Exhibit 13
[LOGO OF BELL ATLANTIC APPEARS HERE]
2 DIRECTORS & EXECUTIVE OFFICERS
3 CHAIRMAN'S MESSAGE
. Financial Review
. 1993 Highlights
. Maximizing Value
6 FINANCIAL INFORMATION
40 SHAREOWNER INFORMATION
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B E L L A T L A N T I C
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1 9 9 3
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A N N U A L R E P O R T
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DIRECTORS & EXECUTIVE OFFICERS
BELL ATLANTIC CORPORATION
BOARD OF DIRECTORS
William W. Adams
Chairman of the Board
Armstrong World Industries, Inc.
Thomas E. Bolger
Chairman of the Executive Committee
of the Board of Directors
Bell Atlantic Corporation
Frank C. Carlucci
Chairman
The Carlyle Group
William G. Copeland
Chairman of the Board
Providentmutual Holding Company
James H. Gilliam, Jr.
Executive Vice President and General Counsel
Beneficial Corporation
Thomas H. Kean
President
Drew University
John C. Marous, Jr.
Retired Chairman
Westinghouse Electric Corporation
John F. Maypole
Managing Partner
Peach State Real Estate Holding Company
Thomas H. O'Brien
Chairman and Chief Executive Officer
PNC Bank Corp.
Rozanne L. Ridgway
Co-Chair
The Atlantic Council of the United States
Raymond W. Smith
Chairman of the Board and Chief Executive Officer
Bell Atlantic Corporation
Shirley Young
Vice President, Consumer Market Development
General Motors Corporation
EXECUTIVE OFFICERS
Raymond W. Smith
Chairman of the Board and Chief Executive Officer
James G. Cullen
President
William O. Albertini
Vice President and Chief Financial Officer
Joseph T. Ambrozy
Vice President-Strategic Planning
Lawrence T. Babbio, Jr.
Chairman, President, and Chief Executive Officer
Bell Atlantic Enterprises International, Inc.
P. Alan Bulliner
Vice President-Corporate Secretary and Counsel
Barbara L. Connor
Vice President-Finance and Controller and Treasurer
Charles W. Crist
Vice President-Human Resources
John F. Gamba
Group President
Network Technologies and Systems
Bell Atlantic Network Services, Inc.
Bruce S. Gordon
Group President-Consumer and
Small Business Services
Bell Atlantic Network Services, Inc.
Stuart C. Johnson
Group President
Large Business and Information Services
Bell Atlantic Network Services, Inc.
Brian J. Kelly*
Group President
Network Operations
Bell Atlantic Network Services, Inc.
Robert M. Valentini
President and Chief Executive Officer
Bell Atlantic - Pennsylvania, Inc.
James R. Young
Vice President and General Counsel
*Retires April 7, 1994
2
A Message from the Chairman
TO OUR SHAREOWNERS:
1993 was another very successful year for Bell Atlantic in terms of solid fi-
nancial results, landmark public policy decisions that improve our outlook, and
strategic initiatives that clearly increase our long-term growth prospects. It
also was a year of great transformation in the basic structure of our industry,
as our enabling technologies and the markets we serve continued to undergo fun-
damental change.
We believe this transformation creates tremendous growth opportunities for
Bell Atlantic, and we made significant strides in implementing our strategies
for capitalizing on them. These strategies--and our 1993 accomplishments--are
outlined below.
It appears, however, that our future will not include a merger with Tele-Com-
munications Inc. (TCI) and Liberty Media Corporation. As many of you know, we
announced our merger intentions in October 1993. Unfortunately, the market and
regulatory uncertainties surrounding this course of action made reaching agree-
ment on the final terms and conditions of a transaction of this magnitude im-
possible. While we regret that we were unable to bring this merger to fruition,
we believe that the decision to terminate negotiations is in the best long-term
interests of our shareowners. Further, we are confident that there are many vi-
able opportunities for making our vision of being a leading communications, in-
formation, and entertainment company a reality--some of which may involve joint
ventures with TCI and Liberty.
In the meanwhile, we have moved ahead aggressively in equipping Bell Atlantic
to be a major player in our industry, and will continue to seek out growth op-
portunities that will add to the value of your investment.
FINANCIAL REVIEW
1993 was a year of strong operating earnings growth. As the U.S. economy con-
tinued its recovery, growth in our basic telephone volumes improved, we sur-
passed one million cellular customers, and our cellular subscriber growth ap-
proached 50 percent. Moreover, we registered our one-millionth Answer Call cus-
tomer, symbolic of strong demand for value-added services.
This edition of the Annual Report is once again presented in the cost-
effective, environmentally friendly format endorsed by 95 percent of shareowners
we polled.
Earnings for the year were reported at $3.22 per share, versus $3.13 in 1992,
a 2.9 percent increase. However, the earnings-per-share increase was nearly 9
percent if certain one-time and extraordinary items reported in both years were
excluded. 1993 results were affected by the early adoption of a new accounting
standard for post-employment benefits (FAS 112) and the effect of 1993 tax leg-
islation. Excluding one-time items, net income grew 10.5 percent in 1993.
We achieved another year of growth also in terms of revenues. Reported reve-
nues--which reflect our decreased strategic emphasis on computer leasing and
the disposition of most of our customer premises equipment business--increased
2.1 percent in 1993. Operating revenues in our ongoing businesses (excluding
these effects) were up 4.5 percent over 1992.
The core network businesses accounted for more than one-half of Bell
Atlantic's earnings growth. Underpinning our bottom-line accomplishments were
healthy increases in telephone volumes. Access minutes of use for 1993 were up
7.2 percent over 1992, while message toll volumes grew 3.4 percent, and total
access lines in service, 2.6 percent. The business market showed signs of
strength, with business access lines and Centrex lines both achieving better
than 4 percent growth.
The demand for new services also continued to improve. Revenues from IQ(R)
Services and other value-added services totaled $414 million, up more than 14
percent over 1992 totals.
Beyond the core network, Bell Atlantic Enterprises International--which in-
cludes Bell Atlantic Mobile, our overseas entities and Bell Atlantic Business
Systems Services--also made strong contributions to our revenue and earnings
growth in 1993.
At Bell Atlantic Mobile, we added 340,700 subscribers, an increase of almost
49 percent, bringing the total number of cellular customers to just over 1 mil-
lion. By comparison, the customer base grew 37.5 percent in 1992. 1993 cellular
revenues were up 32 percent over 1992 levels.
On the international scene, the value of Telecom Corporation of New Zealand
shares has more than doubled in the three years since we invested in the compa-
ny. Bell Atlantic recorded after-tax gains of $44.7 million resulting from 1993
sales of the stock, as we reduced our interest in the
3
company to just under 25 percent per our agreement with the New Zealand govern-
ment.
Bell Atlantic Business Systems Services, our computer service subsidiary,
added several prestigious national and international companies--such as AMR
Corporation, parent of American Airlines Inc.--to its list of accounts and
posted strong gains in both revenues and cash flow for the year.
Expense management continued to be the watchword at Bell Atlantic during
1993, as growth in total operating expenses from the prior year was essentially
flat. Excluding depreciation and amortization, expenses actually fell 1.9 per-
cent from 1992 totals. Moreover, we continued to take advantage of low interest
rates by refinancing approximately $1.7 billion in long-term debt in 1993 and
$1.8 billion in 1992. Refinancings in both years will result in annual interest
savings of approximately $47 million over the next 10 years.
Aside from our successful financial story in 1993, we made fundamental pro-
gress in molding Bell Atlantic into a company poised for market leadership and
solid growth in an environment of increasing competition, changing technology
and rapidly emerging market opportunities.
1993 HIGHLIGHTS
Transforming ourselves into a company that can achieve high growth as well as
improved earnings and cash flow growth involves more than entering new busi-
nesses. It also involves changing our current business--improving the way we
operate, achieving legislative and regulatory incentives, and preparing to com-
pete across all lines of business. In those terms, we made significant progress
on six key strategic fronts.
. First, we announced our intention to lead the country in the deployment of
the information highway.
In December, we issued our technology requirements to potential suppliers for
a new video-capable technology platform that will accelerate our entry into at-
tractive markets for entertainment and interactive multimedia services. We ex-
pect Bell Atlantic's enhanced network will be ready to serve 8.75 million homes
by the end of the year 2000. By the end of 1998, we plan to wire the top 20
markets in our Mid-Atlantic region. These investments will help establish Bell
Atlantic as a world leader in what is clearly the high-growth opportunity for
the 1990s and beyond--interactive, multimedia communications, entertainment and
information services that address the vast, unfulfilled demand for customer
choice, convenience and control.
We will spend $11 billion over the next five years to rapidly build full-
service networks capable of providing these services within the Bell Atlantic
region. What's more, we will expand Bell Atlantic's global presence by develop-
ing attractive investment opportunities in Europe, Mexico and the Pacific Rim.
. Second, we have restructured ourselves by market segments in order to focus
our business on the needs of our customers.
Our various lines of business--such as Consumer Services, Small Business
Services and Carrier Services--will help us respond more quickly to customers
and to meet their requirements better than our competitors. In staffing several
of these businesses--for example, Consumer Services and Large and Small Busi-
ness Services--we recruited extensively from outside the company to increase
our marketing strength in this critical initiative.
. Third, we continued to make major strides in the public policy arena toward
achieving the freedoms necessary to compete.
Last summer, the state legislatures in Pennsylvania and Delaware authorized
new regulatory frameworks that, when implemented, will give us the incentives
to invest in new technology and services that will meet customer needs and
provide long-term growth opportunities in a competitive environment. Plans for
similar alternative regulation have been approved or are pending in all seven
state jurisdictions. Moreover, all telephone subsidiaries have been afforded
some degree of pricing flexibility for products and services subject to
competition.
Perhaps the most significant public policy development last year was our suc-
cessful challenge to the provision of the 1984 Cable Act that prohibits Bell
Atlantic from providing video programming in its traditional service territo-
ries. The District Court ruling opens lucrative new markets for Bell Atlantic
as it expands consumer choice. It may prove to be a forerunner of even more
change, as legislation proposing to lift remaining barriers to our full partic-
ipation in the information marketplace makes its way through Congress.
. Fourth, during 1993, we further improved our competitive posture by making
our core businesses more cost-efficient and market-focused.
Recognizing that competition is here to stay, we continued to re-vamp serv-
ice-delivery processes to increase provisioning speed and reduce cost. We dem-
onstrated our network reliability and provisioning speed in Northern New Jer-
sey, where, by virtue of the synchronous optical network (SONET) fiber ring
system in Jersey City, we were able to connect more than 2,400 telephone lines
and 90 high-capacity data circuits in temporary facilities for businesses af-
fected by the bombing of the
4
World Trade Center. Currently, we're partnering with other companies to build
ultra-high-speed fiber rings between New Jersey and New York City.
Within the business itself, we plan to increase efficiency and reduce total
network costs even further by developing and deploying state-of-the-art operat-
ing systems.
. Fifth, we continued to innovate within our existing core businesses by in-
troducing new value-added services.
Innovative network products such as IQ Services and Answer Call have made
strong contributions to positive revenue growth in our traditional markets. In
1993, we posted close to $300 million in recurring revenues from products in-
troduced since 1989. In the future, we will continue our steady stream of serv-
ice introductions, which will include CritiCall(SM) emergency notification and
monitoring service and voice-activated services.
In the wireless arena, 1993 saw us introduce TraveLink(SM), a service that au-
tomatically delivers incoming cellular calls to roaming customers, and we an-
nounced upcoming trials of Spoken Caller Identification, which identifies call-
ers to a mobile phone by name or number with a digitized voice. In 1993, we in-
troduced the AirBridge(SM) family of services that provide a range of wireless
data applications, including mobile fax, electronic mail, mobile computing con-
nections, package tracking, and remote device monitoring and control.
In the business market, we will continue to strengthen our presence by meet-
ing data transport needs for large and small businesses with a basket of high-
bandwidth services, such as Switched Multi-megabit Data Service (SMDS) and
Frame Relay.
. Sixth, and finally, we're expanding both within and beyond our region by
choosing the appropriate markets and technology platforms to establish Bell
Atlantic as the full-service network provider of choice for entertainment,
communication and multimedia services.
In some areas, the point of entry to these new market opportunities might be
our existing telephone network. We recently announced plans to expand our
Stargazer(SM) video-on-demand trial over existing telephone lines to a full mar-
ket trial involving tens of thousands of customers in the Maryland and Virginia
suburbs of Washington, D.C.
