<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
---------------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-6964
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,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $614 to affiliates,
and $793, $187 and $765 from affiliates).................... $546,112 $499,137 $1,066,563 $ 985,094
-------- -------- ---------- ----------
OPERATING EXPENSES
Employee costs, including benefits and taxes................ 92,175 97,877 181,030 194,320
Depreciation and amortization............................... 103,326 104,608 204,845 203,798
Other (including $123,430, $101,004, $241,898
and $198,308 to affiliates)............................... 195,667 154,133 373,666 304,334
-------- -------- ---------- ----------
391,168 356,618 759,541 702,452
-------- -------- ---------- ----------
OPERATING INCOME.............................................. 154,944 142,519 307,022 282,642
OTHER INCOME (EXPENSE), NET (including $155, $0, $356
and $0 from affiliate).................................... 23 495 (930) (872)
INTEREST EXPENSE (including $403, $1,614, $609
and $2,751 to affiliate).................................... 14,416 19,480 30,345 35,918
-------- -------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES...................... 140,551 123,534 275,747 245,852
PROVISION FOR INCOME TAXES.................................... 54,004 46,994 105,259 93,715
-------- -------- ---------- ----------
NET INCOME.................................................... $ 86,547 $ 76,540 $ 170,488 $ 152,137
======== ======== ========== ==========
REINVESTED EARNINGS
At beginning of period...................................... $241,211 $181,248 $ 169,629 $ 156,709
Add: net income............................................ 86,547 76,540 170,488 152,137
-------- -------- ---------- ----------
327,758 257,788 340,117 308,846
Deduct: dividend........................................... 100,220 65,000 112,466 116,058
other changes...................................... 166 65 279 65
-------- -------- ---------- ----------
At end of period............................................ $227,372 $192,723 $ 227,372 $ 192,723
======== ======== ========== ==========
</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,
1996 1995
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................... $ 9,411 $ ---
Accounts receivable:
Trade and other, net of allowances for
uncollectibles of $22,728 and $19,072........ 402,807 375,872
Affiliates..................................... 29,186 28,973
Material and supplies............................ 10,575 9,156
Prepaid expenses................................. 108,265 67,987
Deferred income taxes............................ 18,609 30,364
Other............................................ 253 217
---------- ----------
579,106 512,569
---------- ----------
PLANT, PROPERTY AND EQUIPMENT.................... 5,467,804 5,383,444
Less accumulated depreciation.................... 2,846,054 2,716,713
---------- ----------
2,621,750 2,666,731
---------- ----------
OTHER ASSETS..................................... 61,157 55,202
---------- ----------
TOTAL ASSETS..................................... $3,262,013 $3,234,502
========== ==========
</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,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate....................................... $ 50,717 $ 53,590
Other........................................................... 2,069 2,033
Accounts payable and accrued liabilities:
Affiliates...................................................... 181,540 174,113
Other........................................................... 276,693 328,352
Advance billings and customer deposits............................ 85,318 68,055
---------- ----------
596,337 626,143
---------- ----------
LONG-TERM DEBT.................................................... 946,371 946,730
---------- ----------
EMPLOYEE BENEFIT OBLIGATIONS...................................... 412,663 411,942
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes............................................. 117,915 119,175
Unamortized investment tax credits................................ 22,607 24,810
Other............................................................. 65,063 62,388
---------- ----------
205,585 206,373
---------- ----------
SHAREOWNER'S INVESTMENT
Common stock - one share, without par value, owned by parent...... 873,685 873,685
Reinvested earnings............................................... 227,372 169,629
---------- ----------
1,101,057 1,043,314
---------- ----------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT..................... $3,262,013 $3,234,502
========== ==========
</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,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES...................... $ 282,456 $ 309,595
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments........................... (9,411) (12,618)
Additions to plant, property and equipment..................... (168,547) (291,385)
Other, net..................................................... 8,754 (2,074)
--------- ---------
Net cash used in investing activities.......................... (169,204) (306,077)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations.............. (478) (459)
Net change in note payable to affiliate........................ (2,873) 83,108
Dividends paid................................................. (112,466) (116,058)
Net change in outstanding checks drawn
on controlled disbursement accounts......................... 2,565 29,891
--------- ---------
Net cash used in financing activities.......................... (113,252) (3,518)
--------- ---------
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
(Unaudited)
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,
1995 balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles. In
the opinion of management, these financial statements include all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the results of operations, financial position and cash flows. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The Company
believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2. Dividend
On August 1, 1996, the Company declared and paid a dividend in the amount
of $80,000,000 to Bell Atlantic Corporation (Bell Atlantic).
