UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
-----------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7368
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 Nine months ended
September 30, September 30,
--------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
OPERATING REVENUES (including $15,582, $11,344,
$43,111 and $34,716 from affiliates) ................. $141,013 $141,129 $421,193 $412,013
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes ......... 34,871 44,055 110,450 121,267
Depreciation and amortization ........................ 29,286 27,265 84,388 79,353
Other (including $34,645, $31,952, $97,443
and $90,738 to affiliates) .......................... 63,062 51,446 176,785 153,901
-------- -------- -------- --------
127,219 122,766 371,623 354,521
-------- -------- -------- --------
OPERATING INCOME ...................................... 13,794 18,363 49,570 57,492
OTHER INCOME (EXPENSE), NET
Allowance for funds used during construction ......... --- 54 --- 295
Other, net............................................ 159 (64) (1,510) (380)
-------- -------- -------- --------
159 (10) (1,510) (85)
INTEREST EXPENSE (including $627, $0, $1,649
and $73 to affiliate) ................................ 4,423 4,381 13,757 13,731
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM ............................... 9,530 13,972 34,303 43,676
PROVISION FOR INCOME TAXES ............................ 3,880 6,239 13,531 16,859
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM ...................... 5,650 7,733 20,772 26,817
EXTRAORDINARY ITEM
Discontinuation of Regulatory Accounting Principles,
Net of Tax .......................................... --- (74,647) --- (74,647)
-------- -------- -------- --------
NET INCOME (LOSS) ..................................... $ 5,650 $(66,914) $ 20,772 $(47,830)
======== ======== ======== ========
REINVESTED EARNINGS (ACCUMULATED DEFICIT)
At beginning of period ............................... $(12,208) $ 36,574 $(27,330) $ 33,739
Add: net income (loss) .............................. 5,650 (66,914) 20,772 (47,830)
-------- -------- -------- --------
(6,558) (30,340) (6,558) (14,091)
Deduct: dividends ................................... --- 10,168 --- 26,317
other changes ............................... 13 (30) 13 70
-------- -------- -------- --------
At end of period ..................................... $ (6,571) $(40,478) $ (6,571) $(40,478)
======== ======== ======== ========
See Notes to Financial Statements.
1
Bell Atlantic - Washington, D.C., Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
September 30, December 31,
1995 1994
------------- ------------
CURRENT ASSETS
Short-term investments ................... $ 2,125 $ ---
Accounts receivable:
Customers and agents, net of allowances
for uncollectibles of $8,995 and
$6,475 ................................. 113,068 113,812
Affiliates .............................. 19,432 20,268
Other ................................... 19,156 32,411
Material and supplies .................... 2,038 2,418
Prepaid expenses ......................... 43,950 23,464
Deferred income taxes .................... 4,938 3,668
Other .................................... --- 682
---------- ----------
204,707 196,723
---------- ----------
PLANT, PROPERTY AND EQUIPMENT ............. 1,441,174 1,354,514
Less accumulated depreciation ............ 723,218 695,888
---------- ----------
717,956 658,626
---------- ----------
OTHER ASSETS .............................. 15,015 31,693
---------- ----------
TOTAL ASSETS .............................. $ 937,678 $ 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
---------------------------------------
September 30, December 31,
1995 1994
------------- ------------
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate ............... $ 76,022 $ 7,462
Other ................................... 1,316 1,162
Accounts payable and accrued liabilities:
Affiliates .............................. 98,954 99,007
Taxes ................................... 4,131 3,985
Other ................................... 71,514 91,354
Advance billings and customer deposits ... 13,236 9,856
-------- --------
265,173 212,826
-------- --------
LONG-TERM DEBT ............................ 248,111 248,947
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS .............. 155,991 152,019
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes .................... 18,793 19,977
Unamortized investment tax credits ....... 5,209 5,785
Other .................................... 30,455 37,079
-------- --------
54,457 62,841
-------- --------
SHAREOWNER'S INVESTMENT
Common stock - one share, owned by
parent, at stated value ................. 191,968 191,968
Capital surplus .......................... 28,549 45,771
Accumulated deficit ...................... (6,571) (27,330)
-------- --------
213,946 210,409
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S
INVESTMENT ............................... $937,678 $887,042
======== ========
See Notes to Financial Statements.
