<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 September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-6875
BELL ATLANTIC - MARYLAND, INC.
A Maryland Corporation I.R.S. Employer Identification No. 52-0270070
One East Pratt Street, Baltimore, Maryland 21202
Telephone Number (410) 539-9900
--------------------
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 - Maryland, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES
(including $7,029, $11,784,
$22,921 and $21,415 from
affiliates)................ $517,161 $496,014 $1,522,806 $1,462,755
-------- -------- ---------- ----------
OPERATING EXPENSES
Employee costs, including
benefits and taxes......... 105,190 132,694 308,262 346,409
Depreciation and
amortization................ 103,766 102,469 311,226 291,989
Other (including $106,132,
$101,522, $305,595
and $288,327 to affiliates.. 175,561 177,801 500,270 504,834
------- --------- ---------- ----------
384,517 412,964 1,119,758 1,143,232
------- --------- ---------- ----------
OPERATING INCOME.............. 132,644 83,050 403,048 319,523
OTHER INCOME (EXPENSE), NET
Allowance for funds used
during construction......... --- 457 --- 3,050
Other, net................... (1,192) (1,548) (3,479) (3,855)
------- --------- ---------- ----------
(1,192) (1,091) (3,479) (805)
INTEREST EXPENSE (including
$754, $164, $2,442
and $698 to affiliate)....... 15,498 16,549 48,242 52,887
------- --------- ---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES
AND EXTRAORDINARY ITEM....... 115,954 65,410 351,327 265,831
PROVISION FOR INCOME TAXES.... 41,940 23,270 126,909 94,852
------- --------- ---------- ----------
INCOME BEFORE EXTRAORDINARY
ITEM......................... 74,014 42,140 224,418 170,979
EXTRAORDINARY ITEM
Discontinuation of Regulatory
Accounting Principles,
Net of Tax.................. --- (335,119) --- (335,119)
------- --------- ---------- ----------
NET INCOME (LOSS)............. $ 74,014 $(292,979) $ 224,418 $ (164,140)
======== ========= ========== ==========
REINVESTED EARNINGS
At beginning of period....... $150,763 $ 473,984 $ 124,391 $ 460,246
Add: net income (loss)...... 74,014 (292,979) 224,418 (164,140)
-------- --------- ---------- ----------
224,777 181,005 348,809 296,106
Deduct: dividends........... 77,750 62,680 201,780 177,781
other changes....... 14 (70) 16 (70)
-------- --------- ---------- ----------
At end of period............. $147,013 $ 118,395 $ 147,013 $ 118,395
======== ========= ========== ==========
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Bell Atlantic - Maryland, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................ $ 6,093 $ ---
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $19,272 and $18,646....... 332,697 290,021
Affiliates................................... 39,110 49,233
Other........................................ 24,934 28,571
Material and supplies......................... 15,088 10,185
Prepaid expenses.............................. 124,064 97,730
Deferred income taxes......................... 22,364 14,942
Other......................................... --- 193
---------- ----------
564,350 490,875
---------- ----------
PLANT, PROPERTY AND EQUIPMENT.................. 5,381,191 5,268,419
Less accumulated depreciation................. 2,702,501 2,574,532
---------- ----------
2,678,690 2,693,887
---------- ----------
OTHER ASSETS.................................... 41,778 43,357
---------- ----------
TOTAL ASSETS.................................... $3,284,818 $3,228,119
========== ==========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
Bell Atlantic - Maryland, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate................... $ 80,997 $ 15,273
Other....................................... 6,975 31,418
Accounts payable and accrued liabilities:
Affiliates.................................. 165,189 160,513
Taxes....................................... 23,946 35,537
Other....................................... 288,355 270,158
Advance billings and customer deposits....... 59,211 46,607
---------- ----------
624,673 559,506
---------- ----------
LONG-TERM DEBT................................ 972,295 976,036
---------- ----------
EMPLOYEE BENEFIT OBLIGATIONS.................. 473,267 459,789
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes........................ 129,687 133,847
Unamortized investment tax credits........... 22,249 25,358
Other........................................ 90,214 123,772
---------- ----------
242,150 282,977
---------- ----------
SHAREOWNER'S INVESTMENT
Common stock - one share, without par value,
owned by parent............................. 825,420 825,420
Reinvested earnings.......................... 147,013 124,391
---------- ----------
972,433 949,811
---------- ----------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT. $3,284,818 $3,228,119
========== ==========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Bell Atlantic - Maryland, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------
1995 1994
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES......... $453,074 $451,867
