<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
---------------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7150
BELL ATLANTIC - WEST VIRGINIA, INC.
A West Virginia Corporation I.R.S. Employer Identification No. 55-0142020
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,
--------------------- ---------------------
1996 1995 1996 1995
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $7,740, $8,805,
$15,461 and $18,737 from affiliates)............... $147,345 $146,267 $294,986 $290,903
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes........ 27,632 30,041 53,929 59,593
Depreciation and amortization....................... 31,789 29,757 63,415 59,156
Other (including $30,980, $26,372, $61,927
and $52,561 to affiliates)........................ 53,518 47,449 104,866 95,177
-------- -------- -------- --------
112,939 107,247 222,210 213,926
-------- -------- -------- --------
OPERATING INCOME...................................... 34,406 39,020 72,776 76,977
OTHER INCOME, NET (including $271, $118,
$571 and $343 from affiliate)....................... 122 130 333 66
INTEREST EXPENSE...................................... 4,399 4,517 8,797 8,794
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES.............. 30,129 34,633 64,312 68,249
PROVISION FOR INCOME TAXES............................ 11,602 13,724 25,237 27,173
-------- -------- -------- --------
NET INCOME............................................ $ 18,527 $ 20,909 $ 39,075 $ 41,076
======== ======== ======== ========
REINVESTED EARNINGS (ACCUMULATED DEFICIT)
At beginning of period.............................. $ 23,581 $ 13,615 $ 17,538 $ (6,549)
Add: net income.................................... 18,527 20,909 39,075 41,076
-------- -------- -------- --------
42,108 34,524 56,613 34,527
Deduct: dividend................................... 29,800 --- 43,800 ---
other changes.............................. --- (1) 505 2
-------- -------- -------- --------
At end of period.................................... $ 12,308 $ 34,525 $ 12,308 $ 34,525
======== ======== ======== ========
</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,
1996 1995
---------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments......................... $ 3,076 $ ---
Note receivable from affiliate................. 12,479 4,939
Accounts receivable:
Trade and other, net of allowances for
uncollectibles of $4,118 and $4,178.. 79,502 81,695
Affiliates................................ 5,501 8,037
Material and supplies.......................... 3,401 2,693
Prepaid expenses............................... 22,902 16,412
Deferred income taxes.......................... 1,528 1,899
---------- ----------
128,389 115,675
---------- ----------
PLANT, PROPERTY AND EQUIPMENT.................. 1,637,071 1,625,779
Less accumulated depreciation.................. 890,511 849,205
---------- ----------
746,560 776,574
---------- ----------
OTHER ASSETS................................... 6,318 11,124
---------- ----------
TOTAL ASSETS................................... $ 881,267 $ 903,373
========== ==========
</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,
1996 1995
--------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year.................. $ 50,000 $ 10
Accounts payable and accrued liabilities:
Affiliates................................ 47,372 41,020
Other..................................... 61,455 74,571
Advance billings and customer deposits......... 16,934 16,684
-------- --------
175,761 132,285
-------- --------
LONG-TERM DEBT................................. 213,800 263,750
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS................... 142,457 144,193
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes.......................... 35,440 42,708
Unamortized investment tax credits............. 9,179 10,112
Other.......................................... 20,838 21,303
-------- --------
65,457 74,123
-------- --------
SHAREOWNER'S INVESTMENT
Common stock - one share, owned by
parent, at stated value................... 264,065 264,065
Capital surplus................................ 7,419 7,419
Reinvested earnings............................ 12,308 17,538
-------- --------
283,792 289,022
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.. $881,267 $903,373
======== ========
</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,
----------------------
1996 1995
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES............. $ 87,302 $ 90,322
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments.................. (3,076) (4,371)
Additions to plant, property and equipment............ (34,201) (50,087)
Net change in note receivable from affiliate.......... (7,540) 11,377
Other, net............................................ 801 (31)
-------- --------
Net cash used in investing activities................. (44,016) (43,112)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations..... (10) (12)
Net change in note payable to affiliate............... --- 1,858
Dividend paid......................................... (43,800) ---
Capital surplus distribution.......................... --- (52,245)
Net change in outstanding checks drawn
on controlled disbursement accounts.............. 524 3,189
-------- --------
Net cash used in financing activities................. (43,286) (47,210)
-------- --------
NET CHANGE IN CASH.................................... --- ---
CASH, BEGINNING OF PERIOD............................. --- ---
-------- --------
CASH, END OF PERIOD................................... $ --- $ ---
======== ========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Bell Atlantic - West Virginia, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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,
1995 balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles. In
the opinion of management, these financial statements include all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the results of operations, financial position and cash flows. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The Company
believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2. Dividend
On August 1, 1996, the Company declared and paid a dividend in the amount
of $21,000,000 to Bell Atlantic Corporation (Bell Atlantic).
