<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 March 31, 1999
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 _____
-----
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Bell Atlantic - West Virginia, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES
(including $9,203 and $8,901 from affiliates) $151,365 $145,987
-------------------------------------------------
OPERATING EXPENSES
Employee costs, including benefits and taxes 23,496 26,533
Depreciation and amortization 31,297 30,672
Other (including $27,097 and $28,356 to affiliates) 47,980 49,803
-------------------------------------------------
102,773 107,008
-------------------------------------------------
OPERATING INCOME 48,592 38,979
OTHER INCOME, NET
(including $28 and $667 from affiliate) 163 753
INTEREST EXPENSE
(including $297 and $0 to affiliate) 4,121 4,330
-------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 44,634 35,402
PROVISION FOR INCOME TAXES 14,041 14,242
-------------------------------------------------
NET INCOME $ 30,593 $ 21,160
================================================
</TABLE>
See Notes to Condensed Financial Statements.
1
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Bell Atlantic - West Virginia, Inc.
CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments $ 5,652 $ 8,478
Accounts receivable:
Trade and other, net of allowances for
uncollectibles of $7,989 and $7,315 96,547 98,724
Affiliates 6,202 6,407
Material and supplies 3,995 5,604
Prepaid expenses 2,704 3,036
Deferred income taxes 1,273 1,082
Other 849 ---
-------------------------------------------------
117,222 123,331
-------------------------------------------------
PLANT, PROPERTY AND EQUIPMENT 1,880,068 1,852,670
Less accumulated depreciation 1,159,003 1,133,798
-------------------------------------------------
721,065 718,872
-------------------------------------------------
OTHER ASSETS 9,053 5,269
-------------------------------------------------
TOTAL ASSETS $ 847,340 $ 847,472
=================================================
</TABLE>
See Notes to Condensed Financial Statements.
2
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Bell Atlantic - West Virginia, Inc.
CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate $ 15,292 $ 11,039
Other 25,168 165
Accounts payable and accrued liabilities:
Affiliates 45,430 63,862
Other 82,390 73,671
Other liabilities 15,795 15,902
-----------------------------------------
184,075 164,639
-----------------------------------------
LONG-TERM DEBT 199,462 224,476
-----------------------------------------
EMPLOYEE BENEFIT OBLIGATIONS 114,859 119,260
-----------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 27,585 25,251
Unamortized investment tax credits 5,292 5,539
Other 26,197 25,030
-----------------------------------------
59,074 55,820
-----------------------------------------
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 18,538 11,945
Accumulated other comprehensive loss (152) (152)
------------------------------------------
289,870 283,277
------------------------------------------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT $847,340 $847,472
=========================================
</TABLE>
See Notes to Condensed Financial Statements.
3
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Bell Atlantic - West Virginia, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 51,806 $ 60,802
--------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments 2,826 (1,737)
Additions to plant, property and equipment (31,370) (44,295)
Net change in note receivable from affiliate --- 14,053
Other, net 352 (398)
--------------------------------------------------
Net cash used in investing activities (28,192) (32,377)
--------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations (40) (40)
Net change in note payable to affiliate 4,253 ---
Dividend paid (24,000) (25,400)
Net change in outstanding checks drawn
on controlled disbursement accounts (3,827) (2,985)
--------------------------------------------------
Net cash used in financing activities (23,614) (28,425)
--------------------------------------------------
NET CHANGE IN CASH --- ---
CASH, BEGINNING OF PERIOD --- ---
-------------------------------------------------
CASH, END OF PERIOD $ --- $ ---
=================================================
</TABLE>
See Notes to Condensed Financial Statements.
4
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Bell Atlantic - West Virginia, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Bell Atlantic - West Virginia, Inc. is a wholly owned subsidiary of Bell
Atlantic Corporation (Bell Atlantic). The accompanying unaudited condensed
financial statements have been prepared based upon Securities and Exchange
Commission rules that permit reduced disclosure for interim periods. These
financial statements reflect all adjustments that are necessary for a fair
presentation of results of operations and financial position for the interim
periods shown including normal recurring accruals. The results for the interim
periods are not necessarily indicative of results for the full year. For a more
complete discussion of significant accounting policies and certain other
information, you should refer to the financial statements included in our 1998
Annual Report on Form 10-K.
