-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lJ2UkJ//6NMzGYzHexFMC9SkM4ANS7V32KShbO6IY9ClnXCAtX3gmLnujV/E9YGN hJyTg2dGdrW3+e6Qz2a3ZQ== 0000950109-94-000587.txt : 19940404 0000950109-94-000587.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950109-94-000587 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL ATLANTIC CORP CENTRAL INDEX KEY: 0000732712 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 232259884 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08606 FILM NUMBER: 94519360 BUSINESS ADDRESS: STREET 1: 1717 ARCH ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159636000 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8606 BELL ATLANTIC CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-2259884 (State or other jurisdiction of (I.R.S. Employer) incorporation or organization) Identification No.) 1717 Arch Street Philadelphia, Pennsylvania 19103 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 963-6000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ---------------------------- Common Stock, $1 par value .......... New York, Philadelphia, Boston, Chicago and Pacific Stock Exchanges Preference Stock Purchase Rights .... New York, Philadelphia, Boston, Chicago and Pacific Stock Exchanges Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- At February 28, 1994, the aggregate market value of the registrant's voting stock held by non-affiliates was approximately $23,876,000,000. At February 28, 1994, 436,185,312 shares of the registrant's Common Stock were outstanding, after deducting 49,959 shares held in treasury. Documents incorporated by reference: Portions of the registrant's Annual Report to Shareowners for the year ended December 31, 1993 (Part II). Portions of the registrant's Proxy Statement dated March 1, 1994 prepared in connection with the Annual Meeting of Shareowners (Part III). ================================================================================ TABLE OF CONTENTS
Item No. Page - -------- ---- PART I 1. Business.................................................. 1 2. Properties................................................ 25 3. Legal Proceedings......................................... 26 4. Submission of Matters to a Vote of Security Holders....................................... 28 Executive Officers of the Registrant.......................... 29 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters........................ 29 6. Selected Financial Data................................... 30 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 30 8. Financial Statements and Supplementary Data............... 30 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................... 30 PART III 10. Directors and Executive Officers of the Registrant........ 30 11. Executive Compensation.................................... 30 12. Security Ownership of Certain Beneficial Owners and Management......................................... 30 13. Certain Relationships and Related Transactions............ 30 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................ 31
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 24, 1994. PART I Item 1. Business GENERAL Bell Atlantic Corporation (the "Company" or "Bell Atlantic") is one of the seven regional holding companies ("RHCs") formed in connection with the court- approved divestiture (the "Divestiture"), effective January 1, 1984, of those assets of the American Telephone and Telegraph Company ("AT&T") related to exchange telecommunications, exchange access functions, printed directories and cellular mobile communications. Pursuant to the Divestiture, AT&T transferred to the Company, among other assets, its 100% ownership interest in seven Bell System operating companies ("BOCs"): New Jersey Bell Telephone Company; The Bell Telephone Company of Pennsylvania; The Diamond State Telephone Company; The Chesapeake and Potomac Telephone Company; The Chesapeake and Potomac Telephone Company of Maryland; The Chesapeake and Potomac Telephone Company of Virginia; and The Chesapeake and Potomac Telephone Company of West Virginia (collectively, the "Network Services Companies"). In January 1994, to facilitate the creation of a uniform "Bell Atlantic" brand name across the territories served by these seven telephone subsidiaries, the names of the Network Services Companies were changed to Bell Atlantic - New Jersey, Inc. ("Bell Atlantic - New Jersey"), Bell Atlantic - Pennsylvania, Inc. ("Bell Atlantic - Pennsylvania"), Bell Atlantic - Delaware, Inc. ("Bell Atlantic - Delaware"), Bell Atlantic - Washington, D.C., Inc. ("Bell Atlantic - Washington, D.C."), Bell Atlantic - Maryland, Inc. ("Bell Atlantic - Maryland"), Bell Atlantic - Virginia, Inc. ("Bell Atlantic - Virginia") and Bell Atlantic - West Virginia, Inc. ("Bell Atlantic - West Virginia"), respectively. The Company's business currently encompasses two segments: (1) Communications and Related Services, and (2) Financial, Real Estate, and Other Services. Financial information with respect to the Company's industry segments is set forth in Note 15 to the Consolidated Financial Statements incorporated by reference in this Annual Report on Form 10-K. The Communications and Related Services segment includes the Network Services Companies as well as subsidiaries which are engaged in the business of providing wireless communications products and services, including cellular mobile service; selling directory advertising and providing photocomposition services; servicing and repairing computers; and providing software for telecommunications and computer networking. During 1993, Bell Atlantic reorganized certain functions performed by each of the Network Services Companies into nine lines of business ("LOBs") organized across the Network Services Companies around specific market segments. See "Communications and Related Services - The Network Services Companies - Operations". The Financial, Real Estate, and Other Services segment is comprised of subsidiaries of the Company which are engaged in lease financing of commercial, industrial, medical and high-technology equipment, and other forms of financing; real estate investment and management; and the sale and distribution of liquefied petroleum gas. In line with its continuing de-emphasis of financial services businesses over the past several years and its intensified focus on core communications businesses, the Company announced in October 1993 that it had begun evaluating possible strategies for exiting its financial services businesses. In March 1994, the Company announced an agreement to sell a significant portion of its diversified leasing business to GFC Financial Corporation. This sale is expected to close in the second quarter of 1994, subject to the receipt of regulatory approvals. See "Financial, Real Estate, and Other Services". 1 The communications industry is currently undergoing fundamental changes driven by the accelerated pace of technological innovation, the convergence of the telecommunications, cable television, information services and entertainment businesses, and a regulatory environment in which many traditional regulatory barriers are being lowered and competition permitted or encouraged. Although no definitive prediction can be made of the market opportunities these changes will present or whether Bell Atlantic will be able successfully to take advantage of these opportunities, the Company is positioning itself to be a leading communications, information services and entertainment company. The Company was incorporated in 1983 under the laws of the State of Delaware and has its principal executive offices at 1717 Arch Street, Philadelphia, Pennsylvania 19103 (telephone number 215-963-6000). LINE OF BUSINESS RESTRICTIONS The consent decree entitled "Modification of Final Judgment" ("MFJ") approved by the United States District Court for the District of Columbia (the "D.C. District Court") which, together with the Plan of Reorganization ("Plan") approved by the D.C. District Court, set forth the terms of Divestiture also established certain restrictions on the post-Divestiture activities of the RHCs, including Bell Atlantic. The MFJ's principal restrictions on post-Divestiture RHC activities included prohibitions on (i) providing interexchange telecommunications, (ii) providing information services, (iii) engaging in the manufacture of telecommunications equipment and customer premises equipment ("CPE"), and (iv) entering into any non-telecommunications businesses, in each case without the approval of the D.C. District Court. Since Divestiture, the D.C. District Court has retained jurisdiction over the construction, modification, implementation and enforcement of the MFJ. In September 1987, the D.C. District Court rendered a decision which eliminated the need for the RHCs to obtain its approval prior to entering into non-telecommunications businesses. However, the D.C. District Court refused to eliminate the restrictions relating to equipment manufacturing or providing interexchange services. With respect to information services, the Court issued a ruling in March 1988 which permitted the RHCs to engage in a number of information transport functions as well as voice storage and retrieval services, including voice messaging, electronic mail and certain information gateway services. However, the RHCs were generally prohibited from providing the content of the data they transmitted. As the result of an appeal of the D.C. District Court's September 1987 and March 1988 decisions by the RHCs and other parties, the United States Court of Appeals for the District of Columbia Circuit ordered the D.C. District Court to reconsider the RHCs' request to provide information content and determine whether removal of the restrictions thereon would be in the public interest. In July 1991, the D.C. District Court removed the remaining restrictions on RHC participation in information services, but imposed a stay pending appeal of that decision. In October 1991, the United States Court of Appeals for the District of Columbia Circuit vacated the stay, thereby permitting the RHCs to provide information services, and in May 1993 affirmed the D.C. District Court's July 1991 decision. The United States Supreme Court denied certiorari in November 1993. Several bills have been introduced in the current session of Congress pursuant to which the line of business restrictions established by the MFJ could be eliminated or modified. No definitive prediction can be made as to whether or when any such legislation will be enacted, the provisions thereof or their impact on the business or financial condition of the Company. 2 COMMUNICATIONS AND RELATED SERVICES The Network Services Companies General The Network Services Companies presently serve a territory ("Territory") consisting of 19 Local Access and Transport Areas ("LATAs"). These LATAs are generally centered on a city or based on some other identifiable common geography and, with certain limited exceptions, each LATA marks the boundary within which a Network Services Company may provide telephone service. The Network Services Companies provide two basic types of telecommunications services. First, they transport telecommunications traffic between subscribers located within the same LATA ("intraLATA service"), including both local and toll services. Local service includes the provision of local exchange ("dial tone"), local private line and public telephone services (including dial tone service for pay telephones owned by the Company and other pay telephone providers). Among other local services provided are Centrex (telephone company central office-based switched telephone service enabling the subscriber to make both intercom and outside calls) and a variety of special and custom calling services. Toll service includes message toll service (calling service beyond the local calling area) within LATA boundaries, and intraLATA Wide Area Toll Service (WATS)/800 services (volume discount offerings for customers with highly concentrated demand). As permitted by the Plan, Bell Atlantic - New Jersey and Bell Atlantic - Pennsylvania also earn toll revenue from the provision of telecommunications service between LATAs ("interLATA service") in corridors between the cities (and certain surrounding counties) of (i) New York, New York and Newark, New Jersey and (ii) Philadelphia, Pennsylvania and Camden, New Jersey. Second, the Network Services Companies provide exchange access service, which links a subscriber's telephone or other equipment to the transmission facilities of interexchange carriers which, in turn, provide interLATA service to their customers. Bell Atlantic - Pennsylvania, Bell Atlantic -Delaware, Bell Atlantic - Maryland and Bell Atlantic - West Virginia also provide exchange access service to interexchange carriers which provide intrastate intraLATA long distance telecommunications service. See "Communications and Related Services -The Network Services Companies - Competition - IntraLATA Toll Competition". Operations Although the Network Services Companies remain responsible within their respective service areas for the provision of telephone services, financial performance and regulatory matters, during 1993, Bell Atlantic reorganized certain functions formerly performed by each of these companies relating to these telephone services into nine LOBs organized across the Network Services Companies around specific market segments. These nine LOBs are: The Consumer Services LOB markets communications services to residential ----------------- customers within the Territory (11 million households and 29 million people) and plans in the future to market information services and entertainment programming. 1993 revenues generated by consumer services were approximately $4 billion, representing approximately 34% of the Network Services Companies' aggregate revenues. These revenues were derived primarily from the provision of telephone services to residential users. The Carrier Services LOB markets (i) switched and special access to the ---------------- Network Services Companies' local exchange networks, and (ii) billing and collection services, including recording, rating, bill processing and bill rendering. 1993 revenues generated by the carrier market were approximately $2.5 billion, representing approximately 21% of the Network Services Companies' aggregate revenues. Approximately 93% of total carrier services revenues were derived from interexchange carriers; AT&T is the largest single customer. Most of the remaining revenues came from business customers and government agencies with their own special access network connections, wireless customers and other local exchange carriers ("LECs") which resell network connections to their own customers. 3 The Small Business Services LOB markets communications and information ----------------------- services to small businesses (customers having up to 20 access lines or 100 Centrex lines). The Network Services Companies have approximately 1.2 million small business customers in the Territory which in 1993 generated approximately $1.7 billion in revenues, representing approximately 15% of the Network Services Companies' aggregate revenues. The Large Business Services LOB markets communications and information ----------------------- services to large businesses (customers having more than 20 access lines or more than 100 Centrex lines). These services include voice switching/processing services (e.g., dedicated private lines, custom Centrex, ---- call management and voice messaging), end-user networking (e.g., credit and ---- debit card transactions, and personal computer-based conferencing, including data and video), internetworking (establishing links between the geographically disparate networks of two or more companies or within the same company), network integration (integrating multiple geographically disparate networks into one system), network optimization (disaster avoidance, 911, intelligent vehicle highway systems), video services (distance learning, telemedicine, surveillance, videoconferencing) and integrated multi-media applications services. The Network Services Companies serve more than 18,000 primarily in-Territory large business customers in the commercial, state and local government and education markets. 1993 revenues from the large business market were approximately $1.5 billion, representing approximately 13% of the Network Services Companies' aggregate revenues. The Directory Services LOB manages the provision of (i) advertising and ------------------ marketing services to advertisers, and (ii) listing information (e.g., White ---- Pages and Yellow Pages). These services are currently provided primarily through print media, but the Company expects that use of electronic formats will increase in the future. In addition, the Directory Services LOB manages the provision of photocomposition, database management and other related products and services to publishers. 1993 revenues from directory services were approximately $1 billion, representing approximately 9% of the Network Services Companies' aggregate revenues. The Public and Operator Services LOB markets pay telephone and operator ---------------------------- services in the Territory to meet consumer needs for accessing public networks, locating and identifying network subscribers, providing calling assistance and arranging billing alternatives (e.g., calling card, collect and third party ---- calls). 1993 revenues from public and operator services were approximately $663 million, representing approximately 6% of the Network Services Companies' aggregate revenues. The Federal Systems LOB markets communications and information technology and --------------- services to departments, agencies and offices of the executive, judicial and legislative branches of the federal government. 1993 revenues from the federal government market were approximately $200 million, representing approximately 2% of the Network Services Companies' aggregate revenues. The Information Services LOB has been established to provide programming -------------------- services, including on-demand entertainment, transactions and interactive multimedia applications within the Territory and in selected other markets. See "Communications and Related Services - The Network Services Companies - FCC Regulation and Interstate Rates - Telephone Company Provision of Video Dial Tone and Video Programming". The Network LOB manages the technologies, services and systems platforms ------- required by the other eight LOBs and the Network Services Companies to meet the needs of their respective customers, including, without limitation, switching, feature development and on-premises installation and maintenance services. 4 The Network Services Companies have been making and expect to continue to make significant capital expenditures on their networks to meet the demand for communications services and to further improve such services. Capital expenditures of the Network Services Companies were approximately $2.3 billion in 1991, $2.2 billion in 1992 and $2.1 billion in 1993. The total investment in plant, property and equipment decreased from approximately $30.7 billion at December 31, 1991 to approximately $29.6 billion at December 31, 1992, and increased to approximately $30.6 billion at December 31, 1993, in each case after giving effect to retirements, but before deducting accumulated depreciation at such date. The Network Services Companies as a whole are projecting construction expenditures for 1994 at approximately the same level as in the past several years. However, subject to regulatory approvals, the Network Services Companies plan to allocate capital resources to the deployment of broadband network platforms (technologies ultimately capable of providing a switched facility for access to and transport of high-speed data services, video-on-demand, and image and interactive multimedia applications). Most of the funds for these expenditures are expected to be generated internally. Some additional external financing may be necessary or desirable for some of the Network Services Companies. FCC Regulation and Interstate Rates The Network Services Companies are subject to the jurisdiction of the Federal Communications Commission ("FCC") with respect to interstate services and certain related matters. The FCC prescribes a uniform system of accounts for telephone companies, interstate depreciation rates and the principles and standard procedures used to separate plant investment, expenses, taxes and reserves between those applicable to interstate services under the jurisdiction of the FCC and those applicable to intrastate services under the jurisdiction of the respective state regulatory authorities ("separations procedures"). The FCC also prescribes procedures for allocating costs and revenues between regulated and unregulated activities. Interstate Access Charges The Network Services Companies provide intraLATA service and, with certain limited exceptions, do not participate in the provision of interLATA service except through offerings of exchange access service. See "Communications and Related Services - The Network Services Companies - General". The FCC has prescribed structures for exchange access tariffs to specify the charges ("Access Charges") for use and availability of the Network Services Companies' facilities for the origination and termination of interstate interLATA service. Access Charges are intended to recover the related costs of the Network Services Companies which have been allocated to the interstate jurisdiction ("Interstate Costs") under the FCC's separations procedures. In general, the tariff structures prescribed by the FCC provide that Interstate Costs of the Network Services Companies which do not vary based on usage ("non-traffic sensitive costs") are recovered from subscribers through flat monthly charges ("Subscriber Line Charges"), and from interexchange carriers through usage-sensitive Carrier Common Line ("CCL") charges. See "Communications and Related Services - The Network Services Companies - FCC Regulation and Interstate Rates - FCC Access Charge Pooling Arrangements". Traffic-sensitive Interstate Costs are recovered from carriers through variable access charges based on several factors, primarily usage. In May 1984, the FCC authorized the implementation of Access Charge tariffs for "switched access service" (access to the local exchange network) and of Subscriber Line Charges for multiple line business customers (up to $6.00 per month per line). In 1985, the FCC authorized Subscriber Line Charges for residential and single-line business customers at the rate of $1.00 per month per line, which increased in installments to $3.50 effective April 1, 1989. 5 As a result of the phasing in of Subscriber Line Charges, a substantial portion of non-traffic sensitive Interstate Costs is now recovered directly from subscribers, thereby reducing the per-minute CCL charges to interexchange carriers. This significant reduction in CCL charges has tended to reduce the incentive for interexchange carriers and their high-volume customers to bypass the Network Services Companies' switched network via special access lines or alternative communications systems. However, competition for this access business has increased in recent years. See "Communications and Related Services - The Network Services Companies - Competition - Alternative Access and Local Services". FCC Access Charge Pooling Arrangements The FCC previously required that all LECs, including the Network Services Companies, pool revenues from CCL and Subscriber Line Charges that cover the non-traffic sensitive costs of the local exchange network, that is, the Interstate Costs associated with the lines from subscribers' premises to telephone company central offices. To administer such pooling arrangements, the FCC mandated the formation of the National Exchange Carrier Association, Inc. Some LECs received more revenue from the pool than they billed their interexchange carrier customers using the nationwide average CCL rate. Other companies, including all but one of the Network Services Companies, received substantially less from the pool than the amount billed to their interexchange carrier customers. By an order adopted in 1987, the FCC changed its mandatory pooling requirements. These changes, which became effective April 1, 1989, permitted all of the Network Services Companies as a group to withdraw from the pool and to charge CCL rates which more closely reflect their non-traffic sensitive costs. The Network Services Companies are still obligated to make contributions of CCL revenues to companies who choose to continue to pool non- traffic sensitive costs so that the pooling companies can charge a CCL rate no greater than the nationwide average CCL rate. In addition to this continuing obligation, the Network Services Companies have a transitional support obligation to high cost companies who left the pool in 1989 and 1990. This transitional support obligation phases out over five years. These long-term and transitional support requirements will be recovered in the Network Services Companies' CCL rates. Depreciation Depreciation rates provide for the recovery of the Network Services Companies' investment in telephone plant and equipment, and are revised periodically to reflect more current estimates of remaining service lives and future net salvage values. In October 1993, the FCC issued an order simplifying the depreciation filing process by reducing the information required for certain categories of plant and equipment whose remaining service life, salvage estimates and depreciation rates fall within an approved range. Petitions for reconsideration of that order were filed in December 1993. In November 1993, the FCC issued a further order inviting comments on proposed ranges for an initial group of categories of plant and equipment. Price Caps In September 1990, the FCC adopted "price cap" regulation to replace the traditional rate of return regulation of LECs. LEC price cap regulation became effective on January 1, 1991. The price cap system places a cap on overall prices for interstate services and requires that the cap decrease annually, in inflation-adjusted terms, by a fixed percentage which is intended to reflect expected increases in productivity. The price cap level can also be adjusted to reflect "exogenous" changes, such as changes in FCC separations procedures or accounting rules. LECs subject to price caps have somewhat increased flexibility to change the prices of existing services within certain groupings of interstate services, known as "baskets". 6 Under price cap regulation, the FCC set an authorized rate of return of 11.25% for the years 1991 and beyond. To the extent that a company is able to earn a higher rate of return through improved efficiency, the FCC's price cap rules permit them to retain the full amount of this higher return up to 100 basis points above the authorized rate of return (currently, up to a 12.25% rate of return). If a company's rate of return is between 100 and 500 basis points above the authorized rate of return (that is, currently, between 12.25% and 16.25%), the company must share 50% of the earnings above the 100-basis-point level with customers by reducing rates prospectively. All earnings above the 500-basis-point level must be returned to customers in the form of prospective rate decreases. If, on the other hand, a company's rate of return is more than 100 basis points below the authorized rate of return (that is, currently, below 10.25%), the company is permitted to increase rates prospectively to make up the deficiency. Under FCC-approved tariffs, the Network Services Companies are charging uniform rates for interstate access services (with the exception of Subscriber Line Charges) throughout the Territory and are regarded as a single unit by the FCC for rate of return measurement. On February 16, 1994, the FCC initiated a rulemaking proceeding to determine the effectiveness of LEC price cap rules and decide what changes, if any, should be made to those rules. This rulemaking is expected to be concluded by the end of 1994. In January 1993, the FCC denied the Network Services Companies exogenous treatment of the increased expense for postretirement benefits required under Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", which the Company adopted effective January 1, 1991. The Network Services Companies have appealed this decision. The appeal is likely to be decided during the second half of 1994. Computer Inquiry III In August 1985, the FCC initiated Computer Inquiry III to re-examine its regulations requiring that "enhanced services" (e.g., voice messaging services, ---- electronic mail, videotext gateway, protocol conversion) be offered only through a structurally separated subsidiary. In 1986, the FCC eliminated this requirement, permitting the Network Services Companies to offer enhanced services, subject to compliance with a series of nonstructural safeguards designed to promote an effectively competitive market. These safeguards include detailed cost accounting, protection of customer information and certain reporting requirements. In June 1990, the United States Court of Appeals for the Ninth Circuit vacated and remanded the Computer Inquiry III decisions to the FCC, finding that the FCC had not fully justified those decisions. In December 1991, the FCC adopted an order which reinstated relief from the separate subsidiary requirement upon a company's compliance with the FCC's Computer III Open Network Architecture ("ONA") requirements and strengthened some of the nonstructural safeguards. In the interim, the Network Services Companies had filed interstate tariffs implementing the ONA requirements. Those tariffs became effective in February 1992, subject to further investigation. That investigation was completed on December 15, 1993, when an order was released making minor changes to the Network Services Companies' ONA rates. In March 1992, the Network Services Companies certified to the FCC that they had complied with all initial ONA obligations and therefore should be granted structural relief for enhanced services. The FCC granted the Network Services Companies structural relief in June 1992. Other parties have appealed this decision, which remains in effect pending the outcome of the appeal. A decision on the appeal is likely by the end of 1994. 7 The FCC's December 1991 order has been appealed to the United States Court of Appeals for the Ninth Circuit by several parties. Pending decision on those appeals, the FCC's decision remains in effect. If a court again reverses the FCC, the Network Services Companies' right to offer enhanced services could be impaired. FCC Cost Allocation and Affiliate Transaction Rules In 1987, the FCC adopted rules governing (i) the allocation of costs between the regulated and unregulated activities of a communications common carrier and (ii) transactions between the regulated and unregulated affiliates of a communications common carrier. The cost allocation rules apply to certain unregulated activities: activities that have never been regulated as communications common carrier offerings and activities that have been preemptively deregulated by the FCC. The costs of these activities are removed prior to the separations procedures process and are allocated to unregulated activities in the aggregate, not to specific services, for pricing purposes. Other activities must be accounted for as regulated activities, and their costs are subject to separations procedures. These activities include (i) those which have been deregulated by the FCC without preempting state regulation, (ii) those which have been deregulated by a state but not the FCC and (iii) "incidental activities," which cannot, in the aggregate, generate more than 1% of a company's revenues. Since the Network Services Companies engage in these types of activities, the Network Services Companies, pursuant to the FCC's cost allocation rules, filed a cost allocation manual, which manual has been approved by the FCC. The affiliate transaction rules govern the pricing of assets transferred to and services provided by affiliates. These rules generally require that assets be transferred between affiliates at "market price", if such price can be established through a tariff or a prevailing price actually charged to third parties. In the absence of a tariff or prevailing price, "market price" cannot be established, in which case (i) asset transfers from a regulated to an unregulated affiliate must be valued at the higher of cost or fair market value, and (ii) asset transfers from an unregulated to a regulated affiliate must be valued at the lower of cost or fair market value. The affiliate transaction rules require that a service provided by one affiliate to another affiliate, which service is also provided to unaffiliated entities, must be valued at tariff rates or market prices. If the affiliate does not also provide the service to unaffiliated entities, the price must be determined in accordance with the FCC's cost allocation principles. In October 1993, the FCC proposed new affiliate transaction rules which would essentially eliminate the different rules for the provision of services and apply the asset transfer rules to all affiliate transactions. The Network Services Companies have filed comments opposing the proposed rules. The FCC has not attempted to make its cost allocation or affiliate transaction rules preemptive. State regulatory authorities are free to use different cost allocation methods and affiliate transaction rules for intrastate ratemaking and to require carriers to keep separate allocation records. Telephone Company Provision of Video Dial Tone and Video Programming In 1987, the FCC initiated an inquiry into whether developments in the cable and telephone industries warranted changes in the rules prohibiting telephone companies such as the Network Services Companies from providing video programming in their respective service territories directly or indirectly through an affiliate. 8 In November 1991, the FCC released a Further Notice of Proposed Rulemaking in these proceedings. In August 1992, the FCC issued an order permitting telephone companies such as the Network Services Companies to provide "video dial tone" service. Video dial tone permits telephone companies to provide video transport to multiple programmers on a non-discriminatory common carrier basis. The FCC has also ruled that neither telephone companies that provide video dial tone service, nor video programmers that use these services, are required to obtain local cable franchises. Other parties have appealed these orders, which remain in effect pending the outcome of the appeal. In late 1992, Bell Atlantic - New Jersey entered into agreements pursuant to which, pending regulatory approval, it would provide video dial tone transport services to two video programmers in New Jersey. As contemplated by its contract with Sammons Communications, Incorporated ("Sammons"), Bell Atlantic - New Jersey will deploy fiber optic technology that will enable Sammons and other video information providers to deliver video programming in three Morris County, New Jersey communities over a video dial tone platform. Bell Atlantic - New Jersey's contract with Future Vision of America Corporation ("Future Vision") contemplates that Bell Atlantic - New Jersey will deploy fiber optic technology in the Dover Township, New Jersey telephone network to establish a video dial tone platform that will allow Future Vision and other video information providers to deliver competitive video programming services in that community. Applications for approval to deploy these video dial tone systems are pending at the FCC. In December 1992, Bell Atlantic - Virginia and Bell Atlantic Video Services Company filed a lawsuit against the federal government in the United States District Court for the Eastern District of Virginia seeking to overturn the prohibition in the Cable Communications Policy Act of 1984 against LECs providing video programming in their respective service areas. In a decision rendered in August 1993 and clarified in October 1993, the court struck down this prohibition as a violation of the First Amendment's freedom of speech protections and enjoined its enforcement against the Company, the Network Services Companies and Bell Atlantic Video Services Company. This decision has been appealed to the United States Court of Appeals for the Fourth Circuit. In early 1993, the FCC granted the Company authority to test a new technology known as Asynchronous Digital Subscriber Line ("ADSL") for use in delivering video entertainment and information over existing copper telephone lines. Beginning in March 1993, the Company began a one-year technical trial of ADSL serving up to 400 Bell Atlantic employees in northern Virginia. In the Fall of 1993, Bell Atlantic petitioned the FCC for authorization to expand and convert this technical trial, upon its completion, into a six month market trial serving up to 2,000 customers. Bell Atlantic also requested authority to offer a commercial video dial tone service to customers served by 25 central offices in parts of northern Virginia and southern Maryland upon completion of the six month market trial. These applications are pending at the FCC. Interconnection and Collocation In October 1992, the FCC issued an order allowing third parties to collocate their equipment in telephone company offices to provide special access (private line) services to the public. The FCC's stated purpose was to encourage greater competition in the provision of interstate special access services. The order permits collocating parties to pay LECs an interconnection charge that is lower than the existing tariffed rates for similar non-collocated services; it allows LECs limited additional pricing flexibility for their own special access services when collocated interconnection is operational. In February 1993, the Network Services Companies filed interstate tariffs to allow collocation for special access services. These tariffs are currently effective. The Company and certain other parties have appealed the FCC's special access collocation order. Bell Atlantic expects the appeal to be decided in 1994. 9 On September 2, 1993, the FCC extended collocation to switched access services. The terms and conditions for switched access collocation are similar to those for special access collocation. On November 18, 1993, the Network Services Companies filed interstate tariffs to allow collocation for switched access services. These tariffs became effective on February 16, 1994. The Company and certain other parties have appealed the FCC's switched access collocation order. Appeals of this order have been stayed pending a decision on the appeals of the special access collocation order. Increased competition through collocation will adversely affect the revenues of the Network Services Companies, although some of the lost revenues could be offset by increased demand of the Network Services Companies' own special access services as a result of the slightly increased pricing flexibility that the FCC has permitted. The Company does not expect the net revenue impact of special access collocation to be material. Revenue losses from switched access collocation, however, may be larger than from special access collocation. Intelligent Networks In December 1991, the FCC issued a Notice of Inquiry into the plans of the BOCs, including the Network Services Companies, to deploy new "modular" network architectures, such as Advanced Intelligent Network ("AIN") technology. The Notice of Inquiry asks what, if any, regulatory action the FCC should take to assure that such architectures are deployed in a manner that is "open, responsive, and procompetitive". On August 31, 1993, the FCC issued a Notice of Proposed Rulemaking proposing a schedule for AIN deployment. The proposals in that Notice of Proposed Rulemaking generally follow those that the Company proposed in its response to the Notice of Inquiry. The Company cannot estimate when the FCC will conclude this proceeding. The results of this proposed rulemaking could include a requirement that the Network Services Companies offer individual components of their services, such as switching and transport, to competitors who will provide the remainder of such services through their own facilities. Such increased competition could divert revenues from the Network Services Companies. However, deployment of AIN technology may also enable the Network Services Companies to respond more quickly and efficiently to customer requests for new services. This could result in increased revenues from new services that could at least partially offset losses resulting from increased competition. State Regulation and Intrastate Rates The communications services of the Network Services Companies are subject to regulation by the public utility commissions in the jurisdictions in which they operate with respect to intrastate rates and services and other matters. In 1993, there were a number of proceedings dealing with such issues as the various Network Services Companies' rates of return, the adoption of flexible regulation procedures and the introduction of competition for local exchange and local access services. Bell Atlantic - New Jersey, Inc. (formerly New Jersey Bell Telephone Company) In June 1987, the New Jersey Board of Regulatory Commissioners ("NJBRC") (which was then known as the Board of Public Utilities) issued an order approving a Rate Stability Plan ("RSP") that modified the way the NJBRC monitors Bell Atlantic - New Jersey's intrastate earnings. Rather than continue to monitor overall company financial performance, the RSP authorized financial performance surveillance only of less competitive services. The RSP also capped intrastate tariffed rates for its six year duration (July 1, 1987 through June 30, 1993), subject, however, to certain exceptions which would permit Bell Atlantic - New Jersey to seek increases in tariffed rates during the RSP's fourth through sixth years. 10 The RSP separated Bell Atlantic - New Jersey's intrastate services into two categories: Group I (more competitive) services such as directory advertising, Centrex, pay telephone services, billing and collection services, high capacity channel and special access services, public data networks, central office local area networks, pay-per-view ordering service, high capacity digital hand-off service, Bellboy(R) paging service, 911 enhanced terminal equipment and Home Intercom; and Group II (less competitive) services such as local exchange service, local usage, message toll service, 800 data base complementary service and Repeat Call and Return Call. Only the Group II services were subject to financial performance monitoring by the NJBRC for the purpose of determining whether or not Bell Atlantic - New Jersey was earning the target rate of return for those services. In January 1989, the NJBRC issued an order which established a target rate of return on equity of 12.9% for the purpose of monitoring the financial performance of the Group II category of services. Under the RSP, Bell Atlantic - New Jersey was allowed to charge competitive rates for Group I services, without restriction and without financial performance monitoring. The New Jersey Telecommunications Act of 1992 (the "NJ Telecommunications Act") became effective in January 1992. The NJ Telecommunications Act authorized the NJBRC to adopt alternative regulatory frameworks that provide incentives to telecommunications companies for aggressive deployment of new technologies. It also deregulated services which the NJBRC has found to be competitive. Pursuant to that legislation, Bell Atlantic - New Jersey filed its Plan for Alternative Form of Regulation in March 1992, and a revised plan in May 1992. This revised plan was unanimously approved by the NJBRC in December 1992, with certain modifications; the written order reflecting that approval was issued on May 6, 1993. Bell Atlantic - New Jersey filed a plan conforming to the NJBRC's order (the "NJ PAR"), which became effective on May 20, 1993. Several parties have filed judicial appeals of the NJBRC's order. The briefing schedule for this appeal extends through the middle of August 1994. The NJ PAR, which supersedes the RSP, divides Bell Atlantic - New Jersey's services into Rate-Regulated Services (formerly Group II services) and Competitive Services (formerly Group I and services which have never been regulated by the NJBRC). Under this Plan, Bell Atlantic - New Jersey's Rate- Regulated Services are grouped in two categories: - "Protected Services": Basic residence and business service, Touch-Tone, access services, message toll services and the ordering, installation and restoration of these services. Rates for Protected Services, other than basic residence service, may be increased beginning January 1996 in an amount limited to the prior year's increase in the Gross National Product-Price Index ("GNP-PI") less a 2% productivity offset, as long as the return on equity for Rate-Regulated Services does not exceed 11.7%. Basic residence service rates are frozen through December 1999. - "Other Services": Custom calling, Custom Local Area Signaling Services ("CLASS" services which utilize Signaling System 7), operator services and 911 enhanced service. Rates for Other Services may be increased beginning January 1996 in an amount limited to the prior year's increase in the GNP-PI less a 2% productivity offset, as long as the return on equity for Rate-Regulated Services does not exceed 12.7%. All earnings above a return on equity of 13.7% for Rate-Regulated Services will be shared equally with customers. There is no point at which the earnings are capped. Competitive Services are deregulated under the NJ Telecommunications Act. Other services such as premises wire maintenance, Answer Call and electronic messaging, which have never been regulated by the NJBRC, continue to be deregulated under the NJ Telecommunications Act. 11 Bell Atlantic - Pennsylvania, Inc. (formerly The Bell Telephone Company of Pennsylvania) Bell Atlantic - Pennsylvania continues to operate under traditional rate-of- return regulation, but is pursuing regulatory reform through regulatory channels. In October 1992, the Pennsylvania Public Utility Commission ("PPUC") adopted financial reporting rules that exclude revenues, expenses and investment associated with directory advertising from quarterly earnings surveillance reports, although these rules require Bell Atlantic - Pennsylvania to file an annual informational filing including directory advertising earnings. The PPUC made no finding relative to future ratemaking treatment for directory advertising. On July 8, 1993, legislation was enacted in Pennsylvania which enables Bell Atlantic - Pennsylvania to petition the PPUC to regulate Bell Atlantic - Pennsylvania under an alternative form of regulation other than rate-based rate of return. On October 1, 1993, Bell Atlantic - Pennsylvania filed its petition and plan with the PPUC which contained (i) six proposed competitive services (directory advertising, billing services, Centrex, Speed Call, Repeat Call and paging) for removal from price and earnings regulations, (ii) a price stability mechanism which caps revenue increases through tariff rate changes for other (noncompetitive) services in any year at the increase in the Gross Domestic Product - Price Index in the previous year less 2.25%, and (iii) a network deployment schedule which commits to universal broadband availability in its telecommunications network by 2015. Hearings on this petition and plan were held in February 1994. The PPUC must either approve or reject Bell Atlantic - Pennsylvania's plan as filed or suggest changes thereto no later than June 30, 1994. Bell Atlantic - Delaware, Inc. (formerly The Diamond State Telephone Company) In August 1992, Bell Atlantic - Delaware filed an intrastate rate case with the Delaware Public Service Commission ("DPSC") to increase intrastate net revenues by $14.3 million annually. In November 1993, the DPSC voted to award Bell Atlantic - Delaware a $3.8 million annual intrastate revenue increase based on the stipulated 10.58% overall rate of return. Bell Atlantic - Delaware then filed a petition for reargument of the decision, requesting that the DPSC increase Bell Atlantic - Delaware's revenue award by an additional $6.3 million annually. On December 6, 1993, Bell Atlantic - Delaware entered into an agreement with the Office of Public Advocate of the Delaware state government which stipulated an increase in Bell Atlantic - Delaware's revenue award of $1.5 million annually. The DPSC approved the stipulation and ordered a revised annual intrastate revenue increase of $5.3 million. Bell Atlantic - Delaware put final rates into effect on December 15, 1993. The Delaware Telecommunications Technology Investment Act of 1993 (the "Delaware Telecommunications Act") became effective on July 8, 1993. The Delaware Telecommunications Act modified telecommunications industry regulation for intrastate services and allows Bell Atlantic - Delaware to elect to be regulated under an alternative regulation plan instead of traditional rate of return regulation. The Delaware Telecommunications Act provides: -- that the prices of "Basic Telephone Services" (e.g., dial tone and ---- local usage) will remain regulated and cannot change in any one year by more than the rate of inflation, less 3%; -- that the prices of "Discretionary Services" (e.g., Identa Ring(SM) ---- and Call Waiting) cannot increase more than 15% per year per service, after an initial one-year cap; -- that the prices of "Competitive Services" (e.g., directory advertising ---- and message toll service) will not be subject to tariff; and -- that Bell Atlantic - Delaware develop a technology deployment plan with a commitment to invest a minimum of $250 million in Delaware's telecommunications network during the first five years of the plan. 12 The Delaware Telecommunications Act also provides protections to ensure that competitors will not be unfairly disadvantaged, including a prohibition on cross-subsidization, imputation rules, service unbundling and resale service availability requirements, and a review by the DPSC during the fifth year of the plan. On July 20 1993, the DPSC initiated a rulemaking to develop regulations for the implementation of the Delaware Telecommunications Act. On March 24, 1994, Bell Atlantic - Delaware elected to be regulated under the alternative regulation provisions of the Delaware Telecommunications Act. On such date, Bell Atlantic - Delaware also filed a technology deployment plan consistent with such legislation pursuant to which it committed to (i) link public schools, major medical facilities and state government offices to the "information superhighway", (ii) digitize all of its telephone switches by 1998, and (iii) connect all of its central offices with fiber optic cable by 1998. Bell Atlantic - Washington, D.C., Inc. (formerly The Chesapeake and Potomac Telephone Company) In January 1993, as the outcome of a process begun by a Bell Atlantic - Washington, D.C. proposal to the District of Columbia Public Service Commission ("DCPSC") in 1988, the DCPSC adopted a regulatory reform plan for the intra- Washington, D.C. services of Bell Atlantic - Washington, D.C. Under the plan, the DCPSC adopted a banded rate of return on equity (based on earnings from all services) with 12.5% as the midpoint: Bell Atlantic - Washington, D.C. would be allowed to seek rate increases if its return on equity falls below 11.5% and would be required to share, through prospective rate cuts, 50% of any earnings in excess of a return on equity of 13.5%. Bell Atlantic - Washington, D.C.'s rates for most residential services were frozen at the levels set in the prior rate proceeding in March 1992. The DCPSC granted pricing flexibility, including custom contracting and 14-day tariffing, for all Centrex services and for high capacity private line services since these services were found to be subject to competition. The DCPSC also established a screen for determining what other services are competitive and therefore should be subject to flexible pricing in the future. The plan will be in effect for three years, after which the DCPSC will investigate Bell Atlantic - Washington, D.C.'s performance and determine what regulatory structure is appropriate at that time. Pursuant to the DCPSC's January 1993 regulatory reform plan, in December 1993, the DCPSC re-set Bell Atlantic - Washington, D.C.'s banded rate of return on equity to range from 10.45% to 12.45%, with a midpoint of 11.45%. However, the DCPSC also found that Bell Atlantic - Washington, D.C. was entitled to increased annual revenues of $15.8 million. The DCPSC increased the rates for public telephone service, increased the message unit rate for business customers and increased certain other business and residential rates to cover the increased revenue requirement. Rates for basic residential service remain frozen at the level set in March 1992. Under the plan, Bell Atlantic - Washington, D.C. also applied for and received pricing flexibility for several competitive services, including digital data services, paging services, speed calling, Repeat Call, Home Intercom and Home Intercom Extra. 13 Bell Atlantic - Maryland, Inc. (formerly The Chesapeake and Potomac Telephone Company of Maryland) As the result of a process initiated by a joint petition of Bell Atlantic - Maryland, the Office of People's Counsel of the Maryland state government, and the Staff of the Public Service Commission of Maryland ("MPSC"), the MPSC in 1990 approved an agreement which instituted a regulatory reform plan (the "Reform Plan") for regulation of intrastate services provided by Bell Atlantic - Maryland. The Reform Plan provides for sharing of earnings on other-than- competitive services (e.g., basic business and residential dial tone line and ---- usage, pay telephone services and intraLATA toll services) within a prescribed rate-of-return range (12.7% to 14.5% return on equity), for the direct refund to ratepayers of all earnings above that range and for no sharing of earnings if earnings fall below that range. Earnings on competitive services (e.g., Centrex ---- intercom and high capacity, special access and private line services) are not subject to a rate of return limitation. In connection with its approval of the Reform Plan, the MPSC required Bell Atlantic - Maryland to initiate a rate proceeding to examine Bell Atlantic - Maryland's financial and operating results under the Reform Plan and to serve as a rate case for determining rates and rate structure on a going-forward basis for services that the MPSC has determined are other-than-competitive. On January 22, 1993, at the conclusion of this rate proceeding, the MPSC issued an order directing Bell Atlantic - Maryland to reduce rates prospectively in the aggregate amount of $28.6 million annually. Tariffs reducing rates by that amount became effective on January 23, 1993. Bell Atlantic - Maryland's application for a modification or rehearing of the order was denied in part and granted in part on March 30, 1993. Under the terms of the revised order, Bell Atlantic - Maryland's rate reduction was upheld, but it was permitted to accelerate the amortization of certain post-employment benefits obligations, eliminating any refund requirement for prior periods. The decision in this case is now final. On July 26, 1993, MFS-Intelenet of Maryland, Inc. ("MFS-Maryland"), a subsidiary of MFS Communications Company, Inc. ("MFS"), filed an application with the MPSC for authority to provide and resell local exchange and interexchange telecommunications services to business customers in areas served by Bell Atlantic - Maryland and for an order establishing policies and requirements for interconnection of competing local exchange networks. Hearings have been held and a final decision is expected in April 1994. On November 9, 1993, the MPSC instituted an investigation into legal and policy matters relevant to the regulation of firms, including current telecommunications providers and cable television firms, which may provide local exchange and exchange access services in Maryland in the future. A procedural schedule has been established and a final decision is expected this year. Bell Atlantic - Virginia, Inc. (formerly The Chesapeake and Potomac Telephone Company of Virginia) In December 1988, the Virginia State Corporation Commission ("VSCC") adopted an Experimental Plan for Alternative Regulation (the "Experimental Plan") of Virginia telephone companies. Bell Atlantic - Virginia elected to participate in the Experimental Plan effective January 1, 1989, and remained subject to it through the end of 1993. The Experimental Plan marked a departure from traditional regulation and classified services into four categories: actually competitive, potentially competitive, discretionary and basic. Combined earnings from potentially competitive, discretionary and basic services were capped at a 14% return on equity. Bell Atlantic - Virginia's financial results under the Experimental Plan for the years 1989 through 1992 have been filed with the VSCC. The VSCC's audit of Bell Atlantic - Virginia's 1989 and 1990 financial results found no refunds to be due. Bell Atlantic - Virginia's financial results for 1991 and 1992, which as filed with the VSCC indicate that no refunds are due, are still subject to VSCC audit. 14 Following an evaluation of the Experimental Plan in 1993, the VSCC issued an order on December 17, 1993 adopting a Modified Plan for Alternative Regulation (the "Modified Plan"). The Modified Plan became effective January 1, 1994. Bell Atlantic - Virginia is deemed by the VSCC to be subject to this Modified Plan. The Modified Plan places Bell Atlantic - Virginia's services into one of three categories: - "Competitive" services, for which there are readily available substitutes which reasonably meet customer needs and for which competition in the marketplace effectively regulates the price (e.g., Centrex intercom services, ---- directory advertising). - "Discretionary" services, which can only be provided by the local exchange telephone company, but which are optional, nonessential enhancements to basic communications services or services which others are capable of providing but which do not conform to the competitive services definition (e.g., Caller ID and operator call completion services). ---- - "Basic" services, which are not discretionary and, due to their nature or legal/regulatory restraints, only the local exchange telephone companies can provide (e.g., residential and business local exchange telephone service and ---- operator directory assistance service). The latter two categories of services are subject to rate of return regulation. For 1994 the VSCC has established a permissible range for return on equity for these two regulated services of 10.55% to 12.55%. In assessing whether earnings have exceeded this permitted range, the VSCC will impute to regulated earnings an amount equal to 25% of the net profits of Yellow Pages advertising, which the VSCC will otherwise continue to treat as a competitive service under the Modified Plan. If Bell Atlantic - Virginia's earnings on this basis exceed the permitted range, refunds of the excess must be made. If Bell Atlantic - Virginia were to seek an increase in rates for Basic service that, taking into account rate changes in Discretionary services, results in an increase in overall regulated operating revenue, the financial performance considered by the VSCC would include results for all categories of services. Earnings from Competitive services are not otherwise regulated. In its Final Order of December 17, 1993, the VSCC also announced its intention to hold a proceeding in the first half of 1994 to consider further modifications to the Modified Plan or alternative regulatory plans that local exchange companies might offer. Under legislation passed in the 1993 session of the Virginia General Assembly, the VSCC is no longer statutorily required to regulate telephone companies on the basis of rate of return regulation; for example, the VSCC is free to adopt a price cap form of regulation. On February 8, 1994, Bell Atlantic - Virginia filed a proposal in this new proceeding to have its Discretionary and Basic services regulated on a price cap basis; competitive services would not be regulated. Bell Atlantic - Virginia's proposal will be discussed in hearings to begin in late April 1994. Bell Atlantic - West Virginia, Inc. (formerly The Chesapeake and Potomac Telephone Company of West Virginia) In April 1988, the Public Service Commission of West Virginia ("WVPSC") approved a stipulation among Bell Atlantic - West Virginia, AT&T, MCI Communications Corporation ("MCI"), Sprint Communications Company, L.P. ("Sprint"), the WVPSC Staff and the Consumer Advocate Division of the WVPSC which gave Bell Atlantic - West Virginia flexibility in the pricing of competitive services (e.g., intraLATA toll service, intraLATA "800" service, ---- intraLATA WATS service, billing and collection services and directory advertising) and provided for a freeze on rates for basic local exchange services through December 31, 1990 and a lifting, on January 1, 1989, of the moratorium on intraLATA toll competition. This "Flexible Regulation Plan" was subsequently extended through December 31, 1991. As part of the stipulation, Bell Atlantic - West Virginia invested in excess of $300 million dollars from 1988 through 1990 to modernize West Virginia's telecommunications infrastructure. 15 In March 1990, the West Virginia legislature enacted legislation, which became effective on January 1, 1991, requiring the WVPSC to cease its regulation of the rates charged by a telephone utility for any service that the WVPSC finds to be subject to "workable competition", unless the WVPSC finds that to do so would adversely affect the continued availability of adequate, economical and reliable local telephone service. In December 1991, the WVPSC approved, with some modifications, a stipulation signed by Bell Atlantic - West Virginia, the Consumer Advocate Division of the WVPSC, the WVPSC Staff and AT&T which set forth a new "Incentive Regulation Plan". The Incentive Regulation Plan continues the major provisions of the Flexible Regulation Plan, including pricing flexibility for competitive services and a freeze on the rates for basic local exchange service. It also committed Bell Atlantic - West Virginia to invest an additional $450 million from 1991 through 1995 in West Virginia's telecommunications infrastructure. The Incentive Regulation Plan permitted Bell Atlantic - West Virginia to increase operator directory assistance and Call Waiting charges, provides Bell Atlantic - West Virginia some flexibility in setting depreciation rates and allows Bell Atlantic - West Virginia to petition for a surcharge to reflect changes in federally mandated separations procedures and accounting rules. The stipulation also provides for the phased elimination of Locality Rate Area charges, which are basic service charges paid by customers who are located farthest from the central office. Under the WVPSC's December 1991 order, the freeze on rates for basic service and the phase out of Locality Rate Area charges will end on December 31, 1994 instead of the July 1, 1996 date set forth in the stipulation. In January 1989, AT&T, MCI and Sprint filed petitions with the WVPSC to require Bell Atlantic - West Virginia to reduce intrastate access charges by $3 million annually. On June 29, 1993, the WVPSC approved a settlement agreement in which the parties agreed that access charges would be reduced by $1.5 million annually, that the interexchange carriers would not seek additional reductions until the year 2000 and that Bell Atlantic - West Virginia would not seek additional increases until the year 2000. New Products and Services Bell Atlantic(R) IQ(SM) Services All of the Network Services Companies have introduced the Bell Atlantic(R) IQ(SM) Services family of calling features (although not all features are available in all states). These features include Identa Ring(SM), which ----------- allows a single line to have multiple telephone numbers, each with a distinctive ring; Repeat Call, which allows customers automatically to redial busy phone ----------- numbers; Return Call, which allows customers automatically to return the last ----------- incoming call, even without knowing the number; Ultra Forward(SM), which ------------- customers can use to program call-forwarding instructions; and Home Intercom, ------------- which allows for phone-to-phone dialing within the home. All of the Network Services Companies except Bell Atlantic - Pennsylvania offer Caller ID service, --------- a Bell Atlantic IQ(SM) Service which displays the number of the calling party. It is anticipated that Caller ID will be tariffed and available in Pennsylvania in 1994. At the end of 1993, the Network Services Companies had over 600,000 subscribers to Caller ID. Data Services The Network Services Companies have introduced several high speed data transmission services. In 1993, Switched Multi-Megabit Data Service ("SMDS", a ----------------------------------- high-speed, public, packet-switched data transmission service) was available under tariff from all Network Services Companies except Bell Atlantic - New Jersey (which offers SMDS on a special rate authorization basis with informal approval of the NJBRC) and Bell Atlantic - Delaware; Fiber Distributed Data ---------------------- Interface Network Service was available under tariff in Washington, D.C., - ------------------------- Maryland and Virginia; and Frame Relay Service (which allows high-speed ------------------- interconnection of a customer's multiple locations) was available under tariff in Pennsylvania, Washington, D.C., Maryland and Virginia. 16 Information Services The Network Services Companies offer various types of information services, such as message storage services, voice mail and electronic mail. Answer Call, ----------- a telephone answering service aimed at residential and small business customers, had more than 900,000 subscribers at the end of 1993. Competition Regulatory proceedings, as well as new technology, are continuing to expand the types of available communications services and equipment and the number of competitors offering such services. An increasing amount of this competition is from large companies which have substantial capital, technological and marketing resources, many of which do not face the same regulatory constraints as the Company. Alternative Access and Local Services A substantial portion of the Network Services Companies' revenues from business and government customers is derived from a relatively small number of large, multiple-line subscribers. The Network Services Companies face competition from alternative communications systems, constructed by large end users, interexchange carriers and alternative access vendors, which are capable of originating and/or terminating calls without the use of the local telephone company's plant. MFS has an optical fiber network which currently competes with Bell Atlantic - Pennsylvania and Bell Atlantic - Maryland in the Philadelphia, Pittsburgh and Baltimore metropolitan areas. In the Washington, D.C. metropolitan area, Institutional Communications Company, in which MFS has acquired a controlling interest, has deployed an optical fiber network to compete with Bell Atlantic - Washington, D.C., Bell Atlantic - Maryland and Bell Atlantic - Virginia in the provision of switched and special access services and local services. Eastern TeleLogic Corporation is currently providing service in the Philadelphia area over an optical fiber network, and Digital Direct of Pittsburgh, Inc. (dba Penn Access) has multiple fiber rings in service in the Pittsburgh metropolitan area, with additional fiber rings under construction. In July 1993, Virginia Metrotel Inc. was granted authority by the VSCC to compete against Bell Atlantic - Virginia in the provision of access services in the Richmond metropolitan area. Teleport Communications Group Inc. ("Teleport") provides competitive access service in the New York metropolitan area, including northern New Jersey. The ability of such alternative access providers to compete with the Network Services Companies has been enhanced by the FCC's orders requiring the Network Services Companies to offer collocated interconnection for special and switched access services. Other potential sources of competition are cable television systems, shared tenant services and other non-carrier systems which are capable of bypassing the Network Services Companies' local plant, either partially or completely, through substitution of special access for switched access or through concentration of telecommunications traffic on fewer of the Network Services Companies' lines. Well-financed competitors are seeking authority, or are likely soon to seek authority, to offer competing local exchange services, such as dial tone and local usage, in some of the most lucrative of the local telephone service areas of the Network Services Companies. Southwestern Bell Corporation ("Southwestern Bell") acquired existing cable television systems in Montgomery County, Maryland and Arlington, Virginia. Southwestern Bell could use these systems to compete with the Company's telephone services in these areas. Southwestern Bell also provides cellular service in the Washington metropolitan area. 17 On July 26, 1993, MFS-Maryland filed an application with the MPSC for authority to provide and resell local exchange and interexchange telecommunications services to business customers in areas served by Bell Atlantic - Maryland and for an order establishing policies and requirements for interconnection of competing local exchange networks. Hearings have been held and a final decision is expected in April 1994. On November 9, 1993, the MPSC instituted an investigation into legal and policy matters relevant to the regulation of firms, including current telecommunications providers and cable television firms, which may provide local exchange and exchange access services in Maryland in the future. A procedural schedule has been established and a final decision is expected this year. On December 10, 1993, another MFS subsidiary asked the PPUC for authority to provide local exchange service to business customers in certain areas of Bell Atlantic - Pennsylvania's service territory. No procedural schedule has been set for action on this petition. Teleport and MFS both offer local exchange service in metropolitan New York and may seek to extend that service into northern New Jersey. The two largest long-distance carriers are also positioning themselves to begin to offer services that will compete with the Network Services Companies' local exchange services. In November 1992, AT&T announced its intention to acquire a controlling interest in McCaw Cellular Communications Inc. ("McCaw"), the largest cellular company in the United States, and to integrate McCaw's wireless local service network with AT&T's long distance network. In December 1993, MCI announced its intention to invest $2 billion to begin building competing local exchange and access networks in twenty major markets in the United States, several of which are likely to be in the Territory. In March 1994, MCI also announced its intention to acquire a substantial interest in Nextel Communications Inc. (formerly Fleet Call Inc.), and to integrate Nextel's wireless local service network with MCI's long distance network in at least 10 major markets, one or more of which might be in the Territory. The entry of these and other local exchange service competitors will almost certainly reduce the local exchange service revenues of the Network Services Companies, at least in the market segments and geographical areas in which the competitors operate. Depending on such competitors' success in marketing their services, and the conditions of interconnection established by the regulatory commissions, these reductions could be significant. These revenue reductions may be offset to some extent by revenues from interconnection charges to be paid to the Network Services Companies by these competitors. The Network Services Companies seek to meet such competition by establishing and/or maintaining competitive cost-based prices for local exchange services (to the extent the FCC and state regulatory authorities permit the Network Services Companies' prices to move toward costs), by keeping service quality high and by effectively implementing advances in technology. See "Communications and Related Services - The Network Services Companies - FCC Regulation and Interstate Rates - Interstate Access Charges" and "- FCC Access Charge Pooling Arrangements". Personal Communications Services Radio-based personal communications services ("PCS") also constitute potential sources of competition to the Network Services Companies and to Bell Atlantic's cellular communications companies. PCS consists of wireless portable telephone services which would allow customers to make and receive telephone calls from any location using small handsets, and which could also be used for data transmission. The FCC has authorized trials of such services, using a variety of technologies, by numerous companies, including the Company's cellular telecommunications subsidiaries (collectively, "Bell Atlantic Mobile"). 18 In September 1993, the FCC issued a report and order allocating radio spectrum to be licensed for use in providing PCS. Under the order, seven separate bandwidths of spectrum, ranging in size from 10 MHz to 30 MHz, would be auctioned to potential PCS providers in each geographic area of the United States; five of the spectrum blocks would be auctioned by "basic trading area" and the remaining two would be auctioned by larger "major trading area" (as such trading areas are defined by Rand McNally). LECs and companies with LEC subsidiaries, such as the Company, are eligible to bid for PCS licenses, except that cellular carriers such as the Company are limited to obtaining only 10 MHz of PCS bandwidth in areas where they provide cellular service. Bidders other than cellular providers may obtain multiple licenses aggregating up to 40 MHz of bandwidth in any area. Bell Atlantic has stated that it intends to pursue PCS licenses in the auctions, which are expected to be held in 1994 or in early 1995. In December 1993, the FCC awarded pioneer's preference PCS licenses to, among other entities, American Personal Communications ("APC"), which is owned in part by The Washington Post Company, and Omnipoint Communications, Inc. ("Omnipoint"). APC's license authorizes it to provide PCS service in competition with the local exchange services of the Network Services Companies in all or large portions of Pennsylvania, the District of Columbia, Maryland, Virginia and West Virginia. APC has announced its intention to build out an operational system by the first quarter of 1995. Omnipoint's license authorizes it to provide service in the New York metropolitan area, which includes the northern New Jersey areas served by the Company. If implemented, PCS and other similar services would compete with services currently offered by the Company, and could result in losses of revenues, although the Company may be able to derive new revenues if it obtains authorization to provide PCS or similar new services. Centrex The Network Services Companies offer Centrex service, which is a telephone company central office-based communications system for business, government and other institutional customers consisting of a variety of integrated software- based features located in a centralized switch or switches and extended to the customer's premises primarily via local distribution facilities. In the provision of Centrex, the Network Services Companies are subject to significant competition from the providers of CPE systems, such as private branch exchanges ("PBXs"), which perform similar functions with less use of the Network Services Companies' switching facilities. Users of Centrex systems generally require more subscriber lines than users of PBX systems of similar capacity. The FCC increased the maximum Subscriber Line Charge on embedded Centrex lines to $6.00 per month per line effective April 1, 1989. Increases in Subscriber Line Charges result in Centrex users incurring higher charges than users of comparable PBX systems. Some of the state regulatory commissions having jurisdiction over the Network Services Companies have approved Centrex tariff revisions designed to offset the effects of such higher Subscriber Line Charges and to provide for stability of Centrex rates. The MPSC established a proceeding to consider the tariff for Centrex Extend service (multi-location Centrex intercom service for a closed end user group of a single Centrex customer), which Bell Atlantic - Maryland began offering in August 1993. A decision on the appropriateness of this tariff is expected this year. In Virginia and West Virginia, the intercom portion of Centrex service has been detariffed. 19 IntraLATA Toll Competition The ability of interexchange carriers to engage in the provision of intrastate intraLATA toll service in competition with the Network Services Companies is subject to state regulation. Such competition is permitted in Pennsylvania, Delaware, Maryland and West Virginia; in addition, in Delaware, the DPSC has initiated a proceeding to determine whether to require presubscription and dialing parity ("1+ dialing") for intraLATA toll competitors of Bell Atlantic - Delaware. Intrastate intraLATA competition has not been permitted in New Jersey, but the NJBRC has initiated a proceeding in response to petitions filed by interexchange carriers to consider whether and on what terms to permit intraLATA competition. The issue is inapplicable to Washington, D.C. since intraLATA toll service is not offered within the District of Columbia. The VSCC has instituted a proceeding to consider whether, and on what terms, to permit intraLATA competition in Virginia. Directories The Network Services Companies continue to face significant competition from other providers of directories as well as competition from other advertising media. In particular, the former sales representative of the Network Services Companies (other than Bell Atlantic - New Jersey) publishes directories in competition with those published by the Network Services Companies in New Jersey, Pennsylvania, Delaware and the Washington, D.C. and Baltimore metropolitan areas. Public Telephone Services The Company faces increasing competition in the provision of pay telephone services from other pay telephone service providers. In addition, the growth of wireless communications negatively impacts usage of public telephones. Operator Services Alternative operator services providers have entered into competition with the Company's operator services product line. Other Communications and Related Services Domestic Wireless Communications Bell Atlantic Mobile provides cellular telecommunications service in certain portions of the Network Services Companies' Territory and in other parts of the United States. These entities market cellular telecommunications service and related equipment directly to consumers, wholesale such service to businesses which resell the service to consumers, and authorize agents to sell such service to consumers. They also resell paging service in some locations. On April 30, 1992, the Company acquired Metro Mobile CTS, Inc., then the second-largest independent provider of cellular telecommunications service in the United States. Cellular telecommunications service is subject to FCC regulation and licensing requirements. Some states also regulate the service. To assure competition, the FCC awarded two competitive licenses in each market. Many such competing cellular providers are substantial businesses with experience in broadcasting, telecommunications, cable television and radio common carrier services. Competition is based on the price of cellular service, the quality of the service and the size of the geographic area served. The FCC is in the process of authorizing additional providers of mobile services which will likely provide competition to existing cellular carriers. See "Communications and Related Services - The Network Services Companies - Competition - Personal Communications Services". 20 Bell Atlantic Mobile has established cellular telecommunications service in the standard metropolitan statistical areas ("SMSAs") for Washington, D.C.; Wilmington, Delaware; Baltimore, Maryland; Allentown, Philadelphia, Pittsburgh and Reading, Pennsylvania; Trenton, Vineland and Atlantic City, New Jersey; Phoenix and Tucson, Arizona; Bridgeport, Hartford, New Haven, and New London, Connecticut; New Bedford, Pittsfield and Springfield, Massachusetts; Albuquerque and Las Cruces, New Mexico; Charlotte and Hickory, North Carolina; Providence, Rhode Island; Anderson, Columbia and Greenville, South Carolina; and El Paso, Texas. Bell Atlantic Mobile also has established service in the rural service areas of Kent (Dover), Delaware; Kent (Eastern Shore) and Frederick, Maryland; Ocean, Sussex and Hunterdon, New Jersey; Greene, Jefferson, Huntingdon, Lawrence and McKean, Pennsylvania; Madison, Caroline, Frederick (Fauquier) and Lee, Virginia; Wetzel and Mason, West Virginia; Windham, Connecticut; Cabarrus and Anson, North Carolina; Newport, Rhode Island; Cherokee, Lancaster and Oconee, South Carolina; and Gila, Arizona. Bell Atlantic Mobile also owns a significant minority interest in a partnership providing cellular telecommunications service in the New York City metropolitan area and the adjoining SMSAs of New Brunswick and Long Branch, New Jersey. Under reciprocal agreements between Bell Atlantic Mobile and certain other providers of cellular telecommunications service, the customers of Bell Atlantic Mobile may use the services of those other providers in areas where Bell Atlantic Mobile is not licensed to provide service. Bell Atlantic Paging, Inc. markets paging services in portions of the Network Services Companies' Territory. International Bell Atlantic International, Inc. and its subsidiaries ("International") serve as the Company's principal vehicle for new business development outside the United States. International provides telecommunications consulting and software systems integration services to telecommunications authorities in several countries, and has entered into business development agreements with various governmental authorities. In September 1990, wholly-owned New Zealand subsidiaries of International and Ameritech Corporation ("Ameritech") each purchased approximately 49% of the common shares of Telecom Corporation of New Zealand Limited ("TCNZ") for a purchase price of approximately $2.4 billion. Under the terms of the acquisition and subsequent agreements with the New Zealand government, International and Ameritech were required to sell equity interests in TCNZ such that their combined ownership would, within four years of the acquisition, be reduced to 49.9%. In furtherance of that requirement, International and Ameritech in 1991 sold a portion of their equity shares in TCNZ in a worldwide public offering, thereby reducing their combined ownership in TCNZ to approximately 68%. In March 1993 and September 1993, International privately sold an aggregate of 9.8% of TCNZ, reducing its ownership interest in TCNZ to approximately 24.8%, and, together with private sales by Ameritech, completing its sell-down obligations. International is also a shareholder in joint ventures, begun in November 1990, with a subsidiary of U S WEST, INC. and the telecommunications administrations of The Czech Republic and The Slovak Republic, to build and operate cellular and packet data networks in these republics. The cellular telecommunications system currently provides service to the public in, among other cities, Prague, Bratislava and Brno. In May 1991, International acquired, through a joint venture, approximately a 12.5% interest in Sky Network Television Limited, a provider of subscription television services in New Zealand. 21 International, through a joint venture established in December 1992 with Societa Finanziaria Telefonica p.a. and Societa Italiana per L'Esercizio delle Telecomunicazioni p.a., develops operations support systems for telecommunications providers worldwide. In November 1993, International acquired for $520 million approximately 23% of the equity ownership interest in Grupo Iusacell, S.A. de C.V. ("Iusacell"), the second largest telecommunications company in Mexico and the primary business of which is the provision of cellular telephone service. Under the acquisition agreement, and provided certain conditions are met, International is obligated to purchase additional shares of Iusacell's capital stock representing 17%-23% of Iusacell's total outstanding shares of capital stock for up to an additional $520 million. In March 1994, a consortium in which International has the second largest interest (approximately 11.5%), was awarded the second cellular license for Italy. Business Systems Companies Bell Atlantic Business Systems Services, Inc. ("Business Systems Services"), which was formerly known as Sorbus Inc., is a computer services company which provides hardware and software maintenance, network support, disaster recovery and other services for more than 5,000 makes and models of computer equipment and associated peripherals. Business Systems Services provides service to more than 60,000 customer sites from over 200 locations in the United States and Canada. Business Systems Services' major competitors are computer equipment manufacturers which offer to service the equipment they sell as well as other vendors of computer maintenance and service. In some cases, Business Systems Services is dependent on computer manufacturers and distributors for spare parts necessary for the products it services. The Bell Atlantic Computer Technology Services Division of Business Systems Services provides parts repair and sales and refurbishment services for International Business Machines Corporation, Digital Equipment Corporation, Sun Microsystems, Inc. and other computer manufacturers' equipment to end users, manufacturers and service companies throughout the world. Bell Atlantic Business Systems International, Inc. provides computer maintenance and other end user computer services in the United Kingdom, France, Italy, Germany, Switzerland, Austria, The Netherlands and Finland through companies which are owned jointly with International Computers Limited. Business Systems International provides computer services in Australia and New Zealand through a partnership with Fujitsu Australia Limited. Other Bell Atlantic TeleProducts Corp. sells CPE to residential, work-at-home and small business customers and Integrated Services Digital Network CPE to a variety of business customers. Bell Atlantic Professional Services, Inc. recruits and contracts out temporary professional services and provides training services to suppliers and end users of computers and communications equipment. During 1993 the Company began to exit the customized software and systems businesses operated by subsidiaries of The Bell Atlantic Systems Group, Inc. The Company has sold the stock or substantially all the assets of Bell Atlantic Utilities Systems, Inc., Bell Atlantic Public Sector Systems, Inc. and Bell Atlantic Integrated Systems, Inc., and is pursuing the sale of Bell Atlantic Healthcare Systems, Inc. The Company continues to operate the operations support systems software business of Bell Atlantic Telecommunications Systems, Inc. as a subsidiary of International and the network integration business of Bell Atlantic Integrated Systems, Inc. through the Large Business Services LOB. 22 FINANCIAL, REAL ESTATE, AND OTHER SERVICES The Financial, Real Estate, and Other Services segment comprises Bell Atlantic Capital Corporation ("Capital Corporation") and its subsidiaries, Bell Atlantic Properties, Inc. ("Properties") and its subsidiaries, and Vision Energy Resources, Inc. ("Vision Energy") and its subsidiaries. In line with its continuing de-emphasis of financial services businesses over the past several years and its intensified focus on core communications businesses, the Company announced in October 1993 that it had begun evaluating possible strategies for exiting its financial services businesses. Capital Corporation's wholly-owned subsidiary, Bell Atlantic TriCon Leasing Corporation ("TriCon"), engages in leasing of office, medical and other equipment sold by many vendors and also provides other types of financing. In addition, TriCon provides leasing of CPE to customers of other Bell Atlantic companies, and engages in a number of large leveraged leasing transactions. In March 1994, the Company announced an agreement to sell substantially all of Tricon's assets (other than its leveraged lease and project finance portfolios) to GFC Financial Corporation. This sale is expected to close in the second quarter of 1994, subject to the receipt of regulatory approvals. In 1992, Capital Corporation entered into a joint venture agreement with PacifiCorp Financial Services, Inc. ("PFS") with respect to both companies' computer leasing businesses. Prior to the formation of the joint venture, Capital Corporation's computer leasing business was operated by its subsidiary, Bell Atlantic Systems Leasing International, Inc. ("BASLI"). Under the joint venture, Capital Corporation and PFS established Pacific Atlantic Systems Leasing, Inc. ("PASLI"), 50% owned by each of the companies, which both companies use as their principal vehicle for domestic operating leases of computer equipment. Most of BASLI's employees have become employees of PASLI, and PASLI is responsible for the day-to-day management of BASLI's domestic computer leasing portfolio. The equipment financing market is highly competitive. Equipment financing companies must compete with substantial leasing companies which are affiliated with major equipment suppliers, and with other well established leasing companies, banks and other financial institutions. Properties invests in and manages commercial real estate properties. The Vision Energy companies are engaged in the sale and distribution of liquefied petroleum gas primarily in the midwestern United States and Florida. CERTAIN CONTRACTS AND RELATIONSHIPS Certain planning, marketing, procurement, financial, legal, accounting, technical support and other management services are provided on behalf of the Network Services Companies on a centralized basis by Bell Atlantic's wholly- owned subsidiary, Bell Atlantic Network Services, Inc. ("NSI"). Bell Atlantic Network Funding Corporation provides short-term financing and cash management services to the Network Services Companies. Certain corporate services also are provided to other subsidiaries on a centralized basis by NSI. Bell Atlantic Financial Services, Inc. provides short-, medium- and long-term financing services and cash management services to subsidiaries of the Company other than the Network Services Companies. 23 The seven RHCs each own (directly or through subsidiaries) a one-seventh interest in Bell Communications Research, Inc. ("Bellcore"). Pursuant to the Plan, Bellcore furnishes the RHCs and their BOC subsidiaries with technical assistance such as network planning, engineering and software development, as well as various other consulting services that can be provided more effectively on a centralized basis. Bellcore is the central point of contact for coordinating the efforts of the RHCs in meeting the national security and emergency preparedness requirements of the federal government. It also helps to mobilize the combined resources of the RHCs in times of natural disasters. EMPLOYEE RELATIONS As of December 31, 1993, the Company and its subsidiaries employed approximately 73,600 persons, which represents approximately a three percent increase from the number of employees at December 31, 1992. This overall net increase reflects growth in certain non-Network Services Companies subsidiaries, the acquisition in 1993 of two companies which provide advertising and marketing services through the Directory Services LOB, and the hiring of some associates by the Network Services Companies to meet service requirements. Approximately 65% of the employees of the Company and its subsidiaries are represented by unions. Of those so represented, approximately 80% are represented by the Communications Workers of America, and approximately 20% are represented by the International Brotherhood of Electrical Workers, which are both affiliated with the American Federation of Labor - Congress of Industrial Organizations. Under the terms of the three-year contracts ratified in October 1992 by unions representing associate employees of the Network Services Companies and NSI, represented associates received a base wage increase of 3.74% in August 1993. Under the same contracts, associates received a Corporate Profit Sharing payment of $495 per person in 1994 based upon the Company's 1993 financial performance. 24 Item 2. Properties The principal properties of the Company do not lend themselves to simple description by character and location. At December 31, 1993, the Company's investment in plant, property and equipment consisted of the following:
Communications and Related Services: Connecting lines............... 38% Central office equipment....... 37 Land and buildings............. 7 Telephone instruments and related equipment............... 2 Other.......................... 14 Financial, Real Estate, and Other Services 2 --- 100% ===
"Connecting lines" consists primarily of aerial cable, underground cable, poles, conduit and wiring. "Central office equipment" consists of switching equipment, transmission equipment and related facilities. "Land and buildings" consists of land owned in fee and improvements thereto, principally central office buildings. "Telephone instruments and related equipment" consists primarily of public telephone instruments and telephone equipment (including PBXs) used by the Network Services Companies in their operations. "Other" property consists primarily of furniture, office equipment, vehicles and other work equipment, and plant under construction of the Network Services Companies, as well as the property of the Other Communications and Related Services companies. Financial, Real Estate, and Other Services property consists mainly of land and buildings owned by BAP. Not included in the above properties is $199.3 million of equipment under operating leases, net of accumulated depreciation of $652.4 million, owned primarily by TriCon and BASLI at December 31, 1993. Additional information with respect to the Company's plant, property and equipment is set forth in Schedule V on page F-4 of this report. The Company's central offices are served by various types of switching equipment. At December 31, 1993 and 1992, the number of local exchanges served and the percent of subscriber lines served by each type of equipment were as follows:
1993 1992 --------------------------- --------------------------- # of Local % of Subscriber # of Local % of Subscriber Exchanges Lines Served Exchanges Lines Served --------- --------------- ---------- --------------- Digital..... 2,755 62.9 2,587 59.0 Analog...... 1,419 37.0 1,499 40.8 Other....... 8 0.1 10 0.2 ----- ---- ----- ---- 4,182 100 4,096 100 ===== ==== ===== ====
25 Item 3. Legal Proceedings Pre-Divestiture Contingent Liabilities and Litigation The Plan provides for the recognition and payment by AT&T and the former BOCs (including the Network Services Companies) of liabilities that are attributable to pre-Divestiture events but do not become certain until after Divestiture. These contingent liabilities relate principally to litigation and other claims with respect to the former Bell System's rates, taxes, contracts and torts (including business torts, such as alleged violations of the antitrust laws). Except to the extent that affected parties otherwise agree, contingent liabilities that are attributable to pre-Divestiture events are shared by AT&T and the BOCs in accordance with formulas prescribed by the Plan, whether or not an entity was a party to the proceeding and regardless of whether an entity was dismissed from the proceeding by virtue of settlement or otherwise. Each company's allocable share of liability under these formulas depends on several factors, including the type of contingent liability involved and each company's relative net investment as of the effective date of Divestiture. Under the formula generally applicable to most of the categories of these contingent liabilities, the Network Services Companies' aggregate allocable share of liability is approximately 10.2%. AT&T and various of its subsidiaries and the BOCs (including in some cases one or more of the Network Services Companies) have been and are parties to various types of litigation relating to pre-Divestiture events, including actions and proceedings involving environmental claims and allegations of violations of equal employment laws. Damages, if any, ultimately awarded in the remaining actions relating to pre-Divestiture events could have a financial impact on the Company whether or not the Company is a defendant since such damages will be treated as contingent liabilities and allocated in accordance with the allocation rules established by the Plan. While complete assurance cannot be given as to the outcome of any contingent liabilities or litigation, in the opinion of the Company's management, any monetary liability or financial impact to which the Company would be subject after final adjudication of all of the remaining potential or actual pre- Divestiture claims would not be material in amount to the financial position of the Company. Other Pending Cases (1) On April 12, 1990, a letter was submitted to the Company's Board of Directors by a law firm, purportedly on behalf of a shareowner of the Company, requesting that the Company commence action against any present or former director, officer or employee of the Company or any of its subsidiaries who might be found to have violated any duty to the Company in connection with (i) certain litigation involving Bell Atlantic - Pennsylvania and (ii) a temporary suspension of the Company and Bell Atlantic - Washington, D.C. from eligibility for future federal government contracts (the "Treasury suspension"). As previously reported by the Company in its Quarterly Reports on Form 10-Q for the quarters ended March 31 and September 30, 1990 and its Annual Reports on Form 10-K for the years ended December 31, 1990 and 1991, the Bell Atlantic - Pennsylvania litigation involved allegations that this subsidiary had engaged in improper practices while selling certain optional services, and resulted in a settlement pursuant to which Bell Atlantic - Pennsylvania made payments and refunds aggregating approximately $42 million; the Treasury suspension involved allegations that the Company and Bell Atlantic - Washington, D.C. had misrepresented certain facts in connection with a bid for a particular government contract, and was terminated approximately one month later after the Company agreed to re-emphasize to employees the need to verify information provided to the government, including information supplied to the Company by sub-contractors. 26 In response to the demand letter (a similar letter, purportedly on behalf of a different shareowner, was received shortly thereafter), the Board of Directors of the Company (the "Board) on April 24, 1990 appointed a committee of three outside directors (James H. Gilliam, Jr. (Chairman), William G. Copeland and John F. Maypole) to investigate these matters and present its recommendation to the Board (the "Special Committee"). On May 11, 1990, the Company was served with a complaint filed in the Court of Common Pleas of Philadelphia County, Pennsylvania, naming certain then-current directors and officers as defendants in a shareholder derivative suit. The complaint alleged that the defendants had breached their fiduciary duties to the Company and its shareowners by failing to implement and enforce adequate safeguards to prevent the activities which resulted in the Bell Atlantic - Pennsylvania litigation and the Treasury suspension referred to above. The Company is not a defendant in this litigation. The Special Committee retained independent outside counsel and conducted a five-month investigation. After completion of its investigation, the Special Committee concluded that it would not be in the best interest of the Company and its shareowners to assert claims or take any other action against any director or officer of the Company or any of its subsidiaries with respect to either the Bell Atlantic - Pennsylvania litigation or the Treasury suspension. Accordingly, the Special Committee recommended that the Board reject the demands expressed in the shareowner letters, and the Board on October 23, 1990 adopted this recommendation. Counsel for each of the demanding shareowners was advised of the Board's determination. The defendants' motion to dismiss the Court of Common Pleas litigation on jurisdictional grounds was denied and, as reported in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991, in September 1991 the Pennsylvania Supreme Court refused to hear the defendants' appeal of the trial court's denial of their motion to dismiss the Court of Common Pleas litigation. A related case filed in the United States District Court for the Eastern District of Pennsylvania was settled and is discussed below under "Prior Cases." (2) In its Annual Reports on Form 10-K for the years ended December 31, 1990 and 1991, the Company reported that in January 1991, the Company, its Chief Executive Officer and its former Chief Financial Officer were named as defendants in several identical class action complaints. These complaints, which have been consolidated in a single proceeding in the United States District Court for the Eastern District of Pennsylvania and have subsequently been amended, allege that, during a class period from June 14, 1990 through January 22, 1991, the plaintiffs purchased shares of Bell Atlantic stock at inflated prices as a result of the defendants' alleged failure to disclose material information regarding certain aspects of the Company's financial performance and prospects. The trial court's earlier decision granting defendants' motion to dismiss this action has been reversed by the United States Court of Appeals for the Third Circuit upon appeal by the plaintiffs. Discovery in this action is in progress. While complete assurance cannot be given as to the outcome of any litigation, in the opinion of the Company's management, any monetary liability or financial impact to which the Company would be subject after final adjudication of the foregoing actions would not be material in amount to the financial position of the Company. Prior Cases On June 19, 1991, the Company was served with a complaint filed in the United States District Court for the Eastern District of Pennsylvania naming all of the then-current directors of the Company and one former officer as defendants in a shareowner class action and derivative suit. This lawsuit made allegations very similar to the Court of Common Pleas suit referenced above in "Other Pending Cases" with respect to the Bell Atlantic - Pennsylvania litigation and Treasury suspension matters and, in addition, alleged that the Company violated federal proxy rules and regulations and its duty of candor under state law by failing to disclose, in its 1987-1991 proxy materials, information about the Bell Atlantic - Pennsylvania litigation, the Treasury suspension, the appointment of the Special Committee and the Court of Common Pleas litigation referenced above. 27 On March 25, 1992, the parties to the federal court action reached an agreement to settle that action, subject to court approval after notice to the Company's shareowners, without the payment of any damages but subject to payment of the plaintiffs' attorneys fees up to $450,000. In June 1992, this settlement agreement was approved by the United States District Court for the Eastern District of Pennsylvania. A single shareowner, who is also the plaintiff in the related Court of Common Pleas litigation, filed an appeal with the United States Court of Appeals for the Third Circuit challenging the approval of the settlement agreement by the lower court. On August 18, 1993, the Third Circuit affirmed the lower court approval of the settlement agreement. After expiration of the time in which to file an appeal of the Third Circuit affirmation, the Company paid the plaintiffs' attorneys fees stipulated by the settlement agreement and the federal court action was dismissed. Item 4. Submission of Matters to a Vote of Security Holders Not applicable 28 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is certain information with respect to the Company's executive officers.
Held Name Age Office Since ---- --- ------ ----- Raymond W. Smith........... 56 Chairman of the Board and Chief Executive Officer 1989 James G. Cullen............ 51 President 1993 William O. Albertini....... 50 Vice President and Chief Financial Officer 1991 Joseph T. Ambrozy.......... 54 Vice President - Strategic Planning 1992 Lawrence T. Babbio, Jr..... 49 Chairman, President and Chief Executive Officer, 1991 Bell Atlantic Enterprises International, Inc. P. Alan Bulliner........... 50 Vice President - Corporate Secretary and Counsel 1992 Barbara L. Connor.......... 43 Vice President - Finance and Controller and Treasurer 1993 Charles W. Crist........... 50 Vice President - Human Resources 1990 John F. Gamba.............. 55 Group President, Network Technologies and Systems, 1993 Bell Atlantic Network Services, Inc. Bruce S. Gordon............ 48 Group President - Consumer and Small Business Services, 1993 Bell Atlantic Network Services, Inc. Stuart C. Johnson.......... 51 Group President, Large Business and Information 1993 Services, Bell Atlantic Network Services, Inc. Brian J. Kelly............. 59 Group President, Network Operations, 1993 Bell Atlantic Network Services, Inc. Robert M. Valentini........ 50 President and Chief Executive Officer, Bell Atlantic - 1988 Pennsylvania, Inc. James R. Young............. 42 Vice President and General Counsel 1992
Prior to serving as an executive officer of the Company, each of the above officers, with the exception of Mr. Johnson, has held high level managerial positions with the Company or one of its subsidiaries for at least five years. From 1987 until joining the Company in 1992, Mr. Johnson served as President, GTE-Contel Federal Sector for GTE Corporation. Mr. Kelly is retiring on April 7, 1994. Officers are not elected for a fixed term of office but are removable at the discretion of the Board of Directors of the Company. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The principal market for trading in the common stock of Bell Atlantic Corporation is the New York Stock Exchange. The common stock is also listed in the United States on the Boston, Chicago, Pacific, and Philadelphia stock exchanges. As of December 31, 1993, there were 1,026,371 shareowners of record. High and low stock prices, as reported on the New York Stock Exchange Composite Transactions, and dividend data are as follows:
Market Price Cash ---------------- Dividends High Low Declared ------- ------- -------- 1993: First Quarter....................... $56 3/4 $49 5/8 $.67 Second Quarter...................... 59 1/8 50 3/4 .67 Third Quarter....................... 64 7/8 55 5/8 .67 Fourth Quarter...................... 69 1/8 57 .67 1992: First Quarter....................... 49 41 1/4 .65 Second Quarter...................... 45 40 1/4 .65 Third Quarter....................... 49 3/4 44 1/4 .65 Fourth Quarter...................... 53 7/8 44 1/2 .65
29 Item 6. Selected Financial Data The Selected Financial and Operating Data on page 6 of the Company's 1993 Annual Report to Shareowners is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Management's Discussion and Analysis of Results of Operations and Financial Condition on pages 7 through 12 of the Company's 1993 Annual Report to Shareowners is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Report of Independent Accountants, Consolidated Statements of Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements on pages 14 through 39 of the Company's 1993 Annual Report to Shareowners are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of Registrant For information with respect to the executive officers of the Company, see "Executive Officers of the Registrant" at the end of Part I of this Report. For information with respect to the Directors of the Company, see "Election of Directors" on pages 1 through 5 of the Proxy Statement for the Company's 1994 Annual Meeting of Shareowners, which is incorporated herein by reference. Item 11. Executive Compensation For information with respect to executive compensation, see "Executive Compensation" on pages 9 through 14, "Stock Performance Graphs" on page 16, and "Employment Agreements" on page 17 of the Proxy Statement for the Company's 1994 Annual Meeting of Shareowners, which are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management For information with respect to the security ownership of the Directors and Executive Officers of the Company, see "Ownership of Bell Atlantic Common Stock" on page 15 of the Proxy Statement for the Company's 1994 Annual Meeting of Shareowners, which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions None. 30 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report: (1) Financial Statements See Index to Financial Statements and Financial Statement Schedules appearing on Page F-1. (2) Financial Statement Schedules See Index to Financial Statements and Financial Statement Schedules appearing on Page F-1. (3) Exhibits Exhibits identified in parentheses below, on file with the Securities and Exchange Commission (SEC), are incorporated herein by reference as exhibits hereto. Exhibit Number - -------------- 3a Certificate of Incorporation of Bell Atlantic Corporation ("Bell Atlantic"), dated October 7, 1983. (Exhibit 3a to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.) 3b Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 9, 1986 and filed May 16, 1986. (Exhibit 3b to Form SE dated March 27, 1987, File No. 1-8606.) 3c Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 6, 1987 and filed May 8, 1987. (Exhibit 3c to Form SE dated March 28, 1988, File No. 1-8606.) 3d Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 10, 1990 and filed June 29, 1990. (Exhibit 3d to Form SE dated March 28, 1991, File No. 1-8606.) 3e By-Laws of Bell Atlantic, as amended through June 23, 1992. (Exhibit 3e to Form SE dated March 29, 1993, File No. 1-8606.) 4 No instrument which defines the rights of holders of long and intermediate term debt, of the Company and all of its consolidated subsidiaries, is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, Bell Atlantic hereby agrees to furnish a copy of any such instrument to the SEC upon request. 31 Exhibit Number - -------------- 10a Agreement Concerning Contingent Liabilities, Tax Matters and Termination of Certain Agreements among AT&T, Bell Atlantic, the Network Services Companies, and certain other parties, dated as of November 1, 1983. 10a(i) Agreement Concerning Allocation of Contingent Liabilities between AT&T and Bell Atlantic, dated as of January 28, 1985. (Exhibit 10h(i) to Form SE filed on March 28, 1985, File No. 1-8606.) 10b Agreement among Bell Atlantic Network Services, Inc. (formerly named Bell Atlantic Management Services, Inc.) and the Network Services Companies, dated November 7, 1983. 10c Bell Atlantic Senior Management Short Term Incentive Plan, as amended and restated effective as of January 1, 1993. (Exhibit 10c to Form SE dated March 29, 1993, File No. 1-8606.)* 10d Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27, 1986, File No. 1-8606.)* 10d(i) Resolutions amending the Plan, effective as of January 1, 1989. (Exhibit 10d to Form SE dated March 29, 1989, File No. 1-8606.)* 10e Bell Atlantic Senior Management Transfer Program. (Exhibit 10ee to 1983 Form 10-K, File No. 1-8606.)* 10e(i) Resolutions terminating the Program for transfers on or after November 1, 1992. (Exhibit 10e to Form SE dated March 29, 1993, File No. 1-8606.)* 10f Bell Atlantic Personal Financial Services Program for Senior and Executive Managers and Key Employees, effective as of July 1, 1990, as amended. (Exhibit 10f to Form SE dated March 28, 1991, File No. 1-8606.)* 10g Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated as of January 1, 1993. (Exhibit 10g to Form SE dated March 29, 1993, File No. 1-8606.)* 10h Bell Atlantic Insurance Plan for Directors. (Exhibit 10hh to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10i Description of Bell Atlantic Plan for Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10j Article V from Bell Atlantic Management Pension Plan regarding limitations on payment of pension amounts which exceed the limitations contained in the Employee Retirement Income Security Act of 1974. (Exhibit 10j to Form SE dated March 26, 1992, File No. 1-8606.)* 32 Exhibit Number - -------------- 10k Bell Atlantic Senior Management Retirement Income Plan, as amended and restated effective as of January 1, 1993. (Exhibit 10k to Form SE dated March 29, 1993, File No. 1-8606)* 10k(i) Resolutions amending the Bell Atlantic Senior Management Retirement Income Plan effective as of December 31, 1993.* 10l Bell Atlantic Deferred Compensation Plan (formerly the Bell Atlantic Senior Management Incentive Award Deferral Plan), as amended and restated effective as of January 1, 1993. (Exhibit 10l to Form SE dated March 29, 1993, File No. 1-8606)* 10l(i) Resolutions amending the Bell Atlantic Deferred Compensation Plan, effective October 25, 1993.* 10m Bell Atlantic Stock Incentive Plan, consisting of (1) The Bell Atlantic 1985 Performance Share Plan as amended and restated effective as of January 1, 1993 and (2) The Bell Atlantic 1985 Incentive Stock Option Plan as amended and restated effective as of January 1, 1993. (Exhibit 10m to Form SE dated March 29, 1993, File No. 1-8606)* 10m(i) Resolutions amending The Bell Atlantic 1985 Incentive Stock Option Plan, subject to the approval of the shareowners of the Company.* 10n Bell Atlantic Retirement Plan for Outside Directors, as amended and restated as of January 1, 1993. (Exhibit 10n to Form SE dated March 29, 1993, File No. 1-8606)* 10o Bell Atlantic Stock Compensation Plan for Outside Directors, as amended and restated as of January 1, 1993. (Exhibit 10o to Form SE dated March 29, 1993, File No. 1-8606)* 10p Bell Atlantic Corporation Directors' Charitable Giving Program. (Exhibit 10p to Form SE dated March 29, 1990, File No. 1-8606)* 10p(i) Resolutions amending and partially terminating the Program. (Exhibit 10p to Form SE dated March 29, 1993, File No. 1-8606)* 10q Employment Agreement dated January 24, 1994 between the Company and William O. Albertini.* 10r Employment Agreement dated January 24, 1994 among the Company, Bell Atlantic Enterprises International, Inc. and Lawrence T. Babbio, Jr.* 10s Resolution dated January 24, 1994 granting Lawrence T. Babbio, Jr. certain nonqualified stock options to purchase American Depositary Receipts representing Series L shares of the capital stock of Grupo Iusacell, S.A. de C.V.* 33 Exhibit Number - -------------- 10t Employment Agreement dated January 24, 1994 between the Company and James G. Cullen.* 10u Non-Compete and Proprietary Information Agreement dated August 10, 1993 between the Company and James G. Cullen.* 10v Employment Agreement dated January 24, 1994 among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson.* 10w Non-Compete and Proprietary Information Agreement dated August 9, 1993 among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson.* 10x Employment Agreement dated January 24, 1994 between the Company and James R. Young.* 11 Computation of Earnings Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. 13 1993 Annual Report to Shareowners (for the fiscal year ended December 31, 1993). Except for the portions of such Annual Report which are expressly incorporated herein by reference, such Annual Report is furnished for the information of the Securities and Exchange Commission and is not deemed to be "filed" as part of this Annual Report on Form 10-K . 21 List of subsidiaries of Bell Atlantic. 23 Consent of Coopers & Lybrand. 24 Powers of attorney. 99a Annual report on Form 11-K for the Bell Atlantic Savings Plan for Salaried Employees for the year ended December 31, 1993. (To be filed by amendment.) 99b Annual report on Form 11-K for the Bell Atlantic Savings and Security Plan (Non-Salaried Employees) for the year ended December 31, 1993. (To be filed by amendment.) ____________ * Indicates management contract or compensatory plan or arrangement. 34 Shareowners may request a copy of any of the exhibits to this Annual Report on Form 10-K by writing to the Corporate Secretary, Bell Atlantic Corporation, 1717 Arch Street, Philadelphia, Pennsylvania 19103. (b) Current Reports on Form 8-K filed during the quarter ended December 31, 1993: A Current Report on Form 8-K, dated October 11, 1993, was filed reporting on Item 5 (Other Events) that the Company had formed a strategic partnership with Grupo Iusacell, S.A. de C.V. A Current Report on Form 8-K, dated October 12, 1993, was filed reporting on Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits) that the Company, Tele-Communications, Inc. (TCI), and Liberty Media Corporation (Liberty) had entered into a letter of intent which sets forth the terms and conditions upon which the parties proposed to negotiate a combination of TCI and Liberty into the Company pursuant to a series of transactions. A Current Report on Form 8-K, dated October 19, 1993, was filed regarding the Company's third quarter 1993 financial results. This report contained unaudited condensed consolidated statements of income for the three- and nine-month periods ended September 30, 1993 and 1992. A Current Report on Form 8-K, dated December 15, 1993, was filed reporting on Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits) regarding an amendment to the letter of intent among the Company, TCI, and Liberty. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BELL ATLANTIC CORPORATION By /s/ William O. Albertini ----------------------------- William O. Albertini Vice President and Chief Financial Officer March 29, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Principal Executive Officer: +++++++ Raymond W. Smith Chairman of the Board + and Chief Executive Officer + + Principal Financial Officer: + William O. Albertini Vice President and + Chief Financial Officer + + Principal Accounting Officer: + Barbara L. Connor Vice President - Finance + and Controller and Treasurer + +++++ + + By /s/ William O. Albertini + ------------------------- Directors: + William O. Albertini William W. Adams + (individually and as Thomas E. Bolger + attorney-in-fact) Frank C. Carlucci + March 29, 1994 William G. Copeland + James H. Gilliam, Jr. + Thomas H. Kean + John C. Marous, Jr. + John F. Maypole + Thomas H. O'Brien + Rozanne L. Ridgway + Raymond W. Smith + Shirley Young + +++++++
36 BELL ATLANTIC CORPORATION Index to Financial Statements and Financial Statement Schedules
Page Number ------------------- Annual Form Report 10-K to Shareowners ----- -------------- Report of Independent Accountants.................... F-2 14 Consolidated Statements of Income-For the years ended December 31, 1993, 1992 and 1991.................... -- 15 Consolidated Balance Sheets-December 31, 1993 and 1992 -- 16 Consolidated Statements of Cash Flows-For the years ended December 31, 1993, 1992 and 1991................... -- 17 Notes to Consolidated Financial Statements........... -- 18-39 Schedule II-Amounts Receivable from Related Parties and Underwriters, Promotors, and Employees Other Than Related Parties - For the years ended December 31, 1993, 1992 and 1991...................................... F-3 -- Schedule V-Consolidated Plant, Property and Equipment- For the years ended December 31, 1993, 1992 and 1991 F-4 -- Schedule VI-Accumulated Depreciation-For the years ended December 31, 1993, 1992 and 1991............. F-8 -- Schedule VIII-Valuation and Qualifying Accounts-For the years ended December 31, 1993, 1992 and 1991....... F-9 -- Schedule IX-Short-Term Borrowings-For the years ended December 31, 1993, 1992 and 1991............. F-10 -- Schedule X-Supplementary Income Statement Information- For the years ended December 31, 1993, 1992 and 1991 F-11 --
Schedules other than those listed above have been omitted because the required information is contained in the financial statements and the notes thereto, or because such schedules are not required or applicable. F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareowners of Bell Atlantic Corporation Our report on the consolidated financial statements of Bell Atlantic Corporation and subsidiaries has been incorporated by reference in this Form 10- K from page 14 of the 1993 Annual Report to shareowners of Bell Atlantic Corporation and subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page F-1 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ COOPERS & LYBRAND 2400 Eleven Penn Center Philadelphia, Pennsylvania February 7, 1994 F-2 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES For the Years Ended December 31, 1993, 1992, and 1991 (Dollars in Thousands)
Deductions Balance at Balance at -------------------------------- End of Period Beginning of Amounts Amounts ------------------ Name of Debtor Period Additions Collected Written Off Other Current Noncurrent - ------------- ------------ --------- ---------- ----------- ----- ------- ---------- Year 1993 L. Kasarjian, Jr. (a)(b).......... $ 177 $ --- $ --- $ --- $ 177(e) $ --- $ --- T. Ryan (a)(c)..... 177 --- --- --- 177(e) --- --- Year 1992 L. Kasarjian, Jr. (a)(b).......... 831 --- 504 --- 150(f) 177 --- T. Ryan (a)(c)..... 831 --- 504 --- 150(f) 177 --- O. Swanky (a)...... 1,940 --- 1,940 --- --- --- --- P. Kelley (d)...... 376 --- 376 --- --- --- --- Year 1991 L. Kasarjian, Jr. (a)............. 1,058 77 304 --- --- 831 --- T. Ryan (a)........ 1,058 77 304 --- --- 831 --- O. Swanky (a)...... 2,468 180 708 --- --- 1,940 --- P. Kelley (d)...... 376 --- --- --- --- 376 --- - -----------
(a) Loans made in connection with the 1986 acquisition of Greyhound Capital Corporation, used for the employee's purchase of venture capital assets from Greyhound Corporation and continued portfolio management. (b) In February 1992, the term of this loan was extended to February 28, 1995. The loan bears interest at 7% per annum and is collateralized by certain securities, as well as by certain payments owed to the debtor by the Company. (c) In March 1992, the term of this loan was extended to February 28, 1995. The loan bears interest at 7% per annum and is collateralized by certain securities, as well as by certain payments owed to the debtor by the Company. (d) Note payable on demand, bearing interest at 8%. (e) During 1993, the loan was transferred to a 50%-owned joint venture and was collected in full. (f) Amounts settled in consideration of individuals foregoing entitlements to future long-term contingent compensation. F-3 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE V - CONSOLIDATED PLANT, PROPERTY AND EQUIPMENT For the Year Ended December 31, 1993 (Dollars in Millions)
Balance at Additions Retire- Balance Beginning at Cost- ments- Other at End Classification of Period Note(a) Note(b) Changes of Period -------------- --------- --------- ------- ------- --------- Communications and Related Services: Network Services Land....................................... $ 138.8 $ 2.6 $ .3 $ (.3) $ 140.8 Buildings.................................. 2,178.9 78.3 22.3 -- 2,234.9 Central Office Equipment................... 11,498.4 1,128.9 717.2 (4.5) 11,905.6 Telephone Instruments and Related Equipment........................ 511.1 62.8 14.5 3.4 562.8 Poles...................................... 674.7 26.9 8.9 -- 692.7 Cable and Wiring........................... 9,305.6 484.3 137.3 -- 9,652.6 Conduit.................................... 1,904.1 81.5 2.8 -- 1,982.8 Office Equipment and Furniture................................ 1,780.3 233.5 198.5 (2.5) 1,812.8 Vehicles and Other Work Equipment................................ 622.8 40.0 56.5 -- 606.3 Capital Leases and Leasehold Improvements............................. 354.4 19.3 10.3 -- 363.4 --------- -------- -------- ----- --------- Total in Service(c)...................... 28,969.1 2,158.1 1,168.6 (3.9) 29,954.7 Plant under Construction................... 563.8 43.1 .4 .2 606.7 Other...................................... 34.7 3.9 1.4 1.1 38.3 --------- -------- -------- ----- --------- Total Network Services Plant.................................. 29,567.6 2,205.1 1,170.4 (2.6) 30,599.7 Other Communications and Related Services.......................... 878.4 280.8 27.2 20.7(d) 1,152.7 --------- -------- -------- ----- --------- Total Communications and Related Services....................... 30,446.0 2,485.9 1,197.6 18.1 31,752.4 --------- -------- -------- ----- --------- Financial, Real Estate, and Other Services: Land........................................ 105.6 15.4 8.8 (1.3) 110.9 Buildings................................... 247.3 49.3 37.0 (2.7) 256.9 Equipment................................... 53.4 6.1 4.1 .4 55.8 Other....................................... 145.4 8.6 2.4 .1 151.7 Construction-in-progress.................... 48.5 (46.3) -- -- 2.2 --------- -------- -------- ----- --------- Total Financial, Real Estate, and Other Services...................... 600.2 33.1 52.3 (3.5) 577.5 --------- -------- -------- ----- --------- Total Plant, Property and Equipment......................... $31,046.2 $2,519.0 $1,249.9 $14.6 $32,329.9 ========= ======== ======== ===== =========
The notes on Page F-7 are an integral part of this Schedule. F-4 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE V - CONSOLIDATED PLANT, PROPERTY AND EQUIPMENT For the Year Ended December 31, 1992 (Dollars in Millions)
Balance at Additions Retire- Balance Beginning at Cost- ments- Other at End Classification of Period Note(a) Note(b) Changes of Period -------------- --------- ------- ------- ------- --------- Communications and Related Services: Network Services Land...................... $ 133.4 $ 5.5 $ -- $ (.1) $ 138.8 Buildings................. 2,114.8 80.0 15.5 (.4) 2,178.9 Central Office Equipment.. 11,147.8 1,048.9 697.7 (.6) 11,498.4 Telephone Instruments and Related Equipment....... 495.8 59.9 44.3 (.3) 511.1 Poles..................... 654.6 28.7 8.4 (.2) 674.7 Cable and Wiring.......... 11,216.3 540.3 2,450.8 (.2) 9,305.6 Conduit................... 1,827.2 85.2 8.3 -- 1,904.1 Office Equipment and Furniture............... 1,721.7 192.6 138.0 4.0 1,780.3 Vehicles and Other Work Equipment............... 607.7 49.0 33.7 (.2) 622.8 Capital Leases and Leasehold Improvements... 344.8 29.5 16.1 (3.8) 354.4 --------- -------- -------- ----- --------- Total in Service(c)..... 30,264.1 2,119.6 3,412.8 (1.8) 28,969.1 Plant under Construction.. 423.2 140.2 -- .4 563.8 Other..................... 21.7 14.7 .5 (1.2) 34.7 --------- -------- -------- ----- --------- Total Network Services Plant................... 30,709.0 2,274.5 3,413.3 (2.6) 29,567.6 Other Communications and Related Services......... 670.5 235.6 25.9 (1.8) 878.4 --------- -------- -------- ----- --------- Total Communications and Related Services........ 31,379.5 2,510.1 3,439.2 (4.4) 30,446.0 --------- -------- -------- ----- --------- Financial, Real Estate, and Other Services: Land....................... 97.0 36.6 28.0 -- 105.6 Buildings.................. 441.5 3.5 199.0 1.3 247.3 Equipment.................. 58.1 3.8 3.4 (5.1) 53.4 Other...................... 124.9 9.1 39.6 51.0 145.4 Construction-in-progress... 65.3 (16.3) .5 -- 48.5 --------- -------- -------- ----- --------- Total Financial, Real Estate, and Other Services................ 786.8 36.7 270.5 47.2 600.2 --------- -------- -------- ----- --------- Total Plant, Property and Equipment........... $32,166.3 $2,546.8 $3,709.7 $42.8 $31,046.2 ========= ======== ======== ===== =========
The notes on Page F-7 are an integral part of this Schedule. F-5 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE V - CONSOLIDATED PLANT, PROPERTY AND EQUIPMENT For the Year Ended December 31, 1991 (Dollars in Millions)
Balance at Additions Retire- Balance Beginning at Cost- ments- Other at End Classification of Period Note(a) Note(b) Changes of Period -------------- --------- ------- ------- ------- --------- Communications and Related Services: Network Services Land...................... $ 130.8 $ 2.8 $ -- $ (.2) $ 133.4 Buildings................. 2,023.0 110.7 18.0 (.9) 2,114.8 Central Office Equipment.. 10,857.0 1,069.5 776.9 (1.8) 11,147.8 Telephone Instruments and Related Equipment....... 540.1 62.2 107.2 .7 495.8 Poles..................... 636.7 32.9 15.0 -- 654.6 Cable and Wiring.......... 10,909.9 588.1 281.3 (.4) 11,216.3 Conduit................... 1,731.9 101.2 5.9 -- 1,827.2 Office Equipment and Furniture............... 1,600.8 249.8 131.8 2.9 1,721.7 Vehicles and Other Work Equipment............... 548.6 99.1 40.2 .2 607.7 Capital Leases and Leasehold Improvements............ 288.7 71.5 15.3 (.1) 344.8 --------- -------- -------- ------ --------- Total in Service(c)..... 29,267.5 2,387.8 1,391.6 .4 30,264.1 Plant under Construction.. 448.0 (23.5) 1.2 (.1) 423.2 Other..................... 17.9 5.1 1.2 (.1) 21.7 --------- -------- -------- ------ --------- Total Network Services Plant................... 29,733.4 2,369.4 1,394.0 .2 30,709.0 Other Communications and Related Services......... 611.6 117.5 47.1 (11.5) 670.5 --------- -------- -------- ------ --------- Total Communications and Related Services........ 30,345.0 2,486.9 1,441.1 (11.3) 31,379.5 --------- -------- -------- ------ --------- Financial, Real Estate, and Other Services: Land....................... 112.1 13.6 .1 (28.6) 97.0 Buildings.................. 362.1 79.1 .1 .4 441.5 Equipment.................. 55.7 4.1 2.6 .9 58.1 Other...................... 60.9 42.5 .8 22.3 124.9 Construction-in-progress... 123.2 17.9 75.8 -- 65.3 --------- -------- -------- ------ --------- Total Financial, Real Estate, and Other Services...... 714.0 157.2 79.4 (5.0) 786.8 --------- -------- -------- ------ --------- Total Plant, Property and Equipment........... $31,059.0 $2,644.1 $1,520.5 $(16.3) $32,166.3 ========= ======== ======== ====== =========
The notes on Page F-7 are an integral part of this Schedule. F-6 BELL ATLANTIC CORPORATION AND SUBSIDIARIES NOTES TO SCHEDULE V - PLANT, PROPERTY AND EQUIPMENT _________ (a) These additions include (1) the original cost (estimated if not specifically determinable) of reused material, which is concurrently credited to material and supplies, and (2) allowance for funds used during construction. Transfers between Plant in Service, Plant under Construction and Other are included in Additions at Cost. (b) Items of plant, property and equipment are deducted from the property accounts when retired or sold at the amounts at which they are included therein, estimated if not specifically determinable. (c) The telephone subsidiaries' provision for depreciation is based on the remaining life method and straight-line composite rates prescribed by regulatory authorities. The remaining life method provides for the full recovery of the remaining net investment in plant, property and equipment. During 1993, 1992, and 1991, the telephone subsidiaries implemented changes in depreciation rates approved by the regulators. These changes will more closely align the recovery of the Company's investment in plant, property and equipment with current estimates of its remaining economic useful life. For the years 1993, 1992, and 1991, depreciation expressed as a percentage of average depreciable plant was 7.7%, 7.0%, and 6.4%, respectively. (d) For 1993, Other Changes includes $24.5 million related to the acquisition of certain Other Communications and Related Services businesses. (e) See Note 1 of the Notes to Consolidated Financial Statements in the 1993 Annual Report to shareowners for the Company's depreciation policies. F-7 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION For the Years Ended December 31, 1993, 1992, and 1991 (Dollars in Millions)
Balance at Additions Balance Beginning Charged to Retire- Other at End Classification of Period Expenses ments Changes of Period - -------------- ---------- ---------- -------- ------- --------- Year 1993 Communications and Related Services Network Services................ $10,309.7 $2,249.5 $1,145.3 $ 39.5 $11,453.4 Other Communications and Related Services.............. 303.4 117.1 17.6 6.4 409.3 --------- -------- -------- --------- --------- 10,613.1 2,366.6 1,162.9 45.9 11,862.7 Financial, Real Estate, and Other Services................. 103.1 23.6 4.2 (21.2) 101.3 --------- -------- -------- --------- --------- $10,716.2 $2,390.2 $1,167.1 $ 24.7 $11,964.0 ========= ======== ======== ========= ========= Year 1992 Communications and Related Services Network Services................ $11,664.3 $2,088.1 $3,434.5 $ (8.2) $10,309.7 Other Communications and Related Services.............. 234.7 90.5 6.1 (15.7) 303.4 --------- -------- -------- --------- --------- 11,899.0 2,178.6 3,440.6 (23.9) 10,613.1 Financial, Real Estate, and Other Services................. 82.0 25.5 14.3 9.9 103.1 --------- -------- -------- --------- --------- $11,981.0 $2,204.1 $3,454.9 $ (14.0) $10,716.2 ========= ======== ======== ========= ========= Year 1991 Communications and Related Services Network Services................ $11,154.7 $1,917.7 $1,412.5 $ 4.4 $11,664.3 Other Communications and Related Services.............. 196.1 78.5 32.9 (7.0) 234.7 --------- -------- -------- --------- --------- 11,350.8 1,996.2 1,445.4 (2.6) 11,899.0 Financial, Real Estate, and Other Services................. 52.4 24.4 2.8 8.0 82.0 --------- -------- -------- --------- --------- $11,403.2 $2,020.6 $1,448.2 $ 5.4 $11,981.0 ========= ======== ======== ========= =========
F-8 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1993, 1992, and 1991 (Dollars in Millions)
Additions ------------------------------- Balance at Charged Charged to Balance Beginning to Other Accounts Deductions at End Description of Period Expenses -Note (a) -Note (b) of Period - ----------- ---------- -------- -------------- ----------- --------- Allowance for Uncollectible Accounts Receivable: Year 1993............... $170.4 $176.2 $163.7 $317.7 $192.6 ====== ====== ====== ====== ====== Year 1992............... $166.0 $132.1 $170.5 $298.2 $170.4 ====== ====== ====== ====== ====== Year 1991............... $126.2 $128.7 $170.3 $259.2 $166.0 ====== ====== ====== ====== ====== Allowance for Uncollectible Finance Lease Receivables: Year 1993............... $ 52.2 $ 25.1 $ 9.5 $ 37.9 $ 48.9 ====== ====== ====== ====== ====== Year 1992............... $ 46.3 $ 32.8 $ 6.4 $ 33.3 $ 52.2 ====== ====== ====== ====== ====== Year 1991............... $ 37.0 $ 29.9 $ 4.7 $ 25.3 $ 46.3 ====== ====== ====== ====== ====== Allowance for Obsolete Inventory: Year 1993............... $ 10.4 $ 3.5 $ 11.8 $ 7.4 $ 18.3 ====== ====== ====== ====== ====== Year 1992............... $ 31.9 $ 5.0 $ -- $ 26.5 $ 10.4 ====== ====== ====== ====== ====== Year 1991............... $ 15.2 $ 20.1 $ 3.9 $ 7.3 $ 31.9 ====== ====== ====== ====== ====== Valuation Allowance for Deferred Tax Assets: Year 1993............... $ 39.7(c) $ 35.1 $ -- $ -- $ 74.8 ====== ====== ====== ====== ====== Other Allowances (d): Year 1993............... $ 21.7 $ 4.7 $ .6 $ 16.3 $ 10.7 ====== ====== ====== ====== ====== Year 1992............... $ 45.4 $ 11.8 $ .3 $ 35.8 $ 21.7 ====== ====== ====== ====== ====== Year 1991............... $ 29.3 $ 41.9 $ .9 $ 26.7 $ 45.4 ====== ====== ====== ====== ======
- -------- (a) In 1992, amounts include beginning balances for businesses acquired during the year. Allowance for Uncollectible Accounts Receivable includes (1) amounts previously written off which were credited directly to this account when recovered, and (2) accruals charged to accounts payable for anticipated uncollectible charges on purchases of accounts receivable from others which were billed by the Company. (b) Amounts written off as uncollectible or obsolete or transferred to other accounts. (c) Represents the valuation allowance at implementation of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1993. (d) Other Allowances include allowances for obsolete equipment and allowances for probable losses incurred in the directory businesses arising in the normal course of operations. F-9 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS For the Years Ended December 31, 1993, 1992, and 1991 (Dollars in Millions)
Maximum Average Weighted Category of Weighted Amount Amount Average Aggregate Balance Average Outstanding Outstanding Interest Rate Short-Term at End Interest During the During the During the Borrowings of Period Rate Period Period(a) Period(b) ---------- --------- -------- ---------- ---------- ---------- Year 1993 Bank loans........ $ 582.0 3.7% $ 808.0 $ 593.4 3.4% Commercial paper.. 1,334.6 3.4% 1,334.6 805.3 3.2% -------- $1,398.7 ======== Year 1992 Bank loans........ $ 336.2 4.0% $ 947.2 $ 626.3 4.1% Commercial paper.. 1,358.2 3.5% 1,555.2 989.8 3.8% -------- $1,616.1 ======== Year 1991 Bank loans........ $ 304.1 5.4% $ 658.9 $ 537.9 6.4% Commercial paper.. 817.2 5.0% 1,771.9 1,267.4 6.2% Other notes (c)... -- -- 97.7 16.6 13.3% -------- $1,821.9 ========
- ---------- (a) Represents average daily face amount. (b) Computed by dividing aggregate interest expense by average daily face amount. (c) Includes both domestic and international borrowings. F-10 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION For the Years Ended December 31, 1993, 1992, and 1991 (Dollars in Millions)
Charged to Costs and Item Expenses ---- ---------- Year 1993 Maintenance and repairs..................... $2,214.1 ======== Taxes other than payroll and income taxes: Gross receipts........................... $ 251.6 Property................................. 261.5 Capital stock............................ 56.9 Other.................................... 28.0 -------- $ 598.0 ======== Advertising................................. $ 169.0 ======== Year 1992 Maintenance and repairs..................... $2,199.7 ======== Taxes other than payroll and income taxes: Gross receipts........................... $ 242.6 Property................................. 247.7 Capital stock............................ 47.3 Other.................................... 26.4 -------- $ 564.0 ======== Advertising................................. $ 195.7 ======== Year 1991 Maintenance and repairs..................... $2,155.5 ======== Taxes other than payroll and income taxes: Gross receipts........................... $ 228.2 Property................................. 236.2 Capital stock............................ 62.6 Other.................................... 23.0 -------- $ 550.0 ======== Advertising................................. $ 182.7 ========
- ----------- Amounts for royalties and for amortization of intangible assets are not presented as such amounts are less than 1% of total operating revenues. Amounts reported for 1992 and 1991 for maintenance and repairs have been revised to include certain additional costs. F-11 EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NO. 1-8606 BELL ATLANTIC CORPORATION EXHIBIT INDEX Exhibit Number - -------------- 3a Certificate of Incorporation of Bell Atlantic Corporation ("Bell Atlantic"), dated October 7, 1983. (Exhibit 3a to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606) 3b Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 9, 1986 and filed May 16, 1986. (Exhibit 3b to Form SE dated March 27, 1987, File No. 1-8606) 3c Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 6, 1987 and filed May 8, 1987. (Exhibit 3c to Form SE dated March 28, 1988, File No. 1-8606) 3d Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 10, 1990 and filed June 29, 1990. (Exhibit 3d to Form SE dated March 28, 1991, File No. 1-8606) 3e By-Laws of Bell Atlantic, as amended through June 23, 1992. (Exhibit 3e to Form SE dated March 29, 1993, File No. 1-8606) 4 No instrument which defines the rights of holders of long and intermediate term debt, of the Company and all of its consolidated subsidiaries, is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, Bell Atlantic hereby agrees to furnish a copy of any such instrument to the SEC upon request. 10a Agreement Concerning Contingent Liabilities, Tax Matters and Termination of Certain Agreements among AT&T, Bell Atlantic, the Network Services Companies, and certain other parties, dated as of November 1, 1983. 10a(i) Agreement Concerning Allocation of Contingent Liabilities between AT&T and Bell Atlantic, dated as of January 28, 1985. (Exhibit 10h(i) to Form SE filed on March 28, 1985, File No. 1-8606) 10b Agreement among Bell Atlantic Network Services, Inc. (formerly named Bell Atlantic Management Services, Inc.) and the Network Services Companies, dated November 7, 1983. 10c Bell Atlantic Senior Management Short Term Incentive Plan, as amended and restated effective as of January 1, 1993. (Exhibit 10c to Form SE dated March 29, 1993, File No. 1-8606)* 10d Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27, 1986, File No. 1-8606)* Exhibit Number - -------------- 10d(i) Resolutions amending the Plan, effective as of January 1, 1989. (Exhibit 10d to Form SE dated March 29, 1989, File No. 1-8606)* 10e Bell Atlantic Senior Management Transfer Program. (Exhibit 10ee to 1983 Form 10-K, File No. 1-8606)* 10e(i) Resolutions terminating the Program for transfers on or after November 1, 1992. (Exhibit 10e to Form SE dated March 29, 1993, File No. 1-8606)* 10f Bell Atlantic Personal Financial Services Program for Senior and Executive Managers and Key Employees, effective as of July 1, 1990, as amended. (Exhibit 10f to Form SE dated March 28, 1991, File No. 1-8606)* 10g Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated as of January 1, 1993. (Exhibit 10g to Form SE dated March 29, 1993, File No. 1-8606)* 10h Bell Atlantic Insurance Plan for Directors. (Exhibit 10hh to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606)* 10i Description of Bell Atlantic Plan for Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606)* 10j Article V from Bell Atlantic Management Pension Plan regarding limitations on payment of pension amounts which exceed the limitations contained in the Employee Retirement Income Security Act of 1974. (Exhibit 10j to Form SE dated March 26, 1992, File No. 1-8606)* 10k Bell Atlantic Senior Management Retirement Income Plan, as amended and restated effective as of January 1, 1993. (Exhibit 10k to Form SE dated March 29, 1993, File No. 1-8606)* 10k(i) Resolutions amending the Bell Atlantic Senior Management Retirement Income Plan effective as of December 31, 1993.* 10l Bell Atlantic Deferred Compensation Plan (formerly the Bell Atlantic Senior Management Incentive Award Deferral Plan), as amended and restated effective as of January 1, 1993. (Exhibit 10l to Form SE dated March 29, 1993, File No. 1-8606)* 10l(i) Resolutions amending the Bell Atlantic Deferred Compensation Plan, effective October 25, 1993.* 10m Bell Atlantic Stock Incentive Plan, consisting of (1) The Bell Atlantic 1985 Performance Share Plan as amended and restated effective as of January 1, 1993 and (2) The Bell Atlantic 1985 Incentive Stock Option Plan as amended and restated effective as of January 1, 1993. (Exhibit 10m to Form SE dated March 29, 1993, File No. 1-8606)* Exhibit Number - -------------- 10m(i) Resolutions amending The Bell Atlantic 1985 Incentive Stock Option Plan, subject to the approval of the shareowners of the Company.* 10n Bell Atlantic Retirement Plan for Outside Directors, as amended and restated as of January 1, 1993. (Exhibit 10n to Form SE dated March 29, 1993, File No. 1-8606)* 10o Bell Atlantic Stock Compensation Plan for Outside Directors, as amended and restated as of January 1, 1993. (Exhibit 10o to Form SE dated March 29, 1993, File No. 1-8606)* 10p Bell Atlantic Corporation Directors' Charitable Giving Program. (Exhibit 10p to Form SE dated March 29, 1990, File No. 1-8606)* 10p(i) Resolutions amending and partially terminating the Program. (Exhibit 10p to Form SE dated March 29, 1993, File No. 1-8606)* 10q Employment Agreement dated January 24, 1994 between the Company and William O. Albertini.* 10r Employment Agreement dated January 24, 1994 among the Company, Bell Atlantic Enterprises International, Inc. and Lawrence T. Babbio, Jr.* 10s Resolution dated January 24, 1994 granting Lawrence T. Babbio, Jr. certain nonqualified stock options to purchase American Depositary Receipts representing Series L shares of the capital stock of Grupo Iusacell, S.A. de C.V.* 10t Employment Agreement dated January 24, 1994 between the Company and James G. Cullen.* 10u Non-Compete and Proprietary Information Agreement dated August 10, 1993 between the Company and James G. Cullen.* 10v Employment Agreement dated January 24, 1994 among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson.* 10w Non-Compete and Proprietary Information Agreement dated August 9, 1993 among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson.* 10x Employment Agreement dated January 24, 1994 between the Company and James R. Young.* 11 Computation of Earnings Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. Exhibit Number - -------------- 13 1993 Annual Report to Shareowners (for the fiscal year ended December 31, 1993). Except for the portions of such Annual Report which are expressly incorporated herein by reference, such Annual Report is furnished for the information of the Securities and Exchange Commission and is not deemed to be "filed" as part of this Annual Report on Form 10-K. 21 List of subsidiaries of Bell Atlantic. 23 Consent of Coopers & Lybrand. 24 Powers of attorney. 99a Annual report on Form 11-K for the Bell Atlantic Savings Plan for Salaried Employees for the year ended December 31, 1993. (To be filed by amendment.) 99b Annual report on Form 11-K for the Bell Atlantic Savings and Security Plan (Non-Salaried Employees) for the year ended December 31, 1993. (To be filed by amendment.) - ------------- * Indicates management contract or compensatory plan or arrangement. EX-10.K.I 2 EXHIBIT 10KI Exhibit 10k(i) -------------- BELL ATLANTIC CORPORATION BOARD OF DIRECTORS HUMAN RESOURCES COMMITTEE MARCH 22, 1994 Alternative Form of Benefit under Pension Plan ---------------------------------------------- WHEREAS, the Bell Atlantic Management Pension Plan ("BAMPP") currently provides a cashout alternative to the monthly form of pension benefit for any manager who retires or who terminates employment with a vested pension -- benefit, on any date from December 31, 1993 through December 31, 1995; and WHEREAS, the Bell Atlantic Senior Management Retirement Income Plan ("RIP") currently provides a cashout alternative for a Senior Manager who retires, but does not currently provide such an alternative for a Senior Manager who terminates employment with a vested pension; RESOLVED, effective as of December 31, 1993, to reconcile the inconsistency between the terms of the qualified and nonqualified pension plans that apply to Senior Managers, RIP is hereby amended to provide an alternative form of benefit, as a cashout, for any Senior Manager who terminates employment with a vested pension benefit on any date on which the qualified pension plan in which the Senior Manager participates is then offering a pension cashout alternative which is applicable to that Senior Manager; and it is FURTHER RESOLVED, that the Assistant Vice President - Compensation and Benefits of Bell Atlantic Network Services, Inc., is hereby authorized, with the advice and assistance of counsel, to take such further action as he deems necessary or appropriate to implement these resolutions. EX-10.I 3 EXHIBIT 10I Exhibit 10l(i) -------------- BELL ATLANTIC CORPORATION BOARD OF DIRECTORS HUMAN RESOURCES COMMITTEE October 25, 1993 Senior Management Deferral of Base Salary ------------------------------------------ RESOLVED, that the Bell Atlantic Senior Management Incentive Award Deferral Plan (the "Plan") is hereby amended to allow active Senior Managers, and active Executive Managers who participate in the Executive Management Annual Bonus Plan, to voluntarily elect to defer the receipt of some or all base salary in excess of $150,000 per annum, as follows: 1. commencing with a 1993 election for calendar year 1994, and annually for each calendar year thereafter, an eligible participant may deliver to the Plan administrator an election in writing which shall become irrevocable on December 31 of the calendar year prior to the year in which salary is to be deferred; 2. any such election shall state the number of dollars per annum to be deferred, which shall be withheld in approximately equal installments from each regular pay, in an amount per annum not less than $1,000, in increments of $1,000, and not greater than the amount by which the annual base salary rate at the time of deferral exceeds $150,000; 3. the amount of the deferral shall not adjust as a result of any salary modification that may occur during the ensuing year; and 4. amounts deferred under the Plan shall be subject to the existing provisions of the Plan with respect to vesting, alternative periods of deferral, alternative forms of distribution, one-time modifications of deferral elections, 6% penalty on ad hoc withdrawals, and imputed earnings on deferral accounts (based on the better of the yield on 10- year US Treasury obligations or total return on the Corporation's common stock); and it is FURTHER RESOLVED, that the name of the Plan is hereby amended to be the Bell Atlantic Deferred Compensation Plan; and it is FURTHER RESOLVED, that the Assistant Vice President - Compensation and Benefits is hereby authorized, with the advice and assistance of counsel, to take such further action as he considers necessary or appropriate to implement these resolutions. EX-10.M.I 4 EXHIBIT 10MI Exhibit 10m(i) -------------- BELL ATLANTIC CORPORATION BOARD OF DIRECTORS HUMAN RESOURCES COMMITTEE JANUARY 24, 1994 Amendments to Stock Option Plan ------------------------------- RESOLVED, that the Bell Atlantic 1985 Incentive Stock Option Plan is hereby amended, subject to the approval of the shareowners of the Corporation, as follows: 1. to eliminate the provision of the plan which prohibits grants of options after January 21, 1995; 2. to provide that, under the plan, no individual may be granted, in any calendar year, a number of options on shares of a class of the Corporation's stock that is more than one-half of one percent of the shares of that class outstanding on the first day of that year; 3. to increase, from 14 million to 25 million, the aggregate number of shares which may, at any time in the past or in the future, be distributed to officers and employees upon the exercise of options under the Stock Option Plan and in connection with the awarding of shares under the Performance Share Plan, since the inception of those plans in 1985; and it is FURTHER RESOLVED, that the Vice President - Corporate Secretary and Counsel of the Corporation is hereby authorized to present the amendments adopted herein to the shareowners of the Corporation, for approval, and to take such additional action as he deems necessary or appropriate pursuant to these resolutions. EX-10.Q 5 EXHIBIT 10Q Exhibit 10q ----------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made this 24th day of January, 1994, by and between Bell Atlantic Corporation ("BAC") and William O. Albertini (the "Executive"). WHEREAS, competitive initiatives are vital to the success of the business of BAC and to each business entity, whether a corporation, partnership or other type of entity, in which, from time to time, BAC owns directly or indirectly a majority economic or voting interest (BAC and such majority-owned entities are collectively referred to herein as "Bell Atlantic Companies"); and WHEREAS, the Human Resources Committee (the "HRC") of the Board of Directors of BAC determined on November 22, 1993, that it is appropriate for BAC and other Bell Atlantic Companies to enter into agreements with certain officers for the following purposes: (1) to assist in retaining the services of said officers throughout a crucial period during which Bell Atlantic expects to conclude a major corporate merger and otherwise accelerate the transformation of its business; (2) to obtain protection for BAC and other affected Bell Atlantic Companies in the form of non-compete and proprietary information covenants from said officers;and (3) in consideration for said covenants, to provide for severance benefits that any such officer may become eligible to receive under certain circumstances; and NOW, THEREFORE, for good and valuable consideration, including compensation and benefits recited below, the Executive and BAC hereby agree as follows: 1. Term of this Agreement: ---------------------- This Agreement shall be effective on and after the date first stated above and shall expire either on the second anniversary of the date of the first closing of the transactions contemplated by a letter of intent dated October 12, 1993, among BAC, Tele-Communications, Inc. and Liberty Media, Inc., or on December 31, 1995, in the absence of any such closing prior to that date; provided, however, that in the event that the Executive's employment terminates on or before said expiration date, this Agreement shall continue in force so long as rights and obligations of the respective parties hereunder remain in force by their terms. 2. Certain Involuntary Terminations of Employment. ---------------------------------------------- (a) Consequences of Certain Involuntary Terminations. In the event that ------------------------------------------------ the Bell Atlantic Company that then employs the Executive involuntarily terminates the Executive's employment for a reason other than "misconduct" (as defined in Section 1 7), then BAC shall provide a cash separation benefit to the Executive in an amount equal (before applicable withholding taxes) to three times the sum of: (A) the Executive's annual rate of base recurring salary at the time of termination of employment; and (B) the greater of (i) the value of the Executive's most recent award of cash and deferred stock under the Senior Management Short Term Incentive Plan (the "STIP"), or (ii) the value of the most recent award of cash and deferred stock under the STIP for the Executive's salary grade without taking into account any individual performance adjustments to the award. This cash separation benefit shall be payable in one installment, which shall be payable not later than 60 days after the termination of employment date, subject to the Executive's continuing compliance with the terms of this Agreement. (b) For purposes of Section 2(a), a termination of employment will be treated as involuntary, even if the termination is characterized for other purposes as voluntary, if, either: (i) BAC acknowledges in a writing delivered to the Executive that the termination is considered to be involuntary for purposes of this Section; or (ii) the termination of employment is under duress. An otherwise voluntary termination of employment will be considered involuntary, and "under duress", for purposes of this Section 2 of this Agreement, if, in the absence of misconduct on the part of the Executive, and without the Executive's express written consent, any of the following events has occurred within 12 months prior to the Executive's termination of employment: (A) the Executive's status as a "Senior Manager" has been revoked; (B) the Executive's base recurring salary has been reduced by more than 10%; (C) the Executive has suffered a negative individual performance adjustment which causes the Executive's short term award under the STIP for a particular year to be reduced by 25% or more; or (D) the Executive's responsibilities have been substantially reduced in type or scope, other than in a general reorganization of the management functions of one or more Bell Atlantic Companies, with the result that the Executive has materially less status and authority. 3. Certain Voluntary Terminations of Employment. -------------------------------------------- (a) Consequences of Certain Voluntary Terminations. In the event that the ---------------------------------------------- Executive voluntarily resigns or voluntarily retires, other than under circumstances that are treated as involuntary for purposes of Section 2 hereof, then the Chairman shall elect either: (i) to pay the cash separation benefit described in Section 2(a), and, in that event, the payment by the Bell Atlantic Company of the amount stated in Section 2(a) shall be the Executive's exclusive remedy for any cause of action asserted by, or any damages alleged to be suffered by, the 2 Executive in connection with his employment with, or termination of employment from, any Bell Atlantic Company; (ii) to waive the obligation of the Executive to comply with the covenants of Section 4 (but not Section 5) of this Agreement from and after the date of termination; provided, however, that the parties acknowledge that, in the event of any such waiver, the benefit-forfeiture provisions of the Bell Atlantic Senior Management Retirement Income Plan (the "RIP") and the Bell Atlantic Performance Share Plan (the "PSP") shall nevertheless remain applicable to the Executive, in accordance with the terms of those plans, as they may be amended from time to time. (b) Misconduct. The Executive shall have no rights under this Section 3 ---------- if BAC determines that there was misconduct by the Executive at or about the time of the Executive's voluntary resignation or retirement. 4. Prohibition Against Competitive Activities: ------------------------------------------ (a) Prohibited Conduct by the Executive: During the period of the ----------------------------------- Executive's employment with any Bell Atlantic Company, and for a period of two years following the Executive's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Executive, without the prior written consent of the Chief Executive Officer of BAC, shall not: (i) personally engage in "Competitive Activities" (as defined in paragraph 4(b)) within any geographic area in which any Bell Atlantic Company is then engaged (or, at the time of the Executive's termination of employment, had a board-approved business plan under which it planned to engage) in Competitive Activities; (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities within any geographic area described in Section 4(a)(i); provided, however, that the Executive's purchase or holding, for investment purposes, of securities of a publicly-traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Executive's equity interest in any such company is less than a controlling interest; (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, representatives, suppliers or vendors under contract, or joint venturers, where any such person or entity cooperates with or supports a Bell Atlantic Company in its performance of any Competitive Activities; or 3 (iv) directly or indirectly attempt to divert from any Bell Atlantic Company any business in connection with Competitive Activities. (b) Competitive Activities: For purposes of Section 4(a) hereof, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as those for which the Executive had responsibility to plan, develop, manage or oversee within the last 24 months of the Executive's employment with any Bell Atlantic Company. (c) Notice. BAC shall send the Executive written notice in the event ------ that BAC believes that the Executive has violated any of the prohibitions of this Section 4; provided, however, that any failure by BAC to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to BAC giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of any of the prohibitions of this Section 4 or the rules against wrongful competitive activity by the Executive as defined under the RIP and the PSP, as the terms of those plans may be amended from time to time, may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 5. Prohibition Against Disclosure of Proprietary Information: --------------------------------------------------------- (a) Prohibited Conduct by the Executive: The Executive acknowledges that, ----------------------------------- as one of the most senior officers of the Bell Atlantic Companies, the Executive has continuing access to confidential and proprietary information of Bell Atlantic Companies. The Executive shall, therefore, at all times during the period of active employment with any Bell Atlantic Company, and for a period of three years thereafter, preserve the confidentiality of all proprietary information of any Bell Atlantic Company. The three-year limitation under this paragraph shall not in any way limit any Bell Atlantic Company's common law and statutory rights to protect its trade secrets or intellectual property rights at any time, to the full extent of the law. "Proprietary information" includes, but is not limited to, information in the possession or control of a Bell Atlantic Company that has not been fully disclosed in a writing which has been generally circulated to the public at large, and which gives the Bell Atlantic Company an opportunity to obtain or maintain advantages over its current and potential competitors, such as: - strategic or tactical business plans, and undisclosed financial data; - ideas, processes, methods, techniques, systems, patented or copyrighted information, models, devices, programs, computer software or related information; - documents relating to regulatory matters and correspondence with governmental entities; - pricing and cost data; - reports and analyses of business prospects; 4 - business transactions which are contemplated or planned; - research data; - personnel information and data; - identities of users and purchasers of any Bell Atlantic Company's products or services; and - other confidential matters pertaining to or known by one or more Bell Atlantic Companies, including confidential information of a third party which a Bell Atlantic Company is bound to protect. (b) Obligation to Return Company Property: If and when the Executive ------------------------------------- retires or terminates employment for any other reason with all Bell Atlantic Companies, the Executive shall, prior to the last day of active employment and without charge to any Bell Atlantic Company, return to the employing Bell Atlantic Company (or the rightful Bell Atlantic Company) all company property, including, without limitation, originals and copies of records, papers, programs, computer software, documents and other materials which contain Proprietary Information, as defined in Section 5(a). The Executive shall thereafter cooperate with each applicable Bell Atlantic Company in executing and delivering documents requested by the company that are necessary to assist the Bell Atlantic Company in patenting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the Bell Atlantic Company. (c) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of the prohibitions of this Section 5, or other "misconduct" by the Executive (as that term is interpreted by the HRC under the RIP and PSP plans, as those plans may be amended from time to time), may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 6. Remedies in Addition to Forfeiture of Benefits. The Executive ---------------------------------------------- recognizes that irreparable injury will result to one or more Bell Atlantic Companies, and to the business and property of any of them, in the event of a breach by the Executive of any of the provisions of Section 5 or 6 of this Agreement, and that the Executive's continued employment is predicated on the commitments made by the Executive in those Sections. In the event of any breach of any of the Executive's commitments under Section 5 or 6, any Bell Atlantic Company that is damaged by such breach shall be entitled, in addition to declaring a forfeiture of benefits as described herein, and in addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by the Executive or by any person or persons acting for or with the Executive in any capacity whatsoever. 7. Misconduct. For purposes of this Agreement, the term "misconduct" ---------- shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that BAC concludes amounts to a material breach of any company policy or provision of the Employee Code of Business Conduct, and including, by way of example: dishonesty; working outside the Bell Atlantic Companies in competition with any Bell Atlantic Company; other conduct that poses a material conflict of interest; revealing confidential or proprietary information of any 5 Bell Atlantic Company; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. 8. Miscellaneous Provisions. ------------------------ (a) Legal Release: Notwithstanding any other provision of this Agreement, ------------- no cash separation benefit under Section 2 or 3 hereof shall be payable unless and until the Executive signs a legal release in a form satisfactory to BAC; provided, however, that nothing in this Agreement is intended to cause the Executive to waive his right to submit claims for employee benefits in accordance with the terms of any employee benefit plans in which the Executive remains a participant. (b) Assignment by the Company: BAC may assign this Agreement without the ------------------------- Executive's consent to any company that acquires all or substantially all of the assets of BAC, or into which or with which BAC is merged or consolidated. If and when the Executive transfers to a Bell Atlantic Company other than the current employing Bell Atlantic Company, this Agreement shall be deemed to be automatically assigned to that company; provided, however, that, in the event of any such transfer, BAC shall continue to be a party to this Agreement. This Agreement may not be assigned by the Executive. (c) Waiver: The waiver by any Bell Atlantic Company of a breach by the ------ Executive of any provision of this Agreement shall not be construed as a waiver of any subsequent breach by the Executive. (d) Severability: If any clause, phrase or provision of this Agreement, ------------ or the application thereof to any person or circumstance, shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Agreement and shall not affect the application of any clause, phrase or provision hereof to other persons or circumstances. Furthermore, in the event that a court of law or equity determines that the geographic scope of the covenants under Section 4, or the duration of any of the restrictions under this Agreement, are not enforceable, this Agreement shall hereby be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement. (e) Governing Law: This Agreement shall be construed and enforced in ------------- accordance with the laws of the Commonwealth of Pennsylvania. (f) Entire Agreement: Except for the terms and conditions of the ---------------- compensation and benefit plans applicable to the Executive (as such plans may be amended by the applicable Bell Atlantic Company from time to time), this Agreement sets forth the entire understanding of BAC and the Executive and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof; and this Agreement shall not be modified or amended except by written agreement of the Executive, BAC and the Bell Atlantic Company which then employs the Executive. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: -------------------------------- Raymond W. Smith Chairman of the Board and Chief Executive Officer THE EXECUTIVE ------------------------------------ William O. Albertini 7 EX-10.R 6 EXHIBIT 10R Exhibit 10r ----------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made this 24th day of January, 1994, by and between Bell Atlantic Corporation ("BAC"), Bell Atlantic Enterprises International, Inc. (the "Employing Company"), and Lawrence T. Babbio, Jr. (the "Executive"). WHEREAS, competitive initiatives are vital to the success of the business of BAC and to each business entity, whether a corporation, partnership or other type of entity, in which, from time to time, BAC owns directly or indirectly a majority economic or voting interest (BAC and such majority-owned entities are collectively referred to herein as "Bell Atlantic Companies"); and WHEREAS, the Human Resources Committee (the "HRC") of the Board of Directors of BAC determined on November 22, 1993, that it is appropriate for BAC and other Bell Atlantic Companies to enter into agreements with certain officers for the following purposes: (1) to assist in retaining the services of said officers throughout a crucial period during which Bell Atlantic expects to conclude a major corporate merger and otherwise accelerate the transformation of its business; (2) to obtain protection for BAC and other affected Bell Atlantic Companies in the form of non-compete and proprietary information covenants from said officers;and (3) in consideration for said covenants, to provide for severance benefits that any such officer may become eligible to receive under certain circumstances; and NOW, THEREFORE, for good and valuable consideration, including compensation and benefits recited below, the Executive and BAC hereby agree as follows: 1. Term of this Agreement: ---------------------- This Agreement shall be effective on and after the date first stated above and shall expire either on the second anniversary of the date of the first closing of the transactions contemplated by a letter of intent dated October 12, 1993, among BAC, Tele-Communications, Inc. and Liberty Media, Inc., or on December 31, 1995, in the absence of any such closing prior to that date; provided, however, that in the event that the Executive's employment terminates on or before said expiration date, this Agreement shall continue in force so long as rights and obligations of the respective parties hereunder remain in force by their terms. 2. Certain Involuntary Terminations of Employment. ---------------------------------------------- (a) Consequences of Certain Involuntary Terminations. In the event that ------------------------------------------------ the Bell Atlantic Company that then employs the Executive involuntarily terminates the Executive's employment for a reason other than "misconduct" (as defined in Section 1 7), then BAC shall provide a cash separation benefit to the Executive in an amount equal (before applicable withholding taxes) to three times the sum of: (A) the Executive's annual rate of base recurring salary at the time of termination of employment; and (B) the greater of (i) the value of the Executive's most recent award of cash and deferred stock under the Senior Management Short Term Incentive Plan (the "STIP"), or (ii) the value of the most recent award of cash and deferred stock under the STIP for the Executive's salary grade without taking into account any individual performance adjustments to the award. This cash separation benefit shall be payable in one installment, which shall be payable not later than 60 days after the termination of employment date, subject to the Executive's continuing compliance with the terms of this Agreement. (b) For purposes of Section 2(a), a termination of employment will be treated as involuntary, even if the termination is characterized for other purposes as voluntary, if, either: (i) BAC acknowledges in a writing delivered to the Executive that the termination is considered to be involuntary for purposes of this Section; or (ii) the termination of employment is under duress. An otherwise voluntary termination of employment will be considered involuntary, and "under duress", for purposes of this Section 2 of this Agreement, if, in the absence of misconduct on the part of the Executive, and without the Executive's express written consent, any of the following events has occurred within 12 months prior to the Executive's termination of employment: (A) the Executive's status as a "Senior Manager" has been revoked; (B) the Executive's base recurring salary has been reduced by more than 10%; (C) the Executive has suffered a negative individual performance adjustment which causes the Executive's short term award under the STIP for a particular year to be reduced by 25% or more; or (D) the Executive's responsibilities have been substantially reduced in type or scope, other than in a general reorganization of the management functions of one or more Bell Atlantic Companies, with the result that the Executive has materially less status and authority. 3. Certain Voluntary Terminations of Employment. -------------------------------------------- (a) Consequences of Certain Voluntary Terminations. In the event that the ---------------------------------------------- Executive voluntarily resigns or voluntarily retires, other than under circumstances that are treated as involuntary for purposes of Section 2 hereof, then the Chairman shall elect either: (i) to pay the cash separation benefit described in Section 2(a), and, in that event, the payment by the Bell Atlantic Company of the amount stated in Section 2(a) shall be the Executive's exclusive remedy for any cause of action asserted by, or any damages alleged to be suffered by, the 2 Executive in connection with his employment with, or termination of employment from, any Bell Atlantic Company; (ii) to waive the obligation of the Executive to comply with the covenants of Section 4 (but not Section 5) of this Agreement from and after the date of termination; provided, however, that the parties acknowledge that, in the event of any such waiver, the benefit-forfeiture provisions of the Bell Atlantic Senior Management Retirement Income Plan (the "RIP") and the Bell Atlantic Performance Share Plan (the "PSP") shall nevertheless remain applicable to the Executive, in accordance with the terms of those plans, as they may be amended from time to time. (b) Misconduct. The Executive shall have no rights under this Section 3 ---------- if BAC determines that there was misconduct by the Executive at or about the time of the Executive's voluntary resignation or retirement. 4. Prohibition Against Competitive Activities: ------------------------------------------ (a) Prohibited Conduct by the Executive: During the period of the ----------------------------------- Executive's employment with any Bell Atlantic Company, and for a period of two years following the Executive's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Executive, without the prior written consent of the Chief Executive Officer of BAC, shall not: (i) personally engage in "Competitive Activities" (as defined in paragraph 4(b)) within any geographic area in which any Bell Atlantic Company is then engaged (or, at the time of the Executive's termination of employment, had a board-approved business plan under which it planned to engage) in Competitive Activities; (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities within any geographic area described in Section 4(a)(i); provided, however, that the Executive's purchase or holding, for investment purposes, of securities of a publicly-traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Executive's equity interest in any such company is less than a controlling interest; (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, representatives, suppliers or vendors under contract, or joint venturers, where any such person or entity cooperates with or supports a Bell Atlantic Company in its performance of any Competitive Activities; or 3 (iv) directly or indirectly attempt to divert from any Bell Atlantic Company any business in connection with Competitive Activities. (b) Competitive Activities: For purposes of Section 4(a) hereof, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as those for which the Executive had responsibility to plan, develop, manage or oversee within the last 24 months of the Executive's employment with any Bell Atlantic Company. (c) Notice. BAC shall send the Executive written notice in the event ------ that BAC believes that the Executive has violated any of the prohibitions of this Section 4; provided, however, that any failure by BAC to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to BAC giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of any of the prohibitions of this Section 4 or the rules against wrongful competitive activity by the Executive as defined under the RIP and the PSP, as the terms of those plans may be amended from time to time, may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 5. Prohibition Against Disclosure of Proprietary Information: --------------------------------------------------------- (a) Prohibited Conduct by the Executive: The Executive acknowledges that, ----------------------------------- as one of the most senior officers of the Bell Atlantic Companies, the Executive has continuing access to confidential and proprietary information of Bell Atlantic Companies. The Executive shall, therefore, at all times during the period of active employment with any Bell Atlantic Company, and for a period of three years thereafter, preserve the confidentiality of all proprietary information of any Bell Atlantic Company. The three-year limitation under this paragraph shall not in any way limit any Bell Atlantic Company's common law and statutory rights to protect its trade secrets or intellectual property rights at any time, to the full extent of the law. "Proprietary information" includes, but is not limited to, information in the possession or control of a Bell Atlantic Company that has not been fully disclosed in a writing which has been generally circulated to the public at large, and which gives the Bell Atlantic Company an opportunity to obtain or maintain advantages over its current and potential competitors, such as: - strategic or tactical business plans, and undisclosed financial data; - ideas, processes, methods, techniques, systems, patented or copyrighted information, models, devices, programs, computer software or related information; - documents relating to regulatory matters and correspondence with governmental entities; - pricing and cost data; - reports and analyses of business prospects; 4 - business transactions which are contemplated or planned; - research data; - personnel information and data; - identities of users and purchasers of any Bell Atlantic Company's products or services; and - other confidential matters pertaining to or known by one or more Bell Atlantic Companies, including confidential information of a third party which a Bell Atlantic Company is bound to protect. (b) Obligation to Return Company Property: If and when the Executive ------------------------------------- retires or terminates employment for any other reason with all Bell Atlantic Companies, the Executive shall, prior to the last day of active employment and without charge to any Bell Atlantic Company, return to the employing Bell Atlantic Company (or the rightful Bell Atlantic Company) all company property, including, without limitation, originals and copies of records, papers, programs, computer software, documents and other materials which contain Proprietary Information, as defined in Section 5(a). The Executive shall thereafter cooperate with each applicable Bell Atlantic Company in executing and delivering documents requested by the company that are necessary to assist the Bell Atlantic Company in patenting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the Bell Atlantic Company. (c) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of the prohibitions of this Section 5, or other "misconduct" by the Executive (as that term is interpreted by the HRC under the RIP and PSP plans, as those plans may be amended from time to time), may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 6. Remedies in Addition to Forfeiture of Benefits. The Executive ---------------------------------------------- recognizes that irreparable injury will result to one or more Bell Atlantic Companies, and to the business and property of any of them, in the event of a breach by the Executive of any of the provisions of Section 5 or 6 of this Agreement, and that the Executive's continued employment is predicated on the commitments made by the Executive in those Sections. In the event of any breach of any of the Executive's commitments under Section 5 or 6, any Bell Atlantic Company that is damaged by such breach shall be entitled, in addition to declaring a forfeiture of benefits as described herein, and in addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by the Executive or by any person or persons acting for or with the Executive in any capacity whatsoever. 7. Misconduct. For purposes of this Agreement, the term "misconduct" ---------- shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that BAC concludes amounts to a material breach of any company policy or provision of the Employee Code of Business Conduct, and including, by way of example: dishonesty; working outside the Bell Atlantic Companies in competition with any Bell Atlantic Company; other conduct that poses a material conflict of interest; revealing confidential or proprietary information of any 5 Bell Atlantic Company; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. 8. Miscellaneous Provisions. ------------------------ (a) Legal Release: Notwithstanding any other provision of this Agreement, ------------- no cash separation benefit under Section 2 or 3 hereof shall be payable unless and until the Executive signs a legal release in a form satisfactory to BAC; provided, however, that nothing in this Agreement is intended to cause the Executive to waive his right to submit claims for employee benefits in accordance with the terms of any employee benefit plans in which the Executive remains a participant. (b) Assignment by the Company: BAC and the Employing Company may assign ------------------------- this Agreement without the Executive's consent to any company that acquires all or substantially all of the assets of BAC, or into which or with which BAC or the Employing Company is merged or consolidated. If and when the Executive transfers to a Bell Atlantic Company other than the current employing Bell Atlantic Company, this Agreement shall be deemed to be automatically assigned to that company; provided, however, that, in the event of any such transfer, BAC shall continue to be a party to this Agreement. This Agreement may not be assigned by the Executive. (c) Waiver: The waiver by any Bell Atlantic Company of a breach by the ------ Executive of any provision of this Agreement shall not be construed as a waiver of any subsequent breach by the Executive. (d) Severability: If any clause, phrase or provision of this Agreement, ------------ or the application thereof to any person or circumstance, shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Agreement and shall not affect the application of any clause, phrase or provision hereof to other persons or circumstances. Furthermore, in the event that a court of law or equity determines that the geographic scope of the covenants under Section 4, or the duration of any of the restrictions under this Agreement, are not enforceable, this Agreement shall hereby be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement. (e) Governing Law: This Agreement shall be construed and enforced in ------------- accordance with the laws of the Commonwealth of Pennsylvania. (f) Entire Agreement: Except for the terms and conditions of the ---------------- compensation and benefit plans applicable to the Executive (as such plans may be amended by the applicable Bell Atlantic Company from time to time), this Agreement sets forth the entire understanding of BAC, the Employing Company and the Executive and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof; and this Agreement shall not be modified or amended except by written agreement of the Executive, BAC and the Bell Atlantic Company which then employs the Executive. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: --------------------------------- Raymond W. Smith Chairman of the Board and Chief Executive Officer BELL ATLANTIC ENTERPRISES INTERNATIONAL, INC. By: ----------------------------------- Lawrence T. Babbio, Jr. Chairman, President and Chief Executive Officer THE EXECUTIVE --------------------------------------- Lawrence T. Babbio, Jr. 7 EX-10.S 7 EXHIBIT 10S Exhibit 10s ----------- BELL ATLANTIC CORPORATION BOARD OF DIRECTORS HUMAN RESOURCES COMMITTEE JANUARY 24, 1994 Special Award: Iusacell Investment ----------------------------------- WHEREAS, in light of the potential value and growth opportunities afforded to the business as a result of the recently concluded investment in Grupo Iusacell, S.A. de C.V. ("Iusacell"), this Committee wishes to provide recognition to Lawrence T. Babbio, Jr., who, as Chairman, President and Chief Executive Officer of Bell Atlantic Enterprises International, Inc. was instrumental to that business development, and to provide additional incentives to that officer conditioned on an initial public offering of Iusacell securities and growth in the value of said securities; RESOLVED, that this Committee hereby grants to said officer a number of nonqualified stock options ("Options") to purchase American Depositary Receipts ("ADRs") representing a number of Series L shares of common stock of Iusacell ("Shares"), in the amount presented to this meeting; provided, however, that the number of Options, and the exercise price stated in paragraph "1" of these resolutions, shall be adjusted to reflect splits and reverse splits in the Shares from time to time, and to reflect the number of Shares corresponding to one ADR; and it is FURTHER RESOLVED, that the Options shall be subject to certain terms and conditions, which are to be stated in detail in a Stock Option Agreement between the Corporation and the optionee, and which shall include the following principles: 1. The exercise price for each Option shall be equal to the cost per Iusacell share to Bell Atlantic, which is US$25.296 per Share, prior to adjustment in the manner previously described in these resolutions. 2. The Options shall be exercisable exclusively in cash, and the optionee shall therefore not be entitled to receive reload options upon exercising the Options. 3. The term of the Options shall be 10 years, except to the extent the Options are canceled earlier upon a termination of the optionee's employment for any reason other than retirement, disability or death. 4. Unless the Options expire or are canceled earlier, as described in paragraph "3", Options shall first become exercisable as follows: a. as to half of the optionee's Options, the first date on which the ADRs have traded for 30 successive trading days on a major US stock exchange at or above 125% of the Option exercise price (after adjustment ---- for splits and conversion to ADRs); and b. as to the other half of the optionee's Options, the first date on which the ADRs have traded for 30 successive trading days on a major US stock exchange at or above 150% of ---- the Option exercise price (after adjustment for splits and conversion to ADRs). 5. The optionee's "retirement" or termination of employment on account of "disability" (as those terms are defined in the Stock Option Plan) shall not, in and of itself, cause the cancellation or early expiration of the Options, nor shall it accelerate the date or which any Option may be exercised. The optionee's Options shall expire not later than the first anniversary of the date of the optionee's death, whether or not any or all of the Options shall have become exercisable on or before said anniversary date. FURTHER RESOLVED, that the Assistant Vice President - Compensation and Benefits is hereby authorized, with the advice and assistance of counsel, to take such further action as he deems necessary or appropriate to implement these resolutions, including, without limitation, to prepare and enter into the Stock Option Agreement contemplated by these resolutions. EX-10.T 8 EXHIBIT 10T Exhibit 10t ----------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made this 24th day of January, 1994, by and between Bell Atlantic Corporation ("BAC") and James G. Cullen (the "Executive"). WHEREAS, competitive initiatives are vital to the success of the business of BAC and to each business entity, whether a corporation, partnership or other type of entity, in which, from time to time, BAC owns directly or indirectly a majority economic or voting interest (BAC and such majority-owned entities are collectively referred to herein as "Bell Atlantic Companies"); and WHEREAS, the Human Resources Committee (the "HRC") of the Board of Directors of BAC determined on November 22, 1993, that it is appropriate for BAC and other Bell Atlantic Companies to enter into agreements with certain officers for the following purposes: (1) to assist in retaining the services of said officers throughout a crucial period during which Bell Atlantic expects to conclude a major corporate merger and otherwise accelerate the transformation of its business; (2) to obtain protection for BAC and other affected Bell Atlantic Companies in the form of non-compete and proprietary information covenants from said officers;and (3) in consideration for said covenants, to provide for severance benefits that any such officer may become eligible to receive under certain circumstances; and WHEREAS, BAC and the Executive entered into a Non-Compete and Proprietary Information Agreement, dated August 10, 1993 (the "1993 Agreement"), and the parties wish to enter into this Agreement for the purpose of supplanting the terms of the 1993 Agreement unless and until this Agreement expires while the Executive remains actively employed, in which case the 1993 Agreement shall once again become applicable; NOW, THEREFORE, for good and valuable consideration, including compensation and benefits recited below, the Executive and BAC hereby agree as follows: 1. Term of this Agreement: ---------------------- This Agreement shall be effective on and after the date first stated above and shall expire either on the second anniversary of the date of the first closing of the transactions contemplated by a letter of intent dated October 12, 1993, among BAC, Tele-Communications, Inc. and Liberty Media, Inc., or on December 31, 1995, in the absence of any such closing prior to that date; provided, however, that in the event that the Executive's employment terminates on or before said expiration date, this Agreement shall continue in force so long as rights and obligations of the respective parties hereunder remain in force by their terms. In the event that the Executive 1 remains actively employed, either by BAC or by any other company that is then a Bell Atlantic Company, past the date on which this Agreement actually expires, as described in the first sentence of this paragraph, then the 1993 Agreement shall again be given full force and effect; provided, however, that, unless and until such event occurs, the 1993 Agreement shall be deemed to be superseded by this Agreement. 2. Certain Involuntary Terminations of Employment. ---------------------------------------------- (a) Consequences of Certain Involuntary Terminations. In the event that ------------------------------------------------ the Bell Atlantic Company that then employs the Executive involuntarily terminates the Executive's employment for a reason other than "misconduct" (as defined in Section 7), then BAC shall provide a cash separation benefit to the Executive in an amount equal (before applicable withholding taxes) to three times the sum of: (A) the Executive's annual rate of base recurring salary at the time of termination of employment; and (B) the greater of (i) the value of the Executive's most recent award of cash and deferred stock under the Senior Management Short Term Incentive Plan (the "STIP"), or (ii) the value of the most recent award of cash and deferred stock under the STIP for the Executive's salary grade without taking into account any individual performance adjustments to the award. This cash separation benefit shall be payable in one installment, which shall be payable not later than 60 days after the termination of employment date, subject to the Executive's continuing compliance with the terms of this Agreement. (b) For purposes of Section 2(a), a termination of employment will be treated as involuntary, even if the termination is characterized for other purposes as voluntary, if, either: (i) BAC acknowledges in a writing delivered to the Executive that the termination is considered to be involuntary for purposes of this Section; or (ii) the termination of employment is under duress. An otherwise voluntary termination of employment will be considered involuntary, and "under duress", for purposes of this Section 2 of this Agreement, if, in the absence of misconduct on the part of the Executive, and without the Executive's express written consent, any of the following events has occurred within 12 months prior to the Executive's termination of employment: (A) the Executive's status as a "Senior Manager" has been revoked; (B) the Executive's base recurring salary has been reduced by more than 10%; (C) the Executive has suffered a negative individual performance adjustment which causes the Executive's short term award under the STIP for a particular year to be reduced by 25% or more; or (D) the Executive's responsibilities have been substantially reduced in type or scope, other than in a general reorganization of the management functions of one or more Bell Atlantic Companies, with the result that the Executive has materially less status and authority. 2 3. Certain Voluntary Terminations of Employment. -------------------------------------------- (a) Consequences of Certain Voluntary Terminations. In the event that the ---------------------------------------------- Executive voluntarily resigns or voluntarily retires, other than under circumstances that are treated as involuntary for purposes of Section 2 hereof, then the Chairman shall elect either: (i) to pay the cash separation benefit described in Section 2(a), and, in that event, the payment by the Bell Atlantic Company of the amount stated in Section 2(a) shall be the Executive's exclusive remedy for any cause of action asserted by, or any damages alleged to be suffered by, the Executive in connection with his employment with, or termination of employment from, any Bell Atlantic Company; (ii) to waive the obligation of the Executive to comply with the covenants of Section 4 (but not Section 5) of this Agreement from and after the date of termination; provided, however, that the parties acknowledge that, in the event of any such waiver, the benefit-forfeiture provisions of the Bell Atlantic Senior Management Retirement Income Plan (the "RIP") and the Bell Atlantic Performance Share Plan (the "PSP") shall nevertheless remain applicable to the Executive, in accordance with the terms of those plans, as they may be amended from time to time. (b) Misconduct. The Executive shall have no rights under this Section 3 ---------- if BAC determines that there was misconduct by the Executive at or about the time of the Executive's voluntary resignation or retirement. 4. Prohibition Against Competitive Activities: ------------------------------------------ (a) Prohibited Conduct by the Executive: During the period of the ----------------------------------- Executive's employment with any Bell Atlantic Company, and for a period of two years following the Executive's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Executive, without the prior written consent of the Chief Executive Officer of BAC, shall not: (i) personally engage in "Competitive Activities" (as defined in paragraph 4(b)) within any geographic area in which any Bell Atlantic Company is then engaged (or, at the time of the Executive's termination of employment, had a board-approved business plan under which it planned to engage) in Competitive Activities; (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities within any geographic area described in Section 4(a)(i); provided, however, that the Executive's purchase or holding, for investment purposes, of securities of a publicly-traded 3 company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Executive's equity interest in any such company is less than a controlling interest; (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, representatives, suppliers or vendors under contract, or joint venturers, where any such person or entity cooperates with or supports a Bell Atlantic Company in its performance of any Competitive Activities; or (iv) directly or indirectly attempt to divert from any Bell Atlantic Company any business in connection with Competitive Activities. (b) Competitive Activities: For purposes of Section 4(a) hereof, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as those for which the Executive had responsibility to plan, develop, manage or oversee within the last 24 months of the Executive's employment with any Bell Atlantic Company. (c) Notice. BAC shall send the Executive written notice in the event ------ that BAC believes that the Executive has violated any of the prohibitions of this Section 4; provided, however, that any failure by BAC to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to BAC giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of any of the prohibitions of this Section 4 or the rules against wrongful competitive activity by the Executive as defined under the RIP and the PSP, as the terms of those plans may be amended from time to time, may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 5. Prohibition Against Disclosure of Proprietary Information: --------------------------------------------------------- (a) Prohibited Conduct by the Executive: The Executive acknowledges that, ----------------------------------- as one of the most senior officers of the Bell Atlantic Companies, the Executive has continuing access to confidential and proprietary information of Bell Atlantic Companies. The Executive shall, therefore, at all times during the period of active employment with any Bell Atlantic Company, and for a period of three years thereafter, preserve the confidentiality of all proprietary information of any Bell Atlantic Company. The three-year limitation under this paragraph shall not in any way limit any Bell Atlantic Company's common law and statutory rights to protect its trade secrets or intellectual property rights at any time, to the full extent of the law. "Proprietary information" includes, but is not limited to, information in the possession or control of a Bell Atlantic Company that has not been fully disclosed in a writing which has been generally circulated to the public at large, and which gives the Bell Atlantic 4 Company an opportunity to obtain or maintain advantages over its current and potential competitors, such as: - strategic or tactical business plans, and undisclosed financial data; - ideas, processes, methods, techniques, systems, patented or copyrighted information, models, devices, programs, computer software or related information; - documents relating to regulatory matters and correspondence with governmental entities; - pricing and cost data; - reports and analyses of business prospects; - business transactions which are contemplated or planned; - research data; - personnel information and data; - identities of users and purchasers of any Bell Atlantic Company's products or services; and - other confidential matters pertaining to or known by one or more Bell Atlantic Companies, including confidential information of a third party which a Bell Atlantic Company is bound to protect. (b) Obligation to Return Company Property: If and when the Executive ------------------------------------- retires or terminates employment for any other reason with all Bell Atlantic Companies, the Executive shall, prior to the last day of active employment and without charge to any Bell Atlantic Company, return to the employing Bell Atlantic Company (or the rightful Bell Atlantic Company) all company property, including, without limitation, originals and copies of records, papers, programs, computer software, documents and other materials which contain Proprietary Information, as defined in Section 5(a). The Executive shall thereafter cooperate with each applicable Bell Atlantic Company in executing and delivering documents requested by the company that are necessary to assist the Bell Atlantic Company in patenting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the Bell Atlantic Company. (c) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of the prohibitions of this Section 5, or other "misconduct" by the Executive (as that term is interpreted by the HRC under the RIP and PSP plans, as those plans may be amended from time to time), may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 6. Remedies in Addition to Forfeiture of Benefits. The Executive ---------------------------------------------- recognizes that irreparable injury will result to one or more Bell Atlantic Companies, and to the business and property of any of them, in the event of a breach by the Executive of any of the provisions of Section 5 or 6 of this Agreement, and that the Executive's continued employment is predicated on the commitments made by the Executive in those Sections. In the event of any breach of any of the Executive's commitments under Section 5 or 6, any Bell Atlantic Company that is damaged by such breach shall be entitled, in addition to declaring a forfeiture of benefits as described herein, and in 5 addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by the Executive or by any person or persons acting for or with the Executive in any capacity whatsoever. 7. Misconduct. For purposes of this Agreement, the term "misconduct" ---------- shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that BAC concludes amounts to a material breach of any company policy or provision of the Employee Code of Business Conduct, and including, by way of example: dishonesty; working outside the Bell Atlantic Companies in competition with any Bell Atlantic Company; other conduct that poses a material conflict of interest; revealing confidential or proprietary information of any Bell Atlantic Company; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. 8. Miscellaneous Provisions. ------------------------ (a) Legal Release: Notwithstanding any other provision of this Agreement, ------------- no cash separation benefit under Section 2 or 3 hereof shall be payable unless and until the Executive signs a legal release in a form satisfactory to BAC; provided, however, that nothing in this Agreement is intended to cause the Executive to waive his right to submit claims for employee benefits in accordance with the terms of any employee benefit plans in which the Executive remains a participant. (b) Assignment by the Company: BAC may assign this Agreement without the ------------------------- Executive's consent to any company that acquires all or substantially all of the assets of BAC, or into which or with which BAC is merged or consolidated. If and when the Executive transfers to a Bell Atlantic Company other than the current employing Bell Atlantic Company, this Agreement shall be deemed to be automatically assigned to that company; provided, however, that, in the event of any such transfer, BAC shall continue to be a party to this Agreement. This Agreement may not be assigned by the Executive. (c) Waiver: The waiver by any Bell Atlantic Company of a breach by the ------ Executive of any provision of this Agreement shall not be construed as a waiver of any subsequent breach by the Executive. (d) Severability: If any clause, phrase or provision of this Agreement, ------------ or the application thereof to any person or circumstance, shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Agreement and shall not affect the application of any clause, phrase or provision hereof to other persons or circumstances. Furthermore, in the event that a court of law or equity determines that the geographic scope of the covenants under Section 4, or the duration of any of the restrictions under this Agreement, are not enforceable, this Agreement shall hereby be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement. 6 (e) Governing Law: This Agreement shall be construed and enforced in ------------- accordance with the laws of the Commonwealth of Pennsylvania. (f) Entire Agreement: Except for the terms and conditions of the ---------------- compensation and benefit plans applicable to the Executive (as such plans may be amended by the applicable Bell Atlantic Company from time to time), and except for the potential resumption of the terms of the 1993 Agreement under circumstances described in Section 1, this Agreement sets forth the entire understanding of BAC and the Executive and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof; and this Agreement shall not be modified or amended except by written agreement of the Executive, BAC and the Bell Atlantic Company which then employs the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: ------------------------------------- Raymond W. Smith Chairman of the Board and Chief Executive Officer THE EXECUTIVE ---------------------------------------- James G. Cullen 7 EX-10.U 9 EXHIBIT 10U Exhibit 10u ----------- NON-COMPETE AND PROPRIETARY INFORMATION AGREEMENT THIS NON-COMPETE AND PROPRIETARY INFORMATION AGREEMENT, made this 10th day of August, 1993, by and between Bell Atlantic Corporation ("BAC") and James G. Cullen (the "Executive"). WHEREAS, competitive initiatives are vital to the success of the business of BAC and to the businesses of each majority-owned subsidiary of BAC (BAC and such subsidiaries are collectively referred to herein as "Bell Atlantic Companies"); and WHEREAS, the Human Resources Committee of the Board of Directors of BAC determined on June 21, 1993, that it is appropriate for the Chairman and Chief and Executive Officer of BAC (the "Chairman") to enter into an acceptable form of non-compete and proprietary information agreement with a number of Senior Managers selected by the Chairman; NOW, THEREFORE, for good and valuable consideration, including compensation and benefits recited below, the Executive and BAC hereby agree as follows: 1. Prohibition Against Competitive Activities: ------------------------------------------ (a) Prohibited Conduct by the Executive: During the period of the ----------------------------------- Executive's employment with any Bell Atlantic Company, and for a period of two years following the Executive's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Executive, without the prior written consent of the Chief Executive Officer of BAC, shall not engage in any conduct described in clauses (i) through (iii) below within any geographic area in which any Bell Atlantic Company is then engaged (or, at the time of the Executive's termination of employment, had a board-approved business plan under which it planned to engage) in "Competitive Activities" (as defined in paragraph 1(b)): 1 (i) engage in, or work for, or own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in, Competitive Activities; provided, however, that the Executive's purchase or holding, for investment purposes, of any securities of a publicly traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph; (ii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, representatives, suppliers or vendors under contract, or joint venturers, where any such person or entity cooperates with or supports a Bell Atlantic Company in its performance of any Competitive Activities; or (iii) directly or indirectly attempt to divert from any Bell Atlantic Company any business in connection with Competitive Activities. (b) Competitive Activities: For purposes of Section 1(a) hereof, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as those for which the Executive had responsibility to plan, develop, manage or oversee within the last 24 months of the Executive's employment with any Bell Atlantic Company. (c) Notice. BAC shall send the Executive written notice in the event ------ that BAC believes that the Executive has violated any of the prohibitions of this Section 1; provided, however, that any failure by BAC to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to BAC giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of any of the prohibitions of this Section 1 or the rules against wrongful competitive activity by the Executive as defined under the Bell Atlantic Senior Management Retirement Income Plan (the "RIP") and the Bell Atlantic Performance Share Plan (the "PSP"), as the terms of those plans may be amended from time to time, may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 2. Prohibition Against Disclosure of Proprietary Information: --------------------------------------------------------- (a) Prohibited Conduct by the Executive: The Executive acknowledges that, ----------------------------------- as one of the most senior officers of the Bell Atlantic Companies, the 2 Executive has continuing access to confidential and proprietary information of Bell Atlantic Companies. The Executive shall, therefore, at all times during the period of active employment with any Bell Atlantic Company, and for a period of three years thereafter, preserve the confidentiality of all proprietary informa-tion of any Bell Atlantic Company. The three-year limitation under this paragraph shall not in any way limit any Bell Atlantic Company's common law and statutory rights to protect its trade secrets or intellectual property rights at any time, to the full extent of the law. "Proprietary information" includes, but is not limited to, information in the possession or control of a Bell Atlantic Company that has not been fully disclosed in a writing which has been generally circulated to the public at large, and which gives the Bell Atlantic Company an opportunity to obtain or maintain advantages over its current and potential competitors, such as: - strategic or tactical business plans, and undisclosed financial data; - ideas, processes, methods, techniques, systems, patented or copyrighted information, models, devices, programs, computer software or related information; - documents relating to regulatory matters and correspondence with governmental entities; - pricing and cost data; - reports and analyses of business prospects; - business transactions which are contemplated or planned; - research data; - personnel information and data; - identities of users and purchasers of any Bell Atlantic Company's products or services; and - other confidential matters pertaining to or known by one or more Bell Atlantic Companies, including confidential information of a third party which a Bell Atlantic Company is bound to protect. (b) Obligation to Return Company Property: If and when the Executive ------------------------------------- retires or terminates employment for any other reason with all Bell Atlantic Companies, the Executive shall, prior to the last day of active employment and without charge to any Bell Atlantic Company, return to the employing Bell Atlantic Company (or the rightful Bell Atlantic Company) all company property, including, without limitation, originals and copies of records, papers, programs, computer software, documents and other materials which contain Proprietary Information, as defined in Section 2(a). The Executive shall thereafter cooperate with each applicable Bell Atlantic Company in executing and delivering documents requested by the company that are necessary to assist the Bell Atlantic Company in patenting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the Bell Atlantic Company. 3 (c) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of the prohibitions of this Section 2 or the forfeiture provisions applicable to misconduct by the Executive under the RIP and the PSP, as the terms of those plans may be amended from time to time, may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 3. Remedies in Addition to Forfeiture of Benefits. The Executive ---------------------------------------------- recognizes that irreparable injury will result to one or more Bell Atlantic Companies, and to the business and property of any of them, in the event of a breach by the Executive of any of the provisions of Section 1 or 2 of this Agreement, and that the Executive's continued employment is predicated on the commitments made by the Executive in those Sections. In the event of any breach of any of the Executive's commitments under Section 1 or 2, any Bell Atlantic Company that is damaged by such breach shall be entitled, in addition to declaring a forfeiture of benefits as described herein, and in addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by the Executive or by any person or persons acting for or with the Executive in any capacity whatsoever. 4. Misconduct. For purposes of this Agreement, the term "misconduct" ---------- shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that BAC concludes amounts to a material breach of any company policy or any provision of the Employee Code of Business Conduct, and including, by way of example: dishonesty; working outside the Bell Atlantic Companies in competition with any Bell Atlantic Company; other conduct that poses a material conflict of interest; revealing confidential or proprietary information of any Bell Atlantic Company; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. 5. Certain Involuntary Terminations of Employment. ---------------------------------------------- (a) Consequences of Certain Involuntary Terminations. In the event that ------------------------------------------------ the employing Bell Atlantic Company involuntarily terminates the Executive's employment for a reason other than misconduct, then BAC shall provide a cash separation benefit to the Executive in an amount equal (before applicable withholding taxes) to two times the sum of: (A) the Executive's annual rate of base recurring salary at the time of termination of employment; and (B) the Executive's most recent award of cash and deferred stock under the Senior Management Short Term Incentive Plan. This cash separation benefit 4 shall be payable in monthly installments over a period of 24 months, subject to the Executive's continuing compliance with the terms of this Agreement. (b) A termination of employment will be treated as involuntary, even if the termination is characterized for other purposes as voluntary, if, either: (i) BAC acknowledges in a writing delivered to the Executive that the termination is considered to be involuntary for purposes of this Section; or (ii) the termination of employment is under duress. An otherwise voluntary termination of employment will be considered involuntary, and "under duress", for purposes of this Section 5 of this Agreement, if, in the absence of misconduct on the part of the Executive, and without the Executive's express written consent, any of the following events has occurred within 12 months prior to the Executive's termination of employment: (A) the Executive's status as a "Senior Manager" has been revoked; (B) the Executive's base recurring salary has been reduced by more than 10%; (C) the Executive has suffered a negative individual performance adjustment which causes the Executive's short term award under the STIP for a particular year to be reduced by 25% or more; or (D) the Executive's responsibilities have been substantially reduced in both type and scope, other than in a general reorganization of the management functions of one or more Bell Atlantic Companies, with the result that the Executive has materially less status and authority. 6. Certain Voluntary Terminations of Employment. -------------------------------------------- (a) Consequences of Certain Voluntary Terminations. In the event that the ---------------------------------------------- Executive voluntarily resigns or voluntarily retires, other than under circumstances that are treated as involuntary for purposes of Section 5 hereof, then the Chairman shall elect either: (i) to pay the cash installments described in Section 5(a), or (ii) to waive the obligation of the Executive to comply with the covenants of Section 1 (but not Section 2) of this Agreement from and after the date of termination; provided, however, that the parties acknowledge that, in the event of any such waiver, the benefit-forfeiture provisions of the RIP and the PSP shall nevertheless remain applicable to the Executive, in accordance with 5 the terms of those plans, as they may be amended from time to time. (b) Misconduct. The Executive shall have no rights under this Section 6 ---------- if BAC determines that there was misconduct by the Executive at or about the time of the Executive's voluntary resignation or retirement. 7. Miscellaneous Provisions. ------------------------ (a) Assignment by the Company: BAC may assign this Agreement without the ------------------------- Executive's consent to any company that acquires all or substantially all of the assets of BAC, or into which or with which BAC is merged or consolidated. If and when the Executive transfers to a Bell Atlantic Company other than the current employing Bell Atlantic Company, this Agreement shall be deemed to be automatically assigned to that company; provided, however, that, in the event of any such transfer, BAC shall continue to be a party to this Agreement. This Agreement may not be assigned by the Executive. (b) Waiver: The waiver by any Bell Atlantic Company of a breach by the ------ Executive of any provision of this Agreement shall not be construed as a waiver of any subsequent breach by the Executive. (c) Severability: If any clause, phrase or provision of this Agreement, ------------ or the application thereof to any person or circumstance, shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Agreement and shall not affect the application of any clause, phrase or provision hereof to other persons or circumstances. Furthermore, in the event that a court of law or equity determines that the geographic scope of the covenants under Section 1, or the duration of any of the restrictions under this Agreement, are not enforceable, this Agreement shall hereby be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement. (d) Governing Law: This Agreement shall be construed and enforced in ------------- accordance with the laws of the Commonwealth of Pennsylvania. (e) Entire Agreement: Except for the terms and conditions of the ---------------- compensation and benefit plans applicable to the Executive (as such plans may be amended by the applicable Bell Atlantic Company from time to time), this Agreement sets forth the entire understanding of BAC and the Executive and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof; and this Agreement shall 6 not be modified or amended except by written agreement of the Executive, BAC and the Bell Atlantic Company which then employs the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: ----------------------------------- Raymond W. Smith Chairman of the Board and Chief Executive Officer THE EXECUTIVE --------------------------------------- James G. Cullen 7 EX-10.V 10 EXHIBIT 10V Exhibit 10v ----------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made this 24th day of January, 1994, by and between Bell Atlantic Corporation ("BAC"), Bell Atlantic Network Services, Inc. (the "Employing Company"), and Stuart C. Johnson (the "Executive"). WHEREAS, competitive initiatives are vital to the success of the business of BAC and to each business entity, whether a corporation, partnership or other type of entity, in which, from time to time, BAC owns directly or indirectly a majority economic or voting interest (BAC and such majority-owned entities are collectively referred to herein as "Bell Atlantic Companies"); and WHEREAS, the Human Resources Committee (the "HRC") of the Board of Directors of BAC determined on November 22, 1993, that it is appropriate for BAC and other Bell Atlantic Companies to enter into agreements with certain officers for the following purposes: (1) to assist in retaining the services of said officers throughout a crucial period during which Bell Atlantic expects to conclude a major corporate merger and otherwise accelerate the transformation of its business; (2) to obtain protection for BAC and other affected Bell Atlantic Companies in the form of non-compete and proprietary information covenants from said officers;and (3) in consideration for said covenants, to provide for severance benefits that any such officer may become eligible to receive under certain circumstances; and WHEREAS, the Employing Company and the Executive entered into a Non-Compete and Proprietary Information Agreement, dated August 9, 1993 (the "1993 Agreement"), and the parties wish to enter into this Agreement for the purpose of supplanting the terms of the 1993 Agreement unless and until this Agreement expires while the Executive remains actively employed, in which case the 1993 Agreement shall once again become applicable; NOW, THEREFORE, for good and valuable consideration, including compensation and benefits recited below, the Executive and BAC hereby agree as follows: 1. Term of this Agreement: ---------------------- This Agreement shall be effective on and after the date first stated above and shall expire either on the second anniversary of the date of the first closing of the transactions contemplated by a letter of intent dated October 12, 1993, among BAC, Tele-Communications, Inc. and Liberty Media, Inc., or on December 31, 1995, in the absence of any such closing prior to that date; provided, however, that in the event that the Executive's employment terminates on or before said expiration date, this 1 Agreement shall continue in force so long as rights and obligations of the respective parties hereunder remain in force by their terms. 2. Certain Involuntary Terminations of Employment. ---------------------------------------------- (a) Consequences of Certain Involuntary Terminations. In the event that ------------------------------------------------ the Bell Atlantic Company that then employs the Executive involuntarily terminates the Executive's employment for a reason other than "misconduct" (as defined in Section 7), then BAC shall provide a cash separation benefit to the Executive in an amount equal (before applicable withholding taxes) to three times the sum of: (A) the Executive's annual rate of base recurring salary at the time of termination of employment; and (B) the greater of (i) the value of the Executive's most recent award of cash and deferred stock under the Senior Management Short Term Incentive Plan (the "STIP"), or (ii) the value of the most recent award of cash and deferred stock under the STIP for the Executive's salary grade without taking into account any individual performance adjustments to the award. This cash separation benefit shall be payable in one installment, which shall be payable not later than 60 days after the termination of employment date, subject to the Executive's continuing compliance with the terms of this Agreement. (b) For purposes of Section 2(a), a termination of employment will be treated as involuntary, even if the termination is characterized for other purposes as voluntary, if, either: (i) BAC acknowledges in a writing delivered to the Executive that the termination is considered to be involuntary for purposes of this Section; or (ii) the termination of employment is under duress. An otherwise voluntary termination of employment will be considered involuntary, and "under duress", for purposes of this Section 2 of this Agreement, if, in the absence of misconduct on the part of the Executive, and without the Executive's express written consent, any of the following events has occurred within 12 months prior to the Executive's termination of employment: (A) the Executive's status as a "Senior Manager" has been revoked; (B) the Executive's base recurring salary has been reduced by more than 10%; (C) the Executive has suffered a negative individual performance adjustment which causes the Executive's short term award under the STIP for a particular year to be reduced by 25% or more; or (D) the Executive's responsibilities have been substantially reduced in type or scope, other than in a general reorganization of the management functions of one or more Bell Atlantic Companies, with the result that the Executive has materially less status and authority. 2 3. Certain Voluntary Terminations of Employment. -------------------------------------------- (a) Consequences of Certain Voluntary Terminations. In the event that the ---------------------------------------------- Executive voluntarily resigns or voluntarily retires, other than under circumstances that are treated as involuntary for purposes of Section 2 hereof, then the Chairman shall elect either: (i) to pay the cash separation benefit described in Section 2(a), and, in that event, the payment by the Bell Atlantic Company of the amount stated in Section 2(a) shall be the Executive's exclusive remedy for any cause of action asserted by, or any damages alleged to be suffered by, the Executive in connection with his employment with, or termination of employment from, any Bell Atlantic Company; (ii) to waive the obligation of the Executive to comply with the covenants of Section 4 (but not Section 5) of this Agreement from and after the date of termination; provided, however, that the parties acknowledge that, in the event of any such waiver, the benefit-forfeiture provisions of the Bell Atlantic Senior Management Retirement Income Plan (the "RIP") and the Bell Atlantic Performance Share Plan (the "PSP") shall nevertheless remain applicable to the Executive, in accordance with the terms of those plans, as they may be amended from time to time. (b) Misconduct. The Executive shall have no rights under this Section 3 ---------- if BAC determines that there was misconduct by the Executive at or about the time of the Executive's voluntary resignation or retirement. 4. Prohibition Against Competitive Activities: ------------------------------------------ (a) Prohibited Conduct by the Executive: During the period of the ----------------------------------- Executive's employment with any Bell Atlantic Company, and for a period of two years following the Executive's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Executive, without the prior written consent of the Chief Executive Officer of BAC, shall not: (i) personally engage in "Competitive Activities" (as defined in paragraph 4(b)) within any geographic area in which any Bell Atlantic Company is then engaged (or, at the time of the Executive's termination of employment, had a board-approved business plan under which it planned to engage) in Competitive Activities; (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities within any geographic area described in Section 4(a)(i); provided, however, that the Executive's purchase or holding, for investment purposes, of securities of a publicly-traded 3 company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Executive's equity interest in any such company is less than a controlling interest; (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, representatives, suppliers or vendors under contract, or joint venturers, where any such person or entity cooperates with or supports a Bell Atlantic Company in its performance of any Competitive Activities; or (iv) directly or indirectly attempt to divert from any Bell Atlantic Company any business in connection with Competitive Activities. (b) Competitive Activities: For purposes of Section 4(a) hereof, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as those for which the Executive had responsibility to plan, develop, manage or oversee within the last 24 months of the Executive's employment with any Bell Atlantic Company. (c) Notice. BAC shall send the Executive written notice in the event ------ that BAC believes that the Executive has violated any of the prohibitions of this Section 4; provided, however, that any failure by BAC to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to BAC giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of any of the prohibitions of this Section 4 or the rules against wrongful competitive activity by the Executive as defined under the RIP and the PSP, as the terms of those plans may be amended from time to time, may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 5. Prohibition Against Disclosure of Proprietary Information: --------------------------------------------------------- (a) Prohibited Conduct by the Executive: The Executive acknowledges that, ----------------------------------- as one of the most senior officers of the Bell Atlantic Companies, the Executive has continuing access to confidential and proprietary information of Bell Atlantic Companies. The Executive shall, therefore, at all times during the period of active employment with any Bell Atlantic Company, and for a period of three years thereafter, preserve the confidentiality of all proprietary information of any Bell Atlantic Company. The three-year limitation under this paragraph shall not in any way limit any Bell Atlantic Company's common law and statutory rights to protect its trade secrets or intellectual property rights at any time, to the full extent of the law. "Proprietary information" includes, but is not limited to, information in the possession or control of a Bell Atlantic Company that has not been fully disclosed in a writing which has been generally circulated to the public at large, and which gives the Bell Atlantic 4 Company an opportunity to obtain or maintain advantages over its current and potential competitors, such as: - strategic or tactical business plans, and undisclosed financial data; - ideas, processes, methods, techniques, systems, patented or copyrighted information, models, devices, programs, computer software or related information; - documents relating to regulatory matters and correspondence with governmental entities; - pricing and cost data; - reports and analyses of business prospects; - business transactions which are contemplated or planned; - research data; - personnel information and data; - identities of users and purchasers of any Bell Atlantic Company's products or services; and - other confidential matters pertaining to or known by one or more Bell Atlantic Companies, including confidential information of a third party which a Bell Atlantic Company is bound to protect. (b) Obligation to Return Company Property: If and when the Executive ------------------------------------- retires or terminates employment for any other reason with all Bell Atlantic Companies, the Executive shall, prior to the last day of active employment and without charge to any Bell Atlantic Company, return to the employing Bell Atlantic Company (or the rightful Bell Atlantic Company) all company property, including, without limitation, originals and copies of records, papers, programs, computer software, documents and other materials which contain Proprietary Information, as defined in Section 5(a). The Executive shall thereafter cooperate with each applicable Bell Atlantic Company in executing and delivering documents requested by the company that are necessary to assist the Bell Atlantic Company in patenting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the Bell Atlantic Company. (c) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of the prohibitions of this Section 5, or other "misconduct" by the Executive (as that term is interpreted by the HRC under the RIP and PSP plans, as those plans may be amended from time to time), may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 6. Remedies in Addition to Forfeiture of Benefits. The Executive ---------------------------------------------- recognizes that irreparable injury will result to one or more Bell Atlantic Companies, and to the business and property of any of them, in the event of a breach by the Executive of any of the provisions of Section 5 or 6 of this Agreement, and that the Executive's continued employment is predicated on the commitments made by the Executive in those Sections. In the event of any breach of any of the Executive's commitments under Section 5 or 6, any Bell Atlantic Company that is damaged by such breach shall be entitled, in addition to declaring a forfeiture of benefits as described herein, and in 5 addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by the Executive or by any person or persons acting for or with the Executive in any capacity whatsoever. 7. Misconduct. For purposes of this Agreement, the term "misconduct" ---------- shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that BAC concludes amounts to a material breach of any company policy or provision of the Employee Code of Business Conduct, and including, by way of example: dishonesty; working outside the Bell Atlantic Companies in competition with any Bell Atlantic Company; other conduct that poses a material conflict of interest; revealing confidential or proprietary information of any Bell Atlantic Company; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. 8. Miscellaneous Provisions. ------------------------ (a) Legal Release: Notwithstanding any other provision of this Agreement, ------------- no cash separation benefit under Section 2 or 3 hereof shall be payable unless and until the Executive signs a legal release in a form satisfactory to BAC; provided, however, that nothing in this Agreement is intended to cause the Executive to waive his right to submit claims for employee benefits in accordance with the terms of any employee benefit plans in which the Executive remains a participant. (b) Assignment by the Company: BAC and the Employing Company may assign ------------------------- this Agreement without the Executive's consent to any company that acquires all or substantially all of the assets of BAC, or into which or with which BAC or the Employing Company is merged or consolidated. If and when the Executive transfers to a Bell Atlantic Company other than the current employing Bell Atlantic Company, this Agreement shall be deemed to be automatically assigned to that company; provided, however, that, in the event of any such transfer, BAC shall continue to be a party to this Agreement. This Agreement may not be assigned by the Executive. (c) Waiver: The waiver by any Bell Atlantic Company of a breach by the ------ Executive of any provision of this Agreement shall not be construed as a waiver of any subsequent breach by the Executive. (d) Severability: If any clause, phrase or provision of this Agreement, ------------ or the application thereof to any person or circumstance, shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Agreement and shall not affect the application of any clause, phrase or provision hereof to other persons or circumstances. Furthermore, in the event that a court of law or equity determines that the geographic scope of the covenants under Section 4, or the duration of any of the restrictions under this Agreement, are not enforceable, this Agreement shall hereby be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement. 6 (e) Governing Law: This Agreement shall be construed and enforced in ------------- accordance with the laws of the Commonwealth of Pennsylvania. (f) Entire Agreement: Except for the terms and conditions of the ---------------- compensation and benefit plans applicable to the Executive (as such plans may be amended by the applicable Bell Atlantic Company from time to time), and except for the potential resumption of the terms of the 1993 Agreement under circumstances described in Section 1, this Agreement sets forth the entire understanding of BAC, the Employing Company and the Executive and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof; and this Agreement shall not be modified or amended except by written agreement of the Executive, BAC and the Bell Atlantic Company which then employs the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: -------------------------------- Raymond W. Smith Chairman of the Board and Chief Executive Officer BELL ATLANTIC NETWORK SERVICES, INC. By: --------------------------------- Mark J. Mathis, Vice President and General Counsel THE EXECUTIVE ------------------------------------- Stuart C. Johnson 7 EX-10.W 11 EXHIBIT EX10W Exhibit 10w ----------- NON-COMPETE AND PROPRIETARY INFORMATION AGREEMENT THIS NON-COMPETE AND PROPRIETARY INFORMATION AGREEMENT, made this 9th day of August, 1993, by and between Bell Atlantic Corporation ("BAC"), BELL ATLANTIC NETWORK SERVICES, INC., a wholly-owned subsidiary of BAC (the "Company") and Stuart C. Johnson (the "Executive"). WHEREAS, competitive initiatives are vital to the success of the business of BAC and to the businesses of each majority-owned subsidiary of BAC (BAC and such subsidiaries are collectively referred to herein as "Bell Atlantic Companies"); and WHEREAS, the Human Resources Committee of the Board of Directors of BAC determined on June 21, 1993, that it is appropriate for the Chairman and Chief and Executive Officer of BAC (the "Chairman") to enter into an acceptable form of non-compete and proprietary information agreement with a number of Senior Managers selected by the Chairman; NOW, THEREFORE, for good and valuable consideration, including compensation and benefits recited below and the promotion of the Executive, the Executive, the Company and BAC hereby agree as follows: 1. Prohibition Against Competitive Activities: ------------------------------------------ (a) Prohibited Conduct by the Executive: During the period of the ----------------------------------- Executive's employment with any Bell Atlantic Company, and for a period of two years following the Executive's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Executive, without the prior written consent of the Chief Executive Officer of BAC, shall not engage in any conduct described in clauses (i) through (iii) below within any geographic area in which any Bell Atlantic Company is then engaged (or, at the time of the Executive's termination of employment, had a board-approved business plan under which it planned to engage) in "Competitive Activities" (as defined in paragraph 1(b)): (i) engage in, or work for, or own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting 1 or advisory services to, any individual, partnership, firm, corporation or institution engaged in, Competitive Activities; provided, however, that the Executive's purchase or holding, for investment purposes, of any securities of a publicly traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph; (ii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, representatives, suppliers or vendors under contract, or joint venturers, where any such person or entity cooperates with or supports a Bell Atlantic Company in its performance of any Competitive Activities; or (iii) directly or indirectly attempt to divert from any Bell Atlantic Company any business in connection with Competitive Activities. (b) Competitive Activities: For purposes of Section 1(a) hereof, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as those for which the Executive had responsibility to plan, develop, manage or oversee within the last 24 months of the Executive's employment with any Bell Atlantic Company. (c) Notice. BAC shall send the Executive written notice in the event ------ that BAC believes that the Executive has violated any of the prohibitions of this Section 1; provided, however, that any failure by BAC to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to BAC giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of any of the prohibitions of this Section 1 or the rules against wrongful competitive activity by the Executive as defined under the Bell Atlantic Senior Management Retirement Income Plan (the "RIP") and the Bell Atlantic Performance Share Plan (the "PSP"), as the terms of those plans may be amended from time to time, may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 2. Prohibition Against Disclosure of Proprietary Information: --------------------------------------------------------- (a) Prohibited Conduct by the Executive: The Executive acknowledges that, ----------------------------------- as one of the most senior officers of the Bell Atlantic Companies, the Executive has continuing access to confidential and proprietary information of Bell Atlantic Companies. The Executive shall, therefore, at all times during the period of active employment with any Bell Atlantic Company, and for a period of three years thereafter, preserve the 2 confidentiality of all proprietary information of any Bell Atlantic Company. The three-year limitation under this paragraph shall not in any way limit any Bell Atlantic Company's common law and statutory rights to protect its trade secrets or intellectual property rights at any time, to the full extent of the law. "Proprietary information" includes, but is not limited to, information in the possession or control of a Bell Atlantic Company that has not been fully disclosed in a writing which has been generally circulated to the public at large, and which gives the Bell Atlantic Company an opportunity to obtain or maintain advantages over its current and potential competitors, such as: - strategic or tactical business plans, and undisclosed financial data; - ideas, processes, methods, techniques, systems, patented or copyrighted information, models, devices, programs, computer software or related information; - documents relating to regulatory matters and correspondence with governmental entities; - pricing and cost data; - reports and analyses of business prospects; - business transactions which are contemplated or planned; - research data; - personnel information and data; - identities of users and purchasers of any Bell Atlantic Company's products or services; and - other confidential matters pertaining to or known by one or more Bell Atlantic Companies, including confidential information of a third party which a Bell Atlantic Company is bound to protect. (b) Obligation to Return Company Property: If and when the Executive ------------------------------------- retires or terminates employment for any other reason with all Bell Atlantic Companies, the Executive shall, prior to the last day of active employment and without charge to any Bell Atlantic Company, return to the employing Bell Atlantic Company (or the rightful Bell Atlantic Company) all company property, including, without limitation, originals and copies of records, papers, programs, computer software, documents and other materials which contain Proprietary Information, as defined in Section 2(a). The Executive shall thereafter cooperate with each applicable Bell Atlantic Company in executing and delivering documents requested by the company that are necessary to assist the Bell Atlantic Company in patenting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the Bell Atlantic Company. (c) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of the prohibitions of this Section 2 or the forfeiture provisions applicable to misconduct by the Executive under the RIP and the PSP, as the terms of those plans may 3 be amended from time to time, may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 3. Remedies in Addition to Forfeiture of Benefits. The Executive ---------------------------------------------- recognizes that irreparable injury will result to one or more Bell Atlantic Companies, and to the business and property of any of them, in the event of a breach by the Executive of any of the provisions of Section 1 or 2 of this Agreement, and that the Executive's continued employment is predicated on the commitments made by the Executive in those Sections. In the event of any breach of any of the Executive's commitments under Section 1 or 2, any Bell Atlantic Company that is damaged by such breach shall be entitled, in addition to declaring a forfeiture of benefits as described herein, and in addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by the Executive or by any person or persons acting for or with the Executive in any capacity whatsoever. 4. Misconduct. For purposes of this Agreement, the term "misconduct" ---------- shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that BAC concludes amounts to a material breach of any company policy or any provision of the Employee Code of Business Conduct, and including, by way of example: dishonesty; working outside the Bell Atlantic Companies in competition with any Bell Atlantic Company; other conduct that poses a material conflict of interest; revealing confidential or proprietary information of any Bell Atlantic Company; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. 5. Certain Involuntary Terminations of Employment. ---------------------------------------------- (a) Consequences of Certain Involuntary Terminations. In the event that ------------------------------------------------ the employing Bell Atlantic Company involuntarily terminates the Executive's employment for a reason other than misconduct, then BAC shall provide a cash separation benefit to the Executive in an amount equal (before applicable withholding taxes) to two times the sum of: (A) the Executive's annual rate of base recurring salary at the time of termination of employment; and (B) the Executive's most recent award of cash and deferred stock under the Senior Management Short Term Incentive Plan. This cash separation benefit shall be payable in monthly installments over a period of 24 months, subject to the Executive's continuing compliance with the terms of this Agreement. (b) A termination of employment will be treated as involuntary, even if the termination is characterized for other purposes as voluntary, if, either: (i) BAC acknowledges in a writing delivered to the Executive that the termination is considered to be involuntary for purposes of this Section; or 4 (ii) the termination of employment is under duress. An otherwise voluntary termination of employment will be considered involuntary, and "under duress", for purposes of this Section 5 of this Agreement, if, in the absence of misconduct on the part of the Executive, and without the Executive's express written consent, any of the following events has occurred within 12 months prior to the Executive's termination of employment: (A) the Executive's status as a "Senior Manager" has been revoked; (B) the Executive's base recurring salary has been reduced by more than 10%; (C) the Executive has suffered a negative individual performance adjustment which causes the Executive's short term award under the STIP for a particular year to be reduced by 25% or more; or (D) the Executive's responsibilities have been substantially reduced in both type and scope, other than in a general reorganization of the management functions of one or more Bell Atlantic Companies, with the result that the Executive has materially less status and authority. 6. Certain Voluntary Terminations of Employment. -------------------------------------------- (a) Consequences of Certain Voluntary Terminations. In the event that the ---------------------------------------------- Executive voluntarily resigns or voluntarily retires, other than under circumstances that are treated as involuntary for purposes of Section 5 hereof, then the Chairman shall elect either: (i) to pay the cash installments described in Section 5(a), or (ii) to waive the obligation of the Executive to comply with the covenants of Section 1 (but not Section 2) of this Agreement from and after the date of termination; provided, however, that the parties acknowledge that, in the event of any such waiver, the benefit-forfeiture provisions of the RIP and the PSP shall nevertheless remain applicable to the Executive, in accordance with the terms of those plans, as they may be amended from time to time. (b) Misconduct. The Executive shall have no rights under this Section 6 ---------- if BAC determines that there was misconduct by the Executive at or about the time of the Executive's voluntary resignation or retirement. 7. Miscellaneous Provisions. ------------------------ (a) Assignment by the Company: BAC may assign this Agreement without the ------------------------- Executive's consent to any company that acquires all or substantially all of the assets of BAC, or into which or with which BAC is merged or consolidated. If and when the Executive transfers to a Bell Atlantic Company other than the current employing Bell 5 Atlantic Company, this Agreement shall be deemed to be automatically assigned to that company; provided, however, that, in the event of any such transfer, BAC shall continue to be a party to this Agreement. This Agreement may not be assigned by the Executive. (b) Waiver: The waiver by any Bell Atlantic Company of a breach by the ------ Executive of any provision of this Agreement shall not be construed as a waiver of any subsequent breach by the Executive. (c) Severability: If any clause, phrase or provision of this Agreement, ------------ or the application thereof to any person or circumstance, shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Agreement and shall not affect the application of any clause, phrase or provision hereof to other persons or circumstances. Furthermore, in the event that a court of law or equity determines that the geographic scope of the covenants under Section 1, or the duration of any of the restrictions under this Agreement, are not enforceable, this Agreement shall hereby be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement. (d) Governing Law: This Agreement shall be construed and enforced in ------------- accordance with the laws of the Commonwealth of Pennsylvania. (e) Entire Agreement: Except for the terms and conditions of the ---------------- compensation and benefit plans applicable to the Executive (as such plans may be amended by the applicable Bell Atlantic Company from time to time), this Agreement sets forth the entire understanding of BAC, the Company and the Executive and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof; and this Agreement shall not be modified or amended except 6 by written agreement of the Executive, BAC and the Bell Atlantic Company which then employs the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By:______________________________________ Raymond W. Smith Chairman of the Board and Chief Executive Officer THE EXECUTIVE _________________________________________ Stuart C. Johnson BELL ATLANTIC NETWORK SERVICES, INC. By_______________________________________ Mark J. Mathis, Vice President and General Counsel 7 EX-10.X 12 EXHIBIT 10X Exhibit 10x ----------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made this 24th day of January, 1994, by and between Bell Atlantic Corporation ("BAC") and James R. Young (the "Executive"). WHEREAS, competitive initiatives are vital to the success of the business of BAC and to each business entity, whether a corporation, partnership or other type of entity, in which, from time to time, BAC owns directly or indirectly a majority economic or voting interest (BAC and such majority-owned entities are collectively referred to herein as "Bell Atlantic Companies"); and WHEREAS, the Human Resources Committee (the "HRC") of the Board of Directors of BAC determined on November 22, 1993, that it is appropriate for BAC and other Bell Atlantic Companies to enter into agreements with certain officers for the following purposes: (1) to assist in retaining the services of said officers throughout a crucial period during which Bell Atlantic expects to conclude a major corporate merger and otherwise accelerate the transformation of its business; (2) to obtain protection for BAC and other affected Bell Atlantic Companies in the form of non-compete and proprietary information covenants from said officers;and (3) in consideration for said covenants, to provide for severance benefits that any such officer may become eligible to receive under certain circumstances; and NOW, THEREFORE, for good and valuable consideration, including compensation and benefits recited below, the Executive and BAC hereby agree as follows: 1. Term of this Agreement: ---------------------- This Agreement shall be effective on and after the date first stated above and shall expire either on the second anniversary of the date of the first closing of the transactions contemplated by a letter of intent dated October 12, 1993, among BAC, Tele-Communications, Inc. and Liberty Media, Inc., or on December 31, 1995, in the absence of any such closing prior to that date; provided, however, that in the event that the Executive's employment terminates on or before said expiration date, this Agreement shall continue in force so long as rights and obligations of the respective parties hereunder remain in force by their terms. 2. Certain Involuntary Terminations of Employment. ---------------------------------------------- (a) Consequences of Certain Involuntary Terminations. In the event that ------------------------------------------------ the Bell Atlantic Company that then employs the Executive involuntarily terminates the Executive's employment for a reason other than "misconduct" (as defined in Section 7), then BAC shall provide a cash separation benefit to the Executive in an amount 1 equal (before applicable withholding taxes) to three times the sum of: (A) the Executive's annual rate of base recurring salary at the time of termination of employment; and (B) the greater of (i) the value of the Executive's most recent award of cash and deferred stock under the Senior Management Short Term Incentive Plan (the "STIP"), or (ii) the value of the most recent award of cash and deferred stock under the STIP for the Executive's salary grade without taking into account any individual performance adjustments to the award. This cash separation benefit shall be payable in three annual installments, the first of which shall be payable not later than 60 days after the termination of employment date, and the second and third of which shall be due on or about the first and second anniversaries, respectively, of said termination of employment, subject to the Executive's continuing compliance with the terms of this Agreement. (b) For purposes of Section 2(a), a termination of employment will be treated as involuntary, even if the termination is characterized for other purposes as voluntary, if, either: (i) BAC acknowledges in a writing delivered to the Executive that the termination is considered to be involuntary for purposes of this Section; or (ii) the termination of employment is under duress. An otherwise voluntary termination of employment will be considered involuntary, and "under duress", for purposes of this Section 2 of this Agreement, if, in the absence of misconduct on the part of the Executive, and without the Executive's express written consent, any of the following events has occurred within 12 months prior to the Executive's termination of employment: (A) the Executive's status as a "Senior Manager" has been revoked; (B) the Executive's base recurring salary has been reduced by more than 10%; (C) the Executive has suffered a negative individual performance adjustment which causes the Executive's short term award under the STIP for a particular year to be reduced by 25% or more; or (D) the Executive's responsibilities have been substantially reduced in type or scope, other than in a general reorganization of the management functions of one or more Bell Atlantic Companies, with the result that the Executive has materially less status and authority. 3. Certain Voluntary Terminations of Employment. -------------------------------------------- (a) Consequences of Certain Voluntary Terminations. In the event that the ---------------------------------------------- Executive voluntarily resigns or voluntarily retires, other than under circumstances that are treated as involuntary for purposes of Section 2 hereof, then the Chairman shall elect either: (i) to pay the cash separation benefit described in Section 2(a), and, in that event, the payment by the Bell Atlantic Company of the number and dollar amount of cash installments stated in Section 2(a) shall be the 2 Executive's exclusive remedy for any cause of action asserted by, or any damages alleged to be suffered by, the Executive in connection with his employment with, or termination of employment from, any Bell Atlantic Company; (ii) to waive the obligation of the Executive to comply with the covenants of Section 4 (but not Section 5) of this Agreement from and after the date of termination; provided, however, that the parties acknowledge that, in the event of any such waiver, the benefit-forfeiture provisions of the Bell Atlantic Senior Management Retirement Income Plan (the "RIP") and the Bell Atlantic Performance Share Plan (the "PSP") shall nevertheless remain applicable to the Executive, in accordance with the terms of those plans, as they may be amended from time to time. (b) Misconduct. The Executive shall have no rights under this Section 3 ---------- if BAC determines that there was misconduct by the Executive at or about the time of the Executive's voluntary resignation or retirement. 4. Prohibition Against Competitive Activities: ------------------------------------------ (a) Prohibited Conduct by the Executive: During the period of the ----------------------------------- Executive's employment with any Bell Atlantic Company, and for a period of two years following the Executive's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Executive, without the prior written consent of the Chief Executive Officer of BAC, shall not: (i) personally engage in "Competitive Activities" (as defined in paragraph 4(b)) within any geographic area in which any Bell Atlantic Company is then engaged (or, at the time of the Executive's termination of employment, had a board-approved business plan under which it planned to engage) in Competitive Activities; (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities within any geographic area described in Section 4(a)(i); provided, however, that the Executive's purchase or holding, for investment purposes, of securities of a publicly-traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Executive's equity interest in any such company is less than a controlling interest; (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, representatives, suppliers or vendors under contract, or joint venturers, where any such person or entity cooperates with or supports a Bell Atlantic Company in its performance of any Competitive Activities; or 3 (iv) directly or indirectly attempt to divert from any Bell Atlantic Company any business in connection with Competitive Activities. (b) Competitive Activities: For purposes of Section 4(a) hereof, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as those for which the Executive had responsibility to plan, develop, manage or oversee within the last 24 months of the Executive's employment with any Bell Atlantic Company. (c) Notice. BAC shall send the Executive written notice in the event ------ that BAC believes that the Executive has violated any of the prohibitions of this Section 4; provided, however, that any failure by BAC to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to BAC giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of any of the prohibitions of this Section 4 or the rules against wrongful competitive activity by the Executive as defined under the RIP and the PSP, as the terms of those plans may be amended from time to time, may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 5. Prohibition Against Disclosure of Proprietary Information: --------------------------------------------------------- (a) Prohibited Conduct by the Executive: The Executive acknowledges that, ----------------------------------- as one of the most senior officers of the Bell Atlantic Companies, the Executive has continuing access to confidential and proprietary information of Bell Atlantic Companies. The Executive shall, therefore, at all times during the period of active employment with any Bell Atlantic Company, and for a period of three years thereafter, preserve the confidentiality of all proprietary information of any Bell Atlantic Company. The three-year limitation under this paragraph shall not in any way limit any Bell Atlantic Company's common law and statutory rights to protect its trade secrets or intellectual property rights at any time, to the full extent of the law. "Proprietary information" includes, but is not limited to, information in the possession or control of a Bell Atlantic Company that has not been fully disclosed in a writing which has been generally circulated to the public at large, and which gives the Bell Atlantic Company an opportunity to obtain or maintain advantages over its current and potential competitors, such as: - strategic or tactical business plans, and undisclosed financial data; - ideas, processes, methods, techniques, systems, patented or copyrighted information, models, devices, programs, computer software or related information; - documents relating to regulatory matters and correspondence with governmental entities; - pricing and cost data; - reports and analyses of business prospects; 4 - business transactions which are contemplated or planned; - research data; - personnel information and data; - identities of users and purchasers of any Bell Atlantic Company's products or services; and - other confidential matters pertaining to or known by one or more Bell Atlantic Companies, including confidential information of a third party which a Bell Atlantic Company is bound to protect. (b) Obligation to Return Company Property: If and when the Executive ------------------------------------- retires or terminates employment for any other reason with all Bell Atlantic Companies, the Executive shall, prior to the last day of active employment and without charge to any Bell Atlantic Company, return to the employing Bell Atlantic Company (or the rightful Bell Atlantic Company) all company property, including, without limitation, originals and copies of records, papers, programs, computer software, documents and other materials which contain Proprietary Information, as defined in Section 5(a). The Executive shall thereafter cooperate with each applicable Bell Atlantic Company in executing and delivering documents requested by the company that are necessary to assist the Bell Atlantic Company in patenting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the Bell Atlantic Company. (c) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of the prohibitions of this Section 5, or other "misconduct" by the Executive (as that term is interpreted by the HRC under the RIP and PSP plans, as those plans may be amended from time to time), may result in the Executive's forfeiture of any and all rights to benefits or awards under the RIP and the PSP. 6. Remedies in Addition to Forfeiture of Benefits. The Executive ---------------------------------------------- recognizes that irreparable injury will result to one or more Bell Atlantic Companies, and to the business and property of any of them, in the event of a breach by the Executive of any of the provisions of Section 5 or 6 of this Agreement, and that the Executive's continued employment is predicated on the commitments made by the Executive in those Sections. In the event of any breach of any of the Executive's commitments under Section 5 or 6, any Bell Atlantic Company that is damaged by such breach shall be entitled, in addition to declaring a forfeiture of benefits as described herein, and in addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by the Executive or by any person or persons acting for or with the Executive in any capacity whatsoever. 7. Misconduct. For purposes of this Agreement, the term "misconduct" ---------- shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that BAC concludes amounts to a material breach of any company policy or provision of the Employee Code of Business Conduct, and including, by way of example: dishonesty; working outside the Bell Atlantic Companies in competition with any Bell Atlantic Company; other conduct that poses a material conflict of interest; revealing confidential or proprietary information of any 5 Bell Atlantic Company; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. 8. Miscellaneous Provisions. ------------------------ (a) Legal Release: Notwithstanding any other provision of this Agreement, ------------- no cash separation benefit under Section 2 or 3 hereof shall be payable unless and until the Executive signs a legal release in a form satisfactory to BAC; provided, however, that nothing in this Agreement is intended to cause the Executive to waive his right to submit claims for employee benefits in accordance with the terms of any employee benefit plans in which the Executive remains a participant. (b) Assignment by the Company: BAC may assign this Agreement without the ------------------------- Executive's consent to any company that acquires all or substantially all of the assets of BAC, or into which or with which BAC is merged or consolidated. If and when the Executive transfers to a Bell Atlantic Company other than the current employing Bell Atlantic Company, this Agreement shall be deemed to be automatically assigned to that company; provided, however, that, in the event of any such transfer, BAC shall continue to be a party to this Agreement. This Agreement may not be assigned by the Executive. (c) Waiver: The waiver by any Bell Atlantic Company of a breach by the ------ Executive of any provision of this Agreement shall not be construed as a waiver of any subsequent breach by the Executive. (d) Severability: If any clause, phrase or provision of this Agreement, ------------ or the application thereof to any person or circumstance, shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Agreement and shall not affect the application of any clause, phrase or provision hereof to other persons or circumstances. Furthermore, in the event that a court of law or equity determines that the geographic scope of the covenants under Section 4, or the duration of any of the restrictions under this Agreement, are not enforceable, this Agreement shall hereby be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement. (e) Governing Law: This Agreement shall be construed and enforced in ------------- accordance with the laws of the Commonwealth of Pennsylvania. (f) Entire Agreement: Except for the terms and conditions of the ---------------- compensation and benefit plans applicable to the Executive (as such plans may be amended by the applicable Bell Atlantic Company from time to time), this Agreement sets forth the entire understanding of BAC and the Executive and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof; and this Agreement shall not be modified or amended except by written agreement of the Executive, BAC and the Bell Atlantic Company which then employs the Executive. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By:_________________________________________ Raymond W. Smith Chairman of the Board and Chief Executive Officer THE EXECUTIVE -------------------------------------------- James R. Young 7 EX-11 13 EXHIBIT 11 Exhibit 11 File No. 1-8606 BELL ATLANTIC CORPORATION AND SUBSIDIARIES Computation of Per Common Share Earnings (Dollars in Millions, Except Per Share Amounts)
Years Ended December 31, --------------------------------------------- 1993 1992 1991 ------------ ------------ ------------ Income before extraordinary item and cumulative effect of changes in accounting principles................... $ 1,481.6 $ 1,382.2 $ 1,229.9 Tax benefit of dividends paid on shares held by employee stock ownership plans........ -- 14.8 14.4 ------------ ------------ ------------ Income before extraordinary item and cumulative effect of changes in accounting principles applicable to common shareowners........... 1,481.6 1,397.0 1,244.3 Extraordinary item............ (58.4) (41.6) -- Cumulative effect of changes in accounting principles..... (19.8) -- (1,554.3) ------------ ------------ ------------ Net income (loss) applicable to common shareowners........ $ 1,403.4 $ 1,355.4 $ (310.0) ============ ============ ============ Earnings (Loss) Per Common Share Weighted average shares outstanding.................. 435,136,371 432,167,257 428,248,344 Incremental shares from assumed exercise of stock options and payment of performance share awards..... 1,170,838 876,819 841,531 ------------ ------------ ------------ Total shares.................. 436,307,209 433,044,076 429,089,875 ============ ============ ============ Income before extraordinary item and cumulative effect of changes in accounting principles................... $ 3.39 $ 3.23 $ 2.91 Extraordinary item............ (.13) (.10) -- Cumulative effect of changes in accounting principles..... (.04) -- (3.63) ------------ ------------ ------------ Net income (loss)............. $ 3.22 $ 3.13 $ (.72) ============ ============ ============ Fully Diluted Earnings (Loss) Per Common Share* Weighted average shares outstanding.................. 435,136,371 432,167,257 428,248,344 Incremental shares from assumed exercise of stock options and payment of performance share awards..... 1,298,288 1,027,069 1,082,533 ------------ ------------ ------------ Total shares.................. 436,434,659 433,194,326 429,330,877 ============ ============ ============ Income before extraordinary item and cumulative effect of changes in accounting principles................... $ 3.39 $ 3.23 $ 2.91 Extraordinary item............ (.13) (.10) -- Cumulative effect of changes in accounting principles..... (.04) -- (3.63) ------------ ------------ ------------ Net income (loss)............. $ 3.22 $ 3.13 $ (.72) ============ ============ ============
*Fully diluted earnings per share calculation is presented in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of Accounting Principles Board Opinion No. 15 because it results in dilution of less than 3%. EX-12 14 EXHIBIT 12 Exhibit 12 File No. 1-8606 BELL ATLANTIC CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (Dollars in Millions)
Years Ended December 31, ------------------------------------------------ 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Income before provision for income taxes, extraordinary item, and cumulative effect of changes in accounting principles.. $2,273.6 $2,025.7 $1,894.7 $1,900.1 $1,494.9 Equity in income of less than majority-owned subsidiaries................. (48.3) (52.4) (79.5) (52.5) (26.7) Dividends from less than majority- owned subsidiaries.......................... 73.4 48.3 64.6 41.2 13.3 Interest expense, including interest on capital lease obligations................ 719.6 828.7 1,000.8 960.8 786.1 Portion of rent expense representative of the interest factor...................... 102.6 98.6 99.4 100.8 97.8 -------- -------- -------- -------- -------- Income, as adjusted........................... $3,120.9 $2,948.9 $2,980.0 $2,950.4 $2,365.4 ======== ======== ======== ======== ======== Fixed charges: Interest expense, including interest on capital lease obligations................ $ 719.6 $ 828.7 $1,000.8 $ 960.8 $ 786.1 Portion of rent expense representative of the interest factor...................... 102.6 98.6 99.4 100.8 97.8 Interest capitalized on construction.......... 1.1 3.2 6.4 14.2 17.3 -------- -------- -------- -------- -------- Fixed charges................................. $ 823.3 $ 930.5 $1,106.6 $1,075.8 $ 901.2 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges............ 3.79 3.17 2.69 2.74 2.62 ======== ======== ======== ======== ========
EX-13 15 EXHIBIT 13 Exhibit 13 [LOGO OF BELL ATLANTIC APPEARS HERE] 2 DIRECTORS & EXECUTIVE OFFICERS 3 CHAIRMAN'S MESSAGE . Financial Review . 1993 Highlights . Maximizing Value 6 FINANCIAL INFORMATION 40 SHAREOWNER INFORMATION - -------------------------------------------------------------------------------- B E L L A T L A N T I C - -------------------------------------------------------------------------------- 1 9 9 3 - -------------------------------------------------------------------------------- A N N U A L R E P O R T - -------------------------------------------------------------------------------- DIRECTORS & EXECUTIVE OFFICERS BELL ATLANTIC CORPORATION BOARD OF DIRECTORS William W. Adams Chairman of the Board Armstrong World Industries, Inc. Thomas E. Bolger Chairman of the Executive Committee of the Board of Directors Bell Atlantic Corporation Frank C. Carlucci Chairman The Carlyle Group William G. Copeland Chairman of the Board Providentmutual Holding Company James H. Gilliam, Jr. Executive Vice President and General Counsel Beneficial Corporation Thomas H. Kean President Drew University John C. Marous, Jr. Retired Chairman Westinghouse Electric Corporation John F. Maypole Managing Partner Peach State Real Estate Holding Company Thomas H. O'Brien Chairman and Chief Executive Officer PNC Bank Corp. Rozanne L. Ridgway Co-Chair The Atlantic Council of the United States Raymond W. Smith Chairman of the Board and Chief Executive Officer Bell Atlantic Corporation Shirley Young Vice President, Consumer Market Development General Motors Corporation EXECUTIVE OFFICERS Raymond W. Smith Chairman of the Board and Chief Executive Officer James G. Cullen President William O. Albertini Vice President and Chief Financial Officer Joseph T. Ambrozy Vice President-Strategic Planning Lawrence T. Babbio, Jr. Chairman, President, and Chief Executive Officer Bell Atlantic Enterprises International, Inc. P. Alan Bulliner Vice President-Corporate Secretary and Counsel Barbara L. Connor Vice President-Finance and Controller and Treasurer Charles W. Crist Vice President-Human Resources John F. Gamba Group President Network Technologies and Systems Bell Atlantic Network Services, Inc. Bruce S. Gordon Group President-Consumer and Small Business Services Bell Atlantic Network Services, Inc. Stuart C. Johnson Group President Large Business and Information Services Bell Atlantic Network Services, Inc. Brian J. Kelly* Group President Network Operations Bell Atlantic Network Services, Inc. Robert M. Valentini President and Chief Executive Officer Bell Atlantic - Pennsylvania, Inc. James R. Young Vice President and General Counsel *Retires April 7, 1994 2 A Message from the Chairman TO OUR SHAREOWNERS: 1993 was another very successful year for Bell Atlantic in terms of solid fi- nancial results, landmark public policy decisions that improve our outlook, and strategic initiatives that clearly increase our long-term growth prospects. It also was a year of great transformation in the basic structure of our industry, as our enabling technologies and the markets we serve continued to undergo fun- damental change. We believe this transformation creates tremendous growth opportunities for Bell Atlantic, and we made significant strides in implementing our strategies for capitalizing on them. These strategies--and our 1993 accomplishments--are outlined below. It appears, however, that our future will not include a merger with Tele-Com- munications Inc. (TCI) and Liberty Media Corporation. As many of you know, we announced our merger intentions in October 1993. Unfortunately, the market and regulatory uncertainties surrounding this course of action made reaching agree- ment on the final terms and conditions of a transaction of this magnitude im- possible. While we regret that we were unable to bring this merger to fruition, we believe that the decision to terminate negotiations is in the best long-term interests of our shareowners. Further, we are confident that there are many vi- able opportunities for making our vision of being a leading communications, in- formation, and entertainment company a reality--some of which may involve joint ventures with TCI and Liberty. In the meanwhile, we have moved ahead aggressively in equipping Bell Atlantic to be a major player in our industry, and will continue to seek out growth op- portunities that will add to the value of your investment. FINANCIAL REVIEW 1993 was a year of strong operating earnings growth. As the U.S. economy con- tinued its recovery, growth in our basic telephone volumes improved, we sur- passed one million cellular customers, and our cellular subscriber growth ap- proached 50 percent. Moreover, we registered our one-millionth Answer Call cus- tomer, symbolic of strong demand for value-added services. This edition of the Annual Report is once again presented in the cost- effective, environmentally friendly format endorsed by 95 percent of shareowners we polled. Earnings for the year were reported at $3.22 per share, versus $3.13 in 1992, a 2.9 percent increase. However, the earnings-per-share increase was nearly 9 percent if certain one-time and extraordinary items reported in both years were excluded. 1993 results were affected by the early adoption of a new accounting standard for post-employment benefits (FAS 112) and the effect of 1993 tax leg- islation. Excluding one-time items, net income grew 10.5 percent in 1993. We achieved another year of growth also in terms of revenues. Reported reve- nues--which reflect our decreased strategic emphasis on computer leasing and the disposition of most of our customer premises equipment business--increased 2.1 percent in 1993. Operating revenues in our ongoing businesses (excluding these effects) were up 4.5 percent over 1992. The core network businesses accounted for more than one-half of Bell Atlantic's earnings growth. Underpinning our bottom-line accomplishments were healthy increases in telephone volumes. Access minutes of use for 1993 were up 7.2 percent over 1992, while message toll volumes grew 3.4 percent, and total access lines in service, 2.6 percent. The business market showed signs of strength, with business access lines and Centrex lines both achieving better than 4 percent growth. The demand for new services also continued to improve. Revenues from IQ(R) Services and other value-added services totaled $414 million, up more than 14 percent over 1992 totals. Beyond the core network, Bell Atlantic Enterprises International--which in- cludes Bell Atlantic Mobile, our overseas entities and Bell Atlantic Business Systems Services--also made strong contributions to our revenue and earnings growth in 1993. At Bell Atlantic Mobile, we added 340,700 subscribers, an increase of almost 49 percent, bringing the total number of cellular customers to just over 1 mil- lion. By comparison, the customer base grew 37.5 percent in 1992. 1993 cellular revenues were up 32 percent over 1992 levels. On the international scene, the value of Telecom Corporation of New Zealand shares has more than doubled in the three years since we invested in the compa- ny. Bell Atlantic recorded after-tax gains of $44.7 million resulting from 1993 sales of the stock, as we reduced our interest in the 3 company to just under 25 percent per our agreement with the New Zealand govern- ment. Bell Atlantic Business Systems Services, our computer service subsidiary, added several prestigious national and international companies--such as AMR Corporation, parent of American Airlines Inc.--to its list of accounts and posted strong gains in both revenues and cash flow for the year. Expense management continued to be the watchword at Bell Atlantic during 1993, as growth in total operating expenses from the prior year was essentially flat. Excluding depreciation and amortization, expenses actually fell 1.9 per- cent from 1992 totals. Moreover, we continued to take advantage of low interest rates by refinancing approximately $1.7 billion in long-term debt in 1993 and $1.8 billion in 1992. Refinancings in both years will result in annual interest savings of approximately $47 million over the next 10 years. Aside from our successful financial story in 1993, we made fundamental pro- gress in molding Bell Atlantic into a company poised for market leadership and solid growth in an environment of increasing competition, changing technology and rapidly emerging market opportunities. 1993 HIGHLIGHTS Transforming ourselves into a company that can achieve high growth as well as improved earnings and cash flow growth involves more than entering new busi- nesses. It also involves changing our current business--improving the way we operate, achieving legislative and regulatory incentives, and preparing to com- pete across all lines of business. In those terms, we made significant progress on six key strategic fronts. . First, we announced our intention to lead the country in the deployment of the information highway. In December, we issued our technology requirements to potential suppliers for a new video-capable technology platform that will accelerate our entry into at- tractive markets for entertainment and interactive multimedia services. We ex- pect Bell Atlantic's enhanced network will be ready to serve 8.75 million homes by the end of the year 2000. By the end of 1998, we plan to wire the top 20 markets in our Mid-Atlantic region. These investments will help establish Bell Atlantic as a world leader in what is clearly the high-growth opportunity for the 1990s and beyond--interactive, multimedia communications, entertainment and information services that address the vast, unfulfilled demand for customer choice, convenience and control. We will spend $11 billion over the next five years to rapidly build full- service networks capable of providing these services within the Bell Atlantic region. What's more, we will expand Bell Atlantic's global presence by develop- ing attractive investment opportunities in Europe, Mexico and the Pacific Rim. . Second, we have restructured ourselves by market segments in order to focus our business on the needs of our customers. Our various lines of business--such as Consumer Services, Small Business Services and Carrier Services--will help us respond more quickly to customers and to meet their requirements better than our competitors. In staffing several of these businesses--for example, Consumer Services and Large and Small Busi- ness Services--we recruited extensively from outside the company to increase our marketing strength in this critical initiative. . Third, we continued to make major strides in the public policy arena toward achieving the freedoms necessary to compete. Last summer, the state legislatures in Pennsylvania and Delaware authorized new regulatory frameworks that, when implemented, will give us the incentives to invest in new technology and services that will meet customer needs and provide long-term growth opportunities in a competitive environment. Plans for similar alternative regulation have been approved or are pending in all seven state jurisdictions. Moreover, all telephone subsidiaries have been afforded some degree of pricing flexibility for products and services subject to competition. Perhaps the most significant public policy development last year was our suc- cessful challenge to the provision of the 1984 Cable Act that prohibits Bell Atlantic from providing video programming in its traditional service territo- ries. The District Court ruling opens lucrative new markets for Bell Atlantic as it expands consumer choice. It may prove to be a forerunner of even more change, as legislation proposing to lift remaining barriers to our full partic- ipation in the information marketplace makes its way through Congress. . Fourth, during 1993, we further improved our competitive posture by making our core businesses more cost-efficient and market-focused. Recognizing that competition is here to stay, we continued to re-vamp serv- ice-delivery processes to increase provisioning speed and reduce cost. We dem- onstrated our network reliability and provisioning speed in Northern New Jer- sey, where, by virtue of the synchronous optical network (SONET) fiber ring system in Jersey City, we were able to connect more than 2,400 telephone lines and 90 high-capacity data circuits in temporary facilities for businesses af- fected by the bombing of the 4 World Trade Center. Currently, we're partnering with other companies to build ultra-high-speed fiber rings between New Jersey and New York City. Within the business itself, we plan to increase efficiency and reduce total network costs even further by developing and deploying state-of-the-art operat- ing systems. . Fifth, we continued to innovate within our existing core businesses by in- troducing new value-added services. Innovative network products such as IQ Services and Answer Call have made strong contributions to positive revenue growth in our traditional markets. In 1993, we posted close to $300 million in recurring revenues from products in- troduced since 1989. In the future, we will continue our steady stream of serv- ice introductions, which will include CritiCall(SM) emergency notification and monitoring service and voice-activated services. In the wireless arena, 1993 saw us introduce TraveLink(SM), a service that au- tomatically delivers incoming cellular calls to roaming customers, and we an- nounced upcoming trials of Spoken Caller Identification, which identifies call- ers to a mobile phone by name or number with a digitized voice. In 1993, we in- troduced the AirBridge(SM) family of services that provide a range of wireless data applications, including mobile fax, electronic mail, mobile computing con- nections, package tracking, and remote device monitoring and control. In the business market, we will continue to strengthen our presence by meet- ing data transport needs for large and small businesses with a basket of high- bandwidth services, such as Switched Multi-megabit Data Service (SMDS) and Frame Relay. . Sixth, and finally, we're expanding both within and beyond our region by choosing the appropriate markets and technology platforms to establish Bell Atlantic as the full-service network provider of choice for entertainment, communication and multimedia services. In some areas, the point of entry to these new market opportunities might be our existing telephone network. We recently announced plans to expand our Stargazer(SM) video-on-demand trial over existing telephone lines to a full mar- ket trial involving tens of thousands of customers in the Maryland and Virginia suburbs of Washington, D.C. In other places, the entry point might be cellular, or other wireless tech- nologies such as personal communications services. In 1994, we expect to par- ticipate in the FCC spectrum auctioning process for an opportunity to establish a national wireless footprint. Still another option is to team with cable tele- vision operators to establish a market presence outside of our region. On the international front, our agreement to acquire up to a 46 percent in- terest in Grupo Iusacell, S.A. de C.V., the second-largest telecommunications company in Mexico, represents the most significant overseas wireless investment in our history. While it is focused primarily on cellular today, Iusacell plans to use non- cellular radio spectrum to provide basic telephone service in Mexico, where there is currently a huge, unfulfilled demand. Moreover, the company is well positioned to compete in the long-distance business after Mexico opens up that business to full competition in August of 1996. MAXIMIZING VALUE In implementing each of these strategies, our focus will be on prudent capital investing in opportunities that provide value to our customers and growth to our shareowners. Along the way, we will continue to emphasize our single most important financial imperative--to increase capital efficiency, maximizing our return from every dollar spent. In the network, for example, we're re-allocat- ing investment dollars to broadband technologies without significantly ex- panding our capital budget. What's more, we continue to accelerate capital re- covery and target investments at new markets that promise high returns or where there are attractive opportunities for expansion. Our business opportunity for 1994 and beyond is straightforward--enhance the value of our core businesses by expanding our customer and service base, and develop high-growth businesses in the video entertainment, cable transport, ca- ble television, and information services markets. In summary, transforming ourselves for long-term growth has been a deliber- ate, ongoing process at Bell Atlantic. In 1993, we were highly successful not only at achieving strong operating results, but more important, at changing our methods, sharpening our customer focus, and preparing ourselves for a leading role in creating a new age in telecommunications. I could not be more confident about where we're headed. /s/ Raymond W. Smith Raymond W. Smith Chairman of the Board and Chief Executive Officer February 24, 1994 5 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL AND OPERATING DATA (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993 1992 1991 1990 1989 --------- --------- --------- --------- --------- For the Year Operating Revenues*..... $12,990.2 $12,718.4 $12,552.1 $12,547.4 $11,594.7 Operating Income........ $ 2,797.6 $ 2,506.2 $ 2,525.3 $ 2,614.3 $ 2,007.8 Income Before Extraordi- nary Item and Cumulative Effect of Changes in Accounting Principles.. $ 1,481.6 $ 1,382.2 $ 1,229.9 $ 1,230.5 $ 1,023.9 Net Income (Loss)....... $ 1,403.4 $ 1,340.6 $ (324.4) $ 1,230.5 $ 1,023.9 Per Common Share Income Before Extraordi- nary Item and Cumulative Effect of Changes in Accounting Principles.. $ 3.39 $ 3.23 $ 2.91 $ 2.92 $ 2.38 Net Income (Loss)....... $ 3.22 $ 3.13 $ (.72) $ 2.92 $ 2.38 Cash Dividends Declared. $ 2.68 $ 2.60 $ 2.52 $ 2.36 $ 2.20 At Year-End Total Assets............ $29,544.2 $28,099.5 $28,305.8 $28,391.8 $26,603.6 Long-Term Debt.......... $ 7,206.2 $ 7,348.2 $ 7,984.0 $ 8,928.5 $ 8,243.9 Employee Benefit Obliga- tions.................. $ 3,396.0 $ 3,058.7 $ 2,985.1 $ 216.0 $ 74.2 Shareowners' Investment. $ 8,224.4 $ 7,816.3 $ 7,367.6 $ 8,531.5 $ 8,423.0 Debt Ratio.............. 54.6% 56.3% 59.5% 57.5% 54.2% Book Value Per Common Share.................. $ 18.85 $ 18.00 $ 17.12 $ 19.96 $ 19.64 Network Access Lines (in thousands)............. 18,645 18,181 17,750 17,484 17,056 Number of Employees..... 73,600 71,400 76,900 82,700 80,000 Other Data Return on Average Common Equity................. 17.3% 17.4% (4.4)% 14.4% 11.3% Additions to Plant, Property and Equipment. $ 2,519.0 $ 2,546.8 $ 2,644.1 $ 2,692.1 $ 2,720.9
- -------- *Certain amounts have been reclassified to conform to 1993 classifications. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Net income in 1993 and 1992 was $1,403.4 million or $3.22 per share and $1,340.6 million or $3.13 per share, respectively, compared with a loss of $324.4 million or $.72 per share for 1991. Results for 1993 included the cumulative effects of adopting Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement No. 112) and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement No. 109). The loss in 1991 reflected a charge of $1,554.3 million, or $3.63 per share, for the adoption of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (Statement No. 106). Results for 1993 represented increases of 4.7% in net income and 2.9% in earnings per share over 1992, attributable to operating income growth of 11.6%, fueled by improved business volumes and expense controls, and lower interest costs, partially offset by higher income taxes. Results for 1992 represented increases of 9.0% in net income and 7.6% in earnings per share over 1991, excluding the cumulative effect of the adoption of Statement No. 106. Other items affecting the comparison of operating results are discussed in the following sections. Operating Revenues Local service revenues are earned by the telephone subsidiaries from the provision of local exchange, local private line, and public telephone services. Local service revenues increased $163.8 million or 3.3% and $134.3 million or 2.8% in 1993 and 1992, respectively. The increase in both years resulted primarily from growth in network access lines and higher demand for value-added central office services such as Custom Calling and Caller ID. Access lines in service at December 31, 1993 and 1992 increased 2.6% and 2.4%, respectively, over the prior year. Revenues from value-added central office services offered by the telephone subsidiaries increased $51.3 million or 14.1% in 1993 compared with $42.1 million or 13.1% growth in 1992. Network access revenues are received from interexchange carriers (IXCs) for their use of the Company's local exchange facilities in providing long-distance services to IXCs' customers and from end-user subscribers. Switched access revenues are derived from usage-based charges paid by IXCs for access to the Company's network. Special access revenues arise from access charges paid by customers who have private lines, and end-user access revenues are earned from local exchange carrier customers who pay for access to the network. Network access revenues increased $117.8 million or 4.0% in 1993 and $31.0 million or 1.1% in 1992. Growth in access minutes of use was 7.2% and 4.3% in the respective periods. Revenue increases related to this volume growth were partially offset in both years by the effect of interstate rate reductions filed by the Company with the Federal Communications Commission (FCC), which became effective on July 2, 1993 and July 1, 1992, and by related estimated price cap sharing liabilities. Toll service revenues increased $1.8 million or 0.1% in 1993 and $17.5 million or 1.1% in 1992. Toll message volume growth was 3.4% in 1993 compared with 2.9% in 1992. Volume-related message toll service revenue increases were partially offset in 1993 and 1992 by declines in revenues from WATS and private line services, principally due to competitive pressures. In 1993, revenue growth was offset further by the effects of rate reductions at one of the telephone subsidiaries. Other Network Services revenues include amounts earned from directory advertising, billing and collection services provided to IXCs, premises services such as inside wire installation and maintenance, and certain nonregulated enhanced network services. Directory advertising revenues in 1993 increased $27.1 million or 2.7% compared to a $25.3 million or 2.5% increase in 1992. Revenue growth was adversely impacted in both years by decreasing sales volume attributable primarily to competition. In addition, the rate of economic recovery as it pertains to this line of business continues to be mixed within the Network Services operating region. Premises services revenues increased $25.2 million or 9.6% and $10.9 million or 4.3% in 1993 and 1992, respectively, principally as a result of higher business volumes. Revenues from Answer Call, a nonregulated enhanced network service, were $50.6 million, $27.9 million, and $13.0 million in 1993, 1992, and 1991, respectively. Billing and collection revenues decreased $23.0 million in 1993 primarily as a result of the effect of favorable claim adjustments recorded in 1992. Billing and collection revenues were also reduced in 1993 as a result of reductions in services provided under long-term contracts with certain IXCs. 7 The provision for uncollectibles, expressed as a percentage of total Network Services revenue, was 1.4% in 1993, 1.1% in 1992, and 1.0% in 1991. Other Communications and Related Services includes revenues from the Company's domestic and international operations in wireless communications, computer maintenance, software development and support, systems integration, and telecommunications consulting. These revenues grew $78.9 million or 6.5% in 1993 compared with $81.9 million or 7.2% in 1992. The continued growth of the Company's cellular customer base was the primary reason for increases in cellular revenues of $187.3 million or 32.0% in 1993 and $103.0 million or 21.3% in 1992. Revenues in both years also reflected increases in business volumes in the Company's third-party computer maintenance business. These increases were offset in 1993 by a revenue decrease of approximately $177 million due to the effect of the transfer, effective December 31, 1992, of the Bell Atlanticom Systems, Inc. (Atlanticom) business to a partnership in which the Company owns a minority interest. Revenue growth in 1992 was reduced by $58.5 million due to the effect of the July 1991 transfer of the Company's European computer maintenance business to a joint venture. Financial, Real Estate, and Other Services includes revenues from the Company's domestic and international operations in diversified leasing, computer leasing, real estate, and liquefied petroleum gas distribution. The decreases in these revenues were due principally to the Company's decreased emphasis on computer leasing and real estate operations. The decreasing revenue trend is expected to continue throughout 1994. In line with its continuing de- emphasis of financial services businesses over the past years and its intensified focus on core telecommunications and information services strategies, the Company announced that it has begun evaluating possible strategies for exiting its financial services businesses. The Company has filed a registration statement for an initial public offering to dispose of a significant portion of its diversified leasing business. Assuming successful completion of the initial public offering, future periods will no longer include a significant portion of revenues from this business. Revenues related to the business covered in the registration statement were $245.3 million for the twelve months ended December 31, 1993. The disposition is not expected to have a material impact on the Company's net income in 1994. Operating Expenses Employee costs consist of salaries, wages and other employee compensation, employee benefits, and payroll taxes. Employee costs increased $86.1 million or 2.2% in 1993. Higher employee costs from salary and wage increases and overtime at the telephone subsidiaries were offset in part by savings of approximately $160 million resulting from workforce reduction programs implemented in 1992 at the Network Services companies. Workforce increases at certain nonregulated subsidiaries also contributed to higher employee costs, which were offset in part by a reduction attributable to the Atlanticom transaction. Employee costs decreased $51.1 million or 1.3% in 1992, which reflected savings of over $150 million resulting from a 1991 retirement incentive program and a reduction of $68.0 million in pension expense resulting from a modification of the expected long-term rate of return on plan assets. These reductions were partially offset by salary and wage increases for management and associate employees and expenses of approximately $73 million associated with the 1992 workforce reduction programs. The Company continues to evaluate ways to streamline and restructure its operations and reduce its workforce requirements in an effort to improve its cost structure. Depreciation and amortization expense increased $127.7 million or 5.3% in 1993 due primarily to approximately $135 million of additional expense resulting from represcribed depreciation rates at three of the telephone subsidiaries. Also contributing to the increase was growth in the level of depreciable plant at the telephone and cellular subsidiaries in 1993. Partially offsetting these increases was a reduction in depreciation and amortization expense at the financial services and real estate companies of approximately $59 million due to the de-emphasis of computer leasing and real estate operations. Depreciation and amortization expense increased $78.6 million or 3.4% in 1992. Depreciation and amortization expense at the telephone subsidiaries increased by approximately $180 million, of which approximately $150 million was attributable to represcribed depreciation rates. Also contributing to the increase was growth in the level of depreciable telephone plant, offset in part by the discontinuance of certain regulator-approved amortizations. These increases were partially offset by a reduction in depreciation and amortization 8 expense at the financial services and real estate companies of approximately $119 million due to the de-emphasis of computer leasing and real estate operations. Other operating expenses decreased $233.4 million or 6.1% in 1993. This reduction was largely the result of a decrease of approximately $184 million due to the transfer of the Atlanticom business to a partnership. The decrease also included the effect of the recognition in 1992 of approximately $47 million of one-time costs associated with the Company's merger with Metro Mobile CTS, Inc. (Metro Mobile). Additional decreases resulting from lower expenses at the financial services and real estate companies and Network Services companies were largely offset by increases related to higher business volumes at the Company's cellular and computer maintenance subsidiaries. Other operating expenses increased $157.9 million or 4.3% in 1992 due primarily to higher business volumes at the Company's cellular subsidiaries, recognition of approximately $47 million of one-time costs associated with the Metro Mobile merger, and increased deployment of advanced switching software at the telephone subsidiaries. These increases were offset in part by decreased expenses at the financial services companies, primarily as a result of lower interest costs associated with reduced debt levels in 1992, and the effect of the July 1991 transfer of the Company's European computer maintenance business to a joint venture. Company-wide cost containment efforts also reduced expenses during 1992. Assuming successful completion of the initial public offering to dispose of a significant portion of the Company's diversified leasing business, future periods will no longer include a significant portion of expenses from this business. Operating expenses related to the business covered in the registration statement were $191.6 million for the twelve months ended December 31, 1993. Other Income and Expense Other income and expense includes equity income from the Company's investment in unconsolidated businesses, interest and dividend income, and gains and losses from the disposition of assets and investments. Other income, net of expense, was $88.1 million in 1993, $214.4 million in 1992, and $176.2 million in 1991. The 1993 decrease is primarily the result of gains on the sale of certain assets recorded in 1992 and approximately $32 million of interest income recognized in 1992 in connection with the settlement of various federal income tax matters related to prior periods. Other income and expense for 1993 included approximately $42 million representing the Company's share of restructuring charges taken by Telecom Corporation of New Zealand Limited (Telecom), a pretax gain of approximately $65 million related to the private sales of a portion of the Company's investment in Telecom, and a pretax charge of approximately $26 million associated with a planned disposition of certain non-strategic businesses. The increase in 1992 reflects gains on sales of shares in HCA-Hospital Corporation of America (HCA) and real estate. The aggregate amount of these gains was virtually the same as the 1991 gains related to the Company's sales of shares in Telecom and real estate and the transfer of the Company's European computer maintenance business to a joint venture. The increase in 1992 also included approximately $32 million of interest income recognized in connection with the settlement of various federal income tax matters related to prior periods. Other income and expense, net, in 1994 is expected to decrease significantly due to goodwill amortization associated with the Company's equity investment in Grupo Iusacell, S.A. de C.V. (Iusacell), a Mexican telecommunications company. Interest Expense, Excluding Financial Services Interest expense decreased $82.8 million or 11.9% and $111.9 million or 13.9% in 1993 and 1992, respectively, principally due to the effects of lower short-term interest rates and long-term debt refinancings. Decreases also resulted from lower interest costs associated with the Telecom investment, as proceeds from the Company's sale of Telecom shares in 1993 and 1991 were used to reduce a portion of the acquisition-related debt. The effect of a $16.9 million write-off of deferred financing costs at Metro Mobile in 1991 also contributed to the decrease in 1992. Income Taxes The provision for income taxes increased $148.5 million or 23.1% in 1993 compared to a decrease of $21.3 million or 3.2% in 1992. 9 The Company's effective income tax rate was 34.8% in 1993, 31.8% in 1992, and 35.1% in 1991. The 1993 effective tax rate reflects the effect of federal tax legislation enacted in 1993, which increased the federal corporate tax rate from 34% to 35%. The lower effective tax rate in 1992 resulted from certain adjustments to deferred taxes and the recognition in 1992 of consolidated tax benefits attributable to operations of the Metro Mobile business. These tax benefits were not recognized in previous years. A reconciliation of the statutory federal income tax rate to the effective rate for each period is provided in Note 9 of Notes to Consolidated Financial Statements. Extraordinary Item The Company called $1,525.0 million in 1993 and $1,081.0 million in 1992 of long-term debentures of several of the telephone subsidiaries, which were refinanced at more favorable interest rates. As a result of these early retirements, the Company incurred after-tax charges of $58.4 million in 1993 and $41.6 million in 1992. These debt refinancings will reduce interest costs on the refinanced debt by approximately $47 million annually over the next ten years. Cumulative Effect of Changes in Accounting Principles In connection with the adoption of Statement No. 109, effective January 1, 1993, the Company recorded a one-time, cumulative effect tax benefit of $65.2 million in 1993 (see Note 9 of Notes to Consolidated Financial Statements). In connection with the adoption of Statement No. 112, effective January 1, 1993, the Company recorded a one-time, cumulative effect after-tax charge of $85.0 million in 1993 (see Note 8 of Notes to Consolidated Financial Statements). The adoption of Statement No. 109 and Statement No. 112 did not have a significant effect on the Company's ongoing level of expense in 1993 and is not expected to have a significant effect in future periods. COMPETITION AND REGULATORY ENVIRONMENT The telecommunications industry is currently undergoing fundamental changes which may have a significant impact on future financial performance of all telecommunications companies. These changes are driven by a number of factors, including the accelerated pace of technology change, customer requirements, a changing industry structure characterized by strategic alliances and the convergence of telecommunications and cable television, and a changing regulatory environment in which traditional regulatory barriers are being lowered and competition encouraged. The convergence of cable television, computer technology, and telecommunications can be expected to dramatically increase competition in the future. The Company's existing telecommunications business is already subject to competition from numerous sources, including competitive access providers for network access services (and in some jurisdictions for intraLATA toll services), competing cellular telephone companies and others. During 1993, a number of business alliances were announced that have the potential to significantly increase competition both within the industry and the areas currently served by Bell Atlantic. Over the past several years, the Company has taken a number of actions in anticipation of the increasingly competitive environment. Cost reductions have been achieved, giving the Company greater pricing flexibility for services exposed to competition. A new lines of business organization structure was adopted. Narrowband network modernization programs were largely completed, permitting a greater proportion of existing capital resources to be reallocated to the deployment of broadband network platforms to address the opportunities afforded by the emerging multimedia market. On the regulatory front, alternative regulation plans have been approved or are pending in all seven state jurisdictions. Moreover, all telephone subsidiaries have been afforded some degree of pricing flexibility for products and services subject to competition. Initiatives such as the Company's challenge to the 1984 Cable Act and the formation of an Information Services business unit staffed by experienced people from the video and entertainment industry have created opportunities for the Company in the information services and video markets. In October 1993, the Company announced its intention to invest up to a total of $1.04 billion to acquire a 42% (or, under certain circumstances, up to a 46%) economic interest in Grupo Iusacell, S.A. de C.V. (Iusacell), the second largest telecommunications company in Mexico. In November 1993, the Company acquired a 23% economic interest in Iusacell through the purchase of $520.0 million of newly issued Iusacell stock. The Company's acquisition of additional interests is expected to occur in mid-1994. This investment will substantially increase the size of the Company's cellular holdings. As a result of its investment in Iusacell, the Company expects earnings 10 dilution for the first several years due to the amortization of goodwill and financing costs. Earnings dilution is expected to be approximately $.14 per share in 1994. In the longer term, this investment should substantially increase the contribution that the wireless business makes to the Company's earnings growth. In October 1993, the Company also announced the execution of a letter of intent regarding a stock-for-stock merger among the Company, Tele- Communications Inc. and Liberty Media Corporation. On February 23, 1994, the parties announced that they had been unable to reach final agreement on their proposed merger and had terminated negotiations. The parties continue to discuss other ways of working together, including possible joint ventures to build full-service networks and joint investment in programming. The Company conducts ongoing evaluations of its accounting practices, many of which have been prescribed by regulators. These evaluations include the assessment of whether costs that have been deferred as a result of actions of regulators and the cost of the Company's telephone plant will be recoverable in the future. In the event recoverability of costs becomes unlikely due to decisions by the Company to accelerate deployment of new technology in response to specific regulatory actions or increasing levels of competition, the Company may no longer apply the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71). The discontinued application of Statement No. 71 would require the Company to write off its regulatory assets and liabilities and may require the Company to adjust the carrying amount of its telephone plant should it determine that such amount is not recoverable. The Company believes that it continues to meet the criteria for continued financial reporting under Statement No. 71. A determination in the future that such criteria are no longer met may result in a significant one-time, noncash, extraordinary charge, if the Company determines that a substantial portion of the carrying value of its telephone plant may not be recoverable. In October 1993, the FCC issued a report and order allocating radio spectrum to be licensed for use in providing personal communications services (PCS). Under the order, seven separate bandwidths of spectrum, ranging in size from 10 MHz to 30 MHz, would be auctioned to potential PCS providers in each geographic area of the United States. The geographical units by which the licenses would be allocated will be "basic trading areas" or larger "major trading areas." Five of the spectrum blocks are to be auctioned on a basic trading area basis, and the remaining two are to be auctioned by major trading area. Local exchange carriers such as the Company are eligible to bid for PCS licenses, except that cellular carriers (such as the Company) are limited to obtaining 10 MHz of PCS bandwidth in areas where they provide cellular service. Bidders other than cellular providers may obtain multiple licenses aggregating up to 40 MHz of bandwidth in any area. Bell Atlantic has stated that it intends to pursue PCS licenses in the auctions, which are expected to be held in 1994. In August 1993, the United States District Court for the Eastern District of Virginia ruled unconstitutional the 1984 Cable Act's limitation on in-territory provision of programming by local exchange carriers such as the Company. The Cable Act currently prohibits local exchange carriers from owning more than 5% of any company that provides cable programming in their local service area. In a case originally brought by two Bell Atlantic subsidiaries, the court ruled that this prohibition violates the First Amendment's freedom of speech protections, and enjoined enforcement of the prohibition against the Company and its telephone subsidiaries. The ruling has been appealed by the federal government. OTHER MATTERS Four of the telephone subsidiaries have been designated as potentially responsible parties by the U.S. Environmental Protection Agency in connection with eight Superfund sites. Designation as a potentially responsible party subjects the named company to potential liability for costs relating to cleanup of the affected sites. Management believes that the aggregate amount of any potential liability would not have a material effect on the Company's financial condition or results of operations. FINANCIAL CONDITION Management believes that the Company has adequate internal and external resources available to meet ongoing operating requirements, including network expansion and modernization, business development, and the payment of dividends. Management expects that presently foreseeable capital requirements will be financed primarily through internally generated funds. Additional long- term debt or equity financing may be needed to fund development activities to maintain the Company's capital structure within management's guidelines. 11 As of December 31, 1993, the Company and its subsidiaries had in excess of $2.0 billion of unused bank lines of credit and shelf registrations for the issuance of up to $2.3 billion of unsecured debt securities. During 1993, as in prior years, the Company's primary source of funds continued to be cash generated from operations. Revenue growth, cost containment measures and savings on interest costs contributed to cash provided from operations of $4.23 billion for the year ended December 31, 1993, compared to $3.91 billion in 1992. In addition, in 1993, the sale of a portion of the Company's interest in Telecom provided cash proceeds from investing activities of $253.7 million. In 1992, sales of real estate and HCA stock, and the disposition of businesses, provided net cash proceeds from investing activities of approximately $393 million. In March 1994, the Company expects to receive a payment of approximately $65 million in connection with a capital reduction plan by Telecom in which 20% of Telecom's outstanding shares will be canceled on a pro rata basis and shareholders will receive one New Zealand Dollar for each share canceled. Telecom's capital reduction will not change the Company's ownership percentage of Telecom. The primary use of capital resources continued to be capital expenditures. The Company invested approximately $2.1 billion in 1993, $2.2 billion in 1992, and $2.3 billion in 1991 in the telephone subsidiaries' network. This level of investment is expected to continue in 1994. The Company plans to reallocate capital resources to the deployment of broadband network platforms, as capital requirements for the narrowband network modernization are reduced. During 1993, the Company funded $289.1 million of postretirement health care and pension benefit costs compared to $348.6 million in 1992. In 1993, the Company used $674.4 million of cash in connection with its investment in Iusacell and the acquisition of two directory sales companies and certain cellular properties. The Company reduced long-term debt (including capital leases) and short-term debt by $168.2 million in 1993 and $764.4 million in 1992. Approximately $1.7 billion and $1.8 billion of debt was refinanced at more favorable interest rates during 1993 and 1992, respectively. The Company's debt ratio was 54.6% as of December 31, 1993, compared to 56.3% at December 31, 1992. The Company issued shares of its common stock for cash, in satisfaction of liabilities and in connection with acquisitions (see Note 6 of Notes to Consolidated Financial Statements). 12 REPORT OF MANAGEMENT The management of Bell Atlantic Corporation is responsible for the consolidated financial statements and the information and representations contained in this report. Management believes that the financial statements have been prepared in conformity with generally accepted accounting principles and that the information in this report is consistent with those statements. Management is required to include in the financial statements amounts, primarily related to matters not concluded by year-end, that are based on management's best estimates and judgments. In meeting its responsibility for the financial statements of the Company, management maintains a strong internal control structure, including the appropriate control environment, accounting systems, and control procedures. The internal control structure is designed to provide reasonable assurance that assets are safeguarded from unauthorized use or disposition, that transactions are properly recorded and executed in accordance with management's authorizations, and that the financial records permit the preparation of reliable financial statements. There are, however, inherent limitations that should be recognized in considering the assurances provided by the internal control structure. The concept of reasonable assurance recognizes that the costs of the internal control structure should not exceed the benefits to be derived. The internal control structure is reviewed and evaluated on a regular basis. Compliance is monitored by the internal auditors through an annual plan of internal audits. The Board of Directors pursues its review and oversight role for the financial statements through an Audit Committee composed of four outside directors. The duties of the Audit Committee include recommending to the Board of Directors the appointment of an independent accounting firm to audit the financial statements of the Company and its subsidiaries. The Audit Committee meets periodically with management and the Board of Directors. It also meets with representatives of the internal auditors and independent accountants and reviews the work of each to ensure that their respective responsibilities are being carried out and to discuss related matters. Both the internal auditors and independent accountants have direct access to the Audit Committee. The financial statements of the Company have been audited by Coopers & Lybrand, independent accountants, whose report is included on page 14. /s/ Raymond W. Smith /s/ William O. Albertini Raymond W. Smith William O. Albertini Chairman of the Board and Vice President and Chief Financial Chief Executive Officer Officer 13 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareowners of Bell Atlantic Corporation We have audited the accompanying consolidated balance sheets of Bell Atlantic Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bell Atlantic Corporation and subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Notes 1, 8 and 9 to the consolidated financial statements, the Company changed its method of accounting for income taxes and postemployment benefits in 1993 and postretirement benefits other than pensions in 1991. /s/ Coopers & Lybrand 2400 Eleven Penn Center Philadelphia, Pennsylvania February 7, 1994 14 BELL ATLANTIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993 1992 1991 --------- --------- --------- Operating Revenues Communications and Related Services Network Services Local service............................... $ 5,055.9 $ 4,892.1 $ 4,757.8 Network access.............................. 3,070.9 2,953.1 2,922.1 Toll service................................ 1,558.0 1,556.2 1,538.7 Directory advertising, billing services, and other...................................... 1,704.6 1,658.9 1,599.2 Provision for uncollectibles................ (155.4) (117.6) (107.6) Other Communications and Related Services.... 1,300.8 1,221.9 1,140.0 Financial, Real Estate, and Other Services.... 455.4 553.8 701.9 --------- --------- --------- 12,990.2 12,718.4 12,552.1 --------- --------- --------- Operating Expenses Employee costs, including benefits and taxes.. 4,027.6 3,941.5 3,992.6 Depreciation and amortization................. 2,545.1 2,417.4 2,338.8 Other......................................... 3,619.9 3,853.3 3,695.4 --------- --------- --------- 10,192.6 10,212.2 10,026.8 --------- --------- --------- Operating Income.............................. 2,797.6 2,506.2 2,525.3 Other Income and Expense, Net................. 88.1 214.4 176.2 Interest Expense, excluding Financial Services..................................... 612.1 694.9 806.8 --------- --------- --------- Income Before Provision for Income Taxes, Extraordinary Item, and Cumulative Effect of Changes in Accounting Principles............. 2,273.6 2,025.7 1,894.7 Provision for Income Taxes.................... 792.0 643.5 664.8 --------- --------- --------- Income Before Extraordinary Item and Cumulative Effect of Changes in Accounting Principles................................... 1,481.6 1,382.2 1,229.9 --------- --------- --------- Extraordinary Item Early Extinguishment of Debt, Net of Tax..... (58.4) (41.6) -- --------- --------- --------- Cumulative Effect of Changes in Accounting Principles Income Taxes................................. 65.2 -- -- Postemployment Benefits, Net of Tax.......... (85.0) -- -- Postretirement Benefits Other Than Pensions, Net of Tax.................................. -- -- (1,554.3) --------- --------- --------- (19.8) -- (1,554.3) --------- --------- --------- Net Income (Loss)............................. $ 1,403.4 $ 1,340.6 $ (324.4) ========= ========= ========= Per Common Share Income Before Extraordinary Item and Cumulative Effect of Changes in Accounting Principles................................... $ 3.39 $ 3.23 $ 2.91 Extraordinary Item............................ (.13) (.10) -- Cumulative Effect of Changes in Accounting Principles................................... (.04) -- (3.63) --------- --------- --------- Net Income (Loss)............................. $ 3.22 $ 3.13 $ (.72) ========= ========= ========= Weighted average number of common shares and equivalent shares outstanding (in millions).. 436.3 433.0 429.1 ========= ========= =========
See Notes to Consolidated Financial Statements. 15 BELL ATLANTIC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS)
DECEMBER 31, -------------------- 1993 1992 --------- --------- ASSETS Current Assets Cash and cash equivalents................................ $ 146.1 $ 296.0 Short-term investments................................... 8.5 33.7 Accounts receivable, net of allowances of $192.6 and $170.4.................................................. 2,135.7 2,036.8 Finance lease and notes receivable, net.................. 626.6 592.0 Inventories.............................................. 250.9 266.0 Prepaid expenses......................................... 452.4 391.7 Deferred charges and other............................... 250.6 375.1 --------- --------- 3,870.8 3,991.3 --------- --------- Plant, Property and Equipment............................ 32,329.9 31,046.2 Less accumulated depreciation............................ 11,964.0 10,716.2 --------- --------- 20,365.9 20,330.0 --------- --------- Equipment Under Operating Leases, Net.................... 199.3 262.7 Finance Lease and Notes Receivable, Net.................. 1,888.4 1,872.7 Investments in Affiliates................................ 1,394.7 987.5 Other Assets............................................. 1,825.1 655.3 --------- --------- Total Assets............................................. $29,544.2 $28,099.5 ========= ========= LIABILITIES AND SHAREOWNERS' INVESTMENT Current Liabilities Debt maturing within one year............................ $ 2,677.3 $ 2,703.5 Accounts payable......................................... 2,134.9 1,939.5 Accrued taxes............................................ 190.9 126.1 Advance billings and customer deposits................... 443.0 420.4 Accrued vacation pay..................................... 244.0 228.4 Dividend payable......................................... 292.2 282.1 Other.................................................... 141.6 172.2 --------- --------- 6,123.9 5,872.2 --------- --------- Long-Term Debt........................................... 7,206.2 7,348.2 --------- --------- Employee Benefit Obligations............................. 3,396.0 3,058.7 --------- --------- Deferred Credits and Other Liabilities Deferred income taxes.................................... 2,913.5 3,094.3 Unamortized investment tax credits....................... 447.2 513.4 Other.................................................... 1,233.0 396.4 --------- --------- 4,593.7 4,004.1 --------- --------- Commitments (Notes 5 and 6) Shareowners' Investment Preferred and Preference stock ($1 par value; none is- sued)................................................... -- -- Common stock ($1 par value; 436,130,185 shares and 434,155,077 shares issued).............................. 436.1 434.2 Common stock issuable (142,068 shares and 185,797 shares)................................................. .1 .2 Contributed capital...................................... 5,415.2 5,356.9 Reinvested earnings...................................... 3,093.6 2,853.4 Foreign currency translation adjustment.................. (83.9) (140.1) --------- --------- 8,861.1 8,504.6 Less common stock in treasury, at cost................... 2.4 9.1 Less deferred compensation--employee stock ownership plans................................................... 634.3 679.2 --------- --------- 8,224.4 7,816.3 --------- --------- Total Liabilities and Shareowners' Investment............ $29,544.2 $28,099.5 ========= =========
See Notes to Consolidated Financial Statements. 16 BELL ATLANTIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS)
1993 1992 1991 --------- --------- --------- Cash Flows From Operating Activities Net income (loss)............................. $ 1,403.4 $ 1,340.6 $ (324.4) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............... 2,545.1 2,417.4 2,338.8 Extraordinary item related to early extinguishment of debt, net of tax benefit......................... 58.4 41.6 -- Cumulative effect of changes in accounting principles................................. 19.8 -- 1,554.3 Other items, net............................ (12.5) (56.5) (58.0) Changes in certain assets and liabilities, net of effects from acquisition/disposition of businesses: Accounts receivable....................... (87.8) (13.8) 63.9 Inventories............................... (48.9) (43.7) (15.2) Other assets.............................. 3.8 157.0 (57.3) Accounts payable and accrued taxes........ 340.9 (64.4) 58.4 Deferred income taxes, net................ (105.8) (26.1) 54.4 Unamortized investment tax credits........ (66.2) (80.0) (68.0) Employee benefit obligations.............. 193.3 63.6 216.5 Other liabilities......................... (9.5) 172.0 (2.4) --------- --------- --------- Net cash provided by operating activities..... 4,234.0 3,907.7 3,761.0 --------- --------- --------- Cash Flows From Investing Activities Purchases of short-term investments........... (8.5) (159.3) (202.0) Proceeds from sale of short-term investments.. 34.0 241.3 113.6 Additions to plant, property and equipment.... (2,448.6) (2,488.1) (2,501.0) Proceeds from sale of plant, property and equipment.................................... 2.6 315.0 86.5 Additions to equipment under operating leases. (68.8) (72.3) (86.3) Proceeds from sale of equipment under operat- ing leases................................... 44.7 111.9 107.6 Additions to finance lease and notes receiv- able......................................... (1,862.5) (1,467.0) (1,373.1) Proceeds from sales related to finance lease and notes receivable......................... 233.2 318.5 317.6 Principal payments received under finance lease and notes receivable................... 1,568.0 1,156.2 1,092.0 Acquisition of businesses, less cash acquired. (146.9) (.3) (2.0) Investment in Grupo Iusacell, S.A. de C.V..... (520.0) -- -- Investment in Telecom Corporation of New Zea- land Limited................................. -- -- (189.7) Proceeds from sale of ownership interest in Telecom Corporation of New Zealand Limited... 253.7 -- 395.5 Investment in joint ventures.................. (7.5) (.8) (10.9) Proceeds from disposition of businesses....... -- 26.5 4.2 Proceeds from sale of investment.............. -- 58.9 -- Other, net.................................... (9.7) (36.3) (27.0) --------- --------- --------- Net cash used in investing activities......... (2,936.3) (1,995.8) (2,275.0) --------- --------- --------- Cash Flows From Financing Activities Proceeds from borrowings...................... 2,148.1 1,340.7 750.2 Principal repayments of borrowings and capital lease obligations............................ (949.0) (1,875.5) (796.1) Early extinguishment of debt and related call premium...................................... (1,658.7) (987.5) -- Net change in short-term borrowings with orig- inal maturities of three months or less...... 186.7 700.4 (485.2) Dividends paid................................ (1,156.5) (1,069.7) (976.2) Proceeds from sale of treasury stock.......... 2.0 122.1 112.7 Proceeds from sale of common stock............ 31.7 -- -- Purchase of common stock for treasury......... -- (.1) (15.3) Net change in outstanding checks drawn on con- trolled disbursement accounts................ (51.9) 22.0 (42.4) --------- --------- --------- Net cash used in financing activities......... (1,447.6) (1,747.6) (1,452.3) --------- --------- --------- Increase (Decrease) in Cash and Cash Equiva- lents........................................ (149.9) 164.3 33.7 Cash and Cash Equivalents, Beginning of Year.. 296.0 131.7 98.0 --------- --------- --------- Cash and Cash Equivalents, End of Year........ $ 146.1 $ 296.0 $ 131.7 ========= ========= =========
See Notes to Consolidated Financial Statements. 17 BELL ATLANTIC CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The consolidated financial statements include the accounts of Bell Atlantic Corporation (Bell Atlantic) and its majority-owned subsidiaries (together with Bell Atlantic, the Company). Investments in less-than-majority-owned businesses, including the Company's investments in Telecom Corporation of New Zealand Limited (Telecom), Grupo Iusacell, S.A. de C.V., a one-seventh interest in Bell Communications Research, Inc., several cellular mobile communications and real estate partnerships, and several other domestic and international joint ventures, are accounted for using the equity method. The portion of the Company's investment in Telecom that was required to be sold was accounted for using the cost method. All significant intercompany accounts and transactions have been eliminated. Network Services consists of the Company's seven telephone subsidiaries and subsidiaries that provide centralized management, financing, and technical services. Financial Services consists of the Company's lease financing subsidiaries. The telephone subsidiaries are included in the consolidated financial statements using generally accepted accounting principles applicable to regulated entities. Revenue Recognition Revenues are recognized as earned on the accrual basis. The telephone subsidiaries recognize revenues when services are rendered based on usage of the Company's local exchange network and facilities. For Other Communications and Related Services, revenue is recognized when products are delivered or services are rendered to customers. Cellular operations revenue includes access and usage, equipment, and gross roamer revenue into and out of the Company's markets. Financial, Real Estate, and Other Services revenues primarily result from leasing transactions, which are recorded in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases." Direct finance lease receivables consist of the gross minimum lease payments receivable under the leases plus the estimated residual value of the leased property less the unearned income. Unearned income represents the excess of the gross minimum lease payments receivable plus the estimated residual value over the cost of the equipment leased. Unearned income is amortized to income over the term of the lease by methods that provide an approximately level rate of return on the net investment in the lease. Leveraged lease receivables consist of the aggregate minimum rentals receivable under the leases, net of related nonrecourse debt, plus the estimated residual value of the leased property less unearned income. The unearned income represents the estimated pretax lease income and unamortized investment tax credits. Accumulated deferred income taxes arising from leveraged leases are deducted from leveraged lease receivables to determine the net investment in leveraged leases. Unearned income is recognized at a rate that will distribute income to years in which the net investment in the leveraged lease is positive. Operating lease income is recognized in equal monthly amounts over the term of the lease. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. Short-term Investments Short-term investments consist of investments that mature 91 days to 12 months from the date of purchase. Short-term investments are stated at cost, which approximates market value. 18 Inventories New and reusable materials of the telephone subsidiaries are carried in inventory, principally at average original cost, except that specific costs are used in the case of large individual items. Nonreusable material is carried at estimated salvage value. Inventories of other subsidiaries are carried at the lower of cost (determined principally on either an average or first-in, first- out basis) or market. Prepaid Directory Costs of directory production and advertising sales are deferred until the directory is published. Such costs are amortized to expense and the related advertising revenues are recognized over the average life of the directory, which is generally 12 months. Plant and Depreciation The telephone subsidiaries' provision for depreciation is based principally on the remaining life method of depreciation and straight-line composite rates. The provision for depreciation is based on the following estimated remaining service lives: buildings, 25 to 35 years; central office equipment, 2 to 12 years; cable, wiring, and conduit, 9 to 45 years; and other equipment, 2 to 20 years. This method provides for the recovery of the remaining net investment in telephone plant, less anticipated net salvage value, over the remaining service lives authorized by regulatory commissions. Depreciation expense also includes amortization of certain classes of telephone plant (and certain identified depreciation reserve deficiencies) over periods authorized by regulatory commissions. When depreciable plant of the telephone subsidiaries is replaced or retired, the amounts at which such plant has been carried in plant, property and equipment are removed from the respective accounts and charged to accumulated depreciation, and any gains or losses on disposition are amortized over the remaining service lives of the remaining net investment in telephone plant. Plant, property and equipment of other subsidiaries is depreciated principally on a straight-line basis over the following estimated useful lives: buildings, 15 to 40 years; and other equipment, 2 to 16 years. When the depreciable assets of these subsidiaries are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gains or losses on disposition are recognized in income. Maintenance and Repairs The cost of maintenance and repairs of plant, including the cost of replacing minor items not constituting substantial betterments, is charged to operating expenses. Allowance for Funds Used During Construction Regulatory commissions allow the telephone subsidiaries to record an allowance for funds used during construction, which includes both interest and equity return components, as a cost of plant and as an item of other income. Such income is not recovered in cash currently, but will be recoverable over the service life of the plant through higher depreciation expense recognized for regulatory purposes. Equipment Under Operating Leases Equipment under operating leases is depreciated to estimated residual value principally by using a sum-of-the-years-digits method. Cost in Excess of Net Assets Acquired The excess of the acquisition cost over the fair value of net assets of businesses acquired, which is included in noncurrent other assets, is amortized by the straight-line method over periods not exceeding 40 years. Foreign Currency Translation Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated at current exchange rates. Revenues and expenses are translated using average rates during the year. Resulting cumulative translation adjustments are recorded as a separate component of Shareowners' Investment. Exchange gains and losses on certain balances of a long-term investment nature between consolidated subsidiaries also are recorded in the separate component of Shareowners' Investment. Other transaction gains and losses that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in results of operations as incurred. 19 Financial Instruments In the normal course of business, the Company employs a variety of off- balance-sheet financial instruments to reduce its exposure to fluctuations in interest and foreign exchange rates, including interest rate swap agreements and forward exchange contracts. The Company designates interest rate swaps as hedges of direct finance lease receivable transfer agreements and debt, and accrues the differential to be paid or received under the agreements as interest rates change and recognizes this expense over the life of the contracts. Realized and unrealized gains and losses arising from forward exchange contracts that hedge certain balances of a long-term investment nature are included in Shareowners' Investment. Realized and unrealized gains and losses on contracts that hedge certain balances of a temporary nature are included in results of operations. Employee Benefits Pension Plans Substantially all employees of the Company are covered under noncontributory defined benefit pension plans. The Company uses the projected unit credit actuarial cost method for determining pension cost for financial reporting purposes. Amounts contributed to the Company's pension plans are actuarially determined, principally under the aggregate cost actuarial method, and are subject to applicable federal income tax regulations. Postretirement Benefits Other Than Pensions Substantially all employees of the Company are covered under postretirement health and life insurance benefit plans. Effective January 1, 1991, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires accrual accounting for all postretirement benefits other than pensions. Under the prescribed accrual method, the Company's obligation for these postretirement benefits is to be fully accrued by the date employees attain full eligibility for such benefits. A portion of the postretirement accrued benefit obligation is contributed to 501(c)(9) trusts and 401h accounts under applicable federal income tax regulations. The amounts contributed to these trusts and accounts are actuarially determined, principally under the aggregate cost actuarial method. Postemployment Benefits The Company provides employees with postemployment benefits such as disability benefits, workers' compensation, and severance pay. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting for the estimated cost of benefits provided to former or inactive employees after employment but before retirement. Prior to 1993, the cost of these benefits was primarily charged to expense as the benefits were paid. Savings Plans and Employee Stock Ownership Plans The Company maintains savings plans which cover substantially all of its employees. A substantial portion of the Company's matching contribution is provided through employee stock ownership plans (ESOPs). The Company recognizes expense based on accounting rules applicable to companies with ESOP trusts that held securities prior to December 15, 1989. Under this method, the Company recognizes 80 percent of the cumulative expense that would have been recognized under the shares allocated method. The obligations of the ESOP trusts, which are guaranteed by the Company, are recorded as long-term debt and the offsetting deferred compensation is classified as a reduction of Shareowners' Investment. As the ESOP trusts make principal payments, the Company reduces the long-term debt balance. The deferred compensation balance is reduced by the amount of employee compensation recognized as the ESOP shares are allocated to participants. Income Taxes Bell Atlantic Corporation and its domestic subsidiaries file a consolidated federal income tax return. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement No. 109), which requires the determination of deferred taxes using the 20 liability method. Under the liability method, deferred taxes are provided on book and tax basis differences and deferred tax balances are adjusted to reflect enacted changes in income tax rates. Prior to 1993, the Company accounted for income taxes based on the provisions of Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes" (APB No. 11). Under APB No. 11, deferred taxes were generally provided to reflect the effect of timing differences on the recognition of revenue and expense determined for financial and income tax reporting purposes. Certain of the telephone subsidiaries did not fully provide deferred income taxes on certain timing differences when regulators permitted only income taxes actually paid to be recognized currently as a cost of service. The Tax Reform Act of 1986 repealed the investment tax credit (ITC) as of January 1, 1986, subject to certain transitional rules. ITCs of the telephone subsidiaries were deferred and are being amortized as a reduction to income tax expense over the estimated service lives of the related assets. Earnings Per Common Share Earnings per common share calculations are based on the weighted average number of shares and equivalent shares outstanding during the year and reflect the shares issued in April 1992 in connection with the merger with Metro Mobile CTS, Inc. as outstanding for all years presented. Prior to January 1, 1993, for purposes of computing earnings per common share, net income attributable to common shares included the income tax benefit resulting from dividends paid on shares held by the Company's ESOPs. As a result of implementing Statement No. 109, the Company no longer includes the income tax benefit resulting from dividends paid on unallocated shares held by ESOPs in net income attributable to common shares for purposes of computing earnings per share. Pursuant to the provisions of Statement No. 109, the income tax benefit resulting from dividends paid on allocated shares is included in net income. Reclassifications Certain reclassifications of prior years' data have been made to conform to 1993 classifications. 2.DEBT Long-Term Long-term debt consists of the following at December 31:
INTEREST RATES MATURITIES 1993 1992 --------------------------------- -------- (DOLLARS IN MILLIONS) Communications and Related Services Telephone subsidiaries' deben- tures: 3.25%--7.00% 1995--2025 $1,972.0 $1,827.0 7.125%--7.75% 2002--2033 2,105.0 2,155.0 7.85%--8.75% 1994--2031 1,480.0 1,575.0 -------- -------- 5,557.0 5,557.0 Unamortized discount and premium, net.................. (113.2) (115.5) Capital lease obligations--average rate 10.6% and 10.8%................................................. 125.8 133.4 Other.................................................. 43.9 84.9 -------- -------- 5,613.5 5,659.8 -------- -------- Financial, Real Estate, and Other Services Notes payable................. 3.63%--11.27% 1994--2014 984.8 1,459.0 Mortgage and installment notes........................ 3.90%--12.00% 1994--2011 33.3 51.6 Nonrecourse notes............. 7.95%--10.35% 1994--1997 4.3 3.7 Capital lease obligations--average rate 11.1%.......... -- 18.9 -------- -------- 1,022.4 1,533.2 -------- -------- Corporate Notes payable................. 6.625% 1997 130.0 379.5 Medium-term notes............. 4.07%--7.24% 1995--2003 570.1 98.8 Unamortized discount................................... (2.8) (1.2) -------- -------- 697.3 477.1 -------- -------- Employee Stock Ownership Plan Loans Senior Notes.................. 8.17% 2000 633.7 687.2 -------- -------- Total long-term debt, including current maturities..... 7,966.9 8,357.3 Less maturing within one year.......................... 760.7 1,009.1 -------- -------- Total long-term debt................................... $7,206.2 $7,348.2 ======== ========
21 Maturities of long-term debt outstanding at December 31, 1993, excluding unamortized discount and premium and capital lease obligations, are as follows:
FINANCIAL, EMPLOYEE COMMUNICATIONS REAL ESTATE, STOCK AND RELATED AND OTHER OWNERSHIP YEARS SERVICES SERVICES CORPORATE PLAN LOANS TOTAL - ----- -------------- ------------ --------- ---------- -------- (DOLLARS IN MILLIONS) 1994............. $ 100.1 $ 587.4 $ -- $ 62.4 $ 749.9 1995............. 92.2 251.8 75.7 73.5 493.2 1996............. 35.2 78.6 97.8 85.6 297.2 1997............. .2 43.7 130.0 98.9 272.8 1998............. 20.1 .6 201.9 113.5 336.1 Thereafter....... 5,353.1 60.3 194.7 199.8 5,807.9 -------- -------- ------ ------ -------- Total............ $5,600.9 $1,022.4 $700.1 $633.7 $7,957.1 ======== ======== ====== ====== ========
Telephone subsidiaries' debentures outstanding at December 31, 1993 include $2,072.0 million that are callable. The call prices range from 104.3% to 100.0% of face value, depending upon the remaining term to maturity of the issue. In addition, the telephone subsidiaries' debentures include $640.0 million that will become redeemable for a limited period at the option of the holders. The redemption prices will be 100.0% of face value plus accrued interest. Installment and nonrecourse notes in the amount of $9.1 million at December 31, 1993 were collateralized by finance lease receivables and equipment. Mortgage notes in the amount of $25.9 million at December 31, 1993 were collateralized by land and buildings held for investment purposes. Corporate debt includes debt securities issued by Bell Atlantic Financial Services, Inc. (FSI), which provides financing for Bell Atlantic and certain of its subsidiaries. At December 31, 1992, corporate debt also included financing related to the Company's investment in Telecom. FSI debt securities that are classified as long-term debt (aggregating $700.1 million at December 31, 1993) have the benefit of a Support Agreement dated October 1, 1992 between Bell Atlantic and FSI, under which Bell Atlantic has committed to make payments of interest, premium, if any, and principal on the FSI debt in the event of FSI's failure to pay. The Support Agreement provides that the holders of FSI debt shall not have recourse to the stock or assets of Bell Atlantic's telephone subsidiaries. However, in addition to dividends paid to Bell Atlantic by any of its consolidated subsidiaries, assets of Bell Atlantic that are not subject to such exclusion are available as recourse to holders of FSI debt. The carrying value of the available assets reflected in the consolidated financial statements of Bell Atlantic was approximately $6 billion at December 31, 1993. See Note 8 for information on the Employee Stock Ownership Plan Loans. The Company has recorded extraordinary charges associated with the early extinguishment of debentures called by the Company's telephone subsidiaries prior to the balance sheet date. These charges reduced net income by $58.4 million (net of an income tax benefit of $36.2 million) in 1993, and $41.6 million (net of an income tax benefit of $25.2 million) in 1992. 22 Maturing Within One Year Debt maturing within one year consists of the following at December 31:
1993 1992 1991 -------- -------- -------- (DOLLARS IN MILLIONS) Notes payable: Bank loans...................................... $ 582.0 $ 336.2 $ 304.1 Commercial paper................................ 1,334.6 1,358.2 817.2 Long-term debt maturing within one year.......... 760.7 1,009.1 1,710.8 -------- -------- -------- Total............................................ $2,677.3 $2,703.5 $2,832.1 ======== ======== ======== Average amounts of notes payable outstanding dur- ing the year*................................... $1,398.7 $1,616.1 $1,821.9 Weighted average interest rates for notes payable outstanding during the year**................... 3.3% 3.9% 6.3% Maximum amounts of notes payable at any month-end during the year................................. $1,916.6 $2,368.4 $2,292.3
- -------- *Amounts represent average daily face amounts of notes. **Weighted average interest rates are computed by dividing average daily face amounts of notes into the aggregate related interest expense and include both domestic and international borrowings. Construction of telephone plant and the operations of the Company's Financial Services, real estate, and cellular subsidiaries are partially financed, pending long-term financing, through bank loans and the issuance of commercial paper payable within 12 months. At December 31, 1993, the Company had in excess of $2.0 billion of unused bank lines of credit. The availability of these lines, for which there are no formal compensating balances or commitment fee agreements, is at the discretion of each bank. 3.PLANT, PROPERTY AND EQUIPMENT Plant, property and equipment, which is stated at cost, is summarized as follows at December 31:
1993 1992 -------------------------------------- ---------- FINANCIAL, COMMUNICATIONS REAL ESTATE, AND RELATED AND OTHER SERVICES SERVICES TOTAL TOTAL -------------- ------------ ---------- ---------- (DOLLARS IN MILLIONS) Land.................... $ 151.1 $ 110.9 $ 262.0 $ 252.6 Buildings............... 2,349.8 256.9 2,606.7 2,504.5 Central office equip- ment................... 11,905.5 -- 11,905.5 11,498.4 Cable, wiring, and con- duit................... 11,635.4 -- 11,635.4 11,209.7 Other equipment......... 4,483.7 55.8 4,539.5 4,241.9 Other................... 544.5 151.7 696.2 652.4 Construction-in-pro- gress.................. 682.4 2.2 684.6 686.7 ---------- ------- ---------- ---------- 31,752.4 577.5 32,329.9 31,046.2 Accumulated deprecia- tion................... (11,862.7) (101.3) (11,964.0) (10,716.2) ---------- ------- ---------- ---------- Total................... $ 19,889.7 $ 476.2 $ 20,365.9 $ 20,330.0 ========== ======= ========== ==========
23 4.LEASING ARRANGEMENTS AS LESSOR Certain of the Company's subsidiaries provide a variety of leasing services, predominantly related to computer, medical, and industrial equipment and real estate properties. The leases are classified as capital or operating leases in accordance with the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases." Finance lease and notes receivable, net, consist of the following components at December 31:
1993 1992 --------------------------- --------------------------- DIRECT DIRECT LEVERAGED FINANCE LEVERAGED FINANCE LEASES LEASES TOTAL LEASES LEASES TOTAL --------- ------- -------- --------- ------- -------- (DOLLARS IN MILLIONS) Minimum lease payments receivable............. $ 879.9 $ 736.1 $1,616.0 $ 905.2 $ 732.3 $1,637.5 Estimated residual val- ue..................... 584.1 136.9 721.0 584.1 154.2 738.3 Unearned income......... (542.8) (156.8) (699.6) (573.8) (167.6) (741.4) ------- ------- -------- ------- ------- -------- $ 921.2 $ 716.2 1,637.4 $ 915.5 $ 718.9 1,634.4 ======= ======= ======= ======= Allowance for doubtful accounts............... (48.9) (52.2) -------- -------- Finance lease receiv- ables, net............. 1,588.5 1,582.2 Notes receivable........ 926.5 882.5 -------- -------- Finance lease and notes receivable, net........ $2,515.0 $2,464.7 ======== ========
Minimum lease payments receivable for the leveraged leases are shown net of principal and interest on the associated nonrecourse debt. Accumulated deferred taxes arising from leveraged leases, which are included in deferred income taxes, amounted to $799.8 million and $742.7 million at December 31, 1993 and 1992, respectively. Notes receivable consist of amounts due to the Financial Services subsidiaries in connection with various financing and lending arrangements. The notes bear interest at rates ranging from 6.0% to 20.0% and mature in varying amounts between the years 1994 and 2015. Equipment under operating leases is net of accumulated depreciation of $652.4 million and $758.2 million at December 31, 1993 and 1992, respectively. Plant, property and equipment at December 31, 1993 and 1992 includes real estate property under operating leases, or held for lease, of $434.3 million and $471.7 million, less accumulated depreciation of $67.9 million and $62.8 million, respectively. Future minimum lease payments to be received from noncancelable leases, net of nonrecourse loan payments related to leveraged leases, for the periods shown are as follows at December 31, 1993:
YEARS CAPITAL LEASES OPERATING LEASES ----- -------------- ---------------- (DOLLARS IN MILLIONS) 1994..................................... $ 242.7 $135.4 1995..................................... 201.2 109.5 1996..................................... 140.8 74.2 1997..................................... 95.0 52.8 1998..................................... 64.0 34.7 Thereafter............................... 872.3 86.4 -------- ------ Total.................................... $1,616.0 $493.0 ======== ======
24 5. LEASING ARRANGEMENTS AS LESSEE The Company has entered into both capital and operating leases for facilities and equipment used in operations. Plant, property and equipment included capital leases of $221.2 million and $211.3 million and related accumulated amortization of $112.7 million and $91.5 million at December 31, 1993 and 1992, respectively. In 1993, 1992, and 1991, the Company incurred initial capital lease obligations of $13.6 million, $15.2 million, and $40.2 million, respectively. Total rent expense amounted to $307.8 million in 1993, $295.7 million in 1992, and $298.1 million in 1991. At December 31, 1993, the aggregate minimum rental commitments under noncancelable leases for the periods shown are as follows:
YEARS CAPITAL LEASES OPERATING LEASES ----- -------------- ---------------- (DOLLARS IN MILLIONS) 1994.................................... $ 24.5 $ 122.8 1995.................................... 22.6 106.3 1996.................................... 23.0 93.3 1997.................................... 19.4 85.4 1998.................................... 17.5 73.1 Thereafter.............................. 112.4 645.8 ------ -------- Total................................... 219.4 $1,126.7 ======== Less imputed interest and executory costs.................................. 93.6 ------ Present value of net minimum lease pay- ments.................................. 125.8 Less current installments............... 10.8 ------ Long-term obligation at December 31, 1993................................... $115.0 ======
As of December 31, 1993, the total minimum sublease rentals to be received in the future under noncancelable operating subleases was $86.5 million. 25 6.SHAREOWNERS' INVESTMENT
COMMON COMMON STOCK STOCK ISSUABLE TREASURY STOCK ----------------- ----------------- ----------------- FOREIGN DEFERRED CONTRI- REIN- CURRENCY COMPEN- SHARES (IN SHARES (IN BUTED VESTED TRANSLATION SHARES (IN SATION-- THOUSANDS) AMOUNT THOUSANDS) AMOUNT CAPITAL EARNINGS ADJUSTMENT THOUSANDS) AMOUNT ESOP ---------- ------ ---------- ------ -------- -------- ----------- ---------- ------ -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Balance, December 31, 1990.................. 433,818 $433.8 -- $ -- $5,301.3 $3,904.0 $(29.8) 6,302 $316.7 $761.1 Loss................... (324.4) Dividends declared on common stock ($2.52 per share)..... (993.7) Purchase of common stock for treasury.... 329 15.3 Sales and distributions of treasury shares to employee savings plans and shareowner dividend reinvestment and stock purchase plan.................. (10.3) (2,949) (148.9) Treasury shares distributed in connection with stock incentive plans....... .3 (240) (11.5) Foreign currency translation adjustment, net of income tax benefit of $4.7 million.......... (70.7) Reduction of ESOP obligations........... (39.7) Tax benefit of dividends paid to ESOPs................. 14.4 Metro Mobile CTS, Inc. premerger acquisition activities............ 35.8 Other.................. (.1) ------- ------ --- ------ -------- -------- ------ ------ ------ ------ Balance, December 31, 1991.................. 433,818 433.8 -- -- 5,327.0 2,600.3 (100.5) 3,442 171.6 721.4 Net income............. 1,340.6 Dividends declared on common stock ($2.60 per share)..... (1,102.3) Acquisitions........... 337 .4 186 .2 23.0 Purchase of common stock for treasury.... 3 .1 Sales and distribution of treasury shares to employee savings plans and shareowner dividend reinvestment and stock purchase plan.................. (9.1) (2,915) (146.4) Treasury shares distributed in connection with stock incentive plans....... (1.2) (344) (16.2) Foreign currency translation adjustment, net of income tax benefit of $5.3 million.......... (39.6) Reduction of ESOP obligations........... (42.2) Tax benefit of dividends paid to ESOPs................. 14.8 Metro Mobile CTS, Inc. premerger activities.. 17.0 Other.................. .2 ------- ------ --- ------ -------- -------- ------ ------ ------ ------ Balance, December 31, 1992.................. 434,155 434.2 186 .2 5,356.9 2,853.4 (140.1) 186 9.1 679.2 Net income............. 1,403.4 Dividends declared on common stock ($2.68 per share)..... (1,166.6) Acquisition............ 3 -- .6 (70) (3.4) Distribution of common stock to employee savings plans......... 256 .2 12.3 Sale of common stock to shareowner dividend reinvestment and stock purchase plan......... 278 .3 16.0 Common stock distributed in connection with stock incentive plans....... 510 .4 30.3 (8.2) (66) (3.3) Common stock issued pursuant to acquisition agreement. 47 .1 (47) (.1) Common stock distributed to Metro Mobile CTS, Inc. shareowners........... 884 .9 (.9) Foreign currency translation adjustment, net of income tax benefit of $6.3 million.......... 56.2 Reduction of ESOP obligations........... (44.9) Tax benefit of dividends paid to ESOPs................. 11.6 ------- ------ --- ------ -------- -------- ------ ------ ------ ------ Balance, December 31, 1993.................. 436,130 $436.1 142 $ .1 $5,415.2 $3,093.6 $(83.9) 50 $ 2.4 $634.3 ======= ====== === ====== ======== ======== ====== ====== ====== ======
26 Bell Atlantic Corporation is authorized to issue up to 12.5 million shares each of Preferred and Preference stock and 1.5 billion shares of common stock. Under the terms of an acquisition of a cellular telephone system in 1992, the Company issued 46,449 shares of common stock in October 1993. Additionally, the Company is required to deliver 46,449 common shares in October 1994 and 92,899 common shares in October 1995 (subject to reduction for certain contingencies) pursuant to this agreement. Under the terms of an acquisition in 1993 of a permit for the construction of a cellular telephone system, the Company will be required to deliver 2,720 shares of its common stock in March 1994. In 1993, the Company issued 883,832 shares of common stock to settle certain litigation arising from the merger with Metro Mobile CTS, Inc. (Note 13). This settlement had no impact on the Company's results of operations. Under a Shareholder Rights Plan adopted in 1989, one right is attached to each outstanding share of common stock. When exercisable, each right entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preference Stock at an exercise price of $250, subject to adjustment. The rights become exercisable and will trade separately from the common stock 10 days after a person or group acquires, or announces a tender offer for, 15% or more of the Company's outstanding common stock. In the event any person acquires 15% or more of the Company's common stock (except pursuant to certain transactions previously approved by the Board of Directors), each holder of a right other than such person will have the right to receive, upon payment of the exercise price, common stock of the Company with a market value of two times the exercise price. In the event that the Company is acquired in a merger or other business combination, or certain events occur, each right entitles the holder to purchase shares of common stock of the surviving company having a market value of twice the exercise price of the right. Until the rights become exercisable, they may be redeemed by the Company at a price of one cent per right. The rights expire on April 10, 1999. 7.STOCK INCENTIVE PLANS Under the Bell Atlantic Stock Incentive Plan (the Plan), a total of 14,000,000 shares of common stock may be distributed upon the exercise of incentive stock options and for payment of performance share awards. Key employees may be granted incentive stock options to purchase shares of Bell Atlantic's common stock at prices not less than the fair market value of the stock at the date of the grant. Stock appreciation rights (SARs) may also be granted in tandem with the incentive stock options. Upon exercise of the SARs, the related incentive stock options are canceled. Incentive stock options and SARs are exercisable at dates determined by the terms of the grant, but not later than 10 years from the date of the grant. The Plan also provides for the granting of performance share awards to certain key employees. Payment of performance share awards is based on the achievement of financial, market performance, and other objectives set by the Board of Directors, typically over a five year period, and made in stock, unless otherwise determined by the Board. The Plan also allows payment of the performance share awards to be deferred until later periods. A subsidiary of Bell Atlantic also maintains a separate performance share award plan that provides for awards of Bell Atlantic's common stock, distributable at various times, based on the subsidiary's performance and other factors. 27 Incentive stock options, SARs and performance share awards outstanding under both the Bell Atlantic and the subsidiary's plans are as follows:
WEIGHTED AVERAGE PRICE INCENTIVE OF INCENTIVE PERFORMANCE STOCK OPTIONS SARS STOCK OPTIONS SHARE AWARDS ------------- ------- ---------------- ------------ Outstanding, December 31, 1990..................... 777,501 41,112 $41.68 1,293,261 Granted................... 1,085,462 33,034 $53.35 585,049 Exercised/Distributed..... (58,994) -- $35.50 (286,061) Canceled.................. (99,264) (35,628) $47.09 (163,368) --------- ------- --------- Outstanding, December 31, 1991..................... 1,704,705 38,518 $49.01 1,428,881 Granted................... 993,008 -- $47.04 119,026 Exercised/Distributed..... (117,677) -- $35.00 (403,288) Canceled.................. (167,834) (23,116) $51.91 (142,873) --------- ------- --------- Outstanding, December 31, 1992..................... 2,412,202 15,402 $48.68 1,001,746 Granted................... 930,219 -- $53.45 91,258 Exercised/Distributed..... (664,753) -- $47.77 (280,049) Canceled.................. (95,100) (2,742) $52.08 (76,576) --------- ------- --------- Outstanding, December 31, 1993..................... 2,582,568 12,660 $50.50 736,379 ========= ======= =========
At December 31, 1993, incentive stock options to purchase 1,742,207 shares of common stock were exercisable under the Plan. A total of 8,114,064 and 8,888,299 shares of common stock were available for the granting of incentive stock options and performance share awards under the Plan at December 31, 1993 and 1992, respectively. Compensation expense related to the stock incentive plans described above amounted to $18.6 million in 1993, $17.0 million in 1992, and $20.6 million in 1991. At December 31, 1993, employees had deferred receipt of 243,618 shares awarded under the Company's incentive award plans. 8. EMPLOYEE BENEFITS Pension Plans Substantially all of the Company's management and associate employees are covered under noncontributory defined benefit pension plans. The pension benefit formula is based on a flat dollar amount per year of service according to job classification under the associate plan and a stated percentage of adjusted career average earnings under the plans for management employees. The Company's objective in funding the plans is to accumulate funds at a relatively stable level over participants' working lives so that benefits are fully funded at retirement. Plan assets consist principally of investments in domestic and foreign corporate equity securities, U.S. and foreign Government and corporate debt securities, and real estate. Pension cost is composed of the following:
YEARS ENDED DECEMBER 31, ----------------------------- 1993 1992 1991 --------- ------- --------- (DOLLARS IN MILLIONS) Benefits earned during the year................. $ 162.7 $ 171.3 $ 184.5 Interest on projected benefit obligation........ 818.9 786.8 735.1 Actual return on plan assets.................... (1,731.7) (514.9) (2,166.9) Deferral of difference between actual and assumed return on plan assets.................. 898.3 (309.6) 1,433.3 Net amortization................................ .9 (10.3) (30.3) Special termination benefits.................... -- 45.0 10.1 --------- ------- --------- Pension cost.................................... $ 149.1 $ 168.3 $ 165.8 ========= ======= ========= Pension cost as a percentage of salaries and wages.......................................... 4.9% 5.7% 5.5% ========= ======= =========
The decrease in pension cost in 1993 is due to the net effect of the elimination of one-time charges associated with special termination benefits that were recognized in the preceding years, favorable investment experience, and changes in plan demographics due to retirement and severance programs. In 1992, the Company recognized $45.0 million of special termination benefit costs related to the early retirement of associate employees of the Network Services companies. The special termination benefit costs and 28 the net effect of changes in plan provisions, certain actuarial assumptions, and the amortization of actuarial gains and losses related to demographic and investment experience increased pension cost in 1992. A change in the expected long-term rate of return on plan assets resulted in a $75.0 million reduction in pension cost (which reduced operating expenses by $68.0 million after the capitalization of amounts related to the construction program) and substantially offset the 1992 cost increase. The following table sets forth the plans' funded status and amounts recognized in the Company's Consolidated Balance Sheets as of December 31:
1993 1992 --------- --------- (DOLLARS IN MILLIONS) Actuarial present value of benefit obligations: Benefits based on service to date and present salary levels Vested................................................. $ 7,993.1 $ 7,428.8 Nonvested.............................................. 2,176.1 2,263.1 --------- --------- Accumulated benefit obligation........................ 10,169.2 9,691.9 Additional benefits related to estimated future salary levels................................................. 1,293.9 1,134.6 --------- --------- Projected benefit obligation.......................... 11,463.1 10,826.5 --------- --------- Fair value of plan assets................................ 12,368.7 11,487.0 --------- --------- Plan assets in excess of projected benefit obligation.... (905.6) (660.5) Unrecognized net gain.................................... 1,173.5 1,256.8 Unamortized prior service cost........................... 121.5 (371.3) Unamortized net transition asset......................... 211.6 231.2 Additional minimum liability for nonqualified plans...... 52.5 54.0 --------- --------- Accrued pension obligation............................... $ 653.5 $ 510.2 ========= =========
The assumed discount rate used to measure the projected benefit obligation was 7.25% at December 31, 1993 and 7.75% at December 31, 1992. The assumed rate of future increases in compensation levels was 5.25% at December 31, 1993 and 1992. The expected long-term rate of return on plan assets was 8.25% for 1993 and 1992, and 7.5% for 1991. The vested benefit obligation represents the actuarial present value of vested benefits to which employees are currently entitled based on the employees' expected dates of separation or retirement. The Company has in the past entered into collective bargaining agreements with the unions representing certain employees and expects to do so in the future. Pension benefits have been included in these agreements and improvements in benefits have been made from time to time. Additionally, the Company has amended the benefit formula under pension plans maintained for its management employees. Expectations with respect to future amendments to the Company's pension plans have been reflected in determining the Company's pension cost under Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" (Statement No. 87). Since the projected benefit obligation, as calculated under Statement No. 87, relies on assumptions concerning future events, a comparison of the projected benefit obligation to the fair value of plan assets at December 31, 1993 and 1992 may not be meaningful. Postretirement Benefits Other Than Pensions Effective January 1, 1991, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (Statement No. 106). Statement No. 106 requires accrual accounting for all postretirement benefits other than pensions. Under the prescribed accrual method, the Company's obligation for these postretirement benefits is fully accrued by the date employees attain full eligibility for such benefits. In conjunction with the adoption of Statement No. 106, the Company elected, for financial reporting purposes, to recognize immediately the accumulated postretirement benefit obligation for current and future retirees, net of the fair value of plan assets and recognized accrued postretirement benefit cost (transition obligation), in the amount of $1,554.3 million, net of a deferred income tax benefit of $945.6 million. For purposes of measuring the interstate rate of return achieved by the telephone subsidiaries, the Federal Communications Commission (FCC) permits recognition of postretirement benefit costs, including amortization of the transition obligation, in accordance with the prescribed accrual method included in Statement No. 106. In 29 January 1993, the FCC denied adjustments to the interstate price cap formula which would have permitted tariff increases to reflect the incremental postretirement benefit cost resulting from the adoption of Statement No. 106. Accrued postretirement benefit cost, including amortization of the transition obligation, has generally been recognized for purposes of measuring the intrastate rate of return achieved by the telephone subsidiaries. In Maryland, Delaware, and the District of Columbia, the postretirement benefit cost recognized for intrastate rate of return measurement purposes is not in accordance with the prescribed amortization method in Statement No. 106. New Jersey, Pennsylvania, and West Virginia have not authoritatively approved the recognition of postretirement benefit cost in excess of pay-as-you-go amounts. In Virginia, recognition of postretirement benefit cost, including the amortization of the transition obligation, is permitted for rate of return measurement purposes, so long as recognition of such costs does not cause the company to seek a rate increase. Tariff increases for substantially all of the incremental intrastate postretirement benefit cost resulting from the adoption of Statement No. 106 have not been permitted. Pursuant to Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71), a regulatory asset associated with the recognition of the transition obligation was not recorded because of uncertainties as to the timing and extent of recovery given the Company's assessment of its long-term competitive environment. Substantially all of the Company's management and associate employees are covered under postretirement health and life insurance benefit plans. The determination of benefit cost for postretirement health benefit plans is based on comprehensive hospital, medical, surgical, and dental benefit plan provisions. The postretirement life insurance benefit formula used in the determination of postretirement benefit cost is primarily based on annual basic pay at retirement. The Company funds the postretirement health and life insurance benefits of current and future retirees. Plan assets consist principally of investments in domestic and foreign corporate equity securities, and U.S. Government and corporate debt securities. Postretirement benefit cost is composed of the following:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 1993 1992 1991 ------------------------- ------------------------ ------------------------- LIFE LIFE LIFE HEALTH INSURANCE TOTAL HEALTH INSURANCE TOTAL HEALTH INSURANCE TOTAL ------ --------- ------- ------ --------- ------ ------ --------- ------- (DOLLARS IN MILLIONS) Benefits earned during the year............... $ 64.9 $ 8.4 $ 73.3 $ 55.4 $ 8.7 $ 64.1 $ 50.5 $ 7.2 $ 57.7 Interest on accumulated postretirement benefit obligation............. 270.1 32.0 302.1 234.1 32.8 266.9 221.5 30.5 252.0 Actual return on plan assets................. (77.4) (86.3) (163.7) (21.7) (35.4) (57.1) (64.6) (99.8) (164.4) Net amortization and deferral............... 55.7 47.0 102.7 1.4 (2.5) (1.1) 45.5 68.1 113.6 ------ ------ ------- ------ ------ ------ ------ ------ ------- Postretirement benefit cost................... $313.3 $ 1.1 $ 314.4 $269.2 $ 3.6 $272.8 $252.9 $ 6.0 $ 258.9 ====== ====== ======= ====== ====== ====== ====== ====== =======
As a result of the 1992 collective bargaining agreements, the Company amended the postretirement medical benefit plan for associate employees and certain associate retirees of the Network Services subsidiaries. The increase in the postretirement benefit cost between 1993 and 1991 was primarily due to the change in benefit levels and claims experience. Also contributing to this increase were changes in actuarial assumptions and demographic experience. 30 The following table sets forth the plans' funded status and the amounts recognized in the Company's Consolidated Balance Sheets as of December 31:
1993 1992 ---------------------------- ---------------------------- LIFE LIFE HEALTH INSURANCE TOTAL HEALTH INSURANCE TOTAL -------- --------- -------- -------- --------- -------- (DOLLARS IN MILLIONS) Accumulated postretirement benefit obligation attributable to: Retirees................ $2,218.0 $ 295.0 $2,513.0 $1,893.7 $247.6 $2,141.3 Fully eligible plan participants........... 319.8 .3 320.1 450.1 79.2 529.3 Other active plan participants........... 1,362.1 174.0 1,536.1 1,074.4 139.5 1,213.9 -------- ------- -------- -------- ------ -------- Total accumulated postretirement benefit obligation............ 3,899.9 469.3 4,369.2 3,418.2 466.3 3,884.5 -------- ------- -------- -------- ------ -------- Fair value of plan assets.................. 676.9 600.9 1,277.8 512.8 537.1 1,049.9 -------- ------- -------- -------- ------ -------- Accumulated postretirement benefit obligation in excess of (less than) plan assets. 3,223.0 (131.6) 3,091.4 2,905.4 (70.8) 2,834.6 Unrecognized net gain (loss).................. (528.8) 101.5 (427.3) (233.8) 41.4 (192.4) Unamortized prior service cost.................... (65.3) (7.4) (72.7) (84.5) (9.2) (93.7) -------- ------- -------- -------- ------ -------- Accrued (prepaid) postretirement benefit obligation.............. $2,628.9 $ (37.5) $2,591.4 $2,587.1 $(38.6) $2,548.5 ======== ======= ======== ======== ====== ========
The assumed discount rate used to measure the accumulated postretirement benefit obligation was 7.25% at December 31, 1993 and 7.75% at December 31, 1992. The assumed rate of future increases in compensation levels was 5.25% at December 31, 1993 and 1992. The expected long-term rate of return on plan assets was 8.25% for 1993 and 1992 and 7.5% for 1991. The medical cost trend rate in 1993 was approximately 13.0%, grading down to an ultimate rate in 2003 of approximately 5.0%. The dental cost trend rate in 1993 and thereafter is approximately 4.0%. A one percentage point increase in the assumed health care cost trend rates for each future year would have increased the aggregate of the service and interest cost components of 1993 net periodic postretirement benefit cost by $48.0 million and would have increased the accumulated postretirement benefit obligation as of December 31, 1993 by $493.7 million. Postretirement benefits other than pensions have been included in collective bargaining agreements and have been modified from time to time. The Company has periodically modified benefits under plans maintained for its management employees. Expectations with respect to future amendments to the Company's postretirement benefit plans have been reflected in determining the Company's postretirement benefit cost under Statement No. 106. Postemployment Benefits Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement No. 112). Statement No. 112 requires accrual accounting for the estimated cost of benefits provided to former or inactive employees after employment but before retirement. This change principally affects the Company's accounting for disability and workers' compensation benefits, which previously were charged to expense as the benefits were paid. The cumulative effect at January 1, 1993 of adopting Statement No. 112 reduced net income by $85.0 million, net of a deferred income tax benefit of $50.6 million. The adoption of Statement No. 112 did not have a significant effect on the Company's ongoing level of operating expense in 1993. Savings Plans and Employee Stock Ownership Plans The Company has established savings plans to provide opportunities for eligible employees to save for retirement on a tax-deferred basis and encourage employees to acquire and maintain an equity interest in the Company. Under these plans, the Company matches a certain percentage of eligible employee contributions with shares of the Company's common stock. Two leveraged employee stock ownership plans (ESOPs) were established to purchase the Company's common stock and fund the Company's matching contribution. Common stock is allocated from the ESOP trusts based on the proportion of principal and interest paid on ESOP debt in a year to the remaining principal and interest due over the term of the debt. 31 The ESOP trusts were funded by the issuance of $790.0 million in ESOP Senior Notes. Effective January 1, 1993, the annual interest rate on the ESOP Senior Notes was reduced from 8.25% to 8.17%. The ESOP Senior Notes are payable in semiannual installments, which began on January 1, 1990 and end in the year 2000. The ESOP trusts will repay the notes, including interest, with funds from the Company's contributions to the ESOP trusts, as well as dividends received on unallocated shares of common stock and interest earned on the cash balances of the ESOP trusts. Total ESOP cost and trust activity consists of the following:
YEARS ENDED DECEMBER 31, ---------------------- 1993 1992 1991 ------ ------ ------ (DOLLARS IN MILLIONS) Compensation............................................ $ 45.0 $ 42.2 $ 39.7 Interest incurred....................................... 52.9 57.7 61.3 Dividends............................................... (33.3) (35.7) (37.6) Other trust earnings and expenses, net.................. .1 .1 (.1) ------ ------ ------ Net leveraged ESOP cost................................. 64.7 64.3 63.3 Additional ESOP cost.................................... .9 26.0 27.5 ------ ------ ------ Total ESOP cost......................................... $ 65.6 $ 90.3 $ 90.8 ====== ====== ====== Dividends received for debt service..................... $ 43.4 $ 43.4 $ 42.2 ====== ====== ====== Total company contributions to trusts................... $ 80.3 $ 88.1 $ 92.2 ====== ====== ======
9.INCOME TAXES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement No. 109). Statement No. 109 requires the determination of deferred taxes using the liability method. Under the liability method, deferred taxes are provided on book and tax basis differences and deferred tax balances are adjusted to reflect enacted changes in income tax rates. Prior to 1993, the Company accounted for income taxes based on the provisions of Accounting Principles Board Opinion No. 11. Statement No. 109 has been adopted on a prospective basis and amounts presented for prior years have not been restated. As of January 1, 1993, the Company recorded a tax benefit of $65.2 million, which has been reflected in the Consolidated Statement of Income as the cumulative effect of a change in accounting principle. This tax benefit is principally attributable to net operating loss (NOL) carryforwards of the Metro Mobile CTS, Inc. (Metro Mobile) subsidiaries that the Company expects to realize based on projections of future taxable income. Upon adoption of Statement No. 109, the effects of required adjustments to deferred tax balances of the telephone subsidiaries were primarily deferred on the balance sheet as regulatory assets and liabilities in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71). At January 1, 1993, the telephone subsidiaries recorded income tax-related regulatory assets totaling $976.6 million in Other Assets. These regulatory assets represent the anticipated future regulatory recognition of the Statement No. 109 adjustments to recognize (i) temporary differences for which deferred taxes had not been provided and (ii) the increase in the deferred state tax liability which resulted from increases in state income tax rates subsequent to the dates the deferred taxes were recorded. In addition, income tax-related regulatory liabilities totaling $1,043.8 million were recorded in Deferred Credits and Other Liabilities--Other. These regulatory liabilities represent the anticipated future regulatory recognition of the Statement No. 109 adjustments to recognize (i) a reduced deferred tax liability resulting from decreases in federal income tax rates subsequent to the dates the deferred taxes were recorded and (ii) a deferred tax benefit required to recognize the effects of the temporary differences attributable to the Company's policy of accounting for investment tax credits using the deferred method. These deferred taxes and regulatory assets and liabilities have been increased for the tax effect of future revenue requirements. These regulatory assets and liabilities are amortized at the time the related deferred taxes are recognized in the ratemaking process. Prior to the adoption of Statement No. 109, the telephone subsidiaries had income tax timing differences for which deferred taxes had not been provided pursuant to the ratemaking process of approximately $615 million and $522 million at December 31, 1992 and 1991, respectively. These timing differences principally related to the allowance for funds used during construction and certain taxes and payroll-related construction costs capitalized 32 for financial statement purposes, but deducted currently for income tax purposes, net of applicable depreciation. At December 31, 1992 and 1991, deferred state taxes had not been provided on an additional $2,057 million and $1,999 million, respectively, of income tax timing differences, principally related to accelerated tax depreciation. The Omnibus Budget Reconciliation Act of 1993, which was enacted in August 1993, increased the federal corporate income tax rate from 34% to 35%, effective January 1, 1993. In the third quarter of 1993, the Company recorded a net charge to the tax provision of approximately $3 million, which included an approximate $20 million charge for the nine month effect of the 1% rate increase, largely offset by a one-time net benefit of approximately $17 million related to adjustments to deferred tax assets associated with the postretirement benefit obligation of the telephone subsidiaries and the deferred tax liabilities and assets of the nonregulated subsidiaries (including the recorded benefit of the Metro Mobile pre-acquisition NOLs). Pursuant to Statement No. 71, the effect of the income tax rate increase on the deferred tax balances of the telephone subsidiaries was primarily deferred through the establishment of regulatory assets of $23.9 million and the reduction of regulatory liabilities of $94.1 million. The telephone subsidiaries did not recognize regulatory assets and liabilities related to the postretirement benefit obligation or the associated deferred income tax asset. The components of income tax expense from continuing operations are as follows:
YEARS ENDED DECEMBER 31, ----------------------- 1993 1992 1991 ------- ------ ------ (DOLLARS IN MILLIONS) Current: Federal............................................... $ 814.0 $614.9 $588.1 State and local....................................... 150.0 134.7 124.5 ------- ------ ------ 964.0 749.6 712.6 ------- ------ ------ Deferred: Federal............................................... (107.9) (35.5) 28.6 State and local....................................... 2.1 9.4 (8.4) ------- ------ ------ (105.8) (26.1) 20.2 ------- ------ ------ 858.2 723.5 732.8 ------- ------ ------ Investment tax credits................................. (66.2) (80.0) (68.0) ------- ------ ------ Total.................................................. $ 792.0 $643.5 $664.8 ======= ====== ======
For the years ended December 31, 1992 and 1991, deferred income tax expense resulted from timing differences in the recognition of revenue and expense for financial and income tax accounting purposes. The sources of these timing differences and the tax effects of each were as follows:
YEARS ENDED DECEMBER 31, -------------- 1992 1991 ------ ------ (DOLLARS IN MILLIONS) Leveraged lease transactions.................................... $ 58.4 $ 82.0 Accelerated depreciation........................................ (3.4) 43.0 Direct financing and operating lease transactions............... (26.5) (25.3) Alternative Minimum Tax......................................... 41.8 33.6 Employee benefits............................................... (41.8) (72.5) Other, net...................................................... (54.6) (40.6) ------ ------ Total........................................................... $(26.1) $ 20.2 ====== ======
33 The provision for income taxes varies from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The difference is attributable to the following factors:
YEARS ENDED DECEMBER 31, ---------------- 1993 1992 1991 ---- ---- ---- Statutory federal income tax rate............................ 35.0% 34.0% 34.0% Investment tax credits....................................... (2.6) (3.3) (2.9) State income taxes, net of federal tax benefits.............. 3.9 4.2 3.8 Benefit of rate differential applied to reversing timing differences................................................. (2.6) (3.3) (3.2) Reversal of previously capitalized taxes and payroll-related construction costs.......................................... 1.5 .6 1.4 Other, net................................................... (.4) (.4) 2.0 ---- ---- ---- Effective income tax rate.................................... 34.8% 31.8% 35.1% ==== ==== ====
At December 31, 1993, the significant components of deferred tax assets and liabilities were as follows:
DEFERRED DEFERRED TAX TAX ASSETS LIABILITIES -------- ----------- (DOLLARS IN MILLIONS) Depreciation.............................................. $ -- $3,817.1 Employee benefits......................................... 1,384.7 -- Investment tax credits.................................... 284.9 -- Leasing activities........................................ -- 901.8 Net operating loss carryforwards: Federal.................................................. 111.5 -- State.................................................... 60.4 -- Advance payments.......................................... 61.4 -- Other..................................................... 435.2 327.7 -------- -------- 2,338.1 5,046.6 Valuation allowance...................................... (74.8) -- -------- -------- Total..................................................... $2,263.3 $5,046.6 ======== ========
Total deferred tax assets include approximately $1,033 million related to postretirement benefit costs recognized in accordance with Statement No. 106. This deferred tax asset will gradually be realized over the estimated lives of current retirees and employees. At December 31, 1993, NOL carryforwards for federal income tax purposes were approximately $318 million. The NOL carryforwards, which expire from 1998 to 2006, relate principally to the Metro Mobile subsidiaries. Federal tax law restricts the future utilization of the Metro Mobile NOL carryforwards, permitting them to offset only the taxable income earned by the Metro Mobile subconsolidated group. At December 31, 1993, NOL carryforwards for state income tax purposes were approximately $798 million (excluding amounts attributable to leveraged leases) and expire from 1994 to 2009. Based on projections of future taxable income, the Company expects to realize future tax benefits of federal and state NOL carryforwards in the amount of $115.2 million. The valuation allowance required under Statement No. 109 primarily represents tax benefits of certain state NOL carryforwards which may expire unutilized. Subsequent to the adoption of Statement No. 109 on January 1, 1993, the valuation allowance increased $35.1 million as a result of additional state NOL carryforwards and deferred state tax assets. 34 10.SUPPLEMENTAL CASH FLOW AND ADDITIONAL FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31, ---------------------- 1993 1992 1991 ------ ------ -------- (DOLLARS IN MILLIONS) Supplemental Cash Flow Information: Interest paid, net of interest capitalized............. $680.5 $797.7 $ 904.4 Income taxes paid...................................... $844.8 $752.6 $ 620.0 Additional Financial Information: Interest expense: Interest on long-term debt............................ $610.6 $670.8 $ 796.6 Interest on notes payable............................. 43.7 61.9 115.4 Other................................................. 65.3 96.0 88.8 ------ ------ -------- Total interest, including Financial Services.......... $719.6 $828.7 $1,000.8 ====== ====== ======== Portion of total interest expense incurred by Financial Services and included in other operating expenses..... $107.5 $133.8 $ 194.0 ====== ====== ========
The Provision for Income Taxes, as well as payroll, gross receipts, property, capital stock and other taxes which are included in other operating expenses, totaled $1,648.4 million for 1993. Included in operating expenses are amounts billed by Bell Communications Research, Inc. Such expenses for 1993, 1992, and 1991 were $143.2 million, $194.3 million, and $158.4 million, respectively, for various network planning, engineering, and software development projects. During 1993, 1992, and 1991, the Company received dividends from less-than- majority-owned businesses of $73.4 million, $64.4 million, and $87.4 million, respectively. 11.INVESTMENT IN TELECOM CORPORATION OF NEW ZEALAND LIMITED In 1990, the Company acquired a 50% ownership interest in Telecom Corporation of New Zealand Limited (Telecom), the principal provider of telecommunications services in that country, for approximately $1.2 billion. Under the terms of an agreement with the New Zealand government, the Company, through a series of stock sales, has reduced its investment in Telecom to approximately 24.9%. The Company recorded after-tax gains of $44.7 million in 1993 and $74.1 million in 1991 as a result of the sales of stock. At the date of acquisition, the Company's 24.9% long-term interest exceeded the recorded value of the proportionate share of the underlying net assets by approximately $285 million. This amount is being amortized by the straight-line method over a period of 40 years. 12.INVESTMENT IN GRUPO IUSACELL, S.A. de C.V. In November 1993, the Company acquired a 23% economic interest in Grupo Iusacell, S.A. de C.V. (Iusacell), the second largest telecommunications company in Mexico, through the purchase of $520.0 million of newly issued Iusacell stock. Substantially all of this investment exceeded the recorded value of the proportionate share of the underlying net assets and is being amortized by the straight-line method over a period of 25 years. Subject to the satisfaction of various conditions, the Company has agreed to invest up to a total of $1.04 billion in Iusacell to acquire a 42% (or, under certain circumstances, up to a 46%) economic interest. 13.MERGER WITH METRO MOBILE CTS, INC. On April 30, 1992, Bell Atlantic issued approximately 34.3 million shares of its common stock to acquire all of the outstanding shares of common stock of Metro Mobile CTS, Inc. (Metro Mobile) in a transaction accounted for as a pooling of interests. Accordingly, the Company's financial statements were restated to include the accounts and operations of Metro Mobile. The Metro Mobile businesses include companies that own, operate, and control cellular telephone systems serving markets located in the Northeast, Southeast, and Southwest regions of the United States and, in addition, companies engaged in the sale and distribution of liquefied petroleum gas. 35 In the second quarter of 1992, the Company recorded a charge of $47.3 million for the cost of consummating the merger and integrating the operations of the companies. In 1993, the Company issued 883,832 shares of common stock to settle certain litigation arising from the merger with Metro Mobile. 14.FINANCIAL INSTRUMENTS Off-Balance-Sheet Risk The Company is party to interest rate swap contracts on its direct finance lease receivable transfer agreements and on its debt. These contracts entail the exchange of floating and fixed rate interest payments periodically over the life of the contracts. At December 31, 1993 and 1992, interest rate swap contracts on receivable transfer agreements, which have the effect of fixing interest rates on floating rate direct finance lease receivable transfer agreements, amounted to $414.4 million and $476.4 million, respectively. The contracts outstanding at December 31, 1993 mature from 1994 to 1997 and have fixed rates payable ranging from 4.08% to 7.96%. The contracts outstanding at December 31, 1992 had maturity dates ranging from 1993 to 1996 and had the effect of fixing interest rates on the agreements from 4.32% to 7.96%. Interest rate swap contracts that have the effect of fixing the rate of interest on $115.0 million and $420.0 million of debt were outstanding at December 31, 1993 and 1992, respectively. The contracts that were outstanding at December 31, 1993 expire during 1994 and effectively fix the rate of interest on the debt at rates of 3.65% to 7.72%. The contracts that were outstanding at December 31, 1992 had expiration dates ranging from 1993 to 1994 and had the effect of fixing interest rates on the debt from 3.41% to 9.56%. Additionally, at December 31, 1992, interest rate swap contracts, which expired during 1993, were used to convert fixed interest rates ranging from 7.45% to 7.53% on $35.0 million of debt to floating rates. The Company enters into forward exchange contracts to offset the effects of foreign exchange fluctuations on exposed balances. At December 31, 1992, the outstanding face amounts of these contracts totaled 243.0 million New Zealand Dollars which were exchanged for $124.0 million. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments, trade receivables, and various hedging instruments, principally interest rate swap agreements and foreign currency contracts. The Company places its temporary cash investments with high-credit-quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables other than those from AT&T (Note 15) are limited due to the large number of customers included in the Company's customer base. In management of its exposure to fluctuations in foreign currency exchange and interest rates, the Company has entered into interest rate swap agreements and forward exchange contracts. During 1993 and 1992, the Company entered into these contracts with various counterparties. The Company is exposed to credit loss in the event of non-performance by these counterparties. The Company continually monitors its positions and the credit ratings of its counterparties, and limits the amount of contracts it enters into with any one party. While the Company may be exposed to credit losses in the event of nonperformance by its counterparties, it does not expect to incur such losses. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments. Cash and Cash Equivalents, Short-Term Investments, Accounts Receivable, Accounts Payable, Accrued Liabilities, and Forward Exchange Contracts The carrying amount approximates fair value. 36 Debt Maturing Within One Year and Long-Term Debt The fair value of debt maturing within one year and long-term debt is estimated based on the quoted market prices for the same or similar issues or is based on the net present value of the future expected cash flows using current interest rates. Finance Notes Receivable Fair values of finance notes receivable are based on the net present value of the future expected cash flows using current interest rates or on quoted market prices for similar instruments, where available. Interest Rate Swap Agreements The fair value of interest rate swap agreements is the estimated amount that the Company would have to pay to terminate the swap agreements at December 31, 1993 and 1992, taking into account current interest rates and the creditworthiness of the swap counterparties. The estimated fair values of the Company's financial instruments are as follows:
DECEMBER 31, 1993 DECEMBER 31, 1992 ----------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- (DOLLARS IN MILLIONS) Financial Instruments on the Balance Sheets: Debt maturing within one year, excluding capital lease obligations................ $2,666.5 $2,696.3 $2,672.4 $2,702.2 Long-term debt, excluding unamortized discount and premium and capital lease obligations.............................. $7,207.2 $7,512.0 $7,343.7 $7,472.9 Finance notes receivable.................. $ 926.5 $ 924.5 $ 882.5 $ 886.5 Financial Instruments with Off-Balance- Sheet Risk: Unrealized loss on interest rate swap agreements............................... -- $ 1.6 -- $ 14.0
15.SEGMENT INFORMATION Communications and Related Services--Provides voice and data transport and calling services, network access, directory publishing, inside wire maintenance, and public telephones to customers in the mid-Atlantic region; provides billing and collection services to interexchange carriers; provides cellular mobile communications products and services; markets and maintains customer premises equipment to originate, route, or receive tele- communications; services and repairs computers; and provides software development and support, systems integration, and telecommunications and data processing equipment sales and consulting. Financial, Real Estate, and Other Services--Engages in lease financing of commercial, industrial, medical, and high-technology equipment and in real estate investment and development; sells and distributes liquefied petroleum gas. 37
1993 1992 1991 --------- --------- --------- (DOLLARS IN MILLIONS) Operating revenues: Communications and Related Services.......... $12,534.8 $12,164.6 $11,850.2 Financial, Real Estate, and Other Services... 455.4 553.8 701.9 --------- --------- --------- $12,990.2 $12,718.4 $12,552.1 ========= ========= ========= Operating profit: Communications and Related Services.......... $ 2,821.6 $ 2,526.9 $ 2,566.1 Financial, Real Estate, and Other Services... 32.4 27.7 1.8 --------- --------- --------- 2,854.0 2,554.6 2,567.9 Corporate expense............................. (56.4) (48.4) (42.6) Interest expense, excluding Financial Services..................................... (612.1) (694.9) (806.8) Allowance for funds used during construction.. 22.4 24.6 20.6 Equity in income of affiliates................ 48.3 52.4 79.5 Interest income............................... 11.9 63.2 30.1 Other nonoperating income..................... 5.5 74.2 46.0 --------- --------- --------- Income before provision for income taxes, extraordinary item, and cumulative effect of changes in accounting principles.......... $ 2,273.6 $ 2,025.7 $ 1,894.7 ========= ========= ========= Identifiable assets: Communications and Related Services.......... $25,949.9 $24,297.1 $24,079.3 Financial, Real Estate, and Other Services... 3,380.9 3,452.9 3,948.2 Corporate assets.............................. 213.4 349.5 278.3 --------- --------- --------- $29,544.2 $28,099.5 $28,305.8 ========= ========= ========= Depreciation and amortization: Communications and Related Services.......... $ 2,436.6 $ 2,250.8 $ 2,053.5 Financial, Real Estate, and Other Services... 108.5 166.6 285.3 --------- --------- --------- $ 2,545.1 $ 2,417.4 $ 2,338.8 ========= ========= ========= Additions to plant, property and equipment: Communications and Related Services.......... $ 2,485.9 $ 2,510.1 $ 2,486.9 Financial, Real Estate, and Other Services... 33.1 36.7 157.2 --------- --------- --------- $ 2,519.0 $ 2,546.8 $ 2,644.1 ========= ========= =========
Operating profit for each segment consists of total revenues less applicable costs and expenses related to operations, including, in the case of Financial Services, interest expense. Corporate assets consist principally of cash and cash equivalents and short-term investments. At December 31, 1993, 1992, and 1991, identifiable assets included investments in affiliates of $1,333.0 million, $929.3 million, and $927.7 million, respectively, for the Communications and Related Services segment and $61.7 million, $58.2 million, and $78.0 million, respectively, for the Financial, Real Estate, and Other Services segment. Net income (loss) for the Financial, Real Estate, and Other Services subsidiaries was $(1.8) million, $13.4 million, and $(21.9) million in 1993, 1992, and 1991, respectively. Total liabilities associated with the Financial, Real Estate, and Other Services subsidiaries were $2,984.8 million and $3,041.2 million in 1993 and 1992, respectively. For the years ended December 31, 1993, 1992, and 1991, revenues generated from services provided to AT&T, principally network access, billing and collection, and sharing of network facilities, were $1,368.4 million, $1,518.0 million, and $1,541.2 million, respectively. At December 31, 1993 and 1992, Accounts receivable, net, included $162.4 million and $156.1 million, respectively, from AT&T. 38 16.FINANCIAL SERVICES BUSINESSES In October 1993, the Company announced that it has begun to evaluate strategies for exiting its Financial Services businesses. The Company filed a registration statement in December 1993 for a potential public sale of TriCon Capital Corporation, a wholly owned subsidiary that provides commercial finance and equipment leasing services. 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
INCOME BEFORE INCOME BEFORE EXTRAORDINARY ITEM EXTRAORDINARY ITEM AND CUMULATIVE EFFECT AND CUMULATIVE EFFECT OF CHANGES IN OPERATING OPERATING OF CHANGES IN ACCOUNTING PRINCIPLES NET QUARTER ENDED REVENUES INCOME ACCOUNTING PRINCIPLES PER COMMON SHARE INCOME ------------- --------- --------- --------------------- --------------------- ------ (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1993: March 31*............... $3,163.3 $717.5 $372.2 $.85 $329.2 June 30................. 3,220.1 752.2 385.5 .88 362.6 September 30............ 3,289.6 720.7 386.7 .89 378.5 December 31............. 3,317.2 607.2 337.2 .77 333.1 1992: March 31................ $3,090.7 $669.9 $346.9 $.81 $338.6 June 30................. 3,166.5 650.0 314.9 .74 298.1 September 30............ 3,187.0 668.2 392.9 .91 386.6 December 31............. 3,274.2 518.1 327.5 .76 317.3
- -------- *Net income for the first quarter of 1993 includes a tax benefit of $65.2 million related to the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Note 9). In addition, net income for the first quarter of 1993 has been restated to include a charge of $85.0 million, net of a deferred income tax benefit of $50.6 million, related to the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Note 8). Income before extraordinary item and cumulative effect of changes in accounting principles per common share is computed independently for each quarter and, for 1992, the sum of the quarters does not equal the annual amount. 39 SHAREOWNER INFORMATION Form 10-K Copies of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission can be obtained, without charge, by contacting Bell Atlantic Shareowner Services, 31st Floor, 1717 Arch Street, Philadelphia, PA 19103. Stock Market And Dividend Information Bell Atlantic is listed in some newspaper stock tables under "BellAtl," and its ticker symbol is "BEL." Bell Atlantic common stock is traded on the New York, Philadelphia, Chicago, Boston, Pacific, London, Zurich, Geneva, Basel, Frankfurt, and Tokyo stock exchanges. Dividends on common stock are payable quarterly, upon authorization by the Board of Directors. Based on the current schedule, the expected payment dates are the first business days of February, May, August, and November. As of December 31, 1993, Bell Atlantic had 1,026,371 shareowners of record. High and low stock prices, as reported on the Composite Tape, and dividend data are as follows:
MARKET PRICE CASH --------------- DIVIDEND HIGH LOW DECLARED ------- ------- -------- 1993:First Quarter............................. $56 3/4 $49 5/8 $.67 Second Quarter............................ 59 1/8 50 3/4 .67 Third Quarter............................. 64 7/8 55 5/8 .67 Fourth Quarter............................ 69 1/8 57 .67 1992:First Quarter............................. $49 $41 1/4 $.65 Second Quarter............................ 45 40 1/4 .65 Third Quarter............................. 49 3/4 44 1/4 .65 Fourth Quarter............................ 53 7/8 44 1/2 .65 1991:First Quarter............................. $54 1/8 $46 3/4 $.63 Second Quarter............................ 52 3/4 44 1/8 .63 Third Quarter............................. 50 5/8 44 7/8 .63 Fourth Quarter............................ 49 1/4 43 .63
BELL ATLANTIC CORPORATION 1717 ARCH STREET, PHILADELPHIA, PA 19103 PRINTED ON RECYCLED PAPER. This document is printed on recycled paper, which contains at least 10% post- consumer waste. EX-21 16 EXHIBIT 21 EXHIBIT 21: SUBSIDIARIES
Subsidiary Jurisdiction of Incorporation Bell Atlantic - New Jersey, Inc. New Jersey Bell Atlantic - Pennsylvania, Inc. Pennsylvania Bell Atlantic - Delaware, Inc. Delaware Bell Atlantic - Washington, D.C., New York Inc. Bell Atlantic - Maryland, Inc. Maryland Bell Atlantic - Virginia, Inc. Virginia Bell Atlantic - West Virginia, Inc. West Virginia Atlantic West B.V. The Netherlands BABS Australia Pty. Ltd. Australia BAC Financial Italia S.r.L. Italy BAC Financial Services The Netherlands International B.V. BAC International - The Netherlands The Netherlands B.V. BACPE, Inc. Delaware BACSI (U.K.) Limited United Kingdom BAP - 1800 Arch Land Parcel, Inc. Delaware BAP - 6755 Snowdrift, Inc. Delaware BAP - 1760 Market, Inc. Delaware BAP - Durham, Inc. Delaware BATCL - 1987 - I, Inc. Delaware BATCL - 1987 - II, Inc. Delaware BATCL - 1987 - III, Inc. Delaware BATCL - 1991 - I, Inc. Nevada BATCL - 1991 - II, Inc. Delaware BATCL - 1991 - III, Inc. Delaware BATCL - 1991 - IV, Inc. Delaware BATCL - 1992 - I, Inc. Delaware BATCL - 1992 - II, Inc. Delaware BATCL - 1992 - III, Inc. Delaware BATCO - 1989 - II, Inc. Delaware BATCO - 1989 - III, Inc. Delaware Bell Atlantic Administrative Delaware Services, Inc.
Exhibit 21 (Continued)
Subsidiary Jurisdiction of Incorporation Bell Atlantic Argentina, Inc. Delaware Bell Atlantic Asia, Inc. Delaware Bell Atlantic Australia Pty. Ltd. Australia Bell Atlantic Business Systems, Delaware Inc. Bell Atlantic Business Systems Delaware International, Inc. Bell Atlantic Business Systems Delaware Services, Inc. Bell Atlantic Capital Corporation Delaware Bell Atlantic Capital Funding Corp. Delaware Bell Atlantic Cellular Consulting Delaware Group, Inc. Bell Atlantic Directory Graphics, Delaware Inc. Bell Atlantic Enterprises Delaware International, Inc. Bell Atlantic Europe S.A. Belgium Bell Atlantic Federal Integrated Delaware Systems, Inc. Bell Atlantic Financial Services, Delaware Inc. Bell Atlantic Foreign Sales Virgin Is. Corporation Bell Atlantic Foundation Pennsylvania Non-Profit Bell Atlantic Gulf Holdings Ltd. Cayman Is. Bell Atlantic Healthcare Systems, California Inc. Bell Atlantic Holdings Limited New Zealand Bell Atlantic Hungary, Inc. Delaware Bell Atlantic Indonesia, Inc. Delaware Bell Atlantic Information Systems, Delaware Inc. Bell Atlantic Integrated Systems, Delaware Inc. Bell Atlantic International, Inc. Delaware
2 Exhibit 21 (Continued)
Subsidiary Jurisdiction of Incorporation Bell Atlantic International - Italy Italia S.r.L. Bell Atlantic International Delaware Wireless Services, Inc. Bell Atlantic Investment Delaware Development Corporation Bell Atlantic Investments, Inc. Delaware Bell Atlantic Land Development, Delaware Inc. Bell Atlantic Latin America Delaware Holdings, Inc. Bell Atlantic MM Holdings, Inc. Delaware Bell Atlantic Mobile of Hickory, Delaware Inc. Bell Atlantic Mobile Systems, Inc. Delaware Bell Atlantic Mobile Systems of Delaware Allentown, Inc. Bell Atlantic Mobile Systems of Delaware Baltimore, Inc. Bell Atlantic Mobile Systems of Delaware Norfolk, Inc. Bell Atlantic Mobile Systems of Delaware Northern New Jersey, Inc. Bell Atlantic Mobile Systems of Delaware Pennsylvania RSA 6(II), Inc. Bell Atlantic Mobile Systems of Delaware Pittsburgh, Inc. Bell Atlantic Mobile Systems of Delaware Reading, Inc. Bell Atlantic Mobile Systems of Delaware Richmond, Inc. Bell Atlantic Mobile Systems of Delaware Scranton, Inc. Bell Atlantic Mobile Systems of Delaware Washington, Inc. Bell Atlantic Mobile Systems of Delaware West Virginia, Inc. Bell Atlantic Mobilfunk GmbH Germany
3 Exhibit 21 (Continued)
Subsidiary Jurisdiction of Incorporation Bell Atlantic Network Funding Delaware Corporation Bell Atlantic Network Integration, Delaware Inc. Bell Atlantic Network Services, Delaware Inc. Bell Atlantic New Holdings, Inc. Delaware Bell Atlantic New Zealand Delaware Holdings, Inc. Bell Atlantic New Zealand Delaware Investments, Inc. Bell Atlantic New Zealand Limited Delaware Bell Atlantic Paging, Inc. Delaware Bell Atlantic PAI Comunicaciones Venezuela C.A. Bell Atlantic Personal Delaware Communications, Inc. Bell Atlantic Professional Services Delaware Inc. Bell Atlantic Properties, Inc. Delaware Bell Atlantic Property Holdings II, Delaware Inc. Bell Atlantic Property Holdings Delaware III, Inc. Bell Atlantic Puerto Rico, Inc. Delaware The Bell Atlantic Systems Group, Delaware Inc. Bell Atlantic Systems Leasing New York International, Inc. Bell Atlantic Telecommunications Delaware Systems, Inc. Bell Atlantic TeleProducts Corp. Delaware Bell Atlantic TriCon Government Delaware Finance, Inc. Bell Atlantic TriCon Leasing Delaware Corporation Bell Atlantic Utilities Systems, Delaware Inc.
4 Exhibit 21 (Continued)
Subsidiary Jurisdiction of Incorporation Bell Atlantic Vehicle Management, Delaware Inc. Bell Atlantic Ventures II, Inc. Delaware Bell Atlantic Ventures XXIII, Inc. Delaware Bell Atlantic Ventures XXIV, Inc. Delaware Bell Atlantic Ventures XXV, Inc. Delaware Bell Atlantic Video Services Virginia Company Bell Atlanticom Systems, Inc. Delaware FM America Corp. Delaware ICA Foreign Financial, Inc. Virgin Is. M-Pact, Ltd. South Carolina Metro Mobile CTS MIS, Inc. Connecticut Metro Mobile CTS of Albuquerque, New Mexico Inc. Metro Mobile CTS of Anderson, Inc. South Carolina Metro Mobile CTS of Charlotte, Inc. North Carolina and Virginia Metro Mobile CTS of Cherokee, Inc. South Carolina Metro Mobile CTS of Columbia, Inc. South Carolina Metro Mobile CTS of El Paso, Inc. Texas Metro Mobile CTS of Fairfield Connecticut County, Inc. Metro Mobile CTS of Greenville, South Carolina Inc. Metro Mobile CTS of Hartford, Inc. Connecticut Metro Mobile CTS of Lancaster, Inc. South Carolina Metro Mobile CTS of Las Cruces, New Mexico Inc. Metro Mobile CTS of New Bedford, Massachusetts Inc. Metro Mobile CTS of New Haven, Inc. Connecticut Metro Mobile CTS of New London, Connecticut Inc. Metro Mobile CTS of Newport, Inc. Rhode Island Metro Mobile CTS of Phoenix, Inc. Arizona
5 Exhibit 21 (Continued)
Subsidiary Jurisdiction of Incorporation Metro Mobile CTS of Pittsfield, Massachusetts Inc. Metro Mobile CTS of Providence, Rhode Island Inc. Metro Mobile CTS of Raleigh, Inc. North Carolina Metro Mobile CTS of Springfield, Massachusetts Inc. Metro Mobile CTS of the Northeast, Connecticut Inc. Metro Mobile CTS of the Southeast, South Carolina Inc. Metro Mobile CTS of the Southwest, Delaware Inc. Metro Mobile CTS of Tucson, Inc. Arizona Metro Mobile of Venezuela, Inc. Delaware Metro Mobile CTS of Windham, Inc. Connecticut Metro Mobile Real Estate New York Development of New York, Inc. Metro Mobile Transport, Inc. Delaware Pacific Atlantic Systems Leasing, Delaware Inc.
6 Exhibit 21 (Continued)
Subsidiary Jurisdiction of Incorporation Pacific Star Communications Pty. Australia Ltd. The Penn's Landing Marina Pennsylvania Corporation Portal Investments, Inc. Arizona Power Fuels, Inc. North Dakota Sodalia S.p.A. Italy Sorbus Canada Limited Ontario Southern Gas Company Florida TriContinental Leasing Corporation Delaware of Puerto Rico, Inc. TriContinental Leasing Corporation Delaware Vision Energy Florida, Inc. Florida Vision Energy Minnesota, Inc. Minnesota Vision Energy North Dakota, Inc. North Dakota Vision Energy Resources, Inc. Delaware Vision Energy Wisconsin, Inc. Iowa Werner's, Inc. Minnesota
7 EX-23 17 EXHIBIT 23 Exhibit 23 Form 10-K for 1993 File No. 1-8606 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Bell Atlantic Corporation Form S-3 (File No. 33-30642), Form S-8 (File No. 2-97281), Form S-3 (File No. 33-8451), Form S-8 (File No. 33-10377), Form S-8 (file No. 33-10378), Form S-3 (File No. 33-36551), Form S-3 (File No. 33- 49085), Form S-4 (file No. 33-49313), our reports dated February 7, 1994, which include an explanatory paragraph stating that the Company changed its method of accounting for income taxes and postemployment benefits in 1993 and postretirement benefits other than pensions in 1991, on our audits of the consolidated financial statements and financial statement schedules which reports are incorporated by the reference and included, respectively, in this Annual Report on Form 10-K of Bell Atlantic Corporation and subsidiaries as of December 31, 1993 and December 31, 1992, and for each of the three years in the period ended December 31, 1993. /s/ COOPERS & LYBRAND 2400 Eleven Penn Center Philadelphia, Pennsylvania March 29, 1994 -----END PRIVACY-ENHANCED MESSAGE-----