<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, 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 Six months ended
June 30, June 30,
-------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $793, $1,346,
$765 and $2,050 from affiliates).................. $499,137 $483,153 $985,094 $959,428
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes...... 97,877 98,525 194,320 197,405
Depreciation and amortization..................... 104,608 98,419 203,798 195,601
Other (including $101,004, $92,749, $198,308
and $181,969 to affiliates)..................... 154,133 148,058 304,334 296,668
-------- -------- -------- --------
356,618 345,002 702,452 689,674
-------- -------- -------- --------
OPERATING INCOME.................................... 142,519 138,151 282,642 269,754
OTHER INCOME (EXPENSE), NET
Allowance for funds used during construction...... --- 770 --- 1,563
Other, net........................................ 495 (894) (872) (1,510)
-------- -------- -------- --------
495 (124) (872) 53
INTEREST EXPENSE (including $1,614, $544, $2,751
and $976 to affiliate)............................ 19,480 17,528 35,918 34,754
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES............ 123,534 120,499 245,852 235,053
PROVISION FOR INCOME TAXES.......................... 46,994 44,527 93,715 86,741
-------- -------- -------- --------
NET INCOME.......................................... $ 76,540 $ 75,972 $152,137 $148,312
======== ======== ======== ========
REINVESTED EARNINGS
At beginning of period............................ $181,248 $460,690 $156,709 $438,860
Add: net income................................... 76,540 75,972 152,137 148,312
-------- -------- -------- --------
257,788 536,662 308,846 587,172
Deduct: dividend................................. 65,000 61,489 116,058 111,999
other changes............................ 65 --- 65 ---
-------- -------- -------- --------
At end of period.................................. $192,723 $475,173 $192,723 $475,173
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Bell Atlantic - Virginia, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................ $ 12,618 $ ---
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $16,019 and $15,031....... 314,116 295,406
Affiliates................................... 35,951 32,188
Other........................................ 44,673 34,995
Material and supplies......................... 7,218 6,619
Prepaid expenses.............................. 94,185 64,354
Deferred income taxes......................... 17,621 15,605
Other......................................... 760 285
---------- ----------
527,142 449,452
---------- ----------
PLANT, PROPERTY AND EQUIPMENT................... 5,341,111 5,080,239
Less accumulated depreciation................. 2,633,997 2,471,865
---------- ----------
2,707,114 2,608,374
---------- ----------
OTHER ASSETS.................................... 84,654 87,782
---------- ----------
TOTAL ASSETS.................................... $3,318,910 $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>
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate.................... $ 102,895 $ 19,787
Other........................................ 2,494 905
Accounts payable:
Affiliates................................... 185,459 157,749
Other........................................ 186,282 190,904
Accrued expenses:
Taxes........................................ 13,551 7,229
Other........................................ 92,228 99,897
Advance billings and customer deposits........ 71,843 64,069
---------- ----------
654,752 540,540
---------- ----------
LONG-TERM DEBT.................................. 947,090 937,415
---------- ----------
EMPLOYEE BENEFIT OBLIGATIONS.................... 415,904 406,664
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes......................... 129,949 129,987
Unamortized investment tax credits............ 27,227 29,757
Other......................................... 77,580 70,851
---------- ----------
234,756 230,595
---------- ----------
SHAREOWNER'S INVESTMENT
Common stock - one share, without par value,
owned by parent.............................. 873,685 873,685
Reinvested earnings........................... 192,723 156,709
---------- ----------
1,066,408 1,030,394
---------- ----------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT... $3,318,910 $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>
Six months ended
June 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES................ $ 309,595 $ 282,097
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments................... (12,618) ---
Additions to plant, property and equipment............. (291,385) (198,050)
Other, net............................................. (2,074) 10
--------- ---------
Net cash used in investing activities.................... (306,077) (198,040)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations...... (459) (523)
Net change in note payable to affiliate................ 83,108 47,643
Dividends paid......................................... (116,058) (111,999)
Net change in outstanding checks drawn
on controlled disbursement accounts................... 29,891 (19,178)
--------- ---------
Net cash used in financing activities.................... (3,518) (84,057)
--------- ---------
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 August 1, 1995, the Company declared and paid a dividend in the amount
of $93,202,000 to Bell Atlantic Corporation.
3. Reclassifications
Certain reclassifications of 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 six months of 1995 of
$152,137,000, compared to net income of $148,312,000 for the same period in
1994.
Major items affecting the comparison of results for the six month period
ended June 30, 1995, versus the six month period ended June 30, 1994, are
discussed in the following sections.