We have reclassified certain amounts from prior year's data to conform to the
1999 presentation.
2. Dividend
On May 3, 1999, we declared and paid a dividend in the amount of $24,000,000
to Bell Atlantic.
3. New Accounting Standards
Costs of Computer Software
Effective January 1, 1999, we adopted Statement of Position (SOP) No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Under SOP No. 98-1, we capitalize the cost of internal-use
software which has a useful life in excess of one year. Such costs sometimes
include payroll-related costs for internally developed software. Subsequent
additions, modifications or upgrades to internal-use software are capitalized
only to the extent that they allow the software to perform a task it currently
does not perform. Software maintenance and training costs are expensed in the
period in which they are incurred. Also, we now capitalize interest associated
with the development of internal-use software.
Costs of Start-Up Activities
Effective January 1, 1999, we adopted SOP No. 98-5, "Reporting on the Costs
of Start-up Activities." Under this accounting standard, we expense costs of
start-up activities as incurred, including pre-operating, pre-opening and other
organizational costs.
Derivatives and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivatives be measured at fair value and recognized as either assets or
liabilities on our balance sheet. Changes in the fair values of derivative
instruments will be recognized in either earnings or comprehensive income,
depending on the designated use and effectiveness of the instruments. We must
adopt SFAS No. 133 no later than January 1, 2000. The adoption of SFAS No. 133
will have no material effect on our results of operations or financial condition
because we currently do not enter into the use of derivative instruments or
participate in hedging activities.
4. Shareowner's Investment
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Reinvested Comprehensive
(Dollars in Thousands) Stock Surplus Earnings Loss
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $264,065 $7,419 $ 11,945 $(152)
Net income 30,593
Dividend paid to Bell Atlantic (24,000)
-------------------------------------------------
Balance at March 31, 1999 $264,065 $7,419 $ 18,538 $(152)
=================================================
</TABLE>
Net income and comprehensive income were the same for the three months ended
March 31, 1999 and 1998.
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Bell Atlantic - West Virginia, Inc.
5. Litigation and Other Contingencies
Various legal actions and regulatory proceedings are pending to which we are
a party. We have established reserves for specific liabilities in connection
with regulatory and legal matters that we currently deem to be probable and
estimable. We do not expect that the ultimate resolution of pending regulatory
and legal matters in future periods will have a material effect on our financial
condition, but it could have a material effect on our results of operations.
6. Proposed Bell Atlantic - GTE Merger
Bell Atlantic and GTE Corporation (GTE) have announced a proposed merger of
equals under a definitive merger agreement dated as of July 27, 1998. Under the
terms of the agreement, GTE shareholders will receive 1.22 shares of Bell
Atlantic common stock for each share of GTE common stock that they own. Bell
Atlantic shareholders will continue to own their existing shares after the
merger.
It is expected that the merger will qualify as a pooling of interests, which
means that for accounting and financial reporting purposes the companies will be
treated as if they had always been combined. The completion of the merger is
subject to a number of conditions, including certain regulatory approvals,
receipt of opinions that the merger will be tax-free, and the approval of the
shareholders of both Bell Atlantic and GTE. Special meetings to vote on the
merger will be held on May 18, 1999 for GTE shareholders and on May 19, 1999 for
Bell Atlantic shareholders.
Bell Atlantic and GTE are working diligently to complete the merger by the
end of 1999. However, the companies must obtain the approval of a variety of
state and federal regulatory agencies and, accordingly, the merger may close in
the first half of 2000.
6
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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
- ---------------------
We reported net income of $30,593,000 for the three month period ended March
31, 1999, compared to net income of $21,160,000 for the same period in 1998.
Our results for 1999 and 1998 were affected by special items. The special
items in both periods include our allocated share of charges from Bell Atlantic
Network Services, Inc. (NSI).
The following table shows how special items are reflected in our condensed
statements of income for each period:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Ended March 31 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Employee Costs
Merger transition costs $ --- $ 84
Other Operating Expenses
Merger transition costs 6 21
Allocated merger transition costs 325 54
-------------------------------------
$ 331 $ 159
=====================================
</TABLE>
Merger-related Costs
In connection with the Bell Atlantic-NYNEX merger, which was completed in
August 1997, we recorded pre-tax transition and integration costs of $331,000 in
the first quarter of 1999 and $159,000 in the first quarter of 1998.
