<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 1-7757
BELL ATLANTIC - DELAWARE, INC.
A Delaware Corporation I.R.S. Employer Identification No. 23-0523775
901 Tatnall Street, Wilmington, Delaware 19801
Telephone Number (302) 576-5420
-------------------------------
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 - Delaware, 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 $3,625, $1,219,
$10,653 and $3,731 to affiliates)................... $ 66,944 $ 67,063 $196,228 $197,549
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes........ 14,735 17,466 43,115 45,756
Depreciation and amortization....................... 14,122 18,572 43,666 39,902
Other (including $14,643, $12,797, $40,211
and $36,802 to affiliates)........................ 22,369 21,529 60,864 62,735
-------- -------- -------- --------
51,226 57,567 147,645 148,393
-------- -------- -------- --------
OPERATING INCOME...................................... 15,718 9,496 48,583 49,156
OTHER INCOME (EXPENSE), NET
Allowance for funds used during construction........ --- 36 --- 216
Other, net.......................................... (164) (185) (318) (348)
-------- -------- -------- --------
(164) (149) (318) (132)
INTEREST EXPENSE (including $441, $230, $1,145
and $441 to affiliate).............................. 1,886 2,031 5,764 6,095
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM.............................. 13,668 7,316 42,501 42,929
PROVISION FOR INCOME TAXES............................ 5,488 2,429 16,994 16,588
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM...................... 8,180 4,887 25,507 26,341
EXTRAORDINARY ITEM
Discontinuation of Regulatory Accounting Principles,
Net of Tax........................................ --- (36,926) --- (36,926)
-------- -------- -------- --------
NET INCOME (LOSS)..................................... $ 8,180 $(32,039) $ 25,507 $(10,585)
======== ======== ======== ========
REINVESTED EARNINGS
At beginning of period.............................. $ 15,791 $ 54,929 $ 16,564 $ 54,235
Add: net income (loss)............................. 8,180 (32,039) 25,507 (10,585)
-------- -------- -------- --------
23,971 22,890 42,071 43,650
Deduct: dividends.................................. 5,000 9,765 23,100 30,525
other changes.............................. 12 --- 12 ---
-------- -------- -------- --------
At end of period.................................... $ 18,959 $ 13,125 $ 18,959 $ 13,125
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Bell Atlantic - Delaware, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................ $ 728 $ --
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $2,895 and $2,768........ 39,151 32,925
Affiliates................................... 1,517 4,403
Other........................................ 1,076 974
Material and supplies......................... 2,883 1,581
Prepaid expenses.............................. 16,989 11,513
Deferred income taxes......................... 1,911 1,802
Other......................................... 449 611
-------- --------
64,704 53,809
-------- --------
PLANT, PROPERTY AND EQUIPMENT................... 721,302 688,509
Less accumulated depreciation................. 356,810 339,173
-------- --------
364,492 349,336
-------- --------
OTHER ASSETS.................................... 3,110 12,532
-------- --------
TOTAL ASSETS.................................... $432,306 $415,677
======== ========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
Bell Atlantic - Delaware, 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................... $ 33,558 $ 12,038
Accounts payable and accrued liabilities:
Affiliates.................................. 23,322 24,150
Taxes....................................... 832 1,648
Other....................................... 35,286 45,101
Advance billings and customer deposits....... 9,334 11,976
-------- --------
102,332 94,913
-------- --------
LONG-TERM DEBT................................. 101,141 101,123
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS................... 52,080 49,632
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes........................ 16,458 15,256
Unamortized investment tax credits........... 3,682 4,193
Other........................................ 19,212 15,554
-------- --------
39,352 35,003
-------- --------
SHAREOWNER'S INVESTMENT
Common stock, $25 par value per share....... 118,442 118,442
Authorized shares: 5,262,280
Outstanding shares: 4,737,686
Reinvested earnings.......................... 18,959 16,564
-------- --------
137,401 135,006
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.. $432,306 $415,677
======== ========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Bell Atlantic - Delaware, 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...... $ 63,447 $ 48,674
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments......... (728) --
Additions to plant, property and equipment... (59,688) (43,805)
Other, net................................... 867 982
-------- --------
Net cash used in investing activities.......... (59,549) (42,823)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in note payable to affiliate...... 21,520 17,410
Dividends paid............................... (23,100) (30,525)
Net change in outstanding checks drawn
on controlled disbursement accounts......... (2,318) 6,951
-------- --------
Net cash used in financing activities.......... (3,898) (6,164)
-------- --------
NET CHANGE IN CASH............................. -- (313)
CASH, BEGINNING OF PERIOD...................... -- 313
-------- --------
CASH, END OF PERIOD............................ $ -- $ --
======== ========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Bell Atlantic - Delaware, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by Bell Atlantic - Delaware, 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 $5,000,000 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 - Delaware, 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
$25,507,000, compared to a loss of $10,585,000 for the same period in 1994.