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............. (6,093) ---
Additions to plant, property and equipment....... (312,735) (271,044)
Other, net....................................... 16,801 4,548
-------- --------
Net cash used in investing activities............. (302,027) (266,496)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of borrowings and capital
lease obligations............................... (29,914) (5,092)
Net change in note payable to affiliate.......... 65,724 (7,562)
Dividends paid................................... (201,780) (177,781)
Net change in outstanding checks drawn
on controlled disbursement accounts............. 14,923 5,064
-------- --------
Net cash used in financing activities............. (151,047) (185,371)
-------- --------
NET CHANGE IN CASH................................ --- ---
CASH, BEGINNING OF PERIOD......................... --- ---
-------- --------
CASH, END OF PERIOD............................... $ --- $ ---
======== ========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Bell Atlantic - Maryland, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by Bell Atlantic - Maryland, Inc. (the Company) pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). The December 31,
1994 balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles. In
the opinion of management, these financial statements include all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the results of operations, financial position and cash flows. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The Company
believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
Effective August 1, 1994, the Company discontinued accounting for its operations
in accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation."
2. Dividend
On November 1, 1995, the Company declared and paid a dividend in the amount
of $70,320,000 to Bell Atlantic Corporation.
3. Reclassifications
Certain reclassifications of the prior year's data have been made to
conform to 1995 classifications.
5
<PAGE>
Bell Atlantic - Maryland, 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 nine months of 1995 of
$224,418,000, compared to a loss of $164,140,000 for the same period in 1994.
Results for the nine months ended September 30, 1994 included a non-cash,
after-tax extraordinary charge of $335,119,000 in connection with the Company's
decision to discontinue application of regulatory accounting principles required
by Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation."
Major items affecting the comparison of results for the nine month period
ended September 30, 1995, versus the nine month period ended September 30, 1994,
are discussed in the following sections.
<TABLE>
<CAPTION>
OPERATING REVENUES
- ------------------
For the Nine Months Ended September 30 1995 1994
- ------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Transport Services
Local service........................... $ 697,436 $ 674,325
Network access.......................... 408,937 385,149
Toll service............................ 81,929 86,072
Ancillary Services
Directory publishing.................... 121,003 114,495
Other................................... 58,356 62,370
Value-added Services..................... 155,145 140,344
---------- ----------
Total.................................... $1,522,806 $1,462,755
========== ==========
</TABLE>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
<TABLE>
<CAPTION>
Percentage
Increase
1995 1994 (Decrease)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
At September 30
- ---------------
Access Lines in Service (In thousands)
Residence.............................. 2,095 2,037 2.8%
Business............................... 1,111 1,057 5.1
Public................................. 40 41 (2.4)
------- ------
3,246 3,135 3.5
======= ======
For the Nine Month Period Ended September 30
- --------------------------------------------
Access Minutes of Use (In millions)
Interstate............................. 7,225 6,788 6.4
Intrastate............................. 2,165 1,998 8.4
------- ------
9,390 8,786 6.9
======= ======
Toll Messages (In thousands)
Intrastate............................. 83,611 80,640 3.7
Interstate............................. 17,880 17,119 4.4
------- ------
101,491 97,759 3.8
======= ======
</TABLE>
6
<PAGE>
Bell Atlantic - Maryland, Inc.
LOCAL SERVICE REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 23,111 3.4%
================================================================================
Local service revenues are earned by the Company from the provision of
local exchange, local private line and public telephone services.
Local service revenues increased primarily due to 3.5% growth in the number
of access lines in service, and increased usage and data transport by business
customers.
NETWORK ACCESS REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 23,788 6.2%
================================================================================
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, and end-user access revenues are
earned from local exchange carrier customers who pay for access to the network.