3. Reclassifications
Certain reclassifications of the prior year's data have been made to
conform to 1996 classifications.
4. Proposed Bell Atlantic - NYNEX Merger
Bell Atlantic and NYNEX Corporation have announced a proposed merger of
equals pursuant to a definitive merger agreement entered into on April 21, 1996,
and amended on July 2, 1996. Under the terms of the amended agreement, a newly-
formed subsidiary will merge with and into NYNEX, with NYNEX becoming a
subsidiary of Bell Atlantic, and each share of NYNEX common stock will be
converted into 0.768 shares of Bell Atlantic common stock. The merger, which is
expected to qualify as a pooling of interests for accounting purposes, is
subject to a number of conditions, including regulatory approvals, receipt of
opinions that the merger will be tax free, and the approval of the shareholders
of both Bell Atlantic and NYNEX. The transaction is expected to close by April
1997.
5
<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 1996 of
$39,075,000, compared to net income of $41,076,000 for the same period in 1995.
Items affecting the comparison of operating results between the six month
periods ended June 30, 1996 and 1995 are discussed in the following sections.
<TABLE>
<CAPTION>
OPERATING REVENUES
- ------------------
(Dollars in Thousands)
For the Six Month Period Ended June 30 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Transport Services
Local service.......................... $130,504 $127,701
Network access......................... 82,858 86,179
Toll service........................... 30,677 33,741
Ancillary Services
Directory publishing................... 17,594 15,853
Other.................................. 7,488 4,832
Value-added Services....................... 25,865 22,597
-------- --------
Total...................................... $294,986 $290,903
======== ========
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
1996 1995 Increase
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At June 30
- ----------
Access Lines in Service (In thousands)
Residence............................. 572 565 1.2%
Business.............................. 189 177 6.8
Public................................ 10 10 ---
------ ------
771 752 2.5
====== ======
<CAPTION>
For the Six Month Period Ended June 30
- --------------------------------------
<S> <C> <C> <C>
Access Minutes of Use (In millions)
Interstate............................ 1,182 1,098 7.7
Intrastate............................ 264 216 22.2
------ ------
1,446 1,314 10.0
====== ======
Toll Messages (In thousands)
Intrastate............................ 21,984 20,356 8.0
Interstate............................ 1,461 1,288 13.4
------ ------
23,445 21,644 8.3
====== ======
</TABLE>
6
<PAGE>
Bell Atlantic - West Virginia, Inc.
LOCAL SERVICE REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $2,803 2.2%
- --------------------------------------------------------------------------------
Local service revenues are earned by the Company from the provision of
local exchange, local private line and public telephone services.
Higher network usage increased local service revenues during the first six
months of 1996. The increase in calling volumes principally resulted from
growth in the number of access lines in service, which increased 2.5% from June
30, 1995, primarily reflecting higher demand in the business market.
NETWORK ACCESS REVENUES
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(3,321) (3.9)%
- --------------------------------------------------------------------------------
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. End-user access revenues are
earned from local exchange carrier customers who pay for access to the network.
Network access revenues decreased due to the net effect of price reductions
under the Federal Communications Commission's (FCC) Price Cap Plans, which
became effective during 1995, and lower revenues from affiliated companies
pursuant to an interstate revenue sharing agreement. Higher customer demand for
access services, as reflected by growth in access minutes of use of 10.0% over
the same period in 1995, partially offset these decreases in network access
revenues.
It is expected that network access revenue growth in the second half of
1996 relative to the same period last year should be positively impacted by
continued strong volume growth and the net rate increases effective on July 20,
1996. See also "Factors That May Impact Future Results - FCC Interim Price Cap
Plan" below for a discussion of Bell Atlantic's FCC price cap filing, which
became effective on July 20, 1996.
TOLL SERVICE REVENUES
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(3,064) (9.1)%
- --------------------------------------------------------------------------------
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area of the Company, commonly referred
to as Local Access and Transport Areas (LATAs). Other toll services include 800
services and Wide Area Telephone Service (WATS).
The reduction in toll service revenues was caused by company-initiated
price reductions on certain toll services and 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.
Partially offsetting these decreases was higher network usage attributable, in
part, to severe winter storms in early 1996. Toll message volumes increased by
8.3% over the first six months of 1995.
The Company expects competition for toll services to continue. See "Factors
That May Impact Future Results" below for a further discussion of toll service
revenue issues.
