<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 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 1-7150
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 Nine months ended
September 30, September 30,
---------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including
$10,431, $12,833, $29,168 and
$35,148 from affiliates)....... $145,846 $151,576 $436,749 $444,776
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including
benefits and taxes............ 29,733 40,210 89,326 105,676
Depreciation and
amortization.................. 30,024 27,017 89,180 79,614
Other (including $27,442,
$26,481, $80,003 and
$78,625 to affiliates)........ 47,996 48,829 143,173 145,378
-------- -------- -------- --------
107,753 116,056 321,679 330,668
-------- -------- -------- --------
OPERATING INCOME................. 38,093 35,520 115,070 114,108
OTHER INCOME (EXPENSE), NET
Allowance for funds used
during construction........... --- 65 --- 492
Other, net (including $66,
$101, $409 and $118 from
affiliate).................... (101) (105) (35) (618)
-------- -------- -------- --------
(101) (40) (35) (126)
INTEREST EXPENSE (including $34,
$2, $71 and $176 to affiliate).. 4,354 4,518 13,148 14,045
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES AND
EXTRAORDINARY ITEM.............. 33,638 30,962 101,887 99,937
PROVISION FOR INCOME TAXES....... 13,458 12,468 40,631 40,671
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY
ITEM............................ 20,180 18,494 61,256 59,266
EXTRAORDINARY ITEM
Discontinuation of
Regulatory Accounting
Principles,
Net of Tax................... --- (76,616) --- (76,616)
-------- -------- -------- --------
NET INCOME (LOSS)................ $ 20,180 $(58,122) $ 61,256 $(17,350)
======== ======== ======== ========
REINVESTED EARNINGS
(ACCUMULATED DEFICIT)
At beginning of period......... $ 34,525 $ 44,314 $ (6,549) $ 41,833
Add: net income (loss)........ 20,180 (58,122) 61,256 (17,350)
-------- -------- -------- --------
54,705 (13,808) 54,707 24,483
Deduct: dividends............. 28,495 17,770 28,495 56,060
other changes......... 19 (36) 21 (35)
-------- -------- -------- --------
At end of period............... $ 26,191 $(31,542) $ 26,191 $(31,542)
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Bell Atlantic - West Virginia, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................ $ 2,260 $ ---
Note receivable from affiliate................ --- 11,377
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $1,708 and $2,560........ 72,505 73,452
Affiliates................................... 8,748 17,791
Other........................................ 2,190 5,980
Material and supplies......................... 2,818 3,529
Prepaid expenses.............................. 23,502 13,099
Deferred income taxes......................... 4,317 1,435
Other......................................... --- 66
---------- ----------
116,340 126,729
---------- ----------
PLANT, PROPERTY AND EQUIPMENT................... 1,615,771 1,571,784
Less accumulated depreciation................. 828,131 764,580
---------- ----------
787,640 807,204
---------- ----------
OTHER ASSETS.................................... 6,736 13,474
---------- ----------
TOTAL ASSETS.................................... $ 910,716 $ 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>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Affiliate................................... $ 5,522 $ ---
Other....................................... 17 27
Accounts payable and accrued liabilities:
Affiliates.................................. 38,370 41,134
Taxes....................................... 5,280 8,767
Other....................................... 59,600 67,849
Advance billings and customer deposits....... 16,149 15,382
-------- --------
124,938 133,159
-------- --------
LONG-TERM DEBT................................. 263,726 263,664
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS................... 146,260 144,301
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes........................ 49,071 51,576
Unamortized investment tax credits........... 11,248 13,066
Other........................................ 17,798 24,461
-------- --------
78,117 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).... 26,191 (6,549)
-------- --------
297,675 317,180
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.. $910,716 $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>
Nine months ended
September 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES............ $136,342 $130,457
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............... (2,260) ---
Additions to plant, property and equipment......... (69,780) (55,770)
Net change in note receivable from affiliate....... 11,377 (12,561)
Other, net......................................... 86 (2,113)
------- -------
Net cash used in investing activities................ (60,577) (70,444)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations.. (19) (38)
Net change in note payable to affiliate............ 5,522 (20,387)
Dividends paid..................................... (28,495) (56,060)
Capital surplus distribution....................... (52,245) ---
Net change in outstanding checks drawn
on controlled disbursement accounts............... (528) 9,742
------- -------
Net cash used in financing activities................ (75,765) (66,743)
------- -------
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............................ 61,256
Transfer of stated capital
to capital surplus................... (40,000) 40,000
Distribution of capital
surplus to Bell Atlantic
Corporation......................... (52,245)
Dividend paid to Bell
Atlantic Corporation................. (28,495)
Other................................. (21)
-------- -------- --------
Balance at September 30, $264,065 $ 7,419 $ 26,191
1995................................. ======== ======== ========
</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 November 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 the 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 nine months of 1995 of
$61,256,000, compared to a loss of $17,350,000 for the same period in 1994.