Network access revenues increased principally due to higher customer demand
for access services as reflected by growth in access minutes of use and in
private networks, as well as growth in revenues from end-user charges
attributable to increasing access lines in service. Access minutes of use for
the nine months ended September 30, 1995 were higher than the corresponding
period of 1994 by 6.9%. Higher revenues recognized through an interstate revenue
sharing agreement with affiliated companies also contributed to growth in access
revenues. Revenues in 1995 were also positively impacted by a temporary rate
increase that was in effect from March 17, 1995 through July 31, 1995 to recover
prior years "exogenous" postemployment benefit costs.
Revenue growth from volume increases was partially offset by the effect of
price reductions. Under the Federal Communications Commission's (FCC) Price Cap
Plan, price reductions on interstate access services were in effect from July 1,
1994 through July 31, 1995.
In March 1995, the FCC adopted an order approving an Interim Price Cap Plan
for interstate access charges, which replaces the prior Price Cap Plan. As
required by the FCC's order, Bell Atlantic filed its Transmittal of Interstate
Rates, which resulted in price decreases for the Company totaling approximately
$45,800,000 on an annual basis, effective August 1, 1995. These price decreases
include the scheduled expiration of a temporary rate increase of approximately
$14,700,000 on an annualized basis that was in effect from March 17, 1995
through July 31, 1995 to recover prior years "exogenous" postemployment benefit
costs. Approximately 80% of the remaining $31,100,000 reduction results from
compliance with the Interim Plan. The remaining 20% represents reductions that
the Company was required to make under the prior Price Cap Plan. It is expected
that these price decreases will be partially offset by volume increases. Also as
part of the filing, Bell Atlantic selected a 5.3% Productivity Factor, which
eliminates the requirement to share a portion of interstate earnings related to
the August 1995 to June 1996 tariff period. See "Competitive and Regulatory
Environment - Federal Regulation" for a further discussion of FCC interstate
access revenue issues.
7
<PAGE>
Bell Atlantic - Maryland, Inc.
TOLL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (4,143) (4.8)%
================================================================================
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area boundaries of the Company,
commonly referred to as "LATAs." Other toll services include 800 services and
Wide Area Telephone Service (WATS).
The decrease in toll service revenues was due to increased competition for
intraLATA toll services and price reductions on certain toll services. The
effect of price reductions for residence toll services and the impact of
customers switching to lower priced optional calling plans more than offset
volume-related revenue growth, as reflected by a 3.8% increase in toll messages.
See "Competitive and Regulatory Environment - State Regulation" for a further
discussion of toll service revenue issues.
DIRECTORY PUBLISHING REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 6,508 5.7%
================================================================================
Directory publishing revenues are earned primarily from local advertising
and marketing services provided to businesses in White and Yellow Pages
directories. Other directory publishing services include database and foreign
directory marketing.
Growth in directory publishing revenues was primarily due to higher rates
charged for these services. Changes in billing procedures and lower customer
claims and disconnects further boosted directory publishing revenues in 1995.
Volume growth continues to be impacted by competition from other directory
companies, as well as other advertising media.
OTHER ANCILLARY SERVICES REVENUES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (4,014) (6.4)%
================================================================================
Other ancillary services include billing and collection services provided
to IXCs and facilities rental services provided to affiliates and non-
affiliates.
Other ancillary services decreased due to a reduction in billing and
collection revenues as a result of revisions made in early 1995 to the terms of
a contract with an IXC. The revised contract no longer includes certain billing
and collection services. Also contributing to the decrease in other ancillary
services revenues was lower facilities rental revenues in 1995.
VALUE-ADDED SERVICES REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 14,801 10.5%
================================================================================
Value-added services represent a family of enhanced services including Call
Waiting, Return Call, Caller ID, Answer Call, and Voice Mail. These services
also include customer premises services such as inside wire installation and
maintenance and other central office services and features.
Continued growth in the network customer base (access lines) and higher
demand by residence customers for certain value-added central office and voice
messaging services offered by the Company, including the introduction of Caller
ID Deluxe in the fourth quarter of 1994, increased value-added services revenues
in 1995. These increases were partially offset by a reduction in contract
billing for certain advanced premises services for large business customers.
Such premises services, which were primarily performed by the Company until May
1994, are now being contracted with another affiliate of Bell Atlantic.
8
<PAGE>
Bell Atlantic - Maryland, Inc.
