<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                        
                             ----------------------
                                        
                                   FORM 10-K

                             ----------------------


     (Mark one)
        [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1998

                                       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 1-6964


                         BELL ATLANTIC - VIRGINIA, INC.


   A Virginia Corporation       I.R.S. Employer Identification No. 54-0167060


                 600 East Main Street, Richmond, Virginia 23219


                        Telephone Number (804) 225-6300

                           --------------------------


Securities registered pursuant to Section 12(b) of the Act:  See attached
Schedule A.

Securities registered pursuant to Section 12(g) of the Act:  None.


THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF BELL ATLANTIC CORPORATION, MEETS
THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND
IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION I(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 - Virginia, Inc.

                                   SCHEDULE A


Securities registered pursuant to Section 12(b) of the Act:

                                                           Name of each exchange
Title of each class                                         on which registered
-----------------------                                   ---------------------

Forty Year 7-1/4% Debentures, due June 1, 2012                 New York Stock
                                                                  Exchange
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                               TABLE OF CONTENTS

Item No.                                                                    Page
--------                                                                    ----

                                     PART I

    1.   Business
         (Abbreviated pursuant to General Instruction I(2).)................  1
    2.   Properties.........................................................  6
    3.   Legal Proceedings..................................................  6
    4.   Submission of Matters to a Vote of Security Holders
         (Omitted pursuant to General Instruction I(2).)....................  6
 

                                    PART II

    5.   Market for Registrant's Common Equity and Related
         Stockholder Matters................................................  7
    6.   Selected Financial Data
         (Omitted pursuant to General Instruction I(2).)....................  7
    7.   Management's Discussion and Analysis of Results of Operations
         (Abbreviated pursuant to General Instruction I(2).)................  8
    7A.  Quantitative and Qualitative Disclosures About 
         Market Risk........................................................ 18
    8.   Financial Statements and Supplementary Data........................ 19
    9.   Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure................................ 19


                                    PART III

         (Omitted pursuant to General Instruction I(2).):
    10.  Directors and Executive Officers of the Registrant................  19
    11.  Executive Compensation............................................  19
    12.  Security Ownership of Certain Beneficial Owners and Management....  19
    13.  Certain Relationships and Related Transactions....................  19


                                    PART IV

    14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K..  19



      UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 29, 1999.
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                                     PART I
                                        
Item 1.  Business

                                    GENERAL
                                        
   Bell Atlantic - Virginia, Inc. is incorporated under the laws of the
Commonwealth of Virginia.  Our principal offices are located at 600 East Main
Street, Richmond, Virginia 23219 (telephone number 804-225-6300).  We are a
wholly owned subsidiary of Bell Atlantic Corporation (Bell Atlantic).

   We presently serve a territory consisting of five complete Local Access and
Transport Areas (LATAs) and a part of a sixth LATA.  These LATAs are generally
centered on a city or based on some other identifiable common geography and,
with certain limited exceptions, each LATA marks the boundary within which we
have been permitted by the "Modification of Final Judgment" (MFJ) to provide
telephone service.

We currently provide two basic types of telecommunications services. First, we
transport telecommunications traffic between subscribers located within the same
LATA (intraLATA service), including both local and long distance services. Local
service includes the provision of local exchange (dial-tone), local private line
and public telephone services (including dial-tone service for pay telephones
owned by us and by other pay telephone providers). Among other local services
provided are Centrex (central office-based switched telephone service enabling
the subscriber to make both intercom and outside calls) and a variety of special
and custom calling services. Long distance service includes message toll service
(calling service beyond the local calling area) within LATA boundaries, and
intraLATA Wide Area Toll Service (WATS) and 800 services (volume discount
offerings for customers with highly concentrated demand). Second, we provide
exchange access service, which links a subscriber's telephone or other equipment
to the transmission facilities of interexchange carriers which, in turn, provide
interLATA telecommunications service to their customers. We also provide
exchange access service to interexchange carriers which provide intrastate
intraLATA long distance telecommunications service, as well as local exchange
access to competitive local exchange carriers for calls within a LATA.


                      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.  We will continue to be a wholly owned subsidiary of Bell Atlantic.

   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.


                                   OPERATIONS
                                        
   We are one of nine operating telephone subsidiaries owned by Bell Atlantic.
Bell Atlantic has organized certain telecommunications group functions into
business units operating across the telephone subsidiaries.  The business units
focus on specific market segments.  Each of the operating telephone
subsidiaries, including us, remains responsible within its respective service
area for the provision of telephone services, financial performance and
regulatory matters.  We have one reportable segment, which comprises four
strategic business units.