3
Bell Atlantic - Washington, D.C., Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Nine months ended
September 30,
-----------------------
1995 1994
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........ $ 98,758 $ 78,800
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments ............ (2,125) ---
Additions to plant, property and equipment ...... (151,392) (58,535)
Net change in note receivable from affiliate .... --- 1,493
Other, net ...................................... 7,725 2,846
--------- --------
Net cash used in investing activities............. (145,792) (54,196)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings ........................ --- 118
Principal repayments of borrowings and capital
lease obligations .............................. (909) (844)
Net change in note payable to affiliate ......... 68,560 ---
Dividends paid .................................. --- (26,317)
Capital surplus distribution .................... (17,222) ---
Net change in outstanding checks drawn
on controlled disbursement accounts ............ (3,395) 2,403
--------- --------
Net cash provided by/(used in) financing
activities ...................................... 47,034 (24,640)
--------- --------
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.......................... 20,772
Distribution of capital surplus
to Bell Atlantic Corporation....... (17,222)
Other............................... (13)
-------- -------- --------
Balance at September 30, 1995....... $191,968 $ 28,549 $ (6,571)
======== ======== ========
3. Reclassifications
Certain reclassifications of the 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 nine months of 1995 of
$20,772,000, compared to a loss of $47,830,000 for the same period in 1994.
Results for the nine months ended September 30, 1994 included a non-cash,
after-tax extraordinary charge of $74,647,000 in connection with the Company's
decision to discontinue application of regulatory accounting principles required
by Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation."
Major items affecting the comparison of results for the nine month period
ended September 30, 1995, versus the nine month period ended September 30,
1994, are discussed in the following sections.
OPERATING REVENUES
- ------------------
For the Nine Months Ended September 30 1995 1994
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Transport Services
Local service.............................. $182,229 $183,863
Network access............................. 91,955 86,436
Toll service............................... 3,117 3,318
Ancillary Services
Directory publishing....................... 24,711 23,649
Other...................................... 51,657 46,809
Value-added Services........................ 67,524 67,938
-------- --------
Total....................................... $421,193 $412,013
======== ========
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
1995 1994 Increase
- -------------------------------------------------------------------------------
At September 30
- ---------------
Access Lines in Service (In thousands)
Residence................................. 288 286 .7%
Business.................................. 573 560 2.3
Public.................................... 10 10 -
--- ---
871 856 1.8
=== ===
For the Nine Month Period Ended September 30
- --------------------------------------------
Access Minutes of Use (In millions)
Interstate................................ 2,085 2,028 2.8
===== =====
Toll Messages (In thousands)
Interstate................................ 3,321 3,139 5.8
===== =====
6
Bell Atlantic - Washington, D.C., Inc.
LOCAL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $(1,634) (.9)%
================================================================================
Local service revenues are earned by the Company from the provision of
local exchange, local private line and public telephone services.
Local service revenues decreased due to the effects of a reduction in the
Subscriber Plant Factor Surcharge, effective May 1994, and lower public
telephone and directory assistance revenues. The revenue decreases were
partially offset by growth of 1.8% in the number of access lines in service, and
increased usage and data transport by business customers.
NETWORK ACCESS REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 5,519 6.4%
================================================================================
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 access services as reflected by growth in access minutes of use and in
private networks. Access minutes of use for the nine months ended September 30,
1995 were higher than the corresponding period of 1994 by 2.8%. Higher revenues
recognized through an interstate revenue sharing agreement with affiliated
companies also contributed to growth in network access revenues. Revenues in
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 from volume increases was partially offset by the effect of
price reductions. Under the Federal Communications Commission's (FCC) Price Cap
Plan, price reductions on interstate access services were in effect from July 1,
1994 through July 31, 1995.
In March 1995, the FCC adopted an order approving an Interim Price Cap Plan
for interstate access charges, which replaces the prior Price Cap Plan. As
required by the FCC's order, Bell Atlantic filed its Transmittal of Interstate
Rates, which resulted in price decreases for the Company totaling approximately
$14,600,000 on an annual basis, effective August 1, 1995. 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. Also as part of
the filing, Bell Atlantic selected a 5.3% Productivity Factor, which eliminates
the requirement to share a portion of interstate earnings related to the August
1995 to June 1996 tariff period. See "Competitive and Regulatory Environment -
Federal Regulation" for a further discussion of FCC interstate access revenue
issues.
7
Bell Atlantic - Washington, D.C., Inc.
TOLL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (201) (6.1)%
================================================================================
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 decreased in 1995 primarily due to a settlement
with an independent carrier in the third quarter of 1995. This revenue
decrease was partially offset by revenue growth from increases in toll message
volumes.
DIRECTORY PUBLISHING REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 1,062 4.5%
================================================================================
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 primarily due to higher rates
charged for these services. Changes in billing procedures and lower customer
claims and disconnects further boosted directory publishing revenues in 1995.
