<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 1-7757
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,
---------------------- --------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $2,819, $3,545,
$5,667 and $7,028 to affiliates)................. $69,705 $66,414 $137,500 $129,284
------- ------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes..... 14,646 14,210 28,798 28,380
Depreciation and amortization.................... 13,992 14,893 27,680 29,544
Other (including $15,479, $13,241, $29,525
and $25,568 to affiliates)..................... 21,874 20,168 45,939 38,495
------- ------- -------- --------
50,512 49,271 102,417 96,419
------- ------- -------- --------
OPERATING INCOME................................... 19,193 17,143 35,083 32,865
OTHER EXPENSE, NET................................. 98 54 268 154
INTEREST EXPENSE (including $411, $423, $795
and $704 to affiliates)........................ 1,935 2,083 3,922 3,878
------- ------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES........... 17,160 15,006 30,893 28,833
PROVISION FOR INCOME TAXES......................... 7,615 5,953 13,095 11,506
------- ------- -------- --------
NET INCOME......................................... $ 9,545 $ 9,053 $ 17,798 $ 17,327
======= ======= ======== ========
REINVESTED EARNINGS
At beginning of period......................... $23,407 $13,738 $ 22,449 $ 16,564
Add: net income............................... 9,545 9,053 17,798 17,327
------- ------- -------- --------
32,952 22,791 40,247 33,891
Deduct: dividend.............................. 9,000 7,000 15,500 18,100
other changes......................... 44 --- 839 ---
------- ------- -------- --------
At end of period............................... $23,908 $15,791 $ 23,908 $ 15,791
======= ======= ======== ========
</TABLE>
See Notes to Financial Statements.
1
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Bell Atlantic - Delaware, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments............................. $ 1,451 $ ---
Accounts receivable:
Trade and other, net of allowances for
uncollectibles of $3,866 and $3,260...... 45,024 43,263
Affiliates.................................... 4,702 4,158
Material and supplies.............................. 2,331 1,738
Prepaid expenses................................... 11,376 17,651
Deferred income taxes.............................. --- 316
Other.............................................. 259 75
-------- --------
65,143 67,201
-------- --------
PLANT, PROPERTY AND EQUIPMENT...................... 730,106 710,216
Less accumulated depreciation...................... 364,629 349,239
-------- --------
365,477 360,977
-------- --------
OTHER ASSETS....................................... 2,829 10,020
-------- --------
TOTAL ASSETS....................................... $433,449 $438,198
======== ========
</TABLE>
See Notes to Financial Statements.
2
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Bell Atlantic - Delaware, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands, Except Per Share Amount)
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..................... $ 12,783 $ 8,720
Accounts payable and accrued liabilities:
Affiliates.................................... 24,474 25,961
Other......................................... 31,352 41,426
Advance billings and customer deposits............. 12,719 8,702
-------- --------
81,328 84,809
-------- --------
LONG-TERM DEBT
Note payable to affiliate.......................... 20,000 20,000
Other.............................................. 101,159 101,147
-------- --------
121,159 121,147
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS....................... 50,397 50,386
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes.............................. 14,545 15,657
Unamortized investment tax credits................. 3,135 3,421
Other.............................................. 20,535 21,887
-------- --------
38,215 40,965
-------- --------
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................................ 23,908 22,449
-------- --------
142,350 140,891
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT...... $433,449 $438,198
======== ========
</TABLE>
See Notes to Financial Statements.
3
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Bell Atlantic - Delaware, 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........ $ 44,988 $ 50,595
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............. (1,451) (1,648)
Additions to plant, property and equipment....... (32,717) (47,478)
Other, net....................................... 536 422
------------ -----------
Net cash used in investing activities............ (33,632) (48,704)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in note payable to affiliate.......... 4,063 20,888
Dividends paid................................... (15,500) (18,100)
Net change in outstanding checks drawn
on controlled disbursement accounts......... 81 (4,679)
------------ -----------
Net cash used in financing activities............ (11,356) (1,891)
------------ -----------
NET CHANGE IN CASH............................... --- ---
CASH, BEGINNING OF PERIOD........................ --- ---
------------- -----------
CASH, END OF PERIOD.............................. $ --- $ ---
============= ===========
</TABLE>
See Notes to Financial Statements.