OPERATING REVENUES
- ------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30 1995 1994
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Transport Services
Local service....................... $406,494 $395,303
Network access...................... 295,863 277,668
Toll service........................ 49,153 66,609
Ancillary Services
Directory advertising............... 87,217 82,296
Other............................... 44,104 40,501
Value-added Services................... 102,263 97,051
-------- --------
Total.................................. $985,094 $959,428
======== ========
</TABLE>
<TABLE>
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
Increase
1995 1994 (Decrease)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
At June 30
- ----------
Access Lines in Service (In thousands)
Residence............................ 1,886 1,828 3.2%
Business............................. 1,074 1,010 6.3
Public............................... 41 41 -
----- -----
3,001 2,879 4.2
===== =====
For the Six Month Period Ended June 30
- --------------------------------------
Access Minutes of Use (In millions)
Interstate........................... 5,103 4,751 7.4
Intrastate........................... 1,376 1,303 5.6
----- -----
6,479 6,054 7.0
===== =====
Toll Messages (In thousands)
Intrastate........................... 54,242 77,292 (29.8)
Interstate........................... 5,756 5,684 1.3
------ ------
59,998 82,976 (27.7)
====== ======
</TABLE>
6
<PAGE>
Bell Atlantic - Virginia, Inc.
LOCAL SERVICE REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 11,191 2.8%
- --------------------------------------------------------------------------------
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 due primarily to a 4.2% 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
- --------------------------------------------------------------------------------
Six Months $ 18,195 6.6%
- --------------------------------------------------------------------------------
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 a 7.0% growth in access minutes of use, as
well as growth in revenues from end-user charges attributable to increasing
access lines in service. Increased demand for digital data transport services
also contributed to growth in access revenues. Revenues in the first half of
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 was partially offset by price reductions in effect from July
1, 1994 to July 31, 1995 and lower revenues recognized through an interstate
revenue sharing agreement with affiliated companies. Further, reported growth in
access minutes of use and revenues in the first half of 1995 was negatively
impacted by higher storm-related calling volumes experienced in the first
quarter of 1994.
Effective August 1, 1995, the Company implemented price decreases of
approximately $48,900,000 on an annual basis, principally for interstate access
services, in connection with the Federal Communications Commission's (FCC)
Interim Price Cap Order. 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. As a result of the selection of a 5.3%
Productivity Factor under the Interim Plan, the Company is no longer required to
share a portion of its interstate earnings. See "Competitive and Regulatory
Environment - Federal Regulation" for a further discussion of FCC interstate
access revenue issues.
TOLL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $(17,456) (26.2)%
- --------------------------------------------------------------------------------
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 and storm-related usage experienced in the first quarter of
1994, as reflected by a 27.7% 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 the first half of 1995. The Company expects
that reductions in toll service revenues will continue for the remainder of
1995.
DIRECTORY ADVERTISING REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 4,921 6.0%
- --------------------------------------------------------------------------------
Directory advertising revenues are earned primarily from local advertising
and marketing services provided to businesses in White and Yellow Pages
directories. Other directory advertising services include database and foreign
directory marketing.
Growth in directory advertising revenues was due primarily to higher rates
charged for these services. Changes in billing procedures and lower customer
claims and disconnects further boosted directory services revenues in the first
half of 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
- --------------------------------------------------------------------------------
Six Months $ 3,603 8.9%
- --------------------------------------------------------------------------------
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 a revised contract with an IXC, which no
longer includes certain billing and collection services.
VALUE-ADDED SERVICES REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 5,212 5.4%
- --------------------------------------------------------------------------------
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 the first half of 1995. 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.
<TABLE>
<CAPTION>
OPERATING EXPENSES
- ------------------
For the Six Months Ended June 30 1995 1994
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Employee costs, including benefits and taxes.. $194,320 $197,405
Depreciation and amortization................. 203,798 195,601
Other operating expenses...................... 304,334 296,668
-------- --------
Total......................................... $702,452 $689,674
======== ========
</TABLE>
EMPLOYEE COSTS
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $ (3,085) (1.6)%
- --------------------------------------------------------------------------------
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 reduced overtime pay
and repair and maintenance activity, both of which were higher in the first
quarter of 1994 as a result of unusually severe weather conditions. These
reductions were partially offset by annual salary and wage increases for
management and associate employees, effective April 1995 and August 1994,
respectively.