7
<PAGE>
Bell Atlantic - West Virginia, Inc.
DIRECTORY PUBLISHING REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $1,741 11.0%
- --------------------------------------------------------------------------------
Directory publishing revenues are earned primarily from local advertising
and marketing services provided to businesses in White and Yellow Pages
directories. Other directory publishing services include database and foreign
directory marketing.
Growth in directory publishing revenues was principally due to higher rates
charged for these services as well as growth in advertising volumes.
OTHER ANCILLARY SERVICES REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $2,656 55.0%
- --------------------------------------------------------------------------------
Other ancillary services include billing and collection services provided
to IXCs, facilities rental services provided to affiliates and non-affiliates,
and sales of materials and supplies to affiliates.
Other ancillary services revenues increased due to higher facilities rental
revenues from affiliates and the introduction of customer late payment charges
in the third quarter of 1995. These increases were partially offset by a
reduction in billing and collection services revenues primarily as a result of
the elimination of certain services from a contract with an IXC.
VALUE-ADDED SERVICES REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $3,268 14.5%
- --------------------------------------------------------------------------------
Value-added services represent a family of services which expand the
utilization of the network. These services include recent products such as
voice messaging services, Caller ID and Return Call as well as more mature
products such as Centrex, Touch-Tone, and other customer premises wiring and
maintenance services.
The increase in value-added services revenues during the first six months
of 1996 was primarily attributable to continued growth in the network customer
base and higher demand for certain central office and voice messaging services.
These revenue increases were partially offset by a reduction in Touch-Tone
service charges, effective December 31, 1995, in accordance with the Incentive
Regulation Plan. This reduction in Touch-Tone service charges is expected to
reduce value-added services revenues by approximately $4,000,000 on an annual
basis.
8
<PAGE>
Bell Atlantic - West Virginia, Inc.
<TABLE>
<CAPTION>
OPERATING EXPENSES
- ------------------
(Dollars in Thousands)
For the Six Month Period Ended June 30 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Employee costs, including benefits and taxes...... $ 53,929 $ 59,593
Depreciation and amortization..................... 63,415 59,156
Other operating expenses.......................... 104,866 95,177
-------- --------
Total............................................. $222,210 $213,926
======== ========
</TABLE>
EMPLOYEE COSTS
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(5,664) (9.5)%
- --------------------------------------------------------------------------------
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 attributable to savings associated with
lower work force levels in 1996. The effect of employees transferred from the
Company to NSI in December 1995 also contributed to the decrease in employee
costs. These reductions were partially offset by annual salary and wage
increases, as well as increased overtime pay and repair and maintenance activity
principally due to higher business volumes and severe weather conditions in the
first quarter of 1996.
DEPRECIATION AND AMORTIZATION
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $4,259 7.2%
- --------------------------------------------------------------------------------
Depreciation and amortization increased due to growth in depreciable
telephone plant and higher depreciation rates. The composite depreciation rate
was 7.9% for the first six months of 1996, compared to 7.6% for the six month
period ended June 30, 1995.
OTHER OPERATING EXPENSES
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $9,689 10.2%
- --------------------------------------------------------------------------------
Other operating expenses consist of contract services including centralized
services expenses allocated from NSI, rent, network software costs, operating
taxes other than income, the provision for uncollectible accounts receivable and
other costs.
The increase in other operating expenses was largely attributable to higher
centralized services expenses allocated from NSI. This increase was due, in
part, to higher employee costs incurred in that organization as a result of the
transfer of employees from the network operations subsidiaries to NSI in
December 1995. Additional operating costs incurred to enhance billing and
operating systems, consolidate work activities and market value-added services
also contributed to the increase in centralized services expenses during the
first six months of 1996. These increases were partially offset by lower
material costs.
9
<PAGE>
Bell Atlantic - West Virginia, Inc.
OTHER INCOME, NET
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $267
- --------------------------------------------------------------------------------
The change in other income, net was attributable to additional interest
income related to a note receivable from an affiliate.
INTEREST EXPENSE
1996-1995 Increase
- --------------------------------------------------------------------------------
Six Months $3
- --------------------------------------------------------------------------------
Interest expense increased principally due to a reduction in capitalized
interest costs, offset by the effect of additional interest expense in 1995
related to the settlement of federal income tax matters associated with prior
years.
PROVISION FOR INCOME TAXES
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(1,936) (7.1)%
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Six Months Ended June 30
- --------------------------------------------------------------------------------
1996 39.2%
- --------------------------------------------------------------------------------
1995 39.8%
- --------------------------------------------------------------------------------
The Company's effective income tax rate was lower as a result of
adjustments to tax liabilities recorded in the first six months of 1996.
