Inc., which was accounted for as a pooling of interests. This distribution represents additional merger consideration to the former Metro Mobile shareholders and was reflected as a credit to the common stock account with a corresponding charge to contributed capital. Pursuant to pooling-of-interests accounting, Metro Mobile CTS, Inc. 1992 premerger acquisition activities, which resulted from the acquisition of cellular telephone properties in exchange for Metro Mobile Class B common stock, have been accounted for as additional contributed capital. 33 Under a Shareholder Rights Plan adopted in 1989, one right is attached to each outstanding share of common stock. When exercisable, each right entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preference Stock at an exercise price of $250, subject to adjustment. The rights become exercisable and will trade separately from the common stock 10 days after a person or group acquires, or announces a tender offer for, 15% or more of the Company's outstanding common stock. In the event any person or group acquires 15% or more of the Company's common stock (except pursuant to certain transactions previously approved by the Board of Directors), each holder of a right other than such person or group will have the right to receive, upon payment of the exercise price, common stock of the Company with a market value of two times the exercise price. In the event that the Company is acquired in a merger or other business combination, or certain events occur, each right entitles the holder to purchase shares of common stock of the surviving company having a market value of twice the exercise price of the right. Until the rights become exercisable, they may be redeemed by the Company at a price of one cent per right. The rights expire on April 10, 1999. ------------------------- 12 Stock Incentive Plans ------------------------- Under the stock option and performance share components of the Bell Atlantic Stock Incentive Plan, a total of 25,000,000 shares of common stock may be distributed upon the exercise of stock options under the 1985 Incentive Stock Option Plan (the "ISO Plan"), and as a result of awards under the Performance Share Plan (the "Shares Plan"). Under the ISO Plan, key employees may be granted incentive stock options, and/or nonqualified stock options, to purchase shares of Bell Atlantic's common stock at prices not less than the fair market value of the stock on the date of the option grant. Under the ISO Plan, certain key employees may receive reload options upon tendering shares of Bell Atlantic stock to exercise options. In 1991 and prior years, stock appreciation rights ("SARs") were granted to certain officers in tandem with stock options under the ISO Plan. No SARs have been granted since 1991. In 1994, the Bell Atlantic "Options Plus" Plan was adopted. Nonqualified stock options were granted under that plan in 1994 to approximately 800 managers below the rank of officer, in place of a portion of each such manager's annual cash bonus incentive. The Shares Plan provides for the granting of awards to certain key employees, in the form of shares of Bell Atlantic common stock. A key employee may receive the distributions of shares at the end of the applicable performance measurement period or the employee may elect to defer the distribution of the awards for one or more years. Awards are based on the total return of Bell Atlantic stock in comparison to the total return on the stock of a number of other telecommunications companies. Authority to make new grants under the Shares Plan expired in December 1994. Final awards will be distributed in January 1996. Stock options, SARs and performance share awards under plans maintained by Bell Atlantic and its subsidiaries are as follows:
---------------------------------------------------------- Weighted Average Price of Stock Performance Stock Options SARs Options Share Awards ------------------------------------------------------------------------------------------------------------- Outstanding at December 31, 1991 1,704,705 38,518 $ 49.01 1,428,881 Granted 993,008 - 47.04 119,026 Exercised/Distributed (117,677) - 35.00 (403,288) Canceled (167,834) (23,116) 51.91 (142,873) --------------------------------------------------------------------------------- -------------- Outstanding at December 31, 1992 2,412,202 15,402 48.68 1,001,746 Granted 930,219 - 53.45 91,258 Exercised/Distributed (664,753) - 47.77 (280,049) Canceled (95,100) (2,742) 52.08 (76,576) --------------------------------------------------------------------------------- -------------- Outstanding at December 31, 1993 2,582,568 12,660 50.50 736,379 Granted 5,474,520 - 54.72 61,999 Exercised/Distributed (177,796) - 46.86 (145,804) Canceled (315,318) - 54.68 (23,125) --------------------------------------------------------------------------------- -------------- Outstanding at December 31, 1994 7,563,974 12,660 53.47 629,449 ================================================================================= ==============
