ITEM 1. BUSINESS.
GENERAL
U S WEST, Inc. ("U S WEST") was incorporated under the laws of the State of Colorado and has its principal executive offices at 7800 East Orchard Road, Englewood, Colorado 80111, telephone number (303) 793-6500. U S WEST is a diversified global communications company engaged in the telecommunications, directory publishing, marketing and, most recently, entertainment services businesses. Telecommunications services are provided by U S WEST's principal subsidiary, U S WEST Communications, Inc., to more than 25 million residential and business customers in the states of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming (collectively, the "U S WEST Region"). Directory publishing, marketing and entertainment services as well as cellular mobile communications services are provided by other U S WEST subsidiaries to customers both inside and outside the U S WEST Region. (Financial information concerning U S WEST's operations is set forth in the Consolidated Financial Statements and Notes thereto in the U S WEST 1994 Annual Report to Shareowners (the "1994 Annual Report"), which is incorporated herein by reference.) U S WEST and its subsidiaries had 61,505 employees at December 31, 1994.
RECENT DEVELOPMENTS
U S WEST COMMUNICATIONS
Development of Multimedia Network. In 1993, U S WEST announced its intention to build a multimedia telecommunications network (the "Multimedia Network") capable of providing voice, data and video services to customers within the U S WEST Region. U S WEST expects that it will ultimately deliver a variety of integrated communications, entertainment and information services and other high speed digital services, including data applications, through the Multimedia Network in selected areas of the U S WEST Region. These integrated services, including video-on-demand, targeted advertising, home shopping, interactive games, high-definition broadcast television and two-way, video telephony are expected to become available over time as the Multimedia Network develops. U S WEST began limited testing of its Multimedia Network in Omaha, Nebraska in December, 1994. A market trial will begin in 1995 in an area that will cover up to 50,000 homes. U S WEST is seeking approval from the Federal Communications Commission (the "FCC") to install Multimedia Network architecture in several other cities within the U S WEST Region. The results of the technical and market trials will be incorporated into the network configuration and future service offerings.
Re-engineering. U S WEST also announced in 1993 that U S WEST Communications would implement a plan (the "Re-engineering Plan") designed to provide faster, more responsive customer service and improved repair capabilities while reducing the costs of providing these services. Pursuant to the Re-engineering Plan, U S WEST Communications is developing new systems that will enable it to monitor networks to reduce the risk of service interruptions, activate telephone service on demand, provide automated inventory systems and centralize its service centers so that customers can have their telecommunications needs resolved with one phone call. U S WEST Communications is also gradually reducing its work force by approximately 9,000 employees and consolidating the operations of its existing 560 customer centers into 26 customer centers in ten cities. Implementation of the Re-engineering Plan is expected to extend into 1997, rather than being completed in 1996 as originally scheduled. In the third quarter of 1993, U S WEST accrued a one-time, after-tax charge of $610 million for costs associated with the Re-engineering Plan, including employee training costs, severance benefits, employee relocations costs and building preparation and system installation costs. While U S WEST estimates that total employee and related costs will be reduced upon completion of the Re-engineering Plan, these savings are expected to be offset by the effects of inflation. (See "Restructuring Charges" under Management's Discussion and Analysis of Financial Condition and Results of Operations on p. 14 of the 1994 Annual Report, which is incorporated by reference herein.)
Discontinuance of SFAS 71 Accounting. In 1993, U S WEST incurred a $3.1 billion non-cash, extraordinary charge, net of an income tax benefit of $2.3 billion, against its earnings in conjunction with its decision to discontinue accounting for the operations of U S WEST Communications in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). SFAS 71 generally applies to regulated companies that meet certain requirements, including a requirement that a company be able to recover its costs, notwithstanding competition, by charging its customers at prices established by a regulator. U S WEST's decision to discontinue accounting for the operations of U S WEST Communications in accordance with SFAS 71 is based on the belief that the development of multimedia technology, competition and market conditions, more than prices established by regulators, will determine the future cost recovery by U S WEST Communications. As a result of this accounting change, the remaining asset lives of U S WEST Communications' telephone plant were shortened to more closely reflect the useful life of such plant. U S WEST Communications' financial reporting for regulatory purposes was not affected by the change. U S WEST Communications expects that it will continue to work with regulators to set appropriate prices that reflect changing market conditions, including shorter asset lives.
CABLE INVESTMENTS
On December 6, 1994, U S WEST purchased Wometco Cable Corp. and Georgia Cable Holdings (the "Atlanta Cable Properties") for $1.2 billion, consisting of $745 million in cash and $459 million in common stock. Together, the Atlanta Cable Properties serve about 65 percent of the cable customers in the metropolitan Atlanta area. U S WEST expects that it will eventually offer local exchange services as well as multimedia services in the Atlanta area as a result of this acquisition.
In 1993, U S WEST acquired 25.51% pro rata priority capital and residual equity interests in Time Warner Entertainment Company, L.P. ("TWE") for an aggregate purchase price of approximately $2.55 billion, consisting of approximately $1.53 billion in cash and approximately $1.02 billion in the form of a four-year promissory note bearing interest at a rate of 4.391% per annum (the "TWE Investment"). TWE owns and operates substantially all of the filmed entertainment (including Warner Bros.), programming (including HBO and Cinemax) and cable operations previously owned and operated by Time Warner Inc. TWE is the second-largest domestic multiple system cable operator, owning or operating 22 of the top 100 cable systems in the United States.
U S WEST has an option to increase its equity interests in TWE from 25.51% to 31.84%. The option is exercisable, in whole or in part, between January 1, 1999 and May 31, 2005 upon the attainment of certain earnings thresholds for an aggregate cash exercise price of $1.25 billion to $1.8 billion (depending on the year of exercise). At the election of U S WEST or TWE, the exercise price will be payable by surrendering a portion of the equity interests receivable upon exercise of such option. In connection with the TWE Investment, U S WEST acquired 12.75% of the common stock of Time Warner Entertainment Japan Inc., a joint venture company established to expand and develop the market for entertainment services in Japan.
DOMESTIC WIRELESS SERVICES
On July 25, 1994, AirTouch Communications ("AirTouch") and U S WEST announced an agreement to combine their domestic wireless operations. AirTouch's initial equity ownership of the wireless joint venture will be approximately 70 percent and U S WEST's will be 30 percent. This joint venture will provide U S WEST with an expanded wireless presence and economies of scale. The joint venture will have a presence in 9 of the top 20 cellular markets in the country. The transaction is expected to close in the second quarter of 1995 upon obtaining certain federal and state regulatory approvals. Each company's cellular operations initially will continue to operate as separate entities owned by the individual partners, but upon closing will report to a joint Wireless Management Company, which will provide support services.
