<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7150
BELL ATLANTIC - WEST VIRGINIA, INC.
A West Virginia Corporation I.R.S. Employer Identification No. 54-0142020
1500 MacCorkle Avenue, S.E., Charleston, West Virginia 25314
Telephone Number (304) 343-9911
---------------
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 - West Virginia, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $8,805, $11,233,
$18,737 and $22,315 from affiliates)............... $146,267 $144,430 $290,903 $293,200
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes....... 30,041 32,049 59,593 65,466
Depreciation and amortization...................... 29,757 26,336 59,156 52,597
Other (including $26,372, $26,319, $52,561
and $52,144 to affiliates)........................ 47,449 49,485 95,177 96,549
-------- -------- -------- --------
107,247 107,870 213,926 214,612
-------- -------- -------- --------
OPERATING INCOME.................................... 39,020 36,560 76,977 78,588
OTHER INCOME (EXPENSE), NET
Allowance for funds used during construction....... --- 222 --- 427
Other, net (including $118, $17, $343
and $17 from affiliate)........................... 130 (138) 66 (513)
-------- -------- -------- --------
130 84 66 (86)
INTEREST EXPENSE (including $37, $56, $37
and $174 to affiliate)............................. 4,517 4,731 8,794 9,527
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES............ 34,633 31,913 68,249 68,975
PROVISION FOR INCOME TAXES.......................... 13,724 13,209 27,173 28,203
-------- -------- -------- --------
NET INCOME.......................................... $ 20,909 $ 18,704 $ 41,076 $ 40,772
======== ======== ======== ========
REINVESTED EARNINGS (ACCUMULATED DEFICIT)
At beginning of period............................. $ 13,615 $ 46,761 $ (6,549) $ 41,833
Add: net income................................... 20,909 18,704 41,076 40,772
-------- -------- -------- --------
34,524 65,465 34,527 82,605
Deduct: dividends................................. --- 21,150 --- 38,290
other changes............................. (1) 1 2 1
-------- -------- -------- --------
At end of period................................... $ 34,525 $ 44,314 $ 34,525 $ 44,314
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Bell Atlantic - West Virginia, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments....................... $ 4,371 $ ---
Note receivable from affiliate............... --- 11,377
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $1,984 and $2,560........ 79,557 73,452
Affiliates.................................. 8,719 17,791
Other....................................... 3,160 5,980
Material and supplies........................ 2,079 3,529
Prepaid expenses............................. 19,100 13,099
Deferred income taxes........................ 1,871 1,435
Other........................................ --- 66
---------- ----------
118,857 126,729
---------- ----------
PLANT, PROPERTY AND EQUIPMENT................. 1,611,614 1,571,784
Less accumulated depreciation................ 814,011 764,580
---------- ----------
797,603 807,204
---------- ----------
OTHER ASSETS.................................. 6,267 13,474
---------- ----------
TOTAL ASSETS.................................. $ 922,727 $ 947,407
========== ==========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
Bell Atlantic - West Virginia, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
--------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Affiliate.................................... $ 1,858 $ ---
Other........................................ 24 27
Accounts payable:
Affiliates................................... 37,720 41,134
Other........................................ 29,512 39,276
Accrued expenses:
Taxes........................................ 8,626 8,767
Other........................................ 29,784 28,573
Advance billings and customer deposits........ 15,730 15,382
-------- --------
123,254 133,159
-------- --------
LONG-TERM DEBT................................. 263,701 263,664
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS................... 145,472 144,301
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes......................... 48,214 51,576
Unamortized investment tax credits............ 11,854 13,066
Other......................................... 24,223 24,461
-------- --------
84,291 89,103
-------- --------
SHAREOWNER'S INVESTMENT
Common stock - one share, owned by
parent, at stated value...................... 264,065 304,065
Capital surplus............................... 7,419 19,664
Reinvested earnings (accumulated deficit)..... 34,525 (6,549)
-------- --------
306,009 317,180
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.. $922,727 $947,407
======== ========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Bell Atlantic - West Virginia, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------
1995 1994
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES............ $ 90,322 $ 84,892
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments................ (4,371) ---
Additions to plant, property and equipment.......... (50,087) (32,978)
Net change in note receivable from affiliate........ 11,377 ---
Other, net.......................................... (31) (878)
-------- --------
Net cash used in investing activities................ (43,112) (33,856)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations... (12) (29)
Net change in note payable to affiliate............. 1,858 (19,447)
Dividend paid....................................... --- (38,290)
Capital surplus distribution........................ (52,245) ---
Net change in outstanding checks drawn
on controlled disbursement accounts................ 3,189 ---
-------- --------
Net cash used in financing activities................ (47,210) (57,766)
-------- --------
NET CHANGE IN CASH................................... --- (6,730)
CASH, BEGINNING OF PERIOD............................ --- 6,730
-------- --------
CASH, END OF PERIOD.................................. $ --- $ ---
======== ========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Bell Atlantic - West Virginia, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by Bell Atlantic - West Virginia, 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
<TABLE>
<CAPTION>
(Accumulated
Deficit)
Common Capital Retained
(Dollars in Thousands) Stock Surplus Earnings
- -------------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Balance at December 31, 1994...................... $304,065 $ 19,664 $ (6,549)
Net income........................................ 41,076
Transfer of stated capital
to capital surplus............................... (40,000) 40,000
Distribution of capital surplus
to Bell Atlantic Corporation..................... (52,245)
Other............................................. (2)
-------- -------- --------
Balance at June 30, 1995.......................... $264,065 $ 7,419 $ 34,525
======== ======== ========
</TABLE>
On January 31, 1995, the Board of Directors of the Company approved a
transfer in the amount of $40,000,000 from stated capital, as represented by the
Company's one issued share of common stock without par value, to capital
surplus.
