BELL ATLANTIC PENNSYLVANIA INC
10-Q, 2000-08-14
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<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 June 30, 2000

                                      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


                           VERIZON PENNSYLVANIA INC.
               (Former Name: Bell Atlantic - Pennsylvania, Inc.)


 A Pennsylvania Corporation       I.R.S. Employer Identification No. 23-0397860


         1717 Arch Street, 32nd Fl., Philadelphia, Pennsylvania  19103


                        Telephone Number (215) 466-9900

                           _________________________


THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF BELL ATLANTIC CORPORATION (D/B/A
VERIZON COMMUNICATIONS), 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>

                           Verizon Pennsylvania Inc.

                        PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements


                        CONDENSED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                            Three Months Ended June 30,  Six Months Ended June 30,
                                                          --------------------------------------------------------
(Dollars in Millions) (Unaudited)                                 2000          1999          2000         1999
<S>                                                         <C>            <C>           <C>           <C>

OPERATING REVENUES
 (including $29.8, $28.1, $59.3 and
  $52.2 from affiliates)                                           $935.4        $893.2      $1,845.2     $1,761.9
                                                          --------------------------------------------------------

OPERATING EXPENSES
Operations and support (including $199.7, $170.6,
 $340.6 and $327.3 to affiliates)                                   535.7         475.2         964.3        923.1
Depreciation and amortization                                       198.1         184.7         388.5        366.1
                                                          --------------------------------------------------------
                                                                    733.8         659.9       1,352.8      1,289.2
                                                          --------------------------------------------------------

OPERATING INCOME                                                    201.6         233.3         492.4        472.7

OTHER INCOME, NET
 (including $1.2, $.1, $1.3 and
  $.1 from affiliate)                                                 4.7            .9          12.2          1.7

INTEREST EXPENSE
 (including $9.4, $5.8, $16.8 and
  $10.9 to affiliate)                                                32.9          31.0          63.3         60.4
                                                          --------------------------------------------------------

INCOME BEFORE PROVISION FOR INCOME TAXES                            173.4         203.2         441.3        414.0

PROVISION FOR INCOME TAXES                                           64.8          83.3         175.9        169.8
                                                          --------------------------------------------------------

NET INCOME                                                         $108.6        $119.9      $  265.4     $  244.2
                                                          ========================================================
</TABLE>



                 See Notes to Condensed Financial Statements.

                                       1
<PAGE>

                           Verizon Pennsylvania Inc.

                           CONDENSED BALANCE SHEETS


                                    ASSETS
                                    ------


<TABLE>
<CAPTION>
(Dollars in Millions) (Unaudited)                                                         June 30, 2000  December 31, 1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>            <C>

CURRENT ASSETS
Cash                                                                                      $         --           $     2.7
Short-term investments                                                                             21.0               63.1
Accounts receivable:
 Trade and other, net of allowances for
      uncollectibles of $69.1 and $60.9                                                           635.5              651.3
 Affiliates                                                                                        21.4               32.2
Material and supplies                                                                              19.8               19.6
Prepaid expenses                                                                                   90.3               41.2
Deferred income taxes                                                                              81.9               75.8
Other                                                                                              17.9                5.2
                                                                                        ----------------------------------
                                                                                                  887.8              891.1
                                                                                        ----------------------------------

PLANT, PROPERTY AND EQUIPMENT                                                                  11,620.3           11,116.0
Less accumulated depreciation                                                                   6,950.3            6,656.3
                                                                                        ----------------------------------
                                                                                                4,670.0            4,459.7
                                                                                        ----------------------------------

OTHER ASSETS                                                                                      248.2              101.4
                                                                                        ----------------------------------

TOTAL ASSETS                                                                                  $ 5,806.0          $ 5,452.2
                                                                                        ==================================
</TABLE>



                  See Notes to Condensed Financial Statements.

                                       2
<PAGE>

                           Verizon Pennsylvania Inc.

                           CONDENSED BALANCE SHEETS


                    LIABILITIES AND SHAREOWNER'S INVESTMENT
                    ---------------------------------------


<TABLE>
<CAPTION>
(Dollars in Millions, Except Per Share Amount) (Unaudited)                               June 30, 2000   December 31, 1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>             <C>
CURRENT LIABILITIES
Debt maturing within one year:
 Note payable to affiliate                                                                    $  672.8            $  510.5
 Other                                                                                           225.8               176.6
Accounts payable and accrued liabilities:
 Affiliates                                                                                      258.8               275.3
 Other                                                                                           577.9               593.7
Advance billings and customer deposits                                                            91.9                88.8
                                                                                       -----------------------------------
                                                                                               1,827.2             1,644.9
                                                                                       -----------------------------------

LONG-TERM DEBT                                                                                 1,204.0             1,253.7
                                                                                       -----------------------------------

EMPLOYEE BENEFIT OBLIGATIONS                                                                     596.3               595.3
                                                                                       -----------------------------------

DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes                                                                            273.9               217.7
Unamortized investment tax credits                                                                25.1                26.1
Other                                                                                            128.0               108.4
                                                                                       -----------------------------------
                                                                                                 427.0               352.2
                                                                                       -----------------------------------
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
Reinvested earnings                                                                              156.3                10.9
Accumulated other comprehensive loss                                                               (.2)                (.2)
                                                                                       -----------------------------------
                                                                                               1,751.5             1,606.1
                                                                                       -----------------------------------

TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT                                                 $5,806.0            $5,452.2
                                                                                       ===================================
</TABLE>


                  See Notes to Condensed Financial Statements.