Transition and integration costs consist of our proportionate share of costs
associated with integrating the operations of Bell Atlantic and NYNEX, such as
systems modifications costs and advertising and branding costs. Transition and
integration costs are expensed as incurred.
OPERATING REVENUE STATISTICS
- ----------------------------
<TABLE>
<CAPTION>
1999 1998 % Change
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At March 31
- -----------
Access Lines in Service (in thousands)
Residence 611 595 2.7%
Business 236 217 8.8
Public 10 10 --
------------------------------------
857 822 4.3
====================================
Three Months Ended March 31
- ---------------------------
Access Minutes of Use (in millions) 858 787 9.0
====================================
</TABLE>
7
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Bell Atlantic - West Virginia, Inc.
OPERATING REVENUES
- ------------------
(Dollars in Thousands)
Three Months Ended March 31 1999 1998
- --------------------------------------------------------------------------------
Local services $ 85,181 $ 80,616
Network access services 47,297 44,613
Long distance services 8,235 10,894
Ancillary services 10,652 9,864
------------------------------------
Total $151,365 $145,987
====================================
LOCAL SERVICES REVENUES
1999 - 1998 Increase
- --------------------------------------------------------------------------------
First Quarter $4,565 5.7%
- --------------------------------------------------------------------------------
Local services revenues are earned from the provision of local exchange,
local private line, public telephone (pay phone) and value-added services.
Value-added services are a family of services that expand the utilization of
the network. These services include products such as Caller ID, Call Waiting
and Return Call.
Growth in local services revenues in the first quarter of 1999 was primarily
due to higher usage of our network facilities. This growth was generated by an
increase in access lines in service of 4.3% from March 31, 1998. Access line
growth primarily reflects higher demand for Centrex services and an increase in
additional residential lines.
Local services revenue growth in the first quarter of 1999 also reflects
strong customer demand and usage of our data transport and digital services.
Revenues from our value-added services were boosted in the first quarter by
marketing and promotional campaigns offering new service packages. These
revenue increases were partially offset by price reductions on local exchange
and public telephone services.
NETWORK ACCESS SERVICES REVENUES
1999 - 1998 Increase
- --------------------------------------------------------------------------------
First Quarter $2,684 6.0%
- --------------------------------------------------------------------------------
Network access services revenues are earned from end-user subscribers and
long distance and other competing carriers who use our local exchange facilities
to provide usage services to their customers. Switched access revenues are
derived from fixed and usage-based charges paid by carriers for access to our
local network. Special access revenues originate from carriers and end-users
that buy dedicated local exchange capacity to support their private networks.
End-user access revenues are earned from our customers and from resellers who
purchase dial-tone services.
Network access services revenue growth in the first quarter of 1999 was
mainly attributable to higher customer demand, as reflected by growth in access
minutes of use of 9.0% from the first quarter of 1998. Volume growth also
reflects a continuing expansion of the business market, particularly for high-
capacity services. In the first three months of 1999, demand for special access
services was higher, reflecting a greater utilization of our network by Internet
service providers and other high-capacity users. Higher network usage by
alternative providers of intraLATA toll services and higher end-user revenues
attributable to an increase in access lines in service also contributed to
revenue growth in the first quarter of 1999.
Volume-related growth was partially offset by net price reductions mandated
by a federal price cap plan. The Federal Communications Commission (FCC)
regulates the rates that we charge long distance carriers and end-user
subscribers for interstate access services. We are required to file new access
rates with the FCC each year under the rules of the Price Cap Plan.
In July 1998, we implemented interstate price decreases of approximately
$2,300,000 on an annual basis. These rates included amounts necessary to recover
our contribution to the FCC's universal service fund. The FCC has created a
multi-billion dollar interstate fund to link schools and libraries to the
Internet and to subsidize low-income customers and rural health care
8
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Bell Atlantic - West Virginia, Inc.
providers. Under the FCC's rules, all providers of interstate telecommunications
services must contribute to the fund. Our contributions to the universal service
fund are included in Other Operating Expenses. Our rates are subject to change
every quarter due to potential increases or decreases in our contribution to the
universal service fund. Changes in required contributions to that fund increased
rates by approximately $100,000 on an annual basis in October 1998 and decreased
rates by approximately $50,000 annually in April 1999. Rates were increased by
approximately $1,300,000 on an annual basis in January 1999 to reflect primarily
the unification of pre-merger Bell Atlantic and NYNEX access rates. These rates
will be in effect through June 1999.