In other places, the entry point might be cellular, or other wireless tech-
nologies such as personal communications services. In 1994, we expect to par-
ticipate in the FCC spectrum auctioning process for an opportunity to establish
a national wireless footprint. Still another option is to team with cable tele-
vision operators to establish a market presence outside of our region.
On the international front, our agreement to acquire up to a 46 percent in-
terest in Grupo Iusacell, S.A. de C.V., the second-largest telecommunications
company in Mexico, represents the most significant overseas wireless investment
in our history.
While it is focused primarily on cellular today, Iusacell plans to use non-
cellular radio spectrum to provide basic telephone service in Mexico, where
there is currently a huge, unfulfilled demand. Moreover, the company is well
positioned to compete in the long-distance business after Mexico opens up that
business to full competition in August of 1996.
MAXIMIZING VALUE
In implementing each of these strategies, our focus will be on prudent capital
investing in opportunities that provide value to our customers and growth to
our shareowners. Along the way, we will continue to emphasize our single most
important financial imperative--to increase capital efficiency, maximizing our
return from every dollar spent. In the network, for example, we're re-allocat-
ing investment dollars to broadband technologies without significantly ex-
panding our capital budget. What's more, we continue to accelerate capital re-
covery and target investments at new markets that promise high returns or where
there are attractive opportunities for expansion.
Our business opportunity for 1994 and beyond is straightforward--enhance the
value of our core businesses by expanding our customer and service base, and
develop high-growth businesses in the video entertainment, cable transport, ca-
ble television, and information services markets.
In summary, transforming ourselves for long-term growth has been a deliber-
ate, ongoing process at Bell Atlantic. In 1993, we were highly successful not
only at achieving strong operating results, but more important, at changing our
methods, sharpening our customer focus, and preparing ourselves for a leading
role in creating a new age in telecommunications.
I could not be more confident about where we're headed.
/s/ Raymond W. Smith
Raymond W. Smith
Chairman of the Board and
Chief Executive Officer
February 24, 1994
5
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
For the Year
Operating Revenues*..... $12,990.2 $12,718.4 $12,552.1 $12,547.4 $11,594.7
Operating Income........ $ 2,797.6 $ 2,506.2 $ 2,525.3 $ 2,614.3 $ 2,007.8
Income Before Extraordi-
nary Item and
Cumulative Effect of
Changes in
Accounting Principles.. $ 1,481.6 $ 1,382.2 $ 1,229.9 $ 1,230.5 $ 1,023.9
Net Income (Loss)....... $ 1,403.4 $ 1,340.6 $ (324.4) $ 1,230.5 $ 1,023.9
Per Common Share
Income Before Extraordi-
nary Item and
Cumulative Effect of
Changes in
Accounting Principles.. $ 3.39 $ 3.23 $ 2.91 $ 2.92 $ 2.38
Net Income (Loss)....... $ 3.22 $ 3.13 $ (.72) $ 2.92 $ 2.38
Cash Dividends Declared. $ 2.68 $ 2.60 $ 2.52 $ 2.36 $ 2.20
At Year-End
Total Assets............ $29,544.2 $28,099.5 $28,305.8 $28,391.8 $26,603.6
Long-Term Debt.......... $ 7,206.2 $ 7,348.2 $ 7,984.0 $ 8,928.5 $ 8,243.9
Employee Benefit Obliga-
tions.................. $ 3,396.0 $ 3,058.7 $ 2,985.1 $ 216.0 $ 74.2
Shareowners' Investment. $ 8,224.4 $ 7,816.3 $ 7,367.6 $ 8,531.5 $ 8,423.0
Debt Ratio.............. 54.6% 56.3% 59.5% 57.5% 54.2%
Book Value Per Common
Share.................. $ 18.85 $ 18.00 $ 17.12 $ 19.96 $ 19.64
Network Access Lines (in
thousands)............. 18,645 18,181 17,750 17,484 17,056
Number of Employees..... 73,600 71,400 76,900 82,700 80,000
Other Data
Return on Average Common
Equity................. 17.3% 17.4% (4.4)% 14.4% 11.3%
Additions to Plant,
Property and Equipment. $ 2,519.0 $ 2,546.8 $ 2,644.1 $ 2,692.1 $ 2,720.9
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*Certain amounts have been reclassified to conform to 1993 classifications.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net income in 1993 and 1992 was $1,403.4 million or $3.22 per share and
$1,340.6 million or $3.13 per share, respectively, compared with a loss of
$324.4 million or $.72 per share for 1991. 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" (Statement No. 109). The loss in 1991 reflected a charge of $1,554.3
million, or $3.63 per share, for the adoption of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (Statement No. 106). Results for 1993 represented
increases of 4.7% in net income and 2.9% in earnings per share over 1992,
attributable to operating income growth of 11.6%, fueled by improved business
volumes and expense controls, and lower interest costs, partially offset by
higher income taxes. Results for 1992 represented increases of 9.0% in net
income and 7.6% in earnings per share over 1991, excluding the cumulative
effect of the adoption of Statement No. 106.
Other items affecting the comparison of operating results are discussed in
the following sections.
Operating Revenues
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 $163.8 million or 3.3% and $134.3 million or
2.8% in 1993 and 1992, respectively. The increase in both years resulted
primarily from growth in network access lines and higher demand for value-added
central office services such as Custom Calling and Caller ID. Access lines in
service at December 31, 1993 and 1992 increased 2.6% and 2.4%, respectively,
over the prior year. Revenues from value-added central office services offered
by the telephone subsidiaries increased $51.3 million or 14.1% in 1993 compared
with $42.1 million or 13.1% growth in 1992.
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
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 $117.8 million or 4.0% in 1993 and $31.0
million or 1.1% in 1992. Growth in access minutes of use was 7.2% and 4.3% in
the respective periods. Revenue increases related to this volume growth were
partially offset in both years by the effect of interstate rate reductions
filed by the Company with the Federal Communications Commission (FCC), which
became effective on July 2, 1993 and July 1, 1992, and by related estimated
price cap sharing liabilities.
Toll service revenues increased $1.8 million or 0.1% in 1993 and $17.5
million or 1.1% in 1992. Toll message volume growth was 3.4% in 1993 compared
with 2.9% in 1992. Volume-related message toll service revenue increases were
partially offset in 1993 and 1992 by declines in revenues from WATS and private
line services, principally due to competitive pressures. In 1993, revenue
growth was offset further by the effects of rate reductions at one of the
telephone subsidiaries.
Other Network Services revenues include amounts earned from directory
advertising, billing and collection services provided to IXCs, premises
services such as inside wire installation and maintenance, and certain
nonregulated enhanced network services. Directory advertising revenues in 1993
increased $27.1 million or 2.7% compared to a $25.3 million or 2.5% increase in
1992. Revenue growth was adversely impacted in both years by decreasing sales
volume attributable primarily to competition. In addition, the rate of economic
recovery as it pertains to this line of business continues to be mixed within
the Network Services operating region. Premises services revenues increased
$25.2 million or 9.6% and $10.9 million or 4.3% in 1993 and 1992, respectively,
principally as a result of higher business volumes. Revenues from Answer Call,
a nonregulated enhanced network service, were $50.6 million, $27.9 million, and
$13.0 million in 1993, 1992, and 1991, respectively. Billing and collection
revenues decreased $23.0 million in 1993 primarily as a result of the effect of
favorable claim adjustments recorded in 1992. Billing and collection revenues
were also reduced in 1993 as a result of reductions in services provided under
long-term contracts with certain IXCs.
7
The provision for uncollectibles, expressed as a percentage of total Network
Services revenue, was 1.4% in 1993, 1.1% in 1992, and 1.0% in 1991.
Other Communications and Related Services includes revenues from the
Company's domestic and international operations in wireless communications,
computer maintenance, software development and support, systems integration,
and telecommunications consulting. These revenues grew $78.9 million or 6.5% in
1993 compared with $81.9 million or 7.2% in 1992. The continued growth of the
Company's cellular customer base was the primary reason for increases in
cellular revenues of $187.3 million or 32.0% in 1993 and $103.0 million or
21.3% in 1992. Revenues in both years also reflected increases in business
volumes in the Company's third-party computer maintenance business. These
increases were offset in 1993 by a revenue decrease of approximately $177
million due 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. Revenue growth in 1992 was reduced by
$58.5 million due to the effect of the July 1991 transfer of the Company's
European computer maintenance business to a joint venture.
Financial, Real Estate, and Other Services includes revenues from the
Company's domestic and international operations in diversified leasing,
computer leasing, real estate, and liquefied petroleum gas distribution. The
decreases in these revenues were due principally to the Company's decreased
emphasis on computer leasing and real estate operations. The decreasing revenue
trend is expected to continue throughout 1994. In line with its continuing de-
emphasis of financial services businesses over the past years and its
intensified focus on core telecommunications and information services
strategies, the Company announced that it has begun evaluating possible
strategies for exiting its financial services businesses. The Company has filed
a registration statement for an initial public offering to dispose of a
significant portion of its diversified leasing business. Assuming successful
completion of the initial public offering, future periods will no longer
include a significant portion of revenues from this business. Revenues related
to the business covered in the registration statement were $245.3 million for
the twelve months ended December 31, 1993. The disposition is not expected to
have a material impact on the Company's net income in 1994.
Operating Expenses
Employee costs consist of salaries, wages and other employee compensation,
employee benefits, and payroll taxes. Employee costs increased $86.1 million or
2.2% in 1993. Higher employee 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 companies. Workforce increases at certain nonregulated
subsidiaries also contributed to higher employee costs, which were offset in
part by a reduction attributable to the Atlanticom transaction.
Employee costs decreased $51.1 million or 1.3% in 1992, which reflected
savings of over $150 million resulting from a 1991 retirement incentive program
and a reduction of $68.0 million in pension expense resulting from a
modification of the expected long-term rate of return on plan assets. These
reductions were partially offset by salary and wage increases for management
and associate employees and expenses of approximately $73 million associated
with the 1992 workforce reduction programs.
The Company continues to evaluate ways to streamline and restructure its
operations and reduce its workforce requirements in an effort to improve its
cost structure.
Depreciation and amortization expense increased $127.7 million or 5.3% 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 financial services and real estate companies of approximately
$59 million due to the de-emphasis of computer leasing and real estate
operations.
Depreciation and amortization expense increased $78.6 million or 3.4% in
1992. Depreciation and amortization expense at the telephone subsidiaries
increased by approximately $180 million, of which approximately $150 million
was attributable to represcribed depreciation rates. Also contributing to the
increase was growth in the level of depreciable telephone plant, offset in part
by the discontinuance of certain regulator-approved amortizations. These
increases were partially offset by a reduction in depreciation and amortization
8
expense at the financial services and real estate companies of approximately
$119 million due to the de-emphasis of computer leasing and real estate
operations.
Other operating expenses decreased $233.4 million or 6.1% in 1993. This
reduction was largely the result of a decrease of approximately $184 million
due to 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). Additional decreases resulting from lower
expenses at the financial services and real estate companies and Network
Services companies were largely offset by increases related to higher business
volumes at the Company's cellular and computer maintenance subsidiaries.
Other operating expenses increased $157.9 million or 4.3% in 1992 due
primarily to higher business volumes at the Company's cellular subsidiaries,
recognition of approximately $47 million of one-time costs associated with the
Metro Mobile merger, and increased deployment of advanced switching software
at the telephone subsidiaries. These increases were offset in part by
decreased expenses at the financial services companies, primarily as a result
of lower interest costs associated with reduced debt levels in 1992, and the
effect of the July 1991 transfer of the Company's European computer
maintenance business to a joint venture. Company-wide cost containment efforts
also reduced expenses during 1992.
Assuming successful completion of the initial public offering to dispose of
a significant portion of the Company's diversified leasing business, future
periods will no longer include a significant portion of expenses from this
business. Operating expenses related to the business covered in the
registration statement were $191.6 million for the twelve months ended
December 31, 1993.
Other Income and Expense
Other income and expense includes equity income from the Company's
investment in unconsolidated businesses, interest and dividend income, and
gains and losses from the disposition of assets and investments. Other income,
net of expense, was $88.1 million in 1993, $214.4 million in 1992, and $176.2
million in 1991.
The 1993 decrease is primarily the result of gains on the sale of certain
assets recorded in 1992 and approximately $32 million of interest income
recognized in 1992 in connection with the settlement of various federal income
tax matters related to prior periods. Other income and expense for 1993
included approximately $42 million representing the Company's share of
restructuring charges taken by Telecom Corporation of New Zealand Limited
(Telecom), a pretax gain of approximately $65 million related to the private
sales of a portion of the Company's investment in Telecom, and a pretax charge
of approximately $26 million associated with a planned disposition of certain
non-strategic businesses.
