<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, 1996
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 ACCUMULATED DEFICIT
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES
(including $12.7 and $20.1 from affiliates)....... $ 878.6 $ 842.2
------- -------
OPERATING EXPENSES
Employee costs, including benefits and taxes....... 188.7 183.4
Depreciation and amortization...................... 168.5 165.2
Other (including $172.7 and $158.6 to affiliates).. 298.4 276.3
------- -------
655.6 624.9
------- -------
OPERATING INCOME........................................ 223.0 217.3
OTHER EXPENSE, NET...................................... 1.0 0.6
INTEREST EXPENSE
(including $2.2 and $.6 to affiliate).............. 27.5 29.0
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES................ 194.5 187.7
PROVISION FOR INCOME TAXES.............................. 79.4 78.5
------- -------
NET INCOME.............................................. $ 115.1 $ 109.2
======= =======
ACCUMULATED DEFICIT
At beginning of period............................. $(211.5) $(210.6)
Add: net income................................... 115.1 109.2
------- -------
(96.4) (101.4)
Deduct: dividends................................. 138.3 93.1
other changes............................. .3 ---
------- -------
At end of period................................... $(235.0) $(194.5)
======= =======
</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,
1996 1995
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments....................... $ 28.6 $ ---
Accounts receivable:
Trade and other, net of allowances for
uncollectibles of $61.5 and $61.3.. 565.0 584.9
Affiliates.............................. 18.5 22.0
Material and supplies........................ 18.6 16.1
Prepaid expenses............................. 207.6 143.9
Deferred income taxes........................ 47.0 47.4
Other........................................ 5.4 3.2
-------- --------
890.7 817.5
-------- --------
PLANT, PROPERTY AND EQUIPMENT................ 9,296.9 9,274.5
Less accumulated depreciation................ 5,240.5 5,144.5
-------- --------
4,056.4 4,130.0
-------- --------
OTHER ASSETS................................. 46.2 67.1
-------- --------
TOTAL ASSETS................................. $4,993.3 $5,014.6
======== ========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Millions, Except Per Share Amount)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate ................ $ 232.5 $ 197.0
Other..................................... 1.2 36.1
Accounts payable and accrued liabilities:
Affiliates................................ 293.1 274.1
Other..................................... 509.0 531.2
Advance billings and customer deposits......... 92.0 93.6
-------- --------
1,127.8 1,132.0
-------- --------
LONG-TERM DEBT................................. 1,432.2 1,432.2
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS................... 813.6 811.1
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes.......................... 63.7 73.9
Unamortized investment tax credits............. 41.9 43.6
Other.......................................... 153.7 137.9
-------- --------
259.3 255.4
-------- --------
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............................ (235.0) (211.5)
-------- --------
1,360.4 1,383.9
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.. $4,993.3 $5,014.6
======== ========
</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,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES............. $ 267.1 $ 271.2
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments.................. (28.6) (32.8)
Additions to plant, property and equipment............ (95.8) (183.0)
Other, net............................................ .3 1.1
-------- -------
Net cash used in investing activities................. (124.1) (214.7)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of borrowings and capital lease
obligations........................................ (35.3) (.4)
Net change in note payable to affiliate............... 35.5 61.3
Dividends paid........................................ (138.3) (93.1)
Net change in outstanding checks drawn
on controlled disbursement accounts................ (4.9) (24.3)
-------- -------
Net cash used in financing activities................. (143.0) (56.5)
-------- -------
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
(Unaudited)
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,
1995 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, 1995.
2. Dividend
On May 1, 1996, the Company declared and paid a dividend in the amount of
$138.6 million to Bell Atlantic Corporation (Bell Atlantic).
3. Reclassifications
Certain reclassifications of the prior year's data have been made to conform
to 1996 classifications.
4. Subsequent Event - Proposed Bell Atlantic - NYNEX Merger
On April 22, 1996, Bell Atlantic and NYNEX Corporation announced a proposed
merger of equals pursuant to a definitive merger agreement dated April 21, 1996,
that provides for the formation of a new company to be named Bell Atlantic
Corporation. Under the terms of the agreement, NYNEX shareholders will receive
one share in the new company for each NYNEX share owned and Bell Atlantic
shareholders will receive 1.302 shares in the new company for each Bell Atlantic
share owned. The merger, which is expected to qualify as a pooling of interests
for accounting purposes, is subject to a number of conditions, including
regulatory approvals, receipt of opinions that the merger will be tax free, and
the approval of the shareholders of both Bell Atlantic and NYNEX. The
transaction is expected to close within 12 months.