   The Consumer unit markets communications services to residential customers,
as well as operator services.

   The General Business unit markets communications and information services to
small and medium-sized businesses as well as pay telephone services.

   The Enterprise Business unit markets communications and information
technology and services to large businesses and to departments, agencies and
offices of the executive, judicial and legislative branches of the federal and
state 

                                       1
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

governments. These services include voice switching/processing services (e.g.,
dedicated private lines, custom Centrex, call management and voice messaging),
end-user networking (e.g., credit and debit card transactions, and personal
computer-based conferencing, including data and video), internetworking
(establishing links between the geographically disparate networks of two or more
companies or within the same company), network optimization (disaster avoidance,
911 service, intelligent vehicle highway systems), video services (distance
learning, telemedicine, videoconferencing) and interactive multimedia
applications services.

   The Network Services unit markets (i) switched and special access to the
telephone subsidiaries' local exchange networks, and (ii) billing and collection
services, including recording, rating, bill processing and bill rendering.

Telecommunications Act of 1996

   The Telecommunications Act of 1996 (the 1996 Act) became effective on
February 8, 1996, and replaced the MFJ, a consent decree that arose out of an
antitrust action brought by the United States Department of Justice against
AT&T.  In general, the 1996 Act includes provisions that open local exchange
markets to competition and permit Bell Operating Companies (BOCs), including
ours, to engage in manufacturing and to provide long distance service under
certain conditions.

   The 1996 Act permits us to offer in-region long distance services (that is,
services originating in the states where we operate as a local exchange
carrier), once we have demonstrated to the Federal Communications Commission
(FCC) that we have satisfied certain requirements.  The requirements include a
14-point "competitive checklist" of steps which we must take to help competitors
offer local services through resale, through purchase of unbundled network
elements, or through their own networks.  We must also demonstrate to the FCC
that our entry into the in-region long distance market would be in the public
interest.

   A U.S. Court of Appeals rejected a constitutional challenge to these
provisions, and the Supreme Court recently declined to review that decision.
During the period that the case was pending, we continued to work through the
regulatory process at both the state and federal levels in order to be in a
position to demonstrate compliance with the challenged provisions.

   The U.S. Supreme Court recently reversed a U.S. Court of Appeals decision
that had invalidated certain aspects of the FCC rules implementing provisions of
the 1996 Act.  In particular, the Supreme Court reinstated the FCC's authority
to adopt rules governing the methodology to be used by state commissions in
setting prices for local interconnection and resale arrangements, and reinstated
rules that allow competitors to choose individual terms out of negotiated
interconnection agreements and that prohibit incumbent local telephone companies
from separating network elements that already are combined in the incumbent's
own network.

   The U. S. Supreme Court also decided that the FCC had applied the wrong
standard in determining what elements of their networks incumbent local
telephone companies are obligated to make available to competitors on an
unbundled basis.  Among other things, the FCC failed to account for the fact
that some elements are available from other sources.  As a result of the
decision, the FCC must conduct a new proceeding to apply the correct standard.
Pending that proceeding, we have informally agreed to continue offering the
FCC's previously specified list of unbundled elements.  In addition, a challenge
to the substantive merits of the FCC's pricing rules remains pending in the U.S.
Court of Appeals.

                                       2
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

FCC Regulation and Interstate Rates


   We are subject to the jurisdiction of the FCC with respect to interstate
services and certain related matters.  In 1998, the FCC continued to implement
reforms to the interstate access charge system and to implement the "universal
service" and other requirements of the 1996 Act.


Access Charges

   Interstate access charges are the rates long distance carriers pay for use
and availability of our facilities for the origination and termination of
interstate service. The FCC required a phased restructuring of access charges,
which began in January 1998, so that our non-usage-sensitive costs will be
recovered from long distance carriers and end-users through flat rate charges,
and usage-sensitive costs will be recovered from long distance carriers through
usage-based rates.  In addition, the FCC has required that different levels of
usage-based charges for originating and for terminating interstate traffic be
established.

Price Caps

   Under the FCC price cap rules that apply to interstate access rates, each
year our price cap index is adjusted downward by a fixed percentage intended to
reflect increases in productivity (the productivity factor) and adjusted upward
by an allowance for inflation (the GDP-PI).  The current productivity factor is
6.5 percent.  These changes will be reflected in tariff changes that will be
filed to take effect on July 1, 1999.