On August 1, 1995, the Company declared and paid a dividend in the amount
of $28,495,000 to Bell Atlantic Corporation.
3. Reclassifications
Certain reclassifications of prior year's data have been made to conform to
1995 classifications.
5
<PAGE>
Bell Atlantic - West Virginia, 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
$41,076,000, compared to net income of $40,772,000 for the same period in 1994.
Major items affecting the comparison of results for the six month period
ended June 30, 1995, versus the six month period ended June 30, 1994, are
discussed in the following sections.
OPERATING REVENUES
- ------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30 1995 1994
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Transport Services
Local service............................... $127,701 $127,918
Network access.............................. 86,179 83,015
Toll service................................ 33,741 38,145
Ancillary Services
Directory advertising....................... 15,853 14,361
Other....................................... 4,832 6,685
Value-added Services......................... 22,597 23,076
-------- --------
Total........................................ $290,903 $293,200
======== ========
</TABLE>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
<TABLE>
<CAPTION>
Percentage
Increase
1995 1994 (Decrease)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
At June 30
- ----------
Access Lines in Service (In thousands)
Residence.................................. 565 553 2.2%
Business................................... 177 168 5.4
Public..................................... 10 10 -
------ ------
752 731 2.9
====== ======
For the Six Month Period Ended June 30
- --------------------------------------
Access Minutes of Use (In millions)
Interstate................................. 1,098 1,003 9.5
Intrastate................................. 216 202 6.9
------ ------
1,314 1,205 9.0
====== ======
Toll Messages (In thousands)
Intrastate................................. 20,232 21,178 (4.5)
Interstate................................. 1,288 1,209 6.5
------ ------
21,520 22,387 (3.9)
====== ======
</TABLE>
6
<PAGE>
Bell Atlantic - West Virginia, Inc.
LOCAL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
- --------------------------------------------------------------------------------
Six Months $ (217) (.2)%
- --------------------------------------------------------------------------------
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 primarily due to the completion, on
December 31, 1994, of the phased elimination of Locality Rate Area charges
pursuant to the Company's Incentive Regulation Plan. The elimination of this
charge is expected to reduce local service revenues by approximately $6,000,000
in 1995. Substantially offsetting these decreases was volume-related revenue
growth as reflected by a 2.9% growth in the number of access lines in service
and increased usage and data transport by business customers.
NETWORK ACCESS REVENUES
(Dollars in Thousands) Increase
- --------------------------------------------------------------------------------
Six Months $ 3,164 3.8%
- --------------------------------------------------------------------------------
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 a 9.0% growth in access minutes of use, as
well as growth in revenues from end-user charges attributable to increasing
access lines in service. Increased demand for digital data transport services
also contributed to growth in access revenues. Revenues in the first half of
1995 were also positively impacted by a temporary 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 and lower revenues recognized through an
interstate revenue sharing agreement with affiliated companies. 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 $16,100,000 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 $5,200,000 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 $10,900,000 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
<PAGE>
Bell Atlantic - West Virginia, Inc.
TOLL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
- -------------------------------------------------------------------------------
Six Months $ (4,404) (11.5)%
- -------------------------------------------------------------------------------
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area boundaries of the Company,
commonly referred to as "LATAs." Other toll services include 800 services and
Wide Area Telephone Service (WATS).
The decrease in toll service revenues was caused by a decline in toll
message volumes. Toll message volumes for the six month period ended June 30,
1995 decreased 3.9% over the comparable period last year. The decline in toll
messages was due primarily to increased competition for intraLATA toll and WATS
services. The effect of storm-related usage experienced in the first quarter of
1994 further impacted volume growth. The reduction in toll service revenues also
reflects the impact of customers switching to lower priced optional calling
plans offered by the Company. In response to increased competition, the Company
will reduce residential intrastate intraLATA toll rates by 18%, or $6,000,000 on
an annual basis, effective July 1, 1995.