The increase in 1992 reflects gains on sales of shares in HCA-Hospital
Corporation of America (HCA) and real estate. The aggregate amount of these
gains was virtually the same as the 1991 gains related to the Company's sales
of shares in Telecom and real estate and the transfer of the Company's
European computer maintenance business to a joint venture. The increase in
1992 also included approximately $32 million of interest income recognized in
connection with the settlement of various federal income tax matters related
to prior periods.
Other income and expense, net, in 1994 is expected to decrease significantly
due to goodwill amortization associated with the Company's equity investment
in Grupo Iusacell, S.A. de C.V. (Iusacell), a Mexican telecommunications
company.
Interest Expense, Excluding Financial Services
Interest expense decreased $82.8 million or 11.9% and $111.9 million or
13.9% in 1993 and 1992, respectively, principally due to the effects of lower
short-term interest rates and long-term debt refinancings. Decreases also
resulted from lower interest costs associated with the Telecom investment, as
proceeds from the Company's sale of Telecom shares in 1993 and 1991 were used
to reduce a portion of the acquisition-related debt. The effect of a $16.9
million write-off of deferred financing costs at Metro Mobile in 1991 also
contributed to the decrease in 1992.
Income Taxes
The provision for income taxes increased $148.5 million or 23.1% in 1993
compared to a decrease of $21.3 million or 3.2% in 1992.
9
The Company's effective income tax rate was 34.8% in 1993, 31.8% in 1992, and
35.1% in 1991. The 1993 effective 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 tax rate in 1992 resulted from certain
adjustments to deferred taxes and the recognition in 1992 of consolidated tax
benefits attributable to operations of the Metro Mobile business. These tax
benefits were not recognized in previous years. A reconciliation of the
statutory federal income tax rate to the effective rate for each period is
provided in Note 9 of Notes to Consolidated Financial Statements.
Extraordinary Item
The Company called $1,525.0 million in 1993 and $1,081.0 million in 1992 of
long-term debentures of several of the telephone subsidiaries, which were
refinanced at more favorable interest rates. As a result of these early
retirements, the Company incurred after-tax charges of $58.4 million in 1993
and $41.6 million in 1992. These debt refinancings will reduce interest costs
on the refinanced debt by approximately $47 million annually over the next ten
years.
Cumulative Effect of Changes in Accounting Principles
In connection with the adoption of Statement No. 109, effective January 1,
1993, the Company recorded a one-time, cumulative effect tax benefit of $65.2
million in 1993 (see Note 9 of Notes to Consolidated Financial Statements).
In connection with the adoption of Statement No. 112, effective January 1,
1993, the Company recorded a one-time, cumulative effect after-tax charge of
$85.0 million in 1993 (see Note 8 of Notes to Consolidated Financial
Statements).
The adoption of Statement No. 109 and Statement No. 112 did not have a
significant effect on the Company's ongoing level of expense in 1993 and is not
expected to have a significant effect in future periods.
COMPETITION AND REGULATORY ENVIRONMENT
The telecommunications industry is currently undergoing fundamental changes
which may have a significant impact on future financial performance of all
telecommunications companies. These changes are driven by a number of factors,
including the accelerated pace of technology change, customer requirements, a
changing industry structure characterized by strategic alliances and the
convergence of telecommunications and cable television, and a changing
regulatory environment in which traditional regulatory barriers are being
lowered and competition encouraged.
The convergence of cable television, computer technology, and
telecommunications can be expected to dramatically increase competition in the
future. The Company's existing telecommunications business is already subject
to competition from numerous sources, including competitive access providers
for network access services (and in some jurisdictions for intraLATA toll
services), competing cellular telephone companies and others.
During 1993, a number of business alliances were announced that have the
potential to significantly increase competition both within the industry and
the areas currently served by Bell Atlantic. Over the past several years, the
Company has taken a number of actions in anticipation of the increasingly
competitive environment. Cost reductions have been achieved, giving the Company
greater pricing flexibility for services exposed to competition. A new lines of
business organization structure was adopted. Narrowband network modernization
programs were largely completed, permitting a greater proportion of existing
capital resources to be reallocated to the deployment of broadband network
platforms to address the opportunities afforded by the emerging multimedia
market. On the regulatory front, alternative regulation plans have been
approved or are pending in all seven state jurisdictions. Moreover, all
telephone subsidiaries have been afforded some degree of pricing flexibility
for products and services subject to competition. Initiatives such as the
Company's challenge to the 1984 Cable Act and the formation of an Information
Services business unit staffed by experienced people from the video and
entertainment industry have created opportunities for the Company in the
information services and video markets.
In October 1993, the Company announced its intention to invest up to a total
of $1.04 billion to acquire a 42% (or, under certain circumstances, up to a
46%) economic interest in Grupo Iusacell, S.A. de C.V. (Iusacell), the second
largest telecommunications company in Mexico. In November 1993, the Company
acquired a 23% economic interest in Iusacell through the purchase of $520.0
million of newly issued Iusacell stock. The Company's acquisition of additional
interests is expected to occur in mid-1994. This investment will substantially
increase the size of the Company's cellular holdings. As a result of its
investment in Iusacell, the Company expects earnings
10
dilution for the first several years due to the amortization of goodwill and
financing costs. Earnings dilution is expected to be approximately $.14 per
share in 1994. In the longer term, this investment should substantially
increase the contribution that the wireless business makes to the Company's
earnings growth.
In October 1993, the Company also announced the execution of a letter of
intent regarding a stock-for-stock merger among the Company, Tele-
Communications Inc. and Liberty Media Corporation. On February 23, 1994, the
parties announced that they had been unable to reach final agreement on their
proposed merger and had terminated negotiations. The parties continue to
discuss other ways of working together, including possible joint ventures to
build full-service networks and joint investment in programming.
The Company conducts ongoing evaluations of its accounting practices, many of
which have been prescribed by regulators. These evaluations include the
assessment of whether costs that have been deferred as a result of actions of
regulators and the cost of the Company's telephone plant will be recoverable in
the future. In the event recoverability of costs becomes unlikely due to
decisions by the Company to accelerate deployment of new technology in response
to specific regulatory actions or increasing levels of competition, the Company
may no longer apply the provisions of 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 would
require the Company to write off its regulatory assets and liabilities and may
require the Company to adjust the carrying amount of its telephone plant should
it determine that such amount is not recoverable. The Company believes that it
continues to meet the criteria for continued financial reporting under
Statement No. 71. A determination in the future that such criteria are no
longer met may result in a significant one-time, noncash, extraordinary charge,
if the Company determines that a substantial portion of the carrying value of
its telephone plant may not be recoverable.
In October 1993, the FCC issued a report and order allocating radio spectrum
to be licensed for use in providing personal communications services (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. The geographical units by which the licenses would
be allocated will be "basic trading areas" or larger "major trading areas."
Five of the spectrum blocks are to be auctioned on a basic trading area basis,
and the remaining two are to be auctioned by major trading area. Local exchange
carriers such as the Company are eligible to bid for PCS licenses, except that
cellular carriers (such as the Company) are limited to obtaining 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. Bell Atlantic has stated that it intends to pursue PCS
licenses in the auctions, which are expected to be held in 1994.
In August 1993, the United States District Court for the Eastern District of
Virginia ruled unconstitutional the 1984 Cable Act's limitation on in-territory
provision of programming by local exchange carriers such as the Company. The
Cable Act currently prohibits local exchange carriers from owning more than 5%
of any company that provides cable programming in their local service area. In
a case originally brought by two Bell Atlantic subsidiaries, the court ruled
that this prohibition violates the First Amendment's freedom of speech
protections, and enjoined enforcement of the prohibition against the Company
and its telephone subsidiaries. The ruling has been appealed by the federal
government.
OTHER MATTERS
Four of the telephone subsidiaries have been designated as potentially
responsible parties by the U.S. Environmental Protection Agency in connection
with eight Superfund sites. Designation as a potentially responsible party
subjects the named company to potential liability for costs relating to cleanup
of the affected sites. Management believes that the aggregate amount of any
potential liability would not have a material effect on the Company's financial
condition or results of operations.
FINANCIAL CONDITION
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 or equity financing may be needed to fund development activities to
maintain the Company's capital structure within management's guidelines.
11
As of December 31, 1993, the Company and its subsidiaries had in excess of
$2.0 billion of unused bank lines of credit and shelf registrations for the
issuance of up to $2.3 billion of unsecured debt securities.
During 1993, as in prior years, the Company's primary source of funds
continued to be cash generated from operations. Revenue growth, cost
containment measures and savings on interest costs contributed to cash provided
from operations of $4.23 billion for the year ended December 31, 1993, compared
to $3.91 billion in 1992. In addition, in 1993, the sale of a portion of the
Company's interest in Telecom provided cash proceeds from investing activities
of $253.7 million. In 1992, sales of real estate and HCA stock, and the
disposition of businesses, provided net cash proceeds from investing activities
of approximately $393 million.
In March 1994, the Company expects to receive a payment of approximately $65
million in connection with a capital reduction plan by Telecom in which 20% of
Telecom's outstanding shares will be canceled on a pro rata basis and
shareholders will receive one New Zealand Dollar for each share canceled.
Telecom's capital reduction will not change the Company's ownership percentage
of Telecom.
The primary use of capital resources continued to be capital expenditures.
The Company invested approximately $2.1 billion in 1993, $2.2 billion in 1992,
and $2.3 billion in 1991 in the telephone subsidiaries' network. This level of
investment is expected to continue in 1994. The Company plans to reallocate
capital resources to the deployment of broadband network platforms, as capital
requirements for the narrowband network modernization are reduced. During 1993,
the Company funded $289.1 million of postretirement health care and pension
benefit costs compared to $348.6 million in 1992. In 1993, the Company used
$674.4 million of cash in connection with its investment in Iusacell and the
acquisition of two directory sales companies and certain cellular properties.
The Company reduced long-term debt (including capital leases) and short-term
debt by $168.2 million in 1993 and $764.4 million in 1992. Approximately $1.7
billion and $1.8 billion of debt was refinanced at more favorable interest
rates during 1993 and 1992, respectively. The Company's debt ratio was 54.6% as
of December 31, 1993, compared to 56.3% at December 31, 1992.
The Company issued shares of its common stock for cash, in satisfaction of
liabilities and in connection with acquisitions (see Note 6 of Notes to
Consolidated Financial Statements).
12
REPORT OF MANAGEMENT
The management of Bell Atlantic Corporation is responsible for the
consolidated financial statements and the information and representations
contained in this report. Management believes that the financial statements
have been prepared in conformity with generally accepted accounting principles
and that the information in this report is consistent with those statements.
Management is required to include in the financial statements amounts,
primarily related to matters not concluded by year-end, that are based on
management's best estimates and judgments.
In meeting its responsibility for the financial statements of the Company,
management maintains a strong internal control structure, including the
appropriate control environment, accounting systems, and control procedures.
The internal control structure is designed to provide reasonable assurance that
assets are safeguarded from unauthorized use or disposition, that transactions
are properly recorded and executed in accordance with management's
authorizations, and that the financial records permit the preparation of
reliable financial statements. There are, however, inherent limitations that
should be recognized in considering the assurances provided by the internal
control structure. The concept of reasonable assurance recognizes that the
costs of the internal control structure should not exceed the benefits to be
derived. The internal control structure is reviewed and evaluated on a regular
basis. Compliance is monitored by the internal auditors through an annual plan
of internal audits.
The Board of Directors pursues its review and oversight role for the
financial statements through an Audit Committee composed of four outside
directors. The duties of the Audit Committee include recommending to the Board
of Directors the appointment of an independent accounting firm to audit the
financial statements of the Company and its subsidiaries. The Audit Committee
meets periodically with management and the Board of Directors. It also meets
with representatives of the internal auditors and independent accountants and
reviews the work of each to ensure that their respective responsibilities are
being carried out and to discuss related matters. Both the internal auditors
and independent accountants have direct access to the Audit Committee.
The financial statements of the Company have been audited by Coopers &
Lybrand, independent accountants, whose report is included on page 14.
/s/ Raymond W. Smith /s/ William O. Albertini
Raymond W. Smith William O. Albertini
Chairman of the Board and Vice President and Chief Financial
Chief Executive Officer Officer
13
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, 1993 and 1992, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1993. 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, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Notes 1, 8 and 9 to the consolidated financial statements,
the Company changed its method of accounting for income taxes and
postemployment benefits in 1993 and postretirement benefits other than pensions
in 1991.
