<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, 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 1-7368
BELL ATLANTIC - WASHINGTON, D.C., INC.
A New York Corporation I.R.S. Employer Identification No. 53-0046277
1710 H Street, N.W., Washington, D.C. 20006
Telephone Number (202) 392-9900
-------------------------
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 - Washington, D.C., Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- ----------------------
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $19,098, $14,997,
$38,313 and $27,529 from affiliates)................ $151,692 $143,381 $296,493 $280,180
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes........ 28,912 36,572 57,240 75,579
Depreciation and amortization....................... 33,724 28,043 67,092 55,102
Other (including $39,247, $30,937, $77,500
and $62,798 to affiliates)..................... 59,673 51,744 118,296 113,723
-------- -------- -------- --------
122,309 116,359 242,628 244,404
-------- -------- -------- --------
OPERATING INCOME......................................... 29,383 27,022 53,865 35,776
OTHER EXPENSE, NET....................................... 174 1,353 268 1,669
INTEREST EXPENSE (including $449, $531, $1,327
and $1,022 to affiliate)............................ 4,528 5,023 9,448 9,334
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES................. 24,681 20,646 44,149 24,773
PROVISION FOR INCOME TAXES............................... 9,445 8,061 17,264 9,651
-------- -------- -------- --------
NET INCOME............................................... $ 15,236 $ 12,585 $ 26,885 $ 15,122
======== ======== ======== ========
REINVESTED EARNINGS (ACCUMULATED DEFICIT)
At beginning of period.............................. $ 15,344 $(24,793) $ 3,786 $(27,330)
Add: net income.................................... 15,236 12,585 26,885 15,122
-------- -------- -------- --------
30,580 (12,208) 30,671 (12,208)
Deduct: other changes.............................. 148 --- 239 ---
-------- -------- -------- --------
At end of period.................................... $ 30,432 $(12,208) $ 30,432 $(12,208)
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Bell Atlantic - Washington, D.C., Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments......................... $ 2,827 $ ---
Accounts receivable:
Trade and other, net of allowances for
uncollectibles of $8,843 and $9,193.. 141,683 145,477
Affiliates................................ 14,866 19,750
Material and supplies.......................... 2,676 2,591
Prepaid expenses............................... 16,910 20,139
Deferred income taxes.......................... 5,124 5,054
---------- ----------
184,086 193,011
---------- ----------
PLANT, PROPERTY AND EQUIPMENT.................. 1,454,182 1,445,606
Less accumulated depreciation.................. 723,741 703,316
---------- ----------
730,441 742,290
---------- ----------
OTHER ASSETS................................... 14,333 14,037
---------- ----------
TOTAL ASSETS................................... $ 928,860 $ 949,338
========== ==========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
Bell Atlantic - Washington, D.C., Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate................................... $ 29,022 $ 74,451
Other....................................................... 747 1,375
Accounts payable and accrued liabilities:
Affiliates.................................................. 98,452 102,772
Other....................................................... 87,974 82,417
Advance billings and customer deposits........................... 13,504 11,261
-------- --------
229,699 272,276
-------- --------
LONG-TERM DEBT................................................... 247,606 247,709
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS..................................... 148,523 151,217
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes............................................ 18,030 18,315
Unamortized investment tax credits............................... 4,532 4,895
Other............................................................ 29,521 30,623
-------- --------
52,083 53,833
-------- --------
SHAREOWNER'S INVESTMENT
Common stock - one share, owned by parent, at stated value....... 191,968 191,968
Capital surplus.................................................. 28,549 28,549
Reinvested earnings.............................................. 30,432 3,786
-------- --------
250,949 224,303
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.................... $928,860 $949,338
======== ========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Bell Atlantic - Washington, D.C., Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------
1996 1995
-------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES................. $108,935 $ 83,097
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments...................... (2,827) (4,373)
Additions to plant, property and equipment................ (57,513) (89,531)
Other, net................................................ 2,217 3,848
-------- --------
Net cash used in investing activities..................... (58,123) (90,056)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of borrowings and capital
lease obligations.................................... (675) (549)
Net change in note payable to affiliate................... (45,429) 34,521
Capital surplus distribution.............................. --- (14,989)
Net change in outstanding checks drawn
on controlled disbursement accounts.................. (4,708) (12,024)
-------- --------
Net cash (used in)/provided by financing activities....... (50,812) 6,959
-------- --------
NET CHANGE IN CASH........................................ --- ---
CASH, BEGINNING OF PERIOD................................. --- ---
-------- --------
CASH, END OF PERIOD....................................... $ --- $ ---
======== ========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Bell Atlantic - Washington, D.C., Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by Bell Atlantic - Washington, D.C., 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. Reclassifications
Certain reclassifications of the prior year's data have been made to
conform to 1996 classifications.