Volume growth continues to be impacted by competition from other directory
companies, as well as other advertising media.
OTHER ANCILLARY SERVICES REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 4,848 10.4%
================================================================================
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 in 1995. The increase was offset, in part, by a reduction in billing
and collection revenues as a result of revisions made in early 1995 to the terms
of a contract with an IXC. The revised contract no longer includes certain
billing and collection services.
VALUE-ADDED SERVICES REVENUES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (414) (.6)%
================================================================================
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.
The decrease in value-added services revenues was due to a reduction in
contract billing for certain advanced premises services for large business
customers. Such premises services, which were primarily performed by the
Company until May 1994, are now being contracted with another affiliate of Bell
Atlantic. Substantially offsetting this reduction was 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.
8
Bell Atlantic - Washington, D.C., Inc.
OPERATING EXPENSES
- ------------------
For the Nine Months Ended September 30 1995 1994
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Employee costs, including benefits and taxes.. $110,450 $121,267
Depreciation and amortization................. 84,388 79,353
Other operating expenses...................... 176,785 153,901
-------- --------
Total......................................... $371,623 $354,521
======== ========
EMPLOYEE COSTS
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $(10,817) (8.9)%
================================================================================
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 effects of lower
workforce levels in 1995 and a third quarter 1994 charge of $6,010,000 to
recognize benefit costs for the separation of employees who are entitled to
benefits under preexisting Bell Atlantic separation pay plans. These decreases
were partially offset by annual salary and wage increases.
The Company's contract with the Communications Workers of America (CWA)
expired on August 5, 1995. As of November 6, 1995, the Company and the CWA have
not reached a settlement on a new contract and the Company continues to make
work available to employees represented by the CWA at the same wages and
benefits as under the expired contract until further notice.
DEPRECIATION AND AMORTIZATION
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 5,035 6.3%
================================================================================
Depreciation and amortization increased principally due to growth in
depreciable telephone plant. The composite depreciation rate was 8.4% for the
first nine months of 1995. The Company expects this composite depreciation
rate to remain substantially unchanged for the remainder of 1995.
OTHER OPERATING EXPENSES
(Dollars in Thousands) Increase
================================================================================
Nine Months $22,884 14.9%
================================================================================
Other operating expenses consist primarily of contracted services including
centralized services expenses allocated from NSI, rent, network software costs,
operating taxes other than income, provision for uncollectible accounts
receivable, and other costs.
The increase in other operating expenses was attributable to higher
centralized services costs allocated from NSI, primarily as a result of
increased advertising costs, as well as additional costs incurred in that
organization to enhance systems and consolidate work activities at Bell
Atlantic's network services subsidiaries. Higher costs for contracted services,
higher assessments for Public Service Commission fees and an increase in the
provision for uncollectible accounts receivable also contributed to the increase
in other operating expenses in 1995.
9
Bell Atlantic - Washington, D.C., Inc.
OTHER INCOME (EXPENSE), NET
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (1,425)
================================================================================
The change in other income (expense), net, was attributable to a loss
related to the disposition of certain property, and the termination of income
related to the allowance for funds used during construction.
Upon the discontinued application of regulatory accounting principles,
effective August 1, 1994, the Company began recognizing capitalized interest
costs as a reduction of interest expense. Previously, the Company recorded an
allowance for funds used during construction as an item of other income.
INTEREST EXPENSE
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 26 .2%
================================================================================
Interest expense increased principally due to higher levels of average
short-term debt and higher interest rates in 1995. These expense increases were
substantially offset by the recognition of capitalized interest costs,
subsequent to the discontinued application of regulatory accounting principles,
effective August 1, 1994, and increased interest costs related to the
unfavorable settlement of federal income tax matters associated with prior
years.
PROVISION FOR INCOME TAXES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (3,328) (19.7)%
================================================================================
EFFECTIVE INCOME TAX RATES
For the Nine Months Ended September 30
================================================================================
1995 39.4%
================================================================================
1994 38.6%
================================================================================
The Company's effective income tax rate was higher in 1995 principally
due to the reduction in the amortization of investment tax credits and the
elimination of the benefit of the rate differential applied to reversing timing
differences, both as a result of the discontinued application of regulatory
accounting principles in August 1994.
COMPETITIVE AND REGULATORY ENVIRONMENT
- --------------------------------------
The communications industry continues to undergo fundamental changes
which may have a significant impact on future financial performance of
telecommunications companies. These changes are being driven by a number of
factors, including the accelerated pace of technological innovation, the
convergence of the telecommunications, cable television, information services
and entertainment businesses, and a regulatory environment in which traditional
barriers to entry are being lowered or eliminated and competition permitted or
encouraged.