A merger of the two companies' operations will take place upon the earlier of four years from July 25, 1994, the lifting of certain MFJ restrictions, or at AirTouch's option. The agreement gives U S WEST strategic flexibility, including the right to exchange its interest in the joint venture for up to 19.9 percent of
AirTouch common stock, with any excess amounts to be received in the form of AirTouch non-voting preferred stock. A Partnership Committee, led by the president and chief operating officer of AirTouch and three other AirTouch representatives, three U S WEST representatives and one mutually agreed upon independent representative will oversee the companies' domestic cellular operations.
On December 5, 1994, a partnership formed by the AirTouch/U S WEST joint venture and the Bell Atlantic/NYNEX partnership began bidding on personal communications services ("PCS") licenses that are being auctioned by the FCC. The combined companies own cellular licenses in 15 of the top 20 cities and serve over five million customers. The partnership, known as PCS PrimeCo, is eligible to bid for PCS licenses in 26 markets, representing more than 100 million POPS. This entity will be governed by a board made up of three members from the Bell Atlantic/NYNEX partnership and three members from the AirTouch/U S WEST joint venture. A second partnership will develop a national branding and marketing strategy and a common "look and feel" for both cellular and PCS customers. The cellular properties of Bell Atlantic/NYNEX will not be merged with those of AirTouch/U S WEST.
PERSONAL COMMUNICATIONS SERVICES
In 1993, Mercury One-2-One, a 50-50 joint venture between U S WEST and Cable & Wireless PLC, launched the world's first commercial PCS in the United Kingdom. Mercury One-2-One's PCS is a digital cellular communications service designed to offer consumers higher quality service, increased privacy and more features at lower prices than existing cellular communications systems. To meet growing customer demand, Mercury One-2-One has expanded its coverage to reach 30 percent of the U.K. population.
TELEWEST INITIAL PUBLIC OFFERING
In 1994, TeleWest Communications PLC ("TeleWest"), a venture with Tele-Communications, Inc., completed an initial public offering of its common stock. U S WEST's interest in TeleWest was reduced from 50 percent to 37.8 percent as a result of the offering, but based on the offering price, its interest is valued at U.S. $1.1 billion. TeleWest is the largest provider of combined cable television and telephone service in the world. The combined services are provided over a multimedia network which has been designed to provide a wide range of interactive and integrated entertainment, telecommunication and information services as they become available in the future. TeleWest owns all or part of 23 franchises that encompass 3.6 million homes. Through TeleWest, U S WEST has gained experience in packaging video and telephone service that it utilizes in other parts of the world.
DISCONTINUANCE OF CAPITAL ASSETS SEGMENT
In 1993, in connection with its decision to concentrate its resources and efforts on developing its telecommunications business, U S WEST determined to treat its capital assets business segment (the "Capital Assets segment") as a discontinued operation and announced its intention to dispose of the businesses comprising that segment. U S WEST's remaining business segment, "Communications and Related Services," comprises the continuing operations of U S WEST. U S WEST continues to make progress in disposing of its Capital Assets segment in accordance with its plan of disposition.
In May, 1994, U S WEST sold 7.5 million shares of Financial Security Assurance Holdings Ltd. ("FSA"), including 2 million shares to Fund American Enterprises Holdings, Inc. ("FFC"), in an initial public offering of FSA common stock. In June, 1994, an additional 600,000 shares were issued in connection with an over-allotment option. U S WEST received $154 million in net proceeds from the offering. In conjunction with the sale of FSA shares to FFC, U S WEST issued 50,000 shares of a class of newly created cumulative redeemable preferred stock. FFC's voting rights in FSA increased to 21.0 percent through a combination of direct share ownership of common and preferred FSA shares and a voting trust agreement with U S WEST. U S WEST's voting rights are 49.8 percent.
During 1994, U S WEST Real Estate, Inc. continued the liquidation of its real estate portfolio, selling 12 buildings, six parcels of land and other assets for approximately $327 million U S WEST expects that the liquidation of this portfolio will be substantially completed by 1998.
U S WEST'S CONTINUING OPERATIONS
U S WEST Communications. U S WEST Communications was formed January 1, 1991, when Northwestern Bell Telephone Company ("Northwestern Bell") and Pacific Northwest Bell Telephone Company ("Pacific Northwest Bell") were merged into The Mountain States Telephone and Telegraph Company ("Mountain States"), which simultaneously changed its name to U S WEST Communications, Inc. U S WEST acquired ownership of Mountain Bell, Northwestern Bell and Pacific Northwest Bell on January 1, 1984, when American Telephone and Telegraph Company ("AT&T") transferred its ownership interests in these three wholly owned operating telephone companies to U S WEST. This divestiture was made pursuant to a court-approved consent decree entitled the "Modification of Final Judgment" ("MFJ") which arose out of an antitrust action brought by the United States Department of Justice against AT&T.
Operations of U S WEST Communications. U S WEST Communications serves approximately 80% of the population in the U S WEST Region and approximately 40% of the land area. At December 31, 1994, U S WEST Communications had approximately 14,336,000 telephone network access lines in service, a 3.6% increase over year end 1993.
Under the terms of the MFJ, the U S WEST Region was divided into 29 geographical areas called "Local Access and Transport Areas" ("LATAs") with each LATA generally centered on a metropolitan area or other identifiable community of interest. The principal types of telecommunications services offered by U S WEST Communications are (i) local service, (ii) exchange access service (which connects customers to the facilities of interLATA service providers), and (iii) intraLATA long distance network service. For the year ended December 31, 1994, local service, exchange access service and intraLATA long distance network service accounted for 37%, 27% and 12%, respectively, of the sales and other revenues of U S WEST's continuing operations. In 1994, revenues from a single customer, AT&T, accounted for approximately 10% of the sales and other revenues of U S WEST's continuing operations.
U S WEST Communications incurred capital expenditures of approximately $2.45 billion in 1994 and expects to incur approximately $2.1 billion in 1995. The 1994 capital expenditures of U S WEST Communications were substantially devoted to the continued modernization of telephone plant, including investments in fiber optic cable, in order to improve customer services and network productivity.
Central to U S WEST Communications' competitive strategy in 1994 were its efforts respecting the Multimedia Network and the Re-engineering Plan. See "Recent Developments -- U S WEST Communications."
Regulation of U S WEST Communications. U S WEST Communications is subject to varying degrees of regulation by state commissions with respect to intrastate rates and service, and access charge tariffs. Under traditional rate of return regulation, intrastate rates are generally set on the basis of the amount of revenues needed to produce an authorized rate of return.