3. Reclassifications
Certain reclassifications of the prior year's data have been made to
conform to 1996 classifications.
4. Proposed Bell Atlantic - NYNEX Merger
Bell Atlantic and NYNEX Corporation have announced a proposed merger of
equals pursuant to a definitive merger agreement entered into on April 21, 1996,
and amended on July 2, 1996. Under the terms of the amended agreement, a newly-
formed subsidiary will merge with and into NYNEX, with NYNEX becoming a
subsidiary of Bell Atlantic, and each share of NYNEX common stock will be
converted into 0.768 shares of Bell Atlantic common stock. The merger, which is
expected to qualify as a pooling of interests for accounting purposes, is
subject to a number of conditions, including regulatory approvals, receipt of
opinions that the merger will be tax free, and the approval of the shareholders
of both Bell Atlantic and NYNEX. The transaction is expected to close by April
1997.
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 1996 of
$170,488,000, compared to net income of $152,137,000 for the same period in
1995.
Items affecting the comparison of operating results between the six month
periods ended June 30, 1996 and 1995 are discussed in the following sections.
<TABLE>
<CAPTION>
OPERATING REVENUES
- ------------------
(Dollars in Thousands)
For the Six Month Period Ended June 30 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Transport Services
Local service........................... $ 435,349 $ 406,494
Network access.......................... 300,950 295,863
Toll service............................ 47,749 49,153
Ancillary Services
Directory publishing.................... 93,219 87,217
Other................................... 47,220 44,104
Value-added Services...................... 142,076 102,263
---------- ----------
Total..................................... $1,066,563 $ 985,094
========== ==========
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
Increase
1996 1995 (Decrease)
- --------------------------------------------------------------------------------
At June 30
- ----------
<S> <C> <C> <C>
Access Lines in Service (In thousands)
Residence.............................. 1,939 1,886 2.8%
Business............................... 1,139 1,074 6.1
Public................................. 41 41 ---
----- -----
3,119 3,001 3.9
===== =====
For the Six Month Period Ended June 30
- --------------------------------------
Access Minutes of Use (In millions)
Interstate............................. 5,517 5,103 8.1
Intrastate............................. 1,486 1,376 8.0
----- -----
7,003 6,479 8.1
===== =====
Toll Messages (In thousands)
Intrastate............................ 52,579 54,242 (3.1)
Interstate............................ 7,068 5,756 22.8
------ ------
59,647 59,998 (.6)
====== ======
</TABLE>
6
<PAGE>
Bell Atlantic - Virginia, Inc.
LOCAL SERVICE REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $28,855 7.1%
- --------------------------------------------------------------------------------
Local service revenues are earned by the Company from the provision of
local exchange, local private line and public telephone services.
Higher network usage increased local service revenues during the first six
months of 1996. The increase in calling volumes principally resulted from growth
in the number of access lines in service, which increased 3.9% from June 30,
1995, primarily reflecting higher demand in the business market. Local service
revenues also increased due to the favorable settlement of issues related to an
audit by the Virginia State Corporation Commission (SCC) in June 1996. A refund
accrual for such matters was recorded in the fourth quarter of 1995. See
"Factors That May Impact Future Results - Other State Regulatory Matters" below
for a further discussion of this issue.