                                       3
<PAGE>

                           Verizon Pennsylvania Inc.

                       CONDENSED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                             Six Months Ended June 30,
                                                                                          ----------------------------
<S>                                                                                         <C>            <C>
(Dollars in Millions) (Unaudited)                                                                   2000          1999
----------------------------------------------------------------------------------------------------------------------

NET CASH PROVIDED BY OPERATING ACTIVITIES                                                        $ 565.8       $ 480.9
                                                                                          ----------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments                                                                42.1          37.4
Capital expenditures                                                                              (595.9)       (456.0)
Other, net                                                                                         (59.3)          8.8
                                                                                          ----------------------------
Net cash used in investing activities                                                             (613.1)       (409.8)
                                                                                          ----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations                                                    (.7)          (.6)
Net change in note payable to affiliate                                                            162.3          15.5
Dividends paid                                                                                    (120.0)        (72.9)
Net change in outstanding checks drawn
     on controlled disbursement accounts                                                             3.0         (13.1)
                                                                                          ----------------------------
Net cash provided by/(used in) financing activities                                                 44.6         (71.1)
                                                                                          ----------------------------

NET CHANGE IN CASH                                                                                  (2.7)          ---

CASH, BEGINNING OF PERIOD                                                                            2.7           ---
                                                                                          ----------------------------

CASH, END OF PERIOD                                                                              $   ---       $   ---
                                                                                          ============================
</TABLE>



                  See Notes to Condensed Financial Statements.

                                       4
<PAGE>

                           Verizon Pennsylvania Inc.

                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)

1. Basis of Presentation

    Verizon Pennsylvania Inc., formerly Bell Atlantic - Pennsylvania, Inc., is a
wholly owned subsidiary of Bell Atlantic Corporation (d/b/a/ Verizon
Communications). The accompanying unaudited condensed financial statements have
been prepared based upon Securities and Exchange Commission (SEC) rules that
permit reduced disclosure for interim periods.  These financial statements
include certain reclassifications in presentation as a result of the merger of
Bell Atlantic Corporation (Bell Atlantic) and GTE Corporation (GTE) (see Note
2).  These financial statements reflect all adjustments that are necessary for a
fair presentation of results of operations and financial position for the
interim periods shown including normal recurring accruals and other items (see
Note 2). The results for the interim periods are not necessarily indicative of
results for the full year.  For a more complete discussion of significant
accounting policies and certain other information, you should refer to the
financial statements included in our 1999 Annual Report on Form 10-K.

2.  Bell Atlantic - GTE Merger

    On June 30, 2000, Bell Atlantic and GTE completed a merger of equals under a
definitive merger agreement dated as of July 27, 1998.  Under the terms of the
agreement, GTE became a wholly owned subsidiary of Bell Atlantic.  With the
closing of the merger, the combined company began doing business as Verizon
Communications.  The merger has been accounted for as a pooling of interests.

Merger-Related and Severance Costs

    Results of operations for June 30, 2000 included merger-related pre-tax
costs totaling approximately $41.0 million, consisting of $18.7 million for
direct incremental costs, $20.0 million for employee severance costs and $2.3
million for transition costs.  These costs include approximately $33.5 million
representing our allocated share of merger-related costs from Verizon Services
Corp. (Verizon Services), an affiliate that provides centralized services on a
contract basis. Costs allocated from Verizon Services are included in Operations
and Support - Other Operating Expenses.

    Direct incremental costs consist of our proportionate share of expenses
associated with completing the merger transaction such as professional and
regulatory fees, compensation arrangements and shareowner-related costs.
Employee severance costs, as recorded under SFAS No. 112, "Employers' Accounting
for Postemployment Benefits," represent our proportionate share of benefit costs
for the separation of management employees who are entitled to benefits under
pre-existing Verizon Communications separation pay plans.  The separations are
expected to occur as a result of consolidations and process enhancements.
Accrued postemployment benefit liabilities for those employees are included in
our balance sheet as a component of Employee Benefit Obligations.  Transition
costs consist of our proportionate share of costs associated with integrating
the operations of Bell Atlantic and GTE.  Transition costs are expensed as
incurred.

3.  Dividend

    On August 1, 2000, we declared and paid a dividend in the amount of $70.7
million to Verizon Communications.