U S WEST Communications has sought alternative forms of regulations ("AFOR") plans which provide for competitive parity, enhanced pricing flexibility and improved capability in bringing to market new products and services. In a number of states where AFOR plans have been adopted, such actions have been accompanied by requirements to refund revenues, reduce existing rates or upgrade service, any of which could have adverse short-term effects on earnings. Similar agreements may have resulted under traditional rate of return regulation. (See "State Regulatory Issues" under Management's Discussion and Analysis of Financial Condition and Results of Operations on p. 22 of the 1994 Annual Report, which is incorporated by reference herein.)
U S WEST Communications is also subject to the jurisdiction of the FCC with respect to interstate access tariffs (that specify the charges for the origination and termination of interstate communications) and
other matters. U S WEST's interstate services have been subject to price cap regulation since January 1991. Price caps are a form of incentive regulation and, ostensibly, limit prices rather than profits. However, the FCC's price cap plan includes sharing of earnings in excess of authorized levels. The Company believes that competition will ultimately be the determining factor in pricing telecommunications services. (See "Federal Regulatory Issues" under Management's Discussion and Analysis of Financial Condition and Results of Operations on p. 21 of the 1994 Annual Report, which is incorporated by reference herein.)
Congress failed to pass telecommunications reform legislation in 1994. It is expected that new telecommunications legislation will be introduced in 1995. However, there is uncertainty concerning the scope and the direction of that legislation. U S WEST believes that it is in the public interest to lift all competitive restrictions, placing all competitors under the same rules. Such action would lead to wider consumer choices, and ensure the industry's technological development and long-term financial health.
Competition. U S WEST believes that the convergence of the communications, entertainment and information services businesses will lead to increased competition for U S WEST from companies in industries with which U S WEST did not historically compete. U S WEST Communications' principal competitors are competitive access providers ("CAPs") and interexchange carriers. In recent years, potential competitors have expanded to include cable television companies, combined cable television/telecommunications companies and cellular companies. Cable television companies are expected to increase competition by offering telecommunications and other information services. Combined cable television and telecommunications companies are expected to increase competition for local telephone and alternative exchange access services as well as those services expected to be available through the Multimedia Network. AT&T's entrance into the cellular communications market through its acquisition of McCaw Cellular Communications, Inc. may create increased competition in local exchange as well as cellular services.
Currently, competition from long distance companies is eroding U S WEST Communications' market share of intraLATA long distance services such as Wide Area Telephone Service and "800." These revenues have steadily declined over the last several years as customers have migrated to interexchange carriers who have the ability to offer these services on both an intraLATA and interLATA basis. U S WEST and its affiliates are prohibited from providing interLATA long distance services.
The impact of increased competition on the operations of U S WEST Communications will be influenced by the future actions of regulators and legislators who increasingly are advocating competition. The loss of local exchange customers to competitors would affect multiple revenue streams of U S WEST and could have a material adverse effect on its operations.
Other U S WEST Subsidiaries and Investments. Other continuing operations include subsidiaries engaged in (i) publishing services, primarily "Yellow Pages" and other directories, (ii) designing, engineering and operating mobile telecommunications systems, (iii) cellular and land-line telecommunications, network infrastructure and cable television businesses in certain foreign countries, and (iv) entertainment services.
U S WEST Marketing Resources Group, Inc. ("Marketing Resources"), which accounted for about 9% of U S WEST's 1994 revenues from continuing operations, publishes about 300 white and yellow page directories in the U S WEST Region. Marketing Resources competes with local and national publishers of directories, as well as other advertising media such as newspapers, magazines, broadcast media and direct mail. Marketing Resources intends to focus on enhancing core products, developing and packaging new information products through new and existing databases.
U S WEST NewVector Group, Inc. ("NewVector"), which accounted for approximately 7% of U S WEST's 1994 revenues from continuing operations, provides communications and information products and services, including cellular services, over wireless networks in 31 Metropolitan Service Areas and 34 Rural Service Areas, primarily located in the U S WEST Region. Competition for full service cellular customers is currently limited to holders of the two cellular licenses granted in a given cellular market. Despite its rapid growth, the cellular industry is faced with many challenges including the introduction of new technologies, increased competition and an uncertain regulatory environment. In 1994, NewVector agreed to combine its domestic wireless services with those of AirTouch, and to be part of a partnership including AirTouch, Bell
Atlantic and NYNEX that would bid on PCS licenses that are being auctioned by the FCC. See "Recent Developments -- Domestic Wireless Services."
U S WEST Multimedia Communications, Inc. ("Multimedia Communications") was formed to manage U S WEST's cable investments, and has primary responsibility for aiding U S WEST in achieving its strategic goal of becoming a leading provider of interactive, integrated communications, entertainment and information services outside the U S WEST Region.
Multimedia Communications is also responsible for identifying and pursuing alliances, acquisitions and/or investments that complement U S WEST's strategy. U S WEST is seeking to strengthen its national out-of-region presence by acquiring or forming alliances with other communications, entertainment and information services companies throughout the United States. The first major step toward that goal was the TWE Investment made in 1993. More recently, U S WEST acquired the Atlanta Cable Properties. See "Recent Developments -- Cable Investments."
U S WEST will continue to employ strategic alliances and will also make direct investments in assets or businesses that are consistent with its business strategies. Financing for new investments will primarily come from a combination of new debt and equity. In the event of a new investment of substantial magnitude, the Company may also re-evaluate its use of internally generated cash, the feasibility of further acquisitions, the possibility of sales of assets and the capital structure.
During 1994, U S WEST continued expanding its international ventures, which include investments in cable television and telecommunications, wireless communications including PCS, directory publishing, and international networks. The Company completed its purchase of Thomson Directories, a publisher of 155 telephone directories that reach 80 percent of the households in Great Britain. The Company also purchased 49 percent of Listel, a Brazilian company that produces telephone directories, and acquired a minority interest in Binariang Sdn Bhd, a Malaysian telecommunications company that holds four licenses that enable it to become a second network operator in Malaysia.
U S WEST's net investment in international ventures approximated $988 million (inclusive of consolidated entities) at December 31, 1994, approximately 68% of which is in the United Kingdom. Of the total international investment, approximately 53% is invested in cable television joint ventures, mostly in the United Kingdom and Western Europe.
Because U S WEST's international investments are in new, developing businesses, they typically are in a high growth, reinvestment phase for several years and do not show net income or positive cash flow until they become more mature. Consequently, start-up losses from these investments, in total, are expected to increase in 1995 and possibly beyond. The Company's future commitment to international ventures is currently planned at about $400 million in 1995, but could increase as new opportunities become available.
ITEM 2.

ITEM 2. PROPERTIES.