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 1996 of $115.1
million, compared to net income of $109.2 million for the same period in 1995.
Items affecting the comparison of operating results between the three month
periods ended March 31, 1996 and 1995 are discussed in the following sections.
<TABLE>
<CAPTION>
OPERATING REVENUES
- ------------------
(Dollars in Millions)
For the Three Month Period Ended March 31 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Transport Services
Local service.......................... $321.0 $304.4
Network access......................... 241.5 226.0
Toll service........................... 110.2 112.9
Ancillary Services
Directory publishing................... 83.5 80.7
Other.................................. 34.4 40.1
Value-added Services....................... 88.0 78.1
------ ------
Total...................................... $878.6 $842.2
====== ======
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
Increase
1996 1995 (Decrease)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
At March 31
- -----------
Access Lines in Service (In thousands)
Residence............................. 3,861 3,775 2.3%
Business.............................. 1,964 1,868 5.1
Public................................ 76 77 (1.3)
----- ------
5,901 5,720 3.2
===== ======
For the Three Month Period Ended March 31
- -----------------------------------------
Access Minutes of Use (In millions)
Interstate............................ 3,950 3,585 10.2
Intrastate............................ 1,438 1,164 23.5
----- ------
5,388 4,749 13.5
===== ======
Toll Messages (In millions)
Intrastate............................ 210 197 6.6
Interstate............................ 9 9 --
----- ------
219 206 6.3
===== ======
</TABLE>
6
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
LOCAL SERVICE REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Three Months $16.6 5.5%
- --------------------------------------------------------------------------------
Local service revenues are earned by the Company from the provision of local
exchange, local private line and public telephone services.
Higher network usage increased local service revenues during the first
quarter of 1996. The increase in calling volumes principally resulted from
growth in the number of access lines in service, which increased 3.2% from March
31, 1995. Revenues in the first quarter of 1996 were also higher as a result of
price increases associated with the Company's revenue neutral rate change
filing, which became effective on October 9, 1995. Under this filing, the
Company increased certain local service rates by $19.5 million on an annual
basis. These rate increases are expected to be entirely offset by price
reductions in toll service revenues.
NETWORK ACCESS REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Three Months $15.5 6.9%
- --------------------------------------------------------------------------------
Network access revenues are received from interexchange carriers (IXCs) for
their use of the Company's local exchange facilities in providing long distance
services to IXCs' customers and from end-user subscribers. Switched access
service revenues are derived from usage-based charges paid by IXCs for access to
the Company's network. Special access revenues arise from access charges paid
by IXCs and end-users who have private networks. End-user access revenues are
earned from local exchange carrier customers who pay for access to the network.
Network access revenues increased due to higher customer demand for access
services, as reflected by growth in access minutes of use of 13.5% over the same
period in 1995. Revenue growth from volume increases was partially offset by
the net effect of price reductions under the Federal Communications Commission's
(FCC) Price Cap Plans and lower revenues from affiliated companies pursuant to
an interstate revenue sharing agreement.
The net effect of price reductions is expected to have a larger negative
impact on reported revenues relative to the same period last year, in the second
quarter of 1996. See also "Factors That May Impact Future Results - FCC Interim
Price Cap Plan" below for a discussion of Bell Atlantic's proposed FCC price cap
filing, which would become effective during the third quarter of 1996.
TOLL SERVICE REVENUES
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Three Months $(2.7) (2.4)%
- --------------------------------------------------------------------------------
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area of the Company, commonly referred
to as Local Access and Transport Areas (LATAs). Other toll services include 800
services, Wide Area Telephone Service (WATS) and corridor services (between
southern New Jersey and Philadelphia).
The reduction in toll service revenues was caused by company-initiated price
reductions on certain toll services and increased competition for intraLATA toll
and WATS services. A revenue neutral rate change filing, which became effective
October 9, 1995, is expected to reduce toll service revenues by $19.5 million
annually, primarily through a discount plan offering and rate reductions on
certain toll services. The impact on toll service revenues resulting from the
revenue neutral rate change filing is expected to be entirely offset by rate
increases in local service revenues. These revenue decreases were offset, in
part, by increased network usage, partially attributable to severe winter storms
in early 1996. Toll message volumes increased by 6.3% over the first quarter of
1995.