4.  Recent Accounting Pronouncements

FASB Accounting Standards - Derivatives and Hedging Activities

    In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities."  This statement requires that
all derivatives be measured at fair value and recognized as either assets or
liabilities on our balance sheet.  Changes in the fair values of derivative
instruments will be recognized in either earnings or comprehensive income,
depending on the designated use and effectiveness of the instruments.  The FASB
amended this pronouncement in June 1999 to defer the effective date of SFAS No.
133 for one year.  We must adopt SFAS No. 133 no later than January 1, 2001.

                                       5
<PAGE>

                           Verizon Pennsylvania Inc.

    In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which amended SFAS No.
133.  The amendments in SFAS No. 138 address certain implementation issues and
relate to such matters as the normal purchases and normal sales exception, the
definition of interest rate risk, hedging recognized foreign-currency-
denominated assets and liabilities, and intercompany derivatives.  SFAS No. 138
also amends SFAS No. 133 for decisions made by the FASB relating to the
Derivatives Implementation Group process.

    We are currently evaluating the provisions of SFAS Nos. 133 and 138.  The
impact of adoption will be determined by several factors, including the specific
hedging instruments in place and their relationships to hedged items, as well as
market conditions at the date of adoption.

FASB Interpretation - Stock Compensation

    In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation."  Interpretation No. 44 was
issued in order to clarify certain issues arising from Accounting Principles
Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees," which was
previously issued in October 1972.  Interpretation No. 44 is effective July 1,
2000, but certain conclusions cover specific events that occur either after
December 15, 1998 or January 12, 2000.

    The main issues addressed by Interpretation No. 44 are: (a) the definition
of an employee for purposes of applying APB Opinion No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination.

    Interpretation No. 44 will not have a material impact on our results of
operations or financial position.

SEC Staff Accounting Bulletin - Revenue Recognition

    In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," which must be adopted by the
fourth quarter of 2000.  SAB No. 101 provides additional guidance on revenue
recognition, as well as criteria for when revenue is generally realized and
earned, and also requires the deferral of incremental direct selling costs.  We
are currently assessing the impact of SAB No. 101 on our results of operations
and financial position.

5.    Shareowner's Investment

<TABLE>
<CAPTION>
                                                    Common   Contributed  Reinvested    Accumulated Other
(Dollars in Millions)                               Stock      Capital     Earnings    Comprehensive Loss
---------------------------------------------------------------------------------------------------------
<S>                                                <C>       <C>          <C>          <C>
Balance at December 31, 1999                       $1,594.7          $.7     $  10.9                 $(.2)
Net income                                                                     265.4
Dividends paid to parent                                                      (120.0)
                                                 --------------------------------------------------------
Balance at June 30, 2000                           $1,594.7          $.7     $ 156.3                 $(.2)
                                                 ========================================================
</TABLE>

    Net income and comprehensive income were the same for the six months ended
 June 30, 2000 and 1999.

6.   Commitments and Contingencies

    Various legal actions and regulatory proceedings are pending to which we are
a party.  We have established reserves for specific liabilities in connection
with regulatory and legal matters that we currently deem to be probable and
estimable.  We do not expect that the ultimate resolution of pending regulatory
and legal matters in future periods will have a material effect on our financial
condition, but it could have a material effect on our results of operations.

    Federal and state regulatory conditions to the merger include certain
commitments to, among other things, promote competition and the widespread
deployment of advanced services, while helping ensure that consumers continue to
receive high-quality, low cost telephone services. In some cases, there are
significant penalties associated with not meeting these commitments. The cost of
satisfying these commitments could have a significant impact on net income in
future periods. Over the remainder of 2000, based on preliminary estimates, the
cost of satisfying these commitments is likely to impact the net income of
Verizon Communications on a consolidated basis by approximately $275 to $325
million. The estimated impact on each operating telephone subsidiary is still
being assessed.



                               6
<PAGE>

                           Verizon 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
---------------------

    We reported net income of $265.4 million for the six month period ended June
30, 2000, compared to net income of $244.2 million for the same period in 1999.

    Our results for 2000 and 1999 were affected by special items.  The special
items in both periods include our allocated share of charges from Verizon
Services Corp. (Verizon Services).

    The following table shows how special items are reflected in our condensed
statements of income for each period:

<TABLE>
<CAPTION>
                                                                                      (Dollars in Millions)
Six Months Ended June 30,                                                                       2000   1999
-----------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>     <C>
Operating Revenues
 Regulatory contingency                                                                        $  .8  $ ---
                                                                                            ---------------
Operations and Support Expense
 Bell Atlantic-GTE merger direct incremental costs                                                .6    ---
 Bell Atlantic-GTE merger severance costs                                                        6.9    ---
 Allocated Bell Atlantic-GTE merger direct incremental, severance
  and transition costs                                                                          33.5    ---
 Bell Atlantic-NYNEX merger transition costs                                                     ---     .1
 Allocated Bell Atlantic-NYNEX merger transition costs                                           ---    4.4
 Other charges and special items                                                                12.4    ---
                                                                                            ---------------
                                                                                                53.4    4.5
                                                                                            ---------------
Depreciation and Amortization
 Duplicate assets                                                                                2.3    ---
                                                                                            ---------------
Interest Expense
 Regulatory contingency                                                                           .3    ---
                                                                                            ---------------
Total                                                                                          $56.8  $ 4.5
                                                                                            ===============
</TABLE>

    What follows is a further explanation of the nature of these special items.