3. Proposed Bell Atlantic - NYNEX Merger
Bell Atlantic Corporation (Bell Atlantic) and NYNEX Corporation have
announced a proposed merger of equals pursuant to a definitive merger agreement
entered into on April 21, 1996, and amended on July 2, 1996. Under the terms of
the amended agreement, a newly-formed subsidiary will merge with and into NYNEX,
with NYNEX becoming a subsidiary of Bell Atlantic, and each share of NYNEX
common stock will be converted into 0.768 shares of Bell Atlantic common stock.
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 by April 1997.
5
<PAGE>
Bell Atlantic - Washington, D.C., 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 six months of 1996 of
$26,885,000, compared to net income of $15,122,000 for the same period in 1995.
Items affecting the comparison of operating results between the six month
periods ended June 30, 1996 and 1995 are discussed in the following sections.
OPERATING REVENUES
- ------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six Month Period Ended June 30 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Transport Services
Local service............................. $123,752 $122,430
Network access............................ 64,979 61,743
Toll service.............................. 1,954 2,299
Ancillary Services
Directory publishing...................... 16,685 16,490
Other..................................... 40,414 32,674
Value-added Services.......................... 48,709 44,544
-------- --------
Total......................................... $296,493 $280,180
======== ========
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
(Decrease)
1996 1995 Increase
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
At June 30
- ----------
Access Lines in Service (In thousands)
Residence............................ 282 286 (1.4)%
Business............................. 584 576 1.4
Public............................... 10 10 ---
--- ---
876 872 .5
=== ===
<CAPTION>
For the Six Month Period Ended June 30
- --------------------------------------
<S> <C> <C> <C>
Access Minutes of Use (In millions)
Interstate.............................. 1,431 1,371 4.4
===== =====
Toll Messages (In thousands)
Interstate.............................. 1,858 1,829 1.6
===== =====
</TABLE>
6
<PAGE>
Bell Atlantic - Washington, D.C., Inc.
LOCAL SERVICE REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $1,322 1.1%
- --------------------------------------------------------------------------------
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 six
months of 1996. The increase in calling volumes principally resulted from growth
in the number of access lines in service, which increased .5% from June 30,
1995.
NETWORK ACCESS REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $3,236 5.2%
- --------------------------------------------------------------------------------
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 revenues from affiliated
companies pursuant to an interstate revenue sharing agreement, and higher
customer demand for access services as reflected by growth in access minutes of
use of 4.4% over the same period in 1995. Revenue growth was partially offset by
the net effect of price reductions under the Federal Communications Commission's
(FCC) Price Cap Plans, which became effective during 1995.
It is expected that network access revenue growth in the second half of
1996 relative to the same period last year should be positively impacted by
continued volume growth and the net rate increases effective on July 20, 1996.
See also "Factors That May Impact Future Results - FCC Interim Price Cap Plan"
below for a discussion of Bell Atlantic's FCC price cap filing, which became
effective on July 20, 1996.
TOLL SERVICE REVENUES
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(345) (15.0)%
- --------------------------------------------------------------------------------
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).
The decrease in toll service revenues was principally due to company-
initiated price reductions. This decrease was partially offset by increased
network usage, attributable, in part, to severe winter storms in early 1996.
DIRECTORY PUBLISHING REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $195 1.2%
- --------------------------------------------------------------------------------
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.
7
<PAGE>
Bell Atlantic - Washington, D.C., Inc.
The increase in directory publishing revenues was due to higher rates
charged for these services. This increase was substantially offset by volume
decreases resulting from the impact of competition from other directory
companies as well as other advertising media.
OTHER ANCILLARY SERVICES REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $7,740 23.7%
- --------------------------------------------------------------------------------
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 increased primarily due to higher
facilities rental revenues from affiliates. The increase was slightly offset by
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
- --------------------------------------------------------------------------------
Six Months $4,165 9.4%
- --------------------------------------------------------------------------------
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 six months
of 1996 was primarily attributable to higher demand for certain central office
and voice messaging services. Increased demand for customer premises wiring and
maintenance services by federal government customers also contributed to the
increase in value-added services revenues in 1996.