LONG DISTANCE SERVICES REVENUES
1999 - 1998 (Decrease)
- -------------------------------------------------------------------------------
First Quarter $(2,659) (24.4)%
- -------------------------------------------------------------------------------
Long distance services revenues are earned primarily from calls made to
points outside a customer's local calling area, but within our service area
(intraLATA toll). Other long distance services that we provide include 800
services and Wide Area Telephone Service (WATS).
The decline in long distance services revenues was due to the competitive
effects of presubscription for intraLATA toll services. Presubscription, which
permits customers to use an alternative provider of their choice for intraLATA
toll calls without dialing a special access code when placing a call, was
introduced in 1997. In response to presubscription, we have implemented customer
win-back and retention initiatives that include toll calling discount packages
and product bundling offers. The adverse impact on long distance revenues as a
result of presubscription was partially mitigated by increased network access
services revenues for usage of our network by these alternative providers. These
revenue reductions were partially offset by additional revenues generated from
higher calling volumes.
ANCILLARY SERVICES REVENUES
1999 - 1998 Increase
- -------------------------------------------------------------------------------
First Quarter $788 8.0%
- -------------------------------------------------------------------------------
Our ancillary services include such services as billing and collections for
long distance carriers and affiliates, facilities rentals to affiliates and
nonaffiliates, collocation and usage of separately priced (unbundled) components
of our network by competitive local exchange carriers, voice messaging, customer
premises equipment (CPE) and wiring and maintenance services and sales of
materials and supplies to affiliates. Ancillary services revenues also include
fees paid by customers for nonpublication of telephone numbers and multiple
white page listings and fees paid by an affiliate for usage of our directory
listings.
Ancillary services revenues were higher in the first quarter of 1999 as a
result of increased demand by long distance carriers and affiliates for billing
and collection services and higher payments received from competitive local
exchange carriers for the purchase of unbundled network elements, as provided
for by the Telecommunications Act of 1996. These revenue increases were
partially offset by the recognition in 1998 of revenues associated with a
marketing program.
9
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Bell Atlantic - West Virginia, Inc.
OPERATING EXPENSES
- ------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Employee costs, including benefits and taxes $ 23,496 $ 26,533
Depreciation and amortization 31,297 30,672
Other operating expenses 47,980 49,803
------------------------------------
Total $102,773 $107,008
====================================
</TABLE>
EMPLOYEE COSTS
1999 - 1998 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $(3,037) (11.4)%
- --------------------------------------------------------------------------------
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes paid directly by us. Similar costs incurred
by employees of NSI, who provide centralized services on a contract basis, are
allocated to us and are included in Other Operating Expenses.
Employee costs decreased in the first quarter of 1999 primarily as a result
of lower associate overtime pay and lower work force levels. Employee costs
were further reduced by lower pension and benefit costs. The reduction in
pension and benefit costs was due to a number of factors, including lower
pension costs as a result of favorable pension plan investment returns and
changes in plan provisions and actuarial assumptions. These factors were
offset, in part, by higher savings plan contributions, increased healthcare
costs caused by inflation, and benefit plan improvements provided for under new
contracts with associate employees.
These cost reductions were offset, in part, by the effect of annual salary
and wage increases for management and associate employees.
DEPRECIATION AND AMORTIZATION
1999 - 1998 Increase
- -------------------------------------------------------------------------------
First Quarter $625 2.0%
- -------------------------------------------------------------------------------
Depreciation and amortization expense increased in the first quarter of 1999
over the same period in 1998 principally as a result of growth in depreciable
telephone plant and changes in the mix of plant assets. The adoption of
Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" also contributed to the
increase in depreciation and amortization expense in the first quarter of 1999,
but to a lesser extent. Under this new accounting standard, computer software
developed or obtained for internal use is now capitalized and amortized.
Previously, we expensed most of these software purchases as incurred. For
additional information on SOP No. 98-1, see Note 3 to the condensed financial
statements.
These increases were partially offset by the effect of lower rates of
depreciation and amortization.