Bell Atlantic - GTE Merger

    On June 30, 2000, Bell Atlantic and GTE completed a merger of equals under a
definitive merger agreement dated as of July 27, 1998.  Under the terms of the
agreement, GTE became a wholly owned subsidiary of Bell Atlantic.  With the
closing of the merger, the combined company began doing business as Verizon
Communications.  The merger has been accounted for as a pooling of interests.

Merger-Related and Severance Costs

    Results of operations for June 30, 2000 included merger-related pre-tax
costs totaling approximately $41.0 million, consisting of $18.7 million for
direct incremental costs, $20.0 million for employee severance costs and $2.3
million for transition costs.  These costs include approximately $33.5 million
representing our allocated share of merger-related costs from Verizon Services,
an affiliate that provides centralized services on a contract basis.  Costs
allocated from Verizon Services are included in Operations and Support - Other
Operating Expenses.

   Direct incremental costs consist of our proportionate share of expenses
associated with completing the merger transaction such as professional and
regulatory fees, compensation arrangements and shareowner-related costs.
Employee severance costs, as

                                       7
<PAGE>

                           Verizon Pennsylvania Inc.

recorded under SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," represent our proportionate share of benefit costs for the separation
of management employees who are entitled to benefits under pre-existing Verizon
Communications separation pay plans. The separations are expected to occur as a
result of consolidations and process enhancements. Transition costs consist of
our proportionate share of costs associated with integrating the operations of
Bell Atlantic and GTE. Transition costs are expensed as incurred.

Regulatory Contingency

   In the second quarter of 2000, we recognized a charge for a regulatory matter
totaling $1.1 million.  We recorded a reduction to operating revenue in the
amount of $.8 million and a charge to interest expense of $.3 million.  This
matter relates to a specific issue currently under investigation by federal
regulatory commissions.  We believe that it is probable that the ultimate
resolution of this matter will result in refunds to our customers, including
interest.

Other Charges and Special Items

    In the second quarter of 2000, we recorded other charges and special items
totaling approximately $14.7 million in connection with consolidating operations
and combining organizations and for other nonrecurring items arising in the
quarter. These charges included costs for write-offs of accounts receivable and
duplicate assets, legal contingencies and other miscellaneous items.

Bell Atlantic - NYNEX Merger

Merger-Related Costs

    In connection with the Bell Atlantic-NYNEX merger, which was completed in
August 1997, we recorded pre-tax merger-related transition costs of $4.5 million
in the first six months of 1999.

    Transition costs consisted of our proportionate share of costs associated
with integrating the operations of Bell Atlantic and NYNEX, such as systems
modifications costs and advertising and branding costs.  Transition costs were
expensed as incurred.

    These and other items affecting the comparison of our results of operations
for the six month periods ended June 30, 2000 and 1999 are discussed in the
following sections.

OPERATING REVENUE STATISTICS
----------------------------

<TABLE>
<CAPTION>
                                                                         2000    1999  % Change
-----------------------------------------------------------------------------------------------
<S>                                                                    <C>     <C>     <C>
At June 30,
Access Lines in Service (in thousands)*
 Residence                                                              4,268   4,222       1.1%
 Business                                                               2,356   2,337       0.8
 Public                                                                    70      72      (2.8)
                                                                     ----------------
                                                                        6,694   6,631       1.0
                                                                     ================
Six Months Ended June 30,
Access Minutes of Use (in millions)                                    13,324  13,247       0.6
                                                                     ================
</TABLE>

* 1999 reflects a restatement of access lines in service

OPERATING REVENUES
------------------
(Dollars in Millions)

<TABLE>
<CAPTION>
Six Months Ended June 30,                                                                         2000      1999
----------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>       <C>
Local services                                                                                $  960.0  $  937.7
Network access services                                                                          600.9     558.2
Long distance services                                                                           137.9     148.5
Ancillary services                                                                               146.4     117.5
                                                                                            --------------------
Total                                                                                         $1,845.2  $1,761.9
                                                                                            ====================
</TABLE>

                                       8
<PAGE>

                           Verizon Pennsylvania Inc.