Results for the nine months ended September 30, 1994 included a non-cash,
after-tax extraordinary charge of $36,926,000 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............................... $ 73,207 $ 71,798
Network access.............................. 46,768 49,289
Toll service................................ 24,146 27,612
Ancillary Services
Directory publishing........................ 24,320 23,132
Other....................................... 3,361 3,982
Value-added Services......................... 24,426 21,736
-------- --------
Total........................................ $196,228 $197,549
======== ========
</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.................................. 314 303 3.6%
Business................................... 171 160 6.9
Public..................................... 6 6 -
---- ---
491 469 4.7
==== ===
For the Nine Month Period Ended September 30
- -----------------------------------------------
Access Minutes of Use (In millions)
Interstate................................. 1,225 1,145 7.0
Intrastate................................. 45 36 25.0
----- -----
1,270 1,181 7.5
===== =====
Toll Messages (In thousands)
Intrastate................................. 24,970 25,710 (2.9)
Interstate................................. 18,838 18,845 -
------ ------
43,808 44,555 (1.7)
====== ======
</TABLE>
6
<PAGE>
Bell Atlantic - Delaware, Inc.
LOCAL SERVICE REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Nine Months $ 1,409 2.0%
- --------------------------------------------------------------------------------
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 4.7% growth in the number
of access lines in service, and increased usage and data transport by business
customers. This growth was partially offset by lower public telephone and
directory assistance revenues.
NETWORK ACCESS REVENUES
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Nine Months $ (2,521) (5.1)%
- --------------------------------------------------------------------------------
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 decreased principally due to 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
$8,700,000 on an annual basis, effective August 1, 1995. These price decreases
include the scheduled expiration of a temporary rate increase of approximately
$2,800,000 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 $5,900,000 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.
The revenue decreases were partially offset by 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
7.5%. Revenues in 1995 were also positively impacted by a temporary interstate
rate increase that was in effect from March 17, 1995 through July 31, 1995 to
recover prior years "exogenous" postemployment benefit costs.
TOLL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Nine Months $ (3,466) (12.6)%
- --------------------------------------------------------------------------------
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 - Delaware, Inc.
The decrease in toll service revenues was caused by a decline in toll
message volumes. Toll message volumes for the nine month period ended September
30, 1995 decreased 1.7% over the comparable period last year. The decrease in
toll messages was primarily due to increased competition for intraLATA toll and
private line services. The reduction in toll service revenues also reflects the
impact of customers switching to lower priced optional calling plans offered by
the Company. 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 $ 1,188 5.1%
- --------------------------------------------------------------------------------
Directory publishing revenues are earned primarily from local advertising
and marketing services provided to businesses in White and Yellow Page
directories. Other directory publishing services include database and foreign
directory marketing.
Growth in directory publishing revenues was primarily due to higher rates
charged for these services. Changes in billing procedures and lower customer
claims and disconnects further boosted directory publishing revenues in 1995.
Volume growth continues to be impacted by competition from other directory
companies, as well as other advertising media.