OPERATING EXPENSES
- ------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30 1995 1994
- ----------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Employee costs, including benefits and taxes.. $ 308,262 $ 346,409
Depreciation and amortization................. 311,226 291,989
Other operating expenses...................... 500,270 504,834
---------- ----------
Total......................................... $1,119,758 $1,143,232
========== ==========
</TABLE>
EMPLOYEE COSTS
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (38,147) (11.0)%
================================================================================
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes paid directly by the Company. Similar costs
incurred by employees of Bell Atlantic Network Services, Inc. (NSI), who provide
centralized services on a contract basis, are allocated to the Company and are
included in other operating expenses.
The decrease in employee costs was principally due to the effect of a third
quarter 1994 charge of $20,725,000 to recognize benefit costs for the separation
of employees who are entitled to benefits under preexisting Bell Atlantic
separation pay plans. Reduced overtime pay and the effect of lower workforce
levels in 1995 also contributed to the decrease in employee costs. These cost
reductions were partially offset by annual salary and wage increases.
The Company's contract with the Communications Workers of America (CWA)
expired on August 5, 1995. As of November 6, 1995, the Company and the CWA have
not reached a settlement on a new contract and the Company continues to make
work available to employees represented by the CWA at the same wages and
benefits as under the expired contract until further notice.
DEPRECIATION AND AMORTIZATION
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 19,237 6.6%
================================================================================
Depreciation and amortization increased due to growth in depreciable
telephone plant and higher depreciation rates. The higher depreciation rates
resulted principally from the discontinued application of regulatory accounting
principles, effective August 1, 1994. The composite depreciation rate was 8.0%
for the first nine months of 1995. The Company expects this composite
depreciation rate to remain substantially unchanged for the remainder of 1995.
OTHER OPERATING EXPENSES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (4,564) (.9)%
================================================================================
Other operating expenses consist primarily of contracted services including
centralized services expenses allocated from NSI, rent, network software costs,
operating taxes other than income, provision for uncollectible accounts
receivable, and other costs.
The decrease in other operating expenses was attributable to lower
contracted labor and engineering costs, lower costs for network software due to
the timing of purchases and lower directory production costs. A decrease in the
provision for uncollectible accounts receivable also contributed to the decline
in other operating expenses in 1995.
9
<PAGE>
Bell Atlantic - Maryland, Inc.
These decreases were substantially offset by higher centralized services
costs allocated from NSI, primarily as a result of increased advertising costs,
as well as additional costs incurred in that organization to enhance systems and
consolidate work activities at Bell Atlantic's network services subsidiaries.
OTHER INCOME (EXPENSE), NET
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (2,674)
================================================================================
The change in other income (expense), net, was largely attributable to the
termination of income related to the allowance for funds used during
construction.
Upon the discontinued application of regulatory accounting principles,
effective August 1, 1994, the Company began recognizing capitalized interest
costs as a reduction of interest expense. Previously, the Company recorded an
allowance for funds used during construction as an item of other income.
INTEREST EXPENSE
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (4,645) (8.8)%
================================================================================
Interest expense decreased principally due to the recognition of
capitalized interest costs, subsequent to the discontinued application of
regulatory accounting principles, effective August 1, 1994. Partially offsetting
this decrease was additional expense resulting from higher levels of average
short-term debt and higher interest rates in 1995.
PROVISION FOR INCOME TAXES
(Dollars in Thousands) Increase
===============================================================================
Nine Months $ 32,057 33.8%
===============================================================================
EFFECTIVE INCOME TAX RATES
For the Nine Months Ended September 30
================================================================================
1995 36.1%
================================================================================
1994 35.7%
================================================================================
The Company's effective income tax rate was higher in 1995 principally due
to the reduction in the amortization of investment tax credits and the
elimination of the benefit of the rate differential applied to reversing timing
differences, both as a result of the discontinued application of regulatory
accounting principles in August 1994.
COMPETITIVE AND REGULATORY ENVIRONMENT
- --------------------------------------
The communications industry continues to undergo fundamental changes which
may have a significant impact on future financial performance of
telecommunications companies. These changes are being driven by a number of
factors, including the accelerated pace of technological innovation, the
convergence of the telecommunications, cable television, information services
and entertainment businesses, and a regulatory environment in which traditional
barriers to entry are being lowered or eliminated and competition permitted or
encouraged.