4
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Bell Atlantic - Delaware, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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,
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 $9,300,000 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
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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 1996 of
$17,798,000, compared to net income of $17,327,000 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.................................................. $ 51,204 $ 48,224
Network access................................................. 32,283 30,376
Toll service................................................... 15,815 16,240
Ancillary Services
Directory publishing........................................... 17,138 16,210
Other.......................................................... 3,330 2,321
Value-added Services............................................... 17,730 15,913
-------- --------
Total.............................................................. $137,500 $129,284
======== ========
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
1996 1995 Increase
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At June 30
- ----------
Access Lines in Service (In thousands)
Residence...................................... 321 311 3.2%
Business....................................... 179 168 6.5
Public......................................... 6 6 ---
------ ------
506 485 4.3
====== ======
<CAPTION>
For the Six Month Period Ended June 30
- --------------------------------------
<S> <C> <C> <C>
Access Minutes of Use (In millions)
Interstate..................................... 918 795 15.5
Intrastate..................................... 36 29 24.1
------ ------
954 824 15.8
====== ======
Toll Messages (In thousands)
Intrastate..................................... 18,045 16,240 11.1
Interstate..................................... 13,445 12,490 7.6
------ ------
31,490 28,730 9.6
====== ======
</TABLE>
6
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Bell Atlantic - Delaware, Inc.
LOCAL SERVICE REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $2,980 6.2%
- --------------------------------------------------------------------------------
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 4.3% from June
30, 1995, primarily reflecting higher demand in the business market.
NETWORK ACCESS REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $1,907 6.3%
- --------------------------------------------------------------------------------
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 principally due to higher customer demand
for access services, as reflected by growth in access minutes of use of 15.8%
over the same period in 1995. Revenues were further increased by lower
obligations to affiliated companies pursuant to an interstate revenue sharing
agreement. Revenue growth 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.
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 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 $(425) (2.6)%
- --------------------------------------------------------------------------------
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).
Company-initiated price reductions on certain toll services and increased
competition for intraLATA toll services were the primary reasons for the decline
in toll service revenues. These decreases were partially offset by revenue
growth as reflected by a 9.6% increase in toll message volumes, attributable, in
part, to severe winter storms in early 1996.
The Company expects competition for toll services to continue. See "Factors
That May Impact Future Results" below for a further discussion of toll service
revenue issues.
7
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Bell Atlantic - Delaware, Inc.
DIRECTORY PUBLISHING REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $928 5.7%
- --------------------------------------------------------------------------------
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. Volume growth continues to be negatively impacted
by competition from other directory companies as well as other advertising
media.
OTHER ANCILLARY SERVICES REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $1,009 43.5%
- --------------------------------------------------------------------------------
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 principally due to higher
facilities rental revenues from affiliates and non-affiliates in the first six
months of 1996. These increases were offset, in part, 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 $1,817 11.4%
- --------------------------------------------------------------------------------
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, Touch-Tone, and other customer premises wiring and
maintenance services.
The increase in value-added services revenues during the first six months
of 1996 was primarily attributable to continued growth in the network customer
base and higher demand for certain central office and voice messaging services.
8
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Bell Atlantic - Delaware, 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............ $ 28,798 $28,380
Depreciation and amortization........................... 27,680 29,544
Other operating expenses................................ 45,939 38,495
-------- -------
Total................................................... $102,417 $96,419
======== =======
</TABLE>
EMPLOYEE COSTS
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $418 1.5%
- --------------------------------------------------------------------------------
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 increase in employee costs was primarily due to annual salary and wage
increases and an increase in repair and maintenance activity principally due to
higher business volumes. These increases were substantially offset by savings
associated with lower work force levels in 1996.
DEPRECIATION AND AMORTIZATION
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(1,864) (6.3)%
- --------------------------------------------------------------------------------
Depreciation and amortization decreased principally due to lower
depreciation rates. This decrease was partially offset by growth in depreciable
telephone plant. The composite depreciation rate was 7.9% for the first six
months of 1996, compared to 8.6% for the six month period ended June 30, 1995.
