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 1-7368
BELL ATLANTIC - WASHINGTON, D.C., INC.
A New York Corporation I.R.S. Employer Identification No. 53-0046277
1710 H Street, N.W., Washington, D.C. 20006
Telephone Number (202) 392-9900
------------------------------
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
----- -----
Bell Atlantic - Washington D.C., Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
(Dollars in Thousands)
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
OPERATING REVENUES (including $ 14,997, $12,428,
$27,529 and $23,372 from affiliates)................ $143,381 $136,752 $280,180 $270,884
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes........ 36,572 38,475 75,579 77,212
Depreciation and amortization....................... 28,043 26,115 55,102 52,088
Other (including $30,937, $28,965, $62,798
and $58,786 to affiliates)......................... 51,744 51,160 113,723 102,455
-------- -------- -------- --------
116,359 115,750 244,404 231,755
-------- -------- -------- --------
OPERATING INCOME..................................... 27,022 21,002 35,776 39,129
OTHER INCOME (EXPENSE), NET
Allowance for funds used during construction........ --- 131 --- 241
Other, net.......................................... (1,353) (114) (1,669) (316)
-------- -------- -------- --------
(1,353) 17 (1,669) (75)
INTEREST EXPENSE (including $531, $5, $1,022
and $73 to affiliate)............................... 5,023 4,657 9,334 9,350
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES............. 20,646 16,362 24,773 29,704
PROVISION FOR INCOME TAXES........................... 8,061 5,938 9,651 10,620
-------- -------- -------- --------
NET INCOME........................................... $ 12,585 $ 10,424 $ 15,122 $ 19,084
======== ======== ======== ========
REINVESTED EARNINGS (ACCUMULATED DEFICIT)
At beginning of period.............................. $(24,793) $ 34,657 $(27,330) $ 33,739
Add: net income.................................... 12,585 10,424 15,122 19,084
-------- -------- -------- --------
(12,208) 45,081 (12,208) 52,823
Deduct: dividends.................................. --- 8,477 --- 16,149
other changes.............................. --- 30 --- 100
-------- -------- -------- --------
At end of period.................................... $(12,208) $ 36,574 $(12,208) $ 36,574
======== ======== ======== ========
See Notes to Financial Statements.
1
Bell Atlantic - Washington D.C., Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
June 30, December 31,
1995 1994
---------- ------------
CURRENT ASSETS
Short-term investments......................... $ 4,373 $ ---
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $5,983 and $6,475......... 122,840 113,812
Affiliates.................................... 17,347 20,268
Other......................................... 29,883 32,411
Material and supplies.......................... 1,340 2,418
Prepaid expenses............................... 13,107 23,464
Deferred income taxes.......................... 4,528 3,668
Other.......................................... 621 682
---------- ----------
194,039 196,723
---------- ----------
PLANT, PROPERTY AND EQUIPMENT................... 1,410,653 1,354,514
Less accumulated depreciation.................. 725,302 695,888
---------- ----------
685,351 658,626
---------- ----------
OTHER ASSETS.................................... 18,029 31,693
---------- ----------
TOTAL ASSETS.................................... $ 897,419 $ 887,042
========== ==========
See Notes to Financial Statements.
2
Bell Atlantic - Washington D.C., Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
June 30, December 31,
1995 1994
---------- ------------
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate................... $ 41,983 $ 7,462
Other....................................... 1,285 1,162
Accounts payable:
Affiliates.................................. 93,001 99,007
Other....................................... 37,724 63,827
Accrued expenses:
Taxes....................................... 12,598 3,985
Other....................................... 26,006 27,527
Advance billings and customer deposits....... 11,882 9,856
-------- --------
224,479 212,826
-------- --------
LONG-TERM DEBT................................. 248,442 248,947
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS................... 154,360 152,019
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes........................ 17,879 19,977
Unamortized investment tax credits........... 5,401 5,785
Other........................................ 36,316 37,079
-------- --------
59,596 62,841
-------- --------
SHAREOWNER'S INVESTMENT
Common stock - one share, owned by
parent, at stated value..................... 191,968 191,968
Capital surplus.............................. 30,782 45,771
Accumulated deficit.......................... (12,208) (27,330)
-------- --------
210,542 210,409
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.. $897,419 $887,042
======== ========
See Notes to Financial Statements.