OTHER OPERATING EXPENSES
1999 - 1998 (Decrease)
- -------------------------------------------------------------------------------
First Quarter $(1,823) (3.7)%
- -------------------------------------------------------------------------------
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 decrease in other operating expenses in the first quarter of 1999 was
largely attributable to the adoption of SOP No. 98-1. Lower purchases of routine
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Bell Atlantic - West Virginia, Inc.
maintenance software, lower costs for contract services and the effect of an
increase in services billed to affiliates also contributed to the decline in
other operating expenses. Other operating expenses was also affected by a
reduction in centralized services expenses allocated from NSI, primarily as a
result of lower employee costs incurred by NSI.
These decreases were partially offset by an increase in the provision for
uncollectible accounts receivable.
OTHER INCOME, NET
1999 - 1998 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $(590) (78.4)%
- --------------------------------------------------------------------------------
The change in other income, net, was attributable to the recognition of
interest income in the first quarter of 1998 associated with a note receivable
from an affiliate.
INTEREST EXPENSE
1999 - 1998 (Decrease)
- --------------------------------------------------------------------------------
First Quarter $(209) (4.8)%
- --------------------------------------------------------------------------------
Interest expense includes costs associated with borrowings and capital
leases, net of interest capitalized as a cost of acquiring or constructing plant
assets.
Interest expense decreased in the first quarter of 1999 primarily as a result
of refinancing long-term debt with short-term debt at a more favorable interest
rate. This decrease was partially offset by a reduction in capitalized interest
costs resulting from lower levels of average telephone plant under construction.
EFFECTIVE INCOME TAX RATES
Three Months Ended March 31
- --------------------------------------------------------------------------------
1999 31.5%
- --------------------------------------------------------------------------------
1998 40.2%
- --------------------------------------------------------------------------------
The effective income tax rate is the provision for income taxes as a
percentage of income before the provision for income taxes. Our effective
income tax rate was lower in the first quarter of 1999 principally due to state
income tax benefits recorded in 1999.
FINANCIAL CONDITION
- -------------------
We use the net cash generated from operations and from external financing to
fund capital expenditures for network expansion and modernization, and pay
dividends. While current liabilities exceeded current assets at both March 31,
1999 and 1998 and December 31, 1998, our sources of funds, primarily from
operations and, to the extent necessary, from readily available financing
arrangements with an affiliate, are sufficient to meet ongoing operating
requirements. Management expects that presently foreseeable capital
requirements will continue to be financed primarily through internally generated
funds. Additional long-term debt may be needed to fund development activities
or to maintain our capital structure to ensure financial flexibility.
As of March 31, 1999, we had $54,308,000 of an unused line of credit with an
affiliate, Bell Atlantic Network Funding Corporation. In addition, we had
$50,000,000 remaining under a shelf registration statement filed with the
Securities and Exchange Commission for the issuance of unsecured debt
securities. Our debt securities continue to be accorded high ratings by primary
rating agencies. Subsequent to the announcement of the Bell Atlantic - GTE
merger, rating agencies have maintained current credit ratings, but have placed
our ratings under review for potential downgrade.
11
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Bell Atlantic - West Virginia, Inc.
Our debt ratio was 45.3% at March 31, 1999, compared to 48.5% at March 31,
1998 and 45.4% at December 31, 1998.
On May 3, 1999, we declared and paid a dividend in the amount of $24,000,000
to Bell Atlantic.
OTHER MATTERS
- -------------
Recent Accounting Pronouncement - Derivatives and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivatives be measured at fair value and recognized as either assets or
liabilities on our balance sheet. Changes in the fair values of the derivative
instruments will be recognized in either earnings or comprehensive income,
depending on the designated use and effectiveness of the instruments. We must
adopt SFAS No. 133 no later than January 1, 2000. The adoption of SFAS No. 133
will have no material effect on our results of operations or financial condition
because we currently do not enter into the use of derivative instruments or
participate in hedging activities.
Year "2000" Update
Bell Atlantic has a comprehensive program to evaluate and address the impact
of the Year 2000 date transition on its subsidiaries' operations, including our
operations. This program includes steps to:
. inventory and assess for Year 2000 compliance our equipment, software and
systems;
. determine whether to remediate, replace or retire noncompliant items, and
establish a plan to accomplish these steps;
. remediate, replace or retire the items;
. test the items, where required; and
. provide management with reporting and issues management to support a seamless
transition to the Year 2000.