The properties of U S WEST do not lend themselves to description by character and location of principal units. At December 31, 1994, the majority of U S WEST property was utilized in providing telecommunications services by U S WEST Communications. Substantially all of U S WEST Communications' central office equipment is located in owned buildings situated on land owned in fee, while many garages and administrative and business offices are in leased quarters.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
U S WEST and its subsidiaries are subject to claims and proceedings arising in the ordinary course of business. While complete assurance cannot be given as to the outcome of any contingent liabilities, in the opinion of U S WEST, any financial impact to which U S WEST and its subsidiaries are subject is not expected to be material in amount to U S WEST's operating results or its financial position.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF U S WEST
Pursuant to General Instructions G(3), the following information is included as an additional item in Part I:
- --------------- (1) Mr. Ames, while not an officer of U S WEST, performs significant policy making functions equivalent to those typically performed by an officer.
(2) Mr. McClellan was appointed Acting Executive Vice President effective October 10, 1994.
(3) Mr. McCormick was appointed Chief Executive Officer on January 1, 1991, and was elected Chairman of the Board effective May 1, 1992.
(4) Mr. Osterhoff has announced his retirement from U S WEST but will remain in his present position until a successor is named.
Executive Officers are not elected for a fixed term of office, but serve at the discretion of the Board of Directors.
Each of the above executive officers has held a managerial position with U S WEST or an affiliate of U S WEST since 1990, except for Messrs. Osterhoff, Rubis and Russ. Mr. Osterhoff was Vice President -- Finance and Chief Financial Officer of Digital Equipment Corporation from 1985 to 1991. Mr. Rubis was Vice President -- Quality for U S WEST International and Business Development Group, a division of U S WEST, from 1991 to 1992; Director -- Quality and Service Improvement for U S WEST NewVector Group, Inc., a subsidiary of U S WEST, from 1990 to 1991. Prior to joining the U S WEST family, Mr. Rubis worked as an independent labor relations consultant and as co-founder and principal of Workplace One, Ltd., a Canadian-based consulting firm, from 1979 to 1988. In 1988, he merged his firm with Deltapoint Corp., a Seattle-based Quality Improvement consulting firm. Mr. Russ was Vice President, Secretary and General Counsel of NCR Corporation from February, 1984 to June, 1992.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is included on page 54 of the 1994 Annual Report under the heading "Note 18: Quarterly Financial Data (Unaudited)" and is incorporated herein by reference. The U.S. markets for trading in U S WEST common stock are the New York Stock Exchange and the Pacific Stock Exchange. As of December 31, 1994, U S WEST common stock was held by approximately 816,099 shareholders of record.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included on page 1 of the 1994 Annual Report under the heading "Financial Highlights" and is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required by this item is included on pages 7 through 31 of the 1994 Annual Report and is incorporated herein by reference.
ITEM 8.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included on pages 33 through 54 of the 1994 Annual Report and is incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item with respect to executive officers is set forth in Part I, page 10, under the caption "Executive Officers of U S WEST."
The information required by this item with respect to Directors is included in the U S WEST definitive Proxy Statement dated March 16, 1995 ("Proxy Statement") under "Election of Directors" on pages 4 and 5 and is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included in the Proxy Statement under "Executive Compensation" on pages 10 through 16 and "Compensation of Directors" on pages 2 and 3 and is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included in the Proxy Statement under "Securities Owned by Management" on page 3 and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following independent accountants' report and consolidated financial statements are incorporated by reference in Part II of this report on Form 10-K:
Financial statement schedules other than those listed above have been omitted because the required information is contained in the financial statements and notes thereto, or because such schedules are not required or applicable.
(b) Reports on Form 8-K:
U S WEST filed the following reports on Form 8-K during the fourth quarter of 1994:
(i) report dated October 17, 1994 relating to a release of earnings for the period ended September 30, 1994;
(ii) report dated December 8, 1994 announcing its plan to buy back stock, and the completion of the Atlanta Cable properties acquisition.
(c) Exhibits:
Exhibits identified in parentheses below, on file with the Securities and Exchange Commission ("SEC"), are incorporated herein by reference as exhibits hereto.
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, in the City of Englewood, State of Colorado, on March 7, 1995.
U S WEST, Inc.
By: /s/ JAMES M. OSTERHOFF James M. Osterhoff Executive Vice President and Chief Financial Officer
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.
Dated March 7, 1995
INDEPENDENT ACCOUNTANTS' REPORT
Our report on the consolidated financial statements of U S WEST, Inc., which includes an explanatory paragraph regarding the discontinuance of accounting for the operations of U S WEST Communications, Inc. in accordance with Statement of Financial Accounting Standard No. 71, "Accounting for the Effects of Certain Types of Regulation," in 1993, and a change in the method of accounting for postretirement benefits other than pensions and other postemployment benefits in 1992, has been incorporated by reference in this Form 10-K from page 32 of the 1994 Annual Report to Shareowners of U S WEST, Inc. In connection with our audits or such consolidated financial statements, we have also audited the related consolidated financial statement schedules listed in the index on page 12 of this Form 10-K for the years ended December 31, 1994, 1993 and 1992.
In our opinion, the consolidated financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND L.L.P. Denver, Colorado January 18, 1995
U S WEST, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN MILLIONS)
- ---------------
NOTE: Certain reclassifications within the schedule have been made to conform to the current year presentation.
(a) Does not include amounts charged directly to expense. These amounts were $10, $10 and $9 for 1994, 1993 and 1992, respectively.
(b) Represents credit losses written off during the period, less collection of amounts previously written off.
(c) Primarily due to sale of U S WEST Financial Services finance receivables and assets.
(d) The company adopted SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" in 1993. SFAS No. 113 requires reinsurance receivables to be reflected as assets rather than netted against the loss reserve. Prior years have been restated for comparability.
(e) This amount relates to loss reserves of Financial Security Assurance at the beginning of 1994. Financial Security Assurance is now accounted for under the equity method.
(f) Primarily valuation allowance related to the 1990 purchase of a $294 face amount mobile home loan portfolio for $197.
(g) Provision for estimated loss on disposal of the Capital Assets segment of $100 and an additional provision of $20 to reflect the cumulative effect on deferred taxes of the 1993 federally mandated increase in income tax rates.
S-1
(U S WEST LOGO)
(RECYCLED PAPER LOGO) RECYCLED PAPER INDEX TO EXHIBITS


Item 1. Business. - - ------------------
Nordstrom, Inc. (the "Company") was incorporated in the State of Washington in 1946 as successor to a retail shoe business started in 1901. Today, the Company operates 53 large specialty stores and four smaller specialty stores in Washington, Oregon, California, Utah, Alaska, Virginia, New Jersey, Illinois, Maryland and Minnesota, selling a wide selection of apparel, shoes and accessories for women, men and children.