3
Bell Atlantic - Washington D.C., Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Six months ended
June 30,
------------------
1995 1994
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. $ 83,097 $ 56,169
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments................. (4,373) ---
Additions to plant, property and equipment........... (89,531) (36,964)
Net change in note receivable from affiliate......... --- (4,400)
Other plant-related changes.......................... 3,848 1,869
-------- --------
Net cash used in investing activities.................. (90,056) (39,495)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of borrowings and capital
lease obligations................................... (549) (561)
Net change in note payable to affiliate.............. 34,521 ---
Dividends paid....................................... --- (16,149)
Capital surplus distribution......................... (14,989) ---
Net change in outstanding checks drawn
on controlled disbursement accounts................. (12,024) ---
-------- --------
Net cash provided by/(used in) financing activities.... 6,959 (16,710)
-------- --------
NET CHANGE IN CASH..................................... --- (36)
CASH, BEGINNING OF PERIOD.............................. --- 36
-------- --------
CASH, END OF PERIOD.................................... $ --- $ ---
======== ========
See Notes to Financial Statements.
4
Bell Atlantic - Washington D.C., Inc.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by Bell Atlantic - Washington, D.C., 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. Shareowner's Investment
Common Capital Accumulated
(Dollars in Thousands) Stock Surplus Deficit
---------------------------- -------- ------- ---------
Balance at December 31, 1994............ $191,968 $ 45,771 $ (27,330)
Net income.............................. 15,122
Distribution of capital surplus
to Bell Atlantic Corporation........... (14,989)
-------- -------- ---------
Balance at June 30, 1995................ $191,968 $ 30,782 $ (12,208)
======== ======== =========
On August 1, 1995, the Company declared and paid a capital surplus
distribution in the amount of $2,233,000 to Bell Atlantic Corporation.
3. Reclassifications
Certain reclassifications of prior year's data have been made to conform to
1995 classifications.
5
Bell Atlantic - Washington D.C., 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
$15,122,000, compared to net income of $19,084,000 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
- ------------------
For the Six Months Ended June 30 1995 1994
- -------------------------------------------------------------------------
(Dollars in Thousands)
Transport Services
Local service........................... $122,430 $121,549
Network access.......................... 61,743 56,832
Toll service............................ 2,299 2,281
Ancillary Services
Directory advertising................... 16,490 15,089
Other................................... 32,674 31,529
Value-added Services....................... 44,544 43,604
-------- --------
Total...................................... $280,180 $270,884
======== ========
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
1995 1994 Increase
- ------------------------------------------------------------------------
At June 30
- ----------
Access Lines in Service (In thousands)
Residence.............................. 286 280 2.1%
Business............................... 576 562 2.5
Public................................. 10 10 -
--- ---
872 852 2.3
=== ===
For the Six Month Period Ended June 30
- --------------------------------------
Access Minutes of Use (In millions)
Interstate............................. 1,371 1,359 .9
===== =====
Toll Messages (In thousands)
Interstate............................. 2,167 2,059 5.2
===== =====
6
Bell Atlantic - Washington D.C., Inc.
LOCAL SERVICE REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 881 .7%
- --------------------------------------------------------------------------------
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 2.3% growth in the
number of access lines in service and increased usage and data transport by
business customers. This growth was substantially offset by the effect of a
reduction in the Subscriber Plant Factor Surcharge, effective May 1994.
NETWORK ACCESS REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 4,911 8.6%
- --------------------------------------------------------------------------------
Network access revenues are received from interexchange carriers (IXCs) for
their use of the Company's local exchange facilities in providing long-distance
services to IXCs' customers and from end-user subscribers. Switched access
service revenues are derived from usage-based charges paid by IXCs for access to
the Company's network. Special access revenues arise from access charges paid
by IXCs and end-users who have private networks, and end-user access revenues
are earned from local exchange carrier customers who pay for access to the
network.