FACTORS THAT MAY IMPACT FUTURE RESULTS
- --------------------------------------
Federal Legislation
The Telecommunications Act of 1996 (the Act) became effective on February
8, 1996 and replaces the Modification of Final Judgment (MFJ). In general, the
Act includes provisions that would open the local exchange market to competition
and would permit local exchange carriers, such as the Company, upon meeting
certain conditions, to provide interLATA services (long distance) and video
programming and to engage in manufacturing. However, the ability of the Company
to engage in businesses previously prohibited by the MFJ is largely dependent on
satisfying certain conditions contained in the Act and regulations promulgated
thereunder. The following is a brief discussion regarding certain provisions of
the Act.
With regard to the rules governing competition in the interLATA market,
the Act takes a two-fold approach. Effective February 8, 1996, Bell Atlantic's
operating telephone subsidiaries and affiliates are permitted to apply for
approval to offer interLATA services outside of the geographic region in which
they currently operate as a local exchange carrier. As of July 31, 1996, a
subsidiary of Bell Atlantic has been marketing such services in three states
outside its region and plans to offer such services in several other states. In
addition, Bell Atlantic's wireless businesses are now permitted to offer
interLATA services without having to comply with the conditions imposed in
waivers granted under the MFJ.
Secondly, within Bell Atlantic's geographic region, each of the operating
telephone subsidiaries, including the Company, must demonstrate to the FCC that
they have satisfied certain requirements in order to be permitted to offer
interLATA services within its jurisdiction. Among the requirements with which
the Company must comply is a 14-point "competitive checklist" which is aimed at
ensuring that competitors have the ability to offer competitive local service,
either through resale, the purchase of unbundled network elements, or through
their own networks. The Company must also demonstrate to the FCC that its entry
into the interLATA market would be in the public interest.
10
<PAGE>
Bell Atlantic - West Virginia, Inc.
The Act also imposes specific requirements that are intended
to promote competition in the local exchange markets. These requirements
(collectively known as interconnection requirements) include
the duty to: (i) provide interconnection to any other carrier for the
transmission and routing of telephone exchange service at any technically
feasible point; (ii) provide unbundled access to network elements at any
technically feasible point; (iii) provide retail services at wholesale prices
for resale; (iv) establish reciprocal compensation arrangements for the
origination and termination of telecommunications; and (v) provide physical
collocation. The specific terms under which the carriers interconnect are to be
negotiated between those carriers.
On August 1, 1996, the FCC adopted an order establishing guidelines for
implementation of the interconnection requirements set forth in the Act. The
FCC's guidelines set the parameters for rules and regulations that state
commissions have established, or will establish, to govern interconnection
agreements that are reached through state arbitrations, when negotiations fail.
The FCC stated that it plans to issue regulations regarding universal service
obligations and access charges in a subsequent order.
No definitive prediction can be made as to the specific impact of the Act
on the business or financial condition of the Company. The financial impact on
the Company will be dependent on several factors, including the timing, extent
and success of competition in the Company's markets, the timing, extent and
success of the Company's pursuit of new business opportunities resulting from
the Act and the provisions of the regulations to be issued by the FCC.
Competition
IntraLATA Toll Services
Competition to offer intrastate intraLATA toll services is currently
permitted in the Company's jurisdiction. Increased competition from IXCs has
resulted in a decline in several components of the Company's toll service
revenues.
Currently, intraLATA toll calls are completed by the Company unless the
customer dials a five-digit access code. Presubscription for intraLATA toll
services would enable customers to make intraLATA toll calls using another
carrier without having to dial the five-digit access code.
In general, the Act prohibits a state from requiring presubscription or
"dialing parity" until the earlier of such time as an operating telephone
company in the state is authorized to provide long distance services within the
state or three years from the effective date of the Act. This prohibition does
not apply to a final order requiring an operating telephone company to implement
presubscription that was issued on or prior to December 19, 1995.
During 1995, the Public Service Commission of West Virginia (PSC) conducted
proceedings to determine whether, and under what conditions, to authorize
presubscription. In October 1995, the PSC issued an order directing the
implementation of presubscription within eighteen months of that order. The
Company has filed an appeal with the West Virginia Supreme Court.
Implementation of presubscription for intraLATA toll services could have a
material negative impact on toll service revenues, especially if the Company is
not permitted contemporaneously to offer interLATA services. The ability to
offset the impact of presubscription will depend, in part, upon how quickly the
Company meets the requirements of the "competitive checklist."