NETWORK ACCESS REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $5,087 1.7%
- --------------------------------------------------------------------------------
Network access revenues are received from interexchange carriers (IXCs) for
their use of the Company's local exchange facilities in providing long distance
services to IXCs' customers and from end-user subscribers. Switched access
service revenues are derived from usage-based charges paid by IXCs for access to
the Company's network. Special access revenues arise from access charges paid
by IXCs and end-users who have private networks. End-user access revenues are
earned from local exchange carrier customers who pay for access to the network.
Network access revenues increased due to higher customer demand for access
services, as reflected by growth in access minutes of use of 8.1% over the same
period in 1995. Revenue growth from volume increases was partially offset by
the net effect of price reductions under the Federal Communications Commission's
(FCC) Price Cap Plans, which became effective during 1995, and higher
obligations to affiliated companies pursuant to an interstate revenue sharing
agreement.
It is expected that network access revenue growth in the second half of
1996 relative to the same period last year should be positively impacted by
continued strong volume growth and the net rate increases effective on
July 20, 1996. See also "Factors That May Impact Future Results - FCC Interim
Price Cap Plan" below for a discussion of Bell Atlantic's FCC price cap filing,
which became effective on July 20, 1996.
TOLL SERVICE REVENUES
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(1,404) (2.9)%
- --------------------------------------------------------------------------------
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area of the Company, commonly referred
to as Local Access and Transport Areas (LATAs). Other toll services include 800
services and Wide Area Telephone Service (WATS).
The decrease in toll service revenues was caused by company-initiated price
reductions on certain toll services and increased competition for intraLATA toll
and WATS services. Toll message volumes declined .6% over the same period in
1995. The decline in toll message volumes, primarily due to the introduction of
intraLATA toll competition in Virginia beginning on October 1, 1995, was
substantially offset by increased network usage, partially attributable to
severe winter storms in early 1996.
The Company expects that reductions in toll service revenues will continue
in 1996, however, the revenue decline is expected to be less than in 1995. See
"Factors That May Impact Future Results" below for a further discussion of toll
service revenue issues.
7
<PAGE>
Bell Atlantic - Virginia, Inc.
DIRECTORY PUBLISHING REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $6,002 6.9%
- --------------------------------------------------------------------------------
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 principally due to higher rates
charged for these services as well as growth in advertising volumes.
OTHER ANCILLARY SERVICES REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $3,116 7.1%
- --------------------------------------------------------------------------------
Other ancillary services include billing and collection services provided
to IXCs, facilities rental services provided to affiliates and non-affiliates
and sales of materials and supplies to affiliates.
Other ancillary services revenues increased due to higher sales of
materials and supplies to affiliates and increased revenues from customer late
payment charges. These increases were partially offset by a reduction in billing
and collection services revenues primarily as a result of the elimination of
certain services from a contract with an IXC.
VALUE-ADDED SERVICES REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $39,813 38.9%
- --------------------------------------------------------------------------------
Value-added services represent a family of services which expand the
utilization of the network. These services include recent products such as voice
messaging services, Caller ID and Return Call as well as more mature products
such as Centrex and other customer premises wiring and maintenance services.
The increase in value-added services revenues was primarily attributable to
continued growth in the network customer base and higher demand for certain
central office and voice messaging services. An increase in federal government
contract billing for customer premises services and equipment also contributed
to revenue growth in the first six months of 1996.
8
<PAGE>
Bell Atlantic - Virginia, Inc.
<TABLE>
<CAPTION>
OPERATING EXPENSES
- ------------------
(Dollars in Thousands)
For the Six Month Period Ended June 30 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Employee costs, including benefits and taxes...... $181,030 $194,320
Depreciation and amortization..................... 204,845 203,798
Other operating expenses.......................... 373,666 304,334
-------- --------
Total............................................. $759,541 $702,452
======== ========
</TABLE>
EMPLOYEE COSTS
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(13,290) (6.8)%
- --------------------------------------------------------------------------------
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 attributable to savings associated with
lower work force levels in 1996. The effect of employees transferred from the
Company to NSI in December 1995 also contributed to the decrease in employee
costs. These reductions were partially offset by annual salary and wage
increases, as well as increased overtime pay and repair and maintenance activity
principally due to higher business volumes and severe weather conditions in the
first quarter of 1996.