OTHER ANCILLARY SERVICES REVENUES
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Nine Months $ (621) (15.6)%
- --------------------------------------------------------------------------------
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 decreased principally due to lower pole
attachment rental revenues in 1995. Also contributing to the decrease in other
ancillary services revenues was 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 $ 2,690 12.4%
- --------------------------------------------------------------------------------
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 increased value-added services
revenues in 1995.
8
<PAGE>
Bell Atlantic - Delaware, 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.. $ 43,115 $ 45,756
Depreciation and amortization................. 43,666 39,902
Other operating expenses...................... 60,864 62,735
-------- --------
Total......................................... $147,645 $148,393
======== ========
</TABLE>
EMPLOYEE COSTS
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Nine Months $ (2,641) (5.8)%
- --------------------------------------------------------------------------------
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 $2,277,000 to recognize benefit costs for the separation
of employees who are entitled to benefits under preexisting Bell Atlantic
separation pay plans. Reduced overtime pay and the effect of lower workforce
levels in 1995 also contributed to the decrease in employee costs. These cost
reductions were partially offset by annual salary and wage increases.
The Company's contract with the Communications Workers of America (CWA)
expired on August 5, 1995. As of November 6, 1995, the Company and the CWA have
not reached a settlement on a new contract and the Company continues to make
work available to employees represented by the CWA at the same wages and
benefits as under the expired contract until further notice.
DEPRECIATION AND AMORTIZATION
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Nine Months $ 3,764 9.4%
- --------------------------------------------------------------------------------
Depreciation and amortization increased due to growth in depreciable
telephone plant and higher depreciation rates. The higher depreciation rates
resulted principally from the discontinued application of regulatory accounting
principles, effective August 1, 1994. The composite depreciation rate was 8.5%
for the first nine months of 1995. The Company expects this composite
depreciation rate to remain substantially unchanged for the remainder of 1995.
OTHER OPERATING EXPENSES
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Nine Months $ (1,871) (3.0)%
- --------------------------------------------------------------------------------
Other operating expenses consist primarily of contracted services including
centralized services expenses allocated from NSI, rent, network software costs,
operating taxes other than income, provision for uncollectible accounts
receivable, and other costs.
The decrease in other operating expenses was attributable to a combination
of lower costs for contracted labor and engineering, materials and supplies, and
directory production. A decrease in the provision for uncollectible accounts
receivable and lower network software costs due to the timing of purchases also
contributed to lower other operating expenses in 1995.
9
<PAGE>
Bell Atlantic - Delaware, Inc.
These decreases were partially offset by higher centralized services costs
allocated from NSI, primarily as a result of increased advertising costs, as
well as additional costs incurred in that organization to enhance systems and
consolidate work activities at Bell Atlantic's network services subsidiaries.
OTHER INCOME (EXPENSE), NET
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Nine Months $ (186)
- --------------------------------------------------------------------------------
The change in other income (expense), net, was largely attributable to the
termination of income related to the allowance for funds used during
construction.
Upon the discontinued application of regulatory accounting principles,
effective August 1, 1994, the Company began recognizing capitalized interest
costs as a reduction of interest expense. Previously, the Company recorded an
allowance for funds used during construction as an item of other income.
INTEREST EXPENSE
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Nine Months $ (331) (5.4)%
- --------------------------------------------------------------------------------
Interest expense decreased principally due to the recognition of
capitalized interest costs, subsequent to the discontinued application of
regulatory accounting principles, effective August 1, 1994. Partially offsetting
this decrease was additional expense resulting from higher levels of average
short-term debt and higher interest rates in 1995.
PROVISION FOR INCOME TAXES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Nine Months $ 406 2.4%
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Nine Months Ended September 30
- --------------------------------------------------------------------------------
1995 40.0%
- --------------------------------------------------------------------------------
1994 38.6%
- --------------------------------------------------------------------------------
The Company's effective income tax rate was higher in 1995 principally due
to the reduction in the amortization of investment tax credits and the
elimination of the benefit of the rate differential applied to reversing timing
differences, both as a result of the discontinued application of regulatory
accounting principles in August 1994.