DIRECTORY ADVERTISING REVENUES
(Dollars in Thousands) Increase
- -------------------------------------------------------------------------------
Six Months $ 1,492 10.4%
- -------------------------------------------------------------------------------
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 to higher rates charged
for these services, as well as growth in advertising volumes. Changes in billing
procedures and lower customer claims and disconnects further boosted directory
services revenues in the first half of 1995.
OTHER ANCILLARY SERVICES REVENUES
(Dollars in Thousands) (Decrease)
- -------------------------------------------------------------------------------
Six Months $ (1,853) (27.7)%
- -------------------------------------------------------------------------------
Other ancillary services include billing and collection services provided
to IXCs and facilities rental services provided to affiliates and non-
affiliates.
Other ancillary services decreased due to lower facilities rental revenues.
VALUE-ADDED SERVICES REVENUES
(Dollars in Thousands) (Decrease)
- -------------------------------------------------------------------------------
Six Months $ (479) (2.1)%
- -------------------------------------------------------------------------------
Value-added services represent a family of enhanced services including Call
Waiting, Return Call, Caller ID, Answer Call, and Voice Mail. These services
also include customer premises services such as inside wire installation and
maintenance and other central office services and features.
The decrease in value-added services revenues was due to a decrease in
customer premises services, primarily due to a reduction in contract billing for
certain advanced premises services for large businesses. Such premises
services, which were primarily performed by the Company until May 1994, are now
being contracted with another affiliate of Bell Atlantic. This decrease was
partially offset by 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, including the introduction of Caller ID Deluxe in
the fourth quarter of 1994.
8
<PAGE>
Bell Atlantic - West Virginia, Inc.
OPERATING EXPENSES
- ------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30 1995 1994
- -------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Employee costs, including benefits and taxes..... $ 59,593 $ 65,466
Depreciation and amortization.................... 59,156 52,597
Other operating expenses......................... 95,177 96,549
-------- --------
Total............................................ $213,926 $214,612
======== ========
</TABLE>
EMPLOYEE COSTS
(Dollars in Thousands) (Decrease)
- -------------------------------------------------------------------------------
Six Months $ (5,873) (9.0)%
- -------------------------------------------------------------------------------
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 in 1995. A reduction in overtime pay and repair and
maintenance activity, both of which were higher in the first quarter of 1994
as a result of unusually severe weather conditions, also contributed to the
decline in employee costs during the first half of 1995. These reductions 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 $ 6,559 12.5%
- -------------------------------------------------------------------------------
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 7.6%
for the first half of 1995. The Company expects this composite depreciation rate
to remain substantially unchanged for the remainder of 1995.
OTHER OPERATING EXPENSES
(Dollars in Thousands) (Decrease)
- -------------------------------------------------------------------------------
Six Months $ (1,372) (1.4)%
- -------------------------------------------------------------------------------
Other operating expenses consist primarily of contracted services including
centralized service expenses allocated from NSI, rent, network software costs,
operating taxes other than income, provision for uncollectible accounts
receivable, and other costs.
The decrease in other operating expenses was attributable to lower costs
for directory production and contracted labor and engineering, and the timing of
network software purchases. These decreases were partially offset by higher
centralized services costs allocated from NSI, primarily as a result of higher
advertising and employee costs, as well as additional costs incurred in that
organization to enhance systems and consolidate work activities at Bell
Atlantic's network services subsidiaries.
9
<PAGE>
Bell Atlantic - West Virginia, Inc.
OTHER INCOME (EXPENSE), NET
(Dollars in Thousands) Increase
- -------------------------------------------------------------------------------
Six Months $ 152
- -------------------------------------------------------------------------------
The change in other income (expense), net, was attributable to additional
interest income related to a note receivable from an affiliate and short-term
investments. These increases were partially offset by a reduction in income
related to the allowance for funds used during construction.
Upon the discontinued application of regulatory accounting principles,
effective August 1, 1994, the Company began recognizing capitalized interest
costs as a reduction of interest expense. Previously, the Company recorded an
allowance for funds used during construction as an item of other income.
INTEREST EXPENSE
(Dollars in Thousands) (Decrease)
- -------------------------------------------------------------------------------
Six Months $ (733) (7.7)%
- -------------------------------------------------------------------------------
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.
PROVISION FOR INCOME TAXES
(Dollars in Thousands) (Decrease)
- -------------------------------------------------------------------------------
Six Months $ (1,030) (3.7)%
- -------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Six Months Ended June 30
- -------------------------------------------------------------------------------
1995 39.8%
- -------------------------------------------------------------------------------
1994 40.9%
- -------------------------------------------------------------------------------
The Company's effective income tax rate was lower in the first half of 1995
principally due to a decrease in state deferred tax expense related to the
discontinued application of regulatory accounting principles in August 1994.