7
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
The Company expects that competition for toll services will continue in 1996.
See "Factors That May Impact Future Results" below for a further discussion of
toll service revenue issues.
DIRECTORY PUBLISHING REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Three Months $2.8 3.5%
- --------------------------------------------------------------------------------
Directory publishing revenues are earned primarily from local advertising and
marketing services provided to businesses in White and Yellow Pages directories.
Other directory publishing services include database and foreign directory
marketing.
Growth in directory publishing revenues was principally due to higher rates
charged for the services. Advertising volumes continue to be negatively
impacted by competition from other directory companies, as well as other
advertising media.
OTHER ANCILLARY SERVICES REVENUES
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Three Months $(5.7) (14.2)%
- --------------------------------------------------------------------------------
Other ancillary services include billing and collection services provided to
IXCs, facilities rental services provided to affiliates and non-affiliates and
sales of materials and supplies to affiliates.
Other ancillary services revenues decreased due to lower facilities rental
revenues from affiliates and a reduction in billing and collection services
revenues, primarily as a result of the elimination of certain services from a
contract with an IXC.
VALUE-ADDED SERVICES REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Three Months $9.9 12.7%
- --------------------------------------------------------------------------------
Value-added services represent a family of services which expand the
utilization of the network. These services include recent products such as
voice messaging services, Caller ID and Return Call as well as more mature
products such as Centrex, Touch-Tone, and other customer premises wiring and
maintenance services.
The increase in value-added services revenues during the first quarter of
1996 was primarily attributable to continued growth in the network customer base
and higher demand for certain central office and voice messaging services.
8
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
<TABLE>
<CAPTION>
OPERATING EXPENSES
- ------------------
(Dollars in Millions)
For the Three Month Period Ended March 31 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Employee costs, including benefits and taxes.. $188.7 $183.4
Depreciation and amortization................. 168.5 165.2
Other operating expenses...................... 298.4 276.3
------ ------
Total......................................... $655.6 $624.9
====== ======
</TABLE>
EMPLOYEE COSTS
1996-1995 Increase
- --------------------------------------------------------------------------------
Three Months $5.3 2.9%
- --------------------------------------------------------------------------------
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 increase in employee costs was primarily due to annual salary and wage
increases, as well as increased overtime pay and repair and maintenance activity
principally attributable to unusually severe weather conditions in the first
quarter of 1996. These cost increases were partially offset by savings
associated with lower workforce levels in 1996.
DEPRECIATION AND AMORTIZATION
1996-1995 Increase
- --------------------------------------------------------------------------------
Three Months $3.3 2.0%
- --------------------------------------------------------------------------------
Depreciation and amortization increased principally due to growth in
depreciable telephone plant and changes in plant composition. The composite
depreciation rate was 7.4% for both the first quarter of 1996 and 1995.
OTHER OPERATING EXPENSES
1996-1995 Increase
- --------------------------------------------------------------------------------
Three Months $22.1 8.0%
- --------------------------------------------------------------------------------
Other operating expenses consist primarily of contract services including
centralized services 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
centralized services expenses allocated from NSI. This increase was due, in
part, to higher employee costs incurred in that organization as a result of the
transfer of employees from the network services subsidiaries to NSI in December
1995. Additional operating costs incurred to enhance billing and operating
systems, consolidate work activities and market value-added services also
contributed to the increase in centralized services expenses. First quarter
1996 other operating expenses were also higher due to the timing of network
software purchases. These increases were partially offset by a reduction in the
provision for uncollectible accounts receivable.
9
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
OTHER EXPENSE, NET
1996-1995 Increase
- --------------------------------------------------------------------------------
Three Months $.4
- --------------------------------------------------------------------------------
The change in other expense, net was attributable to higher nonoperating
costs incurred in the first quarter of 1996.
INTEREST EXPENSE
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Three Months $(1.5) (5.2)%
- --------------------------------------------------------------------------------
Interest expense decreased principally due to lower interest rates on
refinanced long-term debt. This decrease was partially offset by a reduction in
capitalized interest costs and additional interest expense resulting from higher
levels of average short-term debt in the first quarter of 1996.