DEPRECIATION AND AMORTIZATION
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $1,047 .5%
- --------------------------------------------------------------------------------
Depreciation and amortization increased due to growth in depreciable
telephone plant. This increase was partially offset by the effect of lower
depreciation rates. The composite depreciation rate was 7.7% for the first six
months of 1996, compared to 8.0% for the six month period ended June 30, 1995.
OTHER OPERATING EXPENSES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $69,332 22.8%
- --------------------------------------------------------------------------------
Other operating expenses consist of contract services including centralized
services expenses allocated from NSI, rent, network software costs, operating
taxes other than income, the provision for uncollectible accounts receivable and
other costs.
The increase in other operating expenses was largely attributable to higher
centralized services expenses allocated from NSI. This increase was due, in
part, to higher employee costs incurred in that organization as a result of the
transfer of employees from the network operations subsidiaries to NSI in
December 1995. Additional operating costs incurred to enhance billing and
operating systems, consolidate work activities and market value-added services
also contributed to the increase in centralized services expenses during the
first six months of 1996. Other operating expenses were further increased by
higher contract services and additional costs to upgrade network software and
comply with the Telecommunications Act of 1996.
9
<PAGE>
Bell Atlantic - Virginia, Inc.
OTHER INCOME (EXPENSE), NET
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(58)
- --------------------------------------------------------------------------------
The change in other income (expense), net was attributable to higher
nonoperating costs offset by additional interest income in the first six months
of 1996.
INTEREST EXPENSE
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(5,573) (15.5)%
- --------------------------------------------------------------------------------
Interest expense decreased principally due to the effect of lower levels of
average short-term debt in the first six months of 1996, as well as a decrease
in interest expense related to capitalized leases.
PROVISION FOR INCOME TAXES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $11,544 12.3%
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Six Months Ended June 30
- --------------------------------------------------------------------------------
1996 38.2%
- --------------------------------------------------------------------------------
1995 38.1%
- --------------------------------------------------------------------------------
The Company's effective income tax rate was higher as a result of
adjustments to tax liabilities recorded in the first six months of 1996.
FACTORS THAT MAY IMPACT FUTURE RESULTS
- --------------------------------------
Federal Legislation
The Telecommunications Act of 1996 (the Act) became effective on February
8, 1996 and replaces the Modification of Final Judgment (MFJ). In general, the
Act includes provisions that would open the local exchange market to competition
and would permit local exchange carriers, such as the Company, upon meeting
certain conditions, to provide interLATA services (long distance) and video
programming and to engage in manufacturing. However, the ability of the Company
to engage in businesses previously prohibited by the MFJ is largely dependent on
satisfying certain conditions contained in the Act and regulations promulgated
thereunder. The following is a brief discussion regarding certain provisions of
the Act.
With regard to the rules governing competition in the interLATA market, the
Act takes a two-fold approach. Effective February 8, 1996, Bell Atlantic's
operating telephone subsidiaries and affiliates are permitted to apply for
approval to offer interLATA services outside of the geographic region in which
they currently operate as a local exchange carrier. As of July 31, 1996, a
subsidiary of Bell Atlantic has been marketing such services in three states
outside its region and plans to offer such services in several other states. In
addition, Bell Atlantic's wireless businesses are now permitted to offer
interLATA services without having to comply with the conditions imposed in
waivers granted under the MFJ.
Secondly, within Bell Atlantic's geographic region, each of the operating
telephone subsidiaries, including the Company, must demonstrate to the FCC that
they have satisfied certain requirements in order to be permitted to offer
interLATA services within its jurisdiction. Among the requirements with which
the Company must comply is a 14-point "competitive checklist" which is aimed
10
<PAGE>
Bell Atlantic - Virginia, Inc.
at ensuring that competitors have the ability to offer competitive local
service, either through resale, the purchase of unbundled network elements, or
through their own networks. The Company must also demonstrate to the FCC that
its entry into the interLATA market would be in the public interest.