34 At December 31, 1994, stock options to purchase 2,352,386 shares of common stock were exercisable under the ISO Plan, and none were exercisable under Options Plus. A total of 14,003,993 and 8,114,064 shares of common stock were available for the granting of stock options under the ISO Plan and for distributions of shares under the Shares Plan, as of December 31, 1994 and 1993, respectively. There is no established limit on the number of options granted pursuant to Options Plus. Compensation expense related to the stock incentive plans described above amounted to $14.9 million in 1994, $18.6 million in 1993, and $17.0 million in 1992. At December 31, 1994, employees had deferred receipt of 288,775 shares which had previously been awarded under the Shares Plan. ----------------------- 13 Employee Benefits ----------------------- Pension Plans Substantially all of the Company's management and associate employees are covered under noncontributory defined benefit pension plans. The pension benefit formula is based on a flat dollar amount per year of service according to job classification under the associate plan and a stated percentage of adjusted career average earnings under the plans for management employees. The Company's objective in funding the plans is to accumulate funds at a relatively stable level over participants' working lives so that benefits are fully funded at retirement. Plan assets consist principally of investments in domestic and foreign corporate equity securities, U.S. and foreign government and corporate debt securities, and real estate. Pension cost is composed of the following:
(Dollars in Millions) --------------------------------------- Years Ended December 31 1994 1993 1992 ---------------------------------------------------------------------------------------- Benefits earned during the year $ 196.4 $ 162.7 $ 171.3 Interest on projected benefit obligation 821.1 818.9 786.8 Actual return on plan assets (27.6) (1,731.7) (514.9) Deferral of difference between actual and assumed returned on plan assets (817.7) 898.3 (309.6) Net amortization (24.2) .9 (10.3) Special termination benefits - - 45.0 --------------------------------------- Pension cost $ 148.0 $ 149.1 $ 168.3 ======================================= Pension cost as a percentage of salaries and wages 4.5% 4.9% 5.7% ---------------------------------------
Pension cost in 1994 was substantially unchanged over 1993. Pension cost increases resulting from assumption changes, primarily a decrease in the discount rate from 7.75% to 7.25%, were offset by favorable asset performance in 1993 and plan changes. The decrease in pension cost in 1993 compared to 1992 is due to the net effect of the elimination of one-time charges associated with special termination benefits that were recognized in the preceding year, favorable investment experience, and changes in plan demographics due to retirement and severance programs. 35 The following table sets forth the plans' funded status and amounts recognized in the Company's Consolidated Balance Sheets as of December 31:
(Dollars in Millions) ------------------------ 1994 1993 --------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Benefits based on service to date and present salary levels Vested $ 7,387.2 $ 7,993.1 Nonvested 1,674.8 2,176.1 ------------------------ Accumulated benefit obligation 9,062.0 10,169.2 Additional benefits related to estimated future salary levels 1,061.6 1,293.9 ------------------------ Projected benefit obligation 10,123.6 11,463.1 ------------------------ Fair value of plan assets 11,470.1 12,368.7 ------------------------ Plan assets in excess of projected benefit obligation (1,346.5) (905.6) Unrecognized net gain 1,818.9 1,173.5 Unamortized prior service cost 109.0 121.5 Unamortized net transition asset 192.1 211.6 Additional minimum liability for nonqualified plans 37.0 52.5 ------------------------ Accrued pension obligation $ 810.5 $ 653.5 ========================
Assumptions used in the actuarial computations for pension benefits are as follows at December 31:
-------------------------- 1994 1993 1992 -------------------------------------------------------------------------------- Discount rate 8.25% 7.25% 7.75% Rate of future increases in compensation levels 5.25% 5.25% 5.25% --------------------------
The expected long-term rate of return on plan assets was 8.25% for 1994, 1993, and 1992. The vested benefit obligation represents the actuarial present value of vested benefits to which employees are currently entitled based on the employees' expected dates of separation or retirement. The Company has in the past entered into collective bargaining agreements with the unions representing certain employees and expects to do so in the future. Pension benefits have been included in these agreements and improvements in benefits have been made from time to time. Additionally, the Company has amended the benefit formula under pension plans maintained for its management employees. Expectations with respect to future amendments to the Company's pension plans have been reflected in determining the Company's pension cost under Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" (Statement No. 87). Since the projected benefit obligation, as calculated under Statement No. 87, relies on assumptions concerning future events, a comparison of the projected benefit obligation to the fair value of plan assets at December 31, 1994 and 1993 may not be meaningful. Postretirement Benefits Other Than Pensions Substantially all of the Company's management and associate employees are covered under postretirement health and life insurance benefit plans. The determination of benefit cost for postretirement health benefit plans is based on comprehensive hospital, medical, surgical, and dental benefit plan provisions. The postretirement life insurance benefit formula used in the determination of postretirement benefit cost is primarily based on annual basic pay at retirement. The Company funds the postretirement health and life insurance benefits of current and future retirees. Plan assets consist principally of investments in domestic and foreign corporate equity securities, and U.S. Government and corporate debt securities. 36 Postretirement benefit cost is composed of the following:
(Dollars in Millions) --------------------------------- Years Ended December 31 1994 1993 1992 ------------------------------------------------------------------------------- Benefits earned during the year $ 81.6 $ 73.3 $ 64.1 Interest on accumulated postretirement benefit obligation 298.0 302.1 266.9 Actual return on plan assets 12.4 (163.7) (57.1) Net amortization and deferral (89.0) 102.7 (1.1) --------------------------------- Postretirement benefit cost $ 303.0 $ 314.4 $ 272.8 =================================
Postretirement benefit cost decreased in 1994 as a result of favorable claims and demographic experience offset, in part, by cost increases resulting from assumption changes, primarily a decrease in the discount rate from 7.75% to 7.25%. As a result of the 1992 collective bargaining agreements, the Company amended the postretirement medical benefit plan for associate employees and certain associate retirees of the network services subsidiaries. The increase in 1993 postretirement benefit cost was primarily due to the change in benefit levels and claims experience. Also contributing to the increase were changes in actuarial assumptions and demographic experience. The following table sets forth the plans' funded status and the amounts recognized in the Company's Consolidated Balance Sheets as of December 31:
(Dollars in Millions) --------------------------- 1994 1993 -------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation attributable to: Retirees $ 2,143.6 $ 2,513.0 Fully eligible plan participants 313.5 320.1 Other active plan participants 1,340.6 1,536.1 --------------------------- Total accumulated postretirement benefit obligation 3,797.7 4,369.2 --------------------------- Fair vlaue of plan assets 1,279.7 1,277.8 --------------------------- Accumulated postretirement benefit obligation in excess of plan assets 2,518.0 3,091.4 Unrecognized net gain (loss) 214.7 (427.3) Unamortized prior service cost (60.3) (72.7) --------------------------- Accrued postretirement benefit obligation $ 2,672.4 $ 2,591.4 =========================== Total accumulated postretirement benefit obligation by plan: Health $ 3,367.8 $ 3,899.9 Life insurance 429.9 469.3 --------------------------- $ 3,797.7 $ 4,369.2 =========================== Fair value of plan assets by plan: Health $ 705.6 $ 676.9 Life insurance 574.1 600.9 --------------------------- $ 1,279.7 $ 1,277.8 ===========================
37 Assumptions used in the actuarial computations for postretirement benefits are as follows at December 31:
--------------------------------- 1994 1993 1992 ------------------------------------------------------------------------------------- Discount rate 8.25% 7.25% 7.75% Rate of future increases in compensation levels 5.25 5.25 5.25 Medical cost trend rate: Year ending 12.00 13.00 14.50 Ultimate (year 2003) 5.00 5.00 5.00 Dental cost trend rate 4.00 4.00 4.00 ---------------------------------
The expected long-term rate of return on plan assets was 8.25% for 1994, 1993, and 1992. A one-percentage-point increase in the assumed health care cost trend rates for each future year would have increased the aggregate of the service and interest cost components of 1994 net periodic postretirement benefit cost by $51.4 million and would have increased the accumulated postretirement benefit obligation as of December 31, 1994 by $419.5 million. Postretirement benefits other than pensions have been included in collective bargaining agreements and have been modified from time to time. The Company has periodically modified benefits under plans maintained for its management employees. Expectations with respect to future amendments to the Company's postretirement benefit plans have been reflected in determining the Company's postretirement benefit cost under Statement of Financial Accounting Standards No. 106, "Accounting for Postretirement Benefits Other Than Pensions." Postemployment Benefits Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement No. 112). Statement No. 112 requires accrual accounting for the estimated cost of benefits provided to former or inactive employees after employment but before retirement. The cumulative effect at January 1, 1993 of adopting Statement No. 112 reduced net income by $85.0 million, net of a deferred income tax benefit of $50.6 million. The adoption of Statement No. 112 did not have a significant effect on the Company's ongoing level of operating expense. In the third quarter of 1994, the Company recorded a pretax