PROVISION FOR INCOME TAXES
1996-1995 Increase
- --------------------------------------------------------------------------------
Three Months $.9 1.1%
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Three Months Ended March 31
- --------------------------------------------------------------------------------
1996 40.8%
- --------------------------------------------------------------------------------
1995 41.8%
- --------------------------------------------------------------------------------
The Company's effective income tax rate was lower in the first quarter of
1996 due to a reduction in the state income tax rate, which was implemented in
the second quarter of 1995.
FACTORS THAT MAY IMPACT FUTURE RESULTS
- --------------------------------------
Federal Legislation
The Telecommunications Act of 1996 (the Act) became effective on February 8,
1996 and replaces the Modification of Final Judgment (MFJ). In general, the Act
includes provisions that would open the Company's local exchange market to
competition and would permit local exchange carriers, such as the Company, upon
meeting certain conditions, to provide interLATA services (long distance) and
video programming and to engage in manufacturing. However, the ability of the
Company to engage in businesses previously prohibited by the MFJ is largely
dependent on satisfying certain conditions contained in the Act and regulations
promulgated thereunder. The following is a brief discussion regarding certain
provisions of the Act.
With regard to the rules governing competition in the interLATA market, the
Act takes a two-fold approach. Effective February 8, 1996, Bell Atlantic is
permitted to apply for approval to offer interLATA services outside of the
geographic region in which it currently operates as a local exchange carrier.
Bell Atlantic has announced its plans to offer such services in several states.
In addition, Bell Atlantic's wireless businesses are now permitted to offer
interLATA services without having to comply with the conditions imposed in
waivers granted under the MFJ.
Secondly, within Bell Atlantic's geographic region, each of the telephone
subsidiaries, including the Company, must demonstrate to the FCC that it has
satisfied certain requirements in order to be permitted to offer interLATA
services within its jurisdiction. Among the requirements with which the Company
must comply is a 14-point "competitive checklist" which is aimed
10
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
at ensuring that competitors have the ability to connect to the Company's
network. The Company must also demonstrate to the FCC that its entry into the
interLATA market would be in the public interest.
The Act also imposes specific requirements on the Company that are intended
to promote competition in the local exchange markets. These requirements
include the duty to: (i) provide interconnection to any other carrier for the
transmission and routing of telephone exchange service at any technically
feasible point; (ii) provide unbundled access to network elements at any
technically feasible point; (iii) provide retail services at wholesale prices
for resale; (iv) establish reciprocal compensation arrangements for the
origination and termination of telecommunications; and (v) provide physical
collocation.
No definitive prediction can be made as to the specific impact of the Act on
the business or financial condition of the Company. The financial impact on the
Company will be dependent on several factors, including the timing, extent and
success of competition in the Company's markets and the timing, extent and
success of the Company's pursuit of new business opportunities resulting from
the Act.
Competition
IntraLATA Toll Services
Competition to offer intrastate intraLATA toll services is currently
permitted in the Company's jurisdiction. Increased competition from IXCs has
resulted in a decline in several components of the Company's toll service
revenues.
Currently, intraLATA toll calls are completed by the Company unless the
customer dials a five-digit access code. Presubscription for intraLATA toll
services would enable customers to make intraLATA toll calls using another
carrier without having to dial the five-digit access code.
In general, the Act prohibits a state from requiring presubscription or
"dialing parity" until the earlier of such time as an operating telephone
company in the state is authorized to provide long distance services within the
state or three years from the effective date of the Act. This prohibition does
not apply to a final order requiring an operating telephone company to implement
presubscription that was issued on or prior to December 19, 1995.
During 1995, the Pennsylvania Public Utility Commission (PUC) conducted
proceedings to determine whether, and under what conditions, to authorize
presubscription. On December 14, 1995, the PUC issued an order directing the
implementation of presubscription within eighteen months of that order.
However, the order stated that a reasonable effort should be made to coordinate
implementation of presubscription with the Company's entry into the interLATA
market in Pennsylvania. Implementation of presubscription for intraLATA toll
services could have a material negative impact on toll service revenues,
especially if the Company is not permitted contemporaneously to offer interLATA
services. The ability to offset the impact of presubscription will depend, in
part, upon how quickly the Company meets the requirements of the "competitive
checklist."