OPERATING EXPENSES
- ------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six Month Period Ended June 30 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Employee costs, including benefits and taxes....... $ 57,240 $ 75,579
Depreciation and amortization...................... 67,092 55,102
Other operating expenses........................... 118,296 113,723
-------- --------
Total.............................................. $242,628 $244,404
======== ========
</TABLE>
EMPLOYEE COSTS
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(18,339) (24.3)%
- --------------------------------------------------------------------------------
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.
8
<PAGE>
Bell Atlantic - Washington, D.C., Inc.
The decrease in employee costs was attributable to savings associated with
lower work force levels in 1996. The effect of employees transferred from the
Company to NSI in December 1995 also contributed to the decrease in employee
costs. These reductions were partially offset by annual salary and wage
increases.
DEPRECIATION AND AMORTIZATION
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $11,990 21.8%
- --------------------------------------------------------------------------------
Depreciation and amortization increased due to growth in depreciable
telephone plant and higher depreciation rates. The composite depreciation rate
was 9.5% for the first six months of 1996, compared to 8.4% for the six month
period ended June 30, 1995.
OTHER OPERATING EXPENSES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $4,573 4.0%
- --------------------------------------------------------------------------------
Other operating expenses consist of contract services including centralized
services expenses allocated from NSI, 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 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 operations 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 during the
first six months of 1996.
These increases were partially offset by lower network software costs,
lower operating taxes other than income, and a reduction in write-offs of
uncollectible accounts receivable associated with the Company's billing and
collection services. Other operating expenses were further reduced by lower
costs for contract services, materials and rent.
OTHER EXPENSE, NET
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(1,401)
- --------------------------------------------------------------------------------
The change in other expense, net was attributable to a loss related to the
disposition of certain property in the first six months of 1995.
INTEREST EXPENSE
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $114 1.2%
- --------------------------------------------------------------------------------
Interest expense increased principally due to a reduction in capitalized
interest costs, offset by the effect of additional interest expense in 1995
related to the settlement of federal income tax matters associated with prior
years.
9
<PAGE>
Bell Atlantic - Washington, D.C.,Inc.
PROVISION FOR INCOME TAXES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $7,613
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Six Months Ended June 30
- --------------------------------------------------------------------------------
1996 39.1%
- --------------------------------------------------------------------------------
1995 39.0%
- --------------------------------------------------------------------------------
The Company's income tax expense was higher in the first six months of 1996
principally due to an increase in pretax income.
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 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's
operating telephone subsidiaries and affiliates are permitted to apply for
approval to offer interLATA services outside of the geographic region in which
they currently operate as a local exchange carrier. As of July 31, 1996, a
subsidiary of Bell Atlantic has been marketing such services in three states
outside its region and plans to offer such services in several other 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 operating
telephone subsidiaries, including the Company, must demonstrate to the FCC that
they have satisfied certain requirements in order to be permitted to offer
interLATA services. Among the requirements with which the Company must comply is
a 14-point "competitive checklist" which is aimed at ensuring that competitors
have the ability to offer competitive local service, either through resale, the
purchase of unbundled network elements, or through their own networks. 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 that are intended
to promote competition in the local exchange markets. These requirements
(collectively known as interconnection 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. The specific terms
under which the carriers interconnect are to be negotiated between those
carriers.
On August 1, 1996, the FCC adopted an order establishing guidelines for
implementation of the interconnection requirements set forth in the Act. The
FCC's guidelines set the parameters for rules and regulations that state
commissions have established, or will establish, to govern interconnection
agreements that are reached through state arbitrations, when negotiations fail.
The FCC stated that it plans to issue regulations regarding universal service
obligations and access charges in a subsequent order.
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, the timing, extent and
success of the Company's pursuit of new business opportunities resulting from
the Act and the provisions of the regulations to be issued by the FCC.
10
<PAGE>
Bell Atlantic - Washington, D.C., Inc.
Competition
Local Exchange Services
The ability to offer local exchange services has historically been subject
to regulation by the District of Columbia Public Service Commission (PSC). In
July 1996, certificates to provide local exchange services in competition with
the Company were granted by the PSC for AT&T, MFS - Intelenet of Washington,
D.C., MFS-Institutional Communications Company and Sprint. An application from
Teleport is pending approval by the PSC upon further financial review.
Legislation to spur local exchange competition was passed by the Washington,
D.C. Council and is now pending before Congress. It is expected to become law by
the end of 1996.
