================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8606
BELL ATLANTIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 23-2259884
(State of Incorporation) (I.R.S. Employer
Identification No.)
1095 AVENUE OF THE AMERICAS 10036
NEW YORK, NEW YORK (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER (212) 395-2121
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
At June 30, 1998, 1,553,473,710 shares of the registrant's Common Stock were
outstanding, after deducting 22,772,614 shares held in treasury.
================================================================================
- ------------------------------------------------
Table of Contents
- ------------------------------------------------
Item No. Page
Part I. Financial Information
- ----------------------------------------------------------------------------------------------------
1. Financial Statements
Condensed Consolidated Statements of Income
For the three and six months ended June 30, 1998 and 1997............................. 2-3
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997................................................... 4-5
Condensed Consolidated Statement of Changes in Shareowners' Investment
For the six months ended June 30, 1998................................................ 6
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 1998, and 1997...................................... 7
Notes to Condensed Consolidated Financial Statements................................... 8-11
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................. 12-24
3. Quantitative and Qualitative Disclosures About Market Risk.............................. 24
Part II. Other Information
- ----------------------------------------------------------------------------------------------------
1. Legal Proceedings....................................................................... 25
4. Submission of Matters to a Vote of Security Holders..................................... 25
6. Exhibits and Reports on Form 8-K........................................................ 26
1
- ---------------------------------------------------
Part I - Financial Information
- ---------------------------------------------------
Item 1. Financial Statements
- --------------------------------------------------------------------------------
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
Three Months Ended
June 30,
---------------------
1998 1997
-------- --------
OPERATING REVENUES..................................... $7,927.8 $7,707.8
-------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes........... 2,116.0 2,149.0
Depreciation and amortization.......................... 1,445.8 1,363.8
Taxes other than income................................ 379.7 382.2
Other.................................................. 2,033.7 1,964.9
-------- --------
5,975.2 5,859.9
-------- --------
OPERATING INCOME....................................... 1,952.6 1,847.9
Loss from Unconsolidated Businesses.................... (25.5) (80.7)
Other Income and (Expense), Net........................ 41.8 (16.1)
Interest Expense....................................... 363.1 291.1
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEM.................................... 1,605.8 1,460.0
Provision for Income Taxes............................. 578.6 563.2
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM....................... 1,027.2 896.8
EXTRAORDINARY ITEM
Extinguishment of debt, net of tax................... (6.3) ---
-------- --------
NET INCOME............................................. $1,020.9 $ 896.8
======== ========
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary item....................... $ .66 $ .58
Extraordinary item..................................... --- ---
-------- --------
Net Income............................................. $ .66 $ .58
======== ========
Weighted-average shares outstanding (in
millions)............................................. 1,552.9 1,551.5
======== ========
DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary item....................... $ .65 $ .57
Extraordinary item..................................... --- ---
-------- --------
Net Income............................................. $ .65 $ .57
======== ========
Weighted-average shares - diluted (in
millions)............................................. 1,578.3 1,568.4
======== ========
Dividends declared per common share.................... $ .385 $ .37
======== ========
See Notes to Condensed Consolidated Financial Statements.
2
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
Six Months Ended
June 30,
---------------------
1998 1997
--------- ---------
OPERATING REVENUES..................................... $15,578.9 $15,124.3
--------- ---------
OPERATING EXPENSES
Employee costs, including benefits and taxes........... 4,420.4 4,619.1
Depreciation and amortization.......................... 2,856.3 2,735.1
Taxes other than income................................ 751.6 777.2
Other.................................................. 3,886.0 3,686.5
--------- ---------
11,914.3 11,817.9
--------- ---------
OPERATING INCOME....................................... 3,664.6 3,306.4
Loss from Unconsolidated Businesses.................... (2.7) (115.4)
Other Income and (Expense), Net........................ 55.6 (6.5)
Interest Expense....................................... 673.1 620.6
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEM.................................... 3,044.4 2,563.9
Provision for Income Taxes............................. 1,107.6 968.9
--------- ---------
INCOME BEFORE EXTRAORDINARY ITEM....................... 1,936.8 1,595.0
EXTRAORDINARY ITEM
Extinguishment of debt, net of tax.................... (22.5) ---
--------- ---------
NET INCOME............................................. 1,914.3 1,595.0
Redemption of investee preferred stock................. (2.5) ---
--------- ---------
Net income available to common shareowners............. $ 1,911.8 $ 1,595.0
========= =========
BASIC EARNINGS PER COMMON SHARE*
Income before extraordinary item....................... $ 1.24 $ 1.03
Extraordinary item..................................... (.01) ---
--------- ---------
Net Income............................................. $ 1.23 $ 1.03
========= =========
Weighted-average shares outstanding (in millions)...... 1,552.9 1,551.4
========= =========
DILUTED EARNINGS PER COMMON SHARE*
Income before extraordinary item....................... $ 1.22 $ 1.02
Extraordinary item..................................... (.01) ---
--------- ---------
Net Income............................................. $ 1.21 $ 1.02
========= =========
Weighted-average shares - diluted (in millions)........ 1,578.4 1,566.7
========= =========
Dividends declared per common share.................... $ .77 $ .74
========= =========
See Notes to Condensed Consolidated Financial Statements.
* For purposes of computing earnings per share amounts, income before
extraordinary item and net income have been reduced by the amount of the
premium paid on the redemption of preferred stock by an equity investee.
3
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions)
- --------------------------------------
Assets
- --------------------------------------
June 30, December 31,
1998 1997
----------- ------------
CURRENT ASSETS
Cash and cash equivalents............................ $ 303.1 $ 322.8
Short-term investments............................... 423.4 720.6
Accounts receivable, net of allowances of $649.1 and
$611.9.............................................. 6,467.3 6,340.8
Inventories.......................................... 604.9 550.3
Prepaid expenses..................................... 608.6 634.0
Other................................................ 595.5 432.3
--------- ---------
9,002.8 9,000.8
--------- ---------
PLANT, PROPERTY AND EQUIPMENT........................ 80,184.9 77,437.2
Less accumulated depreciation........................ 44,383.1 42,397.8
--------- ---------
35,801.8 35,039.4
--------- ---------
INVESTMENTS IN UNCONSOLIDATED BUSINESSES............. 5,224.8 5,144.2
OTHER ASSETS......................................... 4,686.3 4,779.7
--------- ---------
TOTAL ASSETS......................................... $54,715.7 $53,964.1
========= =========
See Notes to Condensed Consolidated Financial Statements.
4
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in Millions, Except Per Share Amounts)
- --------------------------------------------
Liabilities and Shareowners' Investment
- --------------------------------------------
June 30, December 31,
1998 1997
--------- ------------
CURRENT LIABILITIES
Debt maturing within one year.......................... $ 4,352.8 $ 6,342.8
Accounts payable and accrued liabilities............... 6,103.4 5,966.4
Other.................................................. 1,362.9 1,355.0
--------- ---------
11,819.1 13,664.2
--------- ---------
LONG-TERM DEBT......................................... 15,503.2 13,265.2
--------- ---------
EMPLOYEE BENEFIT OBLIGATIONS........................... 9,914.8 10,004.4
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes.................................. 2,259.5 2,106.2
Unamortized investment tax credits..................... 236.3 250.7
Other.................................................. 698.4 772.6
--------- ---------
3,194.2 3,129.5
--------- ---------
MINORITY INTEREST, INCLUDING A PORTION SUBJECT TO
REDEMPTION REQUIREMENTS............................... 913.7 911.2
--------- ---------
PREFERRED STOCK OF SUBSIDIARY.......................... 200.5 200.5
--------- ---------
SHAREOWNERS' INVESTMENT
Series preferred stock ($.10 par value; none issued)... --- ---
Common stock ($.10 par value; 1,576,246,324 shares
and 1,576,052,790 shares issued)...................... 157.6 157.6
Contributed capital.................................... 13,286.5 13,176.8
Reinvested earnings.................................... 1,698.2 1,261.6
Accumulated other comprehensive loss................... (789.4) (553.3)
--------- ---------
14,352.9 14,042.7
Less common stock in treasury, at cost................. 583.6 590.5
Less deferred compensation - employee stock
ownership plans....................................... 599.1 663.1
--------- ---------
13,170.2 12,789.1
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' INVESTMENT.......... $54,715.7 $53,964.1
========= =========
See Notes to Condensed Consolidated Financial Statements.
5
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Shareowners' Investment
(Unaudited)
(Dollars in Millions and Shares in Thousands)
Six Months Ended
June 30, 1998
----------------------
COMMON STOCK Shares Amount
--------- ---------
Balance at beginning of period........................ 1,576,053 $157.6
Shares issued:
Employee plans....................................... 193 ---
--------- ---------
Balance at end of period.............................. 1,576,246 157.6
--------- ---------
CONTRIBUTED CAPITAL
Balance at beginning of period........................ 13,176.8
Shares issued:
Employee plans....................................... 106.3
Other................................................. 3.4
---------
Balance at end of period.............................. 13,286.5
---------
REINVESTED EARNINGS
Balance at beginning of period........................ 1,261.6
Net income............................................ 1,914.3
Dividends declared.................................... (1,196.4)
Shares issued:
Employee plans....................................... (284.6)
Tax benefit of dividends paid to ESOPs................ 5.8
Redemption of investee preferred stock................ (2.5)
---------
Balance at end of period.............................. 1,698.2
---------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of period........................ (553.3)
Foreign currency translation adjustments, net of tax.. (247.4)
Unrealized gains on securities, net of tax............ 11.3
---------
Balance at end of period.............................. (789.4)
---------
TREASURY STOCK
Balance at beginning of period........................ 22,952 590.5
Shares purchased...................................... 13,791 655.3
Shares distributed:
Employee plans....................................... (13,941) (660.9)
Shareowner plans..................................... (26) (1.2)
Acquisition agreements............................... (3) (.1)
--------- ---------
Balance at end of period.............................. 22,773 583.6
--------- ---------
DEFERRED COMPENSATION - ESOPs
Balance at beginning of period........................ 663.1
Amortization.......................................... (64.0)
---------
Balance at end of period.............................. 599.1
---------
Total Shareowners' Investment......................... $13,170.2
=========
See Notes to Condensed Consolidated Financial Statements.
6
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Millions)
Six Months Ended
June 30,
---------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $ 1,914.3 $ 1,595.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 2,856.3 2,735.1
Extraordinary item, net of tax.................. 22.5 ---
Loss from unconsolidated businesses............. 2.7 115.4
Dividends received from unconsolidated
businesses.................................... 88.1 97.8
Amortization of unearned lease income........... (57.5) (52.5)
Deferred income taxes, net...................... 118.1 85.5
Investment tax credits.......................... (14.5) (21.4)
Other items, net................................ 101.2 (5.9)
Changes in certain assets and liabilities, net
of effects from acquisition/disposition of
businesses.................................... (158.5) (732.9)
--------- ---------
Net cash provided by operating activities............ 4,872.7 3,816.1
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments................. 299.9 66.1
Additions to plant, property and equipment........... (3,483.8) (3,074.8)
Proceeds from sale of plant, property and
equipment.......................................... 2.1 25.2
Investment in leased assets.......................... (26.8) (83.2)
Proceeds from leasing activities..................... 105.6 47.0
Investment in notes receivable....................... --- (17.9)
Proceeds from notes receivable....................... 20.8 29.6
Proceeds from Telecom Corporation of New Zealand
Limited share repurchase plan...................... --- 82.0
Investments in unconsolidated businesses, net........ (413.6) (387.4)
Acquisition of businesses............................ (15.8) ---
Proceeds from disposition of businesses.............. 4.6 271.5
Other, net........................................... (58.6) (84.9)
--------- ---------
Net cash used in investing activities................ (3,565.6) (3,126.8)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings............................. 2,990.1 151.3
Principal repayments of borrowings and capital
lease obligations.................................. (209.2) (349.6)
Early extinguishment of debt......................... (590.0) ---
Net change in short-term borrowings with original
maturities of three months or less................. (2,031.9) 1,026.4
Dividends paid....................................... (1,188.3) (1,158.6)
Proceeds from sale of common stock................... 375.5 310.5
Purchase of common stock for treasury................ (655.3) (390.6)
Minority interest.................................... --- (.1)
Reduction in preferred stock of subsidiary........... --- (10.0)
Net change in outstanding checks drawn on
controlled disbursement accounts................... (17.7) (332.1)
--------- ---------
Net cash used in financing activities................ (1,326.8) (752.8)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS................ (19.7) (63.5)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 322.8 249.4
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 303.1 $ 185.9
========= =========
See Notes to Condensed Consolidated Financial Statements.
7
BELL ATLANTIC CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
- --------------------------------------------------------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared based upon Securities and Exchange Commission rules that permit reduced
disclosure for interim periods. These financial statements reflect all
adjustments which are necessary for a fair presentation of results of operations
and financial position for the interim periods shown including normal recurring
accruals. The results for the interim periods are not necessarily indicative of
results for the full year. For a more complete discussion of significant
accounting policies and certain other information, you should refer to the
financial statements included in our 1997 Annual Report to Shareowners.
In this report, Bell Atlantic Corporation and its consolidated subsidiaries
are referred to as "we" or "Bell Atlantic." Reference to Bell Atlantic is also
made in connection with information about Bell Atlantic prior to the merger with
NYNEX Corporation. NYNEX Corporation is referred to as "NYNEX."
We have reclassified certain amounts from prior year's data to conform with
the 1998 presentation.
2. Common Stock Split
- --------------------------------------------------------------------------------
On May 1, 1998, the Board of Directors declared a two-for-one split of Bell
Atlantic common stock, effected in the form of a 100% stock dividend to
shareholders of record on June 1, 1998 and payable on June 29, 1998.
Shareholders of record received an additional share of common stock for each
share of common stock held at the record date. We retained the par value of
$.10 per share for all shares of common stock. The prior period financial
information (including share and per share data) contained in this report has
been adjusted to give retroactive recognition to this common stock split.
3. Comprehensive Income
- --------------------------------------------------------------------------------
Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." The new rules
establish standards for the reporting of comprehensive income and its components
in financial statements. Comprehensive income consists of net income and other
gains and losses affecting shareowners' equity that, under generally accepted
accounting principles, are excluded from net income. For our company, such
items consist primarily of foreign currency translation gains and losses and
unrealized gains and losses on marketable equity investments. The adoption of
SFAS No. 130 did not affect our statement of income, but did affect the
presentation of our statement of changes in shareowners' investment and balance
sheet.
The components of total comprehensive income for interim periods are presented
in the following table:
(Dollars in Millions) Three Months Ended June 30, Six Months Ended June 30,
- --------------------- --------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
Net income $1,020.9 $ 896.8 $1,914.3 $1,595.0
-------- -------- -------- --------
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax (145.3) (73.1) (247.4) (173.5)
Unrealized gains (losses) on securities, net of tax 4.6 (2.4) 11.3 (3.4)
-------- -------- -------- --------
(140.7) (75.5) (236.1) (176.9)
-------- -------- -------- --------
Total comprehensive income $ 880.2 $ 821.3 $1,678.2 $1,418.1
======== ======== ======== ========
8
4. Earnings Per Share
- --------------------------------------------------------------------------------
The following table is a reconciliation of the numerators and denominators used
in computing earnings per share.
(Dollars and Shares in Millions, Except Per Share Amounts) Three Months Ended June 30, Six Months Ended June 30,
- ---------------------------------------------------------- -------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
Net Income Available to Common Shareowners:
Income before extraordinary item $1,027.2 $ 896.8 $1,936.8 $1,595.0
Redemption of investee preferred stock --- --- (2.5) ---
-------- -------- -------- --------
Income available to common shareowners* 1,027.2 896.8 1,934.3 1,595.0
Extraordinary item (6.3) --- (22.5) ---
-------- -------- -------- --------
Net income available to common shareowners* $1,020.9 $ 896.8 $1,911.8 $1,595.0
======== ======== ======== ========
Basic Earnings Per Common Share:
Weighted-average shares outstanding 1,552.9 1,551.5 1,552.9 1,551.4
-------- -------- -------- --------
Income before extraordinary item per share - basic $ .66 $ .58 $ 1.24 $ 1.03
Extraordinary item --- --- (.01) ---
-------- -------- -------- --------
Earnings per share-basic $ .66 $ .58 $ 1.23 $ 1.03
======== ======== ======== ========
Diluted Earnings Per Common Share:
Weighted-average shares outstanding 1,552.9 1,551.5 1,552.9 1,551.4
Effect of dilutive securities 25.4 16.9 25.5 15.3
-------- -------- -------- --------
Weighted-average shares - diluted 1,578.3 1,568.4 1,578.4 1,566.7
-------- -------- -------- --------
Income before extraordinary item per share - diluted $ .65 $ .57 $ 1.22 $ 1.02
Extraordinary item --- --- (.01) ---
-------- -------- -------- --------
Earnings per share-diluted $ .65 $ .57 $ 1.21 $ 1.02
======== ======== ======== ========
*Income and Net income available to common shareowners is the same for purposes
of calculating basic and diluted earnings per share.
The diluted earnings per share computation excludes the effect of stock
options when their exercise price is greater than the average market price of
the common shares. For the three and six month periods ended June 30, 1998 and
1997, options for 1.0 million and 9.0 million shares were not included in the
diluted earnings per share computation.
5. Debt
- --------------------------------------------------------------------------------
In February 1998, our wholly owned subsidiary Bell Atlantic Financial Services,
Inc. (FSI) issued $2,455.0 million of 5.75% exchangeable notes (TCNZ
Exchangeable Notes) due on April 1, 2003. The notes are exchangeable into
shares of Telecom Corporation of New Zealand Limited (TCNZ) stock at the option
of the holder beginning on September 1, 1999. The exchange price was
established at a 20% premium to the TCNZ share price at the time of the
offering. Upon exchange by investors, we retain the option to settle in cash or
by delivery of TCNZ shares. During the period from April 1, 2001 to March 31,
2002, the notes are callable at our option at 102.3% of the principal amount,
and thereafter and prior to maturity at 101.15%. The proceeds of the offering
were used for the repayment of a portion of our short-term debt. We currently
own 24.95% of TCNZ.
The TCNZ Exchangeable Notes have the benefit of a Support Agreement, dated
February 1, 1998, between Bell Atlantic and FSI in which Bell Atlantic
guarantees the payment of interest, premium (if any), principal and the cash
value of exchange property related to these notes should FSI fail to pay.
Another Support Agreement between Bell Atlantic and FSI, dated October 1, 1992,
guarantees payment of interest, premium (if any) and principal on FSI's medium-
term notes (aggregating $383.8 million at June 30, 1998) should FSI fail to pay.
The holders of FSI's debt do not have recourse to the stock or assets of our
operating telephone subsidiaries or TCNZ, however, they do have recourse to
dividends paid to Bell Atlantic by any of our consolidated subsidiaries as well
as assets not covered by the exclusion. The carrying value of the available
assets reflected in our condensed consolidated financial statements was
approximately $14.0 billion at June 30, 1998.
9
Early Extinguishments of Long-Term Debt
In the first half of 1998, we recorded extraordinary charges totaling $22.5
million (net of an income tax benefit of $12.1 million) associated with the
following early extinguishments of long-term debt:
In January 1998, New York Telephone Company, an operating telephone
subsidiary, issued $250.0 million of 6.125% debentures due on January 15, 2010.
The proceeds of this issuance were used in February 1998 to redeem at a premium
$200.0 million of 7.75% refunding mortgage bonds due in 2006. Fiberoptic Link
Around the Globe, Ltd., an affiliate accounted for under the equity method,
redeemed $615.0 million of debt at a premium in February 1998. In the first
quarter of 1998, we recorded extraordinary charges totaling $16.2 million (net
of income tax benefit of $8.8 million) related to these redemptions.
In April 1998, New York Telephone Company issued $250.0 million of 6.0%
debentures due on April 15, 2008 and $100.0 million of 6.5% debentures due on
April 15, 2028. The proceeds of these issuances were used in May 1998 to redeem
$200.0 million of 7.875% debentures due in 2017 and $150.0 million of 7.5%
refunding mortgage bonds due in 2009. In June 1998, Bell Atlantic - West
Virginia, Inc., another operating telephone subsidiary, redeemed $40.0 million
of 7.25% debentures due in 2009. In the second quarter of 1998, we recorded
extraordinary charges totaling $6.3 million (net of an income tax benefit of
$3.3 million) related to these redemptions.
On July 24, 1998, Bell Atlantic - Washington, D.C., Inc. announced it will
redeem $60.0 million of 7.75% debentures due in 2013 on August 24, 1998. In
connection with this redemption, we will record an extraordinary charge of $1.0
million in the third quarter of 1998.
6. Commitments and Contingencies
- --------------------------------------------------------------------------------
In connection with certain incentive plan commitments with state regulatory
commissions, we have deferred revenues which will be recognized as the
commitments are met or obligations are satisfied under the plans. In addition,
several state and federal regulatory proceedings may require our operating
telephone subsidiaries to refund a portion of the revenues collected in the
current and prior periods. There are also various legal actions pending to
which we are a party. We have established reserves for specific liabilities in
connection with regulatory and legal matters which we currently deem to be
probable and estimable.
We do not expect that the ultimate resolution of pending regulatory and
legal matters in future periods will have a material effect on our financial
condition, but it could have a material effect on results of operations.
7. Proposed Bell Atlantic - GTE Merger
- --------------------------------------------------------------------------------
Bell Atlantic and GTE Corporation (GTE) have announced a proposed merger of
equals under a definitive merger agreement dated as of July 27, 1998. Under the
terms of the agreement, GTE shareholders will receive 1.22 shares of Bell
Atlantic common stock for each share of GTE common stock that they own. Bell
Atlantic shareholders will continue to own their existing shares after the
merger.
We expect the merger to qualify as a "pooling of interests," which means for
accounting and financial reporting purposes the companies will be treated as if
they had always been combined. The completion of the merger is subject to a
number of conditions, including certain regulatory approvals, receipt of
opinions that the merger will be tax-free, and the approval of the shareholders
of both Bell Atlantic and GTE. The companies expect to close the merger in the
second half of 1999.
8. Bell Atlantic/CWC Exchangeable Notes
- --------------------------------------------------------------------------------
On August 5, 1998, FSI entered into an agreement to issue $3,180.0 million of
4.25% notes exchangeable into ordinary shares of Cable & Wireless Communications
plc (CWC). The notes will mature on September 15, 2005. The exchange price was
established at a 28.2% premium to the CWC share price at the time of the
offering. The notes are noncallable until September 15, 2002, and are not
exchangeable by investors prior to July 1, 2002. Upon exchange by investors, we
retain the option to settle in cash or delivery of shares. We currently own
18.5% of CWC. We expect the transaction to close in August 1998.
10
9. Recent Accounting Pronouncements
- --------------------------------------------------------------------------------
Costs of Computer Software
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides,
among other things, guidance for determining whether computer software is for
internal use and when the cost related to such software should be expensed as
incurred or capitalized and amortized. SOP 98-1 is required to be adopted no
later than January 1, 1999.
Our operating telephone subsidiaries currently capitalize initial right-to-
use fees for central office switching equipment, including initial operating
system and initial application software costs. For noncentral office equipment,
only the initial operating system software is capitalized. Subsequent additions,
modifications, or upgrades of initial software programs, whether operating or
application packages, are expensed as incurred. We are currently evaluating the
provisions of SOP 98-1 and we have not yet quantified the effect at this time.
The adoption of SOP 98-1 is expected to result in an increase in earnings in the
year of adoption due to the prospective capitalization of costs which were
previously expensed.
Costs of Start-up Activities
In April 1998, the AICPA also issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-up Activities" (SOP 98-5). SOP 98-5 must be adopted no
later than January 1, 1999, and requires that costs of start-up activities
including pre-operating, pre-opening and other organizational costs be expensed
as incurred. In addition, at the time of adoption the unamortized balance of
any previously deferred start-up costs must be expensed. We do not expect the
adoption of SOP 98-5 to have a material effect on our consolidated results of
operations or financial condition.
Employee Benefit Disclosures
The Financial Accounting Standards Board (FASB) issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," in February 1998.
This new standard does not change the measurement or recognition of costs for
pension or other postretirement plans. It standardizes disclosures and
eliminates those that are no longer useful. We are required to provide the new
disclosures for the first time in our 1998 Annual Report to shareowners. The
adoption of SFAS No. 132 will have no impact on our consolidated results of
operations or financial condition.
Derivatives and Hedging Activities
The FASB also issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" in June 1998. This statement requires that all derivatives
be measured at fair value and recognized as either assets or liabilities on our
balance sheet. Changes in the fair values of the derivative instruments will be
recognized in either earnings or comprehensive income, depending on the
designated use and effectiveness of the instruments. Bell Atlantic must adopt
SFAS No. 133 no later than January 1, 2000. We are currently evaluating the
provisions of SFAS No. 133 and have not yet determined what the impact of
adopting this statement will be on our future results of operations or financial
condition.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
(Tables shown in Dollars in Millions, Except Per Share Amounts)
- -----------------------------------
RESULTS OF OPERATIONS
- -----------------------------------
Our financial results for the three and six month periods ended June 30, 1998,
as compared to the same periods in 1997, are summarized as follows:
Three Months Six Months % Change
------------------- -------------------- ------------------
For the Period Ended June 30, 1998 1997 1998 1997 QTR YTD
- ------------------------------------------------------------------------------------------------------------------------------------
Operating revenues $7,927.8 $7,707.8 $15,578.9 $15,124.3 2.9% 3.0%
Operating expenses 5,975.2 5,859.9 11,914.3 11,817.9 2.0 .8
-------------------------------------------------
Operating income 1,952.6 1,847.9 3,664.6 3,306.4 5.7 10.8
Loss from unconsolidated businesses (25.5) (80.7) (2.7) (115.4) 68.4 97.7
Other income and (expense), net 41.8 (16.1) 55.6 (6.5) --- ---
Interest expense 363.1 291.1 673.1 620.6 24.7 8.5
Provision for income taxes 578.6 563.2 1,107.6 968.9 2.7 14.3
-------------------------------------------------
Income before extraordinary item 1,027.2 896.8 1,936.8 1,595.0 14.5 21.4
Extraordinary item (6.3) --- (22.5) --- --- ---
-------------------------------------------------
Net income 1,020.9 896.8 1,914.3 1,595.0 13.8 20.0
Redemption of investee preferred stock --- --- (2.5) --- --- ---
-------------------------------------------------
Net income available to common shareowners $1,020.9 $ 896.8 $1,911.8 $1,595.0 13.8 19.9
=================================================
Basic earnings per share $ .66 $ .58 $ 1.23 $ 1.03 13.8% 19.4%
Diluted earnings per share .65 .57 1.21 1.02 14.0 18.6
- ------------------------------------------------------------------------------------------------------------------------------------
In the second quarter of 1998, our reported results included retirement
incentive charges of $34.2 million ($21.3 million after-tax or $.01 diluted
earnings per share), compared to $47.4 million ($30.3 million after-tax or $.02
diluted earnings per share) in the second quarter of 1997. For the first six
months of 1998, retirement incentive charges were $274.5 million ($168.0 million
after-tax or $.11 diluted earnings per share), compared to $434.2 million
($273.9 million after-tax or $.17 diluted earnings per share) in the first half
of 1997. For additional information about our retirement incentive program, see
"Retirement Incentives" on page 17.
We also incurred merger-related transition and integration costs of $46.2
million ($28.6 million after-tax or $.02 diluted earnings per share) for the
three month period ended June 30, 1998 and $54.6 million ($33.9 million after-
tax or $.02 diluted earnings per share) for the six month period ended June 30,
1998. Transition and integration costs consist of costs associated with
integrating the operations of Bell Atlantic and NYNEX following the completion
of the merger of the two companies in August 1997. We expect over the three
years following the closing of the Bell Atlantic - NYNEX merger that such costs
will aggregate between $400 million and $500 million (pre-tax).
These and other items affecting the comparison of our results of operations
for the three and six month periods ended June 30, 1998 and 1997 are discussed
in the following sections. You should read this Management's Discussion and
Analysis in conjunction with our 1997 Annual Report.
All prior period share and per share amounts have been adjusted to reflect a
two-for-one common stock split declared and paid in the second quarter of 1998.
12
- -----------------------------------
Operating Revenues
- -----------------------------------
Three Months Six Months
------------------ --------------------
For the Period Ended June 30, 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Local services $3,462.4 $3,342.0 $ 6,794.0 $ 6,452.3
Network access services 1,942.8 1,852.8 3,849.3 3,711.6
Long distance services 474.2 561.4 976.1 1,131.4
Ancillary services 453.8 441.2 923.5 896.9
Directory and information services 628.6 622.4 1,186.3 1,153.3
Wireless services 943.7 823.6 1,800.1 1,597.7
Other services 22.3 64.4 49.6 181.1
------------------------------------------
Total Operating Revenues $7,927.8 $7,707.8 $15,578.9 $15,124.3
==========================================
Local Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $120.4 3.6%
- --------------------------------------------------------------------------------
Six Months $341.7 5.3%
- --------------------------------------------------------------------------------
Local services revenues are earned by our operating telephone subsidiaries from
the provision of local exchange, local private line, public telephone (pay
phone) and value-added services. Value-added services are a family of services
which expand the utilization of the network. These services include products
such as Caller ID, Call Waiting and Return Call.
Higher usage of our network facilities was the primary reason for the increase
in local services revenues in the second quarter and the six month period of
1998. This growth was generated by an increase in access lines in service of
4.4% from June 30, 1997. We had 40,827,000 access lines in service at June 30,
1998, compared to 39,112,000 access lines in service at June 30, 1997. Access
line growth reflects primarily higher demand for Centrex services and an
increase in additional residential lines. Access line numbers have been
restated to include Primary Rate ISDN (Integrated Services Digital Network)
channels. Higher revenues from private line and switched data services also
contributed to the revenue growth in the three and six month periods of 1998.
We also recognized higher revenues in both the 1998 periods from our public
telephone, directory assistance and value-added services. Our value-added and
directory assistance services revenues grew principally as a result of higher
customer demand and usage, while price increases for usage of our pay phones and
the implementation of new charges to carriers resulting from pay phone
deregulation in April 1997 were the principal reasons for the improvement in
public telephone services revenues.
In addition, local services revenue growth in the six month period was
attributable, in part, to a prior year refund to customers resulting from the
settlement of a state regulatory matter. The revenue impact of this refund was
offset entirely by a corresponding increase in Other Operating Expenses due to
the prior year reversal of an accrual.
Revenue growth in the three and six month periods of 1998 from these factors
was partially offset by price reductions on certain local services and the
elimination of Touch-Tone service charges in several of our operating telephone
subsidiaries.
Network Access Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $ 90.0 4.9%
- --------------------------------------------------------------------------------
Six Months $137.7 3.7%
- --------------------------------------------------------------------------------
Network access services revenues are earned from carriers for their use of our
local exchange facilities in providing usage services to their customers. In
addition, end-user subscribers pay flat rate access fees to connect to our
network.
13
Our network access services revenues grew in the three and six month periods
of 1998 primarily as a result of higher customer demand as reflected by growth
in access minutes of use of 8.4% in the three month period and 8.5% in the six
month period over the same periods in 1997. Volume growth was boosted by the
expansion of the business market, particularly for high capacity services.
Demand for special access services grew as Internet service providers and other
high-capacity users increased their utilization of our network. Growth in
access services revenues also reflects higher network usage by alternative
providers of intraLATA toll services. In addition, higher end-user revenues
attributable to an increase in access lines in service contributed to revenue
growth in 1998. This volume-related growth was partially offset by net price
reductions mandated by federal and state price cap and incentive plans.
Effective July 1, 1998, we implemented price decreases of approximately $175
million on an annual basis for interstate services in connection with the
Federal Communications Commission's (FCC) Price Cap Plan. The rates included in
our 1998 filing will be in effect through June 1999. The July 1, 1998 rates
include amounts necessary to recover the operating telephone subsidiaries'
contribution to the FCC's new universal service fund. The FCC has created a
multi-billion dollar interstate fund to link schools and libraries to the
Internet and to subsidize low-income consumers and rural health care providers.
Under the FCC's rules, all providers of interstate telecommunications services
must contribute to the fund. The subsidiaries' contributions to the universal
service fund are included in Other Operating Expenses.
In April 1998, the New York State Public Service Commission ordered New York
Telephone Company, an operating telephone subsidiary, to reduce access charges
on intrastate toll calls by $94.2 million annually, beginning in the third
quarter of 1998. This reduction is, in part, an acceleration of access revenue
reductions expected under the New York Performance Regulation Plan and, in
addition, will be partially offset by increased revenues from the federal
universal service fund.
Long Distance Services Revenues
- --------------------------------------------------------------------------------
1998-1997 (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $(87.2) (15.5)%
- --------------------------------------------------------------------------------
Six Months $(155.3) (13.7)%
- --------------------------------------------------------------------------------
Long distance services revenues are earned primarily from calls made outside a
customer's local calling area but within the same service area of our operating
telephone subsidiaries (intraLATA toll). Other long distance services that we
provide include 800 services, Wide Area Telephone Service (WATS), corridor
services and long distance services outside of our region.
The reduction in long distance services revenues in the second quarter and the
six month period of 1998 was caused principally by increased competition for
intraLATA toll services as a result of the introduction of presubscription
during 1997 in many states throughout the region, including New Jersey in May
1997, Pennsylvania in July 1997, West Virginia in August 1997 and Delaware in
September 1997. In those states where presubscription has been implemented,
customers may now use an alternative provider of their choice for intraLATA toll
calls without dialing a special access code when placing a call. The adverse
impact on long distance services revenues as a result of presubscription was
partially mitigated by increased network access services revenues for usage of
our network by these alternative providers.
Price reductions on certain toll services as part of our response to
competition also contributed to the decline in long distance services revenues
in 1998. These revenue reductions were partially offset by higher calling
volumes generated by an increase in access lines in service.
We believe that competition for long distance services, including competitive
pricing and customer selection of alternative providers of intraLATA toll
services in the states currently offering presubscription, will continue to
adversely affect revenue trends.
14
Ancillary Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $12.6 2.9%
- --------------------------------------------------------------------------------
Six Months $26.6 3.0%
- --------------------------------------------------------------------------------
We provide ancillary services which include systems integration services,
equipment and construction services provided to other telecommunications
carriers, billing and collection services provided to long distance carriers,
customer premises equipment (CPE) services, facilities rental services and voice
messaging services.
Higher ancillary services revenues in both the three and six month periods of
1998 were principally due to increased demand by long distance carriers for
billing and collection services. Higher revenues from our systems integration
and voice messaging services also contributed to revenue growth in the first
half of 1998 and, to a lesser extent, in the second quarter of 1998.
Directory and Information Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $ 6.2 1.0%
- --------------------------------------------------------------------------------
Six Months $33.0 2.9%
- --------------------------------------------------------------------------------
We earn directory and information services revenues primarily from local
advertising and marketing services provided to businesses in our White and
Yellow Pages directories within our region, international directory services and
electronic publishing services. We also provide database services and directory
marketing services outside of our region. Revenues from our Internet services
businesses are also included in this revenue category.
Our directory and information services revenues grew in the three and six
month periods of 1998 mainly because of higher pricing for our directory
services and improved business volumes from our Internet services. Changes in
the timing of publication dates of certain directories in 1997 and a decline in
directory volumes in the second quarter of 1998 partially offset 1998 revenue
growth.
Wireless Services Revenues
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $120.1 14.6%
- --------------------------------------------------------------------------------
Six Months $202.4 12.7%
- --------------------------------------------------------------------------------
Wireless services consist of revenues generated from our consolidated
subsidiaries that provide cellular and paging communications services.
Improved revenue growth from our wireless businesses in both the 1998 periods
was principally due to higher customer demand and usage of our domestic wireless
services. Our domestic cellular customer base grew 17.1%, due, in part, to
strong market growth for new digital services. Volume-related revenue growth
from our domestic wireless subsidiary was partially offset by the effect of
competitive pricing factors in response to competition. Higher revenues from
our international wireless subsidiary in Mexico also contributed to revenue
growth in 1998.
Other Services Revenues
- --------------------------------------------------------------------------------
1998-1997 (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $ (42.1) (65.4)%
- --------------------------------------------------------------------------------
Six Months $(131.5) (72.6)%
- --------------------------------------------------------------------------------
Other services include revenues from our telecommunications consulting and
financing businesses. In April 1997, we transferred our interests in cable
television and telecommunications operations in the United Kingdom to Cable &
Wireless Communications plc (CWC) in exchange for an 18.5% ownership interest in
CWC ("the CWC transaction"). We now account for our investment in CWC under the
equity method. Prior to the transfer, we included the accounts of these
operations in our consolidated financial statements.
The decline in other services revenues was caused primarily by reductions of
revenue of approximately $26 million in the first quarter of 1998 and
approximately $102 million year-to-date due to the effect of the CWC
transaction.
15
- -----------------------------------
Operating Expenses
- -----------------------------------
Three Months Six Months
------------------ --------------------
For the Period Ended June 30, 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Employee costs $2,116.0 $2,149.0 $ 4,420.4 $ 4,619.1
Depreciation and amortization 1,445.8 1,363.8 2,856.3 2,735.1
Taxes other than income 379.7 382.2 751.6 777.2
Other operating expenses 2,033.7 1,964.9 3,886.0 3,686.5
-------------------------------------------
Total Operating Expenses $5,975.2 $5,859.9 $11,914.3 $11,817.9
===========================================
For purposes of the following discussion, our network subsidiaries include our
operating telephone subsidiaries, subsidiaries that provide centralized services
and support, and network-related subsidiaries providing systems integration, CPE
distribution, inside wiring, long distance, and directory and information
services.
Employee Costs
- --------------------------------------------------------------------------------
1998-1997 (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $ (33.0) (1.5)%
- --------------------------------------------------------------------------------
Six Months $(198.7) (4.3)%
- --------------------------------------------------------------------------------
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes.
Our employee costs were lower in the second quarter and first half of 1998 as
a result of a decline in costs incurred in connection with our retirement
incentive program and the effect of the CWC transaction. (For a further
discussion of retirement incentives, see below.)
In addition, pension and benefit costs were lower in 1998 because of a number
of factors, including changes in actuarial assumptions, favorable pension plan
investment returns, lower than expected medical claims and plan amendments
including the conversion of a pension plan to a cash balance plan. Effective
January 1, 1998, we established common pension and savings plan benefit
provisions for all management employees. As a result, all NYNEX management
employees receive the same benefit levels as previously given under Bell
Atlantic management benefit plans. This change included the conversion of the
NYNEX management pension plan to a cash balance plan.
Employee cost reductions were offset, in part, by the effect of increased work
force levels, primarily at the network and wireless subsidiaries, and annual
salary and wage increases for network employees. Higher overtime pay for repair
and maintenance activity due to unusually severe winter storms in New York and
the New England states during the first quarter of 1998 further offset year-to-
date employee cost reductions.
Associate employee wages and pension and other benefits are determined under
contracts with unions representing associate employees of the network
subsidiaries. On August 11, 1998, Bell Atlantic and the Communications Workers
of America (CWA) reached a tentative agreement on new 2-year contracts. The
contracts, covering more than 73,000 workers, provide for wage increases of up
to 3.8 percent effective August 9, 1998, and up to 4 percent effective August 8,
1999. Pension increases will range from 11 percent to 20 percent. In addition,
certain union-represented employees will receive a $500 cash payment in
September 1998 and an additional $400 cash payment in August 1999, and employees
in certain bargaining units will receive lump sum payments of $700 each in 2000
and 2001 if customer care performance standards are achieved. Other bargaining
units are eligible for standard cash awards of $400 for 1998 and $500 for 1999,
which can be increased or decreased based on financial and customer care
performance results. The new contracts also include revised terms of the
retirement incentive program, other benefit improvements and certain employment
security provisions.
16
On August 12, 1998, we concluded a tentative agreement on new 2-year
contracts with the International Brotherhood of Electrical Workers (IBEW). The
IBEW contracts provide for wage increases of up to 3.8 percent effective August
9, 1998, and up to 4 percent effective August 8, 1999. The contracts also
include cash payments, improved pension and other benefits and certain
employment security provisions. The IBEW contracts cover approximately 13,000
members in New York and the New England states. Contracts covering IBEW members
in New Jersey and Pennsylvania do not expire until August 2000.
The labor agreements with the CWA and IBEW are subject to ratification by the
union membership, which is expected within the next 30 days. We believe the
terms of the contracts are in line with other recent labor settlements in the
industry and with our strategic and financial objectives.
Retirement Incentives
In 1993, we incurred costs totaling $1.1 billion (pre-tax) for severance and
postretirement medical benefits in connection with a force reduction plan, and
we have incurred additional costs of $2.2 billion (pre-tax) under a related
retirement incentive program through June 30, 1998. These costs reflect 21,343
total employees who have left the business under the program, consisting of
9,329 management and 12,014 associate employees. As of August 7, 1998, an
estimated additional 800 associate employees had elected to retire under the
program, which will result in a pre-tax charge of approximately $60 million to
$80 million in the third quarter of 1998. We had previously estimated that the
total additional costs would approximate $2.2 billion through the completion of
the retirement incentive program in August 1998.
The retirement incentive program covering management employees ended on March
31, 1997 and the program covering associate employees, which was scheduled to
end on August 8, 1998, was revised under the terms of the tentative agreements
described above. Under the revised retirement incentive program, approximately
14,000 eligible associate employees are being offered an opportunity to elect,
during a 30-day period in August-September 1998, to retire on one of several
alternate dates in the last four months of 1998 and calendar year 1999. The
election to retire under the program will irrevocable, except in the event of
extraordinary personal circumstances. After the end of the election period, we
will tabulate the acceptances and announce the additional costs to be incurred
as a charge later this year. The number of applicants, and the resulting
additional cost, for the revised incentive program cannot be confidently
estimated in advance, particularly because the tentative agreements provide for
improvements to the terms of the ongoing pension plan which could incent
employees to defer retirement and continue their employment beyond the year
1999. Specifically, a 15 percent pension formula increase applies to retirements
after July 1, 2000, and, any of the 14,000 eligible associates who remain
employed through at least January 1, 2001, will be entitled to select either the
same pension that they would have received under the revised retirement
incentive program, or their pension under the ongoing plan.
Depreciation and Amortization
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $ 82.0 6.0%
- --------------------------------------------------------------------------------
Six Months $121.2 4.4%
- --------------------------------------------------------------------------------
Depreciation and amortization expense increased in the three and six months
periods of 1998 over the same periods in 1997 principally as a result of growth
in depreciable telephone plant and changes in the mix of plant assets at our
network and wireless subsidiaries.
This expense increase was partially offset by lower rates of depreciation at
our network subsidiaries and the effect of the CWC transaction.
17
Taxes Other Than Income
- --------------------------------------------------------------------------------
1998-1997 (Decrease)
- --------------------------------------------------------------------------------
Second Quarter $ (2.5) (.7)%
- --------------------------------------------------------------------------------
Six Months $(25.6) (3.3)%
- --------------------------------------------------------------------------------
Taxes other than income consist principally of taxes for gross receipts,
property, capital stock and business licenses.
The decline in taxes other than income in both the 1998 periods is principally
attributable to the enactment of a New Jersey tax law that repealed the gross
receipts tax applicable to telephone companies and extended the net-income-based
corporate business tax to include telephone companies formerly subject to the
gross receipts tax. This state tax law change, which became effective on January
1, 1998, resulted in the reduction of gross receipts tax in 1998 for our
operating telephone subsidiary, Bell Atlantic - New Jersey. This reduction was
offset by higher state income taxes in both 1998 periods attributable to the
enactment of the law. The decline in taxes other than income was offset, in
part, by higher tax expense at our domestic wireless and other operating
telephone subsidiaries.
Other Operating Expenses
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $ 68.8 3.5%
- --------------------------------------------------------------------------------
Six Months $199.5 5.4%
- --------------------------------------------------------------------------------
Other operating expenses consist of contract services, rent, network software
costs, the provision for uncollectible accounts receivable, and other costs.
The rise in other operating expenses in the three and six month periods of
1998 was largely attributable to increased costs at our operating telephone
subsidiaries. These increases included higher interconnection payments to
competitive local exchange and other carriers to terminate calls on their
networks and merger-related transition and integration costs. We also recognized
additional costs in both the 1998 periods as a result of our contribution to the
federal universal service fund, as described earlier.
In addition, we incurred higher expenses in 1998 at our domestic wireless
subsidiaries largely due to higher business volumes. The year-to-date increase
also included the effect of a prior year reversal of an accrual for the
settlement of a state regulatory matter.
Cost increases at the operating telephone subsidiaries were partially offset
by a combination of lower network software purchases, lower costs associated
with opening our network to competitors, the effect of the CWC transaction, and
lower costs at our directory services subsidiary. The reversal of a prior year
accrual in the second quarter of 1998 associated with the settlement of tax-
related matters further offset expense increases. The actual settlement of
these tax-related matters in 1998 was recorded in Interest Expense.
Income (Loss) from Unconsolidated Businesses
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $ 55.2 68.4%
- --------------------------------------------------------------------------------
Six Months $112.7 97.7%
- --------------------------------------------------------------------------------
Income (loss) from unconsolidated businesses includes equity income and losses
from investments accounted for under the equity method and goodwill amortization
related to these investments. As described earlier, beginning in the second
quarter of 1997 we account for our investment in CWC under the equity method.
The changes in income (loss) from unconsolidated businesses in the second
quarter and the six month period of 1998 were attributable to improved operating
results in our global wireless investments including an international wireless
joint venture, Omnitel Pronto Italia S.p.A. (Omnitel), and our personal
communications services (PCS) joint venture, PrimeCo Personal Communications,
L.P. (PrimeCo). The change in accounting treatment for our investment in CWC
and the positive effects resulting from the write-down of our video investments
and the disposition of certain international investments during 1997 also
contributed to improved results in both periods of 1998.
18
These factors were offset, in part, by higher equity losses reported by
certain international telecommunication investees in 1998. Results for the first
six months of 1998, as compared to the same period in 1997, were also negatively
affected by a pre-tax gain recognized in the first quarter of 1997 on the sale
of a global directory investee.
Other Income and Expense, Net
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $57.9
- --------------------------------------------------------------------------------
Six Months $62.1
- --------------------------------------------------------------------------------
Other income and expense, net, consists primarily of interest and dividend
income, minority interest in net income (loss) of consolidated subsidiaries, and
gains and losses from the disposition of subsidiaries and non-operating assets
and investments.
The principal items affecting the change in other income and expense in both
periods of 1998 were the recognition of interest income in connection with the
settlement of tax-related matters and higher foreign exchange gains associated
with our international investments.
Interest Expense
- --------------------------------------------------------------------------------
1998-1997 Increase
- --------------------------------------------------------------------------------
Second Quarter $72.0 24.7%
- --------------------------------------------------------------------------------
Six Months $52.5 8.5%
- --------------------------------------------------------------------------------
The increase in interest expense in the three and six month periods of 1998 was
primarily due to the recognition of interest expense in connection with the
settlement of tax-related matters in the second quarter of 1998. Higher
borrowing levels at our network subsidiaries also generated additional interest
costs in both the 1998 periods.
For the first half of 1998, the increase in interest expense was partially
offset by the effect of prior year, one-time interest costs associated with the
settlement of a sales tax audit and state regulatory issues.
Effective Income Tax Rates
- --------------------------------------------------------------------------------
Three Months Ended June 30,
- --------------------------------------------------------------------------------
1998 36.0%
- --------------------------------------------------------------------------------
1997 38.6%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six Months Ended June 30,
- --------------------------------------------------------------------------------
1998 36.4%
- --------------------------------------------------------------------------------
1997 37.8%
- --------------------------------------------------------------------------------
The effective income tax rate is the provision for income taxes as a percentage
of income before the provision for income taxes and extraordinary items.
The effective income tax rates for the second quarter and the six months ended
June 30, 1998 were lower as compared to the same periods last year due to higher
tax credits, primarily for foreign operations and investments in low income
housing, as well as adjustments to deferred income tax balances at certain
subsidiaries. These decreases were offset, in part, by higher state and local
income taxes caused principally by the aforementioned change in the New Jersey
tax law, which resulted in an increase in the effective income tax rate in 1998.
Extraordinary Item
- --------------------------------------------------------------------------------
In the three and six month periods ended June 30, 1998, we recorded
extraordinary charges of $6.3 million and $22.5 million, net of tax, associated
with the early extinguishments of long-term debt. See Note 5 to the condensed
consolidated financial statements for additional information on debt
refinancings.
19
- ---------------------------------------
FINANCIAL CONDITION
- ---------------------------------------
Six Months Ended June 30, 1998 1997 Change
- --------------------------------------------------------------------------------
Cash Flows From (Used In):
Operating activities $ 4,872.7 $ 3,816.1 $1,056.6
Investing activities (3,565.6) (3,126.8) (438.8)
Financing activities (1,326.8) (752.8) (574.0)
- --------------------------------------------------------------------------------
We use the net cash generated from our operations and from external financing to
fund capital expenditures for network expansion and modernization, pay
dividends, and invest in new businesses. While current liabilities exceeded
current assets at June 30, 1998 and 1997 and at December 31, 1997, our sources
of funds, primarily from operations and, to the extent necessary, from readily
available external financing arrangements, are sufficient to meet ongoing
operating and investing requirements. We expect that presently foreseeable
capital requirements will continue to be financed primarily through internally
generated funds. Additional debt or equity financing may be needed to fund
additional development activities or to maintain our capital structure to ensure
our financial flexibility.
Cash Flows From Operating Activities
- --------------------------------------------------------------------------------
Our primary source of funds continues to be cash generated from operations.
Cash flows from operations were higher in the first half of 1998, as compared to
the same period in 1997, principally as a result of improved operating income
and timing differences in the payment of accounts payable and accrued taxes.
Cash Flows Used In Investing Activities
- --------------------------------------------------------------------------------
Capital expenditures continue to be our primary use of capital resources. The
majority of the capital expenditures are to support our network businesses in
order to facilitate the introduction of new products and services, enhance
responsiveness to competitive challenges, and increase the operating efficiency
and productivity of the network. We invested $3,092.9 million in our network
subsidiaries during the first half of 1998, as compared to $2,430.0 million in
the first half of 1997. We also invested $390.9 million in our wireless and
other businesses in the first six months of 1998, compared to $644.8 million
during the same period last year. The increase in total capital expenditures
during the first six months of 1998 is due to an expansion of our capital
investment program in 1998. We expect capital expenditures in 1998 to aggregate
to approximately $7 billion, including approximately $6 billion to be invested
in our network subsidiaries. In 1997, capital expenditures totaled $6.6
billion, including $5.5 billion in our network subsidiaries.
During the first half of 1998, we increased our ownership interest in Omnitel
from 17.45% to 19.71%, through a cash payment of $162.4 million, and we invested
$193.6 million in PrimeCo to fund the build-out of its PCS network and $57.6
million in lease financing partnerships. In the first six months of 1997, we
invested $387.4 million in unconsolidated businesses, including $202.1 million
in PrimeCo, $70.1 million in lease financing partnerships and $115.2 million in
other investments.
Our short-term investments include principally cash equivalents held in trust
accounts for the payment of certain employee benefits. During the first half of
1998, we invested $266.1 million primarily in a vacation pay trust, compared to
$146.8 million in the first half of 1997. We increased our pre-funding in 1998
to cover employees of the former NYNEX companies. Proceeds from the sales of
all short-term investments were $566.0 million in the first six months of 1998,
compared to $212.9 million in the corresponding period of 1997.
In the first six months of 1998, we invested $15.8 million to purchase a
cellular property and we received cash proceeds of $4.6 million in connection
with the disposition of certain investments. In the first six months of 1997,
we received cash proceeds of $271.5 million from the sales of real estate
properties and our interest in a joint venture.
During the first half of 1997, we received cash proceeds of $82.0 million from
the Telecom Corporation of New Zealand Limited (TCNZ) repurchase plan. TCNZ
completed its repurchase plan in December 1997.
20
Cash Flows Used In Financing Activities
- --------------------------------------------------------------------------------
As in prior quarters, dividend payments were a significant use of capital
resources. We determine the appropriateness of the level of our dividend
payments on a periodic basis by considering such factors as long-term growth
opportunities, internal cash requirements, and the expectations of our
shareowners. In the second quarter of 1998, we announced a quarterly cash
dividend of $.385 per share. Year-to-date cash dividends totaled $.77 per
share.
In February 1998, our wholly owned subsidiary Bell Atlantic Financial
Services, Inc. (FSI) issued $2,455.0 million of 5.75% exchangeable notes (TCNZ
Exchangeable Notes) due on April 1, 2003. The proceeds from the offering were
used for the repayment of a portion of our short-term debt. For additional
information about the TCNZ Exchangeable Notes, see Note 5 to the condensed
consolidated financial statements and the "Market Risk" section below.
We increased our total debt (including capital lease obligations) by $248.0
million from December 31, 1997, principally due to an increase in our capital
investment program, higher purchases of shares to fund employee stock option
exercises, and continued funding of investments in PrimeCo. Additional pre-
funding of benefit trusts also contributed to the increase in debt levels during
1998. Our debt ratio was 60.1% as of June 30, 1998, compared to 59.1% as of
June 30, 1997 and 60.5% as of December 31, 1997. In 1998, we expect our debt
level to increase slightly over the current level at June 30, 1998, as we
continue to invest in our capital program and in our unconsolidated
subsidiaries, primarily PrimeCo.
As of June 30, 1998, we had unused bank lines of credit in excess of $5.2
billion and $237.9 million in borrowings outstanding. As of June 30, 1998, our
operating telephone and finance subsidiaries had shelf registrations for the
issuance of up to $2.9 billion of unsecured debt securities. The debt securities
of those subsidiaries continue to be accorded high ratings by primary rating
agencies. Subsequent to the announcement of the Bell Atlantic - GTE merger,
rating agencies have maintained current credit ratings, but have placed the
ratings of certain of our subsidiaries under review for potential downgrade.
Financing activities in the first six months of 1998 also included the early
extinguishment of $350.0 million of refunding mortgage bonds and $240.0 million
of debentures, and the issuance of $600.0 million of debentures by several of
our operating telephone subsidiaries. In July 1998, another operating telephone
subsidiary announced it will redeem $60.0 million of 7.75% debentures on August
24, 1998. See Note 5 to our condensed consolidated financial statements for
additional information on our debt.
On August 5, 1998, FSI entered into an agreement to issue $3,180.0 million of
4.25% notes exchangeable into ordinary shares of CWC. The notes will mature on
September 15, 2005. The exchange price was established at a 28.2% premium to the
CWC share price at the time of the offering. The notes are noncallable until
September 15, 2002, and are not exchangeable by investors prior to July 1, 2002.
Upon exchange by investors, we retain the option to settle in cash or delivery
of shares. The proceeds of the offering will be used for ongoing business
opportunities and the reduction of short-term debt. This transaction, which is
expected to close in August 1998, is not anticipated to have a material effect
on our financial condition or results of operations.
Market Risk
- --------------------------------------------------------------------------------
We are exposed to various types of market risk in the normal course of our
business, including the impact of interest rate changes, foreign currency
exchange rate fluctuations and changes in corporate tax rates. We employ risk
management strategies including the use of derivatives such as interest rate
swap agreements, interest rate caps and floors, foreign currency forwards and
options, and basis swap agreements to manage those exposures. We do not hold
derivatives for trading purposes.
It is our policy to enter into interest rate, foreign currency and other
transactions only to the extent necessary to achieve the desired objectives of
our management in limiting our exposures to the various market risks discussed
above. We do not hedge all of our market risk exposure in a manner that would
completely eliminate the impact of changes in interest rates and foreign
exchange rates on our net income. We do not expect that our results of
operations or liquidity will be materially affected by these risk management
strategies.
21
Interest Rate Risk Management
The issuance of the TCNZ Exchangeable Notes in the first quarter of 1998, as
described below, resulted in an increase of $2,455.0 million in our long-term
debt.
The TCNZ Exchangeable Notes have a maturity of five years, carry a fixed
interest rate of 5.75%, and are exchangeable into shares of TCNZ common stock at
the option of the holder beginning on September 1, 1999. The exchange price was
established at a 20% premium to the TCNZ share price at the time of the
offering. Upon exchange, we retain the option to settle in cash or by delivery
of TCNZ shares.
As of June 30, 1998, the fair value of our long-term debt and interest rate
derivatives was approximately $16.7 billion. The aggregate hypothetical fair
value of the portfolio assuming a 100-basis-point upward parallel shift in the
yield curve is estimated to be $15.7 billion. The aggregate hypothetical fair
value of the portfolio assuming a 100-basis-point downward parallel shift in the
yield curve is estimated to be $18.0 billion. The fair values of our commercial
paper and bank loans are not significantly affected by changes in market
interest rates.
Foreign Exchange Risk Management
The fair values of our foreign currency derivatives and investments accounted
for under the cost method continue to be subject to fluctuations in foreign
exchange rates. The fair value of the TCNZ Exchangeable Notes is also affected
by changes in the U.S. dollar/ New Zealand dollar exchange rate. As of June 30,
1998, the net fair value of our foreign currency derivatives, cost method
investments and the TCNZ Exchangeable Notes was a liability of approximately
$2.1 billion. The aggregate hypothetical decrease in the fair value of that
liability resulting from a 10% increase in the value of the U.S. dollar against
the various currencies that we are exposed to at June 30, 1998 was estimated to
be $49 million. The aggregate hypothetical increase in the fair value of that
liability resulting from a 10% decrease in the value of the U.S. dollar against
the various currencies that we are exposed to at June 30, 1998 was estimated to
be $105 million. This calculation does not include potential changes in the
value of our international investments accounted for under the equity method.
As of June 30, 1998, the carrying value of our equity method international
investments totaled approximately $1.8 billion.
As described in our 1997 Annual Report to Shareowners, we currently hold an
international portfolio of telecommunications-related infrastructure projects
that includes investments in Thailand and Indonesia accounted for under the cost
method. During the past several months, we have been closely monitoring the
financial and political situations in these countries to ensure the long-term
viability of our investments. Although the volatility of the Asian financial
markets has had a negative effect on the fair values of these investments, we
currently believe that the declines from recorded book values are temporary.
The events in Asia are dynamic and the ultimate resolution will depend on many
yet to be determined actions taken by Asian governments, market participants and
world monetary authorities. We continue to monitor the political, economic and
financial aspects of these investments on a quarterly basis. Should we
determine that any declines in the fair values of these investments are other
than temporary, the impact could be material to our results of operations.
Other Risk Management
The fair value of the TCNZ Exchangeable Notes is affected by changes in the
price of TCNZ shares. The hypothetical fair value of the TCNZ Exchangeable
Notes assuming a 10% increase or decrease in the value of TCNZ shares at June
30, 1998 was estimated to be $2,625 million and $2,459 million, respectively.
Other than the issuance of the TCNZ Exchangeable Notes, there has been no
material change in our exposure to other market risks since December 31, 1997.
The TCNZ Exchangeable Notes also expose us to a potential earnings impact.
Should the aggregate value of the TCNZ shares rise to greater than 120% of the
share price at the time of the offering, our earnings would be affected as a
result of adjusting the debt liability to its fair value. Our cash flows would
not be affected by changes in the price of the TCNZ shares, unless we elect to
pay the noteholders in cash.
22
- -------------------------------------------------
OTHER FACTORS THAT MAY EFFECT FUTURE RESULTS
- -------------------------------------------------
Recent Regulatory Development
- --------------------------------------------------------------------------------
In April 1998, New York Telephone Company filed with the New York State Public
Service Commission (NYSPSC) a statement setting forth additional commitments
that it will make to the FCC in connection with our anticipated application for
permission to enter the in-region long distance market in New York. Those
commitments include additional operations support systems capabilities, enhanced
interconnection options to stimulate facilities-based competitive alternatives,
and detailed performance standards with prescribed adjustments to wholesale
prices if standards are not met. In addition, New York Telephone Company will
offer combinations of unbundled network elements and an Unbundled Network
Element Platform (UNE-P) to competitors wishing to provide basic local and ISDN
service to business or residential customers. New York Telephone Company
estimates that the UNE-P will provide competitors with discounts from its retail
rates of 30-40 percent on residential lines and 50-60 percent on business lines.
New York Telephone Company will offer UNE-P throughout its New York operating
area, but UNE-P will not be available to competitors for service to business
customers in those parts of New York City where there is a defined level of
local competition from two or more competitive local exchange carriers. New
York Telephone Company's commitment to offer the discounted UNE-P will be for
four years in New York City and other major urban areas and for six years in the
rest of the state. Following New York Telephone Company's filing, the chairman
of the NYSPSC announced that, subject to New York Telephone Company meeting its
commitments, he would recommend that our application to the FCC be approved. We
expect to file our application with the FCC by the fourth quarter of 1998, with
the goal of entering the New York in-region long distance market by the first
quarter of next year, but there can be no assurance that any approval will be
forthcoming in time to permit us to do so.
- ---------------------------------------
OTHER MATTERS
- ---------------------------------------
Proposed Bell Atlantic - GTE Merger
- --------------------------------------------------------------------------------
Bell Atlantic and GTE Corporation (GTE) have announced a proposed merger of
equals under a definitive merger agreement dated as of July 27, 1998. Under the
terms of the agreement, GTE shareholders will receive 1.22 shares of Bell
Atlantic common stock for each share of GTE common stock that they own. Bell
Atlantic shareholders will continue to own their existing shares after the
merger.
We expect the merger to qualify as a "pooling of interests," which means for
accounting and financial reporting purposes the companies will be treated as if
they had always been combined. The completion of the merger is subject to a
number of condition, including certain regulatory approvals, receipt of opinions
that the merger will be tax free, and the approval of the shareholders of both
Bell Atlantic and GTE. The companies expect to close the merger in the second
half of 1999.
The companies have identified the following synergy targets by the third year
following completion of the merger: (i) expense savings of approximately $2
billion annually, principally related to economies of scale and other operating
efficiencies; (ii) savings in annual capital expenditures of approximately $500
million; and (iii) incremental revenues of approximately $2 billion annually.
Based on cost and revenue synergy targets, we expect the transaction to be
accretive to earnings per share, excluding one-time, merger-related charges, in
the first year following the completion of the merger. It is anticipated that
the merged company will target annual earnings per share growth of 15%,
excluding one-time, merger-related charges, by the third year following the
completion of the merger.
Recent Accounting Pronouncements
- --------------------------------------------------------------------------------
For a discussion of recent accounting pronouncements and their impact on our
financial statements, you should read Note 9 to the condensed consolidated
financial statements.
23
- ----------------------------------------------------------------
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
- ----------------------------------------------------------------
Information contained above in this Management's Discussion and Analysis with
respect to expected financial results and future events and trends is forward-
looking, based on our estimates and assumptions and subject to risks and
uncertainties. For those statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
The following important factors could affect the future results of our company
and could cause those results to differ materially from those expressed in the
forward-looking statements: (i) materially adverse changes in economic
conditions in the markets served by us or by companies in which we have
substantial investments; (ii) material changes in available technology; (iii)
the final outcome of FCC rulemakings, and judicial review of those rulemakings,
with respect to the access and interconnection that we must provide other
carriers under the Telecommunications Act of 1996; (iv) the final outcome of FCC
rulemakings with respect to access charge reform and universal service; (v)
future state regulatory actions in our operating areas; (vi) the extent, timing
and success of competition from others in the local telephone and intraLATA toll
service markets; (vii) the timing and profitability of our entry into the in-
region long distance market; (viii) the success and expense of the remediation
efforts of our company and suppliers in achieving year 2000 compliance; and (ix)
the timing of, and regulatory or other conditions associated with, the
completion of the merger with GTE.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------------------
Information relating to market risk is included in Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, in the
Financial Condition section under the caption "Market Risk."
24
- -----------------------------------
Part II - Other Information
- -----------------------------------
Item 1. Legal Proceedings
- --------------------------------------------------------------------------------
There were no proceedings reportable under this item.
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
The Company's 1998 Annual Meeting of Shareowners was held on May 1, 1998. At
the meeting, the following items were submitted to a vote of shareowners.
(a) The following nominees were elected to serve on the Board of Directors:
Name of Nominee Votes Cast For Votes Withheld
--------------- -------------- --------------
Lawrence T. Babbio, Jr. 617,639,416 14,817,517
Richard L. Carrion 617,999,510 14,457,423
James G. Cullen 617,952,035 14,504,898
Lodewijk J. R. de Vink 618,223,906 14,233,027
James H. Gilliam, Jr. 617,662,150 14,794,783
Stanley P. Goldstein 618,161,465 14,295,468
Helene L. Kaplan 617,806,023 14,650,909
Thomas H. Kean 617,566,762 14,890,171
Elizabeth T. Kennan 617,702,941 14,753,991
John F. Maypole 618,362,832 14,094,101
Joseph Neubauer 618,096,057 14,360,876
Thomas H. O'Brien 618,183,926 14,273,007
Eckhard Pfeiffer 619,141,104 13,315,829
Hugh B. Price 617,464,186 14,992,747
Rozanne L. Ridgway 617,285,767 15,171,166
Frederic V. Salerno 617,165,515 15,291,418
Ivan G. Seidenberg 617,273,100 15,183,833
Walter V. Shipley 618,283,445 14,173,488
Raymond W. Smith 614,890,564 17,566,369
John R. Stafford 618,309,470 14,147,462
Morrison DeS. Webb 618,173,052 14,283,881
Shirley Young 617,981,032 14,475,900
(b) The appointment of Coopers & Lybrand L.L.P. as independent accountants for
1998 was ratified with 621,141,173 votes for, 6,872,906 votes against, and
4,442,854 abstentions. (Effective July 1, 1998, Coopers & Lybrand L.L.P. became
PricewaterhouseCoopers LLP.)
(c) A shareowner proposal regarding additional disclosure of executive officer
compensation was defeated with 66,329,711 votes for, 473,093,666 votes against,
15,948,023 abstentions, and 77,085,532 broker non-votes.
(d) A shareowner proposal regarding cumulative voting was defeated with
146,540,695 votes for, 394,289,253 votes against, 14,541,452 abstentions, and
77,085,532 broker non-votes.
(e) A shareowner proposal regarding executive incentive compensation was
defeated with 75,749,036 votes for, 464,413,604 votes against, 15,208,762
abstentions, and 77,085,532 broker non-votes.
(f) A shareowner proposal regarding executive severance agreements was defeated
with 174,611,552 votes for, 365,056,473 votes against, 15,703,377 abstentions,
and 77,085,532 broker non-votes.
(g) A shareowner proposal regarding composition of the Board of Directors was
defeated with 96,696,635 votes for, 441,962,678 votes against, 16,712,088
abstentions, and 77,085,532 broker non-votes.
With respect to items (b) through (g), abstentions and broker non-votes are not
counted in the vote totals in accordance with the Company's by-laws and,
therefore, have no effect on the vote.
25
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a) Exhibits:
Exhibit Number
10a Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Lawrence T. Babbio, Jr.
10b Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and James G. Cullen.
10c Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Frederic V. Salerno.
10d Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Donald J. Sacco.
10e Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and Morrison DeS. Webb.
10f Employment Agreement, dated as of June 1, 1998, by and between Bell
Atlantic Corporation and James R. Young.
10v(i) Letter dated April 16, 1998, to Raymond W. Smith concerning employment-
related issues.
10v(ii) Resolutions dated May 1, 1998, approving amendments to Employment
Agreement of Raymond W. Smith.
10w(i) Resolution dated May 1, 1998, approving amendment to Employment
Agreement of Ivan G. Seidenberg.
12 Ratio of Earnings to Fixed Charges.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedules - 1997 interim periods.
27.3 Restated Financial Data Schedules - 1996 interim periods.
(b) Reports on Form 8-K filed during the quarter ended June 30, 1998:
A Current Report on Form 8-K, dated April 23, 1998, was filed regarding Bell
Atlantic's first quarter 1998 financial results.
A Current Report on Form 8-K, dated May 1, 1998, was filed regarding the two-
for-one split of Bell Atlantic's common stock.
26
Signatures
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BELL ATLANTIC CORPORATION
Date: August 13, 1998 By /s/ Mel Meskin
------------------------------
Mel Meskin
Vice President - Comptroller
(Principal Accounting Officer)
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 12, 1998.
27