LOCAL SERVICES

   2000 - 1999                                                        Increase
--------------------------------------------------------------------------------
   Six Months                                                    $22.3      2.4%
--------------------------------------------------------------------------------

    Local service revenues are earned from the provision of local exchange,
local private line, wire maintenance, voice messaging and value-added services.
Value-added services are a family of services that expand the utilization of the
network, including products such as Caller ID, Call Waiting and Return Call.
Local services also includes wholesale revenues from unbundled network element
(UNE) platforms, certain data transport revenues, and wireless interconnection
revenues.

    Local service revenues increased in the first six months of 2000 primarily
due to higher customer demand and usage of our value-added services, as well as
our data transport and digital services. Local service revenue growth in the
first six months of 2000 also reflects higher usage of our network facilities.
Revenue growth was generated, in part, by an increase in access lines in service
of 1.0% from June 30, 1999. Price increases implemented on certain local
exchange services also contributed to the increase in local service revenues.

    Growth in local service revenue was partially offset by the effect of
resold and UNE platform access lines.


NETWORK ACCESS SERVICES

   2000 - 1999                                                        Increase
--------------------------------------------------------------------------------
   Six Months                                                    $42.7     7.6%
--------------------------------------------------------------------------------

    Network access revenues are earned from end-user subscribers and from long
distance and other competing carriers who use our local exchange facilities to
provide services to their customers.  Switched access revenues are derived from
fixed and usage-based charges paid by carriers for access to our local network.
Special access revenues originate from carriers and end-users that buy dedicated
local exchange capacity to support their private networks.  End-user access
revenues are earned from our customers and from resellers who purchase dial-tone
services.

    Network access revenue growth in the first six months of 2000 was mainly
attributable to increased demand for special access services, reflecting a
greater utilization of our network, and volume growth resulting from continuing
expansion of the business market, particularly for high capacity data services.
Higher network usage by alternative providers of intraLATA toll services also
contributed to revenue growth this year.

    In addition, network access revenues included higher revenues received from
customers for the recovery of local number portability (LNP) costs.  LNP allows
customers to change local exchange carriers while maintaining their existing
telephone numbers.  In December 1998, the Federal Communications Commission
(FCC) issued an order permitting us to recover costs incurred for LNP in the
form of monthly end-user charges for a five-year period beginning in March 1999.

    Revenue growth was partially offset by price reductions associated with
federal and state price cap filings and other regulatory decisions.  The FCC
regulates the rates that we charge long distance carriers and end-user
subscribers for interstate access services. We are required to file new access
rates with the FCC each year.  In July 1999, we implemented interstate price
decreases of approximately $4 million on an annual basis in connection with the
FCC's Price Cap Plan. The rates included in our July 1999 filing were in effect
through June 2000.  Interstate price decreases were $12 million on an annual
basis for the period July 1998 through June 1999.  The rates include amounts
necessary to recover our contribution to the FCC's universal service fund which
are subject to adjustment every quarter due to potential increases or decreases
in our contribution to the fund.  Our contributions to the universal service
fund are included in Other Operating Expenses.  As a result of a U.S. Court of
Appeals decision last year, our contributions to the universal service fund were
reduced by approximately $12 million annually beginning November 1, 1999, and
our interstate access rates were reduced accordingly because we will no longer
have to recover these contributions in our rates.  In addition, revenue was
reduced by a special charge of $.8 million for a contingency associated with a
regulatory matter, as described in the Results of Operations section.

                                       9
<PAGE>

                           Verizon Pennsylvania Inc.

LONG DISTANCE SERVICES

   2000 - 1999                                                        (Decrease)
--------------------------------------------------------------------------------
   Six Months                                                  $(10.6)   (7.1)%
--------------------------------------------------------------------------------

    Long distance revenues are earned primarily from calls made to points
outside a customer's local calling area, but within our service area (intraLATA
toll).  IntraLATA toll calls originate and terminate within the same LATA, but
generally cover a greater distance than a local call.  These services are
regulated by the Pennsylvania Public Utility Commission (PUC) except where they
cross state lines.  Other long distance services that we provide include 800
services, Wide Area Telephone Service (WATS), and corridor services (between
LATAs in Philadelphia and southern New Jersey).

    The decline in long distance revenues in the first six months of 2000 was
principally caused by the competitive effects of presubscription, which enables
customers to make intraLATA toll calls using a competing carrier without having
to dial an access code.  The negative effect of presubscription on long distance
revenues was partially mitigated by increased network access services for usage
of our network by alternative service providers.  In response to
presubscription, we have implemented customer win-back and retention initiatives
that include toll calling discount packages and product bundling offers.  These
revenue reductions were partially offset by growth in private line services and
additional revenues generated by higher calling volumes.


ANCILLARY SERVICES

   2000 - 1999                                                        Increase
--------------------------------------------------------------------------------
   Six Months                                                    $28.9    24.6%
--------------------------------------------------------------------------------
    Our ancillary services include such services as billing and collections for
long distance carriers and affiliates, facilities rentals to affiliates and
nonaffiliates, collocation by competitive local exchange carriers, usage of
separately priced (unbundled) components of our network by competitive local
exchange carriers, public (coin) telephone, customer premises equipment (CPE)
and sales of materials and supplies to affiliates.  Ancillary services revenues
also include fees paid by customers for nonpublication of telephone numbers and
multiple white page listings and fees paid by an affiliate for usage of our
directory listings.