Network access revenues increased principally due to higher customer demand
for digital data transport services and higher revenues recognized through an
interstate revenue sharing agreement with affiliated companies. Increased
demand for access services as reflected by growth in revenues from end-user
charges attributable to increasing access lines in service, as well as .9%
growth in access minutes of use, also contributed to growth in access revenues.
Revenues in the first half of 1995 were also positively impacted by a temporary
rate increase that was in effect from March 17, 1995 through July 31, 1995 to
recover prior years "exogenous" postemployment benefit costs.
Revenue growth was partially offset by price reductions in effect from July
1, 1994 to July 31, 1995. Further, reported growth in access minutes of use and
revenues in the first half of 1995 was negatively impacted by higher storm-
related calling volumes experienced in the first quarter of 1994.
Effective August 1, 1995, the Company implemented price decreases of
approximately $14,600,000 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 $4,700,000 on an annualized basis
that was in effect from March 17, 1995 through July 31, 1995 to recover prior
years "exogenous" postemployment benefit costs. Approximately 80% of the
remaining $9,900,000 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.
7
Bell Atlantic - Washington D.C., Inc.
TOLL SERVICE REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 18 .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."
Toll service revenues remained substantially unchanged in the first six
months of 1995, as compared to the first six months of 1994.
DIRECTORY ADVERTISING REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 1,401 9.3%
- --------------------------------------------------------------------------------
Directory advertising revenues are earned primarily from local advertising
and marketing services provided to businesses in White and Yellow Pages
directories. Other directory advertising services include database and foreign
directory marketing.
Growth in directory advertising revenues was due primarily to higher rates
charged for these services. Changes in billing procedures and lower customer
claims and disconnects further boosted directory services revenues in the first
half of 1995. Volume growth continues to be impacted by competition from other
directory companies, as well as other advertising media.
OTHER ANCILLARY SERVICES REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 1,145 3.6%
- --------------------------------------------------------------------------------
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 increased due to higher facilities rental
revenues. The increase was offset, in part, by a reduction in billing and
collection revenues as a result of a revised contract with an IXC, which no
longer includes certain billing and collection services.
VALUE-ADDED SERVICES REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 940 2.2%
- --------------------------------------------------------------------------------
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. These increases were partially offset by
lower customer premises services revenues, primarily due to a reduction in
government contract billing for inside wire installations.
8
Bell Atlantic - Washington D.C., Inc.
OPERATING EXPENSES
- ------------------
For the Six Months Ended June 30 1995 1994
- -------------------------------------------------------------------------------
(Dollars in Thousands)
Employee costs, including benefits and taxes...... $ 75,579 $ 77,212
Depreciation and amortization..................... 55,102 52,088
Other operating expenses.......................... 113,723 102,455
-------- --------
Total............................................. $244,404 $231,755
======== ========
EMPLOYEE COSTS
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $(1,633) (2.1)%
- --------------------------------------------------------------------------------
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 lower
workforce levels and reduced overtime pay which was higher in the first quarter
of 1994 as a result of unusually severe weather conditions. These decreases
were partially offset by annual salary and wage increases for management and
associate employees, effective April 1995 and August 1994, respectively.
The contract with the Company's union, the Communications Workers of
America (CWA), expired on August 5, 1995. As of August 7, 1995, the CWA has not
called a strike and the Company continues to make work available to associate
employees represented by the CWA at the same wages and benefits as under the
expired contract until further notice.
DEPRECIATION AND AMORTIZATION
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 3,014 5.8%
- --------------------------------------------------------------------------------
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 8.4%
for the first half of 1995. The Company expects this composite depreciation rate
to remain substantially unchanged for the remainder of 1995.
OTHER OPERATING EXPENSES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $11,268 11.0%
- --------------------------------------------------------------------------------
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 increase in other operating expenses was attributable to higher costs
for contracted services and higher assessments for Public Service Commission
fees. Also contributing to the increase was 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
Bell Atlantic - Washington D.C., Inc.
OTHER INCOME (EXPENSE), NET
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $(1,594)
- --------------------------------------------------------------------------------
The change in other income (expense), net, was attributable to a reduction
in income related to the allowance for funds used during construction and a loss
related to the disposition of certain property.