The Company's telecommunications business is subject to competition from
numerous sources. An increasing amount of this competition is from companies
that have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company.
10
Bell Atlantic - Washington, D.C., Inc.
Well-financed competitors are seeking authority, or are likely soon to seek
authority, to offer competing local exchange services, such as dial tone and
local usage, in some of the most lucrative of the Company's local telephone
service areas. MFS - Intelenet 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.
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 cost controls through efficiency
and productivity initiatives.
Federal Regulation
On August 4, 1995, the U.S. House of Representatives passed a bill which
includes provisions that would open local exchange markets to competitors and
would permit local exchange carriers, such as the Company, to provide video
programming, as well as to provide interLATA services and engage in
manufacturing, upon meeting certain conditions. The Senate passed a similar
bill in June of 1995. The Company is cautiously optimistic that a conference
committee will reconcile the two bills, and Congress will pass comprehensive
telecommunications legislation by the end of 1995. However, no definitive
prediction can be made as to whether or when such legislation will be enacted,
the provisions thereof, or the impact on the business or financial condition of
the Company.
In February 1995, the FCC issued an Order to Show Cause with respect to
certain findings contained in an independent audit of Bell Atlantic's network
services subsidiaries' 1988 and first quarter 1989 reported adjustments to the
National Exchange Carrier Association (NECA) interstate common line pool. On May
2, 1995, Bell Atlantic filed its response to the Show Cause Order, asserting
that there is no legal basis for the FCC to institute enforcement proceedings
with respect to these findings. The FCC solicited comments on Bell Atlantic's
filing, and only one party filed comments challenging Bell Atlantic's response.
On September 11, 1995, Bell Atlantic filed a reply to these comments,
reasserting its position that no proceedings are warranted. Resolution of this
matter is expected late in 1995.
FCC Interim Price Cap Order
On March 30, 1995, the FCC adopted its Report and Order approving an
Interim Price Cap Plan for interstate access charges. The Interim Plan, which
was effective August 1, 1995, replaces the Price Cap Plan that the FCC adopted
in 1990.
Under the Interim Plan, the Company's Price Cap Index must be adjusted by
an inflation index (GDP-PI), less a fixed percentage, either 4.0%, 4.7%, or
5.3%, which is intended to reflect increases in productivity (Productivity
Factor). Companies selecting the 4.0% or 4.7% Productivity Factor are required
to reduce future prices and share a portion of their interstate return in excess
of 12.25%. Companies selecting the 5.3% Productivity Factor are also required to
reduce prices but are not required to share a portion of their future interstate
earnings. The Interim Plan also provides for a reduction in the Price Cap Index
of 2.8% to adjust for what the FCC believes was an underestimate in its
calculation of the Productivity Factor in prior years. The Interim Plan also
eliminates the recovery of certain "exogenous" cost changes, including changes
in accounting costs that the FCC believes have no economic consequences.
On May 9, 1995, Bell Atlantic filed its Transmittal of Interstate Rates as
required by the March 30, 1995 Order. In the filing, Bell Atlantic selected
the 5.3% Productivity Factor for the August 1995 to June 1996 tariff period.
The rates included in the May 9, 1995 filing resulted in price decreases for the
Company totaling approximately $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 Interim Price Cap Plan Order to the U.S. Court
of Appeals for the D.C. Circuit, and that case is currently pending.
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
new 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 November 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 November 1995.
OTHER MATTERS
- -------------
Environmental Issues
The Company is subject to a number of environmental proceedings as a
result of its operations and the shared liability provisions in the Plan of
Reorganization related to the MFJ. The Company is also responsible for the
remediation of sites with underground fuel storage tanks and other expenses
associated with environmental compliance.
The Company continually monitors its operations with respect to potential
environmental issues, including changes in legally mandated standards and
remediation technologies. The Company's recorded liabilities reflect those
specific issues where remediation activities are currently deemed to be probable
and where the cost of remediation is estimable. Management believes that the
aggregate amount of any additional potential liability would not have a material
effect on the Company's results of operations or financial condition.
FINANCIAL CONDITION
- -------------------
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization. Management expects that presently foreseeable
capital requirements will be financed primarily through internally generated
funds. Additional long-term debt may be needed to fund development activities
and to maintain the Company's capital structure within management's guidelines.
As of September 30, 1995, the Company had $49,000,000 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 60.3% at September 30, 1995, compared to
55.0% at December 31, 1994.
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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 September 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: November 9, 1995 By /s/ Sheila D. Shears
------------------------------
Sheila D. Shears
Controller
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 6, 1995.
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