    Ancillary services revenues increased in the first six months of 2000
primarily due to higher payments received from competitive local exchange
carriers for the purchase of unbundled network elements and for interconnection
of their networks with our network.

                                       10
<PAGE>

                           Verizon Pennsylvania Inc.

OPERATING EXPENSES
------------------
(Dollars in Millions)

<TABLE>
<CAPTION>
Six Months Ended June 30,                                                                           2000      1999
------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>        <C>
Operations and support:
 Employee costs, including benefits and taxes                                                   $  295.7  $  303.8
 Other operating expenses                                                                          668.6     619.3
                                                                                             ---------------------
Total operations and support                                                                       964.3     923.1
                                                                                             ---------------------

Depreciation and amortization                                                                      388.5     366.1
                                                                                             ---------------------
Total                                                                                           $1,352.8  $1,289.2
                                                                                             =====================
</TABLE>

EMPLOYEE COSTS

   2000 - 1999                                                        (Decrease)
--------------------------------------------------------------------------------
   Six Months                                                   $(8.1)    (2.7)%
--------------------------------------------------------------------------------

    Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes paid directly by us.  Similar costs incurred
by employees of Verizon Services, who provide centralized services on a contract
basis, are allocated to us and are included in Other Operating Expenses.

    Employee costs decreased in the first six months of 2000 primarily as a
result of lower pension and benefit costs.  The decline in pension and benefit
costs was due to favorable pension plan investment returns and changes in
actuarial assumptions. These factors were partially offset by changes in certain
plan provisions, including a previously reported amendment to our management
cash balance plan and a special lump sum pension payment to management and
associate retirees.

    This cost reduction was partially offset by higher overtime payments, annual
salary and wage increases for management and associate employees, and merger-
related costs recorded in the second quarter of 2000. As described in the
Results of Operations section, we recognized approximately $6.9 million in
benefit costs for the separation of employees who are entitled to benefits under
pre-existing Verizon Communications separation pay plans. We also recorded
approximately $.6 million for direct incremental merger-related costs associated
with compensation arrangements. Merger-related costs associated with employees
of Verizon Services were allocated to us and are included in Other Operating
Expenses.

    Associate employees wages, pension and other benefits are determined under
contracts with unions representing our associate employees. On August 6, 2000,
collective bargaining agreements with unions representing our employees expired,
and the unions initiated a work stoppage. As of 8:00 a.m. on August 14, 2000 we
continued to negotiate new agreements with the unions.

                                       11
<PAGE>

                           Verizon Pennsylvania Inc.

OTHER OPERATING EXPENSES

   2000 - 1999                                                        Increase
--------------------------------------------------------------------------------
   Six Months                                                    $49.3     8.0%
--------------------------------------------------------------------------------

    Other operating expenses consist of contract services including centralized
services expenses allocated from Verizon Services, rent, network software costs,
operating taxes other than income, the provision for uncollectible accounts
receivable, and other costs.

    The increase in other operating expenses was largely attributable to the
effect of merger-related costs and other special items recorded in the second
quarter of 2000.  These charges totaled $45.9 million and were comprised of our
allocated share of $13.1 million for employee severance, $18.1 million for
direct incremental and $2.3 million for transition merger-related costs incurred
by Verizon Services, and $12.4 million for other miscellaneous expense items.
Other miscellaneous expense items included $6.4 million for the write-off of
accounts receivable, $4.8 million for legal contingencies and $1.2 million for
other items.  Higher interconnection and related costs associated with
reciprocal compensation arrangements with competitive local exchange and other
carriers to terminate calls on their networks also contributed to the increase
in other operating expenses, but to a lesser extent.

    These increases were partially offset by a reduction in centralized services
expenses allocated from Verizon Services, primarily as a result of lower
employee costs incurred by Verizon Services.


DEPRECIATION AND AMORTIZATION

   2000 - 1999                                                        Increase
--------------------------------------------------------------------------------
   Six Months                                                    $22.4     6.1%
--------------------------------------------------------------------------------

    Depreciation and amortization expense increased in the first six months of
2000 over the same period in 1999 principally as a result of growth in
depreciable telephone plant.  The growth in telephone plant was largely
attributable to increased capital expenditures for software and hardware to
support the expansion of our network.  Depreciation and amortization was also
impacted by the recording of $2.3 million in special charges associated with
duplicate assets as previously mentioned.  These factors were partially offset
by the effect of lower rates of depreciation and amortization.