Local Exchange Services
The ability to offer local exchange services has historically been subject to
regulation by the PUC. In 1995, four applications from competitors to provide
local exchange services were approved by the PUC. The Act is expected to
significantly increase the level of competition in the Company's local exchange
market. However, increased competition in the local exchange market will
facilitate FCC approval of the Company's entry into the interLATA markets.
FCC Interim Price Cap Plan
On April 2, 1996, Bell Atlantic filed its Annual Access Tariff Filing of
Interstate Rates, as required by the FCC's Interim Price Cap Plan. In the
filing, Bell Atlantic selected the 5.3% Productivity Factor for the July 1996 to
June 1997 tariff period. Companies selecting the 5.3% Productivity Factor are
not required to share earnings in excess of allowed rates of return. The
reduction in the price cap index resulting from the 5.3% Productivity Factor was
more than offset by the reversal of prior year exogenous rate reductions and the
FCC's partial annulment of ratemaking requirements related to the Company's
adoption of Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The rates included
in the April 2, 1996 filing propose actual price increases for the Company
totaling approximately $5 million on an annual basis, which would become
effective July 1, 1996.
11
<PAGE>
Bell Atlantic - Pennsylvania, Inc.
In 1995, Bell Atlantic filed an appeal with the Court of Appeals for the D.C.
Circuit for review of the FCC's Interim Price Cap Plan. On March 29, 1996, the
U.S. Court of Appeals denied Bell Atlantic's petition.
By the end of 1996, Bell Atlantic expects the FCC to replace the Interim
Price Cap Plan for interstate access charges with a revised price cap plan.
OTHER MATTERS
- -------------
Environmental Issues
The Company is subject to a number of environmental proceedings as a result
of its operations and the 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
designated as a potentially responsible party by the U.S. Environmental
Protection Agency or joined as a third-party defendant in pending Superfund
litigation. Such designation or 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 liabilities reflect those
specific situations where remediation activities are currently deemed to be
probable and where the cost of remediation is estimable. Management believes
that the aggregate amount of any additional potential liability would not have a
material effect on the Company's results of operations or financial condition.
Subsequent Event - Proposed Bell Atlantic - NYNEX Merger
On April 22, 1996, Bell Atlantic and NYNEX Corporation announced a proposed
merger of equals pursuant to a definitive merger agreement dated April 21, 1996,
that provides for the formation of a new company to be named Bell Atlantic
Corporation. Under the terms of the agreement, NYNEX shareholders will receive
one share in the new company for each NYNEX share owned and Bell Atlantic
shareholders will receive 1.302 shares in the new company for each Bell Atlantic
share owned. The merger, which is expected to qualify as a pooling of interests
for accounting purposes, is subject to a number of conditions, including
regulatory approvals, receipt of opinions that the merger will be tax free, and
the approval of the shareholders of both Bell Atlantic and NYNEX. The
transaction is expected to close within 12 months.
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, 1996, the Company had $166.1 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 for the issuance of
unsecured debt securities.
The Company's debt ratio was 55.0% at March 31, 1996, compared to 54.6% at
December 31, 1995.
On May 1, 1996, the Company declared and paid a dividend in the amount of
$138.6 million to Bell Atlantic Corporation.
12
<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, 1995.
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, 1996.
13
<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 8, 1996 By /s/ William C. Tomlinson
----------------------------------
William C. Tomlinson
Chief Financial Officer
and Controller
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MAY 3, 1996.
14
<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, 1996 AND THE
BALANCE SHEET AS OF MARCH 31, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 29
<RECEIVABLES> 627
<ALLOWANCES> 62
<INVENTORY> 19
<CURRENT-ASSETS> 891
<PP&E> 9,297
<DEPRECIATION> 5,241
<TOTAL-ASSETS> 4,993
<CURRENT-LIABILITIES> 1,128
<BONDS> 1,432
0
0
<COMMON> 1,595
<OTHER-SE> (234)
<TOTAL-LIABILITY-AND-EQUITY> 4,993
<SALES> 0
<TOTAL-REVENUES> 879
<CGS> 0
<TOTAL-COSTS> 656
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 194
<INCOME-TAX> 79
<INCOME-CONTINUING> 115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
