<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 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 1-6393
BELL ATLANTIC - PENNSYLVANIA, INC.
A Pennsylvania Corporation I.R.S. Employer Identification No. 23-0397860
One Parkway, Philadelphia, Pennsylvania 19102
Telephone Number (215) 466-9900
---------------
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF BELL ATLANTIC CORPORATION, MEETS
THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND
IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION H(2).
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
----- -----
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1995 1994
---------- --------
<S> <C> <C>
OPERATING REVENUES (including $20.1
and $17.8 from affiliates)................ $ 842.2 $836.9
------- ------
OPERATING EXPENSES
Employee costs, including benefits
and taxes............................... 183.4 188.2
Depreciation and amortization............ 165.2 167.8
Other (including $158.6
and $151.1 to affiliates)............... 276.3 274.4
------- ------
624.9 630.4
------- ------
OPERATING INCOME........................... 217.3 206.5
OTHER INCOME AND (EXPENSE), NET
Allowance for funds used
during construction..................... --- 0.8
Other, net (including $.1
and $0 from affiliate).................. (0.6) (1.1)
------- ------
(0.6) (0.3)
INTEREST EXPENSE (including $.6
and $.7 to affiliate)..................... 29.0 31.7
------- ------
INCOME BEFORE PROVISION FOR INCOME TAXES... 187.7 174.5
PROVISION FOR INCOME TAXES................. 78.5 73.0
------- ------
NET INCOME................................. $ 109.2 $101.5
======= ======
REINVESTED EARNINGS (ACCUMULATED DEFICIT)
At beginning of period................... $(210.6) $521.2
Add: net income......................... 109.2 101.5
------- ------
(101.4) 622.7
Deduct: dividends....................... 93.1 76.3
------- ------
At end of period......................... $(194.5) $546.4
======= ======
</TABLE>
See Notes to Financial Statements.
-1-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................ $ 32.8 $ ---
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $49.6 and $51.9.......... 474.7 505.8
Affiliates.................................. 20.0 22.1
Other....................................... 16.4 21.7
Material and supplies......................... 14.9 19.9
Prepaid expenses.............................. 176.3 121.3
Deferred income taxes......................... 65.7 54.1
Other......................................... 6.5 3.6
-------- --------
807.3 748.5
-------- --------
PLANT, PROPERTY AND EQUIPMENT................... 9,120.5 8,979.3
Less accumulated depreciation................. 4,870.2 4,744.6
-------- --------
4,250.3 4,234.7
-------- --------
OTHER ASSETS.................................... 44.4 81.5
-------- --------
TOTAL ASSETS.................................... $5,102.0 $5,064.7
======== ========
</TABLE>
See Notes to Financial Statements.
-2-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Millions)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate................... $ 73.4 $ 12.1
Other....................................... 36.1 1.1
Accounts payable:
Affiliates.................................. 249.4 248.6
Other....................................... 203.5 319.8
Accrued expenses:
Taxes....................................... 123.5 46.4
Other....................................... 159.4 156.7
Advance billings and customer deposits....... 93.3 102.2
-------- --------
938.6 886.9
-------- --------
LONG-TERM DEBT................................. 1,632.1 1,667.4
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS................... 818.7 808.3
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes........................ 131.3 132.7
Unamortized investment tax credits........... 49.8 51.9
Other........................................ 130.6 132.7
-------- --------
311.7 317.3
-------- --------
SHAREOWNER'S INVESTMENT
Common stock - $20 par value per share....... 1,594.7 1,594.7
Authorized shares: 80,210,000
Outstanding shares: 79,732,681
Contributed capital.......................... .7 .7
Accumulated deficit.......................... (194.5) (210.6)
-------- --------
1,400.9 1,384.8
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.. $5,102.0 $5,064.7
======== ========
</TABLE>
See Notes to Financial Statements.