Results for the nine months ended September 30, 1994 included a non-cash,
after-tax extraordinary charge of $76,616,000 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
- ------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30 1995 1994
- -----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Transport Services
Local service............................... $192,227 $192,387
Network access.............................. 128,142 127,034
Toll service................................ 48,885 56,729
Ancillary Services
Directory publishing........................ 24,149 21,633
Other....................................... 8,555 12,266
Value-added Services........................... 34,791 34,727
-------- --------
Total.......................................... $436,749 $444,776
======== ========
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
Increase
1995 1994 (Decrease)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
At September 30
- ---------------
Access Lines in Service (In thousands)
Residence.................................. 568 559 1.6%
Business................................... 179 170 5.3
Public..................................... 10 10 -
------ ------
757 739 2.4
====== ======
For the Nine Month Period Ended September 30
- --------------------------------------------
Access Minutes of Use (In millions)
Interstate................................. 1,650 1,521 8.5
Intrastate................................. 332 309 7.4
------ ------
1,982 1,830 8.3
====== ======
Toll Messages (In thousands)
Intrastate................................. 30,629 31,961 (4.2)
Interstate................................. 1,984 1,831 8.4
------ ------
32,613 33,792 (3.5)
====== ======
</TABLE>
6
<PAGE>
Bell Atlantic - West Virginia, Inc.
LOCAL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (160) (.1)%
================================================================================
Local service revenues are earned by the Company from the provision of local
exchange, local private line and public telephone services.
Local service revenues 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 this decrease was volume-related revenue growth as
reflected by 2.4% 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
================================================================================
Nine Months $ 1,108 .9%
================================================================================
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, as well as growth in revenues from end-user charges
attributable to increasing access lines in service. Access minutes of use for
the nine months ended September 30, 1995 were higher than the corresponding
period of 1994 by 8.3%. 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 substantially offset by lower
revenues recognized through an interstate revenue sharing agreement with
affiliated companies and 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
$16,100,000 on an annual basis, effective August 1, 1995. 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. 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
<PAGE>
Bell Atlantic - West Virginia, Inc.
TOLL SERVICE REVENUES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (7,844) (13.8)%
================================================================================
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area boundaries of the Company,
commonly referred to as "LATAs." Other toll services include 800 services and
Wide Area Telephone Service (WATS).
The decrease in toll service revenues was caused by a decline in toll message
volumes and price reductions. Toll message volumes for the nine month period
ended September 30, 1995 decreased 3.5% over the comparable period last year.
The decrease in toll messages was primarily due to increased competition for
intraLATA toll and WATS services. Effective July 1, 1995, residential
intrastate intraLATA toll rates were reduced by 18%, or $6,000,000 on an annual
basis. The reduction in toll service revenues also reflects the impact of
customers switching to lower priced optional calling plans offered by the
Company. The Company expects that reductions in toll service revenues will
continue for the remainder of the year. See "Competitive and Regulatory
Environment - State Regulation" for a further discussion of toll service revenue
issues.
DIRECTORY PUBLISHING REVENUES
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 2,516 11.6%
================================================================================
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 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
publishing revenues in 1995.
OTHER ANCILLARY SERVICES REVENUES
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $ (3,711) (30.3)%
================================================================================
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 primarily due to lower facilities rental
revenues in 1995. Also contributing to the decrease in other ancillary services
revenues was 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) Increase
================================================================================
Nine Months $ 64 .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, including the introduction of Caller
ID Deluxe in the fourth quarter of 1994, increased value-added services revenues
in 1995. Substantially offsetting this revenue growth was a
8
<PAGE>
Bell Atlantic - West Virginia, Inc.
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.
OPERATING EXPENSES
- ------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30 1995 1994
- -------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Employee costs, including benefits and taxes.. $ 89,326 $105,676
Depreciation and amortization................. 89,180 79,614
Other operating expenses...................... 143,173 145,378
-------- --------
Total......................................... $321,679 $330,668
======== ========
</TABLE>
EMPLOYEE COSTS
(Dollars in Thousands) (Decrease)
================================================================================
Nine Months $(16,350) (15.5)%
================================================================================
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes paid directly by the Company. Similar costs
incurred by employees of Bell Atlantic Network Services, Inc. (NSI), who provide
centralized services on a contract basis, are allocated to the Company and are
included in other operating expenses.
The decrease in employee costs was principally due to the effects of lower
workforce levels in 1995 and a third quarter 1994 charge of $7,010,000 to
recognize benefit costs for the separation of employees who are entitled to
benefits under preexisting Bell Atlantic separation pay plans. Also
contributing to the expense decrease was reduced overtime pay. These cost
reductions 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 $ 9,566 12.0%
================================================================================
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 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) (Decrease)
================================================================================
Nine Months $(2,205) (1.5)%
================================================================================
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.
9
<PAGE>
Bell Atlantic - West Virginia, Inc.
The decrease in other operating expenses was attributable to lower costs
for directory production and for contracted labor and engineering services.
These decreases were partially offset by 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.
OTHER INCOME (EXPENSE), NET
(Dollars in Thousands) Increase
================================================================================
Nine Months $ 91
================================================================================
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 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) (Decrease)
================================================================================
Nine Months $ (897) (6.4)%
================================================================================
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)
================================================================================
Nine Months $ (40) (.1)%
================================================================================
EFFECTIVE INCOME TAX RATES
For the Nine Months Ended September 30
================================================================================
1995 39.9%
- --------------------------------------------------------------------------------
1994 40.7%
================================================================================
The Company's effective income tax rate was lower in 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 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. The entry of
well-financed competitors has the potential to adversely affect
10
<PAGE>
Bell Atlantic - West Virginia, Inc.
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.
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 $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 Interim Price Cap Plan Order to the U.S. Court of
Appeals for the D.C. Circuit, and that case is currently pending.
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 set aside for separate proceedings the issues of intraLATA
presubscription and local service competition. Currently, intraLATA toll calls
are completed by 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. On October 10, 1995, the PSC issued an order directing
the implementation of Two-Pic intraLATA equal access within eighteen months of
the Commission's order. The costs of implementing intraLATA equal access are to
be borne by all providers of intrastate long distance service in proportion to
their share of total (both intra- and interLATA) long distance minutes of use
through a per-minute charge.
The Company filed a petition on October 20, 1995, asking the Commission to
vacate its order and defer making any decision on intraLATA presubscription
until such time as the Company is permitted to participate in the interLATA long
distance market, or, alternatively, until such time as it can be determined
whether the telecommunications reform legislation now pending before Congress
will be enacted and signed into law. Implementation of presubscription for
intraLATA toll services without the ability to offer interLATA services could
have a material negative impact on toll service revenues.
OTHER MATTERS
- -------------
Environmental Issues
The Company is subject to a number of environmental proceedings as a result of
its operations and the shared liability provisions in the Plan of Reorganization
related to the MFJ. Certain of these environmental matters relate to a
Superfund site for which the Company has received a request for information.
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, and payment of dividends. Management expects that
presently foreseeable capital requirements will be financed primarily through
internally generated funds. Additional long-term debt may be needed to fund
development activities and to maintain the Company's capital structure within
management's guidelines.
As of September 30, 1995, the Company had $64,100,000 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 47.5% at September 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 September 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: November 9, 1995 By /s/ John Ruddick
---------------------------------
John Ruddick
Principal Accounting Officer
and Treasurer
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 6, 1995.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE
BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 0
<SECURITIES> 2,260
<RECEIVABLES> 74,213
<ALLOWANCES> 1,708
<INVENTORY> 2,818
<CURRENT-ASSETS> 116,340
<PP&E> 1,615,771
<DEPRECIATION> 828,131
<TOTAL-ASSETS> 910,716
<CURRENT-LIABILITIES> 124,938
<BONDS> 263,726
<COMMON> 264,065
0
0
<OTHER-SE> 33,610
<TOTAL-LIABILITY-AND-EQUITY> 910,716
<SALES> 0
<TOTAL-REVENUES> 436,749
<CGS> 0
<TOTAL-COSTS> 321,679
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 13,148
<INCOME-PRETAX> 101,887
<INCOME-TAX> 40,631
<INCOME-CONTINUING> 61,256
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