Local Exchange Services
The ability to offer local exchange services has historically been subject
to regulation by the PSC. The Act is expected to significantly increase the
level of competition in the Company's local exchange market. However, increased
competition in the local exchange market will facilitate FCC approval of the
Company's entry into the interLATA markets.
FCC Interim Price Cap Plan
As required by the FCC's Interim Price Cap Plan, Bell Atlantic filed its
Annual Access Tariff Filing of Interstate Rates on April 2, 1996 and amended the
filing on June 27, 1996. In the filing, Bell Atlantic selected the 5.3%
Productivity Factor for the July 1996 to June 1997 tariff period. Companies
selecting the 5.3% Productivity Factor are not required to share earnings in
excess of allowed rates of return. The reduction in the price cap index
resulting from the 5.3% Productivity Factor was more than offset by the reversal
of prior year exogenous rate reductions and the FCC's partial annulment of
ratemaking requirements related to the Company's adoption of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than
11
<PAGE>
Bell Atlantic - West Virginia, Inc.
Pensions." The rates included in the June 27, 1996 filing resulted in actual
price increases for the Company totaling approximately $900,000 on an annual
basis, which became effective on July 20, 1996.
In 1995, Bell Atlantic filed an appeal with the Court of Appeals for the
D.C. Circuit for review of the FCC's Interim Price Cap Plan. On March 29, 1996,
the U.S. Court of Appeals denied Bell Atlantic's petition.
Before the 1997 Annual Access Tariff Filing, Bell Atlantic expects the FCC
to replace the Interim Price Cap Plan for interstate access charges with a
revised price cap plan.
Other State Regulatory Matters
The communications services of the Company are subject to regulation by the
PSC with respect to intrastate rates and services and certain other matters.
In December 1991, the PSC approved an "Incentive Regulation Plan." The
Incentive Regulation Plan continued the major provisions of the prior plan,
including pricing flexibility for competitive services and a freeze on rates for
basic local exchange service. It also committed the Company to invest $450
million from 1991 through 1995 in West Virginia's telecommunications
infrastructure.
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 five year period from 1995 through 1999.
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 situations where remediation activities are currently deemed to be
probable and where the cost of remediation is estimable. Management believes
that the aggregate amount of any additional potential liability would not have a
material effect on the Company's results of operations or financial condition.
Proposed Bell Atlantic - NYNEX Merger
Bell Atlantic and NYNEX Corporation have announced a proposed merger of
equals pursuant to a definitive merger agreement entered into on April 21, 1996,
and amended on July 2, 1996. Under the terms of the amended agreement, a newly-
formed subsidiary will merge with and into NYNEX, with NYNEX becoming a
subsidiary of Bell Atlantic, and each share of NYNEX common stock will be
converted into 0.768 shares of Bell Atlantic common stock. The merger, which is
expected to qualify as a pooling of interests for accounting purposes, is
subject to a number of conditions, including regulatory approvals, receipt of
opinions that the merger will be tax free, and the approval of the shareholders
of both Bell Atlantic and NYNEX. The transaction is expected to close by April
1997.
12
<PAGE>
Bell Atlantic - West Virginia, Inc.
FINANCIAL CONDITION
- -------------------
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization and the payment of dividends. Management expects
that presently foreseeable capital requirements will be financed primarily
through internally generated funds. Additional long-term debt may be needed to
fund development activities and to maintain the Company's capital structure
within management's guidelines.
As of June 30, 1996, the Company had $69,600,000 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 for the issuance of
unsecured debt securities.
The Company's debt ratio was 48.2% at June 30, 1996, compared to 47.7% at
December 31, 1995.
On August 1, 1996, the Company declared and paid a cash dividend in the
amount of $21,000,000 to Bell Atlantic Corporation.
13
<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, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27 Financial Data Schedule.
(b) Report on Form 8-K filed during the quarter ended June 30, 1996:
A Current Report on Form 8-K, dated April 21, 1996, was filed
regarding (i) the Agreement and Plan of Merger, dated as of April
21, 1996, by and among Bell Atlantic Corporation, NYNEX
Corporation and Seaboard Merger Company, and (ii) the Joint Press
Release, dated April 22, 1996, issued by Bell Atlantic Corporation
and NYNEX Corporation.
14
<PAGE>
Bell Atlantic - 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 8, 1996 By /s/ Ritchie A. Ireland, II
-----------------------------------
Ritchie A. Ireland, II
Principal Financial Officer
and Controller
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 5, 1996.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND THE BALANCE
SHEET AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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<SECURITIES> 3,076
<RECEIVABLES> 83,620
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0
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<INTEREST-EXPENSE> 8,797
<INCOME-PRETAX> 64,312
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