The Company also operates eighteen clearance stores under the name "Nordstrom Rack" which serve as outlets for clearance merchandise from the Company's large specialty stores. The Racks also purchase merchandise directly from manufacturers. The Racks are located in Washington, Oregon, California, Utah, Virginia, Maryland, Pennsylvania and Illinois. The Company also operates a men's specialty store in New York and leased shoe departments in 11 department stores in Hawaii. The Company commenced operations of its Direct Sales division with the mailing of the first catalog at the end of 1993. Over the next twelve to eighteen months, the Company will be involved in tests of Interactive Television Shopping.
The Company regularly employs on a full or part-time basis an average of approximately 33,000 employees. Due to the seasonal nature of the Company's business, the number increased to approximately 40,000 employees in December.
The Company's business is highly competitive. Its stores compete with other national, regional and local retail establishments within its operating areas which carry similar lines of merchandise, including department stores, specialty stores and boutiques. The Company believes the principal methods of competing in its industry include customer service, value, fashion, advertising, store location and depth of selection.
Certain other information required under Item 1 is contained within the following sections of the Company's 1993 Annual Report to Shareholders, which sections are incorporated by reference herein from Exhibit 13.1 of this report:
Message to the Shareholders Management Discussion and Analysis Note 13 in Notes to Consolidated Financial Statements
3 of 16
Executive Officers of the Registrant - - ------------------------------------
All of the above people that have not been officers for the past five years have been full-time employees of the Company during that period. The officers are re-elected annually by the Board of Directors following each year's Annual Meeting. Each officer is elected for a term of one year or until a successor is elected and qualifies.
4 of 16
Item 2.

Item 2. Properties. - - --------------------
The following table summarizes at January 31, 1994 the number of stores owned or operated by the Company and the percentage of total store area represented by each listed category:
The Company also operates eight merchandise distribution centers, five of which are owned and three of which are leased. The Company leases its principal offices in Seattle, Washington, and owns an office building in the Denver, Colorado metropolitan area which serves as the principal offices of Nordstrom Credit, Inc. and Nordstrom National Credit Bank.
The Company operates 25 full-line stores, six clearance stores and two distribution centers in California. Because of its high cost, the Company does not carry earthquake insurance.
Certain other information required under this item is included in the following section of the Company's 1993 Annual Report to Shareholders, which section is incorporated by reference herein from Exhibit 13.1 of this report:
	Retail Store Facilities
Item 3.

Item 3. Legal Proceedings. - - --------------------------
The Company is not involved in any material pending legal proceedings, other than routine litigation in the ordinary course of business.
Item 4.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. - - ---------------------------------------------------------------------
The Company's Common Stock, without par value, is traded in the over-the- counter market and is quoted daily by the NASDAQ. The approximate number of holders of Common Stock as of March 22, 1994 was 71,500.
Certain other information required under this Item with respect to stock prices and dividends is included in the following sections of the Company's 1993 Annual Report to Shareholders, which sections are incorporated by reference herein from Exhibit 13.1 of this report:
	Financial Highlights - Stock Trading 	Consolidated Statements of Shareholders' Equity 	Note 9 in Notes to Consolidated Financial Statements 	Note 14 in Notes to Consolidated Financial Statements
Item 6.

Item 6. Selected Financial Data. - - ---------------------------------
The information required under this item is included in the following section of the Company's 1993 Annual Report to Shareholders, which section is incorporated by reference herein from Exhibit 13.1 of this report:
	Ten-Year Statistical Summary
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. - - ------------------------------------------------------------------------
The information required under this item is included in the following section of the Company's 1993 Annual Report to Shareholders, which section is incorporated by reference herein from Exhibit 13.1 of this report:
	 Management Discussion and Analysis
Item 8.

Item 8. Financial Statements and Supplementary Data. - - -----------------------------------------------------
The information required under this item is included in the following sections of the Company's 1993 Annual Report to Shareholders, which sections are incorporated by reference herein from Exhibit 13.1 of this report:
	 Consolidated Statements of Earnings 	 Consolidated Balance Sheets 	 Consolidated Statements of Shareholders' Equity 	 Consolidated Statements of Cash Flows 	 Notes to Consolidated Financial Statements 	 Independent Auditors' Report
6 of 16 Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. - - ------------------------------------------------------------------------ None
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant. - - ------------------------------------------------------------
The information required under this item with respect to the Company's Directors and compliance with Section 16(a) of the Exchange Act is included in the following sections of the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders, which sections are incorporated by reference herein and will be filed within 120 days after the end of the Company's fiscal year:
	 Election of Directors 	 Compliance with Section 16(a) of the Exchange Act of 1934
The information required under this item with respect to the Company's Executive Officers is incorporated by reference from Part I, Item 1 of this report under "Executive Officers of the Registrant".
Item 11.

Item 11. Executive Compensation. - - --------------------------------
The information required under this item is included in the following sections of the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders, which sections are incorporated by reference herein and will be filed within 120 days after the end of the Company's fiscal year:
Compensation of Executive Officers in the Year Ended January 31, 1994 Compensation and Stock Option Committee Report on Executive Compensation Stock Price Performance Compensation of Directors 	 Compensation Committee Interlocks and Insider Participation 	 1993 Non-Employee Director Stock Incentive Plan (Effectiveness of the Plan is subject to approval of the shareholders at the 1994 Annual Meeting of Shareholders.)
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management. - - ------------------------------------------------------------------------
The information required under this item is included in the following section of the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders, which sections are incorporated by reference herein and will be filed within 120 days after the end of the Company's fiscal year:
	 Principal Shareholders
7 of 16 Item 13.

Item 13. Certain Relationships and Related Transactions. - - --------------------------------------------------------
The information required under this item is included in the following sections of the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders, which sections are incorporated by reference herein and will be filed within 120 days after the end of the Company's fiscal year:
	 Election of Directors 	 Transactions with Management
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - - -------------------------------------------------------------------------- (a)1. Financial Statements --------------------
The following consolidated financial information and statements of Nordstrom, Inc. and its subsidiaries and the Independent Auditors' Report are incorporated by reference herein from Exhibit 13.1 of this report:
		 Consolidated Statements of Earnings 		 Consolidated Balance Sheets 		 Consolidated Statements of Shareholders' Equity 		 Consolidated Statements of Cash Flows 		 Notes to Consolidated Financial Statements 		 Independent Auditors' Report
(a)2. Financial Statement Schedules -----------------------------
Other schedules for which provision is made in Regulation S-X are not required, are inapplicable, or the information is included in the Company's 1993 Annual Report to Shareholders as incorporated by reference herein from Exhibit 13.1 of this report.
8 of 16
(a)3.	Exhibits --------
(3.1) Articles of Incorporation of the Registrant are hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1990, Exhibit A.
