<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 1-6964
BELL ATLANTIC - VIRGINIA, INC.
A Virginia Corporation I.R.S. Employer Identification No. 54-0167060
600 East Main Street, Richmond, Virginia 23219
Telephone Number (804) 225-6300
-------------------------------------
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 - Virginia, 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 $675 from
affiliates, $1,612 to
affiliates, and $1,440 and
$438 from affiliates)...... $499,278 $ 495,282 $1,484,372 $1,454,710
-------- --------- ---------- ----------
OPERATING EXPENSES
Employee costs, including
benefits and taxes....... 100,435 125,630 294,755 323,035
Depreciation and
amortization............. 104,008 100,925 307,806 296,526
Other (including $105,904,
$96,214, $304,212 and
$278,183 to affiliates).. 167,723 161,242 472,057 457,910
-------- --------- ---------- ----------
372,166 387,797 1,074,618 1,077,471
-------- --------- ---------- ----------
OPERATING INCOME............ 127,112 107,485 409,754 377,239
OTHER INCOME (EXPENSE), NET
Allowance for funds used
during construction...... --- 254 --- 1,817
Other, net................ (246) (834) (1,118) (2,344)
-------- --------- ---------- ----------
(246) (580) (1,118) (527)
INTEREST EXPENSE (including
$1,866, $681, $4,617
and $1,657 to affiliate)... 16,941 16,315 52,859 51,069
-------- --------- ---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES
AND EXTRAORDINARY ITEM..... 109,925 90,590 355,777 325,643
PROVISION FOR INCOME TAXES.. 41,900 33,310 135,615 120,051
-------- --------- ---------- ----------
INCOME BEFORE EXTRAORDINARY
ITEM....................... 68,025 57,280 220,162 205,592
EXTRAORDINARY ITEM
Discontinuation of
Regulatory Accounting
Principles,
Net of Tax............... --- (308,580) --- (308,580)
-------- --------- ---------- ----------
NET INCOME (LOSS)........... $ 68,025 $(251,300) $ 220,162 $ (102,988)
======== ========= ========== ==========
REINVESTED EARNINGS
At beginning of period.... $192,723 $ 475,173 $ 156,709 $ 438,860
Add: net income (loss)... 68,025 (251,300) 220,162 (102,988)
-------- --------- ---------- ----------
260,748 223,873 376,871 335,872
Deduct: dividends........ 93,202 64,575 209,260 176,574
other changes.... 40 (43) 105 (43)
-------- --------- ---------- ----------
At end of period.......... $167,506 $ 159,341 $ 167,506 $ 159,341
======== ========= ========== ==========
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Bell Atlantic - Virginia, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................ $ 5,814 $ ---
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $18,549 and $15,031..... 323,316 295,406
Affiliates.................................. 33,692 32,188
Other....................................... 35,022 34,995
Material and supplies......................... 11,661 6,619
Prepaid expenses.............................. 84,941 64,354
Deferred income taxes......................... 17,297 15,605
Other......................................... 685 285
---------- ----------
512,428 449,452
---------- ----------
PLANT, PROPERTY AND EQUIPMENT................... 5,362,200 5,080,239
Less accumulated depreciation................. 2,666,643 2,471,865
---------- ----------
2,695,557 2,608,374
---------- ----------
OTHER ASSETS.................................... 83,928 87,782
---------- ----------
TOTAL ASSETS.................................... $3,291,913 $3,145,608
========== ==========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
Bell Atlantic - Virginia, 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................... $ 122,133 $ 19,787
Other....................................... 2,021 905
Accounts payable and accrued liabilities:
Affiliates.................................. 157,539 157,749
Taxes....................................... 25,282 7,229
Other....................................... 279,135 290,801
Advance billings and customer deposits........ 72,378 64,069
---------- ----------
658,488 540,540
---------- ----------
LONG-TERM DEBT.................................. 946,915 937,415
---------- ----------
EMPLOYEE BENEFIT OBLIGATIONS.................... 421,143 406,664
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes......................... 128,619 129,987
Unamortized investment tax credits............ 25,962 29,757
Other......................................... 69,595 70,851
---------- ----------
224,176 230,595
---------- ----------
SHAREOWNER'S INVESTMENT
Common stock - one share, without par value,
owned by parent............................. 873,685 873,685
Reinvested earnings........................... 167,506 156,709
---------- ----------
1,041,191 1,030,394
---------- ----------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT... $3,291,913 $3,145,608
========== ==========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Bell Atlantic - Virginia, 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............ $ 489,989 $475,491
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............... (5,814) ---
Additions to plant, property and equipment......... (382,660) (285,401)
Other, net......................................... (2,059) (1,516)
-------- --------
Net cash used in investing activities................ (390,533) (286,917)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations.. (659) (708)
Net change in note payable to affiliate............ 102,346 2,685
Dividends paid..................................... (209,260) (176,574)
Net change in outstanding checks drawn
on controlled disbursement accounts.............. 8,117 (13,977)
-------- --------
Net cash used in financing activities................ (99,456) (188,574)
-------- --------
NET CHANGE IN CASH................................... --- ---
CASH, BEGINNING OF PERIOD............................ --- ---
-------- --------
CASH, END OF PERIOD.................................. $ --- $ ---
======== ========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Bell Atlantic - Virginia, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by Bell Atlantic - Virginia, 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 $50,000,000 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 - Virginia, 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
$220,162,000, compared to a loss of $102,988,000 for the same period in 1994.