The Company's telecommunications business is subject to competition from
numerous sources. An increasing amount of this competition is from companies
that have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company.
10
<PAGE>
Bell Atlantic - Maryland, Inc.
A number of well-financed competitors have been granted authority, and
others are likely soon to seek authority, to offer competing local exchange
services, such as dial tone and local usage, in some of the most lucrative of
the Company's local telephone service areas. In April 1994, the Public Service
Commission of Maryland (PSC) approved an application from MFS-Intelenet of
Maryland, Inc. (MFS-I), a subsidiary of MFS Communications Company, Inc. (MFS),
to provide and resell local exchange and interexchange telecommunications
services to business customers in areas served by the Company. MFS-I is
authorized to be a co-carrier in Maryland and has been assigned its own central
office codes for use with its customers, and the Company is required to provide
intrastate switched access collocation. The Commission has determined that the
rates that MFS-I will pay to interconnect with the Company include MFS-I's fair
share of the joint and common costs that support universal service. On an
interim basis, MFS-I will pay 6.1 cents per call to terminate a call on the
Company's network. The PSC has established a schedule, which extends into 1995,
for Phase II of this case. Final interconnection rates will be decided in Phase
II. In late 1994, MCI Metro ATS and Teleport Communications Group (Teleport)
received approval for the same waivers and interconnection rates established in
the MFS-I proceeding. An application in late 1994 by SBC Media Ventures (SBC) to
provide residential service in Montgomery County was suspended at SBC's request
pending completion of Phase II of the MFS-I proceeding. In August 1995, Teleport
filed an application to provide residential phone service in Maryland, in
addition to the previously approved business phone service mentioned above.
The entry of well-financed competitors has the potential to adversely
affect multiple revenue streams of the Company, including toll, local exchange
and network access services in the markets and geographical areas in which the
competitors operate. The amount of revenue reductions will depend, in part, on
the competitors' success in marketing these services and the conditions
established by regulatory authorities. The potential impact is expected to be
offset, to some extent, by revenues from interconnection charges to be paid to
the Company by these competitors.
The Company continues to respond to competitive challenges by intensely
focusing on meeting customer requirements and cost controls through efficiency
and productivity initiatives.
Federal Regulation
On August 4, 1995, the U.S. House of Representatives passed a bill which
includes provisions that would open local exchange markets to competitors and
would permit local exchange carriers, such as the Company, to provide video
programming, as well as to provide interLATA services and engage in
manufacturing, upon meeting certain conditions. The Senate passed a similar bill
in June of 1995. The Company is cautiously optimistic that a conference
committee will reconcile the two bills, and Congress will pass comprehensive
telecommunications legislation by the end of 1995. However, no definitive
prediction can be made as to whether or when such legislation will be enacted,
the provisions thereof, or the impact on the business or financial condition of
the Company.
In February 1995, the FCC issued an Order to Show Cause with respect to
certain findings contained in an independent audit of Bell Atlantic's network
services subsidiaries' 1988 and first quarter 1989 reported adjustments to the
National Exchange Carrier Association (NECA) interstate common line pool. On May
2, 1995, Bell Atlantic filed its response to the Show Cause Order, asserting
that there is no legal basis for the FCC to institute enforcement proceedings
with respect to these findings. The FCC solicited comments on Bell Atlantic's
filing, and only one party filed comments challenging Bell Atlantic's response.
On September 11, 1995, Bell Atlantic filed a reply to these comments,
reasserting its position that no proceedings are warranted. Resolution of this
matter is expected late in 1995.
FCC Interim Price Cap Order
On March 30, 1995, the FCC adopted its Report and Order approving an
Interim Price Cap Plan for interstate access charges. The Interim Plan, which
was effective August 1, 1995, replaces the Price Cap Plan that the FCC adopted
in 1990.