/s/ Coopers & Lybrand
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 7, 1994
14
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993 1992 1991
--------- --------- ---------
Operating Revenues
Communications and Related Services
Network Services
Local service............................... $ 5,055.9 $ 4,892.1 $ 4,757.8
Network access.............................. 3,070.9 2,953.1 2,922.1
Toll service................................ 1,558.0 1,556.2 1,538.7
Directory advertising, billing services, and
other...................................... 1,704.6 1,658.9 1,599.2
Provision for uncollectibles................ (155.4) (117.6) (107.6)
Other Communications and Related Services.... 1,300.8 1,221.9 1,140.0
Financial, Real Estate, and Other Services.... 455.4 553.8 701.9
--------- --------- ---------
12,990.2 12,718.4 12,552.1
--------- --------- ---------
Operating Expenses
Employee costs, including benefits and taxes.. 4,027.6 3,941.5 3,992.6
Depreciation and amortization................. 2,545.1 2,417.4 2,338.8
Other......................................... 3,619.9 3,853.3 3,695.4
--------- --------- ---------
10,192.6 10,212.2 10,026.8
--------- --------- ---------
Operating Income.............................. 2,797.6 2,506.2 2,525.3
Other Income and Expense, Net................. 88.1 214.4 176.2
Interest Expense, excluding Financial
Services..................................... 612.1 694.9 806.8
--------- --------- ---------
Income Before Provision for Income Taxes,
Extraordinary Item, and Cumulative Effect of
Changes in Accounting Principles............. 2,273.6 2,025.7 1,894.7
Provision for Income Taxes.................... 792.0 643.5 664.8
--------- --------- ---------
Income Before Extraordinary Item and
Cumulative Effect of Changes in Accounting
Principles................................... 1,481.6 1,382.2 1,229.9
--------- --------- ---------
Extraordinary Item
Early Extinguishment of Debt, Net of Tax..... (58.4) (41.6) --
--------- --------- ---------
Cumulative Effect of Changes in Accounting
Principles
Income Taxes................................. 65.2 -- --
Postemployment Benefits, Net of Tax.......... (85.0) -- --
Postretirement Benefits Other Than Pensions,
Net of Tax.................................. -- -- (1,554.3)
--------- --------- ---------
(19.8) -- (1,554.3)
--------- --------- ---------
Net Income (Loss)............................. $ 1,403.4 $ 1,340.6 $ (324.4)
========= ========= =========
Per Common Share
Income Before Extraordinary Item and
Cumulative Effect of Changes in Accounting
Principles................................... $ 3.39 $ 3.23 $ 2.91
Extraordinary Item............................ (.13) (.10) --
Cumulative Effect of Changes in Accounting
Principles................................... (.04) -- (3.63)
--------- --------- ---------
Net Income (Loss)............................. $ 3.22 $ 3.13 $ (.72)
========= ========= =========
Weighted average number of common shares and
equivalent shares outstanding (in millions).. 436.3 433.0 429.1
========= ========= =========
See Notes to Consolidated Financial Statements.
15
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
DECEMBER 31,
--------------------
1993 1992
--------- ---------
ASSETS
Current Assets
Cash and cash equivalents................................ $ 146.1 $ 296.0
Short-term investments................................... 8.5 33.7
Accounts receivable, net of allowances of $192.6 and
$170.4.................................................. 2,135.7 2,036.8
Finance lease and notes receivable, net.................. 626.6 592.0
Inventories.............................................. 250.9 266.0
Prepaid expenses......................................... 452.4 391.7
Deferred charges and other............................... 250.6 375.1
--------- ---------
3,870.8 3,991.3
--------- ---------
Plant, Property and Equipment............................ 32,329.9 31,046.2
Less accumulated depreciation............................ 11,964.0 10,716.2
--------- ---------
20,365.9 20,330.0
--------- ---------
Equipment Under Operating Leases, Net.................... 199.3 262.7
Finance Lease and Notes Receivable, Net.................. 1,888.4 1,872.7
Investments in Affiliates................................ 1,394.7 987.5
Other Assets............................................. 1,825.1 655.3
--------- ---------
Total Assets............................................. $29,544.2 $28,099.5
========= =========
LIABILITIES AND SHAREOWNERS' INVESTMENT
Current Liabilities
Debt maturing within one year............................ $ 2,677.3 $ 2,703.5
Accounts payable......................................... 2,134.9 1,939.5
Accrued taxes............................................ 190.9 126.1
Advance billings and customer deposits................... 443.0 420.4
Accrued vacation pay..................................... 244.0 228.4
Dividend payable......................................... 292.2 282.1
Other.................................................... 141.6 172.2
--------- ---------
6,123.9 5,872.2
--------- ---------
Long-Term Debt........................................... 7,206.2 7,348.2
--------- ---------
Employee Benefit Obligations............................. 3,396.0 3,058.7
--------- ---------
Deferred Credits and Other Liabilities
Deferred income taxes.................................... 2,913.5 3,094.3
Unamortized investment tax credits....................... 447.2 513.4
Other.................................................... 1,233.0 396.4
--------- ---------
4,593.7 4,004.1
--------- ---------
Commitments (Notes 5 and 6)
Shareowners' Investment
Preferred and Preference stock ($1 par value; none is-
sued)................................................... -- --
Common stock ($1 par value; 436,130,185 shares and
434,155,077 shares issued).............................. 436.1 434.2
Common stock issuable (142,068 shares and 185,797
shares)................................................. .1 .2
Contributed capital...................................... 5,415.2 5,356.9
Reinvested earnings...................................... 3,093.6 2,853.4
Foreign currency translation adjustment.................. (83.9) (140.1)
--------- ---------
8,861.1 8,504.6
Less common stock in treasury, at cost................... 2.4 9.1
Less deferred compensation--employee stock ownership
plans................................................... 634.3 679.2
--------- ---------
8,224.4 7,816.3
--------- ---------
Total Liabilities and Shareowners' Investment............ $29,544.2 $28,099.5
========= =========
See Notes to Consolidated Financial Statements.
16
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN MILLIONS)
1993 1992 1991
--------- --------- ---------
Cash Flows From Operating Activities
Net income (loss)............................. $ 1,403.4 $ 1,340.6 $ (324.4)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 2,545.1 2,417.4 2,338.8
Extraordinary item related to early
extinguishment of debt,
net of tax benefit......................... 58.4 41.6 --
Cumulative effect of changes in accounting
principles................................. 19.8 -- 1,554.3
Other items, net............................ (12.5) (56.5) (58.0)
Changes in certain assets and liabilities,
net of effects from acquisition/disposition
of businesses:
Accounts receivable....................... (87.8) (13.8) 63.9
Inventories............................... (48.9) (43.7) (15.2)
Other assets.............................. 3.8 157.0 (57.3)
Accounts payable and accrued taxes........ 340.9 (64.4) 58.4
Deferred income taxes, net................ (105.8) (26.1) 54.4
Unamortized investment tax credits........ (66.2) (80.0) (68.0)
Employee benefit obligations.............. 193.3 63.6 216.5
Other liabilities......................... (9.5) 172.0 (2.4)
--------- --------- ---------
Net cash provided by operating activities..... 4,234.0 3,907.7 3,761.0
--------- --------- ---------
Cash Flows From Investing Activities
Purchases of short-term investments........... (8.5) (159.3) (202.0)
Proceeds from sale of short-term investments.. 34.0 241.3 113.6
Additions to plant, property and equipment.... (2,448.6) (2,488.1) (2,501.0)
Proceeds from sale of plant, property and
equipment.................................... 2.6 315.0 86.5
Additions to equipment under operating leases. (68.8) (72.3) (86.3)
Proceeds from sale of equipment under operat-
ing leases................................... 44.7 111.9 107.6
Additions to finance lease and notes receiv-
able......................................... (1,862.5) (1,467.0) (1,373.1)
Proceeds from sales related to finance lease
and notes receivable......................... 233.2 318.5 317.6
Principal payments received under finance
lease and notes receivable................... 1,568.0 1,156.2 1,092.0
Acquisition of businesses, less cash acquired. (146.9) (.3) (2.0)
Investment in Grupo Iusacell, S.A. de C.V..... (520.0) -- --
Investment in Telecom Corporation of New Zea-
land Limited................................. -- -- (189.7)
Proceeds from sale of ownership interest in
Telecom Corporation of New Zealand Limited... 253.7 -- 395.5
Investment in joint ventures.................. (7.5) (.8) (10.9)
Proceeds from disposition of businesses....... -- 26.5 4.2
Proceeds from sale of investment.............. -- 58.9 --
Other, net.................................... (9.7) (36.3) (27.0)
--------- --------- ---------
Net cash used in investing activities......... (2,936.3) (1,995.8) (2,275.0)
--------- --------- ---------
Cash Flows From Financing Activities
Proceeds from borrowings...................... 2,148.1 1,340.7 750.2
Principal repayments of borrowings and capital
lease obligations............................ (949.0) (1,875.5) (796.1)
Early extinguishment of debt and related call
premium...................................... (1,658.7) (987.5) --
Net change in short-term borrowings with orig-
inal maturities of three months or less...... 186.7 700.4 (485.2)
Dividends paid................................ (1,156.5) (1,069.7) (976.2)
Proceeds from sale of treasury stock.......... 2.0 122.1 112.7
Proceeds from sale of common stock............ 31.7 -- --
Purchase of common stock for treasury......... -- (.1) (15.3)
Net change in outstanding checks drawn on con-
trolled disbursement accounts................ (51.9) 22.0 (42.4)
--------- --------- ---------
Net cash used in financing activities......... (1,447.6) (1,747.6) (1,452.3)
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equiva-
lents........................................ (149.9) 164.3 33.7
Cash and Cash Equivalents, Beginning of Year.. 296.0 131.7 98.0
--------- --------- ---------
Cash and Cash Equivalents, End of Year........ $ 146.1 $ 296.0 $ 131.7
========= ========= =========
See Notes to Consolidated Financial Statements.
17
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
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 less-than-majority-owned
businesses, including the Company's investments in Telecom Corporation of New
Zealand Limited (Telecom), Grupo Iusacell, S.A. de C.V., a one-seventh interest
in Bell Communications Research, Inc., several cellular mobile communications
and real estate partnerships, and several other domestic and international
joint ventures, are accounted for using the equity method. The portion of the
Company's investment in Telecom that was required to be sold was accounted for
using the cost method. All significant intercompany accounts and transactions
have been eliminated.
Network Services consists of the Company's seven telephone subsidiaries and
subsidiaries that provide centralized management, financing, and technical
services. Financial Services consists of the Company's lease financing
subsidiaries.
The telephone subsidiaries are included in the consolidated financial
statements using generally accepted accounting principles applicable to
regulated entities.
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. For
Other Communications and Related Services, revenue is recognized when products
are delivered or services are rendered to customers. Cellular operations
revenue includes access and usage, equipment, and gross roamer revenue into and
out of the Company's markets.
Financial, Real Estate, and Other Services revenues primarily result from
leasing transactions, which 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.
18
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. Nonreusable material is carried at
estimated salvage value. 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 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 remaining life method of depreciation and straight-line composite rates.
The provision for depreciation is based on the following estimated remaining
service lives: buildings, 25 to 35 years; central office equipment, 2 to 12
years; cable, wiring, and conduit, 9 to 45 years; and other equipment, 2 to 20
years. This method provides for the recovery of the remaining net investment in
telephone plant, less anticipated net salvage value, over the remaining service
lives authorized by regulatory commissions. Depreciation expense also includes
amortization of certain classes of telephone plant (and certain identified
depreciation reserve deficiencies) over periods authorized by regulatory
commissions.
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 service 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 16 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.
Maintenance and Repairs
The cost of maintenance and repairs of plant, including the cost of replacing
minor items not constituting substantial betterments, is charged to operating
expenses.
Allowance for Funds Used During Construction
Regulatory commissions allow the telephone subsidiaries to record an
allowance for funds used during construction, which includes both interest and
equity return components, as a cost of plant and as an item of other income.
Such income is not recovered in cash currently, but will be recoverable over
the service life of the plant through higher depreciation expense recognized
for regulatory purposes.
Equipment Under Operating Leases
Equipment under operating leases is depreciated to estimated residual value
principally by using a sum-of-the-years-digits method.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets of
businesses acquired, which is included in noncurrent other assets, is amortized
by the straight-line method over periods not exceeding 40 years.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries for which the functional
currency is the local currency are translated at current exchange rates.