-3-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES......... $ 271.2 $ 147.9
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............ (32.8) ---
Additions to plant, property and equipment...... (183.0) (77.8)
Other, net...................................... 1.1 (2.5)
-------- --------
Net cash used in investing activities............. (214.7) (80.3)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease
obligations.................................... (.4) (.2)
Net change in note payable to affiliate......... 61.3 21.4
Dividends paid.................................. (93.1) (76.3)
Net change in outstanding checks drawn on
controlled disbursement accounts............... (24.3) (12.5)
-------- --------
Net cash used in financing activities............. (56.5) (67.6)
-------- --------
NET CHANGE IN CASH ............................... --- ---
CASH, BEGINNING OF PERIOD ........................ --- ---
-------- --------
CASH, END OF PERIOD .............................. $ --- $ ---
======== ========
</TABLE>
See Notes to Financial Statements.
-4-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by Bell Atlantic - Pennsylvania, Inc. (the Company) pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). The December 31,
1994 balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles. In
the opinion of management, these financial statements include all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the results of operations, financial position and cash flows. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The Company
believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
Effective August 1, 1994, the Company discontinued accounting for its operations
in accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulations."
2. Dividend
On May 1, 1995, the Company declared and paid a dividend in the amount of
$110.0 million to Bell Atlantic Corporation.
3. Reclassifications
Certain reclassifications of prior year's data have been made to conform to
1995 classifications.
-5-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
Item 2. Management's Discussion and Analysis of Results of Operations
(Abbreviated pursuant to General Instruction H(2).)
This discussion should be read in conjunction with the Financial Statements
and Notes to Financial Statements.
RESULTS OF OPERATIONS
- ---------------------
The Company reported net income for the first quarter of 1995 of $109.2
million, compared to net income of $101.5 million for the same period in 1994.
Major items affecting the comparison of operating results for the three month
period ended March 31, 1995, versus the three month period ended March 31, 1994,
are discussed in the following sections.
OPERATING REVENUES
- ------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31 1995 1994
- --------------------------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C>
Transport Services
Local service $304.4 $299.6
Network access 226.0 224.3
Toll service 112.9 125.2
Ancillary Services
Directory advertising 80.7 78.7
Other 40.1 36.0
Value-added Services 78.1 73.1
------ ------
Total $842.2 $836.9
====== ======
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
Increase
1995 1994 (Decrease)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
At March 31
- -----------
Access Lines in Service (In thousands)
Residence 3,775 3,730 1.2%
Business 1,868 1,791 4.3
Public 77 77 -
------ ------
5,720 5,598 2.2
====== ======
For the Three Month Period Ended March 31
- -----------------------------------------
Access Minutes of Use (In millions)
Interstate 3,585 3,339 7.4
Intrastate 1,164 1,086 7.2
------ ------
4,749 4,425 7.3
====== ======
Toll Messages (In millions)
Intrastate 197 211 (6.6)
Interstate 9 10 (10.0)
------ ------
206 221 (6.8)
====== ======
</TABLE>
-6-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
LOCAL SERVICE REVENUES
Dollars in Millions Increase
================================================================================
Three Months $ 4.8 1.6%
================================================================================
Local service revenues are earned by the Company from the provision of local
exchange, local private line and public telephone services.
Local service revenues increased in 1995 due to a 2.2% growth in the number of
access lines in service, higher usage of basic calling services by residence
customers and increased usage and data transport by business customers. This
growth was partially offset by the effect of storm-driven usage experienced in
the first quarter of 1994. Additionally, the Company's annual price adjustment
filing under the Alternative Regulation Plan, effective January 1, 1995, reduced
revenues for basic exchange services by approximately $.9 million in the first
quarter of 1995. (See Competitive and Regulatory Environment - State Regulation
section.)
NETWORK ACCESS REVENUES
Dollars in Millions Increase
================================================================================
Three Months $ 1.7 0.8%
================================================================================
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, and end-user access revenues are
earned from local exchange carrier customers who pay for access to the network.