COMPETITIVE AND REGULATORY ENVIRONMENT
- --------------------------------------
The communications industry continues to undergo fundamental changes which
may have a significant impact on future financial performance of
telecommunications companies. These changes are being driven by a number of
factors, including the accelerated pace of technological innovation, the
convergence of the telecommunications, cable television, information services
and entertainment businesses, and a regulatory environment in which traditional
barriers to entry are being lowered or eliminated and competition permitted or
encouraged.
The Company's telecommunications business is subject to competition from
numerous sources. An increasing amount of this competition is from companies
that have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company.
10
<PAGE>
Bell Atlantic - Delaware, Inc.
Well-financed competitors are seeking authority, or are likely soon to seek
authority, to offer competing local exchange services, such as dial tone and
local usage, in some of the most lucrative of the Company's local telephone
service areas. MFS-Intelenet, MCI Metro ATS and Eastern TeleLogic Corporation
have filed applications with the Delaware Public Service Commission (PSC) for
authority to provide local exchange services.
The entry of well-financed competitors has the potential to adversely
affect multiple revenue streams of the Company, including toll, local exchange
and network access services in the markets and geographical areas in which the
competitors operate. The amount of revenue reductions will depend, in part, on
the competitors' success in marketing these services and the conditions
established by regulatory authorities. The potential impact is expected to be
offset, to some extent, by revenues from interconnection charges to be paid to
the Company by these competitors.
The Company continues to respond to competitive challenges by intensely
focusing on meeting customer requirements, by seeking comparable regulatory
treatment 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 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 $8,700,000 on an annual basis. These price
decreases include the scheduled expiration of a temporary rate increase of
approximately $2,800,000 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 $5,900,000 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.
11
<PAGE>
Bell Atlantic - Delaware, Inc.
State Regulation
The communications services of the Company are subject to regulation by the
PSC with respect to intrastate rates and services and other matters.
In March 1994, the Company elected to be regulated by, and is operating
under, the Telecommunications Technology Investment Act (the Act) pursuant to
which the prices of competitive services are not tariffed, price increases for
discretionary services are limited to 15% annually, basic service rate increases
are limited to an inflation index (GDP-PI) minus 3%, and profits are not
regulated.
The PSC has initiated a rulemaking docket to develop regulations for the
implementation of the Act. Public hearings were held in March 1995 and a PSC
decision may occur in the fourth quarter of 1995.
The PSC is currently conducting a proceeding to examine issues regarding
intrastate intraLATA toll competition, including whether to authorize
presubscription and dialing parity ("1+ dialing") for intrastate toll
competitors, and if so, under what terms and conditions. Currently, intraLATA
toll calls are completed by the Company unless the customer dials a five-digit
access code to use an alternate carrier. Presubscription would enable customers
to make intrastate intraLATA toll calls using the carrier of their choice
without having to dial a five-digit access code. The Company's ability to offset
such competition will depend, in part, upon the terms and conditions under which
presubscription for intrastate intraLATA toll services may be authorized. The
Company believes that intrastate presubscription, if implemented without
adequate compensation and regulatory relief, could have a material effect on its
financial condition and results of operations. A decision on this proceeding may
occur by the end of 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 a Superfund site for which the Company has been joined as a third-party
defendant in pending Superfund litigation. Such joinder subjects the Company to
potential liability for costs relating to cleanup of the affected site. 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 $6,400,000 of an unused line of
credit with an affiliate, Bell Atlantic Network Funding Corporation.
The Company's debt ratio was 49.5% at September 30, 1995, compared to 45.6%
at December 31, 1994.
12
<PAGE>
Bell Atlantic - Delaware, 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 - Delaware, 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 - DELAWARE, INC.
Date: November 9, 1995 By /s/ John J. Parker
------------------------------
John J. Parker
Controller and Treasurer
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 6, 1995.
14
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<PAGE>
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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.
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<FISCAL-YEAR-END> DEC-31-1995
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