<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 1-7757
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 Six months ended
June 30, June 30,
------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $3,545, $1,237,
$7,028 and $2,512 to affiliates)..................... $ 66,414 $ 65,534 $129,284 $130,486
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes......... 14,210 14,079 28,380 28,290
Depreciation and amortization........................ 14,893 10,774 29,544 21,330
Other (including $13,241, $12,125, $25,568
and $24,005 to affiliates)......................... 20,168 21,566 38,495 41,206
-------- -------- -------- --------
49,271 46,419 96,419 90,826
-------- -------- -------- --------
OPERATING INCOME....................................... 17,143 19,115 32,865 39,660
OTHER INCOME (EXPENSE), NET
Allowance for funds used during construction......... --- 99 --- 180
Other, net........................................... (54) (81) (154) (163)
-------- -------- -------- --------
(54) 18 (154) 17
INTEREST EXPENSE (including $423, $164, $704
and $211 to affiliate)............................... 2,083 2,160 3,878 4,064
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES............... 15,006 16,973 28,833 35,613
PROVISION FOR INCOME TAXES............................. 5,953 6,693 11,506 14,159
-------- -------- -------- --------
NET INCOME............................................. $ 9,053 $ 10,280 $ 17,327 $ 21,454
======== ======== ======== ========
REINVESTED EARNINGS
At beginning of period............................... $ 13,738 $ 55,349 $ 16,564 $ 54,235
Add: net income..................................... 9,053 10,280 17,327 21,454
-------- -------- -------- --------
22,791 65,629 33,891 75,689
Deduct: dividends................................... 7,000 10,700 18,100 20,760
-------- -------- -------- --------
At end of period..................................... $ 15,791 $ 54,929 $ 15,791 $ 54,929
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Bell Atlantic - Delaware, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................ $ 1,648 $ ---
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $3,035 and $2,768........ 33,655 32,925
Affiliates................................... 1,549 4,403
Other........................................ 1,741 974
Material and supplies......................... 2,703 1,581
Prepaid expenses.............................. 8,815 11,513
Deferred income taxes......................... 2,025 1,802
Other......................................... 362 611
-------- --------
52,498 53,809
-------- --------
PLANT, PROPERTY AND EQUIPMENT................... 725,622 688,509
Less accumulated depreciation................. 359,311 339,173
-------- --------
366,311 349,336
-------- --------
OTHER ASSETS.................................... 4,810 12,532
-------- --------
TOTAL ASSETS.................................... $423,619 $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>
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate................... $ 32,926 $ 12,038
Accounts payable:
Affiliates.................................. 22,871 24,150
Other....................................... 19,804 34,116
Accrued expenses:
Taxes....................................... 3,571 1,648
Other....................................... 11,748 10,985
Advance billings and customer deposits....... 10,081 11,976
-------- --------
101,001 94,913
-------- --------
LONG-TERM DEBT................................. 101,135 101,123
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS................... 51,186 49,632
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes........................ 13,279 15,256
Unamortized investment tax credits........... 3,853 4,193
Other........................................ 18,932 15,554
-------- --------
36,064 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.......................... 15,791 16,564
-------- --------
134,233 135,006
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.. $423,619 $415,677
======== ========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Bell Atlantic - Delaware, 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..... $ 50,595 $ 23,311
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments........ (1,648) ---
Additions to plant, property and equipment.. (47,478) (23,834)
Other, net.................................. 422 338
-------- --------
Net cash used in investing activities......... (48,704) (23,496)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in note payable to affiliate..... 20,888 19,195
Dividends paid.............................. (18,100) (20,760)
Net change in outstanding checks drawn
on controlled disbursement accounts........ (4,679) 1,437
-------- --------
Net cash used in financing activities......... (1,891) (128)
-------- --------
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 August 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 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 six months of 1995 of
$17,327,000, compared to net income of $21,454,000 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............................... $ 48,224 $ 47,210
Network access.............................. 30,376 31,707
Toll service................................ 16,240 19,287
Ancillary Services
Directory advertising....................... 16,210 15,340
Other....................................... 2,321 2,491
Value-added Services........................... 15,913 14,451
-------- --------
Total.......................................... $129,284 $130,486
======== ========
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
Increase
1995 1994 (Decrease)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At June 30
- ----------
Access Lines in Service (In thousands)
Residence.................................. 311 302 3.0%
Business................................... 168 158 6.3
Public..................................... 6 6 -
--- ---
485 466 4.1
=== ===
For the Six Month Period Ended June 30
- --------------------------------------
Access Minutes of Use (In millions)
Interstate................................. 795 739 7.6
Intrastate................................. 29 19 52.6
--- ---
824 758 8.7
=== ===
Toll Messages (In thousands)
Intrastate................................. 16,240 16,711 (2.8)
Interstate................................. 12,490 12,690 (1.6)
------ --------
28,730 29,401 (2.3)
====== ========
</TABLE>
6
<PAGE>
Bell Atlantic - Delaware, Inc.