(3.2) By-laws of the Registrant are hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1992, Exhibit 3.2.
(4.1) The Indenture between Nordstrom Credit, Inc. (a wholly-owned subsidiary of the Registrant) and First Interstate Bank of Washington, N.A. dated November 15, 1984, the First Supplement thereto dated January 15, 1988, the Second Supplement thereto dated June 1, 1989 and the Third Supplement thereto dated October 19, 1990 are hereby incorporated by reference from Registration No. 33-3765, Exhibit 4.2; Registration No. 33-19743, Exhibit 4.2; Registration No. 33-29193, Exhibit 4.3; and the Nordstrom Credit, Inc. Annual Report on Form 10-K (SEC File No. 0-12994) for the year ended January 31, 1991, Exhibit 4.2, respectively.
	 Securities authorized under each of any other long-term debt instruments of the Company or its subsidiaries do not exceed 10% of the consolidated total assets of the Company and its subsidiaries. The Company will furnish a copy of any such long- term debt instrument or agreement to the Commission upon request.
(10.1) Operating Agreement dated August 30, 1991 between Nordstrom Credit, Inc. and Nordstrom National Credit Bank is hereby incorporated by reference from the Nordstrom Credit, Inc. Quarterly Report on Form 10-Q, as amended (SEC File No. 0-12994) for the quarter ended July 31, 1991, Exhibit 10.1.
(10.2) The 1987 Nordstrom Stock Option Plan is hereby incorporated by reference from the Registrants' Proxy Statement for its 1987 Annual Meeting of Shareholders.
(10.3) The Nordstrom Supplemental Retirement Plan is hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1992, Exhibit 10.3.
(10.4) The 1993 Non-Employee Director Stock Incentive Plan is filed herein as an Exhibit. (Effectiveness of the Plan is subject to approval of the shareholders at the 1994 Annual Meeting of Shareholders.)
(13.1) The Company's 1993 Annual Report to Shareholders is filed herein as an Exhibit.
(21.1) List of the Registrant's Subsidiaries is filed herein as an Exhibit.
(23.1) Independent Auditors' consent is on page 12 of this report.
All other exhibits are omitted because they are not applicable, not required, or because the required information is included in the Company's 1993 Annual Report to Shareholders.
9 of 16
(b) Reports on Form 8-K -------------------
No reports on Form 8-K were filed during the last quarter of the period for which this report is filed.
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.
	NORDSTROM, INC. 	 (Registrant) /s/ John A. Goesling Date March 31, 1994 by __________________________________________ ____________________ John A. Goesling Executive Vice President and Treasurer (Principal Accounting and Financial Officer)
10 of 16
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 Officers: Principal Accounting and Financial Officer:
/s/ Raymond A. Johnson /s/ John A. Goesling _______________________________ ________________________________ Raymond A. Johnson John A. Goesling Co-President Executive Vice President and Treasurer /s/ John Whitacre _______________________________ John Whitacre Co-President
Directors:
/s/ D. Wayne Gittinger /s/ James F. Nordstrom _______________________________ ________________________________ D. Wayne Gittinger James F. Nordstrom Director Co-Chairman
/s/ John F. Harrigan /s/ John N. Nordstrom _______________________________ ________________________________ John F. Harrigan John N. Nordstrom Director Co-Chairman
/s/ Charles A. Lynch /s/ Alfred E. Osborne Jr. _______________________________ ________________________________ Charles A. Lynch Alfred E. Osborne Jr. Director Director
/s/ Ann D. McLaughlin /s/ William D. Ruckelshaus _______________________________ ________________________________ Ann D. McLaughlin William D. Ruckelshaus Director Director
/s/ John A. McMillan /s/ Malcolm T. Stamper _______________________________ ________________________________ John A. McMillan Malcolm T. Stamper Co-Chairman Director
/s/ Bruce A. Nordstrom /s/ Elizabeth Crownhart Vaughan _______________________________ ________________________________ Bruce A. Nordstrom Elizabeth Crownhart Vaughan Co-Chairman Director
Date March 31, 1994 ___________________________
11 of 16
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
Shareholders and Board of Directors Nordstrom, Inc.
We consent to the incorporation by reference in Registration Statements Nos. 33-18321 and 2-81695 of Nordstrom, Inc. on Form S-8 of our reports dated March 11, 1994 appearing in and incorporated by reference in this Annual Report on Form 10-K of Nordstrom, Inc. and subsidiaries for the year ended January 31, 1994.
We have audited the consolidated financial statements of Nordstrom, Inc. and subsidiaries as of January 31, 1994 and 1993, and for each of the three years in the period ended January 31, 1994, and have issued our report thereon dated March 11, 1994; such financial statements and report are included in your 1993 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of Nordstrom, Inc. and subsidiaries, listed in Item 14(a)2. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
Deloitte & Touche March 31, 1994 Seattle, Washington
12 of 16
NORDSTROM, INC. AND SUBSIDIARIES SCHEDULE V - PROPERTY, BUILDINGS AND EQUIPMENT (Dollars in thousands)
13 of 16
NORDSTROM, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, BUILDINGS AND EQUIPMENT
(Dollars in thousands)
14 of 16
NORDSTROM, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
15 of 16
NORDSTROM INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(Dollars in thousands)
16 of 16
NORDSTROM INC. AND SUBSIDIARIES
Exhibit Index


Item 1. Business - ------- -------- General - --------
THE CORPORATION ---------------
The registrant, Cortland Bancorp (herein sometimes referred to as the "Corporation"), is a bank holding company which was incorporated under the laws of the State of Ohio in 1984, and is registered under the Bank Holding Company Act of 1956, as amended. Its subsidiaries are The Cortland Savings and Banking Company ("Cortland Banks" or the "Bank"), which was acquired at the Corporation's inception in 1985, and New Resources Leasing Company, which was formed in 1988. The Corporation and its subsidiaries operate in one industry, domestic banking.
The Corporation conducts no business activities except for investment in securities as permitted under the Bank Holding Company Act.
The business of the Corporation and its subsidiaries is not seasonal to any significant extent and is not dependent on any single customer or group of customers.
CORTLAND BANKS --------------
Cortland Banks is a full service, state chartered bank engaged in commercial and retail banking and trust services. Cortland Banks' commercial and consumer banking services include checking accounts, savings accounts, time deposit accounts, commercial, mortgage and installment loans, leasing, night depository, automated teller services, safe deposit boxes, money order services, travelers checks, utility bill payments and other miscellaneous services normally offered by commercial banks. In addition, Cortland Banks participates in bank charge card plans and discount brokerage services with correspondent banks. Cortland Banks' Trust Department offers a broad range of fiduciary services, including the administration of decedent and trust estates and other personal and corporate fiduciary services. Business is conducted at a total of ten offices, six of which are located in Trumbull County, Ohio. Three offices are located in the communities of Hiram, Windham and Mantua, Portage County, Ohio and one office is located in the community of Williamsfield, Ashtabula County, Ohio. Chartered by the State of Ohio, Cortland Banks is also a member of the Federal Reserve System.