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
As required by the FCC's Interim Price Cap Plan, Bell Atlantic filed its
Annual Access Tariff Filing of Interstate Rates on April 2, 1996 and amended the
filing on June 27, 1996. 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 June 27,
1996 filing resulted in actual price increases for the Company totaling
approximately $900,000 on an annual basis, which became effective on July 20,
1996.
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.
Before the 1997 Annual Access Tariff Filing, Bell Atlantic expects the FCC
to replace the Interim Price Cap Plan for interstate access charges with a
revised price cap plan.
Other State Regulatory Matters
The communications services of the Company are subject to regulation by the
PSC with respect to intrastate rates and certain other matters.
In January 1995, the Company filed a petition with the PSC seeking approval
of a proposed price cap plan to become effective upon the expiration of its
current regulatory reform plan (D.C. Reform Plan) in 1996. In February 1996, the
Company signed a settlement agreement with the Office of People's Counsel to
implement a four-year price cap plan to replace the D.C. Reform Plan. The
settlement agreement, if approved, would: (1) introduce a four-year price cap
plan effective 1/1/96 through 12/31/99; (2) divide services into three
categories: basic, discretionary and competitive; (3) cap certain basic
residence rates for the term of the plan and allow other basic rates to change
with the rate of inflation minus 3%; (4) allow discretionary services rates to
increase by 15% annually; (5) eliminate pricing regulation of competitive
services; (6) reduce residential rates by $3.1 million in 1996; business rates
by $2.2 million in 1997 and $3.2 million in 1998; and (7) establish a trust fund
to wire public schools and libraries with Bell Atlantic integrated services
digital network (ISDN) lines. In response to a PSC order, the parties revised
their settlement agreement to clarify certain issues identified by the PSC. A
hearing on the revised agreement is scheduled for August 12, 1996, and a final
ruling is expected at the end of the third quarter of 1996.
11
<PAGE>
Bell Atlantic - Washington, D.C., Inc.
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 MFJ. 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.
Proposed Bell Atlantic - NYNEX Merger
Bell Atlantic and NYNEX Corporation have announced a proposed merger of
equals pursuant to a definitive merger agreement entered into on April 21, 1996,
and amended on July 2, 1996. Under the terms of the amended agreement, a newly-
formed subsidiary will merge with and into NYNEX, with NYNEX becoming a
subsidiary of Bell Atlantic, and each share of NYNEX common stock will be
converted into 0.768 shares of Bell Atlantic common stock. 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 by April
1997.
FINANCIAL CONDITION
- -------------------
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization. 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 June 30, 1996, the Company had $95,979,000 of an unused line of
credit with an affiliate, Bell Atlantic Network Funding Corporation. In
addition, the Company has $60,000,000 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 52.5% at June 30, 1996, compared to 59.1% at
December 31, 1995.
12
<PAGE>
Bell Atlantic - Washington, D.C., 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) Report on Form 8-K filed during the quarter ended June 30, 1996:
A Current Report on Form 8-K, dated April 21, 1996, was filed
regarding (i) the Agreement and Plan of Merger, dated as of April
21, 1996, by and among Bell Atlantic Corporation, NYNEX
Corporation and Seaboard Merger Company, and (ii) the Joint Press
Release, dated April 22, 1996, issued by Bell Atlantic
Corporation and NYNEX Corporation.
13
<PAGE>
Bell Atlantic - Washington, D.C., 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 - WASHINGTON, D.C., INC.
Date: August 8, 1996 By /s/ Sheila D. Shears
----------------------------------
Sheila D. Shears
Controller and Treasurer
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 5, 1996.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND THE BALANCE
SHEET AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 2,827
<RECEIVABLES> 150,526
<ALLOWANCES> 8,843
<INVENTORY> 2,676
<CURRENT-ASSETS> 184,086
<PP&E> 1,454,182
<DEPRECIATION> 723,741
<TOTAL-ASSETS> 928,860
<CURRENT-LIABILITIES> 229,699
<BONDS> 247,606
0
0
<COMMON> 191,968
<OTHER-SE> 58,981
<TOTAL-LIABILITY-AND-EQUITY> 928,860
<SALES> 0
<TOTAL-REVENUES> 296,493
<CGS> 0
<TOTAL-COSTS> 242,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,448
<INCOME-PRETAX> 44,149
<INCOME-TAX> 17,264
<INCOME-CONTINUING> 26,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,885
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