charge of $161.9 million, in accordance with Statement No. 112, to recognize benefit costs for the separation of employees who are entitled to benefits under preexisting separation pay plans. The charge, which was actuarially determined, represents benefits earned through July 1, 1994 for employees who are expected to receive separation payments in the future. The Company separated approximately 400 management and associate employees in 1994 and expects to separate an additional 5,200 employees through 1997, pursuant to initiatives announced in August 1994. The separation benefit costs associated with this workforce reduction are included in the charge. Savings Plans and Employee Stock Ownership Plans The Company has established savings plans to provide opportunities for eligible employees to save for retirement on a tax-deferred basis and encourage employees to acquire and maintain an equity interest in the Company. Under these plans, the Company matches a certain percentage of eligible employee contributions with shares of the Company's common stock. Two leveraged employee stock ownership plans (ESOPs) were established to purchase the Company's common stock and fund the Company's matching contribution. Common stock is allocated from the 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, 1994, the number of unallocated and allocated shares of common stock was 9,999,125 and 7,021,123, respectively. All ESOP shares are included in earnings per share computations. The ESOP trusts were funded by the issuance of $790.0 million in ESOP Senior Notes. Effective January 1, 1993, the annual interest rate on the ESOP Senior Notes was reduced from 8.25% to 8.17%. The ESOP Senior Notes are payable in semiannual installments, which began on January 1, 1990 and end in the year 2000. The ESOP trusts repay the notes, including interest, with funds from the Company's contributions to the ESOP trusts, as well as dividends received on unallocated shares of common stock and interest earned on the cash balances of the ESOP trusts. 38 Total ESOP cost and trust activity consist of the following:
(Dollars in Millions) ---------------------------------------- Years Ended December 31 1994 1993 1992 -------------------------------------------------------------------------------- Compensation $ 48.1 $ 45.0 $ 42.2 Interest incurred 48.0 52.9 57.7 Dividends (29.8) (33.3) (35.7) Other trust earnings and expenses, net (.3) .1 .1 ---------------------------------------- Net leveraged ESOP cost 66.0 64.7 64.3 Additional ESOP cost 7.1 .9 26.0 ---------------------------------------- Total ESOP cost $ 73.1 $ 65.6 $ 90.3 ======================================== Dividends received for debt service $ 44.1 $ 43.4 $ 43.4 ======================================== Total company contributions to trusts $ 78.4 $ 80.3 $ 88.1 ========================================
------------------ 14 Income Taxes ------------------ Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement No. 109). Statement No. 109 requires the determination of deferred taxes using the asset and liability method. Under the asset and liability method, deferred taxes are provided on book and tax basis differences and deferred tax balances are adjusted to reflect enacted changes in income tax rates. Prior to 1993, the Company accounted for income taxes based on the provisions of Accounting Principles Board Opinion No. 11. Statement No. 109 has been adopted on a prospective basis and amounts presented for prior years have not been restated. As of January 1, 1993, the Company recorded a tax benefit of $65.2 million, which has been reflected in the Consolidated Statement of Operations as the cumulative effect of a change in accounting principle. This tax benefit is principally attributable to net operating loss (NOL) carryforwards of the Metro Mobile CTS, Inc. (Metro Mobile) subsidiaries that the Company expects to realize based on projections of future taxable income. Upon adoption of Statement No. 109, the effects of required adjustments to deferred tax balances of the telephone subsidiaries, which would be recognized in the future for regulatory purposes, were deferred on the balance sheet as regulatory assets and liabilities, in accordance with Statement No. 71. At January 1, 1993, the telephone subsidiaries recorded income tax-related regulatory assets totaling $976.6 million in Other Assets and income tax-related regulatory liabilities totaling $1,043.8 million in Deferred Credits and Other Liabilities - Other. During 1993, these regulatory assets were increased by $23.9 million and regulatory liabilities were reduced by $94.1 million for the effect of the federal income tax rate increase from 34% to 35%, effective January 1, 1993. The income tax-related regulatory assets and liabilities were eliminated as a result of the discontinued application of Statement No. 71, effective August 1, 1994 (see Note 2). The components of income tax expense from continuing operations are as follows:
(Dollars in Millions) ---------------------------------------- Years Ended December 31 1994 1993 1992 -------------------------------------------------------------------------------- Current: Federal $1,010.8 $ 814.0 $614.9 State and local 194.0 150.0 134.7 ---------------------------------------- Total 1,204.8 964.0 749.6 ---------------------------------------- Deferred: Federal (278.0) (107.9) (35.5) State and local 7.5 2.1 9.4 ---------------------------------------- Total (270.5) (105.8) (26.1) ---------------------------------------- 934.3 858.2 723.5 ---------------------------------------- Investment tax credits (49.4) (66.2) (80.0) ---------------------------------------- Total income tax expense $ 884.9 $ 792.0 $643.5 ========================================
39 In 1994, state income tax rate changes resulted in an increase to deferred tax expense of $8.5 million. As a result of the increase in the federal corporate income tax rate from 34% to 35%, effective January 1, 1993, the Company recorded a net charge to the tax provision of approximately $3 million in 1993. The provision for income taxes varies from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The difference is attributable to the following factors:
---------------------------------------- Years Ended December 31 1994 1993 1992 -------------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 34.0% Investment tax credits (2.2) (2.6) (3.3) State income taxes, net of federal tax benefits 5.4 3.9 4.2 Benefit of rate differential applied to reversing timing differences (1.0) (2.6) (3.3) Reversal of previously capitalized taxes and payroll-related construction costs .9 1.5 .6 Other, net .6 (.4) (.4) ---------------------------------------- Effective income tax rate 38.7% 34.8% 31.8% ========================================
Significant components of deferred tax liabilities (assets) are as follows at December 31:
(Dollars in Millions) ---------------------------------------- 1994 1993 -------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation $ 2,171.6 $ 3,817.1 Leasing activities 869.8 901.8 Other 418.9 327.7 ---------------------------------------- 3,460.3 5,046.6 ---------------------------------------- Deferred tax assets: Employee benefits (1,553.1) (1,384.7) Investment tax credits (69.3) (284.9) Net operating loss carryforwards: Federal (105.8) (111.5) State (22.5) (60.4) Advance payments (51.5) (61.4) Other (548.6) (435.2) ---------------------------------------- (2,350.8) (2,338.1) ---------------------------------------- Valuation allowance 22.4 74.8 ---------------------------------------- Net deferred tax liability $ 1,131.9 $ 2,783.3 ========================================
Deferred tax assets include approximately $1,083 million and $1,033 million at December 31, 1994 and 1993, respectively, related to postretirement benefit costs recognized in accordance with Statement No. 106. This deferred tax asset will gradually be realized over the estimated lives of current retirees and employees. At December 31, 1994, NOL carryforwards for federal income tax purposes were $302.3 million. The NOL carryforwards, which expire from 1998 to 2006, relate principally to the Metro Mobile subsidiaries. Federal tax law restricts the future utilization of the Metro Mobile NOL carryforwards, permitting them to offset only the taxable income earned by the Metro Mobile subconsolidated group. At December 31, 1994, NOL carryforwards for state income tax purposes were $270.2 million (excluding amounts attributable to leveraged leases) and expire from 1995 to 2009. Based on projections of future taxable income, the Company expects to realize future tax benefits of federal and state NOL carryforwards in the amount of $112.2 million. 40 The valuation allowance required under Statement No. 109 primarily represents tax benefits of certain state NOL carryforwards and other deferred state tax assets, which may expire unutilized. During 1994, the valuation allowance decreased $52.4 million as a result of the disposition of certain nonregulated subsidiaries, and the write-off of state NOL's that will expire prior to utilization. For the year ended December 31, 1992, a deferred income tax benefit resulted from timing differences in the recognition of revenue and expense for financial and income tax accounting purposes. The sources of these timing differences and the tax effects of each were as follows:
(Dollars in Millions) --------------------- 1992 -------------------------------------------------------------------------------- Leveraged lease transactions $ 58.4 Accelerated depreciation (3.4) Direct financing and operating lease transactions (26.5) Alternative Minimum Tax 41.8 Employee benefits (41.8) Other, net (54.6) ------- Total $(26.1) =======
--------------------------------------------------------------- 15 Supplemental Cash Flow and Additional Financial Information ---------------------------------------------------------------
(Dollars in Millions) ---------------------------------------- Years Ended December 31 1994 1993 1992 -------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest, net of amounts capitalized $ 569.1 $ 680.5 $ 797.7 Income taxes, net of amounts refunded 1,283.7 844.8 752.6 Noncash investing and financing activities: Note receivable on sale of business 435.0 - - Note receivable on sale of asset 39.0 - - Acquistion of plant under capital leases 11.9 13.6 15.2 Common stock issued for incentive plans 5.3 24.0 30.4 Common stock issued for acquisitions 1.5 4.2 15.9 Contribution of assets to joint venture 1.6 .2 8.4 ADDITIONAL FINANCIAL INFORMATION: Interest expense incurred, net of amounts capitalized 624.6 719.6 828.7 Capitalized interest 19.1 3.8 5.1 -------------------------------------