Network access revenues increased in 1995 principally due to higher customer
demand for access services as reflected by a 7.3% growth in access minutes of
use, as well as growth in revenues from end-user charges attributable to
increasing access lines in service. Increased demand for digital data transport
services also contributed to growth in access revenues. Reported growth in
access minutes of use and revenues was negatively impacted by storm-related
calling volumes experienced in the first quarter of 1994. Volume-related
revenue increases were partially offset by the effect of price reductions, the
recognition of the Company's obligations under the Federal Communications
Commission's (FCC) current price cap order and lower revenues recognized through
an interstate revenue sharing agreement with affiliated companies. See
"Competitive and Regulatory Environment - Federal Regulation" for a discussion
of FCC interstate access revenue issues.
TOLL SERVICE REVENUES
Dollars in Millions (Decrease)
================================================================================
Three Months $(12.3) (9.8)%
================================================================================
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,
commonly referred to as "LATAs." Other toll services include 800 services, Wide
Area Telephone Service (WATS) and corridor services (between Southern New Jersey
and Philadelphia).
The decrease in toll service revenues was caused by a decline of 6.8% in toll
message volumes and price reductions on certain toll services. The decline in
toll message volumes was due to the effect of storm-driven usage experienced in
the first quarter of 1994 and increased competition for intraLATA toll, WATS and
corridor services. The Company's annual price adjustment filing under the
Alternative Regulation Plan, effective January 1, 1995, reduced toll service
revenues by approximately $.6 million in the first quarter of 1995. The Company
expects that competition will continue to negatively impact toll service
revenues in 1995, relative
-7-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
to 1994 levels. (See Competitive and Regulatory Environment - State Regulation
section.)
DIRECTORY ADVERTISING REVENUES
Dollars in Millions Increase
================================================================================
Three Months $ 2.0 2.5%
================================================================================
Directory advertising revenues are earned primarily from local advertising and
marketing services provided to businesses in White and Yellow Pages directories.
Other directory advertising services include database and foreign directory
marketing.
Growth in directory advertising revenues was principally due to higher rates
charged for the 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
================================================================================
Three Months $ 4.1 11.4%
================================================================================
Other ancillary services include billing and collection services provided to
IXCs, and facilities rental services provided to affiliates and non-affiliates.
Other ancillary services increased due to higher facilities rental revenues
from affiliates and higher billing and collection services revenues.
VALUE-ADDED SERVICES REVENUES
Dollars in Millions Increase
================================================================================
Three Months $ 5.0 6.8%
================================================================================
Value-added services represent a family of enhanced services including Call
Waiting, Return Call, Caller ID, Answer Call, and Voice Mail. These services
also include customer premises services such as inside wire installation and
maintenance and other central office services and features.
Continued growth in the network customer base (access lines) and higher demand
by residence customers for value-added central office and voice messaging
services offered by the Company, including the introduction of Caller ID in the
third quarter of 1994, increased value-added services revenues in the first
quarter of 1995.
OPERATING EXPENSES
- ------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31 1995 1994
- -----------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C>
Employee costs, including benefits and taxes $183.4 $188.2
Depreciation and amortization 165.2 167.8
Other operating expenses 276.3 274.4
------ ------
Total $624.9 $630.4
====== ======
</TABLE>
-8-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
EMPLOYEE COSTS
Dollars in Millions (Decrease)
================================================================================
Three Months $ (4.8) (2.6)%
================================================================================
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes paid directly by the Company. Similar costs
incurred by employees of Bell Atlantic Network Services, Inc. (NSI), who provide
centralized services on a contract basis, are allocated to the Company and are
included in other operating expenses.
The decline in employee costs was principally due to a decrease in overtime
pay and repair and maintenance activity, both of which were higher in the first
quarter of 1994 as a result of unusually severe weather conditions. The effect
of lower workforce levels also contributed to the overall decrease in employee
costs. These reductions were partially offset by annual salary and wage
increases for management and associate employees, effective April and August
1994, respectively. Associate employee wage increases were determined under
contracts ratified in October 1992 by unions representing associate employees of
the Company. Such contracts will expire in August 1995.