Revenues and expenses are translated using average rates during the year.
Resulting cumulative translation adjustments are recorded as a separate
component of Shareowners' Investment. Exchange gains and losses on certain
balances of a long-term investment nature between consolidated subsidiaries
also are recorded in the separate component of Shareowners' Investment. Other
transaction gains and losses that arise from exchange rate changes on
transactions denominated in a currency other than the local currency are
included in results of operations as incurred.
19
Financial Instruments
In the normal course of business, the Company employs a variety of off-
balance-sheet financial instruments to reduce its exposure to fluctuations in
interest and foreign exchange rates, including interest rate swap agreements
and forward exchange contracts. The Company designates interest rate swaps as
hedges of direct finance lease receivable transfer agreements and debt, and
accrues the differential to be paid or received under the agreements as
interest rates change and recognizes this expense over the life of the
contracts. Realized and unrealized gains and losses arising from forward
exchange contracts that hedge certain balances of a long-term investment nature
are included in Shareowners' Investment. Realized and unrealized gains and
losses on contracts that hedge certain balances of a temporary nature are
included in results of operations.
Employee Benefits
Pension Plans
Substantially all employees of the Company are covered under noncontributory
defined benefit pension plans. The Company uses the projected unit credit
actuarial cost method for determining pension cost for financial reporting
purposes. 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.
Effective January 1, 1991, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," which requires accrual accounting for all
postretirement benefits other than pensions. Under the prescribed accrual
method, the Company's obligation for these postretirement benefits is to be
fully accrued by the date employees attain full eligibility for such benefits.
A portion of the postretirement accrued benefit obligation is contributed to
501(c)(9) trusts and 401h accounts under applicable federal income tax
regulations. The amounts contributed to these trusts and accounts 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
20
liability method. Under the 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. Certain of
the telephone subsidiaries did not fully provide deferred income taxes on
certain timing differences when regulators permitted only income taxes actually
paid to be recognized currently as a cost of service.
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 and reflect
the shares issued in April 1992 in connection with the merger with Metro Mobile
CTS, Inc. as outstanding for all years presented.
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
1993 classifications.
2.DEBT
Long-Term
Long-term debt consists of the following at December 31:
INTEREST
RATES MATURITIES 1993 1992
--------------------------------- --------
(DOLLARS IN MILLIONS)
Communications and Related
Services
Telephone subsidiaries' deben-
tures: 3.25%--7.00% 1995--2025 $1,972.0 $1,827.0
7.125%--7.75% 2002--2033 2,105.0 2,155.0
7.85%--8.75% 1994--2031 1,480.0 1,575.0
-------- --------
5,557.0 5,557.0
Unamortized discount and premium, net.................. (113.2) (115.5)
Capital lease obligations--average rate 10.6% and
10.8%................................................. 125.8 133.4
Other.................................................. 43.9 84.9
-------- --------
5,613.5 5,659.8
-------- --------
Financial, Real Estate, and
Other Services
Notes payable................. 3.63%--11.27% 1994--2014 984.8 1,459.0
Mortgage and installment
notes........................ 3.90%--12.00% 1994--2011 33.3 51.6
Nonrecourse notes............. 7.95%--10.35% 1994--1997 4.3 3.7
Capital lease obligations--average rate 11.1%.......... -- 18.9
-------- --------
1,022.4 1,533.2
-------- --------
Corporate
Notes payable................. 6.625% 1997 130.0 379.5
Medium-term notes............. 4.07%--7.24% 1995--2003 570.1 98.8
Unamortized discount................................... (2.8) (1.2)
-------- --------
697.3 477.1
-------- --------
Employee Stock Ownership Plan
Loans
Senior Notes.................. 8.17% 2000 633.7 687.2
-------- --------
Total long-term debt, including current maturities..... 7,966.9 8,357.3
Less maturing within one year.......................... 760.7 1,009.1
-------- --------
Total long-term debt................................... $7,206.2 $7,348.2
======== ========
21
Maturities of long-term debt outstanding at December 31, 1993, excluding
unamortized discount and premium and capital lease obligations, are as follows:
FINANCIAL, EMPLOYEE
COMMUNICATIONS REAL ESTATE, STOCK
AND RELATED AND OTHER OWNERSHIP
YEARS SERVICES SERVICES CORPORATE PLAN LOANS TOTAL
- ----- -------------- ------------ --------- ---------- --------
(DOLLARS IN MILLIONS)
1994............. $ 100.1 $ 587.4 $ -- $ 62.4 $ 749.9
1995............. 92.2 251.8 75.7 73.5 493.2
1996............. 35.2 78.6 97.8 85.6 297.2
1997............. .2 43.7 130.0 98.9 272.8
1998............. 20.1 .6 201.9 113.5 336.1
Thereafter....... 5,353.1 60.3 194.7 199.8 5,807.9
-------- -------- ------ ------ --------
Total............ $5,600.9 $1,022.4 $700.1 $633.7 $7,957.1
======== ======== ====== ====== ========
Telephone subsidiaries' debentures outstanding at December 31, 1993 include
$2,072.0 million that are callable. The call prices range from 104.3% 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. The
redemption prices will be 100.0% of face value plus accrued interest.
Installment and nonrecourse notes in the amount of $9.1 million at December
31, 1993 were collateralized by finance lease receivables and equipment.
Mortgage notes in the amount of $25.9 million at December 31, 1993 were
collateralized by land and buildings held for investment purposes.
Corporate debt includes debt securities issued by Bell Atlantic Financial
Services, Inc. (FSI), which provides financing for Bell Atlantic and certain of
its subsidiaries. At December 31, 1992, corporate debt also included financing
related to the Company's investment in Telecom.
FSI debt securities that are classified as long-term debt (aggregating $700.1
million at December 31, 1993) 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 $6
billion at December 31, 1993.
See Note 8 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 $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.
22
Maturing Within One Year
Debt maturing within one year consists of the following at December 31:
1993 1992 1991
-------- -------- --------
(DOLLARS IN MILLIONS)
Notes payable:
Bank loans...................................... $ 582.0 $ 336.2 $ 304.1
Commercial paper................................ 1,334.6 1,358.2 817.2
Long-term debt maturing within one year.......... 760.7 1,009.1 1,710.8
-------- -------- --------
Total............................................ $2,677.3 $2,703.5 $2,832.1
======== ======== ========
Average amounts of notes payable outstanding dur-
ing the year*................................... $1,398.7 $1,616.1 $1,821.9
Weighted average interest rates for notes payable
outstanding during the year**................... 3.3% 3.9% 6.3%
Maximum amounts of notes payable at any month-end
during the year................................. $1,916.6 $2,368.4 $2,292.3
- --------
*Amounts represent average daily face amounts of notes.
**Weighted average interest rates are computed by dividing average daily face
amounts of notes into the aggregate related interest expense and include
both domestic and international borrowings.
Construction of telephone plant and the operations of the Company's Financial
Services, 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, 1993, the Company had in excess of $2.0 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.
3.PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment, which is stated at cost, is summarized as
follows at December 31:
1993 1992
-------------------------------------- ----------
FINANCIAL,
COMMUNICATIONS REAL ESTATE,
AND RELATED AND OTHER
SERVICES SERVICES TOTAL TOTAL
-------------- ------------ ---------- ----------
(DOLLARS IN MILLIONS)
Land.................... $ 151.1 $ 110.9 $ 262.0 $ 252.6
Buildings............... 2,349.8 256.9 2,606.7 2,504.5
Central office equip-
ment................... 11,905.5 -- 11,905.5 11,498.4
Cable, wiring, and con-
duit................... 11,635.4 -- 11,635.4 11,209.7
Other equipment......... 4,483.7 55.8 4,539.5 4,241.9
Other................... 544.5 151.7 696.2 652.4
Construction-in-pro-
gress.................. 682.4 2.2 684.6 686.7
---------- ------- ---------- ----------
31,752.4 577.5 32,329.9 31,046.2
Accumulated deprecia-
tion................... (11,862.7) (101.3) (11,964.0) (10,716.2)
---------- ------- ---------- ----------
Total................... $ 19,889.7 $ 476.2 $ 20,365.9 $ 20,330.0
========== ======= ========== ==========
23
4.LEASING ARRANGEMENTS AS LESSOR
Certain of the Company's subsidiaries provide a variety of leasing services,
predominantly related to computer, medical, and industrial equipment and real
estate properties. The leases are classified as capital or operating leases in
accordance with the provisions of Statement of Financial Accounting Standards
No. 13, "Accounting for Leases."
Finance lease and notes receivable, net, consist of the following components
at December 31:
1993 1992
--------------------------- ---------------------------
DIRECT DIRECT
LEVERAGED FINANCE LEVERAGED FINANCE
LEASES LEASES TOTAL LEASES LEASES TOTAL
--------- ------- -------- --------- ------- --------
(DOLLARS IN MILLIONS)
Minimum lease payments
receivable............. $ 879.9 $ 736.1 $1,616.0 $ 905.2 $ 732.3 $1,637.5
Estimated residual val-
ue..................... 584.1 136.9 721.0 584.1 154.2 738.3
Unearned income......... (542.8) (156.8) (699.6) (573.8) (167.6) (741.4)
------- ------- -------- ------- ------- --------
$ 921.2 $ 716.2 1,637.4 $ 915.5 $ 718.9 1,634.4
======= ======= ======= =======
Allowance for doubtful
accounts............... (48.9) (52.2)
-------- --------
Finance lease receiv-
ables, net............. 1,588.5 1,582.2
Notes receivable........ 926.5 882.5
-------- --------
Finance lease and notes
receivable, net........ $2,515.0 $2,464.7
======== ========
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 $799.8 million and $742.7 million at December 31, 1993 and
1992, respectively.
Notes receivable consist of amounts due to the Financial Services
subsidiaries in connection with various financing and lending arrangements. The
notes bear interest at rates ranging from 6.0% to 20.0% and mature in varying
amounts between the years 1994 and 2015.
Equipment under operating leases is net of accumulated depreciation of $652.4
million and $758.2 million at December 31, 1993 and 1992, respectively.
Plant, property and equipment at December 31, 1993 and 1992 includes real
estate property under operating leases, or held for lease, of $434.3 million
and $471.7 million, less accumulated depreciation of $67.9 million and $62.8
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, 1993:
YEARS CAPITAL LEASES OPERATING LEASES
----- -------------- ----------------
(DOLLARS IN MILLIONS)
1994..................................... $ 242.7 $135.4
1995..................................... 201.2 109.5
1996..................................... 140.8 74.2
1997..................................... 95.0 52.8
1998..................................... 64.0 34.7
Thereafter............................... 872.3 86.4
-------- ------
Total.................................... $1,616.0 $493.0
======== ======
24
5. 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 $221.2 million and $211.3 million and related accumulated
amortization of $112.7 million and $91.5 million at December 31, 1993 and 1992,
respectively. In 1993, 1992, and 1991, the Company incurred initial capital
lease obligations of $13.6 million, $15.2 million, and $40.2 million,
respectively.
Total rent expense amounted to $307.8 million in 1993, $295.7 million in
1992, and $298.1 million in 1991.
At December 31, 1993, the aggregate minimum rental commitments under
noncancelable leases for the periods shown are as follows:
YEARS CAPITAL LEASES OPERATING LEASES
----- -------------- ----------------
(DOLLARS IN MILLIONS)
1994.................................... $ 24.5 $ 122.8
1995.................................... 22.6 106.3
1996.................................... 23.0 93.3
1997.................................... 19.4 85.4
1998.................................... 17.5 73.1
Thereafter.............................. 112.4 645.8
------ --------
Total................................... 219.4 $1,126.7
========
Less imputed interest and executory
costs.................................. 93.6
------
Present value of net minimum lease pay-
ments.................................. 125.8
Less current installments............... 10.8
------
Long-term obligation at December 31,
1993................................... $115.0
======
As of December 31, 1993, the total minimum sublease rentals to be received in
the future under noncancelable operating subleases was $86.5 million.