Interest expense incurred includes $42.5 million in 1994, $107.5 million in 1993, and $133.8 million in 1992 related to the Company's lease financing business. Such interest expense is classified as other operating expenses. Income taxes, as well as payroll, gross receipts, property, capital stock and other taxes, totaled $1,758.6 million for 1994. Included in operating expenses are amounts billed by Bell Communications Research, Inc. (Bellcore). Such expenses for 1994, 1993, and 1992 were $99.8 million, $143.2 million, and $194.3 million, respectively, for various network planning, engineering, and software development projects. Bellcore expenses in 1994 include reimbursements of approximately $50 million from other Bellcore owners in connection with their decision to participate in the Advanced Intelligent Network (AIN) project. This project previously had been supported entirely by the Company. During 1994, 1993, and 1992, the Company received dividends from unconsolidated equity investees of $101.0 million, $73.4 million, and $64.4 million, respectively. 41 ------------------------------ 16 Joint Venture Agreements ------------------------------ Wireless Joint Ventures In June 1994, the Company and NYNEX Corporation executed a Joint Venture Formation Agreement, which sets forth the terms and conditions under which the parties intend to combine their domestic cellular properties. Bell Atlantic will own 62.35% of the joint venture company and NYNEX will own 37.65%. This joint venture will be controlled equally by both companies. This transaction, which is subject to regulatory approvals and various other conditions to closing, is expected to close in mid-1995. In October 1994, the Company, NYNEX, AirTouch Communications and U S WEST, Inc. formed two partnerships to provide nationwide wireless communications services. The first partnership is bidding in the Federal Communications Commission auction for licenses to provide personal communications services (PCS). The second partnership will develop a national brand and provide coordination and centralization of various functions for the companies' cellular and PCS businesses. The cellular properties of Bell Atlantic/NYNEX will not be merged with those of AirTouch/U S WEST. Video Services Joint Ventures Also in October 1994, the Company, NYNEX and Pacific Telesis Group formed two jointly-owned partnerships to deliver nationally branded home entertainment, information and interactive services. The media company will license, acquire and develop entertainment and information services. Creative Artists Agency, Inc. has entered into a consulting arrangement with the media company to develop a branding and marketing strategy and to provide assistance in acquiring programming. The technology and integration company will provide the systems necessary to deliver these services over the partnerships' networks. Over the next three years, each of the partners will contribute approximately $100 million in cash or assets to the new joint ventures. ---------------------------------- 17 Quarterly Financial Information ----------------------------------
(Dollars in Millions, Except Per Share Amounts) ---------------------------------------------------------------------------------------------- Income Before Income Before Extraordinary Items Extraordinary Items and Cumulative and Cumulative Effect of Changes in Operating Operating Effect of Changes in Accounting Principles Quarter Ended Revenues Income Accounting Principles Per Common Share Net Income (Loss) ------------------------------------------------------------------------------------------------------------------------------------ 1994: March 31 $3,419.6 $748.8 $395.9 $.91 $ 389.2 June 30 3,430.0 797.5 415.4 .95 415.4 September 30* 3,455.3 591.0 275.7 .63 (1,874.3) December 31 3,486.5 667.3 314.9 .72 314.9 1993: March 31** $3,201.3 $717.5 $372.2 $.85 $ 329.2 June 30 3,259.3 752.2 385.5 .88 362.6 September 30 3,328.9 720.7 386.7 .89 378.5 December 31 3,356.1 607.2 337.2 .77 333.1 ----------------------------------------------------------------------------------------------
* The loss for the third quarter of 1994 includes an extraordinary charge of $2,150.0 million, net of an income tax benefit of $1,498.4 million, related to the discontinuation of regulatory accounting principles by the Company's telephone subsidiaries (see Note 2). ** Net income for the first quarter of 1993 includes a tax benefit of $65.2 million related to the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (see Note 14). In addition, net income for the first quarter of 1993 includes a charge of $85.0 million, net of a deferred income tax benefit of $50.6 million, related to the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (see Note 13). EX-21 9 SUBSIDIARIES EXHIBIT 21: SUBSIDIARIES