DEPRECIATION AND AMORTIZATION
Dollars in Millions (Decrease)
================================================================================
Three Months $ (2.6) (1.5)%
================================================================================
Depreciation and amortization decreased due to lower depreciation rates. This
decrease was substantially offset by growth in depreciable telephone plant. The
composite depreciation rate was 7.4% for the first quarter of 1995. The Company
expects this composite depreciation rate to remain substantially unchanged for
the remainder of 1995.
OTHER OPERATING EXPENSE
Dollars in Millions Increase
================================================================================
Three Months $ 1.9 .7%
================================================================================
Other operating expenses consist primarily of contracted services including
centralized service expenses allocated from NSI, rent, network software costs,
operating taxes other than income, provision for uncollectible accounts
receivable, and other costs.
The increase in other operating expenses was largely attributable to higher
costs allocated from NSI, primarily as a result of increased rent expense, as
well as additional costs incurred in that organization to enhance systems and
consolidate work activities at Bell Atlantic's network services subsidiaries,
including the Company. An increase in the provision for uncollectible accounts
receivable also contributed to the higher other operating expenses in the first
quarter of 1995.
These increases were substantially offset by lower network software costs due
to the timing of purchases, decreased capital stock taxes resulting from the
reduction in Shareowner's Investment associated with the discontinued
application of regulatory accounting principles, and lower directory production
costs.
-9-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
OTHER INCOME AND (EXPENSE), NET
Dollars in Millions (Decrease)
================================================================================
Three Months $ (.3)
================================================================================
The change in other income and (expense), net was attributable to a reduction
in income related to the allowance for funds used during construction.
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.
INTEREST EXPENSE
Dollars in Millions (Decrease)
================================================================================
Three Months $ (2.7) (8.5)%
================================================================================
Interest expense decreased principally due to the recognition of capitalized
interest costs, subsequent to the discontinued application of regulatory
accounting principles.
PROVISION FOR INCOME TAXES
Dollars in Millions Increase
================================================================================
Three Months $ 5.5 7.5%
================================================================================
EFFECTIVE INCOME TAX RATES
For the Three Months Ended March 31
================================================================================
1995 41.8%
================================================================================
1994 41.8%
================================================================================
The Company's effective income tax rate remained stable compared to the same
period last year. The increase in the effective income tax rate resulting from
the effects of the reduction in amortization of investment tax credits and the
elimination of the benefit of the rate differential applied to reversing timing
differences was offset by the effect of a decrease in the state income tax rate
effective June 1994, retroactive to January 1, 1994.
COMPETITIVE AND REGULATORY ENVIRONMENT
- --------------------------------------
The communications industry continues to undergo fundamental changes which may
have a significant impact on future financial performance of telecommunications
companies. These changes are being driven by a number of factors, including the
accelerated pace of technological innovation, the convergence of the
telecommunications, cable television, information services and entertainment
businesses and a regulatory environment in which traditional barriers are being
lowered or eliminated and competition permitted or encouraged.
The Company's telecommunications business is subject to competition from
numerous sources. An increasing amount of this competition is from companies
that have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company.
-10-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
Several large competitors have requested authority from the Pennsylvania
Public Utility Commission (PUC) to provide local exchange service in areas
served by the Company. Applications are currently pending from MFS - Intelenet,
MCI Metro ATS and TCG Pittsburgh. Decisions on these applications are expected
later in 1995.
The entry of well-financed competitors has the potential to adversely affect
multiple revenue streams of the Company, including toll, local exchange and
network access services in the market segments and geographical areas in which
the competitors operate. The amount of revenue reductions will depend, in part,
on the competitors' success in marketing these services, and the conditions
established by regulatory authorities. The potential impact is expected to be
offset, to some extent, by revenues from interconnection charges to be paid to
the Company by these competitors.