25
6.SHAREOWNERS' INVESTMENT
COMMON
COMMON STOCK STOCK ISSUABLE TREASURY STOCK
----------------- ----------------- -----------------
FOREIGN DEFERRED
CONTRI- REIN- CURRENCY COMPEN-
SHARES (IN SHARES (IN BUTED VESTED TRANSLATION SHARES (IN SATION--
THOUSANDS) AMOUNT THOUSANDS) AMOUNT CAPITAL EARNINGS ADJUSTMENT THOUSANDS) AMOUNT ESOP
---------- ------ ---------- ------ -------- -------- ----------- ---------- ------ --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Balance, December 31,
1990.................. 433,818 $433.8 -- $ -- $5,301.3 $3,904.0 $(29.8) 6,302 $316.7 $761.1
Loss................... (324.4)
Dividends declared on
common stock
($2.52 per share)..... (993.7)
Purchase of common
stock for treasury.... 329 15.3
Sales and distributions
of treasury shares to
employee savings plans
and shareowner
dividend reinvestment
and stock purchase
plan.................. (10.3) (2,949) (148.9)
Treasury shares
distributed in
connection with stock
incentive plans....... .3 (240) (11.5)
Foreign currency
translation
adjustment, net of
income tax benefit of
$4.7 million.......... (70.7)
Reduction of ESOP
obligations........... (39.7)
Tax benefit of
dividends paid to
ESOPs................. 14.4
Metro Mobile CTS, Inc.
premerger acquisition
activities............ 35.8
Other.................. (.1)
------- ------ --- ------ -------- -------- ------ ------ ------ ------
Balance, December 31,
1991.................. 433,818 433.8 -- -- 5,327.0 2,600.3 (100.5) 3,442 171.6 721.4
Net income............. 1,340.6
Dividends declared on
common stock
($2.60 per share)..... (1,102.3)
Acquisitions........... 337 .4 186 .2 23.0
Purchase of common
stock for treasury.... 3 .1
Sales and distribution
of treasury shares to
employee savings plans
and shareowner
dividend reinvestment
and stock purchase
plan.................. (9.1) (2,915) (146.4)
Treasury shares
distributed in
connection with stock
incentive plans....... (1.2) (344) (16.2)
Foreign currency
translation
adjustment, net of
income tax benefit of
$5.3 million.......... (39.6)
Reduction of ESOP
obligations........... (42.2)
Tax benefit of
dividends paid to
ESOPs................. 14.8
Metro Mobile CTS, Inc.
premerger activities.. 17.0
Other.................. .2
------- ------ --- ------ -------- -------- ------ ------ ------ ------
Balance, December 31,
1992.................. 434,155 434.2 186 .2 5,356.9 2,853.4 (140.1) 186 9.1 679.2
Net income............. 1,403.4
Dividends declared on
common stock
($2.68 per share)..... (1,166.6)
Acquisition............ 3 -- .6 (70) (3.4)
Distribution of common
stock to employee
savings plans......... 256 .2 12.3
Sale of common stock to
shareowner dividend
reinvestment and stock
purchase plan......... 278 .3 16.0
Common stock
distributed in
connection with stock
incentive plans....... 510 .4 30.3 (8.2) (66) (3.3)
Common stock issued
pursuant to
acquisition agreement. 47 .1 (47) (.1)
Common stock
distributed to Metro
Mobile CTS, Inc.
shareowners........... 884 .9 (.9)
Foreign currency
translation
adjustment, net of
income tax benefit of
$6.3 million.......... 56.2
Reduction of ESOP
obligations........... (44.9)
Tax benefit of
dividends paid to
ESOPs................. 11.6
------- ------ --- ------ -------- -------- ------ ------ ------ ------
Balance, December 31,
1993.................. 436,130 $436.1 142 $ .1 $5,415.2 $3,093.6 $(83.9) 50 $ 2.4 $634.3
======= ====== === ====== ======== ======== ====== ====== ====== ======
26
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.
Under the terms of an acquisition of a cellular telephone system in 1992, the
Company issued 46,449 shares of common stock in October 1993. Additionally, the
Company is required to deliver 46,449 common shares in October 1994 and 92,899
common shares in October 1995 (subject to reduction for certain contingencies)
pursuant to this agreement.
Under the terms of an acquisition in 1993 of a permit for the construction of
a cellular telephone system, the Company will be required to deliver 2,720
shares of its common stock in March 1994.
In 1993, the Company issued 883,832 shares of common stock to settle certain
litigation arising from the merger with Metro Mobile CTS, Inc. (Note 13). This
settlement had no impact on the Company's results of operations.
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 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 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.
7.STOCK INCENTIVE PLANS
Under the Bell Atlantic Stock Incentive Plan (the Plan), a total of
14,000,000 shares of common stock may be distributed upon the exercise of
incentive stock options and for payment of performance share awards. Key
employees may be granted incentive stock options to purchase shares of Bell
Atlantic's common stock at prices not less than the fair market value of the
stock at the date of the grant. Stock appreciation rights (SARs) may also be
granted in tandem with the incentive stock options. Upon exercise of the SARs,
the related incentive stock options are canceled. Incentive stock options and
SARs are exercisable at dates determined by the terms of the grant, but not
later than 10 years from the date of the grant.
The Plan also provides for the granting of performance share awards to
certain key employees. Payment of performance share awards is based on the
achievement of financial, market performance, and other objectives set by the
Board of Directors, typically over a five year period, and made in stock,
unless otherwise determined by the Board. The Plan also allows payment of the
performance share awards to be deferred until later periods.
A subsidiary of Bell Atlantic also maintains a separate performance share
award plan that provides for awards of Bell Atlantic's common stock,
distributable at various times, based on the subsidiary's performance and other
factors.
27
Incentive stock options, SARs and performance share awards outstanding under
both the Bell Atlantic and the subsidiary's plans are as follows:
WEIGHTED AVERAGE
PRICE
INCENTIVE OF INCENTIVE PERFORMANCE
STOCK OPTIONS SARS STOCK OPTIONS SHARE AWARDS
------------- ------- ---------------- ------------
Outstanding, December 31,
1990..................... 777,501 41,112 $41.68 1,293,261
Granted................... 1,085,462 33,034 $53.35 585,049
Exercised/Distributed..... (58,994) -- $35.50 (286,061)
Canceled.................. (99,264) (35,628) $47.09 (163,368)
--------- ------- ---------
Outstanding, 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, 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, December 31,
1993..................... 2,582,568 12,660 $50.50 736,379
========= ======= =========
At December 31, 1993, incentive stock options to purchase 1,742,207 shares of
common stock were exercisable under the Plan. A total of 8,114,064 and
8,888,299 shares of common stock were available for the granting of incentive
stock options and performance share awards under the Plan at December 31, 1993
and 1992, respectively. Compensation expense related to the stock incentive
plans described above amounted to $18.6 million in 1993, $17.0 million in 1992,
and $20.6 million in 1991. At December 31, 1993, employees had deferred receipt
of 243,618 shares awarded under the Company's incentive award plans.
8. 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:
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
--------- ------- ---------
(DOLLARS IN MILLIONS)
Benefits earned during the year................. $ 162.7 $ 171.3 $ 184.5
Interest on projected benefit obligation........ 818.9 786.8 735.1
Actual return on plan assets.................... (1,731.7) (514.9) (2,166.9)
Deferral of difference between actual and
assumed return on plan assets.................. 898.3 (309.6) 1,433.3
Net amortization................................ .9 (10.3) (30.3)
Special termination benefits.................... -- 45.0 10.1
--------- ------- ---------
Pension cost.................................... $ 149.1 $ 168.3 $ 165.8
========= ======= =========
Pension cost as a percentage of salaries and
wages.......................................... 4.9% 5.7% 5.5%
========= ======= =========
The decrease in pension cost in 1993 is due to the net effect of the
elimination of one-time charges associated with special termination benefits
that were recognized in the preceding years, favorable investment experience,
and changes in plan demographics due to retirement and severance programs.
In 1992, the Company recognized $45.0 million of special termination benefit
costs related to the early retirement of associate employees of the Network
Services companies. The special termination benefit costs and
28
the net effect of changes in plan provisions, certain actuarial assumptions,
and the amortization of actuarial gains and losses related to demographic and
investment experience increased pension cost in 1992. A change in the expected
long-term rate of return on plan assets resulted in a $75.0 million reduction
in pension cost (which reduced operating expenses by $68.0 million after the
capitalization of amounts related to the construction program) and
substantially offset the 1992 cost increase.
The following table sets forth the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheets as of December 31:
1993 1992
--------- ---------
(DOLLARS IN
MILLIONS)
Actuarial present value of benefit obligations:
Benefits based on service to date and present salary
levels
Vested................................................. $ 7,993.1 $ 7,428.8
Nonvested.............................................. 2,176.1 2,263.1
--------- ---------
Accumulated benefit obligation........................ 10,169.2 9,691.9
Additional benefits related to estimated future salary
levels................................................. 1,293.9 1,134.6
--------- ---------
Projected benefit obligation.......................... 11,463.1 10,826.5
--------- ---------
Fair value of plan assets................................ 12,368.7 11,487.0
--------- ---------
Plan assets in excess of projected benefit obligation.... (905.6) (660.5)
Unrecognized net gain.................................... 1,173.5 1,256.8
Unamortized prior service cost........................... 121.5 (371.3)
Unamortized net transition asset......................... 211.6 231.2
Additional minimum liability for nonqualified plans...... 52.5 54.0
--------- ---------
Accrued pension obligation............................... $ 653.5 $ 510.2
========= =========
The assumed discount rate used to measure the projected benefit obligation
was 7.25% at December 31, 1993 and 7.75% at December 31, 1992. The assumed rate
of future increases in compensation levels was 5.25% at December 31, 1993 and
1992. The expected long-term rate of return on plan assets was 8.25% for 1993
and 1992, and 7.5% for 1991. 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, 1993 and 1992 may not be
meaningful.
Postretirement Benefits Other Than Pensions
Effective January 1, 1991, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (Statement No. 106). Statement No. 106 requires
accrual accounting for all postretirement benefits other than pensions. Under
the prescribed accrual method, the Company's obligation for these
postretirement benefits is fully accrued by the date employees attain full
eligibility for such benefits.
In conjunction with the adoption of Statement No. 106, the Company elected,
for financial reporting purposes, to recognize immediately the accumulated
postretirement benefit obligation for current and future retirees, net of the
fair value of plan assets and recognized accrued postretirement benefit cost
(transition obligation), in the amount of $1,554.3 million, net of a deferred
income tax benefit of $945.6 million.
For purposes of measuring the interstate rate of return achieved by the
telephone subsidiaries, the Federal Communications Commission (FCC) permits
recognition of postretirement benefit costs, including amortization of the
transition obligation, in accordance with the prescribed accrual method
included in Statement No. 106. In
29
January 1993, the FCC denied adjustments to the interstate price cap formula
which would have permitted tariff increases to reflect the incremental
postretirement benefit cost resulting from the adoption of Statement No. 106.
Accrued postretirement benefit cost, including amortization of the
transition obligation, has generally been recognized for purposes of measuring
the intrastate rate of return achieved by the telephone subsidiaries. In
Maryland, Delaware, and the District of Columbia, the postretirement benefit
cost recognized for intrastate rate of return measurement purposes is not in
accordance with the prescribed amortization method in Statement No. 106. New
Jersey, Pennsylvania, and West Virginia have not authoritatively approved the
recognition of postretirement benefit cost in excess of pay-as-you-go amounts.
In Virginia, recognition of postretirement benefit cost, including the
amortization of the transition obligation, is permitted for rate of return
measurement purposes, so long as recognition of such costs does not cause the
company to seek a rate increase. Tariff increases for substantially all of the
incremental intrastate postretirement benefit cost resulting from the adoption
of Statement No. 106 have not been permitted.
Pursuant to Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" (Statement No. 71), a
regulatory asset associated with the recognition of the transition obligation
was not recorded because of uncertainties as to the timing and extent of
recovery given the Company's assessment of its long-term competitive
environment.
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.
Postretirement benefit cost is composed of the following:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1993 1992 1991
------------------------- ------------------------ -------------------------
LIFE LIFE LIFE
HEALTH INSURANCE TOTAL HEALTH INSURANCE TOTAL HEALTH INSURANCE TOTAL
------ --------- ------- ------ --------- ------ ------ --------- -------
(DOLLARS IN MILLIONS)
Benefits earned during
the year............... $ 64.9 $ 8.4 $ 73.3 $ 55.4 $ 8.7 $ 64.1 $ 50.5 $ 7.2 $ 57.7
Interest on accumulated
postretirement benefit
obligation............. 270.1 32.0 302.1 234.1 32.8 266.9 221.5 30.5 252.0
Actual return on plan
assets................. (77.4) (86.3) (163.7) (21.7) (35.4) (57.1) (64.6) (99.8) (164.4)
Net amortization and
deferral............... 55.7 47.0 102.7 1.4 (2.5) (1.1) 45.5 68.1 113.6
------ ------ ------- ------ ------ ------ ------ ------ -------
Postretirement benefit
cost................... $313.3 $ 1.1 $ 314.4 $269.2 $ 3.6 $272.8 $252.9 $ 6.0 $ 258.9
====== ====== ======= ====== ====== ====== ====== ====== =======
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 the postretirement benefit cost between 1993 and 1991 was primarily due to
the change in benefit levels and claims experience. Also contributing to this
increase were changes in actuarial assumptions and demographic experience.
30
The following table sets forth the plans' funded status and the amounts
recognized in the Company's Consolidated Balance Sheets as of December 31:
1993 1992
---------------------------- ----------------------------
LIFE LIFE
HEALTH INSURANCE TOTAL HEALTH INSURANCE TOTAL
-------- --------- -------- -------- --------- --------
(DOLLARS IN MILLIONS)
Accumulated
postretirement benefit
obligation attributable
to:
Retirees................ $2,218.0 $ 295.0 $2,513.0 $1,893.7 $247.6 $2,141.3
Fully eligible plan
participants........... 319.8 .3 320.1 450.1 79.2 529.3
Other active plan
participants........... 1,362.1 174.0 1,536.1 1,074.4 139.5 1,213.9
-------- ------- -------- -------- ------ --------
Total accumulated
postretirement benefit
obligation............ 3,899.9 469.3 4,369.2 3,418.2 466.3 3,884.5
-------- ------- -------- -------- ------ --------
Fair value of plan
assets.................. 676.9 600.9 1,277.8 512.8 537.1 1,049.9
-------- ------- -------- -------- ------ --------
Accumulated
postretirement benefit
obligation in excess of
(less than) plan assets. 3,223.0 (131.6) 3,091.4 2,905.4 (70.8) 2,834.6
Unrecognized net gain
(loss).................. (528.8) 101.5 (427.3) (233.8) 41.4 (192.4)
Unamortized prior service
cost.................... (65.3) (7.4) (72.7) (84.5) (9.2) (93.7)
-------- ------- -------- -------- ------ --------
Accrued (prepaid)
postretirement benefit
obligation.............. $2,628.9 $ (37.5) $2,591.4 $2,587.1 $(38.6) $2,548.5
======== ======= ======== ======== ====== ========
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 7.25% at December 31, 1993 and 7.75% at December 31,
1992. The assumed rate of future increases in compensation levels was 5.25% at
December 31, 1993 and 1992. The expected long-term rate of return on plan
assets was 8.25% for 1993 and 1992 and 7.5% for 1991. The medical cost trend
rate in 1993 was approximately 13.0%, grading down to an ultimate rate in 2003
of approximately 5.0%. The dental cost trend rate in 1993 and thereafter is
approximately 4.0%. 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 1993 net periodic postretirement
benefit cost by $48.0 million and would have increased the accumulated
postretirement benefit obligation as of December 31, 1993 by $493.7 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 No. 106.
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. This change principally affects the
Company's accounting for disability and workers' compensation benefits, which
previously were charged to expense as the benefits were paid.
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 1993.
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.
31
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 will 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.
Total ESOP cost and trust activity consists of the following:
YEARS ENDED DECEMBER
31,
----------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN
MILLIONS)
Compensation............................................ $ 45.0 $ 42.2 $ 39.7
Interest incurred....................................... 52.9 57.7 61.3
Dividends............................................... (33.3) (35.7) (37.6)
Other trust earnings and expenses, net.................. .1 .1 (.1)
------ ------ ------
Net leveraged ESOP cost................................. 64.7 64.3 63.3
Additional ESOP cost.................................... .9 26.0 27.5
------ ------ ------
Total ESOP cost......................................... $ 65.6 $ 90.3 $ 90.8
====== ====== ======
Dividends received for debt service..................... $ 43.4 $ 43.4 $ 42.2
====== ====== ======
Total company contributions to trusts................... $ 80.3 $ 88.1 $ 92.2
====== ====== ======
9.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
liability method. Under the 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 Income 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 were primarily deferred on
the balance sheet as regulatory assets and liabilities in accordance with
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation" (Statement No. 71). At January 1, 1993, the
telephone subsidiaries recorded income tax-related regulatory assets totaling
$976.6 million in Other Assets. These regulatory assets represent the
anticipated future regulatory recognition of the Statement No. 109 adjustments
to recognize (i) temporary differences for which deferred taxes had not been
provided and (ii) the increase in the deferred state tax liability which
resulted from increases in state income tax rates subsequent to the dates the
deferred taxes were recorded. In addition, income tax-related regulatory
liabilities totaling $1,043.8 million were recorded in Deferred Credits and
Other Liabilities--Other. These regulatory liabilities represent the
anticipated future regulatory recognition of the Statement No. 109 adjustments
to recognize (i) a reduced deferred tax liability resulting from decreases in
federal income tax rates subsequent to the dates the deferred taxes were
recorded and (ii) a deferred tax benefit required to recognize the effects of
the temporary differences attributable to the Company's policy of accounting
for investment tax credits using the deferred method. These deferred taxes and
regulatory assets and liabilities have been increased for the tax effect of
future revenue requirements. These regulatory assets and liabilities are
amortized at the time the related deferred taxes are recognized in the
ratemaking process.
Prior to the adoption of Statement No. 109, the telephone subsidiaries had
income tax timing differences for which deferred taxes had not been provided
pursuant to the ratemaking process of approximately $615 million and $522
million at December 31, 1992 and 1991, respectively. These timing differences
principally related to the allowance for funds used during construction and
certain taxes and payroll-related construction costs capitalized
32
for financial statement purposes, but deducted currently for income tax
purposes, net of applicable depreciation. At December 31, 1992 and 1991,
deferred state taxes had not been provided on an additional $2,057 million and
$1,999 million, respectively, of income tax timing differences, principally
related to accelerated tax depreciation.
The Omnibus Budget Reconciliation Act of 1993, which was enacted in August
1993, increased the federal corporate income tax rate from 34% to 35%,
effective January 1, 1993. In the third quarter of 1993, the Company recorded a
net charge to the tax provision of approximately $3 million, which included an
approximate $20 million charge for the nine month effect of the 1% rate
increase, largely offset by a one-time net benefit of approximately $17 million
related to adjustments to deferred tax assets associated with the
postretirement benefit obligation of the telephone subsidiaries and the
deferred tax liabilities and assets of the nonregulated subsidiaries (including
the recorded benefit of the Metro Mobile pre-acquisition NOLs).
Pursuant to Statement No. 71, the effect of the income tax rate increase on
the deferred tax balances of the telephone subsidiaries was primarily deferred
through the establishment of regulatory assets of $23.9 million and the
reduction of regulatory liabilities of $94.1 million. The telephone
subsidiaries did not recognize regulatory assets and liabilities related to the
postretirement benefit obligation or the associated deferred income tax asset.
The components of income tax expense from continuing operations are as
follows:
YEARS ENDED DECEMBER
31,
-----------------------
1993 1992 1991
------- ------ ------
(DOLLARS IN MILLIONS)
Current:
Federal............................................... $ 814.0 $614.9 $588.1
State and local....................................... 150.0 134.7 124.5
------- ------ ------
964.0 749.6 712.6
------- ------ ------
Deferred:
Federal............................................... (107.9) (35.5) 28.6
State and local....................................... 2.1 9.4 (8.4)
------- ------ ------
(105.8) (26.1) 20.2
------- ------ ------
858.2 723.5 732.8
------- ------ ------
Investment tax credits................................. (66.2) (80.0) (68.0)
------- ------ ------
Total.................................................. $ 792.0 $643.5 $664.8
======= ====== ======
For the years ended December 31, 1992 and 1991, deferred income tax expense
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:
YEARS ENDED
DECEMBER 31,
--------------
1992 1991
------ ------
(DOLLARS IN
MILLIONS)
Leveraged lease transactions.................................... $ 58.4 $ 82.0
Accelerated depreciation........................................ (3.4) 43.0
Direct financing and operating lease transactions............... (26.5) (25.3)
Alternative Minimum Tax......................................... 41.8 33.6
Employee benefits............................................... (41.8) (72.5)
Other, net...................................................... (54.6) (40.6)
------ ------
Total........................................................... $(26.1) $ 20.2
====== ======
33
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,
----------------
1993 1992 1991
---- ---- ----
Statutory federal income tax rate............................ 35.0% 34.0% 34.0%
Investment tax credits....................................... (2.6) (3.3) (2.9)
State income taxes, net of federal tax benefits.............. 3.9 4.2 3.8
Benefit of rate differential applied to reversing timing
differences................................................. (2.6) (3.3) (3.2)
Reversal of previously capitalized taxes and payroll-related
construction costs.......................................... 1.5 .6 1.4
Other, net................................................... (.4) (.4) 2.0
---- ---- ----
Effective income tax rate.................................... 34.8% 31.8% 35.1%
==== ==== ====
At December 31, 1993, the significant components of deferred tax assets and
liabilities were as follows:
DEFERRED DEFERRED
TAX TAX
ASSETS LIABILITIES
-------- -----------
(DOLLARS IN
MILLIONS)
Depreciation.............................................. $ -- $3,817.1
Employee benefits......................................... 1,384.7 --
Investment tax credits.................................... 284.9 --
Leasing activities........................................ -- 901.8
Net operating loss carryforwards:
Federal.................................................. 111.5 --
State.................................................... 60.4 --
Advance payments.......................................... 61.4 --
Other..................................................... 435.2 327.7
-------- --------
2,338.1 5,046.6
Valuation allowance...................................... (74.8) --
-------- --------
Total..................................................... $2,263.3 $5,046.6
======== ========
Total deferred tax assets include approximately $1,033 million 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, 1993, NOL carryforwards for federal income tax purposes were
approximately $318 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, 1993, NOL carryforwards for state income
tax purposes were approximately $798 million (excluding amounts attributable to
leveraged leases) and expire from 1994 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
$115.2 million.
The valuation allowance required under Statement No. 109 primarily represents
tax benefits of certain state NOL carryforwards which may expire unutilized.
Subsequent to the adoption of Statement No. 109 on January 1, 1993, the
valuation allowance increased $35.1 million as a result of additional state NOL
carryforwards and deferred state tax assets.
34
10.SUPPLEMENTAL CASH FLOW AND ADDITIONAL FINANCIAL INFORMATION
YEARS ENDED DECEMBER
31,
----------------------
1993 1992 1991
------ ------ --------
(DOLLARS IN MILLIONS)
Supplemental Cash Flow Information:
Interest paid, net of interest capitalized............. $680.5 $797.7 $ 904.4
Income taxes paid...................................... $844.8 $752.6 $ 620.0
Additional Financial Information:
Interest expense:
Interest on long-term debt............................ $610.6 $670.8 $ 796.6
Interest on notes payable............................. 43.7 61.9 115.4
Other................................................. 65.3 96.0 88.8
------ ------ --------
Total interest, including Financial Services.......... $719.6 $828.7 $1,000.8
====== ====== ========
Portion of total interest expense incurred by Financial
Services and included in other operating expenses..... $107.5 $133.8 $ 194.0
====== ====== ========
The Provision for Income Taxes, as well as payroll, gross receipts, property,
capital stock and other taxes which are included in other operating expenses,
totaled $1,648.4 million for 1993.
Included in operating expenses are amounts billed by Bell Communications
Research, Inc. Such expenses for 1993, 1992, and 1991 were $143.2 million,
$194.3 million, and $158.4 million, respectively, for various network planning,
engineering, and software development projects.
During 1993, 1992, and 1991, the Company received dividends from less-than-
majority-owned businesses of $73.4 million, $64.4 million, and $87.4 million,
respectively.
11.INVESTMENT IN TELECOM CORPORATION OF NEW ZEALAND LIMITED
In 1990, the Company acquired a 50% ownership interest in Telecom Corporation
of New Zealand Limited (Telecom), the principal provider of telecommunications
services in that country, for approximately $1.2 billion. Under the terms of an
agreement with the New Zealand government, the Company, through a series of
stock sales, has reduced its investment in Telecom to approximately 24.9%. The
Company recorded after-tax gains of $44.7 million in 1993 and $74.1 million in
1991 as a result of the sales of stock.
At the date of acquisition, the Company's 24.9% long-term interest 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.
12.INVESTMENT IN GRUPO IUSACELL, S.A. de C.V.
In November 1993, the Company acquired a 23% economic interest in Grupo
Iusacell, S.A. de C.V. (Iusacell), the second largest telecommunications
company in Mexico, through the purchase of $520.0 million of newly issued
Iusacell stock. Substantially all of this investment exceeded the recorded
value of the proportionate share of the underlying net assets and is being
amortized by the straight-line method over a period of 25 years.
Subject to the satisfaction of various conditions, the Company has agreed to
invest up to a total of $1.04 billion in Iusacell to acquire a 42% (or, under
certain circumstances, up to a 46%) economic interest.
13.MERGER WITH METRO MOBILE CTS, INC.
On April 30, 1992, Bell Atlantic issued approximately 34.3 million shares of
its common stock to acquire all of the outstanding shares of common stock of
Metro Mobile CTS, Inc. (Metro Mobile) in a transaction accounted for as a
pooling of interests. Accordingly, the Company's financial statements were
restated to include the accounts and operations of Metro Mobile. The Metro
Mobile businesses include companies that own, operate, and control cellular
telephone systems serving markets located in the Northeast, Southeast, and
Southwest regions of the United States and, in addition, companies engaged in
the sale and distribution of liquefied petroleum gas.
35
In the second quarter of 1992, the Company recorded a charge of $47.3 million
for the cost of consummating the merger and integrating the operations of the
companies.
In 1993, the Company issued 883,832 shares of common stock to settle certain
litigation arising from the merger with Metro Mobile.
14.FINANCIAL INSTRUMENTS
Off-Balance-Sheet Risk
The Company is party to interest rate swap contracts on its direct finance
lease receivable transfer agreements and on its debt. These contracts entail
the exchange of floating and fixed rate interest payments periodically over the
life of the contracts.
At December 31, 1993 and 1992, interest rate swap contracts on receivable
transfer agreements, which have the effect of fixing interest rates on floating
rate direct finance lease receivable transfer agreements, amounted to $414.4
million and $476.4 million, respectively. The contracts outstanding at December
31, 1993 mature from 1994 to 1997 and have fixed rates payable ranging from
4.08% to 7.96%. The contracts outstanding at December 31, 1992 had maturity
dates ranging from 1993 to 1996 and had the effect of fixing interest rates on
the agreements from 4.32% to 7.96%.
Interest rate swap contracts that have the effect of fixing the rate of
interest on $115.0 million and $420.0 million of debt were outstanding at
December 31, 1993 and 1992, respectively. The contracts that were outstanding
at December 31, 1993 expire during 1994 and effectively fix the rate of
interest on the debt at rates of 3.65% to 7.72%. The contracts that were
outstanding at December 31, 1992 had expiration dates ranging from 1993 to 1994
and had the effect of fixing interest rates on the debt from 3.41% to 9.56%.
Additionally, at December 31, 1992, interest rate swap contracts, which
expired during 1993, were used to convert fixed interest rates ranging from
7.45% to 7.53% on $35.0 million of debt to floating rates.
The Company enters into forward exchange contracts to offset the effects of
foreign exchange fluctuations on exposed balances. At December 31, 1992, the
outstanding face amounts of these contracts totaled 243.0 million New Zealand
Dollars which were exchanged for $124.0 million.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments, trade
receivables, and various hedging instruments, principally interest rate swap
agreements and foreign currency 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 (Note 15) are limited due to the
large number of customers included in the Company's customer base.
In management of its exposure to fluctuations in foreign currency exchange
and interest rates, the Company has entered into interest rate swap agreements
and forward exchange contracts. During 1993 and 1992, the Company entered into
these contracts with various counterparties. The Company is exposed to credit
loss in the event of non-performance by these counterparties. The Company
continually monitors its positions and the credit ratings of its
counterparties, and limits the amount of contracts it enters into with any one
party. While the Company may be exposed to credit losses in the event of
nonperformance by its counterparties, it does not expect to incur such losses.
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.
36
Debt Maturing Within One Year and Long-Term Debt
The fair value of debt maturing within one year and long-term debt is
estimated based on the quoted market prices for the same or similar issues or
is based on the net present value of the future expected cash flows using
current interest rates.
Finance Notes Receivable
Fair values of finance notes receivable are based on the net present value of
the future expected cash flows using current interest rates or on quoted market
prices for similar instruments, where available.
Interest Rate Swap Agreements
The fair value of interest rate swap agreements is the estimated amount that
the Company would have to pay to terminate the swap agreements at December 31,
1993 and 1992, taking into account current interest rates and the
creditworthiness of the swap counterparties.
The estimated fair values of the Company's financial instruments are as
follows:
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
Financial Instruments on the Balance
Sheets:
Debt maturing within one year, excluding
capital lease obligations................ $2,666.5 $2,696.3 $2,672.4 $2,702.2
Long-term debt, excluding unamortized
discount and premium and capital lease
obligations.............................. $7,207.2 $7,512.0 $7,343.7 $7,472.9
Finance notes receivable.................. $ 926.5 $ 924.5 $ 882.5 $ 886.5
Financial Instruments with Off-Balance-
Sheet Risk:
Unrealized loss on interest rate swap
agreements............................... -- $ 1.6 -- $ 14.0
15.SEGMENT INFORMATION
Communications and Related Services--Provides voice and data transport and
calling services, network access, directory publishing, inside wire
maintenance, and public telephones to customers in the mid-Atlantic region;
provides billing and collection services to interexchange carriers; provides
cellular mobile communications products and services; markets and maintains
customer premises equipment to originate, route, or receive tele-
communications; services and repairs computers; and provides software
development and support, systems integration, and telecommunications and data
processing equipment sales and consulting.
Financial, Real Estate, and Other Services--Engages in lease financing of
commercial, industrial, medical, and high-technology equipment and in real
estate investment and development; sells and distributes liquefied petroleum
gas.
37
1993 1992 1991
--------- --------- ---------
(DOLLARS IN MILLIONS)
Operating revenues:
Communications and Related Services.......... $12,534.8 $12,164.6 $11,850.2
Financial, Real Estate, and Other Services... 455.4 553.8 701.9
--------- --------- ---------
$12,990.2 $12,718.4 $12,552.1
========= ========= =========
Operating profit:
Communications and Related Services.......... $ 2,821.6 $ 2,526.9 $ 2,566.1
Financial, Real Estate, and Other Services... 32.4 27.7 1.8
--------- --------- ---------
2,854.0 2,554.6 2,567.9
Corporate expense............................. (56.4) (48.4) (42.6)
Interest expense, excluding Financial
Services..................................... (612.1) (694.9) (806.8)
Allowance for funds used during construction.. 22.4 24.6 20.6
Equity in income of affiliates................ 48.3 52.4 79.5
Interest income............................... 11.9 63.2 30.1
Other nonoperating income..................... 5.5 74.2 46.0
--------- --------- ---------
Income before provision for income taxes,
extraordinary item, and cumulative effect
of changes in accounting principles.......... $ 2,273.6 $ 2,025.7 $ 1,894.7
========= ========= =========
Identifiable assets:
Communications and Related Services.......... $25,949.9 $24,297.1 $24,079.3
Financial, Real Estate, and Other Services... 3,380.9 3,452.9 3,948.2
Corporate assets.............................. 213.4 349.5 278.3
--------- --------- ---------
$29,544.2 $28,099.5 $28,305.8
========= ========= =========
Depreciation and amortization:
Communications and Related Services.......... $ 2,436.6 $ 2,250.8 $ 2,053.5
Financial, Real Estate, and Other Services... 108.5 166.6 285.3
--------- --------- ---------
$ 2,545.1 $ 2,417.4 $ 2,338.8
========= ========= =========
Additions to plant, property and equipment:
Communications and Related Services.......... $ 2,485.9 $ 2,510.1 $ 2,486.9
Financial, Real Estate, and Other Services... 33.1 36.7 157.2
--------- --------- ---------
$ 2,519.0 $ 2,546.8 $ 2,644.1
========= ========= =========
Operating profit for each segment consists of total revenues less applicable
costs and expenses related to operations, including, in the case of Financial
Services, interest expense. Corporate assets consist principally of cash and
cash equivalents and short-term investments.
At December 31, 1993, 1992, and 1991, identifiable assets included
investments in affiliates of $1,333.0 million, $929.3 million, and $927.7
million, respectively, for the Communications and Related Services segment and
$61.7 million, $58.2 million, and $78.0 million, respectively, for the
Financial, Real Estate, and Other Services segment.
Net income (loss) for the Financial, Real Estate, and Other Services
subsidiaries was $(1.8) million, $13.4 million, and $(21.9) million in 1993,
1992, and 1991, respectively. Total liabilities associated with the Financial,
Real Estate, and Other Services subsidiaries were $2,984.8 million and $3,041.2
million in 1993 and 1992, respectively.
For the years ended December 31, 1993, 1992, and 1991, revenues generated
from services provided to AT&T, principally network access, billing and
collection, and sharing of network facilities, were $1,368.4 million, $1,518.0
million, and $1,541.2 million, respectively. At December 31, 1993 and 1992,
Accounts receivable, net, included $162.4 million and $156.1 million,
respectively, from AT&T.
38
16.FINANCIAL SERVICES BUSINESSES
In October 1993, the Company announced that it has begun to evaluate
strategies for exiting its Financial Services businesses. The Company filed a
registration statement in December 1993 for a potential public sale of TriCon
Capital Corporation, a wholly owned subsidiary that provides commercial finance
and equipment leasing services.
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
INCOME BEFORE
INCOME BEFORE EXTRAORDINARY ITEM
EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
AND CUMULATIVE EFFECT OF CHANGES IN
OPERATING OPERATING OF CHANGES IN ACCOUNTING PRINCIPLES NET
QUARTER ENDED REVENUES INCOME ACCOUNTING PRINCIPLES PER COMMON SHARE INCOME
------------- --------- --------- --------------------- --------------------- ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993:
March 31*............... $3,163.3 $717.5 $372.2 $.85 $329.2
June 30................. 3,220.1 752.2 385.5 .88 362.6
September 30............ 3,289.6 720.7 386.7 .89 378.5
December 31............. 3,317.2 607.2 337.2 .77 333.1
1992:
March 31................ $3,090.7 $669.9 $346.9 $.81 $338.6
June 30................. 3,166.5 650.0 314.9 .74 298.1
September 30............ 3,187.0 668.2 392.9 .91 386.6
December 31............. 3,274.2 518.1 327.5 .76 317.3
- --------
*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" (Note 9). In addition, net income for
the first quarter of 1993 has been restated to include 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" (Note 8).
Income before extraordinary item and cumulative effect of changes in
accounting principles per common share is computed independently for each
quarter and, for 1992, the sum of the quarters does not equal the annual
amount.
39
SHAREOWNER INFORMATION
Form 10-K
Copies of the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission can be obtained, without charge, by contacting Bell
Atlantic Shareowner Services, 31st Floor, 1717 Arch Street, Philadelphia, PA
19103.
Stock Market And Dividend Information
Bell Atlantic is listed in some newspaper stock tables under "BellAtl," and
its ticker symbol is "BEL." Bell Atlantic common stock is traded on the New
York, Philadelphia, Chicago, Boston, Pacific, London, Zurich, Geneva, Basel,
Frankfurt, and Tokyo stock exchanges. Dividends on common stock are payable
quarterly, upon authorization by the Board of Directors. Based on the current
schedule, the expected payment dates are the first business days of February,
May, August, and November. As of December 31, 1993, Bell Atlantic had 1,026,371
shareowners of record.
High and low stock prices, as reported on the Composite Tape, and dividend
data are as follows:
MARKET PRICE CASH
--------------- DIVIDEND
HIGH LOW DECLARED
------- ------- --------
1993:First Quarter............................. $56 3/4 $49 5/8 $.67
Second Quarter............................ 59 1/8 50 3/4 .67
Third Quarter............................. 64 7/8 55 5/8 .67
Fourth Quarter............................ 69 1/8 57 .67
1992:First Quarter............................. $49 $41 1/4 $.65
Second Quarter............................ 45 40 1/4 .65
Third Quarter............................. 49 3/4 44 1/4 .65
Fourth Quarter............................ 53 7/8 44 1/2 .65
1991:First Quarter............................. $54 1/8 $46 3/4 $.63
Second Quarter............................ 52 3/4 44 1/8 .63
Third Quarter............................. 50 5/8 44 7/8 .63
Fourth Quarter............................ 49 1/4 43 .63
BELL ATLANTIC CORPORATION
1717 ARCH STREET, PHILADELPHIA, PA 19103
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This document is printed on recycled paper, which contains at least 10% post-
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