The Act also imposes specific requirements that are intended
to promote competition in the local exchange markets. These requirements
(collectively known as interconnection requirements) include the duty to:
(i) provide interconnection to any other carrier for the transmission and
routing of telephone exchange service at any technically feasible point;
(ii) provide unbundled access to network elements at any technically feasible
point; (iii) provide retail services at wholesale prices for resale;
(iv) establish reciprocal compensation arrangements for the origination and
termination of telecommunications; and (v) provide physical collocation. The
specific terms under which the carriers interconnect are to be negotiated
between those carriers.
On August 1, 1996, the FCC adopted an order establishing guidelines for
implementation of the interconnection requirements set forth in the Act. The
FCC's guidelines set the parameters for rules and regulations that state
commissions have established, or will establish, to govern interconnection
agreements that are reached through state arbitrations, when negotiations fail.
The FCC stated that it plans to issue regulations regarding universal service
obligations and access charges in a subsequent order.
No definitive prediction can be made as to the specific impact of the Act
on the business or financial condition of the Company. The financial impact on
the Company will be dependent on several factors, including the timing, extent
and success of competition in the Company's markets, the timing, extent and
success of the Company's pursuit of new business opportunities resulting from
the Act and the provisions of the regulations to be issued by the FCC.
Competition
IntraLATA Toll Services
Competition to offer intrastate intraLATA toll services is currently
permitted in the Company's jurisdiction. Increased competition from IXCs has
resulted in a decline in several components of the Company's toll service
revenues.
Currently, intraLATA toll calls are completed by the Company unless the
customer dials a five-digit access code. Presubscription for intraLATA toll
services would enable customers to make intraLATA toll calls using another
carrier without having to dial the five-digit access code.
In general, the Act prohibits a state from requiring presubscription or
"dialing parity" until the earlier of such time as an operating telephone
company in the state is authorized to provide long distance services within the
state or three years from the effective date of the Act. This prohibition does
not apply to a final order requiring an operating telephone company to implement
presubscription that was issued on or prior to December 19, 1995.
In Virginia, the SCC issued an order on July 24, 1995 denying intraLATA
toll presubscription.
Local Exchange Services
The ability to offer local exchange services has historically been subject
to regulation by the SCC. Since April 30, 1996, several telephone service
providers have been certified by the SCC to provide local exchange services in
Virginia, pending SCC approval of their tariffs. Applications from other
competitors to provide local exchange services are currently pending. The Act is
expected to significantly increase the level of competition in the Company's
local exchange market. However, increased competition in the local exchange
market will facilitate FCC approval of the Company's entry into the interLATA
markets.
FCC Interim Price Cap Plan
As required by the FCC's Interim Price Cap Plan, Bell Atlantic filed its
Annual Access Tariff Filing of Interstate Rates on April 2, 1996 and amended the
filing on June 27, 1996. In the filing, Bell Atlantic selected the 5.3%
Productivity Factor for the July 1996 to June 1997 tariff period. Companies
selecting the 5.3% Productivity Factor are not required to share earnings in
excess of allowed rates of return. The reduction in the price cap index
resulting from the 5.3% Productivity Factor was more than offset by the reversal
of prior year exogenous rate reductions and the FCC's partial annulment of
ratemaking requirements related to the Company's adoption of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The rates included in the June 27,
1996 filing resulted in actual price increases for the Company totaling
approximately $3,100,000 on an annual basis, which became effective on July 20,
1996.
11
<PAGE>
Bell Atlantic - Virginia, Inc.
In 1995, Bell Atlantic filed an appeal with the Court of Appeals for the
D.C. Circuit for review of the FCC's Interim Price Cap Plan. On March 29, 1996,
the U.S. Court of Appeals denied Bell Atlantic's petition.
Before the 1997 Annual Access Tariff Filing, Bell Atlantic expects the FCC
to replace the Interim Price Cap Plan for interstate access charges with a
revised price cap plan.
Other State Regulatory Matters
The communications services of the Company are subject to regulation by the
SCC with respect to intrastate rates and services and certain other matters.