The Company continues to respond to competitive challenges by intensely
focusing on meeting customer requirements and by reducing its cost structure
through efficiency and productivity initiatives. In addition, the Company
continues to seek growth opportunities in businesses where it possesses core
competencies.
Federal Regulation
Legislation has been introduced in the current session of the United States
Congress that would open local exchange markets to competitors and would permit
local exchange carriers, such as the Company, to provide interLATA services upon
meeting certain conditions. No definitive prediction can be made as to whether
or when such legislation will be enacted, the provisions thereof or the impact
on the business or financial condition of the Company.
On April 28, 1995, the U.S. District Court, which administers the Modification
of Final Judgment (MFJ), granted the Regional Bell Operating Companies' (RBOCs)
joint motion for a waiver of the MFJ permitting them to provide interLATA
wireless telecommunications services. The Court's decision contained a number
of restrictions limiting the extent and manner in which the RBOCs may provide
interLATA wireless services. While Bell Atlantic plans to comply with the
requirements of the Court's decision so that it may provide the services
authorized therein, it has appealed the decision to the U.S. Court of Appeals
for the District of Columbia Circuit.
In February 1995, the FCC issued an Order to Show Cause with respect to
certain findings contained in an independent audit of Bell Atlantic's network
services subsidiaries' 1988 and first quarter 1989 reported adjustments to the
National Exchange Carrier Association (NECA) interstate common line pool. On
May 2, 1995, Bell Atlantic filed its response to the Show Cause Order, asserting
that there is no legal basis for the FCC to institute enforcement proceedings
with respect to these findings. Resolution of this matter is expected later in
1995.
FCC Interim Price Cap Orders
On March 30, 1995, the FCC adopted its Report and Order approving an Interim
Price Cap Plan for interstate access rates. The Interim Plan, which is
effective August 1, 1995, replaces the Price Cap Plan that the FCC adopted in
1990.
Under the Interim Plan, the Company's Price Cap Index must be reduced by 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. The Interim Plan also provides 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
provides for increases to the Price Cap Indices for inflation, 2.9% effective
August 1, 1995, based on the increase in the GDP-PI. 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.
On March 30, 1995, the FCC also adopted an Order relating to the Price Cap
Plan requiring local exchange carriers to include in their calculation of
interstate earnings an adjustment to add back to revenues the amounts that were
required to be shared with ratepayers. This adjustment, which is effective for
1994 and subsequent years,
-11-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
increased 1994 calculated interstate returns for the purpose of determining the
prior years sharing amounts that will be reflected in rate reductions that
become effective August 1, 1995.
On May 9, 1995, Bell Atlantic filed its Transmittal of Interstate Rates as
required by the March 30, 1995 Orders. In the filing, Bell Atlantic selected
the 5.3% productivity factor for the August 1995 to June 1996 tariff period.
The rates included in the May 9, 1995 filing result in price decreases for the
Company totaling approximately $83.1 million on an annual basis. These price
decreases include the scheduled expiration of a temporary rate increase of
approximately $26.7 million on an annualized basis that is in effect from March
17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment
benefit costs. Approximately 80% of the remaining $56.4 million reduction
results from compliance with the Interim Plan. The remaining 20% represents
reductions that the Company was required to make under the prior Price Cap Plan.
It is expected that the earnings impact of these price decreases will be
substantially mitigated by volume increases and cost reductions that result from
improved productivity.
Bell Atlantic has appealed the Orders with the D.C. Circuit Court of Appeals
and has petitioned the FCC for a stay of certain aspects of the Orders pending
the results of the appeals.
State Regulation
The communications services of the Company are subject to regulation by the
PUC with respect to intrastate rates and other matters.
The Company received approval in June of 1994 to implement an Alternative
Regulation Plan, which replaces rate base rate of return regulation and allows
the Company to operate under a pure price cap plan with no sharing provisions.
In July 1994, several parties filed appeals in the Pennsylvania Commonwealth
Court regarding the PUC's June 1994 order approving a modified plan. These
appeals have been consolidated by the Court and are expected to be decided by
the end of 1995.