Results for the nine months ended September 30, 1994 included a non-cash,
after-tax extraordinary charge of $308,580,000 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.
OPERATING REVENUES
- ------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30 1995 1994
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Transport Services
Local service............................ $ 612,434 $ 598,909
Network access........................... 444,895 426,812
Toll service............................. 73,433 98,754
Ancillary Services
Directory publishing..................... 130,003 123,421
Other.................................... 64,410 59,085
Value-added Services........................ 159,197 147,729
---------- -----------
Total....................................... $1,484,372 $1,454,710
========== ===========
</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............................... 1,902 1,844 3.1%
Business................................ 1,090 1,033 5.5
Public.................................. 41 41 -
------ -------
3,033 2,918 3.9
====== =======
For the Nine Month Period Ended September 30
- --------------------------------------------
Access Minutes of Use (In millions)
Interstate.............................. 7,737 7,243 6.8
Intrastate.............................. 2,121 1,983 7.0
------ -------
9,858 9,226 6.9
====== =======
Toll Messages (In thousands)
Intrastate.............................. 81,428 115,764 (29.7)
Interstate.............................. 8,830 8,567 3.1
------ -------
90,258 124,331 (27.4)
====== =======
</TABLE>
6
<PAGE>
Bell Atlantic - Virginia, Inc.
LOCAL SERVICE REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 13,525 2.3%
================================================================================
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 3.9% 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 $ 18,083 4.2%
================================================================================
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%. 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 lower revenues
recognized through an interstate revenue sharing agreement with affiliated
companies and 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
$48,900,000 on an annual basis, effective August 1, 1995. These price decreases
include the scheduled expiration of a temporary rate increase of approximately
$15,700,000 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 $33,200,000 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.
TOLL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $(25,321) (25.6)%
================================================================================
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).
7
<PAGE>
Bell Atlantic - Virginia, Inc.
Toll service revenues decreased primarily due to the effects of extended
local calling areas as reflected by a 27.4% decline in toll message volumes. The
Company also implemented price reductions on certain toll services which
contributed to the decline in toll service revenues in 1995. The Company expects
that reductions in toll service revenues will continue for the remainder of 1995
due to the introduction of intraLATA toll competition in Virginia, beginning
October 1, 1995. 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 $ 6,582 5.3%
================================================================================
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) Increase
================================================================================
Nine Months $ 5,325 9.0%
================================================================================
Other ancillary services include billing and collection services provided
to IXCs and facilities rental services provided to affiliates and non-
affiliates.
Other ancillary services revenues increased due to higher facilities rental
revenues. This increase was offset, in part, by 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.
VALUE-ADDED SERVICES REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 11,468 7.8%
================================================================================
Value-added services represent a family of enhanced services including Call
Waiting, Return Call, Caller ID, Answer Call, and Voice Mail. These services
also include customer premises services such as inside wire installation and
maintenance and other central office services and features.
Continued growth in the network customer base (access lines) and higher
demand by residence customers for 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. Higher demand for residential inside wire maintenance plans also
contributed to the increase in value-added services revenues. These revenue
increases were offset, in part, by the elimination of Touch-Tone service
charges, in accordance with the Virginia State Corporation Commission's (SCC)
new regulatory plan for the Company, effective January 1, 1995. The elimination
of Touch-Tone service charges is expected to reduce value-added services
revenues by approximately $25 million annually.