OTHER OPERATING EXPENSES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $7,444 19.3%
- --------------------------------------------------------------------------------
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
additional costs to upgrade network software and higher costs for contract labor
and engineering.
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Bell Atlantic - Delaware, Inc.
OTHER EXPENSE, NET
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $114
- --------------------------------------------------------------------------------
The change in other expense, net was attributable to higher nonoperating
costs incurred in the first six months of 1996 and lower interest income related
to short-term investments.
INTEREST EXPENSE
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $44 1.1%
- --------------------------------------------------------------------------------
Interest expense increased principally due to the recognition of additional
expense related to a long-term note payable with an affiliate. Substantially
offsetting this increase was a reduction in interest expense resulting from
lower levels of average short-term debt in the first six months of 1996.
PROVISION FOR INCOME TAXES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $1,589 13.8%
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Six Months Ended June 30
- --------------------------------------------------------------------------------
1996 42.4%
- --------------------------------------------------------------------------------
1995 39.9%
- --------------------------------------------------------------------------------
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. Among the requirements with which the Company must comply is
a 14-point "competitive checklist" which is aimed at ensuring that
10
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Bell Atlantic - Delaware, Inc.
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.
During 1995, the Delaware Public Service Commission (PSC) continued
proceedings to determine whether, and under what conditions, to authorize
presubscription. Proceedings were suspended pending the outcome of the federal
legislative process, which concluded with the passage of the Act.
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 interLATA long distance services
or until February 8, 1999. This prohibition does not apply to those states
considered to be single-LATA states under the Act. However, the Company does not
believe that Delaware is a single-LATA state under the Act.
On March 26, 1996, the PSC considered the issue of implementation of
presubscription in Delaware and deferred any decision for six months. In the
interim, an additional phase of this docket was initiated to consider various
unresolved implementation issues such as customer notification and
implementation cost recovery. A final decision is expected in the fourth quarter
of 1996.
Implementation of presubscription for intraLATA toll services could have a
material negative impact on toll service revenues, especially if the Company is
not permitted contemporaneously to offer interLATA services. The ability to
offset the impact of presubscription will depend, in part, upon how quickly the
Company meets the requirements of the "competitive checklist."
Local Exchange Services
The ability to offer local exchange services has historically been subject
to regulation by the PSC. In June and July 1996, applications from four
competitors to provide local exchange services were conditionally approved by
the PSC, subject to the outcome of a proceeding to consider interim rules for
local exchange competition or approval of an interconnection agreement. PSC
interim rules are anticipated to be approved in the fourth quarter of 1996. The
Act is expected to significantly increase the
11
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Bell Atlantic - Delaware, Inc.
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 $1,000,000 on an annual basis, which became effective on July 20,
1996.
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 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 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.
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.
12
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Bell Atlantic - Delaware, Inc.
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 $27,217,000 of an unused line of
credit with an affiliate, Bell Atlantic Network Funding Corporation.
The Company's debt ratio was 48.5% at June 30, 1996, compared to 48.0% at
December 31, 1995.
On August 1, 1996, the Company declared and paid a dividend in the amount
of $9,300,000 to Bell Atlantic Corporation.
13
<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, 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 - 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 8, 1996 By /s/ John J. Parker
-------------------------
John J. Parker
Controller and Treasurer
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 5, 1996.
15
<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, 1996 AND THE BALANCE
SHEET AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 1,451
<RECEIVABLES> 48,890
<ALLOWANCES> 3,866
<INVENTORY> 2,331
<CURRENT-ASSETS> 65,143
<PP&E> 730,106
<DEPRECIATION> 364,629
<TOTAL-ASSETS> 433,449
<CURRENT-LIABILITIES> 81,328
<BONDS> 101,159
0
0
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<OTHER-SE> 23,908
<TOTAL-LIABILITY-AND-EQUITY> 433,449
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<TOTAL-REVENUES> 137,500
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<INTEREST-EXPENSE> 3,922
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<INCOME-TAX> 13,095
<INCOME-CONTINUING> 17,798
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