Under the Interim Plan, the Company's Price Cap Index must be adjusted by
an inflation index (GDP-PI), less a fixed percentage, either 4.0%, 4.7%, or
5.3%, which is intended to reflect increases in productivity (Productivity
Factor). Companies selecting the 4.0% or 4.7% Productivity Factor are required
to reduce future prices and share a portion of their interstate return in excess
of 12.25%. Companies selecting the 5.3% Productivity Factor are also required to
reduce prices but are not required to share a portion of their future interstate
earnings. The Interim Plan also provides for a reduction in the Price Cap Index
of 2.8% to adjust for what the FCC believes was an underestimate in its
calculation of the Productivity Factor in prior years. The Interim Plan also
eliminates the recovery of certain "exogenous" cost changes, including changes
in accounting costs that the FCC believes have no economic consequences.
11
<PAGE>
Bell Atlantic - Maryland, Inc.
On May 9, 1995, Bell Atlantic filed its Transmittal of Interstate Rates as
required by the March 30, 1995 Order. In the filing, Bell Atlantic selected the
5.3% Productivity Factor for the August 1995 to June 1996 tariff period. The
rates included in the May 9, 1995 filing resulted in price decreases for the
Company totaling approximately $45,800,000 on an annual basis. These price
decreases include the scheduled expiration of a temporary rate increase of
approximately $14,700,000 on an annualized basis that was in effect from March
17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment
benefit costs. Approximately 80% of the remaining $31,100,000 reduction results
from compliance with the Interim Plan. The remaining 20% represents reductions
that the Company was required to make under the prior Price Cap Plan. It is
expected that these price decreases will be partially offset by volume
increases.
Bell Atlantic appealed the Interim Price Cap Plan Order to the U.S. Court
of Appeals for the D.C. Circuit, and that case is currently pending.
State Regulation
The communications services of the Company are subject to regulation by the
PSC with respect to intrastate rates and services and other matters.
The Company has been operating under a regulatory reform plan instituted by
the PSC in 1990. Legislation was passed by both houses of the Maryland General
Assembly that would enable the PSC to regulate the Company by a method other
than rate base rate of return regulation. On May 9, 1995, the bill was signed
into law giving the PSC such authority. The Company plans to petition the PSC
later this year concerning the election to be regulated under a method other
than rate base rate of return regulation.
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 issues where remediation activities are currently deemed to be probable
and where the cost of remediation is estimable. Management believes that the
aggregate amount of any additional potential liability would not have a material
effect on the Company's results of operations or financial condition.
FINANCIAL CONDITION
- -------------------
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization, and payment of dividends. Management expects that
presently foreseeable capital requirements will be financed primarily through
internally generated funds. Additional long-term debt may be needed to fund
development activities and to maintain the Company's capital structure within
management's guidelines.
As of September 30, 1995, the Company had $167,200,000 of an unused line of
credit with an affiliate, Bell Atlantic Network Funding Corporation. In
addition, the Company had $50,000,000 remaining under a shelf registration
statement filed with the Securities and Exchange Commission.
The Company's debt ratio was 52.2% at September 30, 1995, compared to 51.9%
at December 31, 1994.
12
<PAGE>
Bell Atlantic - Maryland, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For background concerning the Company's contingent liabilities under
the Plan of Reorganization governing the divestiture by AT&T Corp.
(formerly American Telephone and Telegraph Company) of certain assets
of the former Bell System Operating Companies with respect to private
actions relating to pre-divestiture events, including pending antitrust
cases, see Item 3 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 .
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27 Financial Data Schedule.
(b) There were no Current Reports on Form 8-K filed during the quarter
ended September 30, 1995.
13
<PAGE>
Bell Atlantic - Maryland, 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 - MARYLAND, INC.
Date: November 9, 1995 By /s/ W. M. English
-----------------
W. M. English
Controller
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 6, 1995.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Statement of Operations for the nine months ended September 30, 1995 and the
Balance Sheet as of September 30, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
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<SECURITIES> 6,093
<RECEIVABLES> 351,969
<ALLOWANCES> 19,272
<INVENTORY> 15,088
<CURRENT-ASSETS> 564,350
<PP&E> 5,381,191
<DEPRECIATION> 2,702,501
<TOTAL-ASSETS> 3,284,818
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<BONDS> 972,295
<COMMON> 825,420
0
0
<OTHER-SE> 147,013
<TOTAL-LIABILITY-AND-EQUITY> 3,284,818
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