SUBSIDIARY JURISDICTION OF INCORPORATION Bell Atlantic - New Jersey, Inc. New Jersey Bell Atlantic - Pennsylvania, Inc. Pennsylvania Bell Atlantic - Delaware, Inc. Delaware Bell Atlantic - Washington, D.C., New York Inc. Bell Atlantic - Maryland, Inc. Maryland Bell Atlantic - Virginia, Inc. Virginia Bell Atlantic - West Virginia, Inc. West Virginia Atlantic West B.V. The Netherlands BABS Australia Pty. Ltd. Australia BAC Financial Italia S.r.L. Italy BAC Financial Services International The Netherlands B.V. BAC International - The Netherlands B.V. The Netherlands BACPE, Inc. Delaware BACSI (U.K.) Limited United Kingdom BAP - 1800 Arch Land Parcel, Inc. Delaware BAP - 6755 Snowdrift, Inc. Delaware BAP - 1760 Market, Inc. Delaware BAP - Durham, Inc. Delaware BAP - 7150 Windsor, Inc. Delaware BAP - Caroline, Inc. Delaware BATCL - 1987 - I, Inc. Delaware BATCL - 1987 - II, Inc. Delaware BATCL - 1987 - III, Inc. Delaware BATCL - 1991 - I, Inc. Nevada BATCL - 1991 - II, Inc. Delaware BATCL - 1991 - III, Inc. Delaware BATCL - 1991 - IV, Inc. Delaware BATCO - 1989 - II, Inc. Delaware
EXHIBIT 21 (Continued)
SUBSIDIARY JURISDICTION OF INCORPORATION BATCO - 1989 - III, Inc. Delaware Bell Atlantic Administrative Services, Delaware Inc. Bell Atlantic Argentina, Inc. Delaware Bell Atlantic Asia, Inc. Delaware Bell Atlantic Australia Pty. Ltd. Australia Bell Atlantic Aviation Services, Inc. Delaware Bell Atlantic Business Systems, Inc. Delaware Bell Atlantic Business Systems Delaware International, Inc. Bell Atlantic Business Systems Delaware Services, Inc. Bell Atlantic Capital Corporation Delaware Bell Atlantic Capital Funding Corp. Delaware Bell Atlantic Cellular Consulting Delaware Group, Inc. Bell Atlantic China Holdings Ltd Bermuda Bell Atlantic Communications and Delaware Construction Services, Inc. Bell Atlantic Construction Services, Delaware Inc. Bell Atlantic Czech Republic, Inc. Delaware Bell Atlantic Directory Graphics, Inc. Delaware Bell Atlantic Electronic Publishing, Delaware Inc. Bell Atlantic Enterprises Delaware International, Inc. Bell Atlantic Europe S.A. Belgium
2 EXHIBIT 21 (Continued)
SUBSIDIARY JURISDICTION OF INCORPORATION Bell Atlantic Federal Integrated Delaware Systems, Inc. Bell Atlantic Financial Services, Inc. Delaware Bell Atlantic Foreign Sales Corporation Virgin Is. Bell Atlantic Foundation Pennsylvania Non-Profit Bell Atlantic Gulf Holdings Ltd. Cayman Is. Bell Atlantic Healthcare Systems, Inc. California Bell Atlantic Holdings Limited New Zealand Bell Atlantic Hungary, Inc. Delaware Bell Atlantic Indonesia, Inc. Delaware Bell Atlantic Information Systems, Inc. Delaware Bell Atlantic Integrated Systems, Inc. Delaware Bell Atlantic International, Inc. Delaware Bell Atlantic International - Italia Italy S.r.L. Bell Atlantic International Wireless Delaware Services, Inc. Bell Atlantic Investment Development Delaware Corporation Bell Atlantic Investments, Inc. Delaware Bell Atlantic Land Development, Inc. Delaware Bell Atlantic Latin America Holdings, Delaware Inc. Bell Atlantic MM Holdings, Inc. Delaware Bell Atlantic Media Ventures, Inc. Delaware
3 EXHIBIT 21 (Continued)
SUBSIDIARY JURISDICTION OF INCORPORATION Bell Atlantic Mexico, S.A. de C.V. Mexico Bell Atlantic Mobile of Hickory, Inc. Delaware Bell Atlantic Mobile Systems, Inc. Delaware Bell Atlantic Mobile Systems of Delaware Allentown, Inc. Bell Atlantic Mobile Systems of Delaware Baltimore, Inc. Bell Atlantic Mobile Systems of Delaware Norfolk, Inc. Bell Atlantic Mobile Systems of Delaware Northern New Jersey, Inc. Bell Atlantic Mobile Systems of Delaware Pennsylvania RSA 6(II), Inc. Bell Atlantic Mobile Systems of Delaware Pittsburgh, Inc. Bell Atlantic Mobile Systems of Delaware Reading, Inc. Bell Atlantic Mobile Systems of Delaware Richmond, Inc. Bell Atlantic Mobile Systems of Delaware Scranton, Inc. Bell Atlantic Mobile Systems of Delaware Washington, Inc. Bell Atlantic Mobile Systems of West Delaware Virginia, Inc. Bell Atlantic Mobilfunk GmbH Germany Bell Atlantic Network Funding Delaware Corporation Bell Atlantic Network Integration, Inc. Delaware Bell Atlantic Network Services, Inc. Delaware
4 EXHIBIT 21 (Continued)
SUBSIDIARY JURISDICTION OF INCORPORATION Bell Atlantic New Holdings, Inc. Delaware Bell Atlantic New Zealand Delaware Holdings, Inc. Bell Atlantic New Zealand Investments, Delaware Inc. Bell Atlantic New Zealand Limited Delaware Bell Atlantic Paging, Inc. Delaware Bell Atlantic PAI Comunicaciones C.A. Venezuela Bell Atlantic Personal Communications, Delaware Inc. Bell Atlantic Professional Services Inc. Delaware Bell Atlantic Properties, Inc. Delaware Bell Atlantic Property Holdings II, Inc. Delaware Bell Atlantic Property Holdings III, Delaware Inc. Bell Atlantic Puerto Rico, Inc. Delaware The Bell Atlantic Systems Group, Inc. Delaware Bell Atlantic Systems Leasing New York International, Inc. Bell Atlantic Telecommunications Delaware Systems, Inc. Bell Atlantic TeleProducts Corp. Delaware Bell Atlantic TriCon Leasing Corporation Delaware Bell Atlantic Utilities Systems, Inc. Delaware Bell Atlantic Vehicle Management, Inc. Delaware
5 EXHIBIT 21 (Continued)