8
<PAGE>
Bell Atlantic - Virginia, 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.. $ 294,755 $ 323,035
Depreciation and amortization................. 307,806 296,526
Other operating expenses...................... 472,057 457,910
---------- ----------
Total......................................... $1,074,618 $1,077,471
========== ==========
</TABLE>
EMPLOYEE COSTS
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $(28,280) (8.8)%
================================================================================
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 $18,474,000 to recognize benefit costs for the separation
of employees who are entitled to benefits under preexisting Bell Atlantic
separation pay plans. A reduction in overtime pay 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 $ 11,280 3.8%
================================================================================
Depreciation and amortization increased principally due to growth in
depreciable telephone plant. The composite depreciation rate was 8.1% 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) Increase
================================================================================
Nine Months $14,147 3.1%
================================================================================
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 increase in other operating expenses was largely attributable to 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. This increase was partially offset by
lower rent expense, lower material expense, and lower directory production
costs.
9
<PAGE>
Bell Atlantic - Virginia, Inc.
OTHER INCOME (EXPENSE), NET
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (591)
================================================================================
The change in other income (expense), net, was 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. This reduction was offset, in part, by higher interest income related to
short-term investments.
INTEREST EXPENSE
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 1,790 3.5%
================================================================================
Interest expense increased principally due to higher levels of average
short-term debt and higher interest rates in 1995, as well as an increase in
capitalized leases. These increases were partially offset by the recognition of
capitalized interest costs, subsequent to the discontinued application of
regulatory accounting principles, effective August 1, 1994.
PROVISION FOR INCOME TAXES
(Dollars in Thousands) Increase
================================================================================
Nine Months $15,564 13.0%
================================================================================
EFFECTIVE INCOME TAX RATES
For the Nine Months Ended September 30
================================================================================
1995 38.1%
================================================================================
1994 36.9%
================================================================================
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. 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.
10
<PAGE>
Bell Atlantic - Virginia, Inc.
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.
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 $48,900,000 on an annual basis. These price
decreases include the scheduled expiration of a temporary rate increase of
approximately $15,700,000 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 $33,200,000 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
SCC with respect to intrastate rates and services and other matters.
The SCC approved a new regulatory plan (replacing the prior Alternative
Regulation Plan), effective January 1, 1995, which eliminates regulation of
profits, with provisions that cap basic local services rates until the year
2001, eliminate monthly Touch-Tone charges and expand eligibility for lifeline
telephone services.
11
<PAGE>
Bell Atlantic - Virginia, Inc.
The SCC is currently conducting an audit of the Company's financial results
for the year ended December 31, 1992 in accordance with the Alternative
Regulation Plan in effect during that time. A report of the audit is expected in
the fourth quarter of 1995.
During the 1995 session of the Virginia General Assembly, legislation was
passed that will allow the SCC to authorize other telephone companies, beginning
January 1, 1996, to compete with the Company in the provision of local exchange
services. These telephone companies will come under the jurisdiction of the SCC
and will be required to comply with rules and regulations which will be
determined by the SCC during 1995. On June 9, 1995, the SCC issued an order
inviting comments on its initial draft of Local Competition Rules for Virginia.
The Company has filed comments with the SCC on the proposed rules, presented
oral arguments before the Commission and provided a list of issues that the
Company believes requires an evidentiary hearing. The Company anticipates that
the SCC will issue a set of rules governing local competition by the end of
1995.
On July 24, 1995, the SCC issued an order permitting IXCs, upon being
certified by the SCC, to compete for the provision of intraLATA toll services,
beginning October 1, 1995.
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. Certain of these environmental matters relate
to Superfund sites for which the Company has been designated as a potentially
responsible party by the U.S. Environmental Protection Agency. Such designation
subjects the Company to potential liability for costs relating to cleanup of the
affected sites. The Company is also responsible for the remediation of sites
with underground fuel storage tanks and other expenses associated with
environmental compliance.
The Company continually monitors its operations with respect to potential
environmental issues, including changes in legally mandated standards and
remediation technologies. The Company's recorded liabilities reflect those
specific 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 $77,900,000 of an unused line of
credit with an affiliate, Bell Atlantic Network Funding Corporation. In
addition, the Company had $100,000,000 remaining under a shelf registration
statement filed with the Securities and Exchange Commission.
The Company's debt ratio was 50.7% at September 30, 1995, compared to 48.2%
at December 31, 1994.
12
<PAGE>
Bell Atlantic - Virginia, 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 - Virginia, 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 - VIRGINIA, INC.
Date: November 9, 1995 By /s/ O. Riley Young, Jr.
--------------------------
O. Riley Young, Jr.
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> 5,814
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<INVENTORY> 11,661
<CURRENT-ASSETS> 512,428
<PP&E> 5,362,200
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<COMMON> 873,685
0
0
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