The contract with the Company's union, the Communications Workers of
America (CWA), expired on August 5, 1995. As of August 7, 1995, the CWA has not
called a strike and the Company continues to make work available to associate
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
- --------------------------------------------------------------------------------
Six Months $ 8,197 4.2%
- --------------------------------------------------------------------------------
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. These increases were partially offset by
the effect of additional expense in 1994 for the amortization of intra-building
cable. The composite depreciation rate was 8.0% for the first half 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
- --------------------------------------------------------------------------------
Six Months $ 7,666 2.6%
- --------------------------------------------------------------------------------
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 and employee costs, as well as additional costs incurred
in that organization to enhance systems and consolidate work activities at Bell
Atlantic's network services subsidiaries. Also contributing to the increase were
higher contracted labor costs. These increases were partially offset by lower
rent expense and a reduction in the provision for uncollectible accounts
receivable.
9
<PAGE>
Bell Atlantic - Virginia, Inc.
OTHER INCOME (EXPENSE), NET
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $ (925)
- --------------------------------------------------------------------------------
The change in other income (expense), net, was attributable to a reduction
in income related to the allowance for funds used during construction offset, in
part, by interest income related to short-term investments.
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) Increase
- --------------------------------------------------------------------------------
Six Months $ 1,164 3.3%
- --------------------------------------------------------------------------------
Interest expense increased principally due to higher levels of average
short-term debt and higher interest rates in the first half of 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
- --------------------------------------------------------------------------------
Six Months $ 6,974 8.0%
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Six Months Ended June 30
- --------------------------------------------------------------------------------
1995 38.1%
- --------------------------------------------------------------------------------
1994 36.9%
- --------------------------------------------------------------------------------
The Company's effective income tax rate was higher in the first half of
1995 due principally 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 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 by reducing its cost structure
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 interLATA
services and engage in manufacturing upon meeting certain conditions. The Senate
passed a similar bill in June of 1995. A conference committee is expected to
work through the differences between the two bills in September and October of
1995. 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. Resolution of this matter is expected later in
1995.
FCC Interim Price Cap Orders
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. 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 March 30, 1995, the FCC also adopted an Order relating to the Price Cap
Plan requiring local exchange carriers to include in their calculation of
interstate earnings an adjustment to add back to revenues the amounts that were
required to be shared with ratepayers in the prior year. This adjustment, which
is effective for determination of sharing relating to earnings for 1994 and
subsequent years, increased 1994 calculated interstate returns for the purpose
of determining sharing amounts that were reflected in rate reductions that
became effective August 1, 1995.
On May 9, 1995, Bell Atlantic filed its Transmittal of Interstate Rates as
required by the March 30, 1995 Orders. 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 Orders to the Court of Appeals for the D.C.
Circuit and petitioned the Court for a stay of certain aspects of the Orders
pending the results of the appeals. On July 31, 1995, the Court of Appeals
denied the Company's request for a stay.
11
<PAGE>
Bell Atlantic - Virginia, Inc.
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, 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.
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 filed comments with the SCC on the proposed rules on August 4, 1995.
On July 24, 1995, the SCC issued an order permitting intraLATA toll
competition in Virginia. Beginning October 1, 1995, IXCs, upon being certified
by the SCC, will be allowed to compete with the Company in the provision of
intraLATA toll services.
OTHER MATTERS
- -------------
Environmental Issues
The Company is subject to a number of environmental proceedings as a result
of its operations and 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 liability reflects 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 June 30, 1995, the Company had $97,100,000 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 49.7% at June 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 June 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: August 10, 1995 By /s/ O. Riley Young, Jr.
----------------------------
O. Riley Young, Jr.
Controller
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 7, 1995.
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, 1995 AND THE BALANCE
SHEET AS OF JUNE 30, 1995 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 0
<SECURITIES> 12,618
<RECEIVABLES> 330,135
<ALLOWANCES> 16,019
<INVENTORY> 7,218
<CURRENT-ASSETS> 527,142
<PP&E> 5,341,111
<DEPRECIATION> 2,633,997
<TOTAL-ASSETS> 3,318,910
<CURRENT-LIABILITIES> 654,752
<BONDS> 947,090
<COMMON> 873,685
0
0
<OTHER-SE> 192,723
<TOTAL-LIABILITY-AND-EQUITY> 3,318,910
<SALES> 0
<TOTAL-REVENUES> 985,094
<CGS> 0
<TOTAL-COSTS> 702,452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,918
<INCOME-PRETAX> 245,852
<INCOME-TAX> 93,715
<INCOME-CONTINUING> 152,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,137
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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