Under legislation passed in the 1993 session of the Virginia General
Assembly, the SCC is no longer statutorily required to regulate telephone
companies on the basis of rate of return regulation. In February 1994, the
Company filed a proposal to have its non-competitive services regulated on a
price cap basis; competitive services would not be regulated.
Following public hearings, the SCC approved a new optional regulatory plan,
effective January 1, 1995, which allows the Company to replace traditional cost-
based regulation with a plan that relies on price constraints. The new plan,
which eliminates regulation of profits, includes a temporary moratorium on rate
increases for basic local telephone service until 2001, eliminates the monthly
charge for Touch-Tone service and expands universal telephone service to the
poor. In November 1994, the Company notified the SCC of its election to
participate in the new regulatory plan. Following an appeal, the new plan was
upheld by the Virginia Supreme Court.
The Company has filed financial results with the SCC for the years 1989
through 1994. The SCC issued orders making the Company's rates final and no
longer subject to refund for the years 1989, 1990 and 1991. The SCC has not
completed its review of the Company's 1994 financial results.
With respect to the 1992 review period, the SCC staff issued its report in
January 1996 and presented alternative treatment for two issues concerning
expenses to be recognized in 1992. Following consideration of all comments, the
SCC modified its staff's treatment of these issues and ordered the Company on
June 11, 1996 to refund to customers $10,200,000 plus interest for the 1992
review period. On July 12, 1996, the Company filed notice of its intent to
comply with this order. On July 17, 1996, the SCC issued a final order requiring
the refund to customers be completed on or before November 29, 1996.
With respect to the 1993 review period, the SCC staff issued its report on
July 23, 1996, concluding that the Company's earnings were within the authorized
range and that no refund is required. On July 24, 1996, the Company filed a
motion with the SCC to make 1993 rates permanent.
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 or joined as a
third-party defendant in pending Superfund legislation. Such designation or
joinder 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 situations where remediation activities are currently deemed to be
probable and where the cost of remediation is estimable. Management believes
that the aggregate amount of any additional potential liability would not have a
material effect on the Company's results of operations or financial condition.
12
<PAGE>
Bell Atlantic - Virginia, Inc.
Proposed Bell Atlantic - NYNEX Merger
Bell Atlantic and NYNEX Corporation have announced a proposed merger of
equals pursuant to a definitive merger agreement entered into on April 21, 1996,
and amended on July 2, 1996. Under the terms of the amended agreement, a newly-
formed subsidiary will merge with and into NYNEX, with NYNEX becoming a
subsidiary of Bell Atlantic, and each share of NYNEX common stock will be
converted into 0.768 shares of Bell Atlantic common stock. The merger, which is
expected to qualify as a pooling of interests for accounting purposes, is
subject to a number of conditions, including regulatory approvals, receipt of
opinions that the merger will be tax free, and the approval of the shareholders
of both Bell Atlantic and NYNEX. The transaction is expected to close by April
1997.
FINANCIAL CONDITION
- -------------------
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization and the 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, 1996, the Company had $149,283,000 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 for the issuance of
unsecured debt securities.
The Company's debt ratio was 47.6% at June 30, 1996, compared to 49.0% at
December 31, 1995.
On August 1, 1996, the Company declared and paid a dividend in the amount
of $80,000,000 to Bell Atlantic Corporation.
13
<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, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27 Financial Data Schedule.
(b) Report on Form 8-K filed during the quarter ended June 30, 1996:
A Current Report on Form 8-K, dated April 21, 1996, was filed
regarding (i) the Agreement and Plan of Merger, dated as of April
21, 1996, by and among Bell Atlantic Corporation, NYNEX
Corporation and Seaboard Merger Company, and (ii) the Joint Press
Release, dated April 22, 1996, issued by Bell Atlantic
Corporation and NYNEX Corporation.
14
<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 8, 1996 By /s/ O. Riley Young, Jr.
---------------------------------
O. Riley Young, Jr.
Controller
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 5, 1996.
15
<TABLE> <S> <C>
<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND THE BALANCE
SHEET AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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<SECURITIES> 9,411
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