OTHER INCOME, NET

   2000 - 1999                                                        Increase
--------------------------------------------------------------------------------
   Six Months                                                    $10.5      --%
--------------------------------------------------------------------------------
    The change in other income, net, was primarily attributable to additional
interest income associated with the settlement of a tax-related matters in the
first six months of 2000.  Other items contributing to the change, but to a
lesser extent, were an increase of $1.2 million in the income recognized from
our investment in SMS/800 under the equity method and nonperformance fees
received from a vendor.

                                       12
<PAGE>

                           Verizon Pennsylvania Inc.

INTEREST EXPENSE

   2000 - 1999                                                        Increase
--------------------------------------------------------------------------------
   Six Months                                                     $2.9     4.8%
--------------------------------------------------------------------------------
    Interest expense includes costs associated with borrowings and capital
leases, net of interest capitalized as a cost of acquiring or constructing plant
assets.

    Interest expense increased in the first six months of 2000 over the same
period in 1999 primarily due to higher levels of average short-term debt with an
affiliate and higher interest rates associated with this debt.  Interest expense
was also impacted by additional interest costs of $.3 million associated with a
regulatory contingency, as described in the Results of Operations section.
These factors were partially offset by higher capitalized interest costs
resulting from higher levels of average telephone plant under construction.


EFFECTIVE INCOME TAX RATES

   Six Months Ended June 30,
--------------------------------------------------------------------------------
   2000                                                                   39.9%
--------------------------------------------------------------------------------
   1999                                                                   41.0%
--------------------------------------------------------------------------------

    The effective income tax rate is the provision for income taxes as a
percentage of income before the provision for income taxes.  Our effective
income tax rate was lower in the first six months of 2000 principally due to
deferred income tax benefits recorded in the first six months of 2000.


OTHER MATTERS
-------------

FCC Regulation and Interstate Rates

    On May 31, 2000, the FCC approved the industry proposal to restructure
access charges (known as the "CALLS plan").  Under the terms of the plan, direct
end-user access charges are increased while access charges to long distance
carriers are reduced.  While the plan continues the 6.5% (less inflation) annual
reductions for most interstate access charges, it provides for a price freeze
when switched access transport prices reach $0.0055 per-minute.  In addition, in
conjunction with provisions that will allow carriers to deaverage their
subscriber line charges by geographic zones, the plan establishes a new $650
million universal service fund to support interstate access rates.  Of that
amount, Verizon Communications expects approximately $320 million to be used to
support interstate access services in its service territory.  The price
restructuring portions of the plan are mandatory for all large local exchange
carriers, including Verizon Communications' telephone operating companies, such
as us.  The price level portions of the plan are mandatory only in the initial
year of the plan.  Carriers have until September 14, 2000 to decide whether to
participate in the remaining four years of the plan, or whether to submit cost
studies as the basis of future price caps.

   Consistent with the new access plan, Verizon Communications filed tariff
adjustments to take effect on July 1, 2000 (with modifications effective August
11, 2000).  As a result of these tariff adjustments, former GTE carriers in ten
states, and former Bell Atlantic carriers in seven states reached the $0.0055
benchmark and, should Verizon Communications opt into the full five year CALLS
plan, they will not be subject to further annual interstate switched access
price reductions for the remaining life of the plan.

                                       13
<PAGE>

                           Verizon Pennsylvania Inc.

State Regulation

    From September 1998 through February 1999, the Pennsylvania Public Utility
Commission (PUC) sponsored a multi-party global telecommunications settlement
proceeding aimed at resolving issues in a number of contentious
telecommunications regulatory dockets at the PUC.  On September 30, 1999, the
PUC issued a final decision in its "Global" proceeding on telecommunications
competition matters.  The decision proposes to require us to split into separate
retail and wholesale corporations.  It proposes reductions in access charges
applicable to services provided to interexchange carriers and in both unbundled
network element rates and wholesale rates applicable to services and facilities
provided to competitive local exchange carriers.  It requires us to provide
combinations of unbundled network elements beyond those required by the FCC.  It
reclassifies certain business services as "competitive," but restricts the
pricing freedom that that classification is supposed to give us.  It sets a
schedule of prerequisites for state endorsement of our application to the FCC
for permission to offer in-region long distance service under Section 271 of the
1996 Act that are likely to delay that endorsement.  We have challenged the
lawfulness of this order in  the Commonwealth Court of Pennsylvania and the
Federal District Court.

    On January 18, 2000, we and fourteen other parties submitted to the PUC a
Joint Petition for Settlement to resolve the appeals from the "Global" Order.
If approved by the PUC, the settlement will eliminate the wholesale/retail
separate subsidiary requirement and replace it with a requirement to establish
an advanced services affiliate.  The settlement would also expedite the process
to obtain state endorsement of any of our applications to the FCC for permission
to offer long distance service.  On February 2, 2000, the Commonwealth Court
denied the PUC's request to consider the settlement and set an expedited
briefing schedule for the appeals.  On February 22, 2000, we appealed this
determination, along with the PUC, to the Pennsylvania Supreme Court, and on
April 27, 2000, the Pennsylvania Supreme Court denied this appeal.  On May 16,
2000, the Commonwealth Court heard oral argument on the Global Order appeal.
The Commonwealth Court's decision is pending.