   In October 1998, the FCC initiated a proceeding with respect to its price cap
rules to determine whether a change in the current productivity factor is
warranted, whether to continue its "market based" approach of allowing market
forces (supplemented by its price cap rules) to determine access charge levels,
and whether to afford additional pricing flexibility for access services.  In
addition, Bell Atlantic has petitioned the FCC to remove our special access
services from price cap regulation on the grounds that customers of these
services have competitive alternatives available, and a challenge to the FCC
order establishing the 6.5 percent productivity factor is pending in the U.S.
Court of Appeals.  We are unable to predict the results of these further
proceedings.

Universal Service

   The FCC has adopted rules implementing the "universal service" provision of
the 1996 Act.  As of January 1, 1999, the rules require us to contribute
approximately 2% of our interstate retail revenues for high-cost and low-income
subsidies. We are also required to contribute a portion of our total retail
revenues for schools, libraries and not-for-profit health care. We will recover
these contributions through interstate charges to long distance carriers and
end-users.

   A new federal high-cost universal service support mechanism for non-rural
carriers and an increase in the funding level for schools and libraries are
expected to become effective in 1999.  The FCC currently is considering, in
conjunction with a recommendation from a joint board of federal and state
regulators, a number of issues that could affect the size of the universal
service fund for high cost areas and the amount of universal service costs that
are assessed against us for recovery.

Reciprocal Compensation

   We have been required by our state regulators to pay "reciprocal
compensation" to a competitive local exchange carrier to terminate calls on its
network, including a large volume of one-way traffic from our customers to
internet service providers that are its customers.  On February 26, 1999, the
FCC confirmed that such traffic is interstate and interexchange in nature and
not subject to the reciprocal compensation requirements of the 1996 Act.  We
have filed an action in federal court asking for a declaration that we are not
required to make the reciprocal compensation payment to the specific carrier.

                                       3
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

State Regulation of Rates and Services

   The Virginia State Corporation Commission (VSCC) regulates our intrastate
rates and services and certain other matters.

   Effective in 1995, the VSCC approved an optional regulatory plan that
regulates our noncompetitive services on a price cap basis and does not regulate
our competitive services. The plan includes a moratorium on rate increases for
basic local telephone service until 2001 and eliminates regulation of profits.

Competition

   Legislative changes, including provisions of the 1996 Act discussed above
under "Telecommunications Act of 1996," regulatory changes and new technology
are continuing to expand the types of available communications services and
equipment and the number of competitors offering such services.  We anticipate
that these industry changes, together with the rapid growth, enormous size and
global scope of these markets, will attract new entrants and encourage existing
competitors to broaden their offerings.  Current and potential competitors in
telecommunication services include long distance companies, other local
telephone companies, cable companies, wireless service providers, foreign
telecommunications providers, electric utilities and other companies that offer
network services. Many of these companies have a strong market presence, brand
recognition and existing customer relationships, all of which contribute to
intensifying competition and may affect our future revenue growth.

Local Exchange Services

   State regulatory commissions have historically regulated the ability to offer
local exchange services.  The VSCC has approved applications from competitors to
provide and resell local exchange services.

   One of the purposes of the 1996 Act was to ensure, and accelerate, the
emergence of competition in local exchange markets.  Toward this end, the 1996
Act requires most existing local exchange carriers (incumbent local exchange
carriers, or ILECs), including us, to permit potential competitors (competitive
local exchange carriers, or CLECs) to:

   .    purchase service from the ILEC for resale to CLEC customers
   .    purchase unbundled network elements from the ILEC, and/or
   .    interconnect the CLEC network with the ILEC's network.

   The 1996 Act provides for arbitration by the state public utility commission
if an ILEC and a CLEC are unable to reach agreement on the terms of the
arrangement sought by the CLEC.

   Our negotiations with various CLECs, and arbitrations before the VSCC have
continued.  As of January 31, 1999, we had entered into 99 agreements with
CLECs, of which 67 had been approved by our state commission.

   We expect that these agreements, and the 1996 Act, will continue to lead to
substantially increased competition in our local exchange market in 1999 and
subsequent years.  We believe that this competition will be both on a facilities
basis and in the form of resale by CLECs of our service.  Under the various
agreements and arbitrations discussed above, we are generally required to sell
our services to CLECs at discounts ranging from approximately 19% to 21% from
the prices we charge our retail customers.