NEW RESOURCES LEASING COMPANY -----------------------------
New Resources Leasing Company was formed in December 1988 as a separate entity to handle the function of commercial and consumer leasing. The company has been inactive since incorporation.
SUPERVISION AND REGULATION --------------------------
The Corporation is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant to the Bank Holding Company Act of 1956, as amended. Generally, this Act limits the business of bank holding companies to owning or controlling banks and engaging in such other activities as the Federal Reserve Board may determine to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
I-2 Supervision and Regulation (Continued): - --------------------------------------
Cortland Banks, as a state banking organization, is subject to periodic examination and regulation by the Federal Reserve Bank of Cleveland and the State of Ohio Division of Banks. Cortland Banks is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation (FDIC).
COMPETITION -----------
Cortland Banks actively competes with state and national banks located in the Ohio counties of Trumbull, Portage and Ashtabula. It also competes with a large number of other financial institutions, such as savings and loan associations, insurance companies, consumer finance companies, credit unions and commercial finance and leasing companies, for deposits, loans and service business. Money market mutual funds, brokerage houses and similar institutions provide in a relatively unregulated environment many of the financial services offered by banks. In the opinion of management, the principal methods of competition are the rates of interest charged for loans, the rates of interest paid for funds, the fees charged for services and the availability of services.
EMPLOYEES ---------
At March 7, 1995, the Corporation and its subsidiaries had 158 full-time and 52 part-time employees. The Corporation considers its relations with its employees to be satisfactory.
I-3 Statistical Disclosure - -----------------------
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; - ---------------------------------------------------------------- INTEREST RATES AND INTEREST DIFFERENTIAL ----------------------------------------
AVERAGE BALANCE SHEETS ----------------------
(In Thousands of Dollars)
The following shows consolidated balances of average assets, liabilities and shareholders' equity for the years indicated. The averages are based on daily balances.
I-4
I-5
ANALYSIS OF NET INTEREST EARNINGS ---------------------------------
(In Thousands of Dollars)
The following schedules show the average amounts of interest-earning assets and interest-bearing liabilities, the related amounts of interest earned or paid and the related average yields or interest rates paid for the year indicated:
I-6
I-7
I-8
I-9
I-10 II. INVESTMENT PORTFOLIO - ------------------------
The following table shows the book value of investment securities by type of obligation at the dates indicated:
A summary of securities held at December 31, 1994, classified according to the earlier of next repricing or the maturity date and the weighted average yield for each range of maturities, is set forth below. Fixed rate mortgage-backed securities are classified by their estimated contractual cash flow, adjusted for current prepayment assumptions. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
I-11
Excluding obligations of the U.S. Treasury and other agencies and corporations of the U.S. government, there were no investment or mortgage- backed securities of any one issuer which exceeded 10% of consolidated shareholders' equity at December 31, 1994.
As of December 31, 1994, there were $2,287 in callable U.S. Treasury Securities and $3,957 in callable U.S. Government Agencies, that are likely to be called within the next twelve months, given current and expected interest rate environments. However, these securities have been categorized according to their contractual maturities, with $1,996 scheduled to mature after one year but within five years and $4,248 scheduled to mature after five years but within ten years.
Also, as of December 31, 1994, there were $2,079 in callable U.S. Government Agencies that, given current and expected interest rate environments, are likely to be called during the next 1-5 year period. These securities have also been categorized according to their contractual maturities, with $2,079 scheduled to mature after five years but within ten years.
I-12
III. LOAN PORTFOLIO (ALL DOMESTIC) - ----------------------------------
MATURITIES AND SENSITIVITIES OF LOANS TO INTEREST RATES -------------------------------------------------------
(In Thousands of Dollars)
The following schedule sets forth maturities based on remaining scheduled repayments of principal or next repricing opportunity for various categories of loans listed above as of December 31, 1994:
The amounts of total loans (excluding mortgage and consumer loans) as of December 31, 1994, based on remaining scheduled repayments of principal, are shown in the following table:
I-13
The following shows the amounts of contractual interest income and interest income actually reflected in income on loans accounted for on a nonaccrual basis and loans considered troubled debt restructuring as of December 31, 1994.
A loan is placed on a nonaccrual basis whenever sufficient information is received to question the collectibility of the loan or any time legal proceedings are initiated involving a loan. Once a loan is charged-off, any interest that may be accrued and not collected on the loan is charged against earnings.
As of December 31, 1994, there are $2,416 in loans, not included in the above categories, which may be considered potential problem loans. Management has established specific allocations of the allowance for loan loss of $350, which it considers adequate, based on current information, to cover potential loss related to these credits.
Any loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been disclosed above do not (i) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources, or (ii) represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.
As of December 31, 1994, the Bank had $124 in investment securities accounted for on a nonaccrual basis. On February 15, 1994 a pre-refunded, escrowed municipal bond with a par value of $100 issued by Northeast Randolph County, Alabama, was placed on nonaccrual status by the Bank. These bonds were pre-refunded with U.S. treasury securities financed by a subsequent bond issue of Northern Randolph County, Alabama, which has since defaulted. Holders of this issue have filed suit, seeking to have the escrow unwound with proceeds distributed to the claimants. The bond trustee has suspended interest payments pending a ruling from the court on this matter. The probability of an unfavorable outcome regarding this litigation cannot be ascertained at this time; management is unable to determine if any write-down will be required.
On December 31, 1992 the Bank had investment securities with a carrying value of $74, and a par value of $500 accounted for on a nonaccrual basis. During 1993, the LTV Corporation reached an agreement with its creditors and emerged from chapter XI bankruptcy proceedings. As a result of the settlement, in which the Bank received cash, common stock and other securities in exchange for its debt securities of the LTV Corporation, the bank realized a gain of $106 on LTV related securities in its investment portfolio.
I-14 IV. SUMMARY OF LOAN LOSS EXPERIENCE - -----------------------------------
For each of the periods presented above, the provision for loan losses charged to operations is based on management's judgment after taking into consideration all known factors connected with the collectibility of the existing portfolio. Management evaluates the portfolio in light of economic conditions, changes in the nature and volume of the portfolio, industry standards and other relevant factors. Specific factors considered by management in determining the amounts charged to operations include previous loan loss experience, the status of past due interest and principal payments, the quality of financial information supplied by the customers and the general economic conditions present in the corporation's lending area.