On November 1, 1994, the Company made the first annual price adjustment filing
based on the prescribed formula. Revenues for intrastate non-competitive
services were decreased by $5.9 million annually, beginning January 1, 1995.
Residential and business basic exchange services received a prorated share of
this reduction equal to $3.5 million and intrastate toll service received a
share equal to $2.4 million.
As part of the modified plan, the PUC initiated a docket concerning "universal
service". The Company filed initial and reply comments concerning this docket
in August and September 1994 through the Pennsylvania Telephone Association. In
an order entered on April 10, 1995, the PUC took three major steps: i)
established an initial definition of "basic universal service"; ii) scheduled a
public forum for May 26, 1995 to address cost study and related cost allocation
issues; and iii)initiated a rulemaking to solicit comments regarding procedures
applicable to the evolution of the definition of universal service.
The PUC is currently conducting a proceeding to examine issues regarding
intraLATA toll competition, including whether to authorize presubscription, and
if so, under what terms and conditions. Currently, intraLATA toll calls default
to the Company unless the customer dials a five-digit access code to use an
alternate carrier. Presubscription would enable customers to make intraLATA
toll calls using the carrier of their choice without having to dial a five-digit
access code. A decision is expected later in 1995. The Company's ability to
offset such competition will depend, in part, upon the terms and conditions
under which presubscription for intraLATA toll services may be authorized.
As discussed above, petitions from several large competitors are seeking
authority from the PUC to provide local exchange service.
-12-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
OTHER MATTERS
- -------------
Environmental Issues
The Company is subject to a number of environmental proceedings as a result of
its operations and shared liability provisions in the Plan of Reorganization
related to the Modification of Final Judgment. Certain of these environmental
matters relate to Superfund sites for which the Company has been joined as a
third-party defendant in pending Superfund litigation. Such joinder subjects
the 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 liability reflects those
specific issues 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.
FINANCIAL CONDITION
- -------------------
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization, and payment of dividends. Management expects that
presently foreseeable capital requirements will be financed primarily through
internally generated funds. Additional long-term debt may be needed to fund
development activities and to maintain the Company's capital structure within
management's guidelines.
As of March 31, 1995, the Company had $325.2 million of an unused line of
credit with an affiliate, Bell Atlantic Network Funding Corporation. In
addition, the Company had $300.0 million remaining under a shelf registration
statement filed with the Securities and Exchange Commission.
The Company's debt ratio was 55.4% at March 31, 1995, compared to 54.8% at
December 31, 1994.
-13-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For background concerning the Company's contingent liabilities under
the Plan of Reorganization governing the divestiture by AT&T Corp.
(formerly American Telephone and Telegraph Company) of certain assets
of the former Bell System Operating Companies with respect to private
actions relating to pre-divestiture events, including pending antitrust
cases, see Item 3 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27 Financial Data Schedule
(b) There were no Current Reports on Form 8-K filed during the quarter
ended March 31, 1995.
-14-
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BELL ATLANTIC - PENNSYLVANIA, INC.
Date: May 11, 1995 By /s/ Robert J. McGonagle
------------------------------------------
Robert J. McGonagle
Chief Financial Officer,
Controller and Treasurer
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MAY 8, 1995.
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Operations for the three months ended March 31, 1995 and the
Balance Sheet as of March 31, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 33
<RECEIVABLES> 524
<ALLOWANCES> 50
<INVENTORY> 15
<CURRENT-ASSETS> 807
<PP&E> 9,121
<DEPRECIATION> 4,870
<TOTAL-ASSETS> 5,102
<CURRENT-LIABILITIES> 939
<BONDS> 1,632
<COMMON> 1,595
0
0
<OTHER-SE> (194)
<TOTAL-LIABILITY-AND-EQUITY> 5,102
<SALES> 0
<TOTAL-REVENUES> 842
<CGS> 0
<TOTAL-COSTS> 625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 188
<INCOME-TAX> 79
<INCOME-CONTINUING> 109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