LOCAL SERVICE REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 1,014 2.1%
- --------------------------------------------------------------------------------
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 4.1% growth in the
number of access lines in service.
NETWORK ACCESS REVENUES
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $ (1,331) (4.2)%
- --------------------------------------------------------------------------------
Network access revenues are received from interexchange carriers (IXCs) for
their use of the Company's local exchange facilities in providing long-distance
services to IXCs' customers and from end-user subscribers. Switched access
service revenues are derived from usage-based charges paid by IXCs for access to
the Company's network. Special access revenues arise from access charges paid
by IXCs and end-users who have private networks, and end-user access revenues
are earned from local exchange carrier customers who pay for access to the
network.
Network access revenues decreased principally due to lower revenues
recognized through an interstate revenue sharing agreement with affiliated
companies and price reductions in effect from July 1, 1994 to July 31, 1995.
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.
The decrease in revenues was partially offset by higher customer demand for
access services as reflected by a 8.7% 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 interstate rate increase that was
in effect from March 17, 1995 through July 31, 1995 to recover prior years
"exogenous" postemployment benefit costs.
Effective August 1, 1995, the Company implemented price decreases of
approximately $8,700,000 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 $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. 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 $ (3,047) (15.8)%
- --------------------------------------------------------------------------------
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area boundaries of the Company,
commonly referred to as "LATAs." Other toll services include 800 services and
Wide Area Telephone Service (WATS).
The decrease in toll service revenues was caused by a decline in toll
message volumes and price reductions on certain toll services. Toll message
volumes for the six month period ended June 30, 1995 decreased 2.3% over the
comparable period last year. The decrease in toll messages was due primarily to
increased competition for intraLATA toll services. The effect of
7
<PAGE>
Bell Atlantic - Delaware, Inc.
storm-related usage experienced in the first quarter of 1994 further impacted
volume growth. The Company expects the effect of competition will have less of a
negative impact on toll service revenues for the remainder of 1995, relative to
1994 levels.
DIRECTORY ADVERTISING REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 870 5.7%
- --------------------------------------------------------------------------------
Directory advertising revenues are earned primarily from local advertising
and marketing services provided to businesses in White and Yellow Page
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) (Decrease)
- --------------------------------------------------------------------------------
Six Months $ (170) (6.8)%
- --------------------------------------------------------------------------------
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 a decline in
pole attachment rental revenues.
VALUE-ADDED SERVICES REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 1,462 10.1%
- --------------------------------------------------------------------------------
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 the first half of 1995. Increased demand and higher rates for
optional wire maintenance plans also contributed to the revenue growth in the
first half of 1995.
8
<PAGE>
Bell Atlantic - Delaware, Inc.
OPERATING EXPENSES
- ------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30 1995 1994
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Employee costs, including benefits and taxes.. $28,380 $28,290
Depreciation and amortization................. 29,544 21,330
Other operating expenses...................... 38,495 41,206
------- -------
Total......................................... $96,419 $90,826
======= =======
</TABLE>
EMPLOYEE COSTS
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 90 .3%
- --------------------------------------------------------------------------------
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.