I-15
The following is an allocation of the allowance for loan losses. The allowance has been allocated according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within the following categories of loans as of the dates indicated:
The allocation of the allowance as shown in the table above should not be interpreted as an indication that loan losses in l995 will occur in the same proportions or that the allocation indicates future loan loss trends. Furthermore, the portion allocated to each loan category is not the total amount available for future losses that might occur within such categories since the total allowance is a general allowance applicable to the entire portfolio.
LOAN COMMITMENTS AND LINES OF CREDIT ------------------------------------
In the normal course of business, the bank subsidiary has extended various commitments for credit. Commitments for mortgages, revolving lines of credit and letters of credit generally are extended for a period of one month up to one year. Normally, no fees are charged on any unused portion. A fee of 1% is typically charged for the issuance of a letter of credit.
I-16
V. DEPOSITS (ALL DOMESTIC) - --------------------------
The following table shows the classification of average deposits for the periods indicated:
I-17 VI. RETURN ON EQUITY AND ASSETS - -------------------------------
I-18 Item 2.

Item 2. Properties - ------- ----------
CORTLAND BANCORPS' PROPERTY ---------------------------
Cortland Bancorp owns no property. Operations are conducted at 194 West Main Street, Cortland, Ohio.
CORTLAND BANKS' PROPERTY ------------------------
Cortland Banks' main office (as described in its charter) is located at 194 West Main Street, Cortland, Ohio. Administrative offices are located at the main office. The other offices are:
The Brookfield, Windham, Hubbard and Mantua Offices are leased, while all of the other above offices are owned by Cortland Banks.
Item 3.

Item 3. Legal Proceedings - ------- -----------------
The subsidiary Bank was a defendant in a consumer class action lawsuit, filed on June 8, 1990 in the Court of Common Pleas of Fayette County, Pennsylvania involving the demise of a campground real estate development known as Alpine Valley Resorts, Inc. While the Bank denied liability, it negotiated a settlement agreement dated February 2, 1994. Payment on the settlement, which was fully provided for as of December 31, 1993, was fully disbursed during the quarter ended June 30, 1994.
The Bank is also involved in other legal actions arising in the ordinary course of business. In the opinion of management, the outcome of these matters is not expected to have a material effect on the Corporation.
I-19 Item 4.

Item 4. Submission of Matters to a Vote of Security Holders - ------- ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
Executive Officers of the Registrant - ------------------------------------
The names, ages and positions of the executive officers as of March 7, 1995 are as follows:
All of the officers listed above will hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified.
Principal Occupation and Business Experience of Executive Officers - ------------------------------------------------------------------
During the past five years the business experience of each of the executive officers has been as follows:
Rodger W. Platt has been Chairman of the Board of Cortland Bancorp and the subsidiary bank since November 1987. He became Chairman of the Board of New Resources Leasing Company in December of 1988. He has been a Director and President of Cortland Bancorp since its formation in April of 1985. He has been a Director of the subsidiary bank since 1974 and has been President since 1976.
Dennis E. Linville has been Executive Vice President of Cortland Bancorp and the subsidiary bank since November 1987. He became a Director of the subsidiary bank in June of 1989. He has been a Director of Cortland Bancorp and New Resources Leasing Company since December 1988. He has been the Secretary of Cortland Bancorp since 1985 and has been Vice President and Secretary of the subsidiary bank since 1984.
Lawrence A. Fantauzzi has been the Controller of Cortland Bancorp and the subsidiary bank since April 1987. He became Treasurer of Cortland Bancorp in December 1992.
I-20 PART II -------
Information relating to Items 5, 6, 7 and 8 is set forth in the Corporation's 1994 Annual Report to Shareholders under the captions and on the pages indicated below and is incorporated herein by reference:
II-1 PART III --------
Item 10. Directors and Executive Officers of the Registrant - -------- --------------------------------------------------
Information relating to directors of the Corporation will be set forth in the Corporation's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its annual meeting of shareholders to be held April 11, 1995. Such information is incorporated herein by reference. Information relating to executive officers of the Corporation is set forth in Part I. Pages 3-6
Item 11. Executive Compensation - -------- ----------------------
Information relating to this item will be set forth in the Corporation's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its annual meeting of shareholders to be held April 11, 1995. Such information is incorporated herein by reference. Pages 6-9
Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- --------------------------------------------------------------
Information relating to this item will be set forth in the Corporation's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its annual meeting of shareholders to be held April 11, 1995. Such information is incorporated herein by reference. Page 2
Item 13. Certain Relationships and Related Transactions - -------- ----------------------------------------------
Information relating to this item will be set forth in the Corporation's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its annual meeting of shareholders to be held April 11, l995. Such information is incorporated herein by reference. Page 12
III-1 PART IV -------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------- ---------------------------------------------------------------
(a) 1. Financial Statements --------------------
Included in Part II of this report:
Item 8.

Item 8., Financial Statements and Accompanying Information, is set forth in the Corporation's 1994 Annual Report to Shareholders and is incorporated by reference in Part II of this report.
(a) 2. Financial Statement Schedules -----------------------------
Included in Part IV of this report as Exhibit 23:
Independent Accountants' Consent
Schedules: All schedules are omitted because they are not applicable.
(a) 3. Exhibits --------
The exhibits filed or incorporated by reference as a part of this report are listed in the Index to Exhibits which appears at page IV-3 hereof and is incorporated herein by reference.
(b) Report on Form 8-K ------------------
No reports on Form 8-K were filed for the three months ended December 31, 1994.
IV-1
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.
CORTLAND BANCORP
March 7, 1995 By Rodger W. Platt, President - ---------------------- ------------------------------ Date
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 dates indicated.
IV-2 INDEX TO EXHIBITS -----------------
The following exhibits are filed or incorporated by reference as part of this report:
3.1. Articles of Incorporation of the Corporation as currently in effect and any amendments thereto (incorporated by reference to Exhibit 3 of the Corporation's Report on Form S-1 filed February 5, 1988).
3.2. Bylaws of the Corporation as currently in effect and any amendments thereto (incorporated by reference to Exhibit 3a of the Corporation's Report on Form S-1 filed February 5, l988).
4 The rights of holders of equity securities are defined in portions of the Articles of Incorporation and Bylaws as referenced in 3.1. and 3.2.
11 Statement regarding computation of earnings per share (filed herewith).
13 Annual Report to security holders (filed herewith).
21 Subsidiaries of the Registrant (filed herewith).
23 Consents of experts and counsel - Consent of independent accountants (filed herewith).
27 Financial Data Schedule (filed herewith).
Copies of any exhibits will be furnished to shareholders upon written request. Requests should be directed to Dennis E. Linville, Secretary, Cortland Bancorp, 194 West Main Street, Cortland, Ohio 44410.
IV-3