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 $ (16) (.2)%
- --------------------------------------------------------------------------------
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. This decrease was
offset by additional interest expense resulting from higher levels of average
short-term debt and higher interest rates in the first half of 1995.
PROVISION FOR INCOME TAXES
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $ (969) (9.1)%
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Six Months Ended June 30
- --------------------------------------------------------------------------------
1995 39.0%
- --------------------------------------------------------------------------------
1994 35.8%
- --------------------------------------------------------------------------------
The Company's effective income tax rate was higher for the first half of
1995 due principally to the reduction in the amortization of investment tax
credits and the elimination of the benefit of the rate differential applied to
reversing timing differences, both as a result of the discontinued application
of regulatory accounting principles in August 1994.
COMPETITIVE AND REGULATORY ENVIRONMENT
- --------------------------------------
The communications industry continues to undergo fundamental changes which
may have a significant impact on future financial performance of
telecommunications companies. These changes are being driven by a number of
factors, including the accelerated pace of technological innovation, the
convergence of the telecommunications, cable television, information services
and entertainment businesses and a regulatory environment in which traditional
barriers are being lowered or eliminated and competition permitted or
encouraged.
The Company's telecommunications business is subject to competition from
numerous sources. An increasing amount of this competition is from companies
that have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company.
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 of Washington, D.C., a subsidiary of MFS
Communications Company, Inc., has filed an application with the District of
Columbia Public Service Commission (PSC) for authority to provide local exchange
services.
10
Bell Atlantic - Washington D.C., Inc.
The entry of well-financed competitors has the potential to adversely
affect multiple revenue streams of the Company, including 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 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 $14,600,000 on an annual basis. These price
decreases include the scheduled expiration of a temporary rate increase of
approximately $4,700,000 on an annualized basis that was in effect from March
17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment
benefit costs. Approximately 80% of the remaining $9,900,000 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
Bell Atlantic - Washington D.C., 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 January 1993, the PSC adopted a regulatory reform plan (D.C. Reform
Plan) for a three year trial period, effective April 1, 1993. In December 1993,
the PSC approved a $15,800,000 rate increase, effective January 1, 1994.
The second monitoring period for the Company's regulatory reform plan ended
on March 31, 1995. The Company filed its report to the PSC on June 30, 1995. In
accordance with the regulatory plan, the PSC will review the Company's current
earnings and determine whether or not a refund is appropriate. The Company's
return on equity for the second monitoring period was 11.93% (52 basis points
below the sharing range).
In January 1995, the Company filed a petition with the PSC seeking approval
of a proposed price cap plan to become effective upon the expiration of the D.C.
Reform Plan in January 1996. The price cap plan would: (i) divide services into
three categories: basic, discretionary and competitive; (ii) allow basic prices
to be increased annually at one half the rate of inflation (GDP - PI) except for
basic residential rates which would be capped through January 1, 2000; (iii)
permit annual increases of up to 25% for discretionary services; (iv) eliminate
price regulation for all competitive services; and (v) classify services among
the three categories and establish a process for moving services between
categories going forward. Hearings on the proposed price cap plan are scheduled
for October 1995.
In March 1995, the PSC issued an order requiring the Company to refund
approximately $1,000,000 for the overcollection of the Subscriber Plant Factor
(SPF) Surcharge Revenues for the period January 1, 1994 through May 12, 1994.
The disbursement of the refund is to be determined and implemented in the
Company's Price Cap Plan case. Hearings on this filing are scheduled to begin in
October 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. 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, payment of dividends, and distributions of capital
surplus. 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 $83,000,000 of an unused line of
credit with an affiliate, Bell Atlantic Network Funding Corporation. In
addition, the Company had $60,000,000 remaining under a shelf registration
statement filed with the Securities and Exchange Commission.
The Company's debt ratio was 58.1% at June 30, 1995, compared to 55.0% at
December 31, 1994.
12
Bell Atlantic - Washington D.C., 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.
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Bell Atlantic - Washington D.C., 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 - WASHINGTON, D.C., INC.
Date: August 10, 1995 By /s/ Sheila D. Shears
--------------------------------------
Sheila D. Shears
Controller
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 7, 1995.
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