State of Readiness
For Bell Atlantic's operating telephone subsidiaries, centralized services
entities and general corporate operations, the program focuses on the
following project groups: Network Elements, Applications and Support Systems,
and Information Technology Infrastructure. At this time, Bell Atlantic has
virtually completed the inventory, assessment and detailed planning phases
for these projects. Remediation/replacement/retirement and testing activities
are well underway. Bell Atlantic plans to fix, replace or retire those items
that were not Year 2000 compliant and that require action to avoid service
impact. Bell Atlantic's goal for these operations is to have its network and
other mission critical systems Year 2000 compliant (including testing) by
June 30, 1999. Bell Atlantic is on schedule to achieve this goal for
substantially all of its network and other mission critical systems. What
follows is a more detailed breakdown of Bell Atlantic's efforts to date.
. Network Elements
Approximately 350 different types of network elements (such as central office
switches) appear in over one hundred thousand instances. When combined in
various ways and using network application systems, these elements are the
building blocks of customer services and networked information transmission
of all kinds. Bell Atlantic originally assessed approximately 70% of these
element types, representing over 90% of all deployed network elements, as
Year 2000 compliant. Late in 1998, through additional testing and
verification, it determined that certain network elements, originally
represented as having no Year 2000-related service impact, were likely to
cause service issues unless remediated. As a result, Bell Atlantic had an
increase in the overall number of network elements requiring repair.
Notwithstanding the additional work effort, as of March 31, 1999, Bell
Atlantic had repaired or replaced approximately 60% of the deployed network
elements requiring remediation, and certification testing/evaluation is well
underway. Bell Atlantic also has made substantial progress on the remaining
network elements. Although Bell Atlantic is generally on track to achieve
its June 30, 1999 goal for network elements, it is possible that the
timeframe for compliance of a small number of network elements may extend
into July or August, without any impact on customer service or its
operations.
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Bell Atlantic - West Virginia, Inc.
. Application and Support Systems
Bell Atlantic has approximately 1,200 applications and systems that support:
(i) the administration and maintenance of its network and customer service
functions (network information systems); (ii) customer care and billing
functions; and (iii) human resources, finance and general corporate
functions. Bell Atlantic originally assessed approximately 48% of these
application systems as either compliant or to be retired. As of March 31,
1999, Bell Atlantic has successfully completed certification
testing/evaluation of approximately 73% of all application systems. Bell
Atlantic also has made substantial progress on the remaining application
systems. Although Bell Atlantic is generally on track to achieve its June
30, 1999 goal for applications and support systems, it is possible that the
timeframe for compliance of a small number of applications and support
systems may extend into July or August, without any impact on customer
service or its operations.
. Information Technology Infrastructure
Approximately 40 mainframe, 1,000 mid-range, and 90,000 personal computers,
related network components and software products comprise Bell Atlantic's
information technology (IT) infrastructure. Of the approximately 1,350
unique types of elements in the inventory for the IT infrastructure, Bell
Atlantic originally assessed approximately 73% as compliant or to be retired.
As of March 31, 1999, Bell Atlantic has successfully completed certification
testing/evaluation of approximately 95% of all mission critical element
types. Bell Atlantic has made substantial progress on the remaining items
and is on track to achieve its June 30, 1999 goal.
Bell Atlantic's Year 2000 program also includes a project to review and
remediate affected systems (including those with embedded technology) within its
buildings and other facilities, a project to assure Year 2000 compliance across
all of its internal business processes, and other specific projects directed
towards insuring it meets its Year 2000 objectives.
Third Party Issues
. Vendors
In general, Bell Atlantic's product vendors have made available either Year
2000-compliant versions of their offerings or new compliant products as
replacements of discontinued offerings. In some cases, the compliance
"status" of the product in question is based on vendor-provided
information, which remains subject to Bell Atlantic testing and
verification activities. In several instances, vendors have not met
original delivery schedules, resulting in delayed testing and deployment.
At this time, Bell Atlantic does not anticipate that such delays will have
a material impact on its ability to achieve Year 2000 compliance within its
desired timeframes.