    On April 26, 2000, the Commission reinitiated its proceeding to determine
the nature and form of the separate subsidiary ordered in its "Global"
proceeding. The Commission ordered us to file an updated structural separation
plan and mitigation plan.  In addition, in recognition of the passage of time
and the potential for changed circumstances, the Commission invited us to submit
alternative proposals to structurally separate our retail and wholesale
operations.  On June 26, 2000, we submitted a structural separation plan,
estimating that the implementation costs for full structural separation would be
over  $800 million and that the ongoing annual costs of operation would be over
$300 million.  We also submitted an alternative proposal for structural
separation that involved the establishment of a separate data affiliate.  A
final ruling in this docket is not expected until early next year.

Recent Accounting Pronouncements

FASB Accounting Standards - Derivatives and Hedging Activities

    In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities."  This statement requires that
all derivatives be measured at fair value and recognized as either assets or
liabilities on our balance sheet.  Changes in the fair values of derivative
instruments will be recognized in either earnings or comprehensive income,
depending on the designated use and effectiveness of the instruments.  The FASB
amended this pronouncement in June 1999 to defer the effective date of SFAS No.
133 for one year.  We must adopt SFAS No. 133 no later than January 1, 2001.

    In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which amended SFAS No.
133.  The amendments in SFAS No. 138 address certain implementation issues and
relate to such matters as the normal purchases and normal sales exception, the
definition of interest rate risk, hedging recognized foreign-currency-
denominated assets and liabilities, and intercompany derivatives.  SFAS No. 138
also amend SFAS No. 133 for decisions made by the FASB relating to the
Derivatives Implementation Group process.

                                       14
<PAGE>

                           Verizon Pennsylvania Inc.

    We are currently evaluating the provisions of SFAS Nos. 133 and 138.  The
impact of adoption will be determined by several factors, including the specific
hedging instruments in place and their relationships to hedged items, as well as
market conditions at the date of adoption.

FASB Interpretation - Stock Compensation

    In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation." Interpretation No. 44 was
issued in order to clarify certain issues arising from Accounting Principles
Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees," which was
previously issued in October 1972.  Interpretation No. 44 is effective July 1,
2000, but certain conclusions cover specific events that occur either after
December 15, 1998 or January 12, 2000.

    The main issues addressed by Interpretation No. 44 are: (a) the definition
of an employee for purposes of applying APB Opinion No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination.

    Interpretation No. 44 will not have a material impact on our results of
operations or financial position.

SEC Staff Accounting Bulletin - Revenue Recognition

    In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," which must be adopted by the
fourth quarter of 2000.  SAB No. 101 provides additional guidance on revenue
recognition, as well as criteria for when revenue is generally realized and
earned, and also requires the deferral of incremental direct selling costs.  We
are currently assessing the impact of SAB No. 101 on our results of operations
and financial position.

                                       15
<PAGE>

                           Verizon Pennsylvania Inc.

                          PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

          There were no proceedings reportable under this Item.


Item 6.  Exhibits and Reports on Form 8-K


         (a)      Exhibits:

                  Exhibit Number

         3a       Articles of Incorporation of the registrant, as amended and
                  restated on June 15, 1987. (Exhibit 3a to the registrant's
                  Annual Report on Form 10-K for the year ended December 31,
                  1987, File No. 1-6393.)

         3a(i)    Articles of Amendment - Domestic Business Corporation, dated
                  October 30, 1992. (Exhibit 3a to the registrant's Annual
                  Report on Form 10-K for the year ended December 31, 1992, File
                  No. 1- 6393.)

         3a(ii)   Articles of Amendment - Domestic Business Corporation, dated
                  January 11, 1994 and filed January 13, 1994. (Exhibit 3a(ii)
                  to the registrants Annual Report on Form 10-K for the year
                  ended December 31, 1993, File No. 1-6393.)

         3a(iii)  Articles of Amendment - Domestic Business Corporation, dated
                  June 30, 2000.

         27       Financial Data Schedule.


         (b)      Current Report on Form 8-K filed during the quarter ended June
                  30, 2000:

         A Current Report on Form 8-K, dated June 30, 2000, was filed regarding
         the consummation of the merger of Bell Atlantic Corporation and GTE
         Corporation.

                                       16
<PAGE>

                           Verizon 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.


                                    VERIZON PENNSYLVANIA INC.



Date:  August 14, 2000              By  /s/  Edwin F. Hall
                                       ---------------------------------
                                          Edwin F. Hall
                                          Chief Financial Officer
                                          and Controller



     UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 10, 2000.

                                       17
<PAGE>

                                 EXHIBIT INDEX

                  Exhibit Number

         3a(iii)  Articles of Amendment - Domestic Business Corporation, dated
                  June 30, 2000.

         27       Financial Data Schedule.



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