COMPETITIVE AND REGULATORY ENVIRONMENT
- --------------------------------------
The communications industry continues to undergo fundamental changes which
may have a significant impact on future financial performance of
telecommunications companies. These changes are being driven by a number of
factors, including the accelerated pace of technological innovation, the
convergence of the telecommunications, cable television, information services
and entertainment businesses and a regulatory environment in which traditional
barriers are being lowered or eliminated and competition permitted or
encouraged.
The Company's telecommunications business is subject to competition from
numerous sources. An increasing amount of this competition is from companies
that have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company. The entry of
well-financed competitors has the potential to adversely affect multiple revenue
streams of the Company, including toll, local exchange and network access
services in the markets and geographical areas in which the competitors operate.
The amount of revenue reductions will depend, in part, on the competitors'
success in marketing these services and the conditions established by regulatory
authorities. The potential impact is expected to be offset, to some extent, by
revenues from interconnection charges to be paid to the Company by these
competitors.
10
<PAGE>
Bell Atlantic - West Virginia, Inc.
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 $16,100,000 on an annual basis. These price
decreases include the scheduled expiration of a temporary rate increase of
approximately $5,200,000 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 $10,900,000 reduction results
from compliance with the Interim Plan. The remaining 20% represents reductions
that the Company was required to make under the prior Price Cap Plan. It is
expected that these price decreases will be partially offset by volume
increases.
Bell Atlantic appealed the Orders to the Court of Appeals for the D.C.
Circuit and petitioned the Court for a stay of certain aspects of the Orders
pending the results of the appeals. On July 31, 1995, the Court of Appeals
denied the Company's request for a stay.
11
<PAGE>
Bell Atlantic - West Virginia, Inc.
State Regulation
The communications services of the Company are subject to regulation by the
Public Service Commission of West Virginia (PSC) with respect to intrastate
rates and services and other matters.
The Company has been operating under an Incentive Regulation Plan, as
approved by the PSC in December 1991. In December 1994, the PSC issued an order
extending the Incentive Regulation Plan for three years, with certain
modifications. Basic rates remain frozen through January 15, 1998 and Touch-Tone
charges will be eliminated over a three year period. The Company is committed to
invest at least $375 million in its network over the next five years.
The PSC has set aside for separate proceedings the issues of intraLATA
presubscription and local service competition. Currently, intraLATA toll calls
default to the Company unless the customer dials a five-digit access code to use
an alternate carrier. Presubscription would enable customers to make intraLATA
toll calls using the carrier of their choice without having to dial a five-digit
access code. Testimony has been filed on the intraLATA presubscription case and
a hearing was held during June 1995. The PSC is expected to issue an order by
the fourth quarter of 1995. Proposed rules and reply comments have been filed
on the local service competition case.
OTHER MATTERS
- -------------
Environmental Issues
The Company is subject to a number of environmental proceedings as a result
of its operations and shared liability provisions in the Plan of Reorganization
related to the MFJ. Certain of these environmental matters relate to a Superfund
site for which the Company has received a request for information.
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 $67,700,000 of an unused line of
credit with an affiliate, Bell Atlantic Network Funding Corporation. In
addition, the Company had $50,000,000 remaining under a shelf registration
statement filed with the Securities and Exchange Commission.
The Company's debt ratio was 46.5% at June 30, 1995, compared to 45.4% at
December 31, 1994.
12
<PAGE>
Bell Atlantic - West Virginia, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For background concerning the Company's contingent liabilities under the
Plan of Reorganization governing the divestiture by AT&T Corp. (formerly
American Telephone and Telegraph Company) of certain assets of the former
Bell System Operating Companies with respect to private actions relating to
pre-divestiture events, including pending antitrust cases, see Item 3 of
the Company's Annual Report on Form 10-K for the year ended December 31,
1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27 Financial Data Schedule.
(b) There were no Current Reports on Form 8-K filed during the quarter
ended June 30, 1995.
13
<PAGE>
Bell Atlantic - West Virginia, 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 - WEST VIRGINIA, INC.
Date: August 10, 1995 By /s/ John Ruddick
---------------------------------
John Ruddick
Principal Accounting Officer
and Treasurer
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 7, 1995.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND THE BALANCE
SHEET AS OF JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 0
<SECURITIES> 4,371
<RECEIVABLES> 81,541
<ALLOWANCES> 1,984
<INVENTORY> 2,079
<CURRENT-ASSETS> 118,857
<PP&E> 1,611,614
<DEPRECIATION> 814,011
<TOTAL-ASSETS> 922,727
<CURRENT-LIABILITIES> 123,254
<BONDS> 263,701
<COMMON> 264,065
0
0
<OTHER-SE> 41,944
<TOTAL-LIABILITY-AND-EQUITY> 922,727
<SALES> 0
<TOTAL-REVENUES> 290,903
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