IntraLATA Toll Services

   IntraLATA toll calls originate and terminate within the same LATA, but
generally cover a greater distance than a local call.  State regulatory
commissions rather than federal authorities generally regulate these services.
The VSCC permits other carriers to offer intraLATA toll services within the
state.

   Until the implementation of "presubscription," we complete intraLATA toll
calls unless the customer dials a code to access a competing carrier.
Presubscription changes this dialing method and enables customers to make these
toll calls using another carrier without having to dial an access code.  We
expect to implement presubscription in May 1999.

                                       4
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

Alternative Access

   A substantial portion of our revenues from business and government customers
is derived from a relatively small number of large, multiple-line subscribers.

   We face competition from alternative communications systems, constructed by
large end-users, interexchange carriers and alternative access vendors, which
are capable of originating and/or terminating calls without the use of our
plant.  The FCC's orders requiring us to offer virtual collocated
interconnection for special and switched access services have enhanced the
ability of such alternative access providers to compete with us.

   Other potential sources of competition include cable television systems,
shared tenant services and other non-carrier systems which are capable of
bypassing our local plant, either partially or completely, through substitution
of special access for switched access or through concentration of
telecommunications traffic on fewer of our lines.

Wireless Services

   Wireless services also constitute potential sources of competition to our
wireline telecommunications services, especially as wireless carriers continue
to lower their prices to end users.  Wireless portable telephone services employ
analog and digital technology that allows customers to make and receive
telephone calls from any location using small handsets, and can also be used for
data transmission.

Public Telephone Services

   We face increasing competition in the provision of pay telephone services
from other providers.  In addition, the growth of wireless communications
decreases usage of public telephones.

Operator Services

   Alternative operator services providers have entered into competition with
our operator services product line.


                                   EMPLOYEES

   As of December 31, 1998, we had approximately 6,600 employees.

                                       5
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

Item 2.  Properties

                                    GENERAL
                                        
   Our principal properties do not lend themselves to simple description by
character and location.  Our investment in plant, property and equipment
consisted of the following at December 31:

 
                                                           1998      1997
                                                           ----      ----
                                                                
   Central office equipment.............................    46%       44%
   Outside communications plant.........................    39        41
   Land and buildings...................................     6         7
   Furniture, vehicles and other work equipment.........     7         6
   Other................................................     2         2
                                                           ---       ---
                                                           100%      100%
                                                           ===       ===

   "Central office equipment" consists of switching equipment, transmission
equipment and related facilities.  "Outside communications plant" consists
primarily of aerial cable, underground cable, conduit and wiring, and telephone
poles. "Land and buildings" consists of land and land improvements, and
principally central office buildings.  "Furniture, vehicles and other work
equipment" consists of public telephone instruments and telephone equipment,
furniture, office equipment, motor vehicles and other work equipment.  "Other"
property consists primarily of plant under construction, capital leases and
leasehold improvements.

   Our customers are served by electronic switching systems that provide a wide
variety of services.  Our network is in a transition from an analog to a digital
network, which provides the capabilities to furnish advanced data transmission
and information management services.  At December 31, 1998, approximately 95% of
the access lines were served by digital capability.


                              CAPITAL EXPENDITURES

   We have been making and expect to continue to make significant capital
expenditures to meet the demand for communications services and to further
improve such services.  Capital expenditures were approximately $587 million in
1998, $499 million in 1997 and $436 million in 1996.  Capital expenditures
exclude additions under capital leases.  Our total investment in plant, property
and equipment was approximately $6.4 billion at December 31, 1998, $6.0 billion
at December 31, 1997 and $5.6 billion at December 31, 1996, including the effect
of retirements, but before deducting accumulated depreciation.

Item 3.  Legal Proceedings

         There were no proceedings reportable under Item 3.


Item 4.  Submission of Matters to a Vote of Security Holders

         (Omitted pursuant to General Instruction I(2).)

                                       6
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                                    PART II


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         Not applicable.


Item 6.  Selected Financial Data

         (Omitted pursuant to General Instruction I(2).)

                                       7
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

Item 7.  Management's Discussion and Analysis of Results of Operations
         (Abbreviated pursuant to General Instruction I(2).)

   This discussion should be read in conjunction with the Financial Statements
and Notes to Financial Statements listed in the index set forth on page F-1.

   The communications services we provide are subject to regulation by the
Virginia State Corporation Commission (SCC) with respect to intrastate rates and
services and certain other matters.  For a further discussion of the company and
our regulatory plan, see Item 1 - "Description of Business."