SUBSIDIARY JURISDICTION OF INCORPORATION Bell Atlantic Ventures II, Inc. Delaware Bell Atlantic Ventures XXIII, Inc. Delaware Bell Atlantic Ventures XXV, Inc. Delaware Bell Atlantic Video Services Company Virginia Bell Atlanticom Systems, Inc. Delaware FM America Corp. Delaware ICA Foreign Financial, Inc. Virgin Is. M-Pact, Ltd. South Carolina Metro Mobile CTS MIS, Inc. Connecticut Metro Mobile CTS of Albuquerque, Inc. New Mexico Metro Mobile CTS of Anderson, Inc. South Carolina Metro Mobile CTS of Charlotte, Inc. North Carolina and Virginia Metro Mobile CTS of Cherokee, Inc. South Carolina Metro Mobile CTS of Columbia, Inc. South Carolina Metro Mobile CTS of El Paso, Inc. Texas Metro Mobile CTS of Fairfield County, Connecticut Inc. Metro Mobile CTS of Greenville, Inc. South Carolina Metro Mobile CTS of Hartford, Inc. Connecticut Metro Mobile CTS of Lancaster, Inc. South Carolina Metro Mobile CTS of Las Cruces, Inc. New Mexico Metro Mobile CTS of New Bedford, Inc. Massachusetts Metro Mobile CTS of New Haven, Inc. Connecticut Metro Mobile CTS of New London, Inc. Connecticut
6 EXHIBIT 21 (Continued)
SUBSIDIARY JURISDICTION OF INCORPORATION Metro Mobile CTS of Newport, Inc. Rhode Island Metro Mobile CTS of Phoenix, Inc. Arizona Metro Mobile CTS of Pittsfield, Inc. Massachusetts Metro Mobile CTS of Providence, Inc. Rhode Island Metro Mobile CTS of Raleigh, Inc. North Carolina Metro Mobile CTS of Springfield, Inc. Massachusetts Metro Mobile CTS of the Northeast, Inc. Connecticut Metro Mobile CTS of the Southeast, Inc. South Carolina Metro Mobile CTS of the Southwest, Inc. Delaware Metro Mobile CTS of Tucson, Inc. Arizona Metro Mobile of Venezuela, Inc. Delaware Metro Mobile CTS of Windham, Inc. Connecticut Metro Mobile Real Estate Development of New York New York, Inc. Metro Mobile Transport, Inc. Delaware Pacific Star Communications Pty. Ltd. Australia The Penn's Landing Marina Corporation Pennsylvania Portal Investments, Inc. Arizona Sodalia S.p.A. Italy Sorbus Canada Limited Ontario Water - Side, Inc. Pennsylvania
7 EX-23 10 CONSENT OF EXPERTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Bell Atlantic Corporation on Form S-3 (File No. 33-30642), Form S-8 (File No. 2-97281), Form S-3 (File No. 33-8451), Form S-8 (File No. 33-10377), Form S-8 (File No. 33-10378), Form S-3 (File No. 33-36551), Form S-3 (File No. 33-49085), Form S-4 (File No. 33-49025), of our reports dated February 6, 1995, which include an explanatory paragraph stating that the Company discontinued accounting for the operations of its telephone subsidiaries in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," effective August 1, 1994, and changed its method of accounting for income taxes and postemployment benefits in 1993, on our audits of the consolidated financial statements and financial statement schedule of the Company and its subsidiaries as of December 31, 1994 and December 31, 1993, and for each of three years in the period ended December 31, 1994, which reports are incorporated by reference or included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania March 29, 1995 EX-24 11 POWER OF ATTORNEYS EXHIBIT 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF WILLIAM W. ADAMS APPEARS HERE] ________________________________ William W. Adams POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF THOMAS E. BOLGER APPEARS HERE] ________________________________ Thomas E. Bolger POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF FRANK C. CARLUCCI APPEARS HERE] ________________________________ Frank C. Carlucci POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF WILLIAM G. COPELAND APPEARS HERE] ________________________________ William G. Copeland POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF JAMES H. GILLIAM, JR. APPEARS HERE] ________________________________ James H. Gilliam, Jr. POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF THOMAS H. KEAN APPEARS HERE] ________________________________ Thomas H. Kean POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF JOHN C. MAROUS, JR. APPEARS HERE] ________________________________ John C. Marous, Jr. POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF JOHN F. MAYPOLE APPEARS HERE] ________________________________ John F. Maypole POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF JOSEPH NEUBAUER APPEARS HERE] ________________________________ Joseph Neubauer POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF THOMAS H. O'BRIEN APPEARS HERE] ________________________________ Thomas H. O'Brien POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF ROZANNE L. RIDGWAY APPEARS HERE] ________________________________ Rozanne L. Ridgway POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF SHIRLEY YOUNG APPEARS HERE] ________________________________ Shirley Young POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF BARBARA L. CONNOR APPEARS HERE] ________________________________ Barbara L. Connor POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF LAWRENCE T. BABBIO, JR. APPEARS HERE] ________________________________ Lawrence T. Babbio, Jr. POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF JAMES G. CULLEN APPEARS HERE] ________________________________ James G. Cullen POWER OF ATTORNEY The undersigned does hereby constitute and appoint William O. Albertini, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 28th day of March, 1995. [SIGNATURE OF RAYMOND W. SMITH APPEARS HERE] ________________________________ Raymond W. Smith EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 AND THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 143 0 2,517 189 275 3,783 33,746 16,808 24,272 5,577 6,806 436 0 0 5,645 24,272 0 13,791 0 10,987 0 0 582 2,287 885 1,402 0 (2,157) 0 (755) (1.73) 0