Employee costs increased slightly during the first half of 1995 due
principally to higher benefit costs for active and retired employees. This
increase was offset, in part, by lower salary and wage costs. Salary and wage
costs decreased in the first half of 1995 due to reduced overtime pay and
repair and maintenance activity, both of which were higher in the first
quarter of 1994 due to unusually severe weather conditions.
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 $ 8,214 38.5%
- --------------------------------------------------------------------------------
Depreciation and amortization increased due to the effects of higher rates
of depreciation and growth in depreciable telephone plant. The higher
depreciation rates resulted principally from the discontinued application of
regulatory accounting principles, effective August 1, 1994. The composite
depreciation rate was 8.6% 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) (Decrease)
- --------------------------------------------------------------------------------
Six Months $ (2,711) (6.6)%
- --------------------------------------------------------------------------------
Other operating expenses consist primarily of contracted services including
centralized service 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,
rent, and directory production. A decrease in the provision for uncollectible
accounts receivable also contributed to lower other operating expenses in the
first half of 1995.
These decreases were partially offset by 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.
9
<PAGE>
Bell Atlantic - Delaware, Inc.
OTHER INCOME (EXPENSE), NET
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $ (171)
- --------------------------------------------------------------------------------
The change in other income (expense), net, was largely attributable to a
reduction in 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)
- --------------------------------------------------------------------------------
Six Months $ (186) (4.6)%
- --------------------------------------------------------------------------------
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 the first six months of 1995.
PROVISION FOR INCOME TAXES
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $ (2,653) (18.7)%
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Six Months Ended June 30
- --------------------------------------------------------------------------------
1995 39.9%
- --------------------------------------------------------------------------------
1994 39.8%
- --------------------------------------------------------------------------------
The Company's effective income tax rate was slightly higher in the first
half of 1995 principally due to the reduction in the amortization of investment
tax credits 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 - Delaware, Inc.
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 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 $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 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 - Delaware, Inc.
State Regulation
The communications services of the Company are subject to regulation by the
Delaware Public Service Commission (the PSC) with respect to intrastate rates
and services and other matters.
In March 1994, the Company elected to be regulated under the
Telecommunications Technology Investment Act (the Act) pursuant to which the
prices of competitive services will not be tariffed, price increases for
discretionary services will be limited to 15% annually, basic service rate
increases will be limited to inflation minus 3%, and profits will not be
regulated.
The PSC has initiated a rulemaking docket to develop regulations for the
implementation of the Act. Public hearings were held in March 1995, with a PSC
decision expected during the third 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 default to 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.
Management believes that intrastate presubscription, if implemented without
adequate compensation and regulatory relief, could have a material effect on the
Company's financial condition and results of operations. A decision on this
proceeding is expected in the third quarter of 1995.
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 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 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 $7,100,000 of an unused line of credit
with an affiliate, Bell Atlantic Network Funding Corporation.
The Company's debt ratio was 50.0% at June 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 June 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: August 10, 1995 By /s/ John J. Parker
----------------------------
John J. Parker
Controller and Treasurer
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> 1,648
<RECEIVABLES> 36,690
<ALLOWANCES> 3,035
<INVENTORY> 2,703
<CURRENT-ASSETS> 52,498
<PP&E> 725,622
<DEPRECIATION> 359,311
<TOTAL-ASSETS> 423,619
<CURRENT-LIABILITIES> 101,001
<BONDS> 101,135
<COMMON> 118,442
0
0
<OTHER-SE> 15,791
<TOTAL-LIABILITY-AND-EQUITY> 423,619
<SALES> 0
<TOTAL-REVENUES> 129,284
<CGS> 0
<TOTAL-COSTS> 96,419
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,878
<INCOME-PRETAX> 28,833
<INCOME-TAX> 11,506
<INCOME-CONTINUING> 17,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,327
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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