Bell Atlantic is continuing Year 2000-related discussions with utilities
and similar services providers. In general, information requests to such
services providers have yielded less meaningful information than inquiries
to its product vendors, and Bell Atlantic does not yet have sufficient
information to determine whether key utilities and similar service
providers will successfully complete the Year 2000 transition. However,
Bell Atlantic is now beginning to engage in more productive discussions
with large utilities servicing its facilities and it is hopeful that these
discussions will provide additional assurance of Year 2000 compliance for
those entities. At the present time, Bell Atlantic remains unable to
determine the Year 2000 readiness of most key utilities and similar service
providers or the likelihood that those providers will successfully complete
the Year 2000 transition. Bell Atlantic intends to monitor critical
service provider activities, as appropriate, through the completion of
their respective remediation projects.
. Customers
Bell Atlantic's customers remain keenly interested in the progress of its
Year 2000 efforts, and it anticipates increased demand for information,
including detailed testing data and company-specific responses. Bell
Atlantic is providing limited warranties of Year 2000 compliance for
certain new telecommunications services and other offerings, but it does
not expect any resulting warranty costs to be material.
. Interconnecting Carriers
Bell Atlantic's network operations interconnect with domestic and
international networks of other carriers. If one of these interconnecting
carriers should fail or suffer adverse impact from a Year 2000 problem,
Bell Atlantic's customers could experience impairment of service.
13
<PAGE>
Bell Atlantic - West Virginia, Inc.
Costs
From the inception of Bell Atlantic's Year 2000 project through March 31,
1999, and based on the cost tracking methods it has historically applied to this
project, Bell Atlantic has incurred total pre-tax expenses of approximately $138
million, and it has made capital expenditures of approximately $89 million. For
1999, Bell Atlantic expects to incur total pre-tax expenses for its Year 2000
project of approximately $75 million to $150 million (approximately $16 million
of which was incurred through March 31, 1999) and total capital expenditures of
$75 million to $125 million (approximately $9 million of which was incurred
through March 31, 1999).
Bell Atlantic has investments in various joint ventures and other interests.
At this time, Bell Atlantic does not anticipate that the impact of any Year 2000
remediation costs that they incur will be material to its results of operations.
Risks
The failure to correct a material Year 2000 problem could cause an
interruption or failure of certain of Bell Atlantic's normal business functions
or operations, which could have a material adverse effect on its results of
operations, liquidity or financial condition; however, it considers such a
likelihood remote. Due to the uncertainty inherent in other Year 2000 issues
that are ultimately beyond Bell Atlantic's control, including, for example, the
final Year 2000 readiness of its suppliers, customers, interconnecting carriers,
and joint venture and investment interests, it is unable to determine at this
time the likelihood of a material impact on its results of operations, liquidity
or financial condition, due to such Year 2000 issues. However, Bell Atlantic is
taking appropriate prudent measures to mitigate that risk. Bell Atlantic
anticipates that, in the event of any material interruptions or failures of its
service resulting from actual or perceived Year 2000 problems within or beyond
our control, it could be subject to third party claims.
Contingency Plans
As a public telecommunications carrier, Bell Atlantic has had considerable
experience successfully dealing with natural disasters and other events
requiring contingency planning and execution. As part of Bell Atlantic's
efforts to develop appropriate Year 2000 contingency plans, it is reviewing its
existing Emergency Preparedness and Disaster Recovery plans for any necessary
modifications.
Bell Atlantic has developed, where appropriate, contingency plans for
addressing delays in remediation activities. For example, delay in the
installation of a new Year 2000 compliant system could require remediation of
the existing system. It is also developing a corporate Year 2000 contingency
plan to ensure that core business functions and key support processes are in
place for uninterrupted processing and service, in the event of external (e.g.
power, public transportation, water), internal or supply chain failures (i.e.
critical dependencies on another entity for information, data or services).
Bell Atlantic has prepared an initial draft of its corporate Year 2000
contingency plan and it is continuing to refine and enhance that plan
14
<PAGE>
Bell Atlantic - West Virginia, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no proceedings reportable under this Item.
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 March 31, 1999.
15
<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: May 12, 1999 By /s/ Edwin F. Hall
-----------------------------
Edwin F. Hall
Principal Financial Officer
and Controller
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MAY 6, 1999.
16
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