RESULTS OF OPERATIONS
---------------------

   We reported net income of $332.2 million in 1998, compared to net income of
$279.9 million in 1997.

   Our results for 1998 and 1997 were affected by the following special items.
The special charges in both years include our allocated share of charges from
Bell Atlantic Network Services, Inc. (NSI).

   The following table shows how special items are reflected in our statements
of income for each year:

 
Years ended December 31                              1998        1997       
-------------------------------------------------------------------------------
                                                   (Dollars in Millions)     
                                                      
Operating Revenues                                    
    Regulatory contingencies.......................  $ ---       $15.0
                                                     -----       -----
                                                      
Employee Costs                                        
    Merger direct incremental costs................  $ ---       $ 1.0
    Merger severance costs.........................    ---         3.0
    Merger transition costs........................    1.0         ---
                                                      
Depreciation and Amortization                         
    Write-down of assets...........................    ---        22.0
                                                      
Other Operating Expenses                              
    Merger transition costs........................    2.0         1.0
    Real estate consolidation......................    ---         1.0
    Other special items............................    ---         1.0
    Allocated merger direct incremental,              
        severance and transition costs ............    8.0        10.0
                                                     -----       -----
                                                     $11.0       $39.0
                                                     -----       -----

   What follows is a further explanation of the nature and timing of these
special items.

Merger-Related Costs

   In connection with the Bell Atlantic-NYNEX merger, which was completed in
August 1997, we recorded pre-tax costs totaling $11 million in 1998 and $15
million in 1997.

   In 1998, merger-related charges of $11 million were for transition and
integration costs.  In 1997, merger-related charges consisted of $1 million for
transition and integration costs, $3 million for direct incremental costs and
$11 million for employee severance costs.

   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

                                       8
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

integration costs are expensed as incurred.  Direct incremental costs consist of
expenses associated with compensation arrangements related to completing the
merger transaction.  Employee severance costs, as recorded under SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," represent our proportionate
share of benefit costs for the separation by the end of 1999 of management
employees who are entitled to benefits under pre-existing Bell Atlantic
separation pay plans.  During 1997 and 1998, 18 and 79 management employees were
separated with severance benefits.

Other Charges and Special Items

   During 1997, we recorded other charges and special items totaling
approximately $39 million in connection with consolidating operations and
combining organizations and for special items arising during the year.  These
charges were comprised of the following significant items.

Write-down of Assets and Real Estate Consolidation
   In the third quarter of 1997, we recorded pre-tax charges of approximately
$23 million for the write-down of obsolete fixed assets and for the cost of
consolidating redundant real estate properties.  As part of the merger
integration planning, a review was conducted of the carrying values of long-
lived assets.  This review included estimating remaining useful lives and cash
flows and identifying assets to be abandoned.  As a result of these reviews, we
recorded a charge of approximately $22 million for the write-off of assets.
These assets primarily included computers and other equipment used to transport
data for internal purposes.  None of these assets are being held for disposal.

  In connection with the merger integration efforts, Bell Atlantic consolidated
real estate to achieve a reduction in the total square footage of building space
that it utilizes.  We recorded a charge of approximately $1 million in the third
quarter of 1997 related to this initiative.

Regulatory Contingencies and Other Special Items
  In 1997, we also recorded reductions to operating revenues and charges to
operating expenses totaling approximately $16 million (pre-tax), which consisted
of the following:

     .    Revenue reductions consisted of approximately $15 million for federal
          regulatory matters. These matters relate to specific issues that are
          currently under investigation by federal regulatory commissions. We
          believe that it is probable that the ultimate resolution of these
          pending matters will result in refunds to our customers.
     .    Charges to operating expenses totaled approximately $1 million for
          other post-merger initiatives.

   These and other items affecting the comparison of our results of operations
for the years ended December 31, 1998 and 1997 are discussed in the following
sections.

Segmental Results of Operations

   We have one reportable segment, which provides domestic wireline
telecommunications services.  You may find additional information about segment
reporting in Note 17 to the financial statements.

                                       9
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.


OPERATING REVENUE STATISTICS
----------------------------
 
                                                   1998       1997     % Change
--------------------------------------------------------------------------------
 
At Year-End
-----------
  Access Lines in Service (in thousands)*                           
    Residence...................................   2,172      2,069       5.0%
    Business....................................   1,366      1,292       5.7
    Public......................................      42         42       ---
                                                  ------     ------
                                                   3,580      3,403       5.2
                                                  ======     ======
For the Year                                            
------------
  Access Minutes of Use (in millions)...........  16,426     15,261       7.6
                                                  ======     ======
* 1997 reflects a restatement of access lines in service to include Primary Rate
ISDN (Integrated Services Digital Network) channels to conform with the 1998
presentation.

 
OPERATING REVENUES
------------------
(Dollars in Millions)
 

For the Years Ended December 31                    1998         1997
--------------------------------------------------------------------------------
                                                         
Local services......................            $1,211.8     $1,128.0
Network access services.............               667.0        621.6
Long distance service...............                67.8         74.3
Ancillary services..................               230.9        235.1
Directory and information services..                12.5         12.1
                                                --------     --------
Total...............................            $2,190.0     $2,071.1
                                                ========     ========

LOCAL SERVICES REVENUES

                                               Increase
--------------------------------------------------------------------------------
   1998 - 1997                          $83.8             7.4%
--------------------------------------------------------------------------------

   Local services revenues are earned by us 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 which 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 1998 was primarily due to higher usage
of our network facilities. This growth was generated, in part, by an increase in
access lines in service of 5.2% in 1998, and higher business message volumes.
Access line growth primarily reflects higher demand for Centrex services and an
increase in additional residential lines. Higher revenues from private line and
switched data services also contributed to the revenue growth in 1998.

   Our local services revenues were also boosted by increased customer demand
and usage of our value-added services and the implementation of new charges to
carriers resulting from pay phone deregulation in April 1997.  Revenue growth
was partially offset by price reductions on certain local services.

                                       10
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.


NETWORK ACCESS SERVICES REVENUES

                                               Increase
--------------------------------------------------------------------------------
   1998 - 1997                          $45.4             7.3%
--------------------------------------------------------------------------------

   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 resellers who
purchase retail dial-tone services.

   Our network access services revenue growth in 1998 was mainly attributable to
higher customer demand, as reflected by growth in access minutes of use of 7.6%
in 1998.  Volume growth also reflects continuing expansion of the business
market, particularly for high-capacity services.  In 1998, we saw an increasing
demand for special access services as a result of 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 1998.  Network access services revenues were
also higher due to the effect of recording amounts received from other local
exchange carriers for terminating calls on our network as network access
services revenues, beginning in 1998.  In 1997, these amounts were recorded in
another revenue category, Ancillary Services Revenues.  These increases in
network access revenues were 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.  We implemented price decreases for
interstate access services of approximately $40 million on an annual basis for
the period July 1997 through June 1998.

   In July 1998, we implemented price decreases of approximately $8 million on
an annual basis. The rates include 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 consumers and rural health care 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. In January 1999, our access services rates were increased by
approximately $5 million on an annual basis. The rates included in the July 1998
and January 1999 filings will be in effect through June 1999.


LONG DISTANCE SERVICES REVENUES

                                              (Decrease)
--------------------------------------------------------------------------------
   1998 - 1997                          $(6.5)           (8.7)%
--------------------------------------------------------------------------------

   Long distance services revenues are earned primarily from calls made 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 in 1998 was caused by two
factors. First, we continued to expand our customer's local calling areas during
1998 in response to competition resulting in lower long distance services
revenues. Second, we implemented customer win-back and retention initiatives
that included toll calling discount packages and product bundling offers in
response to competition. These revenue reductions were partially offset by
higher calling volumes generated by an increase in access lines in service.

                                       11
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.


ANCILLARY SERVICES REVENUES

                                              (Decrease)
--------------------------------------------------------------------------------
   1998 - 1997                          $(4.2)           (1.8)%
--------------------------------------------------------------------------------

   Our ancillary services include such services as billing and collections for
long distance carriers and affiliates, facilities rentals to affiliates and
nonaffiliates, usage of separately priced (unbundled) components of our network,
voice messaging, customer premises equipment (CPE) and wiring and maintenance
services, and sales of materials and supplies to affiliates.

   Revenues from ancillary services decreased in 1998 principally due to the
effect of classifying amounts received from other local exchange carriers for
terminating calls on our network as Network Access Services Revenues, beginning
in 1998.  In 1997, these amounts were recorded as an item of ancillary services
revenues.  Lower revenues earned from CPE services under contracts with the
federal government and a reduction in nonperformance fees received from a vendor
also contributed to lower ancillary revenues in 1998.

   These decreases were partially offset by increased demand by long distