-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MQbNPB/Ry3i4qgSzBWef1QFmev4cDs6JqORBJKPpA9yCs4lkpYYfBG8zM1m9SNIv q0lpglzmiluRfZDMSFdCWw== 0000950109-96-001787.txt : 19960329 0000950109-96-001787.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950109-96-001787 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL ATLANTIC CORP CENTRAL INDEX KEY: 0000732712 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 232259884 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08606 FILM NUMBER: 96539499 BUSINESS ADDRESS: STREET 1: 1717 ARCH ST 47W CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159636000 MAIL ADDRESS: STREET 2: 1717 ARCH ST 47TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19103 10-K405 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, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8606 BELL ATLANTIC CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 23-2259884 (State of incorporation) (I.R.S. Employer Identification No.) 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- At February 29, 1996, the aggregate market value of the registrant's voting stock held by non-affiliates was approximately $28,929,000,000. At February 29, 1996, 437,646,355 shares of the registrant's Common Stock were outstanding, after deducting 169,912 shares held in treasury. Documents incorporated by reference: Portions of the registrant's Annual Report to shareowners for the year ended December 31, 1995 (Part II). Portions of the registrant's Proxy Statement dated February 28, 1996 prepared in connection with the Annual Meeting of Shareowners (Part III). TABLE OF CONTENTS
ITEM NO. PAGE - -------- ---- PART I 1. Business................................................................................ 1 2. Properties.............................................................................. 13 3. Legal Proceedings....................................................................... 14 4. Submission of Matters to a Vote of Security Holders..................................... 15 Executive Officers of the Registrant......................................................... 15 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters............... 15 6. Selected Financial Data................................................................. 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 16 8. Financial Statements and Supplementary Data............................................. 16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 16 PART III 10. Directors and Executive Officers of the Registrant...................................... 17 11. Executive Compensation.................................................................. 17 12. Security Ownership of Certain Beneficial Owners and Management.......................... 17 13. Certain Relationships and Related Transactions.......................................... 17 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................ 18
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 25, 1996 PART I ITEM 1. BUSINESS GENERAL Bell Atlantic Corporation (the "Company" or "Bell Atlantic") is one of the seven regional holding companies ("RHCs") formed in connection with the court- approved divestiture (the "Divestiture"), effective January 1, 1984, of those assets of American Telephone and Telegraph Company ("AT&T") related to exchange telecommunications, exchange access functions, printed directories and cellular mobile communications. Pursuant to the Divestiture, AT&T transferred to the Company, among other assets, its 100% ownership interest in seven Bell System operating companies ("BOCs"): New Jersey Bell Telephone Company; The Bell Telephone Company of Pennsylvania; The Diamond State Telephone Company; The Chesapeake and Potomac Telephone Company; The Chesapeake and Potomac Telephone Company of Maryland; The Chesapeake and Potomac Telephone Company of Virginia; and The Chesapeake and Potomac Telephone Company of West Virginia (collectively, the "Network Services Companies"). In January 1994, to facilitate the creation of a uniform "Bell Atlantic" brand name across the territories served by these seven telephone subsidiaries, the names of the Network Services Companies were changed to Bell Atlantic - New Jersey, Inc. ("Bell Atlantic - New Jersey"), Bell Atlantic - Pennsylvania, Inc. ("Bell Atlantic - Pennsylvania"), Bell Atlantic - Delaware, Inc. ("Bell Atlantic - Delaware"), Bell Atlantic - Washington, D.C., Inc. ("Bell Atlantic - Washington, D.C."), Bell Atlantic - Maryland, Inc. ("Bell Atlantic - Maryland"), Bell Atlantic - Virginia, Inc. ("Bell Atlantic - Virginia") and Bell Atlantic - West Virginia, Inc. ("Bell Atlantic - West Virginia"), respectively. The Company 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 AND THE TELECOMMUNICATIONS ACT OF 1996 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, and (ii) engaging in the manufacture of telecommunications equipment and customer premises equipment ("CPE"). The Telecommunications Act of 1996 (the "Act") became effective on February 8, 1996 and replaces the MFJ. In general, the Act includes provisions that would open the telephone subsidiaries' local exchange markets to competition and would permit local exchange carriers, such as the Company, to provide interLATA services (long distance) and video programming and to engage in manufacturing. However, the ability of the Company and its subsidiaries to engage in businesses previously prohibited by the MFJ is largely dependent on satisfying certain conditions contained in the Act and regulations to be promulgated thereunder. The following is a brief discussion regarding certain provisions of the Act. With regard to the rules governing competition in the interLATA market, the Act takes a two-fold approach. Effective February 8, 1996, the Company is permitted to apply for approval to offer interLATA services outside of the geographic region in which it currently operates as a local exchange carrier. The Company has announced its plans to offer such services in several states. In addition, the Company's wireless businesses are now permitted to offer interLATA services without having to comply with the conditions imposed in waivers granted under the MFJ. 1 Secondly, within the Company's geographic region, each of the telephone subsidiaries must demonstrate to the FCC that it has satisfied certain requirements in order to be permitted to offer interLATA services within its jurisdiction. Among the requirements with which a telephone subsidiary must comply is a 14-point "competitive checklist" which is aimed at ensuring that competitors have the ability to connect to the telephone subsidiary's network. A telephone subsidiary must also demonstrate to the FCC that its entry into the interLATA market would be in the public interest. The Act also imposes specific requirements on the telephone subsidiaries that are intended to promote competition in the local exchange markets. These requirements include the duty to: (i) provide interconnection to any other carrier for the transmission and routing of telephone exchange access at any technically feasible point; (ii) provide unbundled access to network elements at any technically feasible point; (iii) provide retail services for resale at wholesale prices; (iv) establish reciprocal compensation arrangements for the origination and termination of telecommunications; and (v) provide physical collocation. No definitive prediction can be made as to the specific impact of the Act on the business or financial condition of the Company. The financial impact on the Company will be dependent on several factors, including the timing, extent and success of competition in the Company's markets and the timing, extent and success of the Company's pursuit of new business opportunities resulting from the Act. 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 has historically been permitted to provide telephone service. The Network Services Companies currently provide two basic types of telecommunications services. First, they transport telecommunications traffic between subscribers located within the same LATA ("intraLATA service"), including both local and toll services. Local service includes the provision of local exchange ("dial tone"), local private line and public telephone services (including dial tone service for pay telephones owned by the Company and other pay telephone providers). Among other local services provided are Centrex (telephone company central office-based switched telephone service enabling the subscriber to make both intercom and outside calls) and a variety of special and custom calling services. Toll service includes message toll service (calling service beyond the local calling area) within LATA boundaries, and intraLATA Wide Area Toll Service (WATS)/800 services (volume discount offerings for customers with highly concentrated demand). As permitted by the Plan, Bell Atlantic - New Jersey and Bell Atlantic - Pennsylvania also earn toll revenue from the provision of telecommunications service between LATAs ("interLATA service") in corridors between the cities (and certain surrounding counties) of (i) New York, New York and Newark, New Jersey and (ii) Philadelphia, Pennsylvania and Camden, New Jersey. Second, the Network Services Companies provide exchange access service, which links a subscriber's telephone or other equipment to the transmission facilities of interexchange carriers which, in turn, provide interLATA service to their customers. Bell Atlantic - Pennsylvania, Bell Atlantic - Delaware, Bell Atlantic - Maryland, Bell Atlantic - - West Virginia, Bell Atlantic - Virginia and Bell Atlantic - New Jersey also provide exchange access service to interexchange carriers which provide intrastate intraLATA long distance telecommunications service. 2 OPERATIONS Although the Network Services Companies remain responsible within their respective service areas for the provision of telephone services, financial performance and regulatory matters, during 1993 Bell Atlantic reorganized certain functions formerly performed by each of these companies into lines of business ("LOBs") organized across the Network Services Companies around specific market segments. The Consumer Services LOB markets communications services to residential customers within the Territory (11 million households and 29 million people). 1995 revenues generated by the Consumer Services LOB were approximately $4 billion, representing approximately 33% 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. 1995 revenues generated by the Carrier Services market were approximately $2.6 billion, representing approximately 21% of the Network Services Companies' aggregate revenues. Approximately 93% of total Carrier Services revenues were derived from interexchange carriers; AT&T is the largest single customer. Most of the remaining revenues came from business customers and government agencies with their own special access network connections, wireless companies and other local exchange carriers ("LECs") which resell network connections to their own customers. The Small Business Services LOB markets communications and information services to small businesses (customers having up to 20 access lines). The Small Business Services LOB has approximately 1.2 million small business customers in the Territory which in 1995 generated approximately $1.8 billion in revenues, representing approximately 15% of the Network Services Companies' aggregate revenues. The Large Business Services LOB markets communications and information services to large businesses (customers having more than 20 access lines). 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, videoconferencing) and interactive multi- media applications services. 1995 revenues from the Large Business Services LOB were approximately $1.6 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. 1995 revenues from the Directory Services LOB were approximately $1.1 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). 1995 revenues from the Public and Operator Services LOB were approximately $700 million, representing approximately 6% of the Network Services Companies' aggregate revenues. The Federal Systems LOB markets communications and information technology and services to departments, agencies and offices of the executive, judicial and legislative branches of the federal government. 1995 revenues 3 from the Federal Systems LOB were approximately $400 million, representing approximately 3% of the Network Services Companies' aggregate revenues. The Network LOB manages the technologies, services and systems platforms required by the other LOBs and the Network Services Companies to meet the needs of their respective customers, including switching, feature development and on- premises installation and maintenance services. 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. The FCC has prescribed structures for exchange access tariffs to specify the charges ("access charges") for use and availability of the Network Services Companies' facilities for the origination and termination of interstate interLATA service. In general, the tariff structures prescribed by the FCC provide that interstate costs of the Network Services Companies which do not vary based on usage ("non-traffic sensitive costs") are recovered from subscribers through flat monthly charges ("subscriber line charges"), and from interexchange carriers through usage-sensitive Carrier Common Line ("CCL") charges. Traffic-sensitive interstate costs are recovered from carriers through variable access charges based on several factors, primarily usage. Price Caps The price cap system, which became effective in 1991, (the "Prior Price Cap Plan") placed a cap on overall LEC prices for interstate access services which was modified annually, in inflation-adjusted terms, by a fixed percentage which was intended to reflect increases in productivity. The price cap level could also be adjusted to reflect "exogenous" changes, such as changes in FCC separations procedures or accounting rules. Under the Prior Price Cap Plan, the Company was required to share with customers in the form of prospective rate reductions a portion of its earnings above a certain authorized rate of return. In March 1995, the FCC approved an Interim Price Cap Plan ("Interim Plan") for interstate access charges, which became effective on August 1, 1995, and replaced the Prior Price Cap Plan. Under the Interim Plan, the Company's price cap index must be adjusted by an inflation index (GDP-PI), less a fixed percentage, either 4.0%, 4.7% or 5.3%, which is intended to reflect increases in productivity ("Productivity Factor"). Companies selecting the 4.0% or 4.7% Productivity Factor are required to reduce future prices and share a portion of their interstate return in excess of 12.25%. Companies selecting the 5.3% Productivity Factor are also required to reduce prices but are not required to share a portion of their future interstate earnings. The Interim Plan also provided for a reduction in the price cap index of 2.8% to adjust for what the FCC believes was an underestimate in its calculation of the Productivity Factor in prior years. The Interim Plan also eliminated the recovery of certain "exogenous" cost changes, including changes in accounting costs that the FCC believes have no economic consequences. In May 1995, the Company selected the 5.3% Productivity Factor for the August 1995 to June 1996 tariff period. The rates included in the May 1995 filing resulted in price decreases totaling approximately $305 million on an annual basis. These price decreases included the scheduled expiration of a temporary rate increase of 4 approximately $98 million on an annualized basis that was in effect from March 17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment benefit costs. Approximately 80% of the remaining $207 million reduction resulted from compliance with the Interim Plan. The remaining 20% represented reductions that the Company was required to make under the Prior Price Cap Plan. Bell Atlantic appealed the Interim Price Cap Order to the Court of Appeals for the D.C. Circuit, and that case is currently pending. FCC Cost Allocation and Affiliate Transaction Rules FCC rules govern: (i) the allocation of costs between the regulated and unregulated activities of a communications common carrier and (ii) transactions between the regulated and unregulated affiliates of a communications common carrier. The cost allocation rules apply to certain unregulated activities: activities that have never been regulated as communications common carrier offerings and activities that have been preemptively deregulated by the FCC. The costs of these activities are removed prior to the separations procedures process and are assigned to unregulated activities in the aggregate, not to specific services, for pricing purposes. Other activities must be accounted for as regulated activities, and their costs are subject to separations procedures. The affiliate transaction rules govern the pricing of assets transferred to and services provided by affiliates. These rules generally require that assets be transferred between affiliates at "market price," if such price can be established through a tariff or a prevailing price actually charged to third parties. In the absence of a tariff or prevailing price, "market price" cannot be established, in which case (i) asset transfers from a regulated to an unregulated affiliate must be valued at the higher of cost or fair market value, and (ii) asset transfers from an unregulated to a regulated affiliate must be valued at the lower of cost or fair market value. The FCC has not attempted to make its cost allocation or affiliate transaction rules preemptive. State regulatory authorities are free to use different cost allocation methods and affiliate transaction rules for intrastate ratemaking and to require carriers to keep separate allocation records. STATE REGULATION OF RATES AND SERVICES 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 certain other matters. For a discussion of regulatory proceedings regarding competition in the Network Services Companies' local exchange and intraLATA toll markets, see "Competition - - Local Exchange Services" and "Competition - IntraLATA Toll Services." Bell Atlantic - New Jersey, Inc. The New Jersey Telecommunications Act of 1992 authorized the Board of Public Utilities ("BPU") to adopt alternative regulatory frameworks to address changes in technology and the structure of the telecommunications industry and to promote economic development. It also deregulated services which the BPU found to be competitive. Pursuant to that legislation, Bell Atlantic - New Jersey filed a Plan for Alternative Form of Regulation (the "New Jersey Plan"), which became effective with modifications required by the BPU in May 1993. 5 The New Jersey Plan divides Bell Atlantic - New Jersey's services into Rate- Regulated Services and Competitive Services. 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 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 capped through December 1999. However, revenue neutral rate restructuring for Rate- Regulated Services, including Protected Services and basic residence service, is permitted. -"Other Services": Custom Calling, Custom Local Area Signaling Services ("CLASS" services which utilize Signaling System 7), operator services and 911 enhanced service. Rates for Other Services may be increased beginning January 1996 in an amount limited to the prior year's increase in the GNP-PI less a 2% productivity offset, as long as the return on equity for Rate-Regulated Services does not exceed 12.7%. All earnings above a return on equity of 13.7% for Rate-Regulated Services will be shared equally with customers. There is no point at which the earnings are capped. Competitive Services are deregulated under the New Jersey Telecommunications Act. An appeal of the New Jersey Plan is pending. Bell Atlantic - Pennsylvania, Inc. In July 1993, legislation was enacted in Pennsylvania which enabled Bell Atlantic - Pennsylvania to petition the Pennsylvania Public Utility Commission ("PPUC") to regulate Bell Atlantic - Pennsylvania under an alternative form of regulation. In October 1993, Bell Atlantic - Pennsylvania filed its petition and plan with the PPUC. In June 1994, the PPUC approved, with modifications, Bell Atlantic - Pennsylvania's Alternative Regulation Plan, (the "Pennsylvania Plan") which was accepted by Bell Atlantic - Pennsylvania in July 1994. The Pennsylvania Plan provides for a pure price cap plan with no sharing and replaces rate base rate of return regulation. The Pennsylvania Plan removes from price and earnings regulation certain competitive services, including directory advertising, billing service, Centrex service, paging, speed calling and repeat calling. All remaining noncompetitive services will be price regulated. Under price regulation, annual price increases up to, but not exceeding, the inflation rate (GDP-PI) minus 2.93% will be permitted. Annual price decreases are required when the GDP-PI falls below 2.93%. Protected services revenues in the noncompetitive category, which include residential and business basic exchange services, special access and switched access, are capped through December 31, 1999. However, revenue neutral rate restructuring for non- competitive services is permitted. The Pennsylvania Plan requires Bell Atlantic - Pennsylvania to propose a Lifeline service for residential customers on a revenue neutral basis. The Plan also requires deployment of a universal broadband network, which must be completed in phases: 20% by 1998; 50% by 2004; and 100% by 2015. Deployment must be reasonably balanced among urban, suburban and rural areas. In July 1994, several parties filed appeals in the Pennsylvania Commonwealth Court regarding the PPUC's June 1994 order approving the Pennsylvania Plan. On December 22, 1995, the Commonwealth Court issued an opinion and order affirming in part and reversing, vacating and remanding in part the PPUC's decision. The Commonwealth Court: (i) vacated the PPUC's determination of the price cap formula and remanded to the PPUC for quantification of an "input price differential" (i.e., difference between the cost of Bell Atlantic - Pennsylvania's inputs and the U.S. economy's inputs); (ii) vacated and remanded for additional findings the PPUC's decision that directory advertising and billing services are "competitive" services; and (iii) reversed the PPUC's decision that 6 paging, Centrex, speed calling, and repeat call are competitive. In all other respects, the PPUC's order was sustained. The PPUC and Bell Atlantic - Pennsylvania have filed petitions requesting that the Pennsylvania Supreme Court review the Pennsylvania Commonwealth Court's ruling. The Supreme Court is expected to decide whether to hear this appeal by the end of 1996. In the meantime, the filing of the PPUC's petition for review has the effect of automatically staying the Commonwealth Court's order. Bell Atlantic - Delaware, Inc. In March 1994, Bell Atlantic - Delaware elected to be regulated under the alternative regulation provisions of the Delaware Telecommunications Technology Investment Act of 1993 (the "Delaware Telecommunications Act"). The Delaware Telecommunications Act provides: -that the prices of "Basic Telephone Services" (e.g., dial tone and local usage) will remain regulated and cannot change in any one year by more than the rate of inflation (GDP-PI), less 3%; -that the prices of "Discretionary Services" (e.g., Identa Ring SM and Call Waiting) cannot increase more than 15% per year per service, after an initial one-year cap; -that the prices of "Competitive Services" (e.g., directory advertising and message toll service) will not be subject to tariff; and -that Bell Atlantic - Delaware will develop a technology deployment plan with a commitment to invest a minimum of $250 million in Delaware's telecommunications network during the first five years of the plan. The Delaware Telecommunications Act also provides protections to ensure that competitors will not be unfairly disadvantaged, including a prohibition on cross-subsidization, imputation rules, service unbundling and resale service availability requirements, and a review by the Delaware Public Service Commission ("DPSC") during the fifth year of the plan. Bell Atlantic - Washington, D.C., Inc. In January 1993, the District of Columbia Public Service Commission ("DCPSC") adopted a regulatory reform plan ("D.C. Reform Plan") for the intra-Washington, D.C. services of Bell Atlantic - Washington D.C. for a three-year trial period. The D.C. Reform Plan provides a banded rate of return of 100 basis points over or under the authorized return on equity (which was set at 11.45% in December 1993). Bell Atlantic - Washington D.C. is permitted to seek a rate increase if its return on equity falls below 10.45% and is required to share, through refunds, 50% of any earnings in excess of a return on equity of 12.45%. In January 1995, Bell Atlantic - Washington D.C. filed a petition with the DCPSC seeking approval of a proposed price cap plan to become effective upon the expiration of the D.C. Reform Plan in 1996. In February 1996, Bell Atlantic - Washington D.C. signed a settlement agreement with the Office of People's Counsel to implement a four-year price cap plan to replace the D.C. Reform Plan. The settlement agreement, if approved, would: (1) introduce a four-year price cap plan effective 1/1/96 through 12/31/99; (2) divide services into three categories, basic, discretionary and competitive; (3) cap certain basic residence rates for the term of the plan and allow other basic rates to change with the rate of inflation minus 3%; (4) allow discretionary services rates to increase by 15% annually; (5) eliminate pricing regulation of competitive services; (6) reduce residential rates by $3.1 million in 1996; business rates by $2.2 million in 1997 and $3.2 million in 1998; and (7) establish a trust fund to wire public schools and libraries with Bell Atlantic integrated services digital network (ISDN) lines. The agreement is pending approval by the DCPSC. 7 Bell Atlantic - Maryland, Inc. In January 1993, the Public Service Commission of Maryland ("MPSC") continued a regulatory reform plan (the "Reform Plan"), first adopted in 1990, for regulating the intrastate services provided by Bell Atlantic - Maryland. The Reform Plan provides for sharing of earnings on Other-Than-Competitive Services (e.g., basic business and residential dial-tone line and usage, pay telephone services, and intraLATA toll services) within a prescribed range (12.7% to 16.5% return on equity). Earnings on Competitive Services (e.g., Centrex intercom, and high capacity, special access and private line service) are not subject to rate of return limitation. In 1995, the Maryland General Assembly enacted legislation which permits the MPSC to regulate Bell Atlantic - Maryland by a method other than rate base rate of return regulation. In December 1995, Bell Atlantic - Maryland filed a proposed price cap plan with the MPSC. Under the plan, services would be divided into six categories: Access, Basic-Residential, Basic-Other, Discretionary, Competitive and Co- Carrier. Rates for Access and Basic-Residential Services would be capped for a period of two years, and rates for Basic-Other Services would be capped for one year. After the cap period, rates for services in these three categories could then be increased or decreased annually under a formula that is based on changes in the rate of inflation (GDP-PI). The Office of People's Counsel, the MPSC Staff and MCI Telecommunications (MCI) have also filed proposed price cap plans for regulating Bell Atlantic - Maryland. In addition, the Office of People's Counsel and the MPSC Staff have argued that Bell Atlantic - Maryland's rates should be reduced by $232 million and $97 million, respectively, while MCI has asked for an $85 million reduction in Bell Atlantic - Maryland's switched access rates. Bell Atlantic - Maryland has responded that its existing rates are reasonable and there is no basis to reduce them. All of these issues are being considered in a single evidentiary proceeding, which is expected to conclude by mid-year 1996. Bell Atlantic - Virginia, Inc. Under legislation passed in the 1993 session of the Virginia General Assembly, the Virginia State Corporation Commission ("VSCC") is no longer statutorily required to regulate telephone companies on the basis of rate of return regulation. In February 1994, Bell Atlantic - Virginia filed a proposal to have its non-competitive services regulated on a price cap basis; competitive services would not be regulated. Following public hearings, the VSCC approved a new optional regulatory plan, effective January 1, 1995, which allows Bell Atlantic - Virginia to replace traditional cost-based regulation with a plan that relies on price constraints. The new plan, which eliminates regulation of profits, includes a temporary moratorium on rate increases for basic local telephone service until 2001, eliminates the monthly charge for Touch-Tone service and expands universal telephone service to the poor. In November 1994, Bell Atlantic - Virginia notified the VSCC of its election to participate in the new regulatory plan. Following an appeal, the new plan was upheld by the Virginia Supreme Court. Bell Atlantic - West Virginia, Inc. In December 1991, the West Virginia Public Service Commission ("WVPSC") approved an "Incentive Regulation Plan". The Incentive Regulation Plan continued the major provisions of the prior plan, including pricing flexibility for competitive services and a freeze on rates for basic local exchange service. It also committed Bell Atlantic - West Virginia to invest $450 million from 1991 through 1995 in West Virginia's telecommunications infrastructure. 8 In December 1994, the WVPSC issued an order extending the Incentive Regulation Plan for three years, with certain modifications. Basic rates remain frozen through January 15, 1998 and Touch-Tone charges will be eliminated over a three year period. Bell Atlantic - West Virginia is committed to invest at least $375 million in its network over the five year period from 1995 through 1999. COMPETITION Regulatory changes, 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. Local Exchange Services The ability to offer local exchange service has historically been subject to regulation by state public utility commissions. In 1994 and 1995, applications from competitors to provide and resell local exchange services were approved by the Maryland Public Service Commission and the Pennsylvania Public Utility Commission. In addition, applications from competitors to provide local exchange services are pending in Delaware, Maryland, New Jersey and Virginia. The Act is expected to significantly increase the level of competition in all of the telephone subsidiaries' local exchange markets. However, increased competition in the local exchange markets will facilitate FCC approval of the telephone subsidiaries' entry into the interLATA markets. IntraLATA Toll Services Competition to offer intrastate intraLATA toll services is currently permitted in all of the Company's state jurisdictions that provide intraLATA toll services. Increased competition from IXCs has resulted in a decline in several components of the telephone subsidiaries' toll service revenues. Currently, intraLATA toll calls in all of such jurisdictions are completed by the telephone subsidiaries unless the customer dials a five-digit access code. Presubscription for intraLATA toll services would enable customers to make intraLATA toll calls using the carrier of their choice without having to dial the five-digit access code. In general, the Act prohibits a state from requiring presubscription or "dialing parity" until the earlier of such time as a BOC in the state is authorized to provide long distance services within the state or three years from the effective date of the Act. This prohibition does not apply to a final order requiring a BOC to implement presubscription that was issued on or prior to December 19, 1995. During 1995, state regulatory commissions in Pennsylvania, New Jersey, West Virginia, Virginia and Delaware conducted proceedings to determine whether, and under what conditions, to authorize presubscription. On December 19, 1995, the Pennsylvania Public Utility Commission issued an order directing the implementation of presubscription within eighteen months of that order. However, the order stated that a reasonable effort should be made to coordinate implementation of presubscription with Bell Atlantic - Pennsylvania's entry into the interLATA market in Pennsylvania. In New Jersey, the Board of Public Utilities ("BPU") issued an order on December 14, 1995 finding that implementation of presubscription for intraLATA toll services in New Jersey would be in the public interest and proposed rules for implementation. The BPU is expected to issue final rules in the second quarter of 1996. 9 In October 1995, the West Virginia Public Service Commission issued an order directing the implementation of presubscription within eighteen months of that order. Bell Atlantic - West Virginia has filed an appeal with the West Virginia Supreme Court. In Virginia, the State Corporation Commission issued an order on July 24, 1995 denying intraLATA toll presubscription. During 1995, proceedings in Delaware were suspended pending the outcome of the federal legislative process. On March 26, 1996, the Delaware Public Service Commission considered the issue of implementation of presubscription and deferred any decision for six months. A final decision is expected in the fourth quarter of 1996. Alternative Access A substantial portion of the Network Services Companies' revenues from business and government customers is derived from a relatively small number of large, multiple-line subscribers. The Network Services Companies face competition from alternative communications systems, constructed by large end users, interexchange carriers and alternative access vendors, which are capable of originating and/or terminating calls without the use of the local telephone company's plant. The ability of such alternative access providers to compete with the Network Services Companies has been enhanced by the FCC's orders requiring the Network Services Companies to offer virtual collocated interconnection for special and switched access services. Other potential sources of competition are cable television systems, shared tenant services and other non-carrier systems which are capable of bypassing the Network Services Companies' local plant, either partially or completely, through substitution of special access for switched access or through concentration of telecommunications traffic on fewer of the Network Services Companies' lines. 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 investments. 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. Directories The Network Services Companies continue to face significant competition from other providers of directories, as well as competition from other advertising media. Public Telephone Services The Company faces increasing competition in the provision of pay telephone services from other pay telephone service providers. In addition, the growth of wireless communications negatively impacts usage of public telephones. Operator Services Alternative operator services providers have entered into competition with the Network Services Companies' operator services product line. 10 DOMESTIC WIRELESS COMMUNICATIONS Through several joint ventures, the Company provides wireless communications services in the United States. Effective July 1, 1995, Bell Atlantic and NYNEX Corporation (NYNEX) combined substantially all of their domestic cellular and paging businesses and formed Bell Atlantic NYNEX Mobile, a partnership which provides wireless services to over 3.4 million customers in the Northeast, mid-Atlantic, Southeast and Southwest portions of the United States. Bell Atlantic NYNEX Mobile is a general partnership and is controlled equally by Bell Atlantic and NYNEX. Bell Atlantic owns an approximate 63% economic interest in Bell Atlantic NYNEX Mobile and accounts for its interest in the partnership under the equity method. In October 1994, Bell Atlantic, NYNEX, AirTouch Communications and U S WEST, Inc. formed two partnerships to provide nationwide wireless communications services. The first partnership was formed to participate in the FCC auctions for PCS licenses. In March 1995, this partnership was a successful bidder for licenses for spectrum to provide PCS services in the following markets: Chicago; Dallas; Tampa; Houston; Miami; New Orleans; Milwaukee; Richmond; San Antonio; Jacksonville; and Honolulu. The partnership paid $1.1 billion for these licenses. The second partnership was formed to develop a national brand and provide coordination and centralization of various functions for the companies' cellular and PCS businesses. INTERNATIONAL WIRELESS INVESTMENTS Through purchases of stock in 1993 and 1994 totaling $1.04 billion, the Company acquired a 41.9% economic interest in Grupo Iusacell, S.A. de C.V., a leading telecommunications company in Mexico and the primary business of which is the provision of cellular telephone service. The Company also has telecommunications investments in Italy, Slovakia and the Czech Republic. These investments consist of joint ventures to build and operate cellular networks in these countries. TELECOM CORPORATION OF NEW ZEALAND In 1990, wholly-owned New Zealand subsidiaries of the Company 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, the Company 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%. Through public and private sales during 1991 and 1993, the Company reduced its ownership interest in TCNZ to 24.8%, and, together with sales by Ameritech, completed its sell-down obligations. VIDEO SERVICES In October 1994, the Company, NYNEX and Pacific Telesis Group formed two partnerships to provide multimedia services. TELE-TV Media, L.P. will license, acquire and develop entertainment and information services. TELE-TV Systems, L.P. will provide the systems necessary to deliver these services over the partners' networks. CERTAIN CONTRACTS AND RELATIONSHIPS Certain planning, marketing, procurement, financial, legal, accounting, technical support and other management services are provided on behalf of the Network Services Companies on a centralized basis by Bell 11 Atlantic's wholly-owned subsidiary, Bell Atlantic Network Services, Inc. ("NSI"). Bell Atlantic Network Funding Corporation provides short-term financing and cash management services to the Network Services Companies. Certain corporate services also are provided to other subsidiaries on a centralized basis by NSI. Bell Atlantic Financial Services, Inc. provides short-, medium- and long-term financing services and cash management services to subsidiaries of the Company other than the Network Services Companies. The seven RHCs each own (directly or through subsidiaries) a one-seventh interest in Bell Communications Research, Inc. ("Bellcore"). Pursuant to the Plan, Bellcore furnishes the RHCs and their BOC subsidiaries with technical assistance such as network planning, engineering and software development, as well as various other consulting services that can be provided more effectively on a centralized basis. Bellcore is the central point of contact for coordinating the efforts of the RHCs in meeting the national security and emergency preparedness requirements of the federal government. It also helps to mobilize the combined resources of the RHCs in times of natural disasters. EMPLOYEES As of December 31, 1995, the Company and its subsidiaries had approximately 61,800 employees. Approximately 70% 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. 12 ITEM 2. PROPERTIES GENERAL The principal properties of the Company do not lend themselves to simple description by character and location. The Company's investment in plant, property and equipment, 98% of which was held by the Network Services Companies in 1995 (94% in 1994), consisted of the following at December 31:
1995 1994 ----- ----- Central office equipment... 38% 36% Cable, wiring and conduit.. 37 36 Other equipment............ 12 15 Land and buildings......... 9 9 Other...................... 4 4 ---- ---- 100% 100% ==== ====
"Central office equipment" consists of switching equipment, transmission equipment and related facilities. "Cable, wiring and conduit" consists primarily of aerial cable, underground cable, conduit and wiring. "Other equipment" consists of public telephone instruments and telephone equipment (including PBXs) used by the Network Services Companies in their operations, poles, furniture, office equipment, and vehicles and other work equipment. "Land and buildings" consists of land owned in fee and improvements thereto, principally central office buildings. "Other" property consists primarily of plant under construction, capital leases and leasehold improvements. In 1995, other equipment no longer includes cellular plant, which was entirely held by the Company's domestic cellular and paging businesses. Such equipment was contributed to the Bell Atlantic NYNEX Mobile partnership, which was formed on July 1, 1995, through the combination of substantially all of the domestic cellular and paging businesses of Bell Atlantic and NYNEX Corporation. The customers of the Network Services Companies are served by electronic switching systems that provide a wide variety of services. The Network Services Companies' network is in a transition from an analog to a digital network, which provides the capabilities to furnish advanced data transmission and information management services. At December 31, 1995, approximately 83% of the access lines were served by digital capability. CAPITAL EXPENDITURES The Network Services Companies have been making and expect to continue to make significant capital expenditures to meet the demand for communications services and to further improve such services. Capital expenditures of the Network Services Companies were approximately $2.1 billion in 1993, $2.2 billion in 1994 and $2.4 billion in 1995. The total investment in plant, property and equipment was approximately $30.6 billion at December 31, 1993, $33.7 billion at December 31, 1994 and $33.6 billion at December 31, 1995, in each case after giving effect to retirements, but before deducting accumulated depreciation at such date. 13 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. Effective in 1994, the Company and the other Regional Holding Companies agreed to discontinue sharing of new pre-Divestiture claims and certain existing claims other than claims relating to environmental matters. AT&T is not a party to this agreement. While complete assurance cannot be given as to the outcome of any contingent liabilities or litigation, in the opinion of the Company's management, any monetary liability or financial impact to which the Company would be subject after final adjudication of all of the remaining potential or actual pre- Divestiture claims would not be material in amount to the financial position of the Company. OTHER PENDING CASES In January 1991, the Company, its Chief Executive Officer and its former Chief Financial Officer were named as defendants in several identical class action complaints. These complaints, which have been consolidated in a single proceeding in the United States District Court for the Eastern District of Pennsylvania and have subsequently been amended, allege that, during a class period from June 14, 1990 through January 22, 1991, the plaintiffs purchased shares of Bell Atlantic stock at inflated prices as a result of the defendants' alleged failure to disclose material information regarding certain aspects of the Company's financial performance and prospects. The trial court's earlier decision granting defendants' motion to dismiss this action was reversed by the United States Court of Appeals for the Third Circuit upon appeal by the plaintiffs. Discovery in this action is essentially complete and defendants expect to file a motion for summary judgment during the second quarter of 1996. 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. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to the Company's executive officers. Held Name Age Office Since - ------------------------------------------ --- ----------------------------------------------------------- ----- Raymond W. Smith.......................... 58 Chairman of the Board and Chief Executive Officer 1989 Lawrence T. Babbio, Jr.................... 51 Vice Chairman 1995 James G. Cullen........................... 53 Vice Chairman 1995 William O. Albertini...................... 52 Executive Vice President and Chief Financial Officer 1995 P. Alan Bulliner.......................... 52 Vice President - Corporate Secretary and Counsel 1992 Patrick C. G. Coulter..................... 55 Vice President - Corporate Communications 1995 John F. Gamba............................. 57 Senior Vice President - Corporate Resources 1995 and Performance Assurance Bruce S. Gordon........................... 50 Group President - Consumer and Small Business Services, 1993 Bell Atlantic Network Services, Inc. Stuart C. Johnson......................... 53 Group President - Large Business and Information Services, 1993 Bell Atlantic Network Services, Inc. Thomas R. McKeough........................ 49 Vice President - Mergers and Acquisitions and Associate 1994 General Counsel Kevin P. Pennington....................... 39 Vice President - Human Resources 1995 Doreen A. Toben........................... 46 Vice President - Finance and Controller 1995 Ellen C. Wolf............................. 42 Vice President - Treasurer 1995 James R. Young............................ 44 Vice President - General Counsel 1992
Prior to serving as an executive officer of the Company, each of the above officers, with the exception of Messrs. Coulter, Johnson, and Pennington, have held high level managerial positions with the Company or one of its subsidiaries for at least five years. Prior to joining the Company in 1995, Mr. Coulter was with Raytheon Company, serving as Director of Media Relations and Advertising (from 1991 to 1992) and Director of Corporate Communications (from 1992 to 1995). From 1987 until joining the Company in 1992, Mr. Johnson served as President, GTE-Contel Federal Sector for GTE Corporation. Prior to joining the Company in 1995, Mr. Pennington served as Executive Vice President-Corporate Services and Chief Administrative Officer at Clark U.S.A., Inc. (from 1993 to 1995) and as Vice President-Human Resources at Mercy Health System (from 1991 to 1993). Officers are not elected for a fixed term of office but are removable at the discretion of the Board of Directors. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market for trading in the common stock of Bell Atlantic Corporation is the New York Stock Exchange. The common stock is also listed in the United States on the Boston, Chicago, Pacific, and Philadelphia stock exchanges. As of December 31, 1995, there were 932,705 shareowners of record. 15 High and low stock prices, as reported on the New York Stock Exchange composite tape of transactions, and dividend data are as follows:
Market Price Cash ---------------- Dividend High Low Declared ------- ------- -------- 1995: First Quarter....... $55 3/4 $48 3/8 $.70 Second Quarter...... 58 7/8 52 .70 Third Quarter....... 61 7/8 54 7/8 .70 Fourth Quarter...... 68 7/8 59 .70 1994: First Quarter....... $59 5/8 $51 $.69 Second Quarter...... 56 3/4 49 .69 Third Quarter....... 58 3/8 52 1/4 .69 Fourth Quarter...... 53 1/4 48 3/8 .69
ITEM 6. SELECTED FINANCIAL DATA The Selected Financial and Operating Data on page 4 of the Company's 1995 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 11 through 20 of the Company's 1995 Annual Report to shareowners is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Accountants, Consolidated Statements of Operations, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements on pages 21 through 45 of the Company's 1995 Annual Report to shareowners are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT For information with respect to the executive officers of the Company, see "Executive Officers of the Registrant" at the end of Part I of this Report. For information with respect to the Directors of the Company, see "Election of Directors" on pages 1 through 6 of the Proxy Statement for the Company's 1996 Annual Meeting of Shareowners, which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION For information with respect to executive compensation, see "Executive Compensation" on pages 11 through 16, "Stock Performance" on page 18, and "Employment Agreements" on page 19 of the Proxy Statement for the Company's 1996 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 17 of the Proxy Statement for the Company's 1996 Annual Meeting of Shareowners, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Financial Statements See Index to Financial Statements and Financial Statement Schedule appearing on Page F-1. (2) Financial Statement Schedules See Index to Financial Statements and Financial Statement Schedule appearing on Page F-1. (3) Exhibits. Exhibits identified in parentheses below, on file with the Securities and Exchange Commission (SEC), are incorporated herein by reference as exhibits hereto. Exhibit Number 3a Certificate of Incorporation of Bell Atlantic Corporation ("Bell Atlantic"), dated October 7, 1983. (Exhibit 3a to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.) 3b Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 9, 1986 and filed May 16, 1986. (Exhibit 3b to Form SE dated March 27, 1987, File No. 1-8606.) 3c Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 6, 1987 and filed May 8, 1987. (Exhibit 3c to Form SE dated March 28, 1988, File No. 1-8606.) 3d Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 10, 1990 and filed June 29, 1990. (Exhibit 3d to Form SE dated March 28, 1991, File No. 1-8606.) 3e By-Laws of Bell Atlantic, as amended through June 23, 1992. (Exhibit 3e to Form SE dated March 29, 1993, File No. 1-8606.) 4 No instrument which defines the rights of holders of long and intermediate term debt, of the Company and all of its consolidated subsidiaries, is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, Bell Atlantic hereby agrees to furnish a copy of any such instrument to the SEC upon request. 10a Bell Atlantic Senior Management Short Term Incentive Plan, as amended and restated effective as of January 1, 1993. (Exhibit 10c to Form SE dated March 29, 1993, File No. 1-8606.)* 10b Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27, 1986, File No. 1-8606.)* 10b (i) Resolutions amending the Plan, effective as of January 1, 1989 (Exhibit 10d to Form SE dated March 29, 1989, File No. 1-8606.)* 18 10c Bell Atlantic Personal Financial Services Program, as amended and restated as of July 1, 1995.* 10d Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated as of February 1, 1995. (Exhibit 10d to Form 10-K for the year ended December 31, 1994, File No. 1-8606.)* 10e Bell Atlantic Insurance Plan for Directors. (Exhibit 10hh to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10f Description of Bell Atlantic Plan for Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10g Article V from Bell Atlantic Management Pension Plan regarding limitations on payment of pension amounts which exceed the limitations contained in the Employee Retirement Income Security Act of 1974. (Exhibit 10j to Form SE dated March 26, 1992, File No. 1-8606.)* 10h Bell Atlantic Senior Management Retirement Income Plan, as amended and restated effective as of December 31, 1995.* 10i Bell Atlantic Deferred Compensation Plan, as amended and restated as of January 1, 1996.* 10j Bell Atlantic Stock Incentive Plan, as amended and restated as of January 1, 1996.* 10j (i) Resolutions amending The Bell Atlantic 1985 Incentive Stock Option Plan, (Exhibit 10m(i) Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10k Bell Atlantic Retirement Plan for Outside Directors, as amended and restated, as of January 1, 1996.* 10l Bell Atlantic Stock Compensation Plan for Outside Directors, as amended and restated as of January 1, 1996.* 10m Bell Atlantic Corporation Directors' Charitable Giving Program. (Exhibit 10p to Form SE dated March 29, 1990, File No. 1-8606.)* 10m (i) Resolutions amending and partially terminating the Program. (Exhibit 10p to Form SE dated March 29, 1993, File No. 1-8606.)* 10n Employment Agreement dated May 2, 1995 between the Company and Lawrence T. Babbio, Jr.* 19 10o Resolution dated January 24, 1994 granting Lawrence T. Babbio, Jr. certain nonqualified stock options to purchase American Depository Receipts representing Series L shares of the capital stock of Grupo Iusacell, S.A. de C.V. (Exhibit 10s to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 10p Employment Agreement dated May 2, 1995 between the Company and James G. Cullen.* 10q Non-Compete and Proprietary Information Agreement dated August 9, 1993 among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson. (Exhibit 10w to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 11 Computation of Earnings Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. 13 Portions of the Company's Annual Report to shareowners for the year ended December 31, 1995. 21 List of subsidiaries of Bell Atlantic. 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. 99a Annual Report on Form 11-K for the Bell Atlantic Savings Plan for Salaried Employees for the year ended December 31, 1995. (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, 1995. (To be filed by amendment.) *Indicates management contract or compensatory plan or arrangement. Shareowners may request a copy of the exhibits to this Annual Report on Form 10-K by writing to the Corporate Secretary, Bell Atlantic Corporation, 1717 Arch Street, Philadelphia, Pennsylvania 19103. (b) Current Reports on Form 8-K filed during the quarter ended December 31, 1995: A Current Report on Form 8-K, dated October 19, 1995, was filed regarding the Company's third quarter 1995 financial results. 20 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. BELL ATLANTIC CORPORATION By /s/ William O. Albertini -------------------------------------- William O. Albertini Executive Vice President and Chief Financial Officer March 27, 1996 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED. +++++ Principal Executive Officer: + Raymond W. Smith Chairman of the + Board and Chief + Executive Officer + + Principal Financial Officer: + William O. Albertini Executive Vice + President and Chief + Financial Officer + + Principal Accounting Officer: + Doreen A. Toben Vice President - + Finance and Controller + + Directors: + William W. Adams +++++ By /s/ William O. Albertini William O. Albertini + -------------------------- Lawrence T. Babbio, Jr. + William O. Albertini Thomas E. Bolger + (individually and as Frank C. Carlucci + attorney-in-fact) William G. Copeland + March 27, 1996 James G. Cullen + James H. Gilliam, Jr. + Thomas H. Kean + John C. Marous, Jr. + John F. Maypole + Joseph Neubauer + Thomas H. O'Brien + Eckhard Pfeiffer + Rozanne L. Ridgway + Raymond W. Smith + Shirley Young +++++
21 BELL ATLANTIC CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Number -------------------- Annual Form Report to 10-K Shareowners ---- ----------- Report of Independent Accountants...................... F-2 21 Consolidated Statements of Operations- For the years ended December 31, 1995, 1994 and 1993.. -- 22 Consolidated Balance Sheets- December 31, 1995 and 1994............................ -- 23 Consolidated Statements of Cash Flows- For the years ended December 31, 1995, 1994 and 1993.. -- 24 Notes to Consolidated Financial Statements............. -- 25-45 Schedule II--Valuation and Qualifying Accounts-- For the years ended December 31, 1995, 1994 and 1993................................................. F-3 -- Financial statement schedules other than that listed above have been omitted because such schedules are not required or applicable. F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareowners of Bell Atlantic Corporation Our report on the consolidated financial statements of Bell Atlantic Corporation and subsidiaries has been incorporated by reference in this Form 10-K from page 21 of the 1995 Annual Report to shareowners of Bell Atlantic Corporation and subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page F-1 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania February 5, 1996 F-2 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (DOLLARS IN MILLIONS)
ADDITIONS -------------------- CHARGED TO BALANCE AT CHARGED OTHER BALANCE BEGINNING TO ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES --NOTE(a) --NOTE(b) OF PERIOD - ---------------------------------------------------------- ---------- -------- ---------- ---------- --------- Allowance for Uncollectible Accounts Receivable: Year 1995............................................... $188.9 $176.2 $203.5 $378.8 $189.8 Year 1994............................................... $192.6 $176.8 $197.8 $378.3 $188.9 Year 1993............................................... $170.4 $176.2 $163.7 $317.7 $192.6 Allowance for Uncollectible Finance Lease Receivables: Year 1995............................................... $ -- $ -- $ -- $ -- $ -- Year 1994............................................... $ 48.9 $ .2 $ .7 $ 49.8 $ -- Year 1993............................................... $ 52.2 $ 25.1 $ 9.5 $ 37.9 $ 48.9 Allowance for Obsolete Inventory: Year 1995............................................... $ 18.3 $ 3.6 $ .1 $ 20.2 $ 1.8 Year 1994............................................... $ 18.3 $ 5.0 $ -- $ 5.0 $ 18.3 Year 1993............................................... $ 10.4 $ 3.5 $ 11.8 $ 7.4 $ 18.3 Valuation Allowance for Deferred Tax Assets: Year 1995............................................... $ 22.4 $ 1.8 $ -- $ 14.6 $ 9.6 Year 1994............................................... $ 74.8 $ 5.6 $ -- $ 58.0 $ 22.4 Year 1993............................................... $ 39.7(c) $ 35.1 $ -- $ -- $ 74.8 Other Allowances (d): Year 1995............................................... $ 10.8 $ 2.1 $ 5.6 $ 6.3 $ 12.2 Year 1994............................................... $ 10.7 $ 4.9 $ -- $ 4.8 $ 10.8 Year 1993............................................... $ 21.7 $ 4.7 $ .6 $ 16.3 $ 10.7
____________ (a) Allowance for Uncollectible Accounts Receivable includes (1) amounts previously written off which were credited directly to this account when recovered, and (2) accruals charged to accounts payable for anticipated uncollectible charges on purchases of accounts receivable from others which were billed by the Company. (b) Amounts written off as uncollectible or obsolete or transferred to other accounts (except for the valuation allowance for deferred tax assets). In 1995 and 1994, amounts include ending balances for businesses sold during the year. (c) Represents the valuation allowance at implementation of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1993. (d) Other Allowances include allowances for notes receivable, obsolete equipment and allowances for probable losses incurred in the directory businesses arising in the normal course of operations. F-3 EX-10.C 2 BELL ATLANTIC PERSONAL FINANCIAL SERVICES PROGRAM Exhibit 10C BELL ATLANTIC PERSONAL FINANCIAL SERVICES PROGRAM Introduction - ------------ Under the terms of this program, Bell Atlantic will reimburse up to $8,000 per plan year for professional fees and miscellaneous related expenses that you incur for certain financial counseling, estate planning, and income tax return preparation services, up to specified limits. The amended provisions of this program take effect July 1, 1995. Eligibility - ----------- Employees who are designated by the Human Resources Committee of the Bell Atlantic Board of Directors as Senior Managers, and certain Executive Managers, are eligible to participate in this program. Definitions - ----------- All references to "years" in this program description refer to the plan year, which is July 1 to June 30. All references to "surviving spouse" mean the person to whom you were married at the time of your death. Active Employees - ---------------- While you are an active employee, the program will reimburse you for any financial counseling fees incurred up to $8,000 per plan year. Retired Employees - ----------------- The program allows for $8,000 per plan year for two full plan years after your retirement. Surviving Spouses of: - -------------------- Active: After your death, the program will reimburse your surviving spouse, for any expenses incurred under the program, for two full plan years. Retired: After your death, the program will reimburse your surviving spouse, for any expenses incurred under the program, for up to the remaining allowance (of 2 plan years) due that retiree. /1/ ELIGIBLE EXPENSES FOR REIMBURSEMENT: - ----------------------------------- 1) Financial Counseling -------------------- Expenses incurred for personal financial advice, which include analysis of: . compensation and benefits provided by Bell Atlantic; . investment opportunities; . personal financial planning; and . tax planning. 2) Income Tax Preparation ---------------------- Preparation of federal and state individual income tax returns, including returns you file jointly with your spouse. 3) Estate Planning --------------- . review of any existing wills or trusts you or your spouse have prepared; . advice concerning lifetime reallocation of assets by gifts directly or through trusts; . advice on disposition of assets by will or other means; . preparation of wills, trusts, and related legal documents for you or your spouse. Reimbursement Process - --------------------- Plan participants may submit a "Request for Reimbursement" form once per calendar quarter. The form, with copies of bills and receipts supporting the requested reimbursement, should be mailed to: Plan Administrator Executive Compensation 1310 North Court House Road 9th Floor Arlington, VA 22201 /2/ Any bill submitted for payment by the 15th of the month following the end of a calendar quarter will be paid by the end of that month. e.g. Bills submitted by October 15th for expenses incurred from July 1 through September 30, will be paid, less applicable withholding taxes, by October 30. Concurred: _________________________ AVP Compensation Planning Approved: _________________________ Vice Chairman /3/ EX-10.H 3 SENIOR MANAGEMENT RETIREMENT INCOME PLAN Exhibit 10h BELL ATLANTIC SENIOR MANAGEMENT RETIREMENT INCOME PLAN ---------------------- As Amended and Restated Effective as of December 31, 1995 ARTICLE 1. STATEMENT OF PURPOSE The purpose of this Plan (which was known prior to January 1, 1989 as the Bell Atlantic Senior Management Non-Qualified Pension Plan) is to provide supplementary pension payments to Senior Managers of Bell Atlantic and its affiliated companies. The Plan provides pension benefits for Senior Managers with at least five Years of Service (and their Beneficiaries) upon retirement or upon Separation from Service for certain other reasons. The amount of the pension benefit under the Plan is based upon factors which take account of Years of Service and Final Average Pay. The Plan also provides a lump sum death benefit for active Senior Managers, and for Senior Managers in retiree status under a Qualified Pension Plan. This document describes the terms of the Plan, which was comprehensively redesigned, amended and restated effective January 1, 1989, and as it has been amended from time to time thereafter through December 31, 1995. For Senior Managers with a Separation from Service Date prior to January 1, 1989, the terms of the Prior Plan Document shall apply. ARTICLE 2. DEFINITIONS 2.1 "Appeals Committee" means a committee comprised of the Chief Executive Officer, the Plan Administrator, and such other persons (if any) as the Plan Administrator may designate from time to time. 2.2 "Bell Atlantic" means Bell Atlantic Corporation, a Delaware corporation. Any reference to the "Board of Directors", the "Human Resources Committee", or to the title of any officer, shall mean the Board of Directors, the Human Resources Committee of the Board of Directors, or the respective officer, as the case may be, of Bell Atlantic. 2.3 "Bell Atlantic Company" means Bell Atlantic and each of its direct and indirect corporate subsidiaries (whether wholly or majority owned), and each partnership in which a Bell Atlantic Company has a 51% or greater partnership interest. 2.4 "Beneficiary" means the surviving spouse or other designated beneficiary of a Senior Manager (with respect to the survivor annuity provisions of this Plan), and the person or persons who may be eligible for a lump sum death benefit under this Plan. 2.5 "Claims Committee" means a committee of one or more persons consisting of the Plan Administrator and such other persons (if any) as the Plan Administrator may designate from time to time. 2.6 "Disability Pension" shall have the meaning stated in Section 4.3. 2.7 "Final Average Pay" means a Senior Manager's average annual Pay for the five years of highest Pay among the last ten years, to and including the calendar year of the Senior Manager's Separation from Service. 2.8 "Grantor Trusts" means the one or more trusts described in the Bell Atlantic Rabbi Trust Agreement and any similar trust agreements to which one or more Bell Atlantic Companies are parties as co-grantors, and which are designed (i) to qualify as grantor trusts within the meaning of Sections 671 through 679 of the Internal Revenue Code, and (ii) to satisfy the rules applicable to so- called "rabbi trusts" as described in rulings and announcements of the Internal Revenue Service and the Department of Labor. 2.9 "Hostile Change of Control" means a "Hostile Change of Control" as that term is defined in the Bell Atlantic Management Pension Plan, as it may be amended from time to time. 2.10 "Mandatory Beneficiary" shall have the same meaning as defined under the Bell Atlantic Management Pension Plan, as it may be amended from time to time. 2.11 "Mandatory Retirement Age" shall have the following meaning (except as otherwise provided by any applicable state or local law which is not pre-empted by Federal law): (a) age 65, in the case of any employee who has attained age 65, and who, for the two-year period immediately prior to his Separation from Service, is employed as a Senior Manager or in any other bona fide executive or policy making position and would, in the event of retirement at such time, be entitled to an immediate retirement benefit of not less than $44,000 per annum, in the aggregate, from the Qualified Pension Plans, this Plan, and all other qualified and non-qualified pension, savings and deferred compensation plans maintained by Bell Atlantic Companies; and (b) in the case of any other employee, there shall be no Mandatory Retirement Age. 2.12 "Mid-Career Pension Plan" means the Bell Atlantic Mid-Career Pension Plan, which was frozen as of May 1, 1991, for purposes of any further accruals. 2.13 "Participating Company" shall mean a Bell Atlantic Company which employs one or more Senior Managers and which has adopted this Plan. 2.14 "Pay" shall mean the gross amount (before reduction for tax withholding, or for pre-tax or after-tax contributions to any employee benefit plans) of the sum of: (a) the total base recurring salary earned by the Senior Manager for a calendar year (or the portion of a calendar year) during which he was an employee of one or more Bell Atlantic Companies; plus (b) the gross amount of the annual cash bonus or bonuses earned for performance for one or more Bell Atlantic Companies during all or part of such year, including (i) the Short Term Incentive Award earned by the Senior Manager for performance during all or part of such year, and/or (ii) any other annual cash bonus amount earned for performance during all or part of such year under any annual incentive pay plan of a Bell Atlantic Company (for performance during a period prior to being designated a Senior Manager). Solely for purposes of this Section, all references to forms of remuneration paid by one or more "Bell Atlantic Companies" shall, in the case of a Senior Manager who is on an approved rotational assignment to Bell Communications Research, Inc. ("Bellcore"), be deemed to include the corresponding forms of remuneration earned by the Senior Manager while employed by Bellcore, but only such remuneration which is earned while the Senior Manager retains the status of Bellcore rotational. 2.15 "Paying Agent" shall mean Bell Atlantic, or any other Bell Atlantic Company which is designated by the Plan Administrator from time to time with the concurrence of the Executive Vice President and General Counsel and the Vice President - Secretary and Treasurer, in such company's capacity as agent for the Participating Companies in the performance of the payroll function of disbursing any and all benefits which are payable under the terms of this Plan. 2.16 "Pension Commencement Date" shall be the date as of which the benefit under this Plan shall be payable, which is not to be confused with the first date on which a benefit payment will be transmitted to the Senior Manager (which will typically occur up to 90 days following the Pension Commencement Date). For a Senior Manager with a vested accrued benefit under a Qualified Pension Plan, the Pension Commencement Date under this Plan shall be the same as the benefit commencement date under the Qualified Pension Plan. 2.17 "Plan" shall mean this Bell Atlantic Senior Management Retirement Income Plan, as it is described herein and as it may be amended from time to time. 2.18 "Plan Administrator" shall mean the Vice President - Human Resources of Bell Atlantic. 2.19 "Post-Separation Pension" shall have the meaning stated in Section 4.2 of this Plan. 2.20 "Prior Plan Document" shall mean the plan document describing the terms of the Bell Atlantic Senior Management Non-Qualified Pension Plan, as amended and restated as of January 1, 1986. 2.21 "Qualified Pension Benefits" shall mean the aggregate of the one or more pension benefits actually payable (whether from trust assets or company assets) to a Senior Manager (or, subsequent to a Senior Manager's death, to his Beneficiaries) for a calendar year (before deducting any taxes which may be withheld for such year) under the terms of the one or more Qualified Pension Plans in which the Senior Manager has accrued vested benefits, taking into account (a) any death benefits, and (b) all elements of the pension calculation, including without limitation (i) the form in which the benefit is being paid (whether as a single-life annuity or a joint and survivor annuity), and (ii) any early retirement discount and actuarial reduction which may be applicable under the terms of the Qualified Pension Plans based on the Pension Effective Date. 2.22 "Qualified Pension Formula Benefits" shall mean the amount of a Senior Manager's Qualified Pension Benefits under only those Qualified Pension Plans which are described in Section 2.23(a) hereof, but calculated without taking account of any limitations imposed by Section 415 of the Internal Revenue Code. 2.23 "Qualified Pension Plans" shall mean both (a) the defined-benefit pension plans designed to be qualified under Section 401(a) of the Internal Revenue Code and sponsored by a Bell Atlantic Company, and (b) any "excess benefit plan" (as such term is defined in Section 3(36) of ERISA) which is sponsored by a Bell Atlantic Company and which does not expressly exclude Senior Managers from participation, whether such plan is described in a separate plan document or in the plan document of any of the Qualified Pension Plans referred to in clause (a) of this paragraph. For purposes of this definition, this Plan shall not be treated as an "excess benefit plan". 2.24 "Replacement Pay Percentage" shall have the meaning stated in Section 5.3 hereof. 2.25 "Retirement Pension" shall have the meaning stated in Section 4.1 of this Plan. 2.26 The term "Senior Manager" shall mean an active or former employee who is serving or has served as an officer of one or more Bell Atlantic Companies and who, by resolution adopted by the Human Resources Committee, has at any time been granted the status of Senior Manager, unless and until such status is revoked in a subsequent resolution adopted by the Human Resources Committee. The Human Resources Committee may, in its sole discretion, revoke Senior Manager status in the event, and as of the date, of either (a) the demotion or downgrade of an officer who was then a Senior Manager, or (b) upon the occurrence of any forfeiture event stated under Section 4.4 hereof; provided, however, that under no circumstances shall the Human Resources Committee, or any officer or director of any Bell Atlantic Company, take any action on or after the occurrence of a Hostile Change of Control to revoke, or construe as revoked, the Senior Manager status of any person who had Senior Manager status immediately prior to the Hostile Change of Control. 2.27 "Senior Manager LTD Plan" means the Bell Atlantic Senior Management Long Term Disability and Survivor Protection Plan, as it may be amended from time to time. 2.28 "Separation from Service" means the termination of employment of a Senior Manager for any reason, including, without limitation, retirement, disability, resignation, discharge, other voluntary or involuntary termination, failure to return to duty upon recovery from a disability or at the expiration of a recognized leave of absence or approved rotational assignment, or death, but not including (i) commencement of an approved leave of absence or rotational assignment, or (ii) transfer to another Bell Atlantic Company. 2.29 "Separation from Service Date" means, in the event of a Senior Manager's Separation from Service, the first day following the last day on which a Senior Manager is treated as being on the payroll of a Bell Atlantic Company as an employee in active service or on an approved leave or rotational assignment. In the case of a Senior Manager with a Retirement Pension, the Separation from Service Date is also referred to as the "pension commencement date". For a former employee with a right to receive a deferred Post-Retirement Pension, the pension commencement date means the first day for which a pension benefit hereunder becomes payable. 2.30 "Short Term Incentive Award" means the amount (if any) awarded to a Senior Manager after the end of an annual performance period, pursuant to the Short Term Incentive Plan in which the Senior Manager then participates. The term Short Term Incentive Award refers to the gross amount earned (before any applicable tax withholding), whether such amount is subsequently paid in cash or deferred in accordance with the Senior Manager's election. 2.31 "Short Term Incentive Plan" means the Bell Atlantic Senior Management Short Term Incentive Plan maintained for Senior Managers by the Bell Atlantic Companies. 2.32 "Target Automatic Survivor Annuity" shall have the meaning stated in Section 7.1(b)(ii) hereof. "Automatic Survivor Annuity" shall have the meaning stated in Section 7.1(b)(i) hereof. 2.33 "Target Lump Sum Death Benefit" shall have the meaning stated in Section 7.2 hereof. 2.34 "Target Pension" means a pension, expressed as an annual amount calculated in the manner described in Article 5 of this Plan, which is intended to represent the total pension benefit for which a Senior Manager is eligible under all defined-benefit pension plans which are maintained by any Bell Atlantic Company, including, without limitation, benefits under this Plan and under the Qualified Pension Plans. 2.35 "Totally Disabled" and "Total Disability" shall have the following meaning: a Senior Manager shall be considered to be Totally Disabled and to be subject to a Total Disability if, on and after the completion of the 26- or 52- week period of disability benefits (whichever is applicable) through the date as of which the Company elected to terminate the Senior Manager's employment due to disability, the Senior Manager continues to suffer from a physical or mental impairment which prevents the Senior Manager from meeting the performance requirements of all of the following: (1) the position held immediately preceding the onset of the physical or mental impairment, (2) a similar position, or (3) any appropriate position within the employing company which the person would otherwise be capable of performing by reason of the Senior Manager's background and experience. This definition shall be applied in a manner consistent with the corresponding definition under the Senior Manager LTD Plan. 2.36 "Years of Service", except as expressly limited or stated elsewhere in the Plan, shall mean the aggregate (without double counting) of all periods of service for which the Senior Manager is credited for benefit accrual purposes under the terms of the one or more Qualified Pension Plans in which the Senior Manager has an accrued benefit, stated in terms of years and any fraction of a year. Years of Service shall, in addition (but without double counting), include any period during which the Senior Manager is employed by any Bell Atlantic Company which does not at that time participate in a Qualified Pension Plan. 2.37 Gender Neutral. The use in this Plan of personal pronouns of the -------------- masculine gender is intended to include both the masculine and feminine genders. ARTICLE 3. PARTICIPATION 3.1 Participation. Each Senior Manager shall be a participant in this Plan ------------- on and after the date on which he becomes a Senior Manager, and shall remain a participant so long as he retains the status of Senior Manager. 3.2 Mandatory Retirement Age. Each Senior Manager for whom a Mandatory ------------------------ Retirement Age is applicable under Section 2.11(a) hereof shall be subject to mandatory Separation from Service, and shall cease to be eligible for hire in the capacity of a Senior Manager by any Bell Atlantic Company, on and after the last day of the month in which such Senior Manager attains the Mandatory Retirement Age (whether or not he is then eligible for a Retirement Pension or Post-Separation Pension). ARTICLE 4. TYPES OF PENSION; ELIGIBILITY; WHEN BENEFIT COMMENCES; FORFEITURE. 4.1 Retirement Pension. ------------------ (a) Eligibility. A Senior Manager shall be eligible for a Retirement ----------- Pension under this Plan upon his Separation from Service for any reason other than death, Total Disability, or cause, if, on his Separation from Service Date, the following conditions are met: (i) he is then treated as having the status of a Senior Manager; and (ii) he then, either: (A) has a combination of age and years of service (as calculated for retirement-eligibility purposes) on the Separation from Service Date that equals or exceeds any of the following combinations:
Age equal to or greater than: Service equal to or greater than: ----------------------------- --------------------------------- Any age 30 years 50 25 years 55 20 years 60 15 years 65 10 years
or (B) has attained and accrued a combination of age and retirement eligibility service which the Human Resources Committee has determined, in its discretion on a case-by-case basis, constitute sufficient age and service for that particular Senior Manager to qualify for an immediate Retirement Pension. (b) Benefit Commencement. A Retirement Pension shall commence on the date -------------------- the benefit commences under the Qualified Pension Plan. 4.2 Post-Separation Pension. ----------------------- (a) Eligibility. A Senior Manager who is not eligible for a Retirement ----------- Pension under paragraph (a) above, or who Separates from Service on account of disability but fails to satisfy clause (ii) or (iii) of Section 4.3(a), shall be eligible for a Post- Separation Pension under this Plan in the event of his Separation from Service for any reason other than death or cause, if, on his Separation from Service Date, the following conditions are met: (i) he is then treated as having the status of a Senior Manager; and (ii) he has then accrued five years of service for vesting purposes under the terms of at least one Qualified Pension Plan. (b) Benefit Commencement; Actuarial Reduction Factors. ------------------------------------------------- (i) A Post-Separation Pension shall commence on the same date as the benefit commencement date under the Qualified Pension Plan in which the Senior Manager participates (sometimes referred to herein as the "pension commencement date"). If the Senior Manager does not participate in a Qualified Pension Plan or has no vested benefit under any Qualified Pension Plan, the pension commencement date shall be the Separation from Service Date. (ii) In the event that the pension commencement date occurs prior to age 65, the Post-Separation Pension shall be subject to actuarial reduction in accordance with the terms of Section 5.2(b)(ii) and, if applicable, Section 5.2(c)(ii). 4.3 Disability Pension. ------------------ (a) Eligibility. A Senior Manager shall be eligible under this Plan for a ----------- Disability Pension in the form of an annuity if, on his Separation from Service Date, the following conditions are met: (i) he or she is then treated as having the status of a Senior Manager; (ii) he or she has accrued at least 15 Years of Service; and (iii) his or her employment is terminated by the employing company on account of disability. (b) Benefit Commencement and Cessation. A Disability Pension shall commence ---------------------------------- on the date as of which the Senior Manager commences a benefit under the Qualified Pension Plan. A Senior Manager may elect to waive a Disability Pension and to receive instead the Retirement Pension or Post-Separation Pension which he or she would have been eligible to receive in the absence of the disability. A Disability Pension shall cease in the event, and at the time, that the Senior Manager is found to be no longer Totally Disabled, at which time the benefit shall convert to a deferred Post-Separation Pension (with an actuarial reduction based on the individual's age at the time of commencing the Post-Separation Pension), or an immediate and unreduced Retirement Pension, depending upon the age and service of the Senior Manager on the Separation from Service Date. (c) No Accrual During Disability. Notwithstanding the terms of any ---------------------------- Qualified Pension Plan in which a Senior Manager who is receiving a Disability Pension may be a participant, for purposes of this Plan, no Years of Service shall accrue on or after the Separation from Service Date of the Senior Manager, unless the Senior Manager ceases to be Totally Disabled and is re-employed as a Senior Manager. (d) Conversion to Retirement Pension. A Disability Pension which has -------------------------------- commenced at any date prior to the date a Senior Manager attains age 65 shall convert to a Retirement Pension on the date he attains age 65. 4.4 Forfeiture of Benefits. On any date prior to, but in no event at any ---------------------- time after, the occurrence of a Hostile Change of Control, the Human Resources Committee may, in its sole discretion, take action to cause to be forfeited all benefits for which a Senior Manager (and his Beneficiaries) would be otherwise eligible hereunder, under any of the following circumstances: (a) the Senior Manager is discharged by his employing company for cause; (b) the Human Resources Committee determines that the Senior Manager engaged in misconduct in connection with his employment with a Bell Atlantic Company; or (c) the Human Resources Committee determines that the Senior Manager has breached his or her non-compete or proprietary information duties to Bell Atlantic. In furtherance of the prohibitions of this Plan against engaging in competitive activities or disclosing proprietary information, the following additional terms and conditions shall apply: (i) During the first two years following a Senior Manager's Separation from Service Date, (1) a cash out under the Plan shall be available only if the Senior Manager signs a non-compete and proprietary information agreement, or delivers a copy of a previously executed agreement of that type which is then in force, in a form acceptable to the Plan Administrator with the advice of counsel, and (2) neither a cashout shall be paid nor an annuity shall commence under the Plan unless and until the Senior Manager delivers both: (a) written information sufficient to enable the Plan administrator to determine whether the Senior Manager's subsequent career plans or commitments will violate the applicable non-compete rule, and (b) an agreement to provide timely notice of any changed circumstances during the ensuing two years. (ii) In addition to, and apart from, the Human Resource Committee's existing discretion to cause a forfeiture of a Senior Manager's pension if he or she violates the applicable non-compete rule, the Plan Administrator with the advice of counsel and the concurrence of the Chairman of the Human Resources Committee shall have the discretion, for up to two years, to suspend a Senior Manager's eligibility to cash out the benefit or commence an annuity under this Plan if the Senior Manager does not fully comply with applicable requirements of paragraph "(i)", or if there is evidence that further investigation would show that the Senior Manager is seeking to, or has, become involved with employment or business activities contrary to the applicable non-compete rule. (iii) For purposes of this Plan, the definitions of prohibited competitive activities and prohibited disclosure of proprietary information shall be as stated in the terms and conditions of the form of non-compete and proprietary information agreement generally applicable to newly hired and promoted Senior Managers, as that form of agreement may exist on the Separation from Service Date; provided, however, that, for a Senior Manager who, on the Separation from Service Date, is subject to a previously executed non-compete and proprietary information agreement which then remains in force, the applicable definitions for purposes of this Plan shall be as stated in such prior agreement; provided, however, that nothing in this paragraph is intended to negate the provisions of the previous two paragraphs. ARTICLE 5: AMOUNT OF PENSION BENEFIT 5.1 Pension Payable under this Plan. Subject to the special rules stated ------------------------------- in Section 5.6 hereof, the annual amount of the pension to which an eligible Senior Manager shall be entitled under this Plan shall be equal to the Senior Manager's Target Pension, minus his Qualified Pension Benefits. ----- 5.2 Target Pension. On his Separation from Service Date, a Senior -------------- Manager's Target Pension (expressed as an annuity) shall be equal to the greater of his Qualified Pension Formula Benefits (expressed as an immediate annuity), or: (a) the product of: (i) the Replacement Pay Percentage, times (ii) Final Average Pay; (b) reduced (except in the case of a Disability Pension in the form of an ------- annuity) by: (i) any applicable early retirement reduction factor under Section 5.4, in the case of a Retirement Pension; or (ii) any applicable actuarial reduction factor under Section 5.5, in the case of a Post-Separation Pension; and (c) if the benefit is paid in any form of annuity other than a single life annuity, the portion of the benefit that is paid in that form shall be further reduced by the applicable factor which, under the terms of the --------------- Qualified Pension Plan, is to be used to convert a single life annuity to an annuity of the form elected by the Senior Manager. 5.3 Replacement Pay Percentage. A Senior Manager's Replacement Pay -------------------------- Percentage shall be measured as of his Separation from Service Date, and shall be equal to the sum of: (a) two percentage points (2%) for each of his first 20 Years of Service; (b) one and a half percentage points (1.5%) for each of his next 10 Years of Service; plus (c) one percentage point (1%) for each of his next 5 Years of Service; and (d) no further percentage points for any additional Years of Service thereafter. For a Senior Manager with less than 35 Years of Service, where the Senior Manager has accrued a fraction of a Year of Service in addition to a whole number of years, then such Senior Manager shall be credited with the product of (i) that fraction, times (ii) the number of percentage points that would be credited for the next full year. 5.4 Early Retirement Reduction Factor. The early retirement reduction --------------------------------- factor which is applicable to a Senior Manager's Retirement Pension shall be equal to the product of: (a) five percent (5%), times (b) the number of years and fraction of a year by which the Separation from Service Date precedes the date on which the Senior Manager attains age 60, where the "fraction of a year" is measured in twelfths based on the number of full (not partial) months; provided, however, that the Human Resources Committee may, in its sole discretion on a case-by-case basis, waive all or any portion of the early retirement reduction which would otherwise apply to a Senior Manager. 5.5 Post-Separation Actuarial Reduction Factor. In the case of a Post- ------------------------------------------ Separation Pension in the form of an annuity which commences at any time prior to the date on which the Senior Manager attains age 65, the actuarial reduction factor shall be determined with reference to the date the Post-Separation Pension actually commences, based on interest rates and mortality factors prescribed by the Federal legislation commonly known as "GATT", namely, the yield on 30-year U.S. Treasury bonds and 1983 Group Annuity Mortality (GAM 83) factors. In the case of a Post-Separation Pension commencing on or after the date the Senior Manager attains age 65, the actuarial reduction factor shall be zero. Notwithstanding any other provision of this Section 5.5, the Human Resources Committee may, in its sole discretion on a case-by-case basis, waive all or any portion of the actuarial reduction which would otherwise apply to a Senior Manager whose Post-Separation Pension has commenced, or will commence, prior to age 65. 5.6 No Reduction of Pension under Prior Plan Document. The Target Pension ------------------------------------------------- under Section 5.2 of this Plan, for which a Senior Manager is eligible as a consequence of his actual Separation from Service at any time on or after January 1, 1989, shall not be less, when expressed as a benefit in the form of a single-life annuity, than the aggregate pension amount (expressed as a single- life annuity) to which he would have been entitled if he had a Separation from Service Date of December 31, 1988, taking into account the Years of Service and compensation history he had then accrued (including the actual Short-Term Incentive Award for performance in 1988), and the age he had then attained, under the December 31, 1988 pension formulas of the Qualified Plans, the Mid-Career Pension Plan, the non-disability provisions of the Senior Manager LTD Plan, and the Prior Plan Document. ARTICLE 6: FORM OF BENEFIT. 6.1 Unmarried Senior Managers. In the case of a Senior Manager who is not ------------------------- married on the pension commencement date, the pension benefit under Section 5.1 of this Plan shall be paid in accordance with the form of benefit elected by the Senior Manager under the Qualified Pension Plan in which the Senior Manager participates; provided, however, if a Senior Manager is eligible to, and elects to, cashout his or her benefit under a Qualified Pension Plan, the Senior Manager shall be eligible to elect a benefit under this Plan either (a) in any form of annuity which would have been available to the Senior Manager to elect under the then-existing terms of the Qualified Pension Plan (where the conversion from the amount of the single life annuity payable under this plan is converted to any other form of annuity using the applicable conversion factors of the Qualified Pension Plan), or (b) as a cashout as described in Section 6.4. 6.2 Married Senior Managers. ----------------------- (a) Forms of Benefit. In the case of a Senior Manager who is married on ---------------- the pension commencement date, the pension benefit under Section 5.1 of this Plan shall be paid in accordance with the form of benefit elected by the Senior Manager under the Qualified Pension Plan in which the Senior Manager participates, subject to the applicable spousal consent rules of that plan; provided, however, if a Senior Manager elects, with the consent of his or her spouse, to cashout his or her benefit under a Qualified Pension Plan, the Senior Manager shall be eligible, with the consent of his or her spouse within 90 days of the Pension Commencement Date, to elect a benefit under this Plan either (a) in any form of annuity which would have been available to the Senior Manager to elect under the then-existing terms of the Qualified Pension Plan (where the conversion from the amount of the single life annuity payable under this plan is converted to any other form of annuity using the applicable conversion factors of the Qualified Pension Plan), or (b) as a cashout as described in Section 6.4. (c) Marital Status. For purposes of this Plan, the Plan Administrator may -------------- require a Senior Manager or a person purporting to be a Beneficiary to present, and the Plan Administrator may rely upon without any duty to further investigate, any official documentary evidence of civil law marital status, such as a marriage certificate or record of marriage, or a court order or other record of divorce, issued by a court or governmental unit. Common law marriage shall not be recognized for purposes of this Plan. 6.3 Monthly Payments. Pension benefits in the form of an annuity shall be ---------------- payable in monthly installments. The Plan Administrator shall endeavor to ensure that the annual Target Pension amount for any annuity is paid, as nearly as practicable, in twelve approximately equal monthly installments. The Plan Administrator may elect to cause the Paying Agent to pay a constant portion of each monthly installment from company assets under this Plan and to cause the trustee of the Qualified Pension Plans referred to in Section 2.23(a) to pay a complementary constant portion from the applicable qualified trust. EX-10.I 4 BELL ATLANTIC DEFERRED COMPENSATION PLAN Exhibit 10i BELL ATLANTIC DEFERRED COMPENSATION PLAN (Amended and Restated as of January 1, 1996) 1. Purpose. The Bell Atlantic Deferred Compensation Plan ------- (previously known as the Bell Atlantic Senior Management Incentive Award Deferral Plan) (the "Plan") is a nonqualified, unfunded deferred compensation plan. The Plan is intended to enable eligible employees to defer the distribution of cash and stock awards of short term and long term incentive compensation, and to defer base salary in excess of $150,000. The Plan was established by the Board of Directors (the "Board") of Bell Atlantic Corporation ("Bell Atlantic") effective as of January 1, 1984, and is maintained for certain active and former officers, executives and key employees of Bell Atlantic and its subsidiaries. The Human Resources Committee (the "HRC") of the Board has the authority to amend the Plan, from time to time, and the Plan Administrator, as described in Section 6, is responsible for the day-to-day administration of the Plan. 2. Eligibility. ----------- (a) Participating Companies. The "Participating Companies" under this ----------------------- Plan shall be Bell Atlantic and each subsidiary or other company affiliated with Bell Atlantic which employs one or more active employees who are either (a) Senior Managers who are eligible for an award under the Bell Atlantic Senior Management Short Term Incentive Plan or any of the seven other Short Term Incentive Plans maintained for executives of Bell Atlantic and certain of its subsidiaries (the "Short Term Incentive Plans"), (b) Key Employees who are eligible for an award under the Bell Atlantic 1985 Performance Share Plan (the "Performance Share Plan"), (c) effective for awards for performance in 1991 and thereafter, Key Executive Managers who are eligible for an award under the Bell Atlantic Executive Management Annual Bonus Plan (the "Annual Bonus Plan"), or (d) Executive Managers and Senior Managers whose base salary exceeds $150,000. (b) Eligible Employees. An active employee of a Participating Company ------------------ shall be eligible to defer awards and establish deferral accounts under this Plan if the employee is in active service and is eligible to receive an award under either a Short Term Incentive Plan, the Performance Share Plan, or (for awards for performance in 1991 and thereafter) the Annual Bonus Plan, or earns a base salary at an annual rate in excess of $150,000. Certain former employees shall have the right to receive distributions from existing deferral accounts under the Plan, but not to defer future awards; those participants shall include: (a) any former employee who elected during a period of active employment with a Participating Company to defer one or more awards under a Short Term Incentive Plan, Performance Share Plan or Annual Bonus Plan, and (b) any employee who was a participant in the predecessor Bell System Senior Management Incentive Award Deferral Plan (the "Predecessor Plan") as of December 31, 1983. 3. Elections to Defer Awards and Other Compensation. ------------------------------------------------ (a) Optional Election to Defer Stock Award under the Performance ------------------------------------------------------------ Share Plan. ---------- (1) Optional Election. On or before the last day of any ----------------- calendar year, an eligible employee may elect to participate in the Plan by directing that all or part of any shares of Bell Atlantic stock which may be awarded to the employee in the following year under the - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 1 Performance Share Plan shall be credited to a "Share Deferral Account" as described in Section 4(a) of this Plan. In no event, however, shall the amount of the award which is deferred in any given year be less than $1,000 worth of such shares (based on valuation at the time the award would otherwise be paid). (2) Form and Timing of Optional Election to Defer. An optional --------------------------------------------- election to defer a Performance Share Plan award, as described in Section 3(a)(1), shall be on a form approved by, and delivered to, the Plan Administrator on or before the close of business on the last day of December prior to the calendar year in which the award to be deferred is determined, approved and awarded. The elections signified on the employee's form may be changed or revoked on or before, but (except as provided in Section 3(f) or 3(g)) not after, said last day of December. The deferral election form shall provide each such eligible employee the opportunity to elect as follows: (A) to determine the percentage or amount of the award to be deferred, if any; (B) to select the future date or event as described in Sections 4(a)(1) to 4(a)(3) which shall trigger the commencement of distribution; (C) to elect whether to receive the deferred award either in a single distribution, or in two to twenty approximately equal annual distributions, and (D) in the event of the death of the employee prior to the completion of the distribution, to cause either a single distribution of shares to be made in the year of the employee's death, or two to ten approximately equal annual distributions commencing in the year of the employee's death. (b) Mandatory Deferral of Stock Portion of Short Term Award. ------------------------------------------------------- (1) Awards subject to Mandatory Deferral. Commencing with the 1992 ------------------------------------ award for the 1991 performance years under the Short Term Incentive Plans, any portion of an employee's award under any of such plans that is approved in the form of a deferred distribution of shares of Bell Atlantic stock shall automatically be credited in the form of phantom shares to a special share deferral account for the employee (a "Mandatory Share Deferral Account") as described in Section 4(b). (2) Form and Timing of Certain Elections. Not later than December ------------------------------------ 15th of the calendar year preceding a year in which such a deferred stock award is to be approved under the Short Term Incentive Plans, the Plan Administrator shall distribute a deferral election form to each employee who is eligible to receive such an award. The deferral election form shall notify the employee that deferral of the stock portion of the award is mandatory and that distribution shall occur or commence in the year in which the employee retires, dies, or terminates employment for any other reason. The deferral election form shall furthermore provide each such eligible employee the opportunity to elect as follows: (1) to receive the deferred stock award either in a single distribution of shares of Company stock, or in two to twenty approximately equal annual distributions of stock, and (2) in the event of the death of the employee prior to the completion of the distribution of shares, to cause either a single distribution of shares in the year of the employee's death, or in two to ten approximately equal annual distributions commencing in the year of the employee's death. To be valid and enforceable, the completed election form must be - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 2 executed by the employee and delivered to the Plan Administrator on or before the close of business on the last day of December prior to the calendar year in which the award to be deferred is determined, approved and awarded. Any elections signified on the employee's form may be changed or revoked on or before, but (except as provided in Section 3(f)) not after, said last day of December. (3) Default Election for Mandatory Deferral. In the event that an --------------------------------------- employee described in Section 3(b)(1) of this Plan fails to deliver a signed deferral election form as described in Section 3(b)(2), the employee shall be deemed to have elected distribution in the form of a single distribution of shares of Bell Atlantic stock from the Mandatory Share Deferral Account in the year of his or her retirement, termination of employment, or death, whichever occurs first. (c) Optional Election to Defer Cash Short Term Award. ------------------------------------------------ (1) Optional Election. On or before the last day of any calendar year, ----------------- an eligible employee may elect to direct that all or part of any cash short term award which may be awarded to the employee in the following year under a Short Term Incentive Plan or Annual Bonus Plan shall be credited to either a "Cash Deferral Account" as described in Section 4(c) (in the case of awards for 1990 and prior years), or a "Short Term Award Deferral Account" as described in Section 4(d) (in the case of awards for 1991 and later years). In no event, however, shall the part of any such award which is deferred in any calendar year be less than $1,000. (2) Form and Timing of Optional Election to Defer. The form and timing --------------------------------------------- of an employee's election to defer a cash short term award shall be as described in Section 3(a)(2). (3) Election of Form of Distribution of Post-1990 Short Term Awards. --------------------------------------------------------------- Each employee who elects to defer the cash portion of a post-1990 short term award pursuant to Section 3(a)(1) and (2) hereof shall have the right to elect at the time the distribution of the deferred award is scheduled to commence whether to receive the distribution in the form of cash or shares of Bell Atlantic stock. Such election shall be made at the time and in the form required by the Plan Administrator. In the event of the death of the employee prior to electing the form of distribution, the award shall be distributed in cash to the person or persons, and in the number of installments, previously designated by the employee. (d) Optional Election to Defer Salary in Excess of $150,000. ------------------------------------------------------- (1) Eligibility. For Senior Managers, and for Executive Managers who participate in the Annual Bonus Plan, 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 to defer a portion of base salary, as described in this section (d), which shall become irrevocable on December 31 of the calendar year prior to the year in which salary is to be deferred. For Executive Managers of Salary Grades C, D or E (or equivalent grades), eligibility to defer salary under this section (d) shall commence with 1994 elections for calendar year 1995. (2) Form of Election. Any such election shall state the number of dollars per annum to be deferred, which shall be withheld in approximately equal installments from each - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 3 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) Not Subject to Adjustment. The amount of the deferral shall not adjust as a result of any salary modification that may occur during the ensuing year. (4) Other Applicable Provisions. Amounts deferred under the Plan shall be subject to the existing provisions of the Plan, including without limitation provisions 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). (e) Elections under Predecessor Plan. For the purpose of this Section 3, -------------------------------- an election made by an eligible employee under the Predecessor Plan shall be considered as an election made under Section 3(a) or 3(c) (whichever is applicable). Any reference to deferral of a "short term incentive award" in any election under the Predecessor Plan shall be treated as a deferral of a pre-1991 award under the Short Term Incentive Plan, and references to deferral of a "long term incentive award" in such any election under the Predecessor Plan shall be treated as a deferral of an award under the Performance Share Plan. (f) Designation of Beneficiaries. Each active employee who elects to defer ---------------------------- an award, and each active or former employee who maintains a deferral account under this Plan may, at any time, designate one or more beneficiaries, and revoke or change beneficiary designations, on a form approved by the Plan Administrator. (g) One-Time Postponement of Commencement Date and One-Time Modification -------------------------------------------------------------------- of Number of Installments. At any time earlier than 12 months prior to the date - ------------------------- on which a distribution of a portion (or all) of an employee's Cash or Share Deferral Account would be payable under the terms of an initial deferral election, the employee may submit a written election to the Plan administrator requesting an increase or decrease in the number of installments requested under his or her initial election of a distribution option for the account. Furthermore, at any time earlier than 12 months prior to the date on which a distribution of a portion (or all) of an employee's Cash or Share Deferral Account would be payable under the terms of an initial deferral election, the employee may submit a written election to the Plan administrator requesting that the initial distribution date be further deferred; provided, however, that in no event shall the deferral commence later than the year in which the employee eventually retires or terminates employment for any reason. An employee may postpone the distribution date and modify the form of distribution for each and any deferral account once, but not more than once. If an employee, in fact, retires or terminates employment less than 12 months subsequent to the date on which the employee submits a modified deferral election of any type under the terms of this paragraph, the Plan administrator shall void the modified election and shall administer the deferral account in accordance with the employee's initial deferral election. The provisions of this paragraph are effective November 1, 1992. (h) Early Withdrawals Subject to Penalty. ------------------------------------ - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 4 (1) Withdrawal from Elective Deferral Accounts. Except as provided in ------------------------------------------ the following paragraph (2), neither the employee, a beneficiary, nor any other individual or entity, shall have any right to receive a distribution or make any withdrawal from a deferral account, except in accordance with the terms of an election made in accordance with Sections 3.1(a)-(g). (2) Early Withdrawal Penalty. On or after November 1, 1992, an active ------------------------ or former or retired employee may at any time direct the Plan administrator to distribute, as soon as administratively practicable, all or any portion of the balance of any one or more of the employee's deferral accounts which the employee then designates; provided, however, that, in each such instance of a distribution prior to the date on which the account would otherwise be distributed, a six percent early withdrawal penalty shall apply to the amount of the requested early withdrawal. (3) Not Applicable to Mandatory Deferrals of Shares. The provision of ----------------------------------------------- this section (h) shall apply only to elective deferral accounts (as described in Sections 3(a), 3(c), 3(d) and 3(e) hereof) and shall not apply to Mandatory Share Deferral Accounts (as described in Section 3(b)). 4. Deferral Accounts. ----------------- (a) Optional Deferral of Share Awards under Performance Share Plan. -------------------------------------------------------------- (1) Share Deferral Accounts. The deferred portion of an award of ----------------------- shares of Bell Atlantic stock pursuant to Section 3(a) of this Plan shall be credited to a Share Deferral Account under this Plan in the form of a number of phantom shares which shall reflect the same fluctuation in price and the same dividend rate as an equivalent number of shares of Bell Atlantic stock. Distributions from Share Deferral Accounts shall be distributed in shares of Bell Atlantic common stock. (2) Crediting of Earnings. From the date of an award under the --------------------- Performance Share Plan of shares that an employee has elected to defer, to the date that shares of Bell Atlantic stock are actually distributed under this Plan, the phantom shares credited to the Share Deferral Account shall be credited with phantom dividends on each dividend record date for Bell Atlantic stock at the same rate at which dividends are actually declared and paid on such stock. The phantom dividends credited on said dividend record date shall immediately be converted to a number of whole and fractional dividend reinvestment phantom shares equal to the result of dividing the market value per share of Bell Atlantic stock on the dividend record date into the total number of dollars of phantom dividends credited to the Share Deferral Account on that date. For purposes of this paragraph, the value of Bell Atlantic shares on a dividend record date shall be equal to the average of the five daily means of the high and low sale prices per share of Bell Atlantic stock on the New York Stock Exchange ("NYSE") for the five trading days ending on such dividend record date. (3) Earnings on Balances Between Installments. In the case of a Share ----------------------------------------- Deferral Account on which an employee has elected to receive distributions in two or more annual installments, dividends shall continue to be credited to the undistributed share balance of the Share Deferral Account, and such dividends shall continue to be converted to additional - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 5 phantom shares, on and after the date on which the distribution of installments commences, in the same manner in which dividends are credited and reinvested prior to the distribution commencement date. (b) Mandatory Deferral of Stock Portion of Short Term Awards. -------------------------------------------------------- (1) Mandatory Share Deferral Accounts. All of the whole and fractional --------------------------------- shares that are awarded to an employee under a Short Term Incentive Plan in the form of mandatory deferred shares shall be credited pursuant to Section 3(b) hereof to a Mandatory Share Deferral Account under this Plan in the form of whole and fractional phantom shares which shall reflect the same fluctuation in price and the same dividend rate as an equivalent number of shares of Bell Atlantic common stock. The number of shares to be credited to the Mandatory Share Deferral Account shall be determined in accordance with the rules for conversion of cash awards to share awards which are stated under the terms of the Short Term Incentive Plan. Distributions from Mandatory Share Deferral Accounts shall automatically commence as soon as practicable after the date of notice of an employee's death, or the date the employee retires from, or terminates employment with, a Bell Atlantic Company, and shall be distributed in the form of shares of Bell Atlantic common stock. (2) From the date of the award of mandatory deferral shares under the Short Term Incentive Plan to the date that shares are actually distributed from the Mandatory Share Deferral Account, the balance of phantom shares in the account shall be credited with phantom dividends and dividend reinvestment phantom shares in the same manner as described in Sections 4(a)(2) and 4(a)(3). (c) Optional Deferral of Pre-1991 Cash Short Term Awards. ---------------------------------------------------- (1) Cash Deferral Accounts. With respects to cash awards under a Short ---------------------- Term Incentive Plan which were awarded in 1990 or any prior year, the portion (if any) of such a cash short term award which the employee elected to defer under Section 3(c) shall be credited to a deferral account which shall be referred to as a "Cash Deferral Account". (2) Earnings on the Cash Deferral Account. A Cash Deferral Account ------------------------------------- shall be credited with earnings from the date the award would, in the absence of deferral, have been paid. Such earnings shall be in the form of interest, which shall be credited to the account and compounded not less frequently than once each calendar quarter, at an annual rate of interest determined by the Plan Administrator, subject to review and revision from time to time by the HRC. (3) Earnings After 1990. Effective on and after January 1, 1991, ------------------- subject to modification from time to time by the HRC, earnings on the balance of each Cash Deferral Account shall be credited and compounded on a monthly basis at a rate of interest equal to one-twelfth of the then-current annual yield on 10-year U.S. Treasury Notes, as such rates are derived from an index and applied to account balances by the Plan Administrator or a person to whom the Plan Administrator delegates such responsibility. (4) Earnings on Balances Between Installments. In the case of a Cash ----------------------------------------- Deferral Account on which an employee has elected to receive distributions in two or more - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 6 annual installments, interest shall continue to be credited to the unpaid balance of the Cash Deferral Account on and after the date on which the distribution of installments commences in the same manner in which interest is credited to such account prior to the distribution commencement date. (d) Deferral of Salary and the Cash Portion of Post-1990 Short Term --------------------------------------------------------------- Awards. ------ (1) Short Term Award Deferral Accounts. Any portion of salary which ---------------------------------- has been deferred under this Plan, and the deferred cash portion of a short term award, which, in the absence of the employee's decision to defer under Section 3(c), would have been distributed in cash under an employee's Short Term Incentive Plan in 1991 or any later year, or under an employee's Annual Bonus Plan in 1992 or any later year, shall be credited in full to a deferral account which shall be referred to as a "Short Term Award Deferral Account", with equal amounts credited, for the purpose of tracking alternative earnings growth, to each of two tandem sub-accounts under this Plan in the employee's name (the "Short Term Award Cash Alternative Account" and the "Short Term Award Shares Alternative Account"). (2) Two Alternative Sub-Accounts to Track Growth. The balance of the -------------------------------------------- Short Term Award Cash Alternative Account shall be stated in dollars, and shall be initially equal to the number of dollars of a post-1990 cash award that is deferred pursuant to Section 3(c). The balance of the Short Term Award Share Alternative Account shall be stated in phantom shares, and shall initially have a dollar value equal to the deferred cash amount credited to the Cash Alternative Account, but converted to a number of whole and fractional shares of phantom stock determined in accordance with the rules for conversion of cash awards to deferred shares, as stated under the terms of the Short Term Incentive Plan. (3) Growth of Interest-Bearing Alternative. Earnings on the Cash -------------------------------------- Alternative Account shall be in the form of interest, which shall be credited at the rate and in the manner described in Section 4(c)(3). (4) Growth of Stock Alternative. Earnings on the Shares Alternative --------------------------- Account shall be in the form of phantom dividends and dividend reinvestment phantom shares, which shall be credited in the manner described in Sections 4(a)(2) and (3). (5) Employee Entitled to the Better Total Return. The employee shall -------------------------------------------- be entitled to earnings growth on a Short Term Award Deferral Account until the date distribution commences, at the greater of the two alternative cumulative total returns provided by either of the two sub-accounts. Accordingly, effective as of the first day of the month in which the distribution of the Short Term Award Deferral Account is to commence, the Plan Administrator shall reset the value of the Short Term Award Deferral Account to the greater of the value of the Cash Alternative Account or the Shares Alternative Account, each computed as of that date. For purposes of this and the following paragraph, the value of the Shares Alternative Account as of the applicable date shall be equal to the average of the five daily means of the high and low sale prices per share of Bell Atlantic stock on the NYSE on the last five trading days of the month prior to the month in which the distribution is to commence. (6) Election to Receive Shares. If the employee elects, pursuant to -------------------------- Section 3(a)(3) hereof, to receive the distribution of the Short Term Award Deferral Account in shares, - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 7 the balance of the Short Term Award Deferral Account, as determined in the second sentence of paragraph (5) above, shall be restated in shares based on the valuation method described in the last sentence of paragraph (5) above, and distribution shall commence, as soon as practicable thereafter. Furthermore, if the employee elected, pursuant to Section 3(c)(2), to receive the distribution in two or more annual installments, the Short Term Award Deferral Account shall thereafter be credited with phantom dividends and dividend reinvestment phantom shares in the manner described in Sections 4(a)(2) and (3) until the entire balance of the account is distributed. (7) Election to Receive Cash. If the employee elects pursuant to ------------------------ Section 3(c)(3) to receive the distribution of the Short Term Award Deferral Account in cash, the balance of the Short Term Award Deferral Account, as determined in the second sentence of paragraph (5) above, shall be stated in dollars, and distribution shall commence, as soon as practicable thereafter. Furthermore, if the employee elected, pursuant to Section 3(a)(3) hereof, to receive the distribution in two or more annual installments, the Short Term Award Deferral Account shall thereafter be credited with interest in the manner described in Sections 4(c)(3) until the entire balance of the account is distributed. (e) Stock Splits and Other Adjustments. In the event of any change in ---------------------------------- outstanding Bell Atlantic common shares by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the Plan Administrator, with the advice of counsel, shall make any appropriate adjustments in the number of phantom shares then credited to employees' accounts. Any and all such adjustments shall be conclusive and binding upon all parties concerned. (f) Deferral Accounts transferred from Predecessor Plan. If an employee's --------------------------------------------------- cash deferral account under the Predecessor Plan has been transferred to a Cash Deferral Account under this Plan as of the January 1, 1984 effective date of this Plan, then the employee's Cash Deferral Account under this Plan shall be credited as of such date with the balance of the employee's account under the Predecessor Plan as of December 31, 1983, and such amount shall bear interest in accordance with Section 4(c)(3) hereof, on and after the effective date of the Plan. If an employee's share deferral account under the Predecessor Plan has been transferred to a Share Deferral Account under this Plan as of the January 1, 1984 effective date of this Plan, then the conversion of the account balance under the Predecessor Plan shall be performed in accordance with the terms of this Plan that were in effect as of January 1, 1984, and such account shall thereafter be credited with phantom dividends and dividend reinvestment phantom shares in the same manner as a Share Deferral Account as described in Section 4(a)(2) and (3) hereof. 5. Distributions from Deferral Accounts. ------------------------------------ (a) Pursuant to the terms of a deferral election which has been made by an employee under Section 3 of this Plan, the first installment (or the single distribution if the employee has so elected) shall be paid on, or as soon as practicable after, the beginning of the calendar month next following the earliest to occur of the following: (1) the date on which the employee attains the age specified by the employee in his or her deferral election form, which date shall not be - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 8 earlier than one year from the date the award otherwise would have been distributed in the absence of an election to defer the distribution; (2) the end of the month in which the employee dies, retires from, or terminates employment with, Bell Atlantic or any company affiliated with Bell Atlantic; provided, however, that a transfer of employment between companies affiliated with Bell Atlantic shall not constitute termination of employment; or (3) the anniversary, as specified by the employee in his or her deferral election form, of the date on which the award otherwise would have been distributed in the absence of an election to defer the distribution. (b) Notwithstanding the terms of any deferral election pursuant to Section 3, the entire amount then credited to each of an employee's one or more deferral accounts shall be paid as soon as practicable in a single distribution (or a combination of single distributions, in the case of an employee with more than one deferral account) in the event that any of the following circumstances has occurred: (1) the Plan Administrator determines that the employee, at any time after his or her separation from service as an employee, has been employed by any governmental agency having regulatory jurisdiction over the business of a Participating Company; (2) the Plan Administrator determines that the employee has terminated employment (for any reason other than death or transfer to another Bell Atlantic company or Bellcore) at a time when the employee is not eligible for an immediate pension on account of retirement or disability; (3) the HRC determines that the employee has engaged in misconduct in connection with his or her employment with the employing company; or (4) the HRC determines that the employee, at any time within two years after his or her separation from service, has, without the written consent of Bell Atlantic, personally engaged in managing, planning or advising in any manner whatever an activity which directly competes with any of the businesses of Bell Atlantic or any of its direct or indirect subsidiaries, which any such company engaged in (A) on his or her separation from service date, or (B) thereafter, if plans to engage in such business had been formulated during the twelve-month period preceding the employee's separation from service date. (c) In the event of the death of an employee before the balance of any and all the employee's deferral accounts under this Plan are fully distributed, the balance of each such deferral account shall be distributed in accordance with the death-related deferral election of the employee with respect to each such account. Distribution shall be made to the beneficiary or beneficiaries designated in writing by the employee, or if the Plan Administrator determines, with the advice of counsel, that no valid and enforceable designation has been made, then the balances shall be distributed to the estate of the employee. The first installment (or the single - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 9 payment if the employee has so elected) shall be paid on, or as soon as practicable after, the first day of the calendar quarter next following the month of death. (d) In the case of a deferral account which is to be distributed in two or more installments, each installment subsequent to the first distribution shall be distributed as soon as practicable after the first anniversary of the date that the first distribution was due to be distributed. (e) References in this Plan to distributions of "approximately equal annual installments" shall mean a distribution each year of a fraction of the then-undistributed account balance of a deferral account, where the numerator of the fraction shall be 1, and the denominator shall be the number of installments remaining to be distributed from that deferral account under the Plan (including the installment which is the subject of the calculation). 6. Unfunded Plan. ------------- (a) Plan Unfunded. Nothing in this Plan shall be interpreted or construed ------------- to require Bell Atlantic in any manner to fund any obligation to the employees participating in this Plan, or their beneficiaries. Nothing contained in the Plan or in any trust agreement governing any grantor trust that refers to the Plan, and no action taken under the Plan or any such grantor trust shall create, or be construed to create, a "trust" (as that term is construed under Title I of the Employee Retirement Income Security Act of ERISA) or a trust in which the portion of the trust assets held for the account of a Bell Atlantic company as co-grantor is exempt from the claims of the general creditors of such co-grantor in the event of such co-grantor's bankruptcy or insolvency. Any assets which may be accumulated by any Participating Company in order to meet its obligations under this Plan shall for all purposes continue to be a part of the general assets of such Participating Company. To the extent that any employee or beneficiary acquires a right to receive distributions under this Plan for which any Participating Company is ultimately liable, such rights shall be no greater than the rights of any unsecured general creditor of the applicable Participating Company. (b) Contributions to Grantor Trust. In the event that Bell Atlantic, or ------------------------------ the officer or officers who have been delegated the appropriate authority by the Board, determine that it would be desirable to set aside assets in one or more grantor trusts, in an amount (the "Grantor Amount") which shall be less than or equal to the accumulated benefit obligations of all Bell Atlantic companies to participants under the one or more plans covered by such grantor trust or trusts, each Participating Company shall contribute, in the manner and in the amount then prescribed by Bell Atlantic or its delegatees, its allocated share of the Grantor Amount. (c) Allocation of Accrued Cost and Disbursements. On and after January 1, -------------------------------------------- 1989, the Plan Administrator, with the advice of the officers of Bell Atlantic who have responsibility for legal, treasury and accounting matters, shall have authority to establish and maintain cost allocation guidelines which shall govern the allocation of accrued expenses under the Plan for financial accounting purposes, and the allocation of any amounts by which Participating Companies are obligated to reimburse any another Participating Company for disbursements and other expenditures under the Plan. Such guidelines shall, if established, allocate to each Participating Company its reasonable and appropriate share of the direct benefit cost (and any associated administrative cost) of the Plan. - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 10 (d) Participating Companies as Co-Grantors of Grantor Trusts. In the event, -------------------------------------------------------- and in each and every instance, that Bell Atlantic elects in its sole discretion to transfer assets to one or more grantor trusts of the type described in Section 6(a), each Participating Company shall promptly reimburse Bell Atlantic in an amount equal to such company's allocated share of the amount transferred, determined in the manner described in Section 6(c) hereof. (e) No Voting or Cash Dividend Rights on Phantom Shares. Shares of phantom --------------------------------------------------- stock held in deferral accounts under this Plan shall neither entitle the employee to vote the shares nor to receive dividends in cash. In lieu of cash dividends, shares of phantom stock shall be credited with phantom dividends which shall be converted to dividend reinvestment phantom shares as described elsewhere herein. 7. Administration; Amendment and Termination. ----------------------------------------- (a) Plan Administrator. The Assistant Vice President - Executive ------------------ Compensation and Benefits of Bell Atlantic Network Services, Inc. shall have the authority and responsibility to act as "Plan Administrator" (as that term is used in this Plan), including, without limitation, the authority and responsibility to distribute summary descriptions of the Plan, notify employees of their rights to defer awards, receive deferral election forms and beneficiary designations, calculate balances of deferral accounts and the amount of distributions from the Plan. The Plan Administrator, with the advice of counsel, shall have the right to respond to and decide any claims or disputes under the Plan and to interpret the Plan, subject to the ultimate authority of the HRC to review any appeal from any such claim or interpretation. In the event of any such appeal, the action of the HRC shall be final and binding. (b) Amendment and Termination of Plan. The HRC may at any time amend or --------------------------------- modify the Plan, or terminate the Plan. (c) Administrative Modifications. The Plan Administrator, with advice of ---------------------------- counsel, may make administrative modifications to the Plan to comply with changes in applicable law or to ensure effective and consistent administration of the Plan; provided, however, that the Plan Administrator shall not have the authority to amend the Plan in any manner which alters the amount of compensation or benefits provided by the Plan. The Vice President - Human Resources of Bell Atlantic Corporation shall have the authority to adopt amendments to the Plan which that officer determines, with the advice of counsel, are necessary or appropriate to ensure that transactions under the Plan are exempt, to the maximum extent practicable, from the short-swing trading provisions of Section 16(b) of the Securities Exchange Act. (d) Scope of Amendments and Modifications. A Plan amendment or modification ------------------------------------- under Section 7(b) or (c) may affect both those employees who are participating in the Plan at the time of the amendment or modification, as well as future participants. Any such amendment or modification, and any Plan termination, shall not adversely affect the rights of any employee (or beneficiary, in the case of a deceased employee), without his or her consent, to any benefit under the Plan to which such employee (or beneficiary) may have previously become entitled prior to the effective date of such change or termination. (e) No Forfeiture of Benefits. Each employee for whom one or more deferral ------------------------- accounts is established under this Plan shall at all times have the fully vested right to receive - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 11 one or more distributions from such accounts at the times and in the manner stated under this Plan, and such accounts shall under no circumstances be subject to forfeiture. The rights of an employee to the balance of any deferral account under this Plan shall not, however, be assignable or subject to alienation. The value of deferral accounts which are based on phantom shares is expected to fluctuate, and there is no guarantee in any respect that the value of any such account balance shall be free from a decline in value from time to time. - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/95 Restatement) Page 12 EX-10.J 5 1985 INCENTIVE STOCK OPTION PLAN Exhibit 10j BELL ATLANTIC 1985 INCENTIVE STOCK OPTION PLAN Restated as of January 1, 1996, to incorporate amendments adopted through December 31, 1995 Section 1. Purpose. The Bell Atlantic 1985 Incentive Stock Option Plan (the "Plan") is intended to provide key employees of Bell Atlantic Corporation (the "Company") and its subsidiaries an opportunity to acquire common stock of the Company. The Plan is expected to help the Company and its subsidiaries attract, retain, and motivate key employees to work for the success of the Company and its subsidiaries. With the exception of options granted under section 6 of the Plan, options granted under the Plan are intended to be incentive stock options as defined in section 422A(b) of the Internal Revenue of 1986 (the "Code"). Options granted under section 6 of the Plan are intended to be nonqualified stock options. Section 2. Administration. (a) Human Resources Committee. The Plan shall be administered by the Human Resources Committee of the Company's Board of Directors (the "Committee"). The Committee may delegate some or all of its administrative responsibility under the Plan to one or more persons. (b) Administration. The Assistant Vice President - Executive Compensation and Benefits of Bell Atlantic Network Services, Inc. shall have the authority and responsibility to act as "Plan Administrator" (as that term is used in this Plan), including, without limitation, the authority and responsibility, with the advice of counsel, to distribute summary descriptions of the Plan, to enter into stock option agreements with optionees on behalf of the Company, to maintain records of options granted and outstanding, and to administer transactions in connection with the exercise of options by optionees. The Plan Administrator, with the advice of counsel, shall have the right to respond to and decide any claims or disputes under the Plan and to interpret the Plan, subject to the ultimate authority of the Committee to review any appeal from any such claim or interpretation. In the event of any such appeal, the action of the Committee shall be final and binding. (c) Grant of Options. The Committee shall determine the key employees of the Company and its subsidiaries to whom options may be granted under this Plan. The Committee shall also determine the time at which options shall be granted under the Plan, the number of shares for which these options shall be granted, the time at which these options may be exercised, and the conditions under which these options may be exercised. The Committee, in its sole discretion, shall prescribe the terms and conditions of each option granted under the Plan. (d) Liability. No member of the Committee may be held accountable for any action taken under this Plan in good faith. Section 3. Eligibility. (a) In General. Options may be granted to key employees of the Company or any of its subsidiaries as defined in section 424(f) of the Code ("Subsidiaries"). - -------------------------------------------------------------------------------- Incentive Stock Option Plan Page 1 Restated as of January 1, 1996 (b) Directors. Options may not be granted to any director of the Company or its Subsidiaries unless the director is also a key employee of the Company or any of its Subsidiaries. (c) Ten-Percent Shareholders. Incentive stock options may not be granted under this Plan to shareholders of the Company or any of its Subsidiaries who own more than ten percent of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, unless the special requirements of sections 5(a) and 5(c) relating to ten-percent shareholders are met. (d) No Options for Committee. Options may not be granted under this Plan to members of the Committee. Section 4. Stock. (a) Common Stock. Options may be granted under this Plan for shares of the $1.00 par value common stock of the Company (the "Stock"). In the discretion of the Treasurer of the Company, Stock distributed under this Plan may be authorized but unissued shares or treasury shares; it may also be outstanding shares acquired by the Company in the open market or elsewhere. (b) Aggregate Share Limitation. The aggregate number of shares of Stock (restated to take into account the stock splits of record on March 31, 1986 and April 10, 1990) which may be distributed upon the exercise of options under this Plan may not exceed 25 million shares, less the number of shares (restated to take account of such splits) distributed under the Bell Atlantic 1985 Performance Share Plan. The expiration or termination of an option will not reduce the number of shares which may be distributed under this Plan; but the exercise of a stock appreciation right and the cancellation of the related option shall reduce the number of shares which may be distributed under this Plan by the number of shares for which the canceled option was granted. For purposes of determining whether the aggregate share limitation of this paragraph has been exceeded, the total number of shares distributed under this Plan shall be reduced by the number of shares tendered by key employees in stock-for-stock option exercise transactions under this Plan which occur after January 1, 1991. (c) Individual Option Grant Limitation. In the absence of a Plan amendment approved by the shareowners of the Company, the aggregate number of options to purchase a class of stock of the Company which may be granted under this Plan to any individual in any single calendar year shall be a number not greater than one-half of one percent of the number of shares of that class of stock which are issued and outstanding as of the first day of that calendar year. (d) Reorganization of the Company. The limitation on the aggregate number of shares that may be distributed or granted under this Plan may be adjusted in accordance with section 8 of the Plan (relating to recapitalizations, etc., of the Company). Section 5. Terms and Conditions of Incentive Stock Options. Each incentive stock option granted under the Plan will be evidenced by a stock option agreement ("Agreement") between the Company and the individual to whom the option is granted ("Optionee"). Each incentive stock option granted under the Plan will comply with the following conditions: - -------------------------------------------------------------------------------- Incentive Stock Option Plan Page 2 Restated as of January 1, 1996 (a) Option Price. The option price of an incentive stock option will not be less than the fair market value of the Stock at the time an option is granted. However, in the case of an Optionee who owns more than ten percent of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the option price will not be less than one-hundred-ten percent of the fair market value of the Stock at the time the option is granted. The fair market value of the Stock shall be the mean between the highest and lowest selling prices of the Stock on the day an option is granted, as reported on the New York Stock Exchange Composite Tape. However, if there are no sales on the day an option is granted, the fair market value of the Stock shall be a weighted average of the means between the highest and lowest selling prices of the Stock on the nearest day before and the nearest day after the day the option is granted, as reported on the New York Stock Exchange Composite Tape; the average is to be weighted inversely by the respective number of trading days between the selling days and the day the option is granted. (b) Dollar Limitation. With respect to any incentive stock options granted on or after January 1, 1987, the aggregate fair market value (determined at the time the option is granted) of the Stock with respect to which any such incentive stock options are exercisable for the first time by the Optionee during any calendar year shall not exceed $100,000. For purposes of the dollar limitation under this Section 5(b), all incentive stock options which are granted on or after January 1, 1987 by the Company or any of its Subsidiaries, and which first become exercisable in the applicable year, shall be treated as granted under this Plan and shall be subject to the aggregate fair market value limit under this Section 5(b) for such year. (c) Ten-Year Limitation. No incentive stock option may be exercised more than ten years after it is granted. However, in the case of an Optionee who owns more than ten percent of the combined voting power of all classes of stock of the Company or any of its Subsidiaries, no incentive stock option may be exercised more than five years after it is granted. Each Agreement must contain this ten-year (or five-year) limitation. However, the Committee may grant options which may only be exercised during a period of less than ten (or five) years. In the case of any options which may only be exercised during a period of less than ten (or five) years, each Agreement must contain this shorter limitation. (d) Exercise of Options. The Committee will determine the time at which incentive stock options may be exercised and the conditions under which incentive stock options may be exercised. Any restrictions upon exercise of an option will be contained in the Agreement. Subject to these limitations, if any, options may be exercised in whole or in part. They may be exercised on any business day until they expire. However, no option may be exercised for fewer than ten shares (or such other minimum number as may be established by the Plan Administrator) unless fewer than ten shares (or such other number established by the Plan Administrator) are outstanding, and the option is exhausted upon its exercise. When an option is exercised, and before shares are transferred to an Optionee upon his exercise of the option, the option price must be paid in full. In the discretion of the Committee, the option price may be paid in cash, with Stock, or in any combination of cash and Stock. If the option price may be paid other than in cash, then the Agreement will specify the acceptable methods of payment. If the option price may be paid in Stock, the Optionee may not tender on or after January 1, 1991 any share of Stock which was acquired by the Optionee through exercise of an option less than six months prior to the date of exercise for which the Stock is being tendered. An Optionee will not have any of the rights of a shareholder by reason of an option until it is exercised. The Committee in its sole discretion may - -------------------------------------------------------------------------------- Incentive Stock Option Plan Page 3 Restated as of January 1, 1996 accelerate the time at which options may be exercised when it is in the best interests of the Company and its Subsidiaries to do so. (e) Seriatim Exercise. An incentive stock option granted prior to December 31, 1986 (a "Pre-1987 ISO") may not be exercised by an Optionee if there is an unexercised and unexpired incentive stock option granted to the Optionee at an earlier time under this Plan (or under another plan of the Company or any other company that was a Subsidiary when the incentive stock option was granted). Each Agreement with respect to a Pre-1987 ISO grant shall contain this restriction. This Section 5(e) shall not apply to any stock option granted on or after January 1, 1987. (f) Termination of Employment. (i) In the case of any stock options for which the one-year waiting period has not expired, the remaining waiting period shall be waived, and a 90-day exercise period shall commence, on the day following the effective date of either (1) an Optionee's termination of employment under a company- initiated, voluntary or involuntary, force management or force reduction program or initiative, or (2) an Optionee's cessation of employment by Bell Atlantic or any Subsidiary as a direct consequence of the sale of the business unit or Subsidiary which then employs the Optionee; provided, however, that this paragraph will not apply to an Optionee whose employment is terminated for unsatisfactory performance, misconduct, or refusal to accept a reassignment that involves no relocation or downgrade. In case of a termination or cessation of employment as described in clause "(1)" or "(2)" of the prior sentence, any outstanding stock options which are exercisable on the date of such termination or cessation of employment shall remain exercisable until the earlier of (a) the 90th day following the date of such termination or cessation of employment, or (b) the tenth anniversary of the date of grant. Nothing in this paragraph is intended to cause the post-employment exercise period to be shorter than may be provided for under any other applicable sections of this Plan, such as those relating either to retirement, death or termination of employment due to disability. (ii) Except as provided in paragraphs 5(j), 5(f)(i), 5(g) (relating to retirement of an Optionee), 5(h) (relating to death of an Optionee), and 5(i) (relating to disability of an Optionee), no incentive stock option may be exercised by an Optionee after termination of the employment relationship between the Optionee and the Company, or between the Optionee and a Subsidiary, as the case may be. In the case of an Optionee who is transferred to the Company, to a Subsidiary, or to Bell Communications Research, Inc. ("Bellcore"), or who commences an approved Bellcore rotational assignment, the termination of the employment relationship shall not be deemed to occur until the first date on which the Optionee is employed neither by the Company, a Subsidiary, nor Bellcore. (g) Retirement. Except as provided in paragraph 5(j) or this paragraph 5(g), in the case of an Optionee who either: (i) separates from service with a combination of age and years of service (as calculated for retirement-eligibility purposes) that equals or exceeds any of the following combinations: Age equal to or greater than: Service equal to or greater than: ----------------------------- --------------------------------- Any age 30 years 50 25 years - -------------------------------------------------------------------------------- Incentive Stock Option Plan Page 4 Restated as of January 1, 1996 55 20 years 60 15 years 65 10 years, or (ii) at the time of termination of employment satisfies such age and service criteria for retirement as the Committee may have established, in its discretion, on a case-by-case basis at the time of granting options to said Optionee, incentive stock options which are exercisable on the day of retirement may be exercised during the remaining option term, but not more than five years after the day of retirement. The Committee may, in its discretion, at the time of granting options to some or all key employees, establish a permissible exercise period following retirement which is shorter than the five-year period stated in the previous sentence. (h) Death. Except as provided in paragraph 5(j) or this paragraph 5(h), in the case of the death of an Optionee while employed by the Company or a Subsidiary, an incentive stock option may be exercised during the remaining option term, but not more than one year after the day of death, by the person entitled to exercise the option under the Optionee's will or under the laws of descent and distribution. The Committee may, in its discretion, at the time of granting options to some or all key employees, establish a permissible exercise period following death which is shorter than the one-year period stated in the previous sentence. (i) Disability. Except as provided in paragraph 5(j) or this paragraph 5(i), in the case of an Optionee who becomes disabled within the meaning of section 37(e)(3) of the Code while employed by the Company or a Subsidiary, incentive stock options which are exercisable on the day the disability occurs may be exercised during the remaining option term, but not more than five years after the day the disability occurs, and options which are not exercisable on the day the disability occurs may never be exercised. The Committee may, in its discretion, at the time of granting options to some or all key employees, establish a permissible exercise period following termination for disability which is shorter than the five-year period stated in the previous sentence. (j) Waiver of Limitations; Acceleration of Options. Upon an Optionee's termination of employment, retirement, death, or disability, the Committee in its sole discretion may waive the limitations on exercise of an incentive stock option contained in paragraphs 5(f) through 5(i) when it is in the best interests of the Company and its Subsidiaries to do so. Upon an Optionee's termination of employment, retirement, death, or disability, the Committee may also waive any requirements of paragraphs 5(d) and 5(l) that an incentive stock option may not be exercised within a certain time of its grant when it is in the best interests of the Company and its Subsidiaries to do so. However, the Committee may not extend the period during which an incentive stock option could otherwise be exercised. (k) Transferability of Option. Except as provided in this paragraph 5(k), no incentive stock option will be transferable. Upon the death of an Optionee, an incentive stock option may be transferred as provided in paragraph 5(h) (relating to death of an Optionee). Moreover, an Optionee may designate the person or persons who may exercise and benefit from the option after the Optionee's death. During an Optionee's lifetime, an incentive stock option may only be exercised by the Optionee. Each Agreement will contain these restrictions on transferability. - -------------------------------------------------------------------------------- Incentive Stock Option Plan Page 5 Restated as of January 1, 1996 (l) No Exercise within One Year of Grant. Except as provided in this section 5(l) or in section 8(b) or 6(b) of this Plan, no option granted under the Plan may be exercised within one year of its grant. The Committee may, in its discretion, waive this limitation in the case of any or all options granted to any or all Optionees when it is in the best interests of the Company and its Subsidiaries to do so. Section 6. Terms and Conditions of Nonqualified Options. (a) General Provisions. Each nonqualified stock option granted under the Plan will be evidenced by an Agreement between the Company and the Optionee. No Agreement evidencing a nonqualified stock option shall also evidence an incentive stock option. Each nonqualified option shall be subject to all the terms and conditions of this Plan with the exception of section 5(c) (relating to the ten-year limitation). No nonqualified stock option may be exercised more than ten years after it is granted, except in the case of an Optionee who becomes disabled within the meaning of section 37(e)(3) of the Code while employed by the Company or a Subsidiary, in which case the nonqualified stock option may be exercised not more than five years (or such shorter time limit as the Committee may, in its discretion, prescribe) after the day the disability occurs, without regard to the ten-year limitation. Each Agreement will contain this restriction. (b) Reload Options. Notwithstanding any other provision of this Plan, the Committee may provide for the automatic granting of nonqualified stock options ("reload options") to all or one or more classifications of key employees, as designated by the Committee, upon the exercise by any such designated key employees of options in transactions in which Stock is tendered to pay the option price. In such a case, the number of reload options which shall automatically be granted by the Company to a designated key employee shall be equal to the number of shares of Stock tendered by the designated key employee. The option price of each such reload option shall be equal to the fair market value of the Stock on the date on which the reload option is automatically granted, and such reload options shall expire on the same date as the options then being exercised would have expired in the absence of being exercised. Reload options shall be exercisable by the Optionee after the date on which they are granted, subsequent to any waiting period that the Plan Administrator with the advice of counsel determines is necessary or appropriate to conform with legal or accounting requirements. Except as provided in this section 6(b) to the contrary, the terms and conditions applicable to reload options shall be the same as those that apply to other nonqualified options as described in section 6(a). Section 7. Stock Appreciation Rights. Incentive stock options and nonqualified stock options granted under the Plan may, in the discretion of the Committee, be coupled with stock appreciation rights in the same number of shares of Stock for which the options are granted. Stock appreciation rights may be exercised at the same time, and under the same conditions, as the incentive stock options or nonqualified stock options to which they relate. Upon an Optionee's exercise of a stock appreciation right, the Optionee shall be entitled to a cash payment from the Company in an amount equal to the difference between the fair market value of one share of Stock on the day the stock appreciation right is exercised, as determined under section 5(a), and the option price of the related incentive stock option or nonqualified stock option, and the related incentive stock option or nonqualified stock option shall be canceled. Section 8. Recapitalization of Company. - -------------------------------------------------------------------------------- Incentive Stock Option Plan Page 6 Restated as of January 1, 1996 (a) Adjustments in Stock. In a transaction to which section 424(a) of the Code applies, the share and option limitations of sections 4(b) and 4(c) may be adjusted and the Stock subject to option under section 4(a) may be changed. The Committee will determine the adjustments to be made in the case of reorganization, recapitalization, stock split, stock dividend, combination of shares, or any other change affecting the Stock. Adjustments in the shares subject to option under the Plan may be in the aggregate number of shares subject to option under the Plan; the number of shares for which any Optionee has options; the option price of any options; and the type of stock subject to option under the Plan. (b) Acceleration of Options. In connection with a transaction to which section 424(a) of the Code applies, the Committee may waive any requirements of sections 5(d) and 5(l) that an incentive stock option may not be exercised within a certain time of its grant. The Committee may waive these requirements in the case of any or all Optionees. It may waive these requirements with respect to any or all options granted to an Optionee. The Committee may take this action either before or after the transaction to which section 424(a) of the Code applies. If this action is taken by the Committee before the transaction occurs, the action must be contingent upon the transaction occurring. Section 9. Amendment and Termination. To the extent permitted by law, the Committee or the Company's Board of Directors ("Board") may amend or suspend, and the Board may terminate, this Plan. The Plan Administrator may make administrative modifications to the Plan to comply with changes in applicable law or to ensure effective and consistent administration of the Plan; provided, however, that the Plan Administrator shall not amend the Plan in any manner which alters the amount of the benefit provided under the Plan. Unless an Optionee consents to an amendment, suspension, or termination of the Plan which is adopted by the Board, the Committee or the Plan Administrator, no amendment, suspension, or termination of the Plan will adversely affect the rights of an Optionee with respect to any option granted to the Optionee. Moreover, without approval of the owners of a majority of the shares of the Stock voting either in person or by proxy at a duly convened meeting of the Company's shareowners, no amendment to the Plan may: (a) except as provided in section 8(a), increase the aggregate number of shares subject to option under section 4(b) of the Plan or the number of options which may be granted to an individual in a single calendar year under section 4(c) of the Plan; (b) except as provided in section 8(a), decrease the option price at which options may be granted under section 5(a) of the Plan; (c) extend the period during which any option may be exercised beyond the limits stated in Section 5(c); or - -------------------------------------------------------------------------------- Incentive Stock Option Plan Page 7 Restated as of January 1, 1996 (d) extend the period during which options may be granted under section 10 of the Plan. The Vice President - Human Resources of the Company, with the advice of counsel, has the authority to amend the Plan or modify the administration of the Plan to the extent required to ensure that transactions under the Plan are exempt to the maximum extent possible from the short-swing profit provisions of Section 16(b) of the Securities Exchange Act of 1934. Section 10. Effective Date. This Plan will be effective on the date it is adopted by the Board. However, this adoption will be conditioned upon approval of the Plan, within one year of its adoption, by owners of a majority of the shares of the Stock voting either in person or by proxy at a duly convened meeting of the Company's shareowners. All grants of incentive stock options, nonqualified stock options, and stock appreciation rights granted before shareowner approval of the Plan shall be conditioned on shareowner approval of the Plan. Section 11. Miscellaneous Provisions. (a) No Right to Employment. No grant of an incentive stock option, nonqualified stock option, or stock appreciation right under this plan shall give an Optionee a right to continued employment by the Company or any Subsidiary or otherwise interfere with the Company's or any Subsidiary's right to discharge an Optionee, whether or not for cause. (b) Tax Withholding. When the Company has an obligation to withhold any federal, state, or local tax upon the exercise of an incentive stock option or a nonqualified stock option under the Plan, the Optionee may pay the Company the amount of the required withholding, in cash, at the time of exercising the option, in lieu of the Company withholding the amount through the sale of shares. (c) Governing Law. This Plan shall be construed and enforced in accordance with the laws of the State of Delaware (without regard to the legislative or judicial conflict of laws rules of any state), except to the extent superseded by federal law. - -------------------------------------------------------------------------------- Incentive Stock Option Plan Page 8 Restated as of January 1, 1996 EX-10.K 6 RETIREMENT PLAN FOR OUTSIDE DIRECTORS Exhibit 10k BELL ATLANTIC RETIREMENT PLAN FOR OUTSIDE DIRECTORS Restated as of January 1, 1996 to incorporate amendments through December 31, 1995 Article 1: INTRODUCTION This Plan is maintained by Bell Atlantic Corporation and its Operating Telephone Companies for the benefit of Outside Directors (and their Beneficiaries) who are, or have been, members of the Bell Atlantic Board or an Operating Telephone Company Board (each, a "Participating Board"), and who retire from (or otherwise cease to serve as a director on) a Participating Board at any time on or after January 1, 1987. The Plan shall be maintained according to the terms of this document, as it may be amended from time to time. This Plan represents the merger of eight plans which were formerly maintained separately by Bell Atlantic Corporation and the seven Operating Telephone Companies. The merger of the Plan is not intended to alter the authority of each Participating Board to determine independently the level of directors' fees and other compensation and perquisites for its Outside Directors. Article 2: DEFINITIONS 2.1 DEFINITIONS. When used in this document, the following words and phrases shall have the meaning assigned to them, unless the context clearly indicates otherwise: (a) AFFILIATED COMPANY means Bell Atlantic and any direct or indirect subsidiary of Bell Atlantic. (b) BELL ATLANTIC means Bell Atlantic Corporation, a Delaware corporation, which maintains its principal offices in Philadelphia, Pennsylvania. (c) BELL ATLANTIC BOARD means the board of directors of Bell Atlantic. (d) BENEFICIARY means the person or persons, natural or otherwise, designated by an Outside Director under Section 4.2 to receive any death benefit payable under Section 4.1. (e) OPERATING TELEPHONE COMPANY means, with reference to any time period before or after divestiture, any of the following companies: . Bell Atlantic - Delaware, Inc.; . Bell Atlantic - Maryland, Inc.; . Bell Atlantic - New Jersey, Inc.; . Bell Atlantic - Pennsylvania, Inc.; . Bell Atlantic - Virginia, Inc.; . Bell Atlantic - Washington, D.C., Inc.; and . Bell Atlantic - West Virginia, Inc. (f) OPERATING TELEPHONE COMPANY BOARD shall mean the board of directors of any Operating Telephone Company, as any such board may be or may have been constituted either before or after divestiture. - -------------------------------------------------------------------------------- RETIREMENT PLAN - OUTSIDE DIRECTORS PAGE 1 RESTATED JANUARY 1, 1996 (g) OUTSIDE DIRECTOR means a person who (at the time of reference) served or is serving as a director on a Participating Company Board, and who, at such time, is not an employee of the Participating Company or any Affiliated Company. (h) PARTICIPANT means an Outside Director who has satisfied the eligibility requirements of Section 3.1 hereof. (i) PARTICIPATING COMPANY means Bell Atlantic and each Operating Telephone Company. (j) PARTICIPATING COMPANY BOARD means the Bell Atlantic Board and each Operating Telephone Company Board. (k) PLAN means this Bell Atlantic Retirement Plan for Outside Directors, as set forth in this document and as it may be amended by the Bell Atlantic Board from time to time. (l) PLAN ADMINISTRATOR shall mean the Assistant Vice President - Compensation and Benefits of Bell Atlantic Network Services, Inc., or the person to whom that individual delegates responsibility for administering this Plan, as more fully described in Section 5.3. (m) POST-1/1/96 OUTSIDE DIRECTOR shall mean (a) each Outside Director who is first elected to the Bell Atlantic Board on or after January 1, 1996, and (b) each existing Outside Director as of December 31, 1995 who elected in January 1996 to forfeit his or her accrued pension benefit under this Plan in exchange for the right to participate in stock option grants for Post-1/1/96 Outside Directors under the Bell Atlantic Stock Compensation Plan for Outside Directors. (n) PREDECESSOR PLAN means any of the eight retirement plans for Outside Directors which were formerly maintained separately by the Participating Companies and which were merged into this Plan effective as of April 1, 1989. Article 3: RETIREMENT BENEFITS 3.1 ELIGIBILITY. An Outside Director, except a Post-1/1/96 Outside Director, shall become a Participant upon the completion of five (or more) twelve-month periods of service (whether or not such periods are consecutive) as an Outside Director, whether such service is rendered on one Participating Company Board or a combination of two or more Participating Company Boards; provided, however, that solely those periods of service as a non-employee director (and not periods of service when such director was concurrently employed by the Participating Company or any Affiliated Company) shall be counted for purposes of eligibility and benefit accrual under this Plan. For the period ending with the date on which an Outside Director ceases to serve on any and all Participating Company Board's, any final fraction of a year shall be rounded up to the next whole year in the same manner provided in Section 3.3. Notwithstanding the other provisions of this Section 3.1, any Outside Director who resigns or retires from an Operating Telephone Company Board at any time in 1994 or 1995 shall be deemed to satisfy the eligibility requirements of this Section 3.1. Any Post-1/1/96 Outside Director who is first elected to the Bell Atlantic Board on or after January 1, 1996, shall at no time be eligible to participate in this Plan. Any Post-1/1/96 Outside Director who was first elected to the Bell Atlantic Board prior to January 1, 1996, and who elected on or before January 22, 1996 to surrender the right to participate in this Plan, shall cease to be eligible to participate in this Plan, and shall forfeit all accrued benefits under this Plan, as of Januaury 22, 1996. - -------------------------------------------------------------------------------- RETIREMENT PLAN - OUTSIDE DIRECTORS PAGE 2 RESTATED JANUARY 1, 1996 3.2 WHEN PAYABLE. (a) NORMAL PENSION: A Participant shall be entitled to a normal pension benefit (a "Normal Pension") commencing on the first business day of the calendar quarter next following the latest of (a) the Participant's retirement from, or other cessation of service as a director on, a Participating Company Board, (b) attainment of age 65, or (c) the first anniversary of the date of delivery of the Participant's written notice of his or her election of the form and timing of the benefit distribution pursuant to Section 3.5. (b) DEFERRED PENSION: A Participant may elect, at the time and in the manner described in Section 3.5(a), to defer the commencement date for the distribution of benefits under this Plan to the first business day of January of the year next following the later of the date on which such Participant attains age 70, or the date of cessation of service as a director on a Participating Company Board. In the case of such a "Deferred Pension," the amount of the benefit shall be the Normal Pension amount increased by the product of (A) nine percent (9%) for each year (and by 0.75% for each month in excess of a whole number of years), times (B) the number of years (and months) from the date on which a Normal Pension would have commenced for such Participant (in the absence of such a deferral) to the Deferred Pension commencement date. (c) EARLY PENSION: A Participant may elect, at the time and in the manner described in Section 3.5(a), to receive a reduced pension benefit (an "Early Pension") commencing on the first business day of the calendar quarter next following the latest of (a) the Participant's cessation of service as a director on the Participating Company Board, (b) the date on which the Participant attains age 55 (but has not yet attained age 65), or (c) the first anniversary of the date of delivery of the Participant's written notice of his or her election of the form and timing of the benefit distribution pursuant to Section 3.5. In such a case, the amount of such Early Pension benefit shall be the Normal Pension amount reduced by the product of (A) six percent (6%) for each year (and 0.5% for each month in excess of a whole number of years), times (B) the number of years (and months) from the Early Pension commencement date to the date on which a Normal Pension would have commenced for such Participant (in the absence of such an election). (d) SUSPENSION OF BENEFITS. (1) SUSPENSION. The payment of pension benefits under this Plan shall be suspended throughout any period (and no cash-out under this Plan shall then be paid) when the Participant is serving as an Outside Director on a Participating Company Board. (2) RESUMPTION OF BENEFIT. Subsequent to any such period of benefit suspension for service on a Participating Company Board, such Participant's pension benefit under this Plan shall be recalculated with reference to all service as an Outside Director, including the directors' retainer earned and the years of service accrued during such period of benefit suspension, and the Participant's pension benefit shall be paid or resumed at the newly calculated higher rate. (e) NON-DUPLICATION OF BENEFITS. (1) BENEFITS UNDER ONLY ONE PENSION PLAN. A Participant who at any time would be eligible for benefits under this Plan and under any of the Predecessor Plans shall receive benefits solely under this Plan. The benefit under this Plan shall, however, take account of all service rendered as an Outside Director for all Participating Companies. (2) BENEFITS MAY NOT EXCEED 100 PERCENT. In the event that (i) a Participant is paid a cash-out distribution under this Plan or any of the Predecessor Plans, and - -------------------------------------------------------------------------------- RETIREMENT PLAN - OUTSIDE DIRECTORS PAGE 3 RESTATED JANUARY 1, 1996 (ii) such a Participant subsequently serves as an Outside Director on a Participating Company Board, then the sum of the percentage amounts utilized for purposes of calculating such Participant's benefits under Section 3.3 of this Plan and the corresponding provision of any other such plan shall not exceed 100 percent. (f) DEFERRED COMPENSATION PLAN. Nothing in this Plan shall affect eligibility for or benefits under the Bell Atlantic Deferred Compensation Plan for Outside Directors or any predecessor of that merged plan. 3.3 AMOUNT. A Participant's Normal Pension, as defined in Section 3.2(a), shall be an annual amount equal to the product of (A) 10 percent, times (B) the rate of the Participant's annual directors' retainer (exclusive of meeting fees or committee chairmen's retainers) which is prevailing at the time the Participant retires from (or otherwise ceases to serve on) the Participating Company Board as an Outside Director, times (C) the number of terms of service (rounding up any fraction of a one-year term as though it were a whole term), not to exceed 10, that such Participant has then rendered as an Outside Director - ------------- on all Participating Company Boards. 3.4 FORFEITURE OF BENEFITS. All benefits not yet paid for which an Outside Director would be otherwise eligible under this Plan shall be forfeited in the event that the Bell Atlantic Board determines that any of the following circumstances has occurred: (a) the Outside Director has engaged in knowing and willful misconduct in connection with his or her service as a director; or (b) the Outside Director, without the consent of the Bell Atlantic Board, has at any time during the period from the last day he or she served as a director on a Participating Company Board (the "Director's Cessation of Service Date") to the second anniversary of such date, personally engaged in managing, planning, or advising in any manner whatever an activity which directly competes with any of the businesses in which a Bell Atlantic Company was engaged on the Director's Cessation of Service Date, or any business which was in the planning stage at a Bell Atlantic Company on such date. For the purposes of this paragraph, a "Bell Atlantic Company" means either (a) the one or more Operating Telephone Companies on the board of which the Outside Director served, in the case of an Outside Director who served on one or more Operating Telephone Company Boards but not the Bell Atlantic Board, or (b) Bell Atlantic or any Affiliated Company, in the case of an Outside Director who last served on the Bell Atlantic Board. 3.5 FORM OF PAYMENT. (a) ELECTION OF FORM OF PAYMENT. In the absence of any written election by a Participant, such Participant's benefit shall be paid as a Normal Pension in the form of a life annuity commencing at the time stated in Section 3.2(a). The Participant may elect from among the alternative times and forms of benefit distribution as described under Sections 3.2(b) and (c), and 3.5(b). Any such election of the time and form of distribution shall be delivered in writing to the Plan Administrator at any time before, and not later than 30 days after the date on which the Outside Director retires from, or otherwise ceases to serve on, the Participating Company Board. In no event may a benefit commence less that 12 months following the date on which the Outside Director delivers his or her written election of the form and timing of distribution. (b) ALTERNATIVE FORMS OF BENEFIT DISTRIBUTION. Each Participant may, if he or she so elects, deliver either or both of two types of elections under the Plan, in the - -------------------------------------------------------------------------------- RETIREMENT PLAN - OUTSIDE DIRECTORS PAGE 4 RESTATED JANUARY 1, 1996 manner described in Section 3.5(a): (i) whether to receive his or her benefit, as described in Section 3.2, in lieu of a Normal Pension, in the form of a Deferred Pension (in the case of a Participant retiring as an Outside Director prior to attaining age 70), or an Early Pension (in the case of a Participant who retires as an Outside Director prior to age 65); and (ii) whether to receive his or her benefit, in lieu of a life annuity, in the form of either a joint and survivor annuity or a single-sum cash-out, as follows: (1) LIFE ANNUITY. This form of benefit shall consist of a series of quarterly payments to the Participant, commencing on the applicable date under Sections 3.5 (a) and 3.2, and continuing until his or her death. A life annuity is the default form of benefit in the absence of an alternative election by a Participant. (2) JOINT AND 50-PERCENT SURVIVOR ANNUITY FOR SPOUSE. This form of benefit shall consist of a series of quarterly payments to the Participant, commencing on the applicable date under Sections 3.5(a) and 3.2, and equal to 90 percent of the amount that would have been payable on that date to the Participant if the Participant had elected a benefit in the form of a life annuity, and continuing for the Participant's life, and, if the Participant is survived by the person who was his or her spouse on the last date he or she served as an Outside Director, a series of quarterly payments to said spouse for his or her life, commencing on the Participant's death, each such payment being in an amount equal to 50 percent of the quarterly amounts previously paid to the Participant. In the event that said spouse predeceases the Outside Director, or in the event of a divorce of said spouse and the former Outside Director, the benefit shall thereafter automatically be paid in the form of a life annuity, and the 10 percent reduction attributable to the election of the joint and survivor annuity shall thereafter cease to apply. (3) SINGLE-SUM CASH-OUT PAYMENT. This form of benefit shall consist of a single-sum payment in cash, in an amount determined with reference to the pension benefit that would be payable on the Normal Pension, Early Pension, or Deferred Pension benefit commencement date, whichever the Participant has elected, where such benefit is converted to a single-sum cash-out by utilizing (i) the immediate annuity interest rate assumption published by the federal Pension Benefit Guaranty Corporation for the calendar month immediately preceding the month in which the Participant resigns or retires as an Outside Director, and (ii) unisex tables to determine the life expectancy of the Participant as of the date on which the cash-out is payable. (c) QUARTERLY PAYMENTS. In the case of any annuity pursuant to Subsection (b)(1) or (b)(2) above, the quarterly distribution shall be payable on the first business day of each calendar quarter during the prescribed payment period. Article 4: DEATH PRIOR TO COMMENCING BENEFITS 4.1 DEATH OF DIRECTOR. If any Participant dies prior to the date on which his or her benefit distribution commences, then his or her Beneficiary shall be entitled to receive a death benefit. The death benefit shall be a single-sum cash-out, payable on the first business day of the calendar quarter next following the date of death (even if such death occurred prior to the Participant's attaining age 55), and shall be in an amount equal to the lump sum (if any) that would have been payable on such date (after taking account of any Early Pension reduction which may be applicable as described in Section 3.2(c)); provided, however, that, in the case of a death of such a Participant which occurs prior to age 55, the amount of the Early Pension (expressed as a single life annuity) shall be determined by using the lesser of (a) the - -------------------------------------------------------------------------------- RETIREMENT PLAN - OUTSIDE DIRECTORS PAGE 5 RESTATED JANUARY 1, 1996 six percent per annum reduction factor described in Section 3.2(c), or (b) the applicable actuarial reduction factor derived in the manner described in Attachment 1. 4.2 DESIGNATION OF BENEFICIARY. Each Participant may designate from time to time, at any time not later than the benefit commencement date, any person or persons, natural or otherwise, as his or her Beneficiary or Beneficiaries to whom any death benefits which may be payable under Section 4.1 are to be paid. Each Beneficiary designation shall be made on a form prescribed by the Plan Administrator and shall be effective only when filed with the Corporate Secretary or Assistant Secretary of the Participating Company during the Participant's lifetime. Each Beneficiary designation filed with the Plan Administrator shall revoke all Beneficiary designations previously made by the Participant. Neither the appointment of a Beneficiary nor the revocation of a Beneficiary designation shall require the consent of any person. Article 5: ADMINISTRATION 5.1 NO FUNDING OBLIGATION. Except as otherwise provided in this Section 5.1, the obligation of the Participating Companies to pay benefits under this Plan shall be unfunded and unsecured, and, in all events, any payments under this Plan shall be made solely from those assets of a Participating Company which would be available to satisfy the claims of the Participating Company's general creditors in the event of bankruptcy. The Treasurer of Bell Atlantic (a) may, in that officer's discretion, and (b) shall, if and when either (i) said Treasurer is directed to do so by a committee of officers of the Corporation chaired by the Chief Executive Officer, or (ii) there occurs a "Hostile Change of Control" as defined in the Bell Atlantic Senior Management Retirement Income Plan, cause Bell Atlantic and the Participating Companies to set aside assets, including, without limitation, assets which may be held under the Bell Atlantic Rabbi Trust Agreement, or to purchase annuity or life insurance contracts, and to apply such assets or the proceeds of such contracts to discharge all or part of the benefit obligations under this Plan. 5.2 APPLICABLE LAW. This Plan shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania, to the extent not superseded by federal law. 5.3 ADMINISTRATION AND INTERPRETATION. The Assistant Vice President - Compensation and Benefits of Bell Atlantic Network Services, Inc., or the person to whom that individual delegates responsibility for administering this Plan (the "Plan Administrator"), shall have the authority and responsibility to administer and interpret this Plan. The day to day administration of the Plan shall be carried out by the Plan Administrator in cooperation with the Corporate Secretaries and Assistant Secretaries of BAC and each of the Operating Telephone Companies. Benefits due and owing to an Outside Director or Beneficiary under the Plan shall be paid when due without any requirement that a claim for benefits be filed. However, Outside Directors and Beneficiaries who have not received the benefits to which they feel entitled may file a written claim with the Plan Administrator, who shall act on the claim within thirty days. The Plan Administrator's action on any such claim may be appealed by the claimant to the Bell Atlantic Board, which is hereby empowered as a fiduciary with full discretion to interpret the Plan and apply its terms to the facts of the claimant's case. The decision of the Bell Atlantic Board, in the event of any such appeal, shall be final and binding to the full extent permitted under applicable law, unless and to the extent that a claimant subsequently proves an abuse of discretion. - -------------------------------------------------------------------------------- RETIREMENT PLAN - OUTSIDE DIRECTORS PAGE 6 RESTATED JANUARY 1, 1996 ATTACHMENT 1 Reduction Factor for Single-Sum Cash-Out In the Event of Death of an Outside Director Prior to Age 55 For computing death benefits pursuant to Section 4.1 of this Plan For the designated beneficiary(ies) of an Outside Director who dies prior to commencing benefits under this Plan on a date prior to attaining age 55, the single-sum cash-out shall be determined in two steps: first, by determining the applicable Early Pension benefit amount (expressed as a single-life annuity), and, second, by determining the single-sum cash-out amount in accordance with Section 3.5(b)(3). The Early Pension benefit amount shall be based on an Early Pension reduction factor which shall be equal to the lesser of: (a) 0.06 (i.e. 6%) for each year (and 0.005 (i.e. 0.5%) for each month) by which the Outside Director's age on the date of death is less than age 65, or (b) the result of subtracting from 1.00 (i.e. 100%) the factor in the following table which corresponds to the years and months of age attained by an Outside Director on his or her date of death.
Completed Years of Age Months in Excess of Years - ------------------------------------------------------------------------------------------ 0 1 2 3 4 5 6 7 8 9 10 11 20 0.022 0.022 0.022 0.023 0.023 0.023 0.023 0.023 0.023 0.023 0.024 0.024 21 0.024 0.024 0.024 0.025 0.025 0.025 0.025 0.025 0.025 0.025 0.026 0.026 22 0.026 0.026 0.026 0.026 0.027 0.027 0.027 0.027 0.027 0.027 0.028 0.028 23 0.028 0.028 0.028 0.028 0.029 0.029 0.029 0.029 0.029 0.030 0.030 0.030 24 0.030 0.030 0.031 0.031 0.031 0.031 0.031 0.032 0.032 0.032 0.032 0.032 25 0.033 0.033 0.033 0.033 0.033 0.033 0.034 0.034 0.034 0.034 0.035 0.035 26 0.035 0.035 0.036 0.036 0.036 0.036 0.037 0.037 0.037 0.037 0.037 0.038 27 0.038 0.038 0.038 0.039 0.039 0.039 0.039 0.040 0.040 0.040 0.040 0.041 28 0.041 0.041 0.042 0.042 0.042 0.042 0.043 0.043 0.043 0.043 0.044 0.044 29 0.044 0.045 0.045 0.045 0.045 0.046 0.046 0.046 0.047 0.047 0.047 0.048 30 0.048 0.048 0.048 0.049 0.049 0.049 0.050 0.050 0.050 0.051 0.051 0.051 31 0.052 0.052 0.052 0.053 0.053 0.053 0.054 0.054 0.055 0.055 0.055 0.056 32 0.056 0.056 0.057 0.057 0.057 0.058 0.058 0.059 0.059 0.059 0.060 0.060 33 0.060 0.061 0.061 0.062 0.062 0.063 0.063 0.063 0.064 0.064 0.065 0.065 34 0.065 0.066 0.066 0.067 0.067 0.068 0.068 0.069 0.069 0.069 0.070 0.070 35 0.071 0.071 0.072 0.072 0.073 0.073 0.074 0.074 0.075 0.075 0.076 0.076 36 0.077 0.077 0.078 0.078 0.079 0.079 0.080 0.080 0.081 0.081 0.082 0.082 37 0.083 0.083 0.084 0.085 0.085 0.086 0.086 0.087 0.087 0.088 0.089 0.089 38 0.090 0.090 0.091 0.092 0.092 0.093 0.093 0.094 0.095 0.095 0.096 0.097 39 0.097 0.098 0.099 0.099 0.100 0.101 0.101 0.102 0.103 0.103 0.104 0.105 40 0.105 0.106 0.107 0.108 0.108 0.109 0.110 0.111 0.111 0.112 0.113 0.113 41 0.114 0.115 0.116 0.117 0.117 0.118 0.119 0.120 0.121 0.121 0.122 0.123 42 0.124 0.125 0.126 0.127 0.127 0.128 0.129 0.130 0.131 0.132 0.133 0.134 43 0.134 0.135 0.136 0.137 0.138 0.139 0.140 0.141 0.142 0.143 0.144 0.145 44 0.146 0.147 0.148 0.149 0.150 0.151 0.152 0.153 0.154 0.155 0.156 0.157 45 0.159 0.160 0.161 0.162 0.163 0.164 0.165 0.167 0.168 0.169 0.170 0.171 46 0.172 0.174 0.175 0.176 0.177 0.179 0.180 0.181 0.182 0.184 0.185 0.186 47 0.187 0.189 0.190 0.191 0.193 0.194 0.196 0.197 0.198 0.200 0.201 0.202 48 0.204 0.205 0.207 0.208 0.210 0.211 0.213 0.214 0.216 0.217 0.219 0.220 49 0.222 0.224 0.225 0.227 0.229 0.230 0.232 0.234 0.235 0.237 0.239 0.240
- -------------------------------------------------------------------------------- RETIREMENT PLAN ATTACHMENT 1 RESTATED JANUARY 1, 1996 50 .24 .24 .24 .25 .25 .25 .25 .25 .25 .26 .26 .26 51 .26 .26 .26 .27 .27 .27 .27 .27 .27 .28 .28 .28 52 .28 .28 .29 .29 .29 .29 .30 .30 .30 .30 .31 .31 53 .31 .31 .32 .32 .32 .32 .33 .33 .33 .33 .34 .34 54 .34 .34 .35 .35 .35 .35 .36 .36 .36 .36 .37 .37 55 .37 .37 .38 .38 .38 .38 .39 .39 .39 .39 .40 .40 56 .40 .40 .41 .41 .41 .42 .42 .42 .43 .43 .43 .44 57 .44 .44 .45 .45 .45 .46 .46 .46 .47 .47 .47 .48 58 .48 .48 .49 .49 .50 .50 .51 .51 .51 .52 .52 .53 59 .53 .53 .54 .54 .55 .55 .56 .56 .56 .57 .57 .58 60 .58 .59 .59 .60 .60 .61 .62 .62 .63 .63 .64 .64 61 .65 .66 .66 .67 .67 .68 .69 .69 .70 .70 .71 .71 62 .72 .73 .73 .74 .75 .75 .76 .77 .77 .78 .79 .79 63 .80 .81 .82 .82 .83 .84 .85 .85 .86 .87 .88 .88 64 .89 .90 .91 .92 .93 .94 .95 .95 .96 .97 .98 .99 65 1.0
- -------------------------------------------------------------------------------- RETIREMENT PLAN ATTACHMENT 1 RESTATED JANUARY 1, 1996 EX-10.L 7 STOCK COMPENSATION PLAN FOR OUTSIDE DIRECTORS BELL ATLANTIC STOCK COMPENSATION PLAN FOR OUTSIDE DIRECTORS Restated as of January 1, 1996, to incorporate amendments adopted through December 31, 1995 1. NAME OF PLAN. The plan shall be known as the Bell Atlantic Stock Compensation Plan for Outside Directors (and is referred to herein as the "Plan"). 2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to encourage ownership of shares of the Common Stock (the "Stock") of Bell Atlantic Corporation (the "Corporation"), and to further align the interests of non- employee members of the boards of directors of Participating Companies with the interests of shareowners of the Corporation. 3. EFFECTIVE DATE. The effective date of the Plan is July 1, 1991. The Plan was submitted to, and was approved by, shareowners at the annual meeting of the Corporation in April 1991. 4. PARTICIPATING COMPANIES. The "Participating Companies" in the Plan shall be the Corporation and the domestic operating telephone company subsidiaries of the Corporation (the "OTCs"). 5. ELIGIBLE PARTICIPANTS. Each member of the board of directors of a Participating Company who is, as of the date of any award or grant hereunder, in active service as a director, but who is not then an employee of the Corporation or any subsidiary of the Corporation (each, an "Outside Director"), shall be eligible to receive an award or grant under the Plan. For purposes of certain provisions of Section 6 ("Stock Options"), a "Post-1/1/96 Outside Director" shall mean (a) each Outside Director who is first elected to the Board of Directors of the Corporation on or after January 1, 1996, and (b) each existing Outside Director as of December 31, 1995 who elected in January 1996 to forfeit his or her accrued pension benefit under the Bell Atlantic Retirement Plan for Outside Directors (the "Pension Plan") in exchange for the right to participate in stock option grants for Post-1/1/96 Outside Directors under Sections 6(a) and 6(e) of this Plan. 6. STOCK OPTIONS (a) Annual Grant of Options. Commencing in January 1995, and annually thereafter, each individual who, at the close of the regular January meeting of the Board of Directors of the Corporation (the "Board"), is then serving as an Outside Director of the Corporation, except Post-1/1/96 Outside Directors, shall receive a grant of nonqualified stock options ("Options") to purchase 1,000 shares of Stock at an exercise price per Option equal to the fair market value of the Stock on the date of grant, and, effective January 1996, the number of such Options granted annually to each Post-1/1/96 Outside Director shall be 2,500. "Fair market value", for purposes of the previous sentence, shall have the same meaning as stated in the Bell Atlantic 1985 Incentive Stock Option Plan, as that plan may be amended from time to time (the "ISO Plan"). Options granted under this Plan shall be granted on the same date, and with the same exercise price, as the principal annual grant of options by the Human Resources Committee ("HRC") of the Board under the ISO Plan. Options shall be granted under this Plan automatically, and no action by the Board shall be required. The Board - -------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 1 of 5 shall retain the authority in its sole discretion to revise, from time to time, the number of Options to be automatically granted annually under this Plan, provided, however, that no such action shall be taken without first obtaining the advice of counsel. (b) Initial Grant Upon Election to the Board. Effective as of the first day on which Stock is publicly traded in the calendar month first following the month in which an individual's initial election to the Board, as an Outside Director, becomes effective, the Outside Director shall receive a grant of Options to purchase 1,000 shares of Stock, with an exercise price equal to the fair market value of the Stock on said first trading day of said month. (c) Terms of Options. Options shall be subject to the following terms and conditions: (i) Options shall expire not later than the tenth anniversary of the date of grant; (ii) Options shall be subject to a waiting period of one year, and shall first become exercisable on the first anniversary of the date of grant; (iii) In the event of the retirement of an Outside Director from the Board upon having attained mandatory retirement age, or on account of disability, any outstanding Options which are not yet exercisable shall become exercisable on the day following the Outside Director's retirement, and all outstanding Options shall expire on the earlier of the fifth anniversary of the date of retirement or the tenth anniversary of the date of grant; (iv) In the event of a resignation or a termination of the service of an Outside Director from the Board for any reason other than disability or retirement upon having attained mandatory retirement age, any outstanding Options shall expire at the close of business on the effective date of said resignation; provided, however, that the Board may, in its discretion, take action to cause the Options of such an Outside Director to become exercisable, and/or to remain exercisable, for a period of time subsequent to said resignation or termination, but in no event may the Options remain exercisable after the later of the fifth anniversary of the last date of service as an Outside Director or the tenth anniversary of the date of grant; (v) In the event of the death of an Outside Director at a time when Options are outstanding, any such Options shall be exercisable until the earlier of the first anniversary of the date of death or the tenth anniversary of the date of grant; and (vi) The exercise price for Options shall be payable solely in cash. (d) Option Agreements. With respect to each grant of Options, the Plan Administrator, with the advice and assistance of counsel, shall have the authority, responsibility and discretion to prepare a form of agreement (the "Option Agreement") which shall state the terms and conditions stated in section 6(c) hereof, and such additional terms and conditions as the Plan Administrator determines are appropriate. In each case, the grant of Options to an Outside Director shall be conditioned on the Outside Director signing the corresponding Option Agreement within a period determined by the Plan Administrator. In the event that an Optionee does not deliver to the Plan Administrator a signed Option Agreement within an applicable period, or signs an Option - -------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 2 of 5 Agreement which has been modified in a manner unacceptable to the Plan Administrator, the Optionee shall forfeit the Options stated on said Option Agreement. (e) Special Grant. Each incumbent Outside Director as of December 31, 1995, who elected on or before January 22, 1996 to forfeit his or her accrued benefit under the Pension Plan in exchange for eligibility to receive Option grants as a Post-1/1/96 Outside Director, shall receive, on January 22, 1996, in addition to the grant described in Section 6(a), a one-time grant of Options in an amount equal to the product of (i) 1,500, times (ii) the Outside Director's years of service, as of that date of grant, as determined under the terms of the Pension Plan. (f) Adjustments in Stock. Notwithstanding any other provision of this Plan, in a transaction to which section 424(a) of the Internal Revenue Code applies, the Board of Directors shall determine whether, and to what extent, it is appropriate to make adjustments in the class or issuer of stock subject to outstanding Options under the Plan, and/or in the number and corresponding exercise prices of outstanding Options, in order to preserve the aggregate value of the spreads between the exercise prices of the outstanding Options and the value of the applicable Stock or stocks. Such modifications shall be consistent with the terms of any such reorganization, recapitalization, stock split, stock dividend, combination of shares, or any other change affecting the Stock. 7. STOCK AWARDS. (a) Annual Awards. On the first business day of July of each year, each Participating Company except the Corporation shall cause to be transferred to each of its Outside Directors who is on that day in active service as an elected Outside Director of the Participating Company, an award of Stock (and cash in lieu of any fractional share) for services to be rendered as an Outside Director for the twelve-month period on and after that date (or for any portion of said twelve-month period during which the Outside Director remains on the respective board). (b) Value of Awards. For Outside Directors of Participating Companies other than the Corporation, the annual Stock award shall be a number of whole shares (and cash in lieu of any fractional share) the value of which shall equal $1,000. For purposes of computing the number of shares to be awarded, the value of a share of Stock at the time of an award shall be deemed to be equal to the average of the closing prices of the Stock for each of the last five trading days of the month of June immediately preceding the date of the award. (c) Election to Transfer Shares to DRSPP. Each Outside Director who is eligible for an award of Stock under this section 7 shall, prior to the date of the award for a given year, have the right to elect whether to receive the award in the form of a share certificate, which shall be solely in the name of the Outside Director, or to have the Corporation deposit the share award directly into an account, which shall be solely in the name of the Outside Director, under the Corporation's Dividend Reinvestment and Stock Purchase Plan ("DRSPP"). For an Outside Director who elects to deposit the award in a DRSPP account, the terms of DRSPP shall thereafter apply and the shares awarded under this Plan shall be treated no differently than any other shares held under DRSPP. - -------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 3 of 5 (d) No Accrued Interest In Subsequent Awards. Until the applicable award date under the Plan, an eligible Outside Director shall have no accrued right to receive all or any portion of any subsequent award, except to the extent provided in any plan amendment adopted by the Plan Administrator pursuant to Section 12(c)(iii). An eligible Outside Director shall have no right to assign or alienate any interest in any award which has not yet been presented under this Plan. 8. SOURCE OF STOCK. Shares of Stock awarded under the Plan, and Stock transferred to an Outside Director upon exercise of Options, may be treasury shares, or authorized but unissued shares, or outstanding shares of Stock acquired by the Corporation in the open market or elsewhere. 9. TAXES. Any and all tax consequences for an Outside Director which are associated with an award of shares or an exercise of Options under this Plan shall be the sole responsibility of the participating Outside Director. 10. AUTHORIZED NUMBER OF SHARES. The aggregate number of shares of Stock which may be awarded under this Plan, or transferred upon exercise of Options, shall be 100,000. Said limit shall be adjusted, in the manner determined appropriate by the Plan Administrator with the advice of counsel, in the event of any stock split, stock dividend, recapitalization, or other change affecting the Stock. 11. NO EFFECT ON RETIREMENT PLAN OR DEFERRED FEE PLAN. The awards of Stock, and transfers of Stock upon exercise of Options, under this Plan shall not be treated as a portion of the Outside Directors' retainer, or as benefit bearing compensation of any kind, for purposes of determining the amount of any benefit under the Bell Atlantic Retirement Plan for Outside Directors. Neither the Options nor the Stock received under this Plan shall be eligible for deferral under the Bell Atlantic Deferred Fee Plan for Outside Directors. 12. ADMINISTRATION; AMENDMENT AND TERMINATION. (a) Authority of the Board. The Board of the Corporation shall have the authority to amend and to terminate the Plan at any time in its discretion; provided, however, that any amendment adopted by the Board may be submitted for approval by the shareowners of the Corporation if, in the opinion of counsel, such approval is required to exempt the awards of Stock, and the grant or exercise of Options, under this Plan from the short-swing trading provisions of Section 16 of the Securities Exchange Act of 1934, or to preserve the status of Outside Directors as "disinterested administrators" (within the meaning of regulations issued pursuant to said Section 16) for purposes of the Corporation's compensation plans for officers and key employees. The Committee on Directors of the Board may recommend amendments to the Plan for the approval of the full Board. (b) Authority of Board of Directors of Operating Telephone Companies. The board of directors of an OTC shall have the authority to adopt the Plan on behalf of the OTC, and to withdraw from participation in the Plan at any time in its sole discretion. (c) Authority of Plan Administrator. The Vice President - Human Resources of the Corporation, or any person to whom that officer delegates administrative responsibility for - -------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 4 of 5 the Plan, shall be the "Plan Administrator" (as that term is used herein), with the authority (i) to administer and interpret the Plan, (ii) to prepare and distribute Option Agreements and administer the exercise of Options, (iii) to adopt minor and administrative modifications of the Plan and amendments which the Plan Administrator believes, with the advice of counsel, to be necessary or appropriate to comply with changes in applicable law or to ensure that transactions under the Plan remain exempt from Section 16(b) of the Securities Exchange Act of 1934 to the maximum extent practicable, (iv) to adopt Plan provisions for the awarding of prorated amounts of Stock in appropriate circumstances, and (v) with advice of counsel, to submit the Plan, or amendments to the Plan, to the shareowners of the Corporation for approval. (d) Authority of Corporate Secretaries of OTCs. The corporate secretary of each OTC shall have the status of deputy administrator of the Plan, with authority to assist the Plan Administrator with communications and correspondence with Outside Directors of the respective OTC. - -------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 5 of 5 EX-10.N 8 LAWRENCE T. BABBIO EMPLOYMENT AGREEMENT Exhibit 10(n) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made this 2nd day of May, 1995, by and between Bell Atlantic Corporation ("Bell Atlantic") and Lawrence T. Babbio, Jr. (the "Executive"). WHEREAS, Bell Atlantic seeks to retain the services of the Executive and to provide for an efficient transition upon any change in the Chief Executive Officer of Bell Atlantic; WHEREAS, the Executive is willing to remain in the employ of Bell Atlantic upon the following terms and conditions; and WHEREAS, Bell Atlantic and the Executive wish to set forth their agreement as to the terms and conditions upon which the Executive's employment will continue. NOW, THEREFORE, for good and valuable consideration, including the compensation and benefits recited below, the Executive and Bell Atlantic hereby agree as follows: 1. Definitions: ----------- (a) Effective Date shall mean the announced effective date of the -------------- election of any individual to succeed the person who, on the date of this Agreement, is the incumbent Chief Executive Officer of Bell Atlantic. (b) Bell Atlantic Companies shall mean Bell Atlantic and each ----------------------- corporate subsidiary and other affiliated company in which Bell Atlantic directly or indirectly owns a fifty percent or greater interest. (c) Board shall mean the board of directors of Bell Atlantic. ----- (d) Chief Executive Officer shall mean the Chief Executive Officer of ----------------------- Bell Atlantic, as elected and serving from time to time. (e) Committed Employment Period shall mean the period commencing on --------------------------- the date of this Agreement and continuing until the earlier of the second anniversary of the Effective Date or July 1, 1998. (f) Release shall mean a legal release in the form attached to this ------- Agreement as Exhibit A, which shall be signed by the Executive at the time of his retirement from Bell Atlantic as a condition of receiving any and all pension and severance benefits provided under the terms of this Agreement. 2. Termination of this Agreement: In the event that the Executive is ----------------------------- elected Chief Executive Officer as of the Effective Date, this Agreement shall then terminate and shall be of no further force or effect. 3. Bell Atlantic Obligations during the Committed Employment Period: ---------------------------------------------------------------- During the Committed Employment Period: - -------------------------------------------------------------------------------- Employment Agreement Page 1 (a) Bell Atlantic shall continue to employ the Executive as a Bell Atlantic officer with the title of Vice Chairman, with duties of a type and level appropriate to such a title; (b) Bell Atlantic shall compensate the Executive at a Salary Grade not less than 37, and, to the extent not otherwise modified by the terms of this Agreement, the Executive shall be eligible to participate in all of the benefit and compensation plans, and the programs of perquisites, applicable to similarly-situated Senior Managers of Bell Atlantic, as those plans and programs may be amended from time to time; (c) The Board shall nominate the Executive for election as a director at each annual meeting of shareowners of Bell Atlantic which occurs during the Committed Employment Period; and (d) In the event that the Executive does not become Chief Executive Officer on the Effective Date, Bell Atlantic shall, as of the Effective Date, promote the Executive to Salary Grade 38, and shall for the remainder of the Committed Employment Period deliver compensation, benefits and perquisites to the Executive commensurate with that Salary Grade, including, without limitation, annual base salary increases not less than one-third of the amount by which the mid-point of Salary Grade 38 exceeds the Executive's initial salary upon promotion to that Salary Grade. (e) In the event that James G. Cullen is elected Chief Executive Officer as of the Effective Date, the Executive will be elected Vice Chairman and Chief Operating Officer of Bell Atlantic effective as of the Effective Date, and Bell Atlantic shall retain the Executive in that position, with duties commensurate with that title, through the end of the Committed Employment Period. 4. Obligations of the Executive during the Committed Employment Period: ------------------------------------------------------------------- During the Committed Employment Period, the Executive shall have the following obligations and duties. (a) The Executive shall continue to fully and faithfully perform his duties and responsibilities (i) as a director, so long as he is elected and serving, and (ii) as an officer, reporting only to the Chief Executive Officer and the Board. (b) The Executive shall serve in such executive capacities, titles and authorities with respect to the Bell Atlantic Companies as the Board or the CEO may from time to time prescribe, and the Executive shall perform all duties incidental to such positions, shall cooperate fully with the Board and the CEO, and shall work cooperatively with the other officers of the Bell Atlantic Companies. (c) The Executive shall continue to diligently devote his entire business skill, time and effort to the affairs of the Bell Atlantic Companies in accordance with the duties assigned to him that are not inconsistent with the terms hereof, and shall perform all such duties, and otherwise conduct himself, in a manner reasonably calculated in good faith by him to promote the best interests of the Bell Atlantic Companies. Prior to the Executive's retirement from Bell Atlantic, except to the extent specifically permitted by the Chief Executive Officer or the Board and except as set forth below, the Officer shall not, directly or indirectly, render any services of a - -------------------------------------------------------------------------------- Employment Agreement Page 2 business, commercial or professional nature to any other person or organization other than a Bell Atlantic Company or a venture in which a Bell Atlantic Company has a financial interest, whether or not the services are rendered for compensation. However, the Executive is not prohibited from serving on committees or boards of charitable, educational, civic or other nonprofit organizations, so long as such service does not interfere with his full-time responsibilities to Bell Atlantic. (d) The failure of the Executive to perform his obligations pursuant to paragraphs (a) through (c) above shall be excused when such failure is on account of the Executive's disability within the meaning of the applicable disability benefit plans in which the Executive participates from time to time. 5. Retirement. If the Executive is not elected Chief Executive Officer ---------- as of the Effective Date, the Executive hereby agrees, at any time after the last day of the Committed Employment Period, upon request of the then-current Chief Executive Officer or the Board, to retire from active service with Bell Atlantic, effective as of the date specified in the request. The parties acknowledge that Bell Atlantic shall have the right to cause the Executive to be retired and removed from active service as of any date after the last day of the Committed Employment Period. On the date of such retirement, as a condition of eligibility to receive the pension and severance benefits described in Sections 6 and 7 of this Agreement, the Executive shall sign and deliver the Release and shall not revoke his signature. 6. Retirement Pension Benefits. --------------------------- (a) Eligibility for Waiver of Early Retirement Pension Discount. If a ----------------------------------------------------------- person other than the Executive is elected Chief Executive Officer as of the Effective Date, and if the Executive thereafter completes the Committed Employment Period by remaining in active service with Bell Atlantic in accordance with the terms of this Agreement, the Executive shall at any time thereafter be entitled, subject to signing and delivering the Release, to retire with a two-year waiver of any applicable early retirement pension discount under the terms of the Bell Atlantic Senior Management Retirement Income Plan or any successor to that plan which applies to Senior Managers, as that plan may be amended from time to time ("RIP"), as more fully described in the following paragraph. The parties acknowledge that the pension enhancement described in this Section is part of the consideration given by Bell Atlantic in exchange for the Release and the non-compete and proprietary information covenants granted by the Executive under Sections 10 and 11 of this Agreement. (b) Calculation of Waiver of Early Retirement Pension Discount. If ---------------------------------------------------------- the Executive qualifies for the waiver of early retirement pension discount, as described in the previous paragraph, the Executive's target pension under RIP shall be equal to the greater of: (i) The target pension determined under the applicable pension formula under RIP which is in effect and applicable to the Executive at the time of the Executive's retirement, after adding two additional years to the Executive's age at the time of retirement for purposes of determining the amount of any applicable early retirement discount (but not for any other purpose under RIP); or - -------------------------------------------------------------------------------- Employment Agreement Page 3 (ii) The target pension which would have been applicable to the Executive if he had retired at any time during the Committed Employment Period, under the terms of any early retirement incentive, pension window, or other special provision of RIP which may then have been in effect but which is no longer in effect at the time of the Executive's actual retirement. In such a case, the calculation of the RIP enhanced benefit shall not be subject to further supplementation by the discount waiver provisions of the prior paragraph. 7. Further Consideration for Non-Compete Agreement: ----------------------------------------------- (a) If a person other than the Executive is elected Chief Executive Officer as of the Effective Date, and if the Executive thereafter completes the Committed Employment Period by remaining in active service with Bell Atlantic in accordance with the terms of this Agreement, then, subject to the Executive signing and delivering the Release, Bell Atlantic shall pay the Executive a cash severance payment, as described in the following paragraph, upon the Executive's retirement at any time thereafter. The parties acknowledge that the severance payment described in this Section is part of the consideration given by Bell Atlantic in exchange for the Release and the non-compete and proprietary information covenants granted by the Executive under Sections 10 and 11 of this Agreement. (b) The severance benefit described in the previous paragraph shall be equal to two times the sum of (i) the annualized amount of the Executive's then-current base salary, plus (ii) the greatest of (A) the value of the Executive's most recent award of cash and deferred stock under the Senior Management Short Term Incentive Plan or any successor to that plan (the "STIP"), or (B) 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, or (C) 150% of the target STIP award for the Executive's salary grade as of the date of retirement. This cash separation benefit shall be payable in one installment, not later than 30 days after the termination of employment date, subject to the Executive's continuing compliance with the terms of this Agreement. 8. Retirement or Discharge for Cause during Committed Employment Period. -------------------------------------------------------------------- (a) In the event that the Executive voluntarily resigns or retires for any reason (except a "constructive discharge", as defined in Section 9(c)), or is discharged by Bell Atlantic for "cause" (as hereinafter defined), prior to the end of the Committed Employment Period, the Executive shall forfeit any and all rights to receive the special supplementary pension benefits and the severance benefits set forth in Sections 6 and 7 of this Agreement, but shall otherwise be eligible to receive any and all compensation and benefits for which a similarly-situated retiring Senior Manager would be eligible under the applicable provisions of the compensation and benefit plans, as those plans may be amended from time to time. In such event, the Executive shall be subject to the terms of the covenant not to compete, as described in Section 10 of this Agreement, for a period which shall extend from the actual date of retirement through the second anniversary of the end of the Committed Employment Period. (b) For purposes of this Agreement, the term "cause" shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that Bell - -------------------------------------------------------------------------------- Employment Agreement Page 4 Atlantic 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 violation of Section 4(c) or 10 of this Agreement 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 in violation of Section 11 of this Agreement; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. 9. Certain Involuntary Terminations of Employment: ---------------------------------------------- (a) Consequences of Certain Involuntary Terminations. Except in the case ------------------------------------------------ of a discharge for cause, in the event that Bell Atlantic involuntarily discharges the Executive, or the Executive is "constructively discharged" (as hereinafter defined), prior to the end of the Committed Employment Period, then the Executive shall be entitled to receive, as liquidated damages, subject to signing and delivering the Release, an amount of cash equal to the compensation and benefits which he would have been entitled to receive had Bell Atlantic fulfilled its obligation to employ the Executive in accordance with the provisions of Section 3 of this Agreement, calculated and paid in accordance with paragraph (b) of this Section. In such a case, in addition to the liquidated damages described in the previous sentence, subject to signing and delivering the Release, the Executive shall be entitled to receive the benefits set forth in Sections 6 and 7 of this Agreement, but calculated as though the Executive had actually remained in active service with Bell Atlantic, earning the compensation described in Section 3 of this Agreement, until the end of the Committed Employment Period, with the payment of the cash separation benefit under Section 7 to be made within 30 days after the termination of employment date. Under the circumstances described in this paragraph, the Executive shall be subject to the non-compete covenants of this Agreement through the period ending on the second anniversary of the date of termination of the Executive's employment. (b) Calculation and Payment of Liquidated Damages. The liquidated damages --------------------------------------------- described in the first sentence of the previous paragraph shall consist of all five of the following items, but only the following items. All of the following items of liquidated damages shall be subject to applicable withholding taxes. Each payment contemplated by this subsection (b) shall be contingent upon the absence, as of the time of such payment, of any knowing and material violation by the Executive of any of the covenants contained in Sections 10 and 11. (i) Salary: The liquidated damages shall be paid monthly in cash, in an amount each month equal to the salary which would have been paid to the Executive under Section 3 of this Agreement, assuming salary adjustments annually at a percentage equal to the merit increase budget percentage for Bell Atlantic Senior Managers. (ii) Short-Term Incentives: The liquidated damages for foregone short-term incentives under STIP shall be paid annually in cash, not later than 30 days after the date on which incentives are awarded by Bell Atlantic under the STIP for the prior year's performance, in an amount equal to the value of the cash and deferred stock which the Executive would have been entitled to receive under the STIP, without adjustment for individual performance. - -------------------------------------------------------------------------------- Employment Agreement Page 5 (iii) Long-Term Incentives: The liquidated damages for foregone long- term incentives shall be paid annually in cash, within 30 days of the granting of stock options for the year, in an amount equal to the Black-Scholes value of options which the Executive would have been entitled to receive. (iv) RIP Pension Benefits: The RIP target pension will be recalculated after the completion of the Committed Employment Period taking into account the liquidated damages under paragraphs (i) and (ii) above as though they were earned as salary and short-term incentives during a period of employment ending on the last day of the Committed Employment Period, and (A) Bell Atlantic shall pay the Executive a true-up payment based on said recalculation if the Executive has elected a lump-sum payment of the benefit provided by Section 6(a), and (B) if the Executive has elected a pension in the form of an annuity, the Executive's RIP pension benefits thereafter shall be based on said recalculation. (v) Miscellaneous Benefits: The liquidated damages for all other foregone benefits shall be paid monthly in an amount equal to the sum of: (A) the BellFlex allowance that the Executive would have been entitled to receive, plus (B) one-twelfth of the annual maximum company matching contribution that the Executive would have been eligible to receive if the Executive made the maximum contributions to the Bell Atlantic Savings Plan then permitted by law. (c) Constructive Discharge: The Executive shall be deemed to have ---------------------- been "constructively discharged" for purposes of this Agreement, if, in the absence of conduct amounting to cause for discharge 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 electing to retire: (i) the Executive's status as a "Senior Manager" has been revoked; (ii) the Executive's base recurring salary has been reduced by more than 10%; (iii) 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 (iv) 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. Nothing in this Section 9(c) shall limit or qualify the obligations of Bell Atlantic under Section 3 of this Agreement, which are absolute. 10. 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 (or any longer period expressly provided under any applicable provision of this Agreement) 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, shall not: (i) personally engage in "Competitive Activities" (as defined in paragraph 10(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, - -------------------------------------------------------------------------------- Employment Agreement Page 6 had a board-approved business plan under which it planned to engage) in such 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 10(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 (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 10(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. Bell Atlantic shall send the Executive written notice ------ in the event that Bell Atlantic believes that the Executive has violated any of the prohibitions of this Section 10; provided, however, that any failure by Bell Atlantic 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 Bell Atlantic giving notice and taking action to enforce its rights under this Agreement at any later time. For a period of 15 days after the giving of such notice, the Executive shall have the opportunity to respond and discuss with Bell Atlantic the underlying facts and the basis for Bell Atlantic's belief that the Executive is in breach of this Section 10. During such 15-day period, Bell Atlantic shall not pursue any remedy provided by this Agreement or at law or in equity. (d) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of any of the prohibitions of this Section 10 or the rules against wrongful competitive activity by the Executive as defined under the RIP and the Bell Atlantic Performance Share Plan ("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. (e) Waiver: Nothing in this Agreement shall bar the Executive from ------ requesting, at the time of the Executive's retirement or at any time thereafter, that the then-current Chief Executive Officer waive Bell Atlantic's rights to enforce the non-compete covenants of this Section 10, and the Chief Executive Officer shall have the - -------------------------------------------------------------------------------- Employment Agreement Page 7 power to agree to such a waiver if the Chief Executive Officer determines that it is not inconsistent with the interests of Bell Atlantic to do so. 11. 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; 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 11(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 11, or other "misconduct" by the Executive (as that term is interpreted by the Human Resources Committee of the Board 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. - -------------------------------------------------------------------------------- Employment Agreement Page 8 12. 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 10 or 11 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 10 or 11, 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. 13. Miscellaneous Provisions. ------------------------ (a) Legal Release: Notwithstanding any provision of this Agreement, ------------- no liquidated damages or benefits under the terms of this Agreement shall be payable in connection with a separation from service by the Executive unless and until the Executive signs the Release in a form satisfactory to Bell Atlantic; 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 Bell Atlantic: Bell Atlantic may assign this --------------------------- Agreement without the Executive's consent to any company that acquires all or substantially all of the assets of Bell Atlantic, or into which or with which Bell Atlantic or the company which is then the Executive's employing company is merged or consolidated. If and when the Executive transfers employment to a Bell Atlantic Company other than Bell Atlantic, that employing company shall automatically be deemed to be a party to this Agreement in addition to Bell Atlantic. This Agreement may not be assigned by the Executive, and no person other than the Executive or his estate may assert the rights of the Executive under this Agreement. The right to receive further compensation or benefits of any kind under this Agreement shall be forfeited upon the death of the Executive, except as expressly provided to the contrary under the terms of any applicable compensation and benefit plan in which the Executive was a participant on the date of his death, and except that, in the event of the death of the Executive during the Committed Employment Period, the cash severance payment provided for by Section 7 of this Agreement shall become payable in full. (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 10, or the duration of any of the restrictions under this Agreement, are not enforceable, this Agreement shall hereby be deemed to be - -------------------------------------------------------------------------------- Employment Agreement Page 9 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: This Agreement supersedes the Non-Compete and ---------------- Proprietary Information Agreement, between Bell Atlantic and the Executive, dated January 24, 1994, and that Agreement is hereby cancelled. 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, Bell Atlantic 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 _____________________________________ Lawrence T. Babbio, Jr. - -------------------------------------------------------------------------------- Employment Agreement Page 10 EXHIBIT A RELEASE ------- THIS RELEASE (the "Release") is entered into by LAWRENCE T. BABBIO, JR. (the "Executive"), for the benefit of BELL ATLANTIC CORPORATION ("Bell Atlantic"), and all companies, and their officers, directors and employees, which are affiliated with Bell Atlantic (Bell Atlantic and said affiliated companies are sometimes referred to collectively herein as "Bell Atlantic Companies"). WHEREAS, the Executive has retired from his employing Bell Atlantic Company on ____________ (the "Retirement Date") pursuant to the terms of an Employment Agreement, dated _______________, 1995, between Bell Atlantic and the Executive (the "Agreement"), and he wishes to execute this Release as contemplated under the terms of the Agreement. NOW, THEREFORE, the Executive affirms as follows: 1. Except for any as-yet unfulfilled obligations of Bell Atlantic under the terms of the Agreement, or any benefits which the Executive is entitled to receive under the terms of the benefit plans in which he participates (as those plans may be amended from time to time), the Executive, as his free and voluntary act, hereby releases and discharges Bell Atlantic, its affiliates, and their successors and assigns, and the directors, officers, employees, and agents of each of them, of and from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in tort, contract, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), reimbursements or costs of any kind, including but not limited to, any and all claims, demands, rights and/or causes of action, including those which might arise out of allegations relating to a claimed breach of an alleged oral or written employment contract, or relating to purported employment discrimination or civil rights violations, such as, but not limited to, those arising under Title VII of the Civil Rights Act of 1964 (42 U.S.C. Section 2000e et seq.), the Civil Rights Acts of 1866 and 1871 (42 U.S.C. Sections 1981 and 1983), Executive Order 11246, as amended, the Age Discrimination in Employment Act of 1967, as amended (29 U.S.C. Section 621 et seq.), the Equal Pay Act of 1963 (29 U.S.C. Section 206(d)(1)), the Rehabilitation Act of 1973 (29 U.S.C. Sections 701-794), the Civil Rights Act of 1991, the Americans with Disabilities Act, or any other applicable federal, state or local employment discrimination statute or ordinance, which the Executive might have or assert against any of said entities or persons (a) by reason of the Executive's active employment by Bell Atlantic or any Bell Atlantic Company, or the termination of said employment and all circumstances related thereto; or (b) by reason of any other matter, cause or thing whatsoever which may have occurred prior to the date of execution of this Release. 2. No Litigation or Other Legal Action. Except for any as-yet unfulfilled ----------------------------------- obligations of Bell Atlantic under the terms of the Agreement, or any benefits which the Executive is entitled to receive under the terms of the benefit plans in which he participates (as those plans may be amended from time to time), the Executive promises not to initiate a lawsuit or to bring a claim against Bell Atlantic or any Bell Atlantic Company or their successors or assigns, or the directors, officers, employees, or agents of any of them, in any court, government agency, or otherwise, relating to the Executive's employment, the termination of said employment, or - -------------------------------------------------------------------------------- Release Page 1 other events, including, but not limited to, any claim under any federal, state or local statute, ordinance, or rule of law. The Executive waives any remedy or recovery in any action which may be brought on the Executive's behalf by any government agency or other person. 3. The Executive hereby reaffirms the terms and conditions of the Agreement in all respects. 4. Should any provision of this Release be declared or be determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby, and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release. STATEMENT BY THE EXECUTIVE WHO IS SIGNING BELOW: BELL ATLANTIC HAS ADVISED ----------------------------------------------- ME IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. I HAVE CAREFULLY READ AND FULLY UNDERSTAND THE PROVISIONS OF THIS RELEASE AND HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (OVER A PERIOD OF SUBSTANTIALLY MORE THAN 21 DAYS) TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS PRIOR TO EXECUTING THIS DOCUMENT, AND I INTEND TO BE LEGALLY BOUND BY ITS TERMS. I UNDERSTAND THAT I MAY REVOKE THIS RELEASE WITHIN SEVEN (7) DAYS FOLLOWING MY SIGNING, AND THIS RELEASE WILL NOT BECOME ENFORCEABLE OR EFFECTIVE UNTIL THAT SEVEN-DAY PERIOD HAS EXPIRED. THE UNDERSIGNED, intending to be legally bound, has executed this Release as of the _____ day of __________, 19___, that being the Executive's Retirement Date. THE EXECUTIVE Witness:____________________ Signed:__________________________________ THIS IS A RELEASE READ CAREFULLY BEFORE SIGNING - -------------------------------------------------------------------------------- Release Page 2 EX-10.P 9 JAMES G. CULLEN EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made this 2nd day of May, 1995, by and between Bell Atlantic Corporation ("Bell Atlantic") and James G. Cullen (the "Executive"). WHEREAS, Bell Atlantic seeks to retain the services of the Executive and to provide for an efficient transition upon any change in the Chief Executive Officer of Bell Atlantic; WHEREAS, the Executive is willing to remain in the employ of Bell Atlantic upon the following terms and conditions; and WHEREAS, Bell Atlantic and the Executive wish to set forth their agreement as to the terms and conditions upon which the Executive's employment will continue. NOW, THEREFORE, for good and valuable consideration, including the compensation and benefits recited below, the Executive and Bell Atlantic hereby agree as follows: 1. Definitions: ----------- (a) Effective Date shall mean the announced effective date of the -------------- election of any individual to succeed the person who, on the date of this Agreement, is the incumbent Chief Executive Officer of Bell Atlantic. (b) Bell Atlantic Companies shall mean Bell Atlantic and each ----------------------- corporate subsidiary and other affiliated company in which Bell Atlantic directly or indirectly owns a fifty percent or greater interest. (c) Board shall mean the board of directors of Bell Atlantic. ----- (d) Chief Executive Officer shall mean the Chief Executive ----------------------- Officer of Bell Atlantic, as elected and serving from time to time. (e) Committed Employment Period shall mean the period commencing --------------------------- on the date of this Agreement and continuing until the earlier of the second anniversary of the Effective Date or July 1, 1998. (f) Release shall mean a legal release in the form attached to ------- this Agreement as Exhibit A, which shall be signed by the Executive at the time of his retirement from Bell Atlantic as a condition of receiving any and all pension and severance benefits provided under the terms of this Agreement. 2. Termination of this Agreement: In the event that the Executive ----------------------------- is elected Chief Executive Officer as of the Effective Date, this Agreement shall then terminate and shall be of no further force or effect. 3. Bell Atlantic Obligations during the Committed Employment Period: ---------------------------------------------------------------- During the Committed Employment Period: - -------------------------------------------------------------------------------- Employment Agreement Page 1 (a) Bell Atlantic shall continue to employ the Executive as a Bell Atlantic officer with the title of Vice Chairman, with duties of a type and level appropriate to such a title; (b) Bell Atlantic shall compensate the Executive at a Salary Grade not less than 37, and, to the extent not otherwise modified by the terms of this Agreement, the Executive shall be eligible to participate in all of the benefit and compensation plans, and the programs of perquisites, applicable to similarly-situated Senior Managers of Bell Atlantic, as those plans and programs may be amended from time to time; (c) The Board shall nominate the Executive for election as a director at each annual meeting of shareowners of Bell Atlantic which occurs during the Committed Employment Period; and (d) In the event that the Executive does not become Chief Executive Officer on the Effective Date, Bell Atlantic shall, as of the Effective Date, promote the Executive to Salary Grade 38, and shall for the remainder of the Committed Employment Period deliver compensation, benefits and perquisites to the Executive commensurate with that Salary Grade, including, without limitation, annual base salary increases not less than one-third of the amount by which the mid-point of Salary Grade 38 exceeds the Executive's initial salary upon promotion to that Salary Grade. (e) In the event that Lawrence T. Babbio, Jr. is elected Chief Executive Officer as of the Effective Date, the Executive will be elected Vice Chairman and Chief Operating Officer of Bell Atlantic effective as of the Effective Date, and Bell Atlantic shall retain the Executive in that position, with duties commensurate with that title, through the end of the Committed Employment Period. 4. Obligations of the Executive during the Committed Employment Period: ------------------------------------------------------------------- During the Committed Employment Period, the Executive shall have the following obligations and duties. (a) The Executive shall continue to fully and faithfully perform his duties and responsibilities (i) as a director, so long as he is elected and serving, and (ii) as an officer, reporting only to the Chief Executive Officer and the Board. (b) The Executive shall serve in such executive capacities, titles and authorities with respect to the Bell Atlantic Companies as the Board or the CEO may from time to time prescribe, and the Executive shall perform all duties incidental to such positions, shall cooperate fully with the Board and the CEO, and shall work cooperatively with the other officers of the Bell Atlantic Companies. (c) The Executive shall continue to diligently devote his entire business skill, time and effort to the affairs of the Bell Atlantic Companies in accordance with the duties assigned to him that are not inconsistent with the terms hereof, and shall perform all such duties, and otherwise conduct himself, in a manner reasonably calculated in good faith by him to promote the best interests of the Bell Atlantic Companies. Prior to the Executive's retirement from Bell Atlantic, except to the extent specifically permitted by the Chief Executive Officer or the Board and except as set forth below, the Officer shall not, directly or indirectly, render any services of a - -------------------------------------------------------------------------------- Employment Agreement Page 2 business, commercial or professional nature to any other person or organization other than a Bell Atlantic Company or a venture in which a Bell Atlantic Company has a financial interest, whether or not the services are rendered for compensation. However, the Executive is not prohibited from serving on committees or boards of charitable, educational, civic or other nonprofit organizations, so long as such service does not interfere with his full-time responsibilities to Bell Atlantic. (d) The failure of the Executive to perform his obligations pursuant to paragraphs (a) through (c) above shall be excused when such failure is on account of the Executive's disability within the meaning of the applicable disability benefit plans in which the Executive participates from time to time. 5. Retirement. If the Executive is not elected Chief Executive Officer ---------- as of the Effective Date, the Executive hereby agrees, at any time after the last day of the Committed Employment Period, upon request of the then-current Chief Executive Officer or the Board, to retire from active service with Bell Atlantic, effective as of the date specified in the request. The parties acknowledge that Bell Atlantic shall have the right to cause the Executive to be retired and removed from active service as of any date after the last day of the Committed Employment Period. On the date of such retirement, as a condition of eligibility to receive the pension and severance benefits described in Sections 6 and 7 of this Agreement, the Executive shall sign and deliver the Release and shall not revoke his signature. 6. Retirement Pension Benefits. --------------------------- (a) Eligibility for Waiver of Early Retirement Pension Discount. If a ----------------------------------------------------------- person other than the Executive is elected Chief Executive Officer as of the Effective Date, and if the Executive thereafter completes the Committed Employment Period by remaining in active service with Bell Atlantic in accordance with the terms of this Agreement, the Executive shall at any time thereafter be entitled, subject to signing and delivering the Release, to retire with a two-year waiver of any applicable early retirement pension discount under the terms of the Bell Atlantic Senior Management Retirement Income Plan or any successor to that plan which applies to Senior Managers, as that plan may be amended from time to time ("RIP"), as more fully described in the following paragraph. The parties acknowledge that the pension enhancement described in this Section is part of the consideration given by Bell Atlantic in exchange for the Release and the non-compete and proprietary information covenants granted by the Executive under Sections 10 and 11 of this Agreement. (b) Calculation of Waiver of Early Retirement Pension Discount. If ---------------------------------------------------------- the Executive qualifies for the waiver of early retirement pension discount, as described in the previous paragraph, the Executive's target pension under RIP shall be equal to the greater of: (i) The target pension determined under the applicable pension formula under RIP which is in effect and applicable to the Executive at the time of the Executive's retirement, after adding two additional years to the Executive's age at the time of retirement for purposes of determining the amount of any applicable early retirement discount (but not for any other purpose under RIP); or - -------------------------------------------------------------------------------- Employment Agreement Page 3 (ii) The target pension which would have been applicable to the Executive if he had retired at any time during the Committed Employment Period, under the terms of any early retirement incentive, pension window, or other special provision of RIP which may then have been in effect but which is no longer in effect at the time of the Executive's actual retirement. In such a case, the calculation of the RIP enhanced benefit shall not be subject to further supplementation by the discount waiver provisions of the prior paragraph. 7. Further Consideration for Non-Compete Agreement: ----------------------------------------------- (a) If a person other than the Executive is elected Chief Executive Officer as of the Effective Date, and if the Executive thereafter completes the Committed Employment Period by remaining in active service with Bell Atlantic in accordance with the terms of this Agreement, then, subject to the Executive signing and delivering the Release, Bell Atlantic shall pay the Executive a cash severance payment, as described in the following paragraph, upon the Executive's retirement at any time thereafter. The parties acknowledge that the severance payment described in this Section is part of the consideration given by Bell Atlantic in exchange for the Release and the non-compete and proprietary information covenants granted by the Executive under Sections 10 and 11 of this Agreement. (b) The severance benefit described in the previous paragraph shall be equal to two times the sum of (i) the annualized amount of the Executive's then-current base salary, plus (ii) the greatest of (A) the value of the Executive's most recent award of cash and deferred stock under the Senior Management Short Term Incentive Plan or any successor to that plan (the "STIP"), or (B) 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, or (C) 150% of the target STIP award for the Executive's salary grade as of the date of retirement. This cash separation benefit shall be payable in one installment, not later than 30 days after the termination of employment date, subject to the Executive's continuing compliance with the terms of this Agreement. 8. Retirement or Discharge for Cause during Committed Employment Period. -------------------------------------------------------------------- (a) In the event that the Executive voluntarily resigns or retires for any reason (except a "constructive discharge", as defined in Section 9(c)), or is discharged by Bell Atlantic for "cause" (as hereinafter defined), prior to the end of the Committed Employment Period, the Executive shall forfeit any and all rights to receive the special supplementary pension benefits and the severance benefits set forth in Sections 6 and 7 of this Agreement, but shall otherwise be eligible to receive any and all compensation and benefits for which a similarly-situated retiring Senior Manager would be eligible under the applicable provisions of the compensation and benefit plans, as those plans may be amended from time to time. In such event, the Executive shall be subject to the terms of the covenant not to compete, as described in Section 10 of this Agreement, for a period which shall extend from the actual date of retirement through the second anniversary of the end of the Committed Employment Period. (b) For purposes of this Agreement, the term "cause" shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that Bell - -------------------------------------------------------------------------------- Employment Agreement Page 4 Atlantic 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 violation of Section 4(c) or 10 of this Agreement 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 in violation of Section 11 of this Agreement; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. 9. Certain Involuntary Terminations of Employment: ---------------------------------------------- (a) Consequences of Certain Involuntary Terminations. Except in the case ------------------------------------------------ of a discharge for cause, in the event that Bell Atlantic involuntarily discharges the Executive, or the Executive is "constructively discharged" (as hereinafter defined), prior to the end of the Committed Employment Period, then the Executive shall be entitled to receive, as liquidated damages, subject to signing and delivering the Release, an amount of cash equal to the compensation and benefits which he would have been entitled to receive had Bell Atlantic fulfilled its obligation to employ the Executive in accordance with the provisions of Section 3 of this Agreement, calculated and paid in accordance with paragraph (b) of this Section. In such a case, in addition to the liquidated damages described in the previous sentence, subject to signing and delivering the Release, the Executive shall be entitled to receive the benefits set forth in Sections 6 and 7 of this Agreement, but calculated as though the Executive had actually remained in active service with Bell Atlantic, earning the compensation described in Section 3 of this Agreement, until the end of the Committed Employment Period, with the payment of the cash separation benefit under Section 7 to be made within 30 days after the termination of employment date. Under the circumstances described in this paragraph, the Executive shall be subject to the non-compete covenants of this Agreement through the period ending on the second anniversary of the date of termination of the Executive's employment. (b) Calculation and Payment of Liquidated Damages. The liquidated damages --------------------------------------------- described in the first sentence of the previous paragraph shall consist of all five of the following items, but only the following items. All of the following items of liquidated damages shall be subject to applicable withholding taxes. Each payment contemplated by this subsection (b) shall be contingent upon the absence, as of the time of such payment, of any knowing and material violation by the Executive of any of the covenants contained in Sections 10 and 11. (i) Salary: The liquidated damages shall be paid monthly in cash, in an amount each month equal to the salary which would have been paid to the Executive under Section 3 of this Agreement, assuming salary adjustments annually at a percentage equal to the merit increase budget percentage for Bell Atlantic Senior Managers. (ii) Short-Term Incentives: The liquidated damages for foregone short- term incentives under STIP shall be paid annually in cash, not later than 30 days after the date on which incentives are awarded by Bell Atlantic under the STIP for the prior year's performance, in an amount equal to the value of the cash and deferred stock which the Executive would have been entitled to receive under the STIP, without adjustment for individual performance. - -------------------------------------------------------------------------------- Employment Agreement Page 5 (iii) Long-Term Incentives: The liquidated damages for foregone long- term incentives shall be paid annually in cash, within 30 days of the granting of stock options for the year, in an amount equal to the Black-Scholes value of options which the Executive would have been entitled to receive. (iv) RIP Pension Benefits: The RIP target pension will be recalculated after the completion of the Committed Employment Period taking into account the liquidated damages under paragraphs (i) and (ii) above as though they were earned as salary and short-term incentives during a period of employment ending on the last day of the Committed Employment Period, and (A) Bell Atlantic shall pay the Executive a true-up payment based on said recalculation if the Executive has elected a lump-sum payment of the benefit provided by Section 6(a), and (B) if the Executive has elected a pension in the form of an annuity, the Executive's RIP pension benefits thereafter shall be based on said recalculation. (v) Miscellaneous Benefits: The liquidated damages for all other foregone benefits shall be paid monthly in an amount equal to the sum of: (A) the BellFlex allowance that the Executive would have been entitled to receive, plus (B) one-twelfth of the annual maximum company matching contribution that the Executive would have been eligible to receive if the Executive made the maximum contributions to the Bell Atlantic Savings Plan then permitted by law. (c) Constructive Discharge: The Executive shall be deemed to have ---------------------- been "constructively discharged" for purposes of this Agreement, if, in the absence of conduct amounting to cause for discharge 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 electing to retire: (i) the Executive's status as a "Senior Manager" has been revoked; (ii) the Executive's base recurring salary has been reduced by more than 10%; (iii) 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 (iv) 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. Nothing in this Section 9(c) shall limit or qualify the obligations of Bell Atlantic under Section 3 of this Agreement, which are absolute. 10. 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 (or any longer period expressly provided under any applicable provision of this Agreement) 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, shall not: (i) personally engage in "Competitive Activities" (as defined in paragraph 10(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, - -------------------------------------------------------------------------------- Employment Agreement Page 6 had a board-approved business plan under which it planned to engage) in such 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 10(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 (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 10(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. Bell Atlantic shall send the Executive written notice ------ in the event that Bell Atlantic believes that the Executive has violated any of the prohibitions of this Section 10; provided, however, that any failure by Bell Atlantic 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 Bell Atlantic giving notice and taking action to enforce its rights under this Agreement at any later time. For a period of 15 days after the giving of such notice, the Executive shall have the opportunity to respond and discuss with Bell Atlantic the underlying facts and the basis for Bell Atlantic's belief that the Executive is in breach of this Section 10. During such 15-day period, Bell Atlantic shall not pursue any remedy provided by this Agreement or at law or in equity. (d) Forfeiture of Benefits. The Executive acknowledges that the ---------------------- Executive's violation of any of the prohibitions of this Section 10 or the rules against wrongful competitive activity by the Executive as defined under the RIP and the Bell Atlantic Performance Share Plan ("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. (e) Waiver: Nothing in this Agreement shall bar the Executive from ------ requesting, at the time of the Executive's retirement or at any time thereafter, that the then-current Chief Executive Officer waive Bell Atlantic's rights to enforce the non-compete covenants of this Section 10, and the Chief Executive Officer shall have the - -------------------------------------------------------------------------------- Employment Agreement Page 7 power to agree to such a waiver if the Chief Executive Officer determines that it is not inconsistent with the interests of Bell Atlantic to do so. 11. 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; 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 11(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 11, or other "misconduct" by the Executive (as that term is interpreted by the Human Resources Committee of the Board 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. - -------------------------------------------------------------------------------- Employment Agreement Page 8 12. 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 10 or 11 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 10 or 11, 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. 13. Miscellaneous Provisions. ------------------------ (a) Legal Release: Notwithstanding any provision of this Agreement, ------------- no liquidated damages or benefits under the terms of this Agreement shall be payable in connection with a separation from service by the Executive unless and until the Executive signs the Release in a form satisfactory to Bell Atlantic; 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 Bell Atlantic: Bell Atlantic may assign this --------------------------- Agreement without the Executive's consent to any company that acquires all or substantially all of the assets of Bell Atlantic, or into which or with which Bell Atlantic or the company which is then the Executive's employing company is merged or consolidated. If and when the Executive transfers employment to a Bell Atlantic Company other than Bell Atlantic, that employing company shall automatically be deemed to be a party to this Agreement in addition to Bell Atlantic. This Agreement may not be assigned by the Executive, and no person other than the Executive or his estate may assert the rights of the Executive under this Agreement. The right to receive further compensation or benefits of any kind under this Agreement shall be forfeited upon the death of the Executive, except as expressly provided to the contrary under the terms of any applicable compensation and benefit plan in which the Executive was a participant on the date of his death, and except that, in the event of the death of the Executive during the Committed Employment Period, the cash severance payment provided for by Section 7 of this Agreement shall become payable in full. (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 10, or the duration of any of the restrictions under this Agreement, are not enforceable, this Agreement shall hereby be deemed to be - -------------------------------------------------------------------------------- Employment Agreement Page 9 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: This Agreement supersedes the Non-Compete and ---------------- Proprietary Information Agreements, between Bell Atlantic and the Executive, dated August 10, 1993 and January 24, 1994, and each of those Agreements is hereby cancelled. 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, Bell Atlantic 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 - -------------------------------------------------------------------------------- Employment Agreement Page 10 EXHIBIT A RELEASE ------- THIS RELEASE (the "Release") is entered into by JAMES G. CULLEN (the "Executive"), for the benefit of BELL ATLANTIC CORPORATION ("Bell Atlantic"), and all companies, and their officers, directors and employees, which are affiliated with Bell Atlantic (Bell Atlantic and said affiliated companies are sometimes referred to collectively herein as "Bell Atlantic Companies"). WHEREAS, the Executive has retired from his employing Bell Atlantic Company on ____________ (the "Retirement Date") pursuant to the terms of an Employment Agreement, dated _______________, 1995, between Bell Atlantic and the Executive (the "Agreement"), and he wishes to execute this Release as contemplated under the terms of the Agreement. NOW, THEREFORE, the Executive affirms as follows: 1. Except for any as-yet unfulfilled obligations of Bell Atlantic under the terms of the Agreement, or any benefits which the Executive is entitled to receive under the terms of the benefit plans in which he participates (as those plans may be amended from time to time), the Executive, as his free and voluntary act, hereby releases and discharges Bell Atlantic, its affiliates, and their successors and assigns, and the directors, officers, employees, and agents of each of them, of and from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in tort, contract, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), reimbursements or costs of any kind, including but not limited to, any and all claims, demands, rights and/or causes of action, including those which might arise out of allegations relating to a claimed breach of an alleged oral or written employment contract, or relating to purported employment discrimination or civil rights violations, such as, but not limited to, those arising under Title VII of the Civil Rights Act of 1964 (42 U.S.C. Section 2000e et seq.), the Civil Rights Acts of 1866 and 1871 (42 U.S.C. Sections 1981 and 1983), Executive Order 11246, as amended, the Age Discrimination in Employment Act of 1967, as amended (29 U.S.C. Section 621 et seq.), the Equal Pay Act of 1963 (29 U.S.C. Section 206(d)(1)), the Rehabilitation Act of 1973 (29 U.S.C. Sections 701-794), the Civil Rights Act of 1991, the Americans with Disabilities Act, or any other applicable federal, state or local employment discrimination statute or ordinance, which the Executive might have or assert against any of said entities or persons (a) by reason of the Executive's active employment by Bell Atlantic or any Bell Atlantic Company, or the termination of said employment and all circumstances related thereto; or (b) by reason of any other matter, cause or thing whatsoever which may have occurred prior to the date of execution of this Release. 2. No Litigation or Other Legal Action. Except for any as-yet ----------------------------------- unfulfilled obligations of Bell Atlantic under the terms of the Agreement, or any benefits which the Executive is entitled to receive under the terms of the benefit plans in which he participates (as those plans may be amended from time to time), the Executive promises not to initiate a lawsuit or to bring a claim against Bell Atlantic or any Bell Atlantic Company or their successors or assigns, or the directors, officers, employees, or agents of any of them, in any court, government agency, or otherwise, relating to the Executive's employment, the termination of said employment, or - -------------------------------------------------------------------------------- Release Page 1 other events, including, but not limited to, any claim under any federal, state or local statute, ordinance, or rule of law. The Executive waives any remedy or recovery in any action which may be brought on the Executive's behalf by any government agency or other person. 3. The Executive hereby reaffirms the terms and conditions of the Agreement in all respects. 4. Should any provision of this Release be declared or be determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby, and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release. STATEMENT BY THE EXECUTIVE WHO IS SIGNING BELOW: BELL ATLANTIC HAS ----------------------------------------------- ADVISED ME IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. I HAVE CAREFULLY READ AND FULLY UNDERSTAND THE PROVISIONS OF THIS RELEASE AND HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (OVER A PERIOD OF SUBSTANTIALLY MORE THAN 21 DAYS) TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS PRIOR TO EXECUTING THIS DOCUMENT, AND I INTEND TO BE LEGALLY BOUND BY ITS TERMS. I UNDERSTAND THAT I MAY REVOKE THIS RELEASE WITHIN SEVEN (7) DAYS FOLLOWING MY SIGNING, AND THIS RELEASE WILL NOT BECOME ENFORCEABLE OR EFFECTIVE UNTIL THAT SEVEN-DAY PERIOD HAS EXPIRED. THE UNDERSIGNED, intending to be legally bound, has executed this Release as of the _____ day of __________, 19___, that being the Executive's Retirement Date. THE EXECUTIVE Witness: Signed: ----------------------- ------------------------------------- James G. Cullen THIS IS A RELEASE READ CAREFULLY BEFORE SIGNING - -------------------------------------------------------------------------------- Release Page 2 EX-11 10 COMPUTATION OF PER COMON SHARE EARNINGS EXHIBIT 11 FILE NO. 1-8606 BELL ATLANTIC CORPORATION AND SUBSIDIARIES COMPUTATION OF PER COMMON SHARE EARNINGS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- Income before extraordinary items and cumulative effect of changes in accounting principles.............. $ 1,861.8 $ 1,401.9 $ 1,481.6 Extraordinary items......................................... (3.5) (2,156.7) (58.4) Cumulative effect of changes in accounting principles....... -- -- (19.8) ------------ ------------ ------------ Net income (loss)........................................... $ 1,858.3 $ (754.8) $ 1,403.4 ============ ============ ============ EARNINGS (LOSS) PER COMMON SHARE Weighted average shares outstanding......................... 436,760,686 436,283,155 435,136,371 Incremental shares from assumed exercise of stock options and payment of performance share award.................. 1,584,328 952,652 1,170,838 ------------ ------------ ------------ Total shares................................................ 438,345,014 437,235,807 436,307,209 ============ ============ ============ Income before extraordinary items and cumulative effect of changes in accounting principles........................ $ 4.25 $ 3.21 $ 3.39 Extraordinary items......................................... (.01) (4.94) (.13) Cumulative effect of changes in accounting principles....... -- -- (.04) ------------ ------------ ------------ Net income (loss)........................................... $ 4.24 $ (1.73) $ 3.22 ============ ============ ============ FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE* Weighted average shares outstanding......................... 436,760,686 436,283,155 435,136,371 Incremental shares from assumed exercise of stock options and payment of performance share awards................. 1,815,245 1,007,218 1,298,288 ------------ ------------ ------------ Total shares................................................ 438,575,931 437,290,373 436,434,659 ============ ============ ============ Income before extraordinary items and cumulative effect of changes in accounting principles........................ $ 4.25 $ 3.21 $ 3.39 Extraordinary items......................................... (.01) (4.94) (.13) Cumulative effect of changes in accounting principles....... -- -- (.04) ------------ ------------ ------------ Net income (loss)........................................... $ 4.24 $ (1.73) $ 3.22 ============ ============ ============
________ *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 11 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 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, ------------------------------------------------------ 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Income before provision for income taxes, extraordinary items, and cumulative effect of changes in accounting principles......................................... $3,009.4 $2,286.8 $2,273.6 $2,025.7 $1,894.7 Equity in income of less than majority-owned subsidiaries...... (152.5) (41.1) (48.3) (52.4) (79.5) Dividends from less than majority-owned subsidiaries........... 146.0 101.0 73.4 48.3 64.6 Interest expense, including interest on capital lease obligations................................................. 571.1 624.6 719.6 828.7 1,000.8 Portion of rent expense representative of the interest factor.. 90.9 95.2 102.6 98.6 99.4 -------- -------- -------- -------- -------- Income, as adjusted............................................ $3,664.9 $3,066.5 $3,120.9 $2,948.9 $2,980.0 ======== ======== ======== ======== ======== Fixed charges: Interest expense, including interest on capital lease obligations.................................................. $ 571.1 $ 624.6 $ 719.6 $ 828.7 $1,000.8 Portion of rent expense representative of the interest factor.. 90.9 95.2 102.6 98.6 99.4 Capitalized interest........................................... 64.4 19.1 1.1 3.2 6.4 Preferred stock dividend requirement........................... 9.9 5.7 -- -- -- -------- -------- -------- -------- -------- Fixed charges.................................................. $ 736.3 $ 744.6 $ 823.3 $ 930.5 $1,106.6 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges............................. 4.98 4.12 3.79 3.17 2.69 ======== ======== ======== ======== ========
EX-13 12 SELECTED FINANCIAL AND OPERATING DATA EXHIBIT 13 - -------------------------------------------------------------------------------- Selected Financial and Operating Data - --------------------------------------------------------------------------------
(Dollars in Millions, Except Per Share Amounts) ---------------------------------------------------------------------------- 1995/(a)/ 1994/(b)/ 1993/(c)/ 1992 1991/(d)/ ---------------------------------------------------------------------------- FOR THE YEAR Operating Revenues $13,429.5 $13,791.4 $13,145.6 $12,836.0 $12,659.7 Operating Income $ 3,086.2 $ 2,804.6 $ 2,797.6 $ 2,506.2 $ 2,525.3 Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $ 1,861.8 $ 1,401.9 $ 1,481.6 $ 1,382.2 $ 1,229.9 Net Income (Loss) $ 1,858.3 $ (754.8) $ 1,403.4 $ 1,340.6 $ (324.4) PER COMMON SHARE Income Before Extraordinary Items and Cumulative Effect of Changes in Accounting Principles $ 4.25 $ 3.21 $ 3.39 $ 3.23 $ 2.91 Net Income (Loss) $ 4.24 $ (1.73) $ 3.22 $ 3.13 $ (.72) Cash Dividends Declared $ 2.80 $ 2.76 $ 2.68 $ 2.60 $ 2.52 AT YEAR END Total Assets $24,156.8 $24,271.8 $29,544.2 $28,099.5 $28,305.8 Long-Term Debt $ 6,407.2 $ 6,805.7 $ 7,206.2 $ 7,348.2 $ 7,984.0 Employee Benefit Obligations $ 3,841.3 $ 3,773.8 $ 3,396.0 $ 3,058.7 $ 2,985.1 Preferred Stock of Subsidiary $ 145.0 $ 85.0 - - - Shareowners' Investment $ 6,683.6 $ 6,081.3 $ 8,224.4 $ 7,816.3 $ 7,367.6 Debt Ratio 55.5% 59.4% 54.6% 56.3% 59.5% Book Value Per Common Share $ 15.27 $ 13.94 $ 18.85 $ 18.00 $ 17.12 Network Access Lines (in thousands) 19,820 19,168 18,645 18,181 17,750 Number of Employees 61,800 72,300 73,600 71,400 76,900 OTHER DATA Return on Average Common Equity 28.6% (9.8)% 17.3% 17.4% (4.4)% Additions to Plant, Property and Equipment $ 2,641.8 $ 2,699.0 $ 2,519.0 $ 2,546.8 $ 2,644.1
/(a)/ On July 1, 1995, the company contributed its domestic cellular and paging businesses to a partnership, and accounts for its share of the partnership's results under the equity method. /(b)/ 1994 includes an extraordinary charge for the discontinuation of regulatory accounting principles at the telephone subsidiaries. /(c)/ 1993 includes the adoption of changes in accounting for income taxes and postemployment benefits. /(d)/ 1991 includes the adoption of a change in accounting for postretirement benefits other than pensions. 4 - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Results of Operations and Financial Condition - -------------------------------------------------------------------------------- OVERVIEW Bell Atlantic Corporation (Bell Atlantic or the Company) is a diversified telecommunications company. Bell Atlantic's network operations subsidiaries provide voice and data transport and calling services, network access, directory publishing and public telephone services to customers in the mid-Atlantic region. Other network-related subsidiaries principally provide systems integration services, customer premises equipment distribution and video services. The Company's network operations subsidiaries comprise seven operating telephone companies and a subsidiary that performs centralized services on their behalf. The operating telephone companies are public utilities subject to regulation by each of the state jurisdictions in which they operate and by the Federal Communications Commission. Through several joint ventures, the Company provides wireless communications services in the United States and has invested in wireless businesses in Mexico, Italy, Slovakia, and the Czech Republic. The Company also has an investment in Telecom Corporation of New Zealand Limited, which provides a full range of telecommunications services. Effective July 1, 1995, Bell Atlantic and NYNEX Corporation (NYNEX) combined substantially all of their domestic cellular and paging businesses and formed Bell Atlantic NYNEX Mobile, a partnership which owns such businesses in the Northeast, mid-Atlantic, Southeast and Southwest portions of the United States (see Note 2 to the Consolidated Financial Statements). In 1994, Bell Atlantic and NYNEX formed two partnerships with U S WEST, Inc. and AirTouch Communications to provide nationwide personal communications services (PCS). The first partnership (PCS PrimeCo) acquired licenses for approximately $1.1 billion which will allow PCS PrimeCo to provide PCS services in 11 major markets across the United States. The second partnership was formed to develop a national branding and marketing strategy and wireless communications service standards. Bell Atlantic also formed two partnerships with NYNEX and Pacific Telesis Group to provide multimedia services. TELE-TV Media, L.P. will license, acquire and develop entertainment and information services. TELE-TV Systems, L.P. will provide the systems necessary to deliver these services over the partners' networks. RESULTS OF OPERATIONS Bell Atlantic reported income before extraordinary items and cumulative effect of changes in accounting principles of $1,861.8 million, $1,401.9 million and $1,481.6 million in 1995, 1994 and 1993, respectively. Earnings per share before extraordinary items and cumulative effect of changes in accounting principles for those years were $4.25, $3.21 and $3.39, respectively. Results for 1995 included a pretax gain of approximately $314 million ($200 million after-tax) as a result of the sale of certain cellular properties in Massachusetts and Rhode Island in connection with the formation of the Bell Atlantic NYNEX Mobile partnership. In 1994, the Company recorded a pretax charge of $161.9 million ($99.5 million after-tax), in accordance with Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement No. 112), to recognize benefit costs for the separation of employees who are entitled to benefits under preexisting separation pay plans. Results for 1994 also included a non-cash, after-tax extraordinary charge of $2,150.0 million in connection with the Company's decision to discontinue application of regulatory accounting principles required by Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (see Note 4 to the Consolidated Financial Statements). In 1993, the Company recorded a net after-tax charge of $19.8 million for the cumulative effect of adopting new financial accounting standards related to income taxes and postemployment benefits. Results for the three years included extraordinary charges for the early extinguishment of debt, net of tax, of $3.5 million, $6.7 million and $58.4 million for 1995, 1994 and 1993, respectively. FORMATION OF THE BELL ATLANTIC NYNEX MOBILE PARTNERSHIP As a result of the formation of the Bell Atlantic NYNEX Mobile partnership, the Company discontinued consolidation of the domestic cellular and paging operations contributed to the partnership. The Company's investment in the partnership is accounted for under the equity method. Under this method, the Company's proportionate share of the partnership's pretax income is included in Equity in Income of Affiliates. The Consolidated Statements of Operations continue to reflect the results of Bell Atlantic's domestic cellular and paging businesses on a consolidated basis for all periods prior to July 1, 1995. Revenues and expenses of the Company's domestic cellular and paging businesses reflected in the financial statements for periods prior to the formation of the partnership are provided in Note 2 to the Consolidated Financial Statements. To facilitate the comparison of financial results for purposes of the Management's Discussion and Analysis, the net revenues and expenses of the Company's domestic cellular and paging operations prior to July 1, 1995 are classified in the Statements of Operations below as a component of Equity in Income of Affiliates. 11 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS with Domestic Cellular and Paging Results of Operations prior to July 1, 1995 presented as though accounted for under the equity method
(Dollars in Millions) ------------------------------------------------- For the Years Ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES Transport Services Local service $ 4,423.6 $ 4,333.2 $ 4,204.6 Network access 3,394.7 3,237.6 3,070.9 Toll service 1,435.1 1,555.5 1,558.0 Ancillary Services Directory publishing 1,107.7 1,084.2 1,053.4 Other 557.4 481.0 385.0 Value-added Services 1,393.2 1,284.4 1,193.6 Other Services 515.9 800.6 929.1 ----------- ----------- ----------- 12,827.6 12,776.5 12,394.6 ----------- ----------- ----------- OPERATING EXPENSES Employee costs, including benefits and taxes 3,932.8 4,174.7 3,906.2 Depreciation and amortization 2,548.5 2,516.1 2,437.6 Other 3,358.0 3,396.8 3,299.7 ----------- ----------- ----------- 9,839.3 10,087.6 9,643.5 ----------- ----------- ----------- OPERATING INCOME 2,988.3 2,688.9 2,751.1 Equity in Income of Affiliates 236.4 128.9 70.8 Other Income and Expense, Net 331.8 36.3 52.5 Interest Expense 547.1 567.3 600.8 ----------- ----------- ----------- Income Before Provision for Income Taxes, Extraordinary Items, and Cumulative Effect of Changes in Accounting Principles 3,009.4 2,286.8 2,273.6 Provision for Income Taxes 1,147.6 884.9 792.0 ----------- ----------- ----------- INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 1,861.8 1,401.9 1,481.6 ----------- ----------- ----------- Extraordinary Items Discontinuation of regulatory accounting - (2,150.0) - principles, net of tax Early extinguishment of debt, net of tax (3.5) (6.7) (58.4) ----------- ----------- ----------- (3.5) (2,156.7) (58.4) ----------- ----------- ----------- Cumulative Effect of Changes in Accounting Principles Income taxes - - 65.2 Postemployment benefits, net of tax - - (85.0) ----------- ----------- ----------- - - (19.8) ----------- ----------- ----------- NET INCOME (LOSS) $ 1,858.3 $ (754.8) $ 1,403.4 =========== =========== ===========
For the years ended December 31, 1995, 1994 and 1993, previously eliminated intercompany transactions aggregating $28.0 million, $48.4 million and $37.4 million, respectively, are added back to both operating revenues and operating expenses. Items affecting the comparison of the above operating results between 1995 and 1994, and between 1994 and 1993, are discussed in the following sections. 12 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A bar chart is presented, depicting the following data:
Access Line in Service (in thousands) -------------- At December 31, 1993 18,645 At December 31, 1994 19,168 At December 31, 1995 19,820 - --------------------------------------------------------------------------------
OPERATING REVENUES - -------------------------------------------------------------------------------- LOCAL SERVICE REVENUES - --------------------------------------------------------------------------------
Dollars in Millions Increase - -------------------------------------------------------------------------------- 1995 - 1994 $ 90.4 2.1% - -------------------------------------------------------------------------------- 1994 - 1993 $ 128.6 3.1% - --------------------------------------------------------------------------------
Local service revenues are earned by the operating telephone subsidiaries from the provision of local exchange, local private line and public telephone services. Local service revenues increased in 1995 and 1994 due primarily to growth in network access lines in service of 3.4% and 2.8%, respectively. Business and residence access lines increased 5.5% and 2.4%, respectively, compared to growth rates of 4.3% and 2.1% in 1994. Stronger access line growth in 1995 reflects higher demand for Centrex services and an increase in the number of second residential lines in service. - -------------------------------------------------------------------------------- A bar chart is presented, depicting the following data:
Access Minutes of Use (in thousands) -------------- Year ended December 31, 1993 65,080 Year ended December 31, 1994 70,864 Year ended December 31, 1995 76,464 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- NETWORK ACCESS REVENUES - --------------------------------------------------------------------------------
Dollars in Millions Increase - -------------------------------------------------------------------------------- 1995 - 1994 $ 157.1 4.9% - -------------------------------------------------------------------------------- 1994 - 1993 $ 166.7 5.4% - --------------------------------------------------------------------------------
Network access revenues are received from interexchange carriers (IXCs) for their use of the Company's local exchange facilities in providing long distance services to IXCs' customers and from end-user subscribers. Switched access service revenues are derived from usage-based charges paid by IXCs for access to the Company's network. Special access revenues arise from access charges paid by IXCs and end-users who have private networks. End-user access revenues are earned from local exchange carrier customers who pay for access to the network. Network access revenues increased in 1995 and 1994 principally due to higher customer demand for access services as reflected by growth in access minutes of use. Access minutes of use for the years 1995 and 1994 grew by 7.9% and 8.9%, respectively. Higher end-user revenues attributable to increases in access lines in service also contributed to revenue growth in both years. Revenues in 1995 were positively impacted by a temporary rate increase that was in effect from March 17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment benefit costs. Revenue growth from volume increases for both years was partially offset by the effect of price reductions under the Federal Communications Commission's (FCC) Price Cap Plans. In March 1995, the FCC adopted an order approving an Interim Price Cap Plan for interstate access charges, which replaced the prior Price Cap Plan. As required by the FCC's order, the Company filed its Transmittal of Interstate Rates, which resulted in price decreases totaling approximately $305 million on an annual basis, effective August 1, 1995. These price decreases included the scheduled expiration of a temporary rate increase of approximately $98 million on an annualized basis that was in effect from March 17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment benefit costs. Also as part of the filing, the Company selected a 5.3% Productivity Factor, which eliminates the requirement to share a portion of interstate overearnings related to the August 1995 to June 1996 tariff period. While the Company expects current volume growth trends to continue, the impact of the August 1, 1995 price decreases is expected to substantially offset volume-related growth during the first half of 1996, relative to 1995 network access revenues. - -------------------------------------------------------------------------------- TOLL SERVICE REVENUES - --------------------------------------------------------------------------------
Dollars in Millions (Decrease) - -------------------------------------------------------------------------------- 1995 - 1994 $ (120.4) (7.7)% - -------------------------------------------------------------------------------- 1994 - 1993 $ (2.5) (.2)% - --------------------------------------------------------------------------------
Toll service revenues are earned from calls made outside a customer's local calling area, but within the same service area boundaries of the Company's telephone subsidiaries, commonly referred to as Local Access and Transport Areas (LATAs). Other toll services include 800 services, Wide Area Telephone Service (WATS), and corridor services (between Northern New Jersey and New York City and between Southern New Jersey and Philadelphia.) The reduction in toll service revenues in 1995 was caused by a decline in toll message volumes of 2.4% and company-initiated price reductions. The decrease in toll messages was due primarily to increased competition throughout the region for intraLATA toll, WATS and private line services. Price reductions were implemented on certain toll services as part of the Company's competitive response. Local calling areas were also extended in Virginia. 13 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- Toll service revenues grew in the first half of 1994 by $37.0 million, but declined by $39.5 million during the second half of 1994 over the comparable periods in 1993. Growth in the first half of the year was primarily the result of the recovering economy and severe winter conditions, which caused an increase in toll calling volumes. The decline in the second half of 1994 reflected the impact of competition for intraLATA toll, WATS and private line services, price reductions and extended local calling areas. Toll message volumes increased 1.8% in 1994, compared to the prior year. The Company expects that competition for toll service revenues will continue in 1996, however, the revenue decline is expected to be less than in 1995. See "Factors That May Impact Future Results" below for a further discussion of toll service revenue issues. - -------------------------------------------------------------------------------- DIRECTORY PUBLISHING REVENUES - --------------------------------------------------------------------------------
Dollars in Millions Increase - -------------------------------------------------------------------------------- 1995 - 1994 $ 23.5 2.2% - -------------------------------------------------------------------------------- 1994 - 1993 $ 30.8 2.9% - --------------------------------------------------------------------------------
Directory publishing revenues are earned primarily from local advertising and marketing services provided to businesses in White and Yellow Pages directories published throughout the region. Other directory publishing services include database and foreign directory marketing. Growth in directory publishing revenues in 1995 and 1994 was principally due to higher rates charged for these services. Volume growth continues to be impacted by competition from other directory companies, as well as other advertising media. - -------------------------------------------------------------------------------- OTHER ANCILLARY SERVICES REVENUES - --------------------------------------------------------------------------------
Dollars in Millions Increase - -------------------------------------------------------------------------------- 1995 - 1994 $ 76.4 15.9% - -------------------------------------------------------------------------------- 1994 - 1993 $ 96.0 24.9% - --------------------------------------------------------------------------------
Other ancillary services include systems integration services provided to business customers and the federal government, billing and collection services provided to IXCs, facilities rental, customer premises distribution and video services. Other ancillary services revenues increased in both years principally due to an increase in the number of contracts for systems integration services. The growth in revenues in 1995 was negatively impacted by the timing of certain contracts with the federal government and a reduction in billing and collection services as a result of the elimination of certain services from a contract with an IXC. - -------------------------------------------------------------------------------- VALUE-ADDED SERVICES REVENUES - --------------------------------------------------------------------------------
Dollars in Millions Increase - -------------------------------------------------------------------------------- 1995 - 1994 $ 108.8 8.5% - -------------------------------------------------------------------------------- 1994 - 1993 $ 90.8 7.6% - --------------------------------------------------------------------------------
Value-added services represent a family of services which expand the utilization of the network. These services include recent products such as voice messaging services, Caller ID and Return Call as well as more mature products such as Centrex, Touch-Tone, and customer premises wiring and maintenance services. Continued growth in the network customer base (access lines) and higher demand by customers for certain value-added central office and voice messaging services offered by the telephone subsidiaries increased value-added services revenues in 1995 and 1994. Revenue increases in 1995 were partially offset by the elimination of Touch-Tone service charges for Bell Atlantic - Virginia customers, effective January 1, 1995. - -------------------------------------------------------------------------------- OTHER SERVICES REVENUES - --------------------------------------------------------------------------------
Dollars in Millions (Decrease) - -------------------------------------------------------------------------------- 1995 - 1994 $ (284.7) (35.6)% - -------------------------------------------------------------------------------- 1994 - 1993 $ (128.5) (13.8)% - --------------------------------------------------------------------------------
Other services include the Company's computer maintenance, real estate and leasing businesses. During 1995 and 1994, the Company sold several non-strategic businesses, including substantially all of its lease financing businesses and a liquefied petroleum gas distribution business in 1994 and its domestic computer maintenance business in October 1995 (see Note 6 to the Consolidated Financial Statements). The decline in other services revenues in 1995 and 1994 was caused principally by the effect of the disposition of these businesses. Due to the disposition of the Company's domestic computer maintenance business, Bell Atlantic Business Systems Services, Inc., future periods will no longer include operating revenues from this business. Total operating revenues related to this business were approximately $402 million, $472 million and $386 million for the years ended December 31, 1995, 1994 and 1993, respectively. 14 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A bar chart is presented, depicting the following data:
Number of Employees ------------------- At December 31, 1993 73,600 At December 31, 1994 72,300 At December 31, 1995 61,800* - --------------------------------------------------------------------------------
* No longer includes employees of the Company's domestic cellular and paging businesses and domestic computer maintenance business. At December 31, 1994, employees of these businesses were 3,400 and 4,100, respectively. OPERATING EXPENSES - -------------------------------------------------------------------------------- EMPLOYEE COSTS - --------------------------------------------------------------------------------
Dollars in Millions Increase (Decrease) - -------------------------------------------------------------------------------- 1995 - 1994 $ (241.9) (5.8)% - -------------------------------------------------------------------------------- 1994 - 1993 $ 268.5 6.9% - --------------------------------------------------------------------------------
Employee costs consist of salaries, wages, and other employee compensation, employee benefits, and payroll taxes. Employee costs at the network operations subsidiaries decreased in 1995 by $201.5 million or 5.4% and increased by $218.7 million or 6.2% in 1994, compared with the corresponding prior years. The decrease in 1995 employee costs at the network operations subsidiaries was principally due to the effect of a third quarter 1994 charge of $161.9 million to recognize benefit costs, in accordance with Statement No. 112, for the separation of employees who are entitled to benefits under preexisting separation pay plans. Decreased overtime pay, lower workforce levels and a reduction in pension cost further reduced employee costs in 1995. These cost reductions were partially offset by annual salary and wage increases and the recognition of certain contract labor and separation pay costs in 1995 associated with a new five-year labor contract with the International Brotherhood of Electrical Workers (IBEW) and the contract settlement with the Communications Workers of America (CWA). In June 1995, the telephone companies executed a five-year contract with the IBEW, representing approximately 9,000 employees. The IBEW contract, which became effective May 21, 1995, provided for a 14.5% wage increase over the five- year contract period, a ratification bonus, improved pensions and benefits, and certain employment security provisions. The Bell Atlantic telephone companies' contract with the CWA, representing approximately 34,000 employees, expired on August 5, 1995. In January 1996, a tentative three-year labor agreement was reached, which was subsequently ratified in February 1996. The agreement includes a 10.6% wage increase over the three-year contract period, a ratification bonus, improved pensions and benefits, and certain employment security provisions. In 1994, employee costs were higher at the network operations subsidiaries principally as a result of the $161.9 million charge for separation pay costs, salary and wage increases, and increased overtime pay. Lower workforce levels partially offset these cost increases. Employee costs at the Company's nonregulated subsidiaries decreased by $40.4 million or 9.4% in 1995 and increased by $49.8 million or 13.1% in 1994. Employee costs were lower in 1995, as compared to the prior year, principally due to a reduction in workforce levels resulting from the sale of the Company's domestic computer maintenance subsidiary in late 1995 and the disposition of the Company's lease financing subsidiaries and certain other non-strategic businesses during 1994. In 1994, employee costs at the nonregulated subsidiaries were higher as a result of workforce increases at the Company's computer maintenance, video services and systems integration subsidiaries. This increase was offset, in part, by a reduction in workforce levels resulting from the aforementioned disposition of certain non-strategic businesses during 1994. - -------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION - --------------------------------------------------------------------------------
Dollars in Millions Increase - -------------------------------------------------------------------------------- 1995 - 1994 $ 32.4 1.3% - -------------------------------------------------------------------------------- 1994 - 1993 $ 78.5 3.2% - --------------------------------------------------------------------------------
Depreciation and amortization expense at the network operations subsidiaries in 1995 and 1994 increased $87.7 million or 3.7% and $139.1 million or 6.2%, respectively, compared with the corresponding prior years, principally due to growth in depreciable telephone plant. Increased depreciation in 1994 also reflected the impact of higher rates of depreciation resulting principally from the discontinued application of regulatory accounting principles in August 1994 (see Note 4 to the Consolidated Financial Statements). The composite depreciation rates for the network operations subsidiaries were 7.9% in 1995, 7.8% in 1994 and 7.5% in 1993. Depreciation and amortization expense at the nonregulated subsidiaries decreased by $55.3 million or 43.4% in 1995 and $60.6 million or 32.2% in 1994 over the corresponding prior years. The decreases were primarily due to the effect of the disposition of the Company's domestic computer maintenance business in October 1995 and the sale of substantially all of the assets of the Company's lease financing businesses during 1994. 15 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OTHER OPERATING EXPENSES - --------------------------------------------------------------------------------
Dollars in Millions Increase (Decrease) - -------------------------------------------------------------------------------- 1995 - 1994 $ (38.8) (1.1)% - -------------------------------------------------------------------------------- 1994 - 1993 $ 97.1 2.9% - --------------------------------------------------------------------------------
Other operating expenses consist primarily of contract services, rent, network software costs, provision for uncollectible accounts receivable and other costs. The reduction in other operating expenses in 1995 was largely due to the effect of the aforementioned disposition of several non-strategic businesses during 1995 and 1994. These cost reductions were partially offset by additional costs incurred at the network operations subsidiaries to enhance systems, consolidate work activities and market value-added services. In 1994, other operating expenses were higher, as compared to 1993, principally due to higher volumes of business at the Company's network operations, computer maintenance, and systems integration subsidiaries. The Company also incurred higher expenses in 1994, relative to 1993, for video services development. These cost increases were partially offset by the effect of the disposition of several non-strategic businesses, and reimbursements received from other Bell Communications Research, Inc. (Bellcore) owners who decided to participate in Bellcore's Advanced Intelligent Network project. This project previously was supported entirely by the Company. Due to the disposition of the Company's domestic computer maintenance subsidiary in October 1995, future periods will no longer include employee costs, depreciation and other operating expenses from this business. Total operating expenses related to this business were approximately $392 million, $450 million and $384 million for the years ended December 31, 1995, 1994 and 1993, respectively. - -------------------------------------------------------------------------------- EQUITY IN INCOME OF AFFILIATES - --------------------------------------------------------------------------------
Dollars in Millions Increase - -------------------------------------------------------------------------------- 1995 - 1994 $ 107.5 83.4% - -------------------------------------------------------------------------------- 1994 - 1993 $ 58.1 82.1% - --------------------------------------------------------------------------------
Equity in income of affiliates includes equity income and losses and goodwill amortization related to the Company's investments in unconsolidated businesses. For comparative purposes, the domestic cellular and paging businesses previously consolidated in periods prior to July 1, 1995 are presented as though accounted for under the equity method. Equity in income of the Company's investment in domestic cellular and paging businesses was $267.1 million in 1995, compared to $122.0 million in 1994 and $56.9 million in 1993. The increase in both years was driven by strong revenue growth due to an increase of approximately 43% in 1995 and 58% in 1994 in the cellular subscriber base. Equity in income of affiliates in 1995 and 1994 was further boosted by improved operating results from the Company's investment in Telecom Corporation of New Zealand Limited (Telecom). Higher equity income from the Company's investments in domestic cellular and paging businesses and Telecom was partially offset in both years by the effects of goodwill amortization and equity losses associated with the Company's investment in Grupo Iusacell, S. A. de C.V. (Iusacell). Results in 1995 were also impacted by equity losses associated with TELE-TV, the Company's multimedia joint venture which was formed in 1994. The equity losses associated with Iusacell were $87.8 million, $65.4 million and $3.0 million in 1995, 1994 and 1993, respectively. The equity losses in Iusacell in 1995 and 1994 were impacted by an increase in the Company's economic interest from 23.2% to 41.9% in August 1994 and by the effect of the devaluation of the Mexican peso on Iusacell's net liabilities, primarily debt, denominated in U.S. dollars. It is expected that the Company's equity in income of Iusacell will continue to be impacted positively or negatively by changes in the peso exchange rate. - -------------------------------------------------------------------------------- OTHER INCOME AND EXPENSE, NET - --------------------------------------------------------------------------------
Dollars in Millions Increase (Decrease) - -------------------------------------------------------------------------------- 1995 - 1994 $ 295.5 - -------------------------------------------------------------------------------- 1994 - 1993 $ (16.2) - --------------------------------------------------------------------------------
Other income and expense, net consists primarily of interest and dividend income, and gains and losses from the disposition of subsidiaries and non- operating assets and investments. Other income and expense, net was $331.8 million in 1995, compared to $36.3 million in 1994. The increase in 1995 is principally attributable to the recognition of a pretax gain of approximately $314 million on the sale of certain cellular properties in connection with the formation of the Bell Atlantic NYNEX Mobile partnership (see Note 2 to the Consolidated Financial Statements). Other income and expense in 1994 included principally the pretax gains and losses associated with the aforementioned disposition of certain non-strategic businesses, and additional interest income related to notes receivable held by the Company in connection with the sale of its lease financing business. 16 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- In 1993, other income and expense, net totaled $52.5 million and consisted principally of a pretax gain of approximately $65 million related to the private sale of a portion of the Company's investment in Telecom offset, in part, by a pretax charge associated with the planned disposition of the Company's non- strategic software development businesses. - -------------------------------------------------------------------------------- INTEREST EXPENSE - --------------------------------------------------------------------------------
Dollars in Millions (Decrease) - -------------------------------------------------------------------------------- 1995 - 1994 $ (20.2) (3.6)% - -------------------------------------------------------------------------------- 1994 - 1993 $ (33.5) (5.6)% - --------------------------------------------------------------------------------
Interest expense decreased in 1995 and 1994 due to lower levels of debt, lower interest rates on long-term debt, and the recognition of increased capitalized interest costs at the telephone subsidiaries. Upon the discontinued application of regulatory accounting principles, effective August 1, 1994, the Company began recognizing capitalized interest costs as a reduction of interest expense. Previously, the Company recorded an allowance for funds used during construction as an item of other income. The decrease in 1994 was partially offset by interest expense related to debt instruments retained by the Company in connection with the disposition of the Company's lease financing subsidiary, which was previously recognized as an operating expense. Also included in 1994 was interest expense related to the debt incurred to finance the Company's investment in Iusacell. - -------------------------------------------------------------------------------- INCOME TAXES - --------------------------------------------------------------------------------
Dollars in Millions Increase - -------------------------------------------------------------------------------- 1995 - 1994 $ 262.7 - -------------------------------------------------------------------------------- 1994 - 1993 $ 92.9 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- EFFECTIVE INCOME TAX RATES - --------------------------------------------------------------------------------
For the Years Ended December 31, - -------------------------------------------------------------------------------- 1995 38.1% - -------------------------------------------------------------------------------- 1994 38.7% - -------------------------------------------------------------------------------- 1993 34.8% - --------------------------------------------------------------------------------
The Company's effective income tax rate was lower in 1995, as compared to 1994, due principally to a decrease in the Pennsylvania state income tax rate during 1995 and the effect of recording additional deferred state income taxes on the Company's leveraged lease portfolio in 1994. The effect of these decreases was partially offset by the reduction in the amortization of investment tax credits and the elimination of the benefit of the income tax rate differential applied to reversing timing differences at the telephone subsidiaries, both as a result of the discontinued application of regulatory accounting principles in August 1994. The higher effective income tax rate in 1994, as compared to 1993, was due principally to the aforementioned tax impacts associated with the discontinued application of regulatory accounting principles in August 1994 and additional deferred taxes recognized on the Company's leveraged lease portfolio. A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is provided in Note 15 to the Consolidated Financial Statements. FACTORS THAT MAY IMPACT FUTURE RESULTS FEDERAL LEGISLATION The Telecommunications Act of 1996 (the "Act"), which became effective on February 8, 1996, is the most comprehensive revision of the federal communications laws in over 60 years. In general, the Act includes provisions that would open the telephone subsidiaries' local exchange markets to competition and would permit local exchange carriers, such as the Company, upon meeting certain conditions, to provide interLATA services (long distance) and video programming and to engage in manufacturing. With regard to the rules governing competition in the interLATA market, the Act takes a two-fold approach. Effective February 8, 1996, the Company is permitted to apply for approval to offer interLATA services outside of the geographic region in which it currently operates as a local exchange carrier. The Company has announced its plans to offer such services in Illinois, Florida, North Carolina, South Carolina, and Texas. Secondly, within the Company's geographic region, each of the telephone subsidiaries must demonstrate to the FCC that it has satisfied certain requirements in order to be permitted to offer interLATA services within its jurisdiction. Among the requirements with which a telephone subsidiary must comply is a 14-point "competitive checklist" which is aimed at ensuring that competitors have the ability to connect to the telephone subsidiary's network. A telephone subsidiary must also demonstrate to the FCC that its entry into the interLATA market would be in the public interest. No definitive prediction can be made as to the specific impact of the Act on the business or financial condition of the Company. The financial impact on the Company will be dependent on several factors, including the timing and extent of competition in the Company's markets and the timing and extent of the Company's pursuit of new business opportunities resulting from the Act. 17 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- COMPETITION IntraLATA Toll Services Competition to offer intrastate intraLATA toll services is currently permitted in all of the Company's state jurisdictions that provide intraLATA toll services. Increased competition from IXCs has resulted in a decline in several components of the telephone subsidiaries' toll service revenues. Currently, intraLATA toll calls in all of such jurisdictions are completed by the telephone subsidiaries unless the customer dials a five-digit access code. Presubscription for intraLATA toll services would enable customers to make intraLATA toll calls using the carrier of their choice without having to dial the five-digit access code. The Act prohibits a state from requiring presubscription or "dialing parity" until the earlier of such time as a local exchange carrier in the state is authorized to provide long distance services within the state or three years from the effective date of the Act. This prohibition does not apply to a final order for presubscription that was issued on or prior to December 19, 1995. During 1995, state regulatory commissions in Pennsylvania, New Jersey, West Virginia and Delaware conducted proceedings to determine whether, and under what conditions, to authorize presubscription. Proceedings in Delaware were suspended pending the outcome of the Congressional legislative process. In October 1995, the West Virginia Public Service Commission issued an order directing the implementation of presubscription within eighteen months of that order. Bell Atlantic - West Virginia has filed an appeal with the West Virginia Supreme Court. On December 19, 1995, the Pennsylvania Public Utility Commission issued an order directing the implementation of presubscription within eighteen months of that order. However, the order stated that a reasonable effort should be made to coordinate implementation of presubscription with Bell Atlantic - Pennsylvania's entry into the interLATA market in Pennsylvania. In New Jersey, the Board of Public Utilities issued an order on December 14, 1995 finding that implementation of presubscription for intraLATA toll services in New Jersey would be in the public interest and proposed rules for implementation. The rulemaking to determine the timing of implementation of presubscription in New Jersey is expected to be held in 1996. Implementation of presubscription for intraLATA toll services could have a material negative impact on toll service revenues, especially if the telephone subsidiaries are not permitted contemporaneously to offer interLATA services. Local Exchange Services The ability to offer local exchange service has historically been subject to regulation by state public utility commissions. In 1994 and 1995, applications from competitors to provide and resell local exchange services were approved by the Maryland Public Service Commission and the Pennsylvania Public Utility Commission. In addition, applications from competitors to provide local exchange services are pending in Delaware, Maryland, New Jersey and Virginia. The Act is expected to significantly increase the level of competition in all of the telephone subsidiaries' local exchange markets. However, increased competition in the local exchange markets will facilitate FCC approval of the telephone subsidiaries' entry into the interLATA markets. BUSINESS DEVELOPMENT The Company expects to incur significant business development expenses in 1996 in connection with its investments in PCS PrimeCo and Omnitel-Pronto Italia, and its entry into the long distance business. OTHER MATTERS ENVIRONMENTAL ISSUES The Company is subject to a number of environmental proceedings as a result of the operations of its subsidiaries and the shared liability provisions in the Plan of Reorganization related to the Modification of Final Judgement. Certain of these environmental matters relate to Superfund sites for which the Company's subsidiaries have been designated as potentially responsible parties by the U.S. Environmental Protection Agency or joined as third-party defendants in pending Superfund litigation. Such designation or joinder subjects the named company to potential liability for costs relating to cleanup of the affected sites. The Company is also responsible for the remediation of sites with underground fuel storage tanks and other expenses associated with environmental compliance. The Company continually monitors its operations with respect to potential environmental issues, including changes in legally mandated standards and remediation technologies. The Company's recorded liabilities reflect those specific situations where remediation activities are currently deemed to be probable and where the cost of remediation is estimable. Management believes that the aggregate amount of any additional potential liability would not have a material effect on the Company's results of operations or financial condition. 18 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- PROSPECTIVE ACCOUNTING CHANGE The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" (Statement No. 123) in October 1995. Statement No. 123 encourages companies to recognize expense for stock options and other stock-based employee compensation plans based on their fair value at the date of grant. As permitted by Statement No. 123, the Company plans to continue to apply its current accounting policy under APB Opinion No. 25, "Accounting for Stock Issued to Employees" in 1996 and future years, and will provide disclosure of the pro forma impact on net income and earnings per share as if the fair value-based method had been applied. FINANCIAL CONDITION
(Dollars in Millions) ------------------------------------------- For the Years Ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------- Cash Flows From (Used In) Operating activities $ 3,981.0 $ 3,777.0 $ 4,169.5 Investing activities (2,090.8) (1,694.2) (2,968.2) Financing activities (1,676.3) (2,086.0) (1,351.2) ---------- ---------- ----------
Management believes that the Company has adequate internal and external resources available to meet ongoing operating requirements, including network expansion and modernization and the payment of dividends. Management expects that presently foreseeable capital requirements will be financed primarily through internally generated funds. Additional long-term debt and equity financing may be needed to fund additional development activities and to maintain the Company's capital structure within management's guidelines. The Company determines the appropriateness of the level of its dividend payments on a periodic basis by considering such factors as long-term growth opportunities, internal requirements of the Company, and the expectations of shareowners. The use of derivatives by the Company is limited to managing risk that could endanger the financing and operating flexibility of the Company, making cash flows more stable over the long run, and achieving savings over traditional means of financing. Derivative agreements are tied to a specific liability or asset and hedge the related economic exposures. The use of these hedging agreements has not had a material impact on the Company's financial condition or results of operations. The Company does not hold derivatives for trading purposes. CASH FLOWS FROM OPERATING ACTIVITIES The Company's primary source of funds continued to be cash generated from operations. Improved cash flows from operating activities during 1995 resulted principally from growth in operating income. Cash provided from operations in 1994 decreased versus 1993 due principally to higher income tax payments in 1994. CASH FLOWS USED IN INVESTING ACTIVITIES Capital expenditures continued to be the primary use of capital resources in 1995. During 1995, 1994 and 1993, the Company invested approximately $2.4 billion, $2.2 billion and $2.1 billion, respectively, in its network operations subsidiaries to facilitate the introduction of new products and services, enhance responsiveness to competitive challenges and increase the operating efficiency and productivity of the network. During 1995, the Company invested $392.4 million in joint ventures, including $292.0 million in PCS PrimeCo, primarily to fund the purchase of PCS licenses. During the first quarter of 1995, the Company prefunded a trust with $135.0 million in short-term investments for the purpose of compensating employees for vacation pay earned during 1994. At December 31, 1995, the trust held no investments. 19 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- In 1995, the Company received cash proceeds of approximately $362 million from the sale of certain cellular properties and approximately $250 million in connection with the sale of Bell Atlantic Business Systems Services, Inc. and the Company's interests in certain European computer maintenance operations. Cash proceeds from investing activities in 1995 also included approximately $221 million in connection with a note receivable resulting from the April 1994 sale of the Company's lease financing business and $87.0 million in connection with a note receivable established with the formation of the Bell Atlantic NYNEX Mobile partnership. In 1994, cash proceeds from investing activities included $1,323.8 million from the sale of the Company's lease financing subsidiary and $123.0 million from the disposition of certain other nonregulated subsidiaries. Additionally, the Company received $67.4 million under a special capital reduction plan implemented by Telecom in which 20% of Telecom's outstanding shares were canceled and shareowners received one New Zealand Dollar for each share canceled. Telecom's capital reduction did not change the Company's percentage ownership of Telecom. In 1993, the sale of a portion of the Company's interest in Telecom provided cash proceeds from investing activities of $253.7 million. In connection with Bell Atlantic's investment in Iusacell, the Company purchased shares in 1993 for $520.0 million and additional shares in 1994 for $524.0 million. The Company also used approximately $97 million in 1994 principally for the acquisition of a domestic cellular property, a minority interest in a directory company, and to fund an equity investment in a consortium that was awarded the second cellular license in Italy. In 1993, the Company used $190.0 million for the acquisition of two directory companies and certain other investments. CASH FLOWS USED IN FINANCING ACTIVITIES - -------------------------------------------------------------------------------- A bar chart is presented, depicting the following data:
Dividends Paid (dollars in millions) --------------------- Year ended December 31, 1993 $ 1,156.5 Year ended December 31, 1994 $ 1,195.1 Year ended December 31, 1995 $ 1,218.0 - --------------------------------------------------------------------------------
Dividend payments in 1995, as in prior years, were a significant use of capital resources. The Company reduced its long-term debt (including capital leases) and short-term debt by $555.9 million in 1995, $990.2 million in 1994 and $168.2 million in 1993. Approximately $200 million, $250 million and $1.7 billion of debt in 1995, 1994 and 1993, respectively, was refinanced at more favorable interest rates. - -------------------------------------------------------------------------------- A bar chart is presented, depicting the following data:
Debt Ratio ---------- At December 31, 1993 54.6% At December 31, 1994 59.4% At December 31, 1995 55.5% - --------------------------------------------------------------------------------
As of December 31, 1995, the Company and its subsidiaries had in excess of $2.2 billion of unused bank lines of credit. The Company and its telephone subsidiaries also have shelf registrations for the issuance of up to $1.9 billion of unsecured debt securities. The Company and its subsidiaries had $200.5 million in borrowings outstanding under bank lines of credit at December 31, 1995. The debt securities of Bell Atlantic's subsidiaries continue to be accorded high ratings by primary rating agencies. In the fourth quarter of 1995, Bell Atlantic New Zealand Holdings, Inc. (BANZHI), a subsidiary of the Company, issued 600,000 shares of Series B Preferred Stock at a price per share of $100 with a dividend rate of $5.80 per share per annum resulting in a net cash inflow from financing activities of $59.5 million. In 1994, BANZHI also issued 850,000 shares of Series A Preferred Stock at a price per share of $100 with a dividend rate of $7.08 per share per annum resulting in cash proceeds of $85.0 million. 20 - -------------------------------------------------------------------------------- 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. 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 six outside directors. 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. /s/ Raymond W. Smith Raymond W. Smith Chairman of the Board and Chief Executive Officer /s/ William O. Albertini William O. Albertini Executive Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- 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, 1995 and 1994, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 4 to the consolidated financial statements, the Company discontinued accounting for the operations of its telephone subsidiaries in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," effective August 1, 1994. Also, as discussed in Notes 1, 14 and 15 to the consolidated financial statements, the Company changed its method of accounting for income taxes and postemployment benefits in 1993. /s/ Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania February 5, 1996 21 Bell Atlantic Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Operations - --------------------------------------------------------------------------------
(Dollars in Millions, Except Per Share Amounts) ----------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES $ 13,429.5 $ 13,791.4 $ 13,145.6 OPERATING EXPENSES Employee costs, including benefits and taxes 4,022.0 4,333.1 4,027.6 Depreciation and amortization 2,627.1 2,652.1 2,545.1 Other 3,694.2 4,001.6 3,775.3 ---------- ---------- ---------- 10,343.3 10,986.8 10,348.0 ---------- ---------- ---------- OPERATING INCOME 3,086.2 2,804.6 2,797.6 Equity in Income of Affiliates 152.5 41.1 48.3 Other Income and Expense, Net 331.7 23.2 39.8 Interest Expense 561.0 582.1 612.1 ---------- ---------- ---------- Income Before Provision for Income Taxes, Extraordinary Items, and Cumulative Effect of Changes in Accounting Principles 3,009.4 2,286.8 2,273.6 Provision for Income Taxes 1,147.6 884.9 792.0 ---------- ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 1,861.8 1,401.9 1,481.6 ---------- ---------- ---------- Extraordinary Items Discontinuation of regulatory accounting principles, net of tax - (2,150.0) - Early extinguishment of debt, net of tax (3.5) (6.7) (58.4) ---------- ---------- ---------- (3.5) (2,156.7) (58.4) ---------- ---------- ---------- Cumulative Effect of Changes in Accounting Principles Income taxes - - 65.2 Postemployment benefits, net of tax - - (85.0) ---------- ---------- ---------- - - (19.8) ---------- ---------- ---------- NET INCOME (LOSS) $ 1,858.3 $ (754.8) $ 1,403.4 ========== ========== ========== PER COMMON SHARE: INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES $ 4.25 $ 3.21 $ 3.39 Extraordinary Items (.01) (4.94) (.13) Cumulative Effect of Changes in Accounting Principles - - (.04) ---------- ---------- ---------- NET INCOME (LOSS) $ 4.24 $ (1.73) $ 3.22 ========== ========== ========== Weighted Average Number of Common Shares and Equivalent Shares Outstanding (in millions) 438.3 437.2 436.3 ========== ========== ==========
See Notes to Consolidated Financial Statements. 22 Bell Atlantic Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Balance Sheets - --------------------------------------------------------------------------------
(Dollars in Millions, Except Per Share Amounts) ----------------------------------------------- DECEMBER 31, 1995 1994 - --------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 356.8 $ 142.9 Accounts receivable, net of allowances of $189.8 and $188.9 2,386.0 2,328.1 Inventories 132.8 274.6 Prepaid expenses 611.7 545.5 Other 385.4 492.2 ---------- ---------- 3,872.7 3,783.3 ---------- ---------- Plant, Property and Equipment 33,553.8 33,745.8 Less accumulated depreciation 17,632.5 16,807.7 ---------- ---------- 15,921.3 16,938.1 ---------- ---------- Investments in Affiliates 2,950.5 1,590.5 Other Assets 1,412.3 1,959.9 ---------- ---------- Total Assets $ 24,156.8 $ 24,271.8 ========== ========== LIABILITIES AND SHAREOWNERS' INVESTMENT Current Liabilities Debt maturing within one year $ 1,930.2 $ 2,087.6 Accounts payable and accrued liabilities 2,723.5 2,737.4 Other 719.3 751.7 ---------- ---------- 5,373.0 5,576.7 ---------- ---------- Long-Term Debt 6,407.2 6,805.7 ---------- ---------- Employee Benefit Obligations 3,841.3 3,773.8 ---------- ---------- Deferred Credits and Other Liabilities Deferred income taxes 1,213.9 1,305.7 Unamortized investment tax credits 147.3 176.7 Other 345.5 466.9 ---------- ---------- 1,706.7 1,949.3 ---------- ---------- Preferred Stock of Subsidiary 145.0 85.0 ---------- ---------- Commitments (Note 8) Shareowners' Investment Preferred and Preference stock ($1 par value; none issued) - - Common stock ($1 par value; 437,765,346 shares and 436,405,646 shares issued) 437.8 436.4 Common stock issuable (92,899 shares) - .1 Contributed capital 5,506.4 5,428.4 Reinvested earnings 1,776.5 1,144.4 Foreign currency translation adjustment (515.9) (330.8) ---------- ---------- 7,204.8 6,678.5 Less common stock in treasury, at cost 3.1 11.0 Less deferred compensation-employee stock ownership plans 518.1 586.2 ---------- ---------- 6,683.6 6,081.3 ---------- ---------- Total Liabilities and Shareowners' Investment $ 24,156.8 $ 24,271.8 ========== ==========
See Notes to Consolidated Financial Statements. 23 Bell Atlantic Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
(Dollars in Millions) -------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 1,858.3 $ (754.8) $ 1,403.4 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,627.1 2,652.1 2,545.1 Extraordinary items, net of tax 3.5 2,156.7 58.4 Cumulative effect of changes in accounting principles, net of tax - - 19.8 Gain on sale of cellular properties, net of tax (200.1) - - Equity in income of affiliates (152.5) (41.1) (48.3) Dividends received from affiliates 146.0 101.0 73.4 Other items, net 62.3 (58.7) (121.3) Changes in certain assets and liabilities, net of effects from acquisition/disposition of businesses: Accounts receivable (310.2) (192.6) (77.3) Inventories (47.6) (80.8) (31.7) Other assets (18.7) (226.6) 8.0 Accounts payable and accrued taxes 67.1 50.4 311.1 Deferred income taxes, net (95.4) (270.5) (105.8) Unamortized investment tax credits (29.4) (49.4) (66.2) Employee benefit obligations 84.8 382.8 193.3 Other liabilities (14.2) 108.5 7.6 ---------- ---------- ---------- Net cash provided by operating activities 3,981.0 3,777.0 4,169.5 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments (135.0) (10.0) (8.5) Proceeds from sale of short-term investments 135.0 18.5 34.0 Additions to plant, property and equipment (2,627.2) (2,648.3) (2,517.4) Proceeds from sale of plant, property and equipment 3.5 102.1 47.4 Investment in finance lease and notes receivable - (741.6) (1,862.5) Proceeds from finance lease and notes receivable 93.1 721.8 1,801.2 Investment in notes receivable and preferred stock (55.0) - - Proceeds from notes receivable 338.7 - - Acquisition of businesses, less cash acquired (41.4) (37.5) (146.9) Investment in Grupo Iusacell, S.A. de C.V. - (524.0) (520.0) Proceeds from Telecom Corporation of New Zealand Limited 1994 capital reduction plan and 1993 sale of ownership interest - 67.4 253.7 Investment in joint ventures (392.4) (59.7) (43.1) Proceeds from disposition of businesses 611.2 1,446.8 - Other, net (21.3) (29.7) (6.1) ---------- ---------- ---------- Net cash used in investing activities (2,090.8) (1,694.2) (2,968.2) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 106.6 249.6 2,148.1 Principal repayments of borrowings and capital lease obligations (439.3) (621.1) (949.0) Early extinguishment of debt (200.0) (350.0) (1,575.0) Net change in short-term borrowings with original maturities of three months or less (48.1) (287.6) 186.7 Dividends paid (1,218.0) (1,195.1) (1,156.5) Proceeds from sale of common stock 76.9 6.9 33.7 Purchase of common stock for treasury (11.2) (8.7) - Net change in outstanding checks drawn on controlled disbursement accounts (2.7) 35.0 (39.2) Proceeds from sale of preferred stock by subsidiary 59.5 85.0 - ---------- ---------- ---------- Net cash used in financing activities (1,676.3) (2,086.0) (1,351.2) ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents 213.9 (3.2) (149.9) Cash and cash equivalents, beginning of year 142.9 146.1 296.0 ---------- ---------- ---------- Cash and cash equivalents, end of year $ 356.8 $ 142.9 $ 146.1 ========== ========== ==========
See Notes to Consolidated Financial Statements. 24 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Bell Atlantic Corporation (Bell Atlantic or the Company) is a diversified telecommunications company. Bell Atlantic's network operations subsidiaries provide voice and data transport and calling services, network access, directory publishing and public telephone services to customers in the mid-Atlantic region. The Company's network operations subsidiaries comprise seven operating telephone companies and a subsidiary that performs services on their behalf. Other network-related subsidiaries principally provide systems integration services, customer premises equipment distribution and video services. Through several joint ventures, Bell Atlantic provides wireless communications services in the United States and has invested in wireless businesses in Mexico, Italy, Slovakia, and the Czech Republic. The Company also has an investment in Telecom Corporation of New Zealand Limited, which provides a full range of telecommunications services. The Company and its subsidiaries have approximately 61,800 employees, of which approximately 55% are represented by the Communications Workers of America (CWA), and approximately 15% are represented by the International Brotherhood of Electrical Workers (IBEW), which are both affiliated with the American Federation of Labor-Congress of Industrial Organizations. The terms of a five- year contract with the IBEW became effective in May 1995 and expire in August 2000. The contract with the CWA expired on August 5, 1995. In January 1996, the Company's telephone subsidiaries and the CWA reached a tentative three-year labor agreement, which was subsequently ratified in February 1996. The Telecommunications Act of 1996 is the most comprehensive revision of the federal communications laws in over 60 years. In general, the Telecommunications Act includes provisions that would open the telephone subsidiaries' local exchange markets to competition and would permit local exchange carriers, such as the Company, upon meeting certain conditions, to provide interLATA services (long distance) and video programming and to engage in manufacturing. CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of Bell Atlantic Corporation and its majority-owned subsidiaries. Investments in businesses in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Other investments are accounted for by the cost method. All significant intercompany accounts and transactions have been eliminated. The Company operates predominantly in a single industry segment - communications and related services. Effective August 1, 1994, the telephone subsidiaries discontinued accounting for their operations under the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71) (see Note 4). USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingencies. Actual results could differ from those estimates. REVENUE RECOGNITION Revenues are recognized as earned on the accrual basis. The telephone subsidiaries recognize revenues when services are rendered based on usage of the Company's local exchange network and facilities. Other subsidiaries recognize revenues when products are delivered or services are rendered to customers. Revenues recognized from leasing transactions are recorded in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases." CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. SHORT-TERM INVESTMENTS Short-term investments consist of investments that mature 91 days to 12 months from the date of purchase. Short-term investments are stated at cost, which approximates market value. INVENTORIES New and reusable materials of the telephone subsidiaries are carried in inventory, principally at average original cost, except that specific costs are used in the case of large individual items. Inventories of other subsidiaries are carried at the lower of cost (determined principally on either an average or first-in, first-out basis) or market. 25 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 1 continued PREPAID DIRECTORY Costs of directory production and advertising sales are principally deferred until the directory is published. Such costs are amortized to expense and the related advertising revenues are recognized over the average life of the directory, which is generally 12 months. PLANT AND DEPRECIATION The telephone subsidiaries' provision for depreciation is based principally on the composite group remaining life method of depreciation and straight-line composite rates. This method provides for the recovery of the remaining net investment in telephone plant, less anticipated net salvage value, over the remaining asset lives. The composite group method requires periodic revisions to depreciation rates based on a number of variables, including retirement estimates, survivor curves, salvage, and cost of removal. In connection with the discontinued application of Statement No. 71, effective August 1, 1994, for financial reporting purposes, the Company began using estimated asset lives for certain categories of plant and equipment that were shorter than those approved by regulators prior to the discontinuance of Statement No. 71. The shorter lives result principally from the Company's expectation as to the revenue-producing lives of the assets. The following asset lives were used by the telephone subsidiaries in 1994 and 1995:
January 1, 1994 to Effective July 31, August 1, Average Lives (in years) 1994 1994 1995 - -------------------------------------------------------------------------------- Buildings 18-60 18-40 15-40 Central office equipment 6-13 4-12 5-12 Cable, wiring and conduit 20-60 14-50 16-50 Other equipment 6-38 6-38 5-35
When depreciable plant of the telephone subsidiaries is replaced or retired, the amounts at which such plant has been carried in plant, property and equipment are removed from the respective accounts and charged to accumulated depreciation, and any gains or losses on disposition are amortized over the remaining asset lives of the remaining net investment in telephone plant. Plant, property and equipment of other subsidiaries is depreciated principally on a straight-line basis over the following estimated useful lives, effective July 1, 1995: buildings, 25 to 40 years; and other equipment, 2 to 10 years. Previously, these assets were depreciated using 15 to 40 years and 2 to 15 years, respectively. The change in estimated useful lives resulted from the contribution of plant, property and equipment of the Company's domestic cellular and paging subsidiaries to Bell Atlantic NYNEX Mobile (see Note 2). When the depreciable assets of other 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, including the cost of replacing minor items not constituting substantial betterments, is charged to operating expense. CAPITALIZED INTEREST COST Upon the discontinued application of Statement No. 71, effective August 1, 1994, the telephone subsidiaries began reporting capitalized interest as a cost of telephone plant and equipment and a reduction in interest expense, in accordance with the provisions of Statement of Financial Accounting Standards No. 34, "Capitalization of Interest Cost" (Statement No. 34). The Company's other subsidiaries account for capitalized interest in accordance with Statement No. 34 provisions. Prior to the discontinued application of Statement No. 71, the telephone subsidiaries recorded an allowance for funds used during construction, which included both interest and equity return components, as a cost of plant and as an item of other income. COST IN EXCESS OF NET ASSETS ACQUIRED The excess of the acquisition cost over the fair value of net assets of businesses acquired is amortized by the straight-line method over periods not exceeding 40 years. The Company assesses the impairment of the cost in excess of net assets acquired related to consolidated subsidiaries in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The cost in excess of net assets acquired related to affiliates accounted for under the equity method is reviewed whenever events or changes in circumstances indicate that the carrying value may not be recoverable and a determination of impairment (if any) is made based on estimates of future cash flows. FOREIGN CURRENCY Assets and liabilities of foreign subsidiaries and equity investees are translated into U.S. dollars at exchange rates in effect at the end of the reporting period. Foreign entity revenues and expenses are translated into U.S. dollars at the 26 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 1 continued average rates that prevailed during the period. The resultant net translation gains and losses are reported as foreign currency translation adjustments in Shareowners' Investment. Exchange gains and losses on transactions of the Company and its equity investees denominated in a currency other than their functional currency are generally included in results of operations as incurred. Exchange gains and losses on intercompany foreign currency transactions of a long-term investment nature are reported as foreign currency translation adjustments in Shareowners' Investment. HEDGING INSTRUMENTS The Company periodically enters into hedging agreements to reduce its exposure to fluctuations in foreign exchange rates and interest rates. Forward exchange contracts are generally used to hedge the exposure to currency fluctuations on certain short-term transactions denominated in a currency other than the entities' functional currency. Gains and losses on these contracts generally offset the foreign exchange gains and losses on the underlying hedged transactions and are included in results of operations. The discount or premium on these contracts is included in results of operations over the life of the contract. Gains and losses on forward exchange contracts which hedge identifiable foreign currency commitments are deferred and reflected as adjustments to the related transactions. Gains and losses and related discounts or premiums arising from financial instruments that hedge foreign balances of a long-term investment nature are included as foreign currency translation adjustments in Shareowners' Investment. Interest rate hedge agreements are used to reduce interest rate risks and costs inherent in the Company's debt portfolio. These agreements involve the exchange of fixed and variable interest rate payments over the life of the agreement without the exchange of the underlying principal amounts. The interest differential to be paid or received under these agreements is accrued as interest rates change and is recognized as an adjustment to interest expense over the life of the agreements. EMPLOYEE BENEFITS Pensions, Postretirement Benefits Other Than Pensions, and Postemployment Benefits Substantially all employees of the Company are covered under noncontributory defined benefit pension plans and postretirement health and life insurance benefit plans. Amounts contributed to the Company's pension plans are actuarially determined, principally under the aggregate cost actuarial method, and are subject to applicable federal tax regulations. Amounts contributed to 501(c)(9) trusts and 401(h) accounts under applicable federal income tax regulations to pay certain postretirement benefits are actuarially determined, principally under the aggregate cost actuarial method. The Company also 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." 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 80 percent of shares allocated method is applied until cumulative cash payments exceed the cumulative minimum charge. Subsequently, expense is recognized such that cumulative expense equals cumulative cash payments. The transition from the 80 percent of shares allocated method to the cash payments method occurred during 1995. All ESOP shares are included in earnings per share computations. 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). 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. 27 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 1, continued 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. PROSPECTIVE ACCOUNTING CHANGE The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" (Statement No. 123) in October 1995. Statement No. 123 encourages companies to recognize expense for stock options and other stock-based employee compensation plans based on their fair value at the date of grant. As permitted by Statement No. 123, the Company plans to continue to apply its current accounting policy under APB Opinion No. 25, "Accounting for Stock Issued to Employees" in 1996 and future years, and will provide disclosure of the pro forma impact on net income and earnings per share as if the fair value-based method had been applied. RECLASSIFICATIONS Certain reclassifications of prior years' data have been made to conform to 1995 classifications. - -------------------------------------------------------------------------------- (2) FORMATION OF WIRELESS PARTNERSHIP Effective July 1, 1995, Bell Atlantic and NYNEX Corporation (NYNEX) completed the combination of substantially all of their domestic cellular and paging businesses and the formation of a partnership, Bell Atlantic NYNEX Mobile, which owns and operates such businesses. Bell Atlantic NYNEX Mobile operates as a general partnership and is controlled equally by Bell Atlantic and NYNEX. Bell Atlantic owns an approximate 63% equity interest in Bell Atlantic NYNEX Mobile. The Company accounts for its interest in the partnership under the equity method. Coincident with, and as a condition to, the completion of the combination, Bell Atlantic sold certain cellular properties in Massachusetts and Rhode Island. The Company recorded a pretax gain of approximately $314 million on the sale of the cellular properties in 1995. Bell Atlantic contributed certain assets and liabilities of its domestic cellular and paging operating subsidiaries in exchange for an equity interest in Bell Atlantic NYNEX Mobile. No gain or loss was recognized on the contribution of the assets and liabilities. The following amounts were contributed in 1995 by the Company to the partnership:
(Dollars in Millions) - -------------------------------------------------------------------------------- Current assets $ 124.0 Noncurrent assets 1,291.3 ---------- Total assets $ 1,415.3 Current liabilities $ 167.1 Noncurrent liabilities 70.1 ---------- Total liabilities 237.2 ---------- Net assets contributed $ 1,178.1 ==========
An equity investment of approximately $143 million in a preexisting cellular partnership with NYNEX serving the New York metropolitan area was retained by the Company. This investment is scheduled to be contributed to the Bell Atlantic NYNEX Mobile partnership in July 1996 and July 1997, pursuant to the partnership agreement. Revenues and expenses of the Company's domestic cellular and paging businesses reflected in the financial statements for periods prior to the formation of the partnership are as follows:
(Dollars in Millions) - ------------------------------------------------------------------------------------------------------------------ Six months ended Year ended Year ended June 30, 1995 December 31, 1994 December 31, 1993 - ------------------------------------------------------------------------------------------------------------------ Operating revenues $ 629.9 $ 1,063.3 $ 788.4 Operating expenses 532.0 947.6 741.9 ---------- ---------- ---------- Operating income 97.9 115.7 46.5 Equity in income of unconsolidated affiliates 22.6 34.2 34.4 Other expenses, net .1 13.1 12.7 Interest expense 13.9 14.8 11.3 ---------- ---------- ---------- Income before income taxes $ 106.5 $ 122.0 $ 56.9 ========== ========== ==========
28 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (3) INVESTMENTS IN AFFILIATES The Company's investments in affiliates, which are accounted for under the equity method, consist of the following at December 31:
(Dollars in Millions) - ------------------------------------------------------------------------------------------------------------------------------ 1995 1994 Ownership Investment Ownership Investment - ------------------------------------------------------------------------------------------------------------------------------ Bell Atlantic NYNEX Mobile/*/ 62.594% $ 1,446.7 - $ - PCS PrimeCo 25.0% 298.8 25.0% 13.7 Telecom Corporation of New Zealand Limited 24.8% 639.4 24.8% 625.6 Grupo Iusacell, S.A. de C.V. 41.9% 356.2 41.9% 646.4 Other Various 209.4 Various 304.8 --------- --------- Total $ 2,950.5 $ 1,590.5 ========= =========
* Includes the Company's investment in a New York cellular partnership (see Note 2) The Bell Atlantic NYNEX Mobile partnership, which was formed on July 1, 1995 through the combination of substantially all of the domestic cellular and paging businesses of Bell Atlantic and NYNEX (see Note 2), provides wireless local services to customers in the Northeast, mid-Atlantic, Southeast and Southwest domestic cellular markets. PCS PrimeCo, which was formed in October 1994, is a four-way partnership of Bell Atlantic, NYNEX, AirTouch Communications and U S West, Inc. In March 1995, the PCS PrimeCo partnership acquired licenses for approximately $1.1 billion which will allow PCS PrimeCo to provide personal communications services (PCS) in 11 major markets across the United States. Telecom Corporation of New Zealand Limited (Telecom) is the principal provider of telecommunications services in that country. At the date of acquisition in 1990, the Company's interest in Telecom exceeded the recorded value of the proportionate share of the underlying net assets by approximately $285 million. This amount is being amortized by the straight-line method over a period of 40 years. Through purchases of stock totaling $1,044.0 million, the Company has acquired a 41.9% economic interest in Grupo Iusacell, S.A. de C.V. (Iusacell), the second largest telecommunications company in Mexico. Shares held by Bell Atlantic represent approximately 44% of the voting rights pertaining to Iusacell stock. At acquisition, the cumulative investment in Iusacell exceeded the recorded value of the underlying net assets by approximately $760 million. This amount is being amortized by the straight-line method over a period of 25 years. As a result of foreign currency translation losses recorded as a component of Shareowners' Investment, the Company's investment in Iusacell was reduced by approximately $530 million at December 31, 1995 and by approximately $330 million at December 31, 1994. The Company also has telecommunications investments in Italy, Slovakia, and the Czech Republic. These investments consist of joint ventures to build and operate cellular networks in these countries. Other investments also include a video services joint venture, real estate partnerships, a one-seventh interest in Bell Communications Research, Inc. (Bellcore), and several other domestic and international joint ventures. During 1995, 1994 and 1993, the Company received dividends from unconsolidated equity investees of $146.0 million, $101.0 million and $73.4 million. Summarized unaudited financial information for investments which the Company accounts for under the equity method is shown below on a 100 percent basis.
(Dollars in Millions) - -------------------------------------------------------------------------------- Year Ended December 31, 1995 - -------------------------------------------------------------------------------- Results of Operations: Revenues $ 5,088.8 Operating income 926.9 Net income 407.1 Bell Atlantic's Equity in Income of Affiliates $ 152.5 ========
(Dollars in Millions) - -------------------------------------------------------------------------------- December 31, 1995 - -------------------------------------------------------------------------------- Financial Position: Current assets $ 1,707.8 Noncurrent assets 8,370.6 Current liabilities 2,697.8 Noncurrent liabilities 1,260.9 Minority interests 253.9 Stockholders' equity 5,865.8 Bell Atlantic's Investments in Affiliates $2,950.5 ========
The unaudited summarized financial information at December 31, 1995 includes net assets of foreign unconsolidated subsidiaries totaling approximately $2.1 billion (on a 100% basis), of which $1.4 billion is located in New Zealand and the remainder is located in Mexico and European and Asian countries. These assets may be subject to risks in the event of changes in government policies or other unforeseen circumstances. 29 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (4) DISCONTINUATION OF REGULATORY ACCOUNTING PRINCIPLES In the third quarter of 1994, the Company determined that it was no longer eligible for continued application of the accounting required by Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71). In connection with the decision to discontinue regulatory accounting principles under Statement No. 71, the Company recorded a noncash, extraordinary charge of $2,150.0 million, which is net of an income tax benefit of $1,498.4 million. The Company's determination that it was no longer eligible for continued application of the accounting required by Statement No. 71 was based on the belief that the convergence of competition, technological change, actual and potential regulatory, legislative and judicial actions, and other factors were creating fully open and competitive markets. In such markets, the Company does not believe it can be assured that prices can be maintained at levels that will recover the net carrying amount of existing telephone plant and equipment, which has been depreciated over relatively long regulator-prescribed lives. In addition, changes from cost-based regulation to various forms of incentive regulation in all jurisdictions contributed to the determination that the continued application of Statement No. 71 was inappropriate. A summary of the components of the after-tax charge recognized as a result of the discontinued application of Statement No. 71 follows:
(Dollars in Millions) - -------------------------------------------------------------------------------- Increase in plant and equipment depreciation reserve $ 2,128.9 Accelerated investment tax credit amortization (136.2) Tax-related regulatory asset and liability elimination 42.5 Other regulatory asset and liability elimination 114.8 ---------- Total $ 2,150.0 ==========
The increase in the accumulated depreciation reserve was supported by both an impairment analysis, which identified estimated amounts not recoverable from future discounted cash flows, and a depreciation study, which identified inadequate depreciation reserve levels which the Company believes resulted principally from the cumulative underdepreciation of plant as a result of the regulatory process. Investment tax credit amortization was accelerated as a result of the reduction in remaining asset lives of the associated telephone plant and equipment. Tax-related regulatory assets of $757.2 million and tax-related regulatory liabilities of $714.7 million, which were established upon the adoption of Statement No. 109 and amortized as the related deferred taxes were recognized in the ratemaking process, were eliminated (see Note 15). The elimination of other regulatory assets and liabilities relates principally to deferred debt refinancing and vacation pay costs, which were being amortized as they were recognized in the ratemaking process. - -------------------------------------------------------------------------------- (5) PLANT, PROPERTY AND EQUIPMENT Plant, property and equipment, which is stated at cost, is summarized as follows at December 31:
(Dollars in Millions) - -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Land $ 262.2 $ 273.5 Buildings 2,736.8 2,741.7 Central office equipment 12,812.6 12,261.8 Cable, wiring and conduit 12,404.6 12,074.9 Other equipment 4,145.7 4,976.2 Other 619.4 587.6 Construction-in-progress 572.5 830.1 ------------ ------------ 33,553.8 33,745.8 Accumulated depreciation (17,632.5) (16,807.7) ------------ ------------ Total $ 15,921.3 $ 16,938.1 ============ ============
Due to the formation of the Bell Atlantic NYNEX Mobile partnership (see Note 2) and the disposition of the Company's domestic computer maintenance subsidiary, Bell Atlantic Business Systems Services, Inc. (see Note 6), plant, property and equipment at December 31, 1995 no longer includes fixed assets of these businesses. At December 31, 1994, amounts related to these businesses, principally other equipment, totaled $933.5 million, net of accumulated depreciation of $484.5 million. Certain prior year amounts previously included in Construction-in-progress have been reclassified to Other to conform to 1995 classifications. Plant, property and equipment at December 31, 1995 and 1994 includes real estate property under operating leases, or held for lease, of $327.5 million and $313.4 million, less accumulated depreciation of $82.3 million and $71.0 million, respectively. 30 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (6) DISPOSITION OF BUSINESSES COMPUTER MAINTENANCE In the fourth quarter of 1995, the Company sold its domestic computer maintenance subsidiary, Bell Atlantic Business Systems Services, Inc., and its interests in certain European computer maintenance operations for approximately $250 million in cash. The Company recorded a small gain as a result of this disposition. This disposition did not have a material effect on the Company's results of operations or financial position. LEASE FINANCING In the second quarter of 1994, the Company sold the assets of Bell Atlantic TriCon Leasing Corporation (TriCon), except for leveraged lease and project finance portfolios, to The Finova Group Inc. (Finova) (formerly GFC Financial Corporation). The sale price consisted of $344.2 million in cash and $835.9 million in notes receivable, plus the assumption of $81.8 million of liabilities by Finova. In addition, the Company retained $586.7 million of debt instruments of TriCon and received a note of an equal amount from Finova. The principal and interest payments on the retained debt match the principal and interest payments received on the note from Finova. At December 31, 1995, the remaining balance of a note receivable from Finova was $213.8 million. The Company recorded a pretax gain of $42.0 million as a result of this transaction. In the fourth quarter of 1994, the Company sold substantially all of the assets of a leasing subsidiary, Bell Atlantic Systems Leasing International, Inc., including the Company's 50% ownership interest in Pacific Atlantic Systems Leasing, Inc. This sale did not have a material effect on the Company's results of operations or financial position. OTHER In 1994, the Company recorded pretax charges aggregating $38.9 million in connection with the disposition of a subsidiary that sells and distributes liquefied petroleum gas and a foreign cellular operation. - -------------------------------------------------------------------------------- (7) LEASING ARRANGEMENTS AS LESSOR In 1994, the Company sold substantially all of its lease financing business, except for leveraged lease and project finance portfolios (see Note 6). The Company is no longer providing new leasing services and during 1995 portions of the remaining portfolios were sold. Finance lease receivables, which are included in Other (current assets) and Other Assets (noncurrent assets) in the Consolidated Balance Sheets, consist of the following at December 31:
(Dollars in Millions) - -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Leveraged leases $ 802.3 $ 896.0 Direct finance leases 27.3 29.1 -------- -------- Total $ 829.6 $ 925.1 ======== ========
The components of the net investment in leveraged leases at December 31 are as follows:
(Dollars in Millions) - -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Minimum lease payments receivable $ 746.2 $ 852.3 Estimated residual value 496.8 548.7 Unearned income (440.7) (505.0) ---------- --------- Total $ 802.3 $ 896.0 ========== =========
Minimum lease payments receivable 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 $755.6 million and $779.5 million at December 31, 1995 and 1994, 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, 1995:
(Dollars in Millions) - -------------------------------------------------------------------------------- Years Capital Leases Operating Leases - -------------------------------------------------------------------------------- 1996 $ 4.1 $ 34.9 1997 9.9 32.2 1998 14.5 26.6 1999 15.8 17.1 2000 16.7 11.7 Thereafter 723.0 15.5 --------- --------- Total $ 784.0 $ 138.0 ========= =========
31 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (8) LEASING ARRANGEMENTS AS LESSEE The Company leases certain facilities and equipment for use in its operations under both capital and operating leases. Plant, property and equipment included capital leases of $172.8 million and $171.6 million, and related accumulated amortization of $87.4 million and $82.8 million at December 31, 1995 and 1994, respectively. In 1995, 1994 and 1993, the Company incurred initial capital lease obligations of $14.0 million, $11.9 million and $13.6 million, respectively. Total rent expense amounted to $272.6 million in 1995, $285.5 million in 1994 and $307.8 million in 1993. At December 31, 1995, the aggregate minimum rental commitments under noncancelable leases for the periods shown are as follows:
(Dollars in Millions) ------------------------------------- Years Capital Leases Operating Leases - -------------------------------------------------------------------------------- 1996 $ 26.7 $ 84.3 1997 23.5 79.2 1998 23.3 67.7 1999 19.0 57.9 2000 29.2 56.3 Thereafter 92.6 583.5 ----------- ----------- Total 214.3 $ 928.9 =========== Less imputed interest and executory costs 94.6 Present value of net ----------- minimum lease payments 119.7 Less current installments 12.0 ----------- Long-term obligation at December 31, 1995 $ 107.7 ===========
As of December 31, 1995, the total minimum sublease rentals to be received in the future under noncancelable operating subleases was $81.4 million. - -------------------------------------------------------------------------------- (9) DEBT DEBT MATURING WITHIN ONE YEAR Debt maturing within one year consists of the following at December 31:
(Dollars in Millions) ---------------------------- 1995 1994 - ------------------------------------------------------------------------------ Notes payable: Bank loans $ 200.5 $ 666.9 Commercial paper 1,415.8 918.3 Long-term debt maturing within one year 313.9 502.4 ---------- ---------- Total $ 1,930.2 $ 2,087.6 ========== ========== Weighted average interest rates for notes payable outstanding at year-end 5.8% 6.0% ---------- ----------
Capital expenditures, primarily construction of telephone plant, are partially financed, pending long-term financing, through bank loans and the issuance of commercial paper payable within 12 months. At December 31, 1995, the Company had in excess of $2.2 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. 32 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 9 continued LONG-TERM DEBT Long-term debt consists of the following at December 31:
(Dollars in Millions) - ------------------------------------------------------------------------------------------------------------------------------ Interest Rates Maturities 1995 1994 - ---------------------------------------------------------------------------------------------------------- ---------- Telephone subsidiaries' debentures 3.25% - 7.00% 1996 - 2025 $ 2,172.0 $ 2,222.0 7.125% - 7.75% 2002 - 2033 1,955.0 1,955.0 7.85% - 8.75% 2019 - 2031 1,080.0 1,280.0 ------------------------------------------------------ ---------- 5,207.0 5,457.0 Notes payable 4.46% - 12.42% 1996 - 2005 916.7 1,175.7 Mortgage and installment notes 9.42% - 11.00% 1996 - 2003 11.9 18.1 Employee Stock Ownership Plan loans - senior notes 8.17% 2000 497.9 571.3 Capital lease obligations - average rate 10.4% and 10.6% 119.7 120.1 Unamortized discount and premium, net (32.1) (34.1) ---------- ---------- Total long-term debt, including current maturities 6,721.1 7,308.1 Less maturing within one year 313.9 502.4 ---------- ---------- Total long-term debt $ 6,407.2 $ 6,805.7 ========== ==========
Maturities of long-term debt outstanding at December 31, 1995, excluding unamortized discount and premium and capital lease obligations, are: $301.9 million due in 1996, $279.3 million due in 1997, $397.4 million due in 1998, $294.4 million due in 1999, $318.9 million due in 2000, and $5,041.6 million thereafter. Telephone subsidiaries' debentures outstanding at December 31, 1995 include $1,572.0 million that are callable. The call prices range from 102.7% 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. Of this amount, $200.0 million becomes redeemable in 1996; $175.0 million becomes redeemable in 1997, 2000, or 2002; and $265.0 million becomes redeemable in 1999. The redemption prices will be 100.0% of face value plus accrued interest. Included in notes payable are medium-term notes issued by Bell Atlantic Financial Services, Inc. (FSI), a wholly owned subsidiary that provides financing for Bell Atlantic and certain of its subsidiaries. FSI debt securities (aggregating $731.3 million at December 31, 1995) 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, certain 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 $4.6 billion at December 31, 1995. See Note 14 for information on the Employee Stock Ownership Plan Loans. The Company has recorded extraordinary charges associated with the early extinguishment of debentures. These charges reduced net income by $3.5 million (net of an income tax benefit of $2.5 million) in 1995, $6.7 million (net of an income tax benefit of $3.6 million) in 1994, and $58.4 million (net of an income tax benefit of $36.2 million) in 1993. 33 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (10) PREFERRED STOCK OF SUBSIDIARY Bell Atlantic New Zealand Holdings, Inc. (BANZHI), a subsidiary of the Company, issued 850,000 shares of Series A Preferred Stock in 1994 at a price per share of $100 with a dividend rate of $7.08 per share per annum, and 600,000 shares of Series B Preferred Stock in 1995 at a price per share of $100 with a dividend rate of $5.80 per share per annum. The dividend rate on the Series B Preferred Stock may be adjusted if, under certain circumstances, legislation is enacted that reduces the dividends received deduction generally available to corporate shareholders for federal income tax purposes. Both series of preferred stock are subject to mandatory redemption on May 1, 2004 at a redemption price per share of $100, together with any accrued and unpaid dividends. BANZHI and another subsidiary of the Company indirectly own the Company's investment in Telecom Corporation of New Zealand Limited. - -------------------------------------------------------------------------------- (11) FINANCIAL INSTRUMENTS DERIVATIVES The use of derivatives by the Company is limited to managing risk that could endanger the financing and operating flexibility of the Company, making cash flows more stable over the long run and achieving savings over traditional means of financing. Derivative agreements are tied to a specific liability or asset and hedge the related economic exposures. The use of these hedging agreements has not had a material impact on the Company's financial condition or results of operations. The Company does not hold derivatives for trading purposes. INTEREST RATE HEDGE AGREEMENTS The notional amounts outstanding, maturity dates, and weighted average receive and pay rates of interest rate hedge agreements are as follows at December 31:
(Dollars in Millions) ---------------------------------------------------- Weighted Average Rate Notional --------------------- Variable to Fixed: Amount Maturities Receive Pay - ------------------------------------------------------------------------------------------ 1995 $ 200.0 1999 - 2005 5.4% 5.7% 1994 $ 70.0 1995 - 1999 5.6% 5.4%
The notional amounts are used to calculate contractual payments to be exchanged and are not actually paid or received, nor are they a measure of the Company's exposure in the event of nonperformance by a counterparty. The Company also entered into forward interest rate hedge agreements with notional amounts of $1.9 million and $50.3 million at December 31, 1995 and 1994, respectively, in connection with a specific lease. Interest rate hedge agreements have not significantly impacted the Company's relative proportion of variable and fixed interest expense. FOREIGN EXCHANGE CONTRACTS Foreign exchange contracts have generally been limited to forward contracts for delivery or purchase of certain foreign currencies on a specified future date, usually within ninety days. At December 31, 1995, the Company had contracts for the sale of $.4 million and the purchase of $8.5 million of foreign currencies, compared to contracts for the sale of $27.6 million and the purchase of $5.6 million of foreign currencies at December 31, 1994. No position in any individual foreign currency exceeded $6.8 million and $16.1 million at December 31, 1995 and 1994, respectively. All of these contracts have maturities within ninety days of the respective year end. Market risk related to these contracts arises from fluctuations in the value of the underlying currencies. The Company continually monitors the relationship between gains and losses recognized on forward exchange contracts and on the underlying transactions being hedged to ensure an adequate correlation exists and to mitigate this market risk. Foreign exchange gains and losses recognized on these contracts were not material to the Company's results of operations or financial condition and generally offset the foreign exchange gains and losses on the underlying hedged transactions. Deferred gains and losses from hedging identifiable foreign currency commitments were not material. At December 31, 1995, Bell Atlantic and its consolidated subsidiaries had no material foreign currency cash flow exposure resulting from monetary assets and liabilities, firm commitments, or highly anticipated cash flow exposures denominated in a currency other than the Company's functional currency. 34 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 11 continued The Company has not hedged its accounting translation exposure to foreign currency fluctuations relative to its net equity position in foreign subsidiaries since it does not represent actual cash flow exposure. The Company's net equity position in its principal unconsolidated foreign subsidiaries totaled $1,099.8 million and $1,335.7 million at December 31, 1995 and 1994, respectively. These subsidiaries have operations primarily in New Zealand and Mexico. Certain unconsolidated foreign subsidiaries accounted for using the equity method have net liabilities, primarily debt, denominated in a currency other than the investees' functional currency. The Company is subject to fluctuations in its equity income from these subsidiaries related to foreign currency gains and losses on such net liabilities. Foreign currency losses on such net liabilities included in equity income totaled $29.0 million and $21.5 million for the years ended December 31, 1995 and 1994, respectively. CONCENTRATIONS OF CREDIT RISK Financial instruments that subject the Company to concentrations of credit risk consist primarily of temporary cash investments, trade receivables, certain notes receivable, preferred stock, interest rate hedge agreements and foreign exchange forward contracts. The Company places its temporary cash investments with high-credit-quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables other than those from AT&T are limited due to the large number of customers in the Company's customer base. For the years ended December 31, 1995, 1994 and 1993, revenues generated from services provided to AT&T, primarily network access and billing and collection, were $1,316.4 million, $1,352.6 million and $1,368.4 million, respectively. At December 31, 1995 and 1994, Accounts receivable, net, included $125.3 million and $153.0 million, respectively, from AT&T. At December 31, 1995 and 1994, the Company had an uncollateralized note receivable from Finova of $213.8 million and $435.0 million, respectively, in connection with the disposition of TriCon (see Note 6). The counterparties to the interest rate hedge agreements and forward exchange agreements are all major financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties, and limits the amount of contracts with any one party. The Company believes the risk of incurring losses related to credit risk is remote and any losses would not be material to results of operations or financial condition. 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 and Forward Exchange Contracts The carrying amounts approximate fair value. Debt Fair value is estimated based on the quoted market prices for the same or similar issues or on the net present value of the expected future cash flows using current interest rates. Preferred Stock and Notes Receivable Fair value is based on the present value of the expected future cash flows using current interest rates or on quoted market prices for similar instruments, if available. Interest Rate Hedge Agreements The fair value of interest rate hedge agreements is based on the estimated amount the Company would pay or receive to terminate the agreements, taking into account current interest rates and the creditworthiness of the counterparties. The estimated fair values of the Company's financial instruments are as follows at December 31:
(Dollars in Millions) - ------------------------------------------------------------------------------------------------------------------------------ 1995 1994 ------------------------ ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value - ------------------------------------------------------------------------------------------------------------------------------ Debt/*/ $ 8,249.8 $ 8,604.3 $ 8,807.3 $ 8,242.4 Preferred stock and notes receivable, net 315.6 318.4 482.7 478.4 Unrealized (loss) gain on interest rate hedge agreements - (3.8) - 1.8
* Debt includes Long-term debt and Debt maturing within one year, but excludes capital lease obligations and unamortized discount and premium. 35 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (12) SHAREOWNERS' INVESTMENT
Common Stock Common Stock Issuable Contri- (Dollars in Millions, Shares (in Shares (in buted Except Per Share Amounts) Thousands) Amount Thousands) Amount Capital - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1992 434,155 $ 434.2 186 $ .2 $ 5,356.9 Net income Dividends declared ($2.68 per share) Common stock issued: Employee plans 844 .7 47.0 Shareowner plans 200 .2 11.6 Acquisition agreements 47 .1 (44) (.1) .6 Former Metro Mobile CTS, Inc. shareowners 884 .9 (.9) Foreign currency translation adjustment, net of tax benefit of $6.3 Reduction of ESOP obligations Tax benefit of dividends paid to ESOPs - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 436,130 436.1 142 .1 5,415.2 Loss Dividends declared ($2.76 per share) Purchase of common stock Common stock issued: Employee plans 230 .2 13.2 Acquisition agreements 46 .1 (49) - Foreign currency translation adjustment, net of tax benefit of $.9 Reduction of ESOP obligations Tax benefit of dividends paid to ESOPs - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 436,406 436.4 93 .1 5,428.4 Net income Dividends declared ($2.80 per share) Purchase of common stock Common stock issued: Employee plans 1,258 1.3 76.5 Shareowner plans 8 - 1.5 Acquisition agreements 93 .1 (93) (.1) Foreign currency translation adjustment, net of tax benefit of $1.1 Reduction of ESOP obligations Tax benefit of dividends paid to ESOPs - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 437,765 $ 437.8 - $ - $ 5,506.4 ==================================================================================================================================== Foreign Deferred Currency Treasury Stock Compen- (Dollars in Millions, Reinvested Translation Shares (in sation- Except Per Share Amounts) Earnings Adjustment Thousands) Amount ESOPs - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1992 $ 2,853.4 $ (140.1) 186 $ 9.1 $ 679.2 Net income 1,403.4 Dividends declared ($2.68 per share) (1,166.6) Common stock issued: Employee plans (8.2) (66) (3.3) Shareowner plans Acquisition agreements (70) (3.4) Former Metro Mobile CTS, Inc. shareowners Foreign currency translation adjustment, net of tax benefit of $6.3 56.2 Reduction of ESOP obligations (44.9) Tax benefit of dividends paid to ESOPs 11.6 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 3,093.6 (83.9) 50 2.4 634.3 Loss (754.8) Dividends declared ($2.76 per share) (1,203.9) Purchase of common stock 209 10.5 Common stock issued: Employee plans (.9) (13) (.7) Acquisition agreements (26) (1.2) Foreign currency translation adjustment, net of tax benefit of $.9 (246.9) Reduction of ESOP obligations (48.1) Tax benefit of dividends paid to ESOPs 10.4 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 1,144.4 (330.8) 220 11.0 586.2 Net income 1,858.3 Dividends declared ($2.80 per share) (1,223.4) Purchase of common stock 211 11.2 Common stock issued: Employee plans (11.8) (43) (2.1) Shareowner plans (234) (11.6) Acquisition agreements (91) (5.4) Foreign currency translation adjustment, net of tax benefit of $1.1 (185.1) Reduction of ESOP obligations (68.1) Tax benefit of dividends paid to ESOPs 9.0 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 $ 1,776.5 $ (515.9) 63 $ 3.1 $ 518.1 ====================================================================================================================================
Bell Atlantic Corporation is authorized to issue up to 12.5 million shares each of Preferred and Preference stock and 1.5 billion shares of common stock. A cellular telephone acquisition closed during 1992 required the Company to deliver shares of its common stock in 1993, 1994 and 1995. In 1993, the Company issued 883,832 shares of common stock to settle certain litigation arising from the merger in 1992 with Metro Mobile CTS, Inc., which was accounted for as a pooling of interests. This distribution represents additional merger consideration to the former Metro Mobile shareholders and was reflected as a credit to the common stock account with a corresponding charge to contributed capital. On January 23, 1996, the Board of Directors adopted a resolution ordering the redemption of all Rights granted under the Company's Shareholder Rights Plan, approved by the Board in 1989. Shareholders of record as of April 10, 1996 will be entitled to receive the redemption price of $.01 per Right ($.005 per share as a result of a two-for-one stock split declared on March 16, 1990) on May 1, 1996. 36 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (13) STOCK INCENTIVE PLANS Under the stock option and performance share components of the Bell Atlantic Stock Incentive Plan, a total of 25,000,000 shares of common stock may be distributed upon the exercise of stock options under the 1985 Incentive Stock Option Plan (the "ISO Plan"), and as a result of awards under the Performance Share Plan (the "Shares Plan"). Under the ISO Plan, key employees may be granted incentive stock options, and/or nonqualified stock options, to purchase shares of Bell Atlantic's common stock at prices not less than the fair market value of the stock on the date of the option grant. Under the ISO Plan, certain key employees may receive reload options upon tendering shares of Bell Atlantic stock to exercise options. In 1991 and prior years, stock appreciation rights ("SARs") were granted to certain officers in tandem with stock options under the ISO Plan. No SARs have been granted since 1991. In 1994, the Bell Atlantic "Options Plus" Plan was adopted. Nonqualified stock options may be granted under the plan to approximately 800 managers below the rank of officer, in place of a portion of each such manager's annual cash bonus incentive. The Shares Plan provides for the granting of awards to certain key employees, in the form of shares of Bell Atlantic common stock. A key employee may receive the distributions of shares at the end of the applicable performance measurement period or the employee may elect to defer the distribution of the awards for one or more years. Awards are based on the total return of Bell Atlantic stock in comparison to the total return on the stock of a number of other telecommunications companies. Authority to make new grants under the Shares Plan expired in December 1994. Final awards were distributed in January 1996. Certain key employees receive awards under the Company's Short Term Incentive Plan ("STIP"). Under the STIP, 80% of the amount of the awards is payable in cash and 20% is deferred for future distribution in the form of Bell Atlantic common stock. Activity associated with the deferred stock portion of the STIP awards is included with the Shares Plan activity in the Performance Share Awards section below. Stock options, SARs and performance share awards under plans maintained by Bell Atlantic and its subsidiaries are as follows:
Weighted Average Price of Stock Performance Stock Options SARs Options Share Awards - ------------------------------------------------------------------------------------------------------------------- Outstanding at December 31, 1992 2,412,202 15,402 $ 48.68 1,001,746 Granted 930,219 - 53.45 91,258 Exercised/Distributed (664,753) - 47.77 (280,049) Canceled (95,100) (2,742) 52.08 (76,576) ------------ ------ ----------- Outstanding at December 31, 1993 2,582,568 12,660 50.50 736,379 Granted 5,838,885 - 54.75 61,999 Exercised/Distributed (177,796) - 46.86 (145,804) Canceled (326,323) - 54.69 (23,125) ------------ ------- ----------- Outstanding at December 31, 1994 7,917,334 12,660 53.55 629,449 Granted 3,798,970 - 51.06 70,588 Exercised/Distributed (1,332,155) - 52.27 (106,879) Canceled (350,609) (6,160) 52.53 (21,634) ------------ ------ ----------- Outstanding at December 31, 1995 10,033,540 6,500 52.81 571,524 ============ ====== ===========
At December 31, 1995, stock options to purchase 6,258,259 shares of common stock were exercisable under the ISO Plan, and 274,920 shares were exercisable under Options Plus. A total of 10,879,082 and 14,003,993 shares of common stock were available for the granting of stock options under the ISO Plan and for distributions of shares under the Shares Plan, as of December 31, 1995 and 1994, respectively. There is no established limit on the number of options granted pursuant to Options Plus. At December 31, 1995, employees had deferred receipt of 309,842 shares which had previously been awarded under the STIP and Shares Plan. 37 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (14) 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. The pension benefit formula for plans covering management employees in 1995 and prior years is based on a stated percentage of adjusted career average earnings. 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. Effective January 1, 1996, the plan covering management employees was converted to a cash balance plan. Under the cash balance plan, pension benefits are determined by a combination of compensation credits based on age and service and individual account-based interest credits. Each management employee's opening account balance is based on accrued pension benefits as of December 31, 1995, and converted to a lump-sum amount determined under the prior plan's provisions. The lump-sum value is multiplied by a transition factor, based on age and service, to arrive at the opening balance. Pension cost is composed of the following:
(Dollars in Millions) - ------------------------------------------------------------------------------------------------------- Years Ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Benefits earned during the year $ 162.6 $ 196.4 $ 162.7 Interest on projected benefit obligation 820.8 821.1 818.9 Actual return on plan assets (2,559.9) (27.6) (1,731.7) Deferral of difference between actual and assumed returned on plan assets 1,703.0 (817.7) 898.3 Net amortization (64.8) (24.2) .9 ------------ ------------ ------------ Pension cost $ 61.7 $ 148.0 $ 149.1 ============ ============ ============
The reduction in 1995 pension cost is principally due to an increase in the discount rate from 7.25% at December 31, 1993 to 8.25% at December 31, 1994, and plan changes. 38 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 14 continued The following table sets forth the pension plans' funded status and amounts recognized in the Company's Consolidated Balance Sheets as of December 31:
(Dollars in Millions) -------------------------------- 1995 1994 - ----------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Benefits based on service to date and present salary levels Vested $ 8,747.2 $ 7,387.2 Nonvested 1,847.1 1,674.8 ------------ ------------ Accumulated benefit obligation 10,594.3 9,062.0 Additional benefits related to estimated future salary levels 708.9 1,061.6 ------------ ------------ Projected benefit obligation 11,303.2 10,123.6 ------------ ------------ Fair value of plan assets 13,218.9 11,470.1 ------------ ------------ Plan assets in excess of projected benefit obligation (1,915.7) (1,346.5) Unrecognized net gain 2,565.8 1,818.9 Unamortized prior service cost 3.4 109.0 Unamortized net transition asset 173.6 192.1 Additional minimum liability for nonqualified plans 27.7 37.0 ------------ ------------ Accrued pension obligation $ 854.8 $ 810.5 ============ ============
The significant assumptions used for the pension measurements were as follows at December 31:
1995 1994 1993 - ------------------------------------------------------------------------------------- Discount rate 7.25% 8.25% 7.25% Rate of future increases in compensation levels 4.75% 5.25% 5.25% ----- ----- -----
The expected long-term rate of return on plan assets was 8.25% for 1995, 1994 and 1993. Pension benefits for approximately 70% of employees are subject to collective bargaining. Modifications in pension benefits have been bargained from time to time. Additionally, the Company has amended the benefit formula under pension plans maintained for its management employees. Substantive commitments for future amendments to the Company's pension plans have been reflected in determining the Company's pension cost. The actuarial assumptions used to determine pension cost are based on financial market interest rates, past experience, and management's best estimate of future benefit changes and economic conditions. Changes in these assumptions may impact future pension cost levels and benefit obligations. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Substantially all of the Company's management and associate employees are covered under postretirement health and life insurance benefit plans. The determination of benefit cost for postretirement health benefit plans is based on comprehensive medical 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. 39 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 14 continued Postretirement benefit cost is composed of the following:
(Dollars in Millions) - -------------------------------------------------------------------------------------------------- Years Ended December 31, 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Benefits earned during the year $ 63.8 $ 81.6 $ 73.3 Interest on accumulated postretirement benefit obligation 297.6 298.0 302.1 Actual return on plan assets (330.7) 12.4 (163.7) Net amortization and deferral 237.6 (89.0) 102.7 ---------- ---------- ---------- Postretirement benefit cost $ 268.3 $ 303.0 $ 314.4 ========== ========== ==========
Postretirement benefit cost decreased in 1995 principally as a result of an increase in the discount rate from 7.25% at December 31, 1993 to 8.25% at December 31, 1994, and the effect of favorable plan experience. The following table sets forth the postretirement benefit plans' funded status and the amounts recognized in the Company's Consolidated Balance Sheets as of December 31:
(Dollars in Millions) - ----------------------------------------------------------------------------------------------------------- 1995 1994 - ----------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation attributable to: Retirees $ 2,503.4 $ 2,143.6 Fully eligible plan participants 368.9 313.5 Other active plan participants 1,384.7 1,340.6 ------------ ------------ Total accumulated postretirement benefit obligation 4,257.0 3,797.7 ------------ ------------ Fair value of plan assets 1,632.5 1,279.7 ------------ ------------ Accumulated postretirement benefit obligation in excess of plan assets 2,624.5 2,518.0 Unrecognized net gain 145.7 214.7 Unamortized prior service cost (56.7) (60.3) ------------ ------------ Accrued postretirement benefit obligation $ 2,713.5 $ 2,672.4 ============ ============ Total accumulated postretirement benefit obligation by plan: Health $ 3,747.2 $ 3,367.8 Life insurance 509.8 429.9 ------------ ------------ $ 4,257.0 $ 3,797.7 ============ ============ Fair value of plan assets by plan: Health $ 932.1 $ 705.6 Life insurance 700.4 574.1 ------------ ------------ $ 1,632.5 $ 1,279.7 ============ ============
Assumptions used in the actuarial computations for postretirement benefits are as follows at December 31:
1995 1994 1993 - ------------------------------------------------------------------------------------------------- Discount rate 7.25% 8.25% 7.25% Rate of future increases in compensation levels 4.75 5.25 5.25 Medical cost trend rate: Year ending 11.00 12.00 13.00 Ultimate (year 2003) 5.00 5.00 5.00 Dental cost trend rate 4.00 4.00 4.00 ------- ------- -------
40 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 14 continued The expected long-term rate of return on plan assets was 8.25% for 1995, 1994 and 1993. 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 1995 net periodic postretirement benefit cost by $46.6 million and would have increased the accumulated postretirement benefit obligation as of December 31, 1995 by $453.8 million. Postretirement benefits other than pensions for approximately 70% of employees are subject to collective bargaining agreements and have been modified from time to time. The Company also has periodically modified benefits under plans maintained for its management employees. Substantive commitments for future amendments to the Company's postretirement benefit plans have been reflected in determining the Company's postretirement benefit cost. The actuarial assumptions used to determine postretirement benefit cost are based on financial market interest rates, past experience, and management's best estimate of future benefit changes and economic conditions. Changes in these assumptions may impact future postretirement benefit cost levels and benefit obligations. POSTEMPLOYMENT BENEFITS Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement No. 112). 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. In the third quarter of 1994, the Company recorded a pretax charge of $161.9 million to recognize benefit costs for the separation of employees who are entitled to benefits under preexisting separation pay plans. The charge, which was actuarially determined, represents benefits earned through July 1, 1994 for employees who are expected to receive separation payments in the future. SAVINGS PLANS AND EMPLOYEE STOCK OWNERSHIP PLANS The Company has established savings plans to provide opportunities for eligible employees to save for retirement on a tax-deferred basis and encourage employees to acquire and maintain an equity interest in the Company. Under these plans, the Company matches a certain percentage of eligible employee contributions with shares of the Company's common stock. Two leveraged employee stock ownership plans (ESOPs) were established to purchase the Company's common stock and fund the Company's matching contribution. Common stock is allocated from the ESOP trusts based on the proportion of principal and interest paid on ESOP debt in a year to the remaining principal and interest due over the term of the debt. At December 31, 1995, the number of unallocated and allocated shares of common stock was 8,367,068 and 8,653,180, respectively. The ESOP trusts were funded by the issuance of $790.0 million in ESOP Senior Notes. Effective January 1, 1993, the annual interest rate on the ESOP Senior Notes was reduced from 8.25% to 8.17%. The ESOP Senior Notes are payable in semiannual installments, which began on January 1, 1990 and end in the year 2000. The ESOP trusts repay the notes, including interest, with funds from the Company's contributions to the ESOP trusts, as well as dividends received on unallocated shares of common stock and interest earned on the cash balances of the ESOP trusts. Total ESOP cost and trust activity consist of the following:
(Dollars in Millions) - --------------------------------------------------------------------------------------------------------- Years Ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- Compensation $ 68.0 $ 48.1 $ 45.0 Interest incurred 48.6 48.0 52.9 Dividends (26.0) (29.8) (33.3) Other trust earnings and expenses, net (.5) (.3) .1 ---------- ---------- ---------- Net leveraged ESOP cost 90.1 66.0 64.7 Additional ESOP cost (3.2) 7.1 .9 ---------- ---------- ---------- Total ESOP cost $ 86.9 $ 73.1 $ 65.6 ========== ========== ========== Dividends received for debt service $ 43.8 $ 44.1 $ 43.4 ========== ========== ========== Total company contributions to trusts $ 99.1 $ 78.4 $ 80.3 ========== ========== ==========
41 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (15) INCOME TAXES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement No. 109). As of January 1, 1993, the Company recorded a tax benefit of $65.2 million, which has been reflected in the Consolidated Statement of Operations as the cumulative effect of a change in accounting principle. This tax benefit is principally attributable to net operating loss (NOL) carryforwards of the Metro Mobile CTS, Inc. (Metro Mobile) subsidiaries that the Company expected to realize based on projections of future taxable income. Upon adoption of Statement No. 109, the effects of required adjustments to deferred tax balances of the telephone subsidiaries, which would be recognized in the future for regulatory purposes, were deferred on the balance sheet as regulatory assets and liabilities, in accordance with Statement No. 71. At January 1, 1993, the telephone subsidiaries recorded income tax-related regulatory assets totaling $976.6 million in Other Assets and income tax-related regulatory liabilities totaling $1,043.8 million in Deferred Credits and Other Liabilities-Other. During 1993, these regulatory assets were increased by $23.9 million and regulatory liabilities were reduced by $94.1 million for the effect of the federal income tax rate increase from 34% to 35%, effective January 1, 1993. The income tax-related regulatory assets and liabilities were eliminated as a result of the discontinued application of Statement No. 71, effective August 1, 1994 (see Note 4). The components of income tax expense from continuing operations are as follows:
(Dollars in Millions) ----------------------------------------------------------- Years Ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Current: Federal $ 1,093.0 $ 1,010.8 $ 814.0 State and local 179.4 194.0 150.0 ----------- ----------- ----------- Total 1,272.4 1,204.8 964.0 ----------- ----------- ----------- Deferred: Federal (79.7) (278.0) (107.9) State and local (15.7) 7.5 2.1 ----------- ----------- ----------- Total (95.4) (270.5) (105.8) ----------- ----------- ----------- 1,177.0 934.3 858.2 ----------- ----------- ----------- Investment tax credits (29.4) (49.4) (66.2) ----------- ----------- ----------- Total income tax expense $ 1,147.6 $ 884.9 $ 792.0 =========== =========== ===========
Changes in federal and state income tax rates in 1995, 1994 and 1993 did not have a material impact on income tax expense. 42 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 15 continued 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, 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% Investment tax credits (.6) (2.2) (2.6) State income taxes, net of federal tax benefits 3.4 5.4 3.9 Benefit of rate differential applied to reversing timing differences - (1.0) (2.6) Other, net .3 1.5 1.1 ----- ----- ----- Effective income tax rate 38.1% 38.7% 34.8% ===== ===== =====
Significant components of deferred tax liabilities (assets) are as follows at December 31:
(Dollars in Millions) --------------------------------------- 1995 1994 - ------------------------------------------------------------------------------------------------ Deferred tax liabilities: Depreciation $ 2,019.4 $ 2,171.6 Leasing activities 774.1 869.8 Other 465.7 418.9 ------------- ------------- 3,259.2 3,460.3 ------------- ------------- Deferred tax assets: Employee benefits (1,593.7) (1,553.1) Investment tax credits (56.6) (69.3) Net operating loss carryforwards: Federal - (105.8) State (12.0) (22.5) Advance payments (48.5) (51.5) Other (520.1) (548.6) ------------- ------------- (2,230.9) (2,350.8) ------------- ------------- Valuation allowance 9.6 22.4 ------------- ------------- Net deferred tax liability $ 1,037.9 $ 1,131.9 ============= =============
Deferred tax assets include approximately $1,108 million and $1,083 million at December 31, 1995 and 1994, respectively, related to postretirement benefit costs recognized in accordance with Statement of Financial Accounting Standards No. 106, "Accounting for Postretirement Benefits Other Than Pensions." This deferred tax asset will gradually be realized over the estimated lives of current retirees and employees. In 1995, the Company utilized the remaining federal NOL carryforwards of the Metro Mobile subsidiaries as a result of the sale of certain cellular properties (see Note 2). At December 31, 1995, NOL carryforwards for state income tax purposes were $188.5 million (excluding amounts attributable to leveraged leases) and expire from 1996 to 2009. Based on projections of future taxable income, the Company expects to realize future tax benefits of state NOL carryforwards in the amount of $7.7 million. The valuation allowance required under Statement No. 109 primarily represents tax benefits of certain state NOL carryforwards and other deferred state tax assets, which may expire unutilized. During 1995, the valuation allowance decreased $12.8 million as a result of the disposition of certain nonregulated subsidiaries and the write-off of state NOLs that will expire prior to utilization. 43 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (16) ADDITIONAL FINANCIAL INFORMATION
(Dollars in Millions) - ------------------------------------------------------------------------------------------- December 31, 1995 1994 - ------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS: Accounts payable and accrued liabilities: Accounts payable $ 1,668.9 $ 1,595.2 Accrued expenses 513.1 625.0 Accrued vacation pay 242.4 251.5 Accrued taxes 195.9 137.2 Interest payable 103.2 128.5 ----------- ----------- $ 2,723.5 $ 2,737.4 =========== =========== Other current liabilities: Advance billings and customer deposits $ 412.9 $ 450.7 Dividend payable 306.4 301.0 ----------- ----------- $ 719.3 $ 751.7 =========== ===========
(Dollars in Millions) - --------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS: Cash paid during the year for: Interest, net of amounts capitalized $ 564.1 $ 569.1 $ 680.5 Income taxes, net of amounts refunded 1,182.1 1,283.7 844.8 Noncash investing and financing activities: Conversion of accounts receivable to note receivable 3.4 - - Note receivable on sale of business - 435.0 - Note receivable on sale of asset - 39.0 - Acquisition of plant under capital leases 14.0 11.9 13.6 Common stock issued for incentive plans 4.0 5.3 24.0 Common stock issued for acquisitions 5.5 1.5 4.2 Contribution of net assets to joint ventures: Bell Atlantic NYNEX Mobile 1,178.1 - - Other 16.4 1.6 .2 CONSOLIDATED STATEMENTS OF OPERATIONS: Interest expense incurred, net of amounts capitalized 571.1 624.6 719.6 Capitalized interest 64.4 19.1 3.8 ------------ ------------ ------------
Interest expense incurred includes $10.1 million in 1995, $42.5 million in 1994 and $107.5 million in 1993 related to the Company's lease financing business. Such interest expense is classified as other operating expenses. Income taxes, as well as payroll, gross receipts, property, capital stock and other taxes, totaled $2,026.8 million for 1995. Included in operating expenses are amounts billed by Bell Communications Research, Inc. (Bellcore). Such expenses for 1995, 1994 and 1993 were $103.7 million, $99.8 million and $143.2 million, respectively, for various network planning, engineering, and software development projects. Bellcore expenses in 1994 include reimbursements of approximately $50 million from other Bellcore owners in connection with their decision to participate in the Advanced Intelligent Network project. This project previously had been supported entirely by the Company. Total advertising expense amounted to $122.0 million in 1995, $122.6 million in 1994 and $169.0 million in 1993. 44 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- (17) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts) ------------------------------------------------------------------------------------------------------ Income Before Operating Operating Income Before Extraordinary Items Quarter Ended Revenues Income Extraordinary Items Per Common Share Net Income (Loss) - ------------------------------------------------------------------------------------------------------------------------------ 1995: March 31 $ 3,449.7 $ 831.5 $ 414.5 $ .95 $ 414.5 June 30 3,564.5 843.0 447.1 1.02 447.1 September 30/*/ 3,261.1 719.4 604.8 1.38 604.8 December 31 3,154.2 692.3 395.4 .90 391.9 -------------- -------------- -------------- -------------- -------------- 1994: March 31 $ 3,419.6 $ 748.8 $ 395.9 $ .91 $ 389.2 June 30 3,430.0 797.5 415.4 .95 415.4 September 30/**/ 3,455.3 591.0 275.7 .63 (1,874.3) December 31 3,486.5 667.3 314.9 .72 314.9 -------------- -------------- -------------- -------------- --------------
* Net income for the third quarter of 1995 includes a gain of approximately $200 million related to the sale of certain cellular properties in connection with the formation of the Bell Atlantic NYNEX Mobile partnership (see Note 2). ** The loss for the third quarter of 1994 includes an extraordinary charge of $2,150.0 million, net of an income tax benefit of $1,498.4 million, related to the discontinuation of regulatory accounting principles by the Company's telephone subsidiaries (see Note 4). 45 EX-21 13 BELL ATLANTIC SUBSIDIARIES EXHIBIT 21 Bell Atlantic Subsidiaries - -------------------------- Anderson CellTelCo Atlantic West B.V. BA Parkway Associates BA Parkway Associates II BABS Australia Pty. Ltd. BAC Financial Services International B.V. BAC International - The Netherlands B.V. BAC International - The Netherlands B.V. Sucursal en Espana BACPE, Inc. BAP - 1760 Market, Inc. BAP - 1800 Arch Land Parcel, Inc. BAP - 6755 Snowdrift, Inc. BAP - 7150 Windsor, Inc. BAP - Caroline, Inc. BAP-Durham, Inc. BAPCI Services, Inc. BATCL - 1987 - I, Inc. BATCL - 1987 - II, Inc. BATCL - 1987 - III, Inc. BATCL-1991-I, Inc. BATCL-1991-II, Inc. BATCO-1989-II, Inc. BATCO-1989-III, Inc. Bell Atlantic - Delaware, Inc. Bell Atlantic - Maryland, Inc. Bell Atlantic - New Jersey, Inc. Bell Atlantic - Pennsylvania, Inc. Bell Atlantic - Virginia, Inc. Bell Atlantic - Washington, D.C., Inc. Bell Atlantic - West Virginia, Inc. Bell Atlantic Administrative Services, Inc. Bell Atlantic Asia, Inc. Bell Atlantic Australia Pty. Limited Bell Atlantic Austria, Inc. Bell Atlantic Aviation Services, Inc. Bell Atlantic Benelux, Inc. Bell Atlantic Capital Corporation Bell Atlantic Capital Funding Corp. Bell Atlantic Cellular Consulting Group, Inc. Bell Atlantic China Holdings Ltd. Bell Atlantic Communications and Construction Services, Inc. Bell Atlantic Computer Services International, Inc. Bell Atlantic Construction Services, Inc. Bell Atlantic Czech Republic, Inc. Bell Atlantic Directory Graphics, Inc. Bell Atlantic Electronic Publishing, Inc. Bell Atlantic Enterprises International, Inc. Bell Atlantic Entertainment and Information Services Group, Inc. Bell Atlantic Europe S.A. Bell Atlantic Federal Integrated Systems, Inc. Bell Atlantic Federal Integrated Systems - Puerto Rico, Inc. Bell Atlantic Financial Services, Inc. Bell Atlantic Foreign Sales Corporation Bell Atlantic Foundation Bell Atlantic Gulf Holdings Ltd. Bell Atlantic Holdings Limited Bell Atlantic India, Inc. Bell Atlantic Indonesia, Inc. Bell Atlantic Information Systems, Inc. Bell Atlantic InfoSpeed Corp. Bell Atlantic Integrated Systems, Inc. Bell Atlantic International - Italia S.r.L. Bell Atlantic International Ventures, Inc. Bell Atlantic International, Inc. Bell Atlantic Internet Solutions, Inc. Bell Atlantic Investment Development Corporation Bell Atlantic Investments, Inc. Bell Atlantic Land Development, Inc. Bell Atlantic Latin America Holdings, Inc. Bell Atlantic Market Research, Inc. Bell Atlantic Media Ventures, Inc. Bell Atlantic Meridian Systems Bell Atlantic Mexico, S.A. de C.V. Bell Atlantic Mobile Systems of Allentown, Inc. Bell Atlantic Mobile Systems of Northern New Jersey, Inc. Bell Atlantic Mobile Systems, Inc. Bell Atlantic Mobilfunk GmbH Bell Atlantic Network Funding Corporation Bell Atlantic Network Integration, Inc. Bell Atlantic Network Services, Inc. Bell Atlantic New Holdings, Inc. Bell Atlantic New Zealand Holdings, Inc. Bell Atlantic NSI Holdings, Inc. Bell Atlantic NYNEX Mobile, Inc. Bell Atlantic Paging, Inc. Bell Atlantic PAI Comunicaciones C.A. Bell Atlantic Payment Systems, Inc. Bell Atlantic Personal Communications, Inc. Bell Atlantic Poland, Inc. Bell Atlantic Professional Services, Inc. Bell Atlantic Properties, Inc. Bell Atlantic Property Holdings II, Inc. Bell Atlantic Property Holdings III, Inc. Bell Atlantic Puerto Rico, Inc. Bell Atlantic TELE-TV Holdings, Inc. Bell Atlantic Telecommunications Systems, Inc. Bell Atlantic TeleProducts Corp. Bell Atlantic Telezone Holdings, Inc. Bell Atlantic TriCon Leasing Corporation Bell Atlantic Utilities Systems, Inc. Bell Atlantic Vehicle Management Bell Atlantic Vehicle Management, Inc. Bell Atlantic Ventures II, Inc. Bell Atlantic Ventures XXIII, Inc. Bell Atlantic Ventures XXV, Inc. Bell Atlantic Ventures XXVIII, Inc. Bell Atlantic Video Services Company Bell Atlantic Video Services, Inc. Bell Atlanticom Systems, Inc. Bell Communications Research CAI Wireless Systems, Inc. Chesapeake Directory Sales Company Columbia Cellular Telephone Company Essar Commvision Limited Essar Telecom Limited EuroTel Bratislava Ltd. EuroTel Praha Ltd. FBA Computer Technology Services FM America Corp. Greenville Cellular Telephone Company HKP Partners of New Zealand Limited Howard W. Sams & Company ICA Foreign Financial, Inc. Infostrada S.p.A. IR Northlight II Associates Iron Run Venture I Iron Run Venture II Iron Run Venture III Las Cruces Cellular Telephone Company Metro Mobile CTS MIS, Inc. Metro Mobile CTS of Albuquerque, Inc. Metro Mobile CTS of Anderson, Inc. Metro Mobile CTS of Charlotte, Inc. Metro Mobile CTS of Cherokee, Inc. Metro Mobile CTS of Columbia, Inc. Metro Mobile CTS of El Paso, Inc. Metro Mobile CTS of Fairfield County, Inc. Metro Mobile CTS of Greenville, Inc. Metro Mobile CTS of Hartford, Inc. Metro Mobile CTS of Lancaster, Inc. Metro Mobile CTS of Las Cruces, Inc. Metro Mobile CTS of New Bedford, Inc. Metro Mobile CTS of New Haven, Inc. Metro Mobile CTS of New London, Inc. Metro Mobile CTS of Newport, Inc. Metro Mobile CTS of Phoenix, Inc. Metro Mobile CTS of Pittsfield, Inc. Metro Mobile CTS of Providence, Inc. Metro Mobile CTS of Springfield, Inc. Metro Mobile CTS of the Northeast, Inc. Metro Mobile CTS of the Southeast, Inc. Metro Mobile CTS of the Southwest, Inc. Metro Mobile CTS of Tucson, Inc. Metro Mobile CTS of Windham, Inc. Metro Mobile of Venezuela, Inc. Metro Mobile Real Estate Development of New York, Inc. Metro Mobile Transport, Inc. MMDS Holdings II, Inc. MMDS Holdings, Inc. National Telephone Directory Company New Bedford Cellular Telephone Company Omnitel-Pronto Italiani S.p.A Omnitel-Sistemi Radiocellulari Italiani S.p.A. P.T. Citra Sari Makmur Pacific Star Communications (NSW) Pty. Ltd. Pacific Star Communications (QLD) Pty. Ltd. Pacific Star Communications Pty. Ltd. Penn-Del Directory Company Portal Investments, Inc. Sodalia S.p.A. Southwestco Wireless, Inc. Springfield Cellular Telephone Company The Bell Atlantic Systems Group, Inc. The Penn's Landing Marina Corporation EX-23 14 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Bell Atlantic Corporation on Form S-3 (File No. 33-30642), Form S-8 (File No. 2- 97281), Form S-3 (File No. 33-8451), Form S-8 (File No. 33-10377), Form S-8 (File No. 33-10378), Form S-8 (File No. 33-58681), Form S-8 (File No. 33-58683), Form S-8 (File No. 333-00409), Form S-3 (File No. 33-36551), Form S-3 (File No. 33-49085), Form S-3 (File No. 33-62393), Form S-4 (File No. 33-49025), of our reports dated February 5, 1996, which include an explanatory paragraph stating that the Company discontinued accounting for the operations of its telephone subsidiaries in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," effective August 1, 1994, and changed its method of accounting for income taxes and postemployment benefits in 1993, on our audits of the consolidated financial statements and financial statement schedule of the Company and its subsidiaries as of December 31, 1995 and December 31, 1994, and for each of three years in the period ended December 31, 1995, which reports are incorporated by reference or included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania March 27, 1996 EX-24 15 POWER OF ATTORNEY POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 25th day of March, 1996. /s/ WILLIAM W. ADAMS ----------------------------------- William W. Adams POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ THOMAS E. BOLGER ----------------------------------- Thomas E. Bolger POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 25th day of March, 1996. /s/ FRANK C. CARLUCCI ----------------------------------- Frank C. Carlucci POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 22nd day of March, 1996. /s/ WILLIAM G. COPELAND ----------------------------------- William G. Copeland POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ JAMES H. GILLIAM, JR. ----------------------------------- James H. Gilliam, Jr. POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ THOMAS H. KEAN ----------------------------------- Thomas H. Kean POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ JOHN C. MAROUS, JR. ----------------------------------- John C. Marous, Jr. POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ JOHN F. MAYPOLE ----------------------------------- John F. Maypole POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ JOSEPH NEUBAUER ----------------------------------- Joseph Neubauer POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ THOMAS H. O'BRIEN ----------------------------------- Thomas H. O'Brien POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ ECKHARD PFEIFFER ----------------------------------- Eckhard Pfeiffer POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ ROZANNE L. RIDGWAY ----------------------------------- Rozanne L. Ridgway POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 25th day of March, 1996. /s/ SHIRLEY YOUNG ----------------------------------- Shirley Young POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 25th day of March, 1996. /s/ DOREEN A. TOBEN ----------------------------------- Doreen A. Toben POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 25th day of March, 1996. /s/ LAWRENCE T. BABBIO, JR. ----------------------------------- Lawrence T. Babbio, Jr. POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ JAMES G. CULLEN ----------------------------------- James G. Cullen POWER OF ATTORNEY The undersigned does hereby constitute and appoint William O. Albertini, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 26th day of March, 1996. /s/ RAYMOND W. SMITH ----------------------------------- Raymond W. Smith EX-27 16 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 357 0 2,576 190 133 3,873 33,554 17,633 24,157 5,373 6,407 438 0 0 6,246 24,157 0 13,430 0 10,343 0 0 561 3,009 1,148 1,862 0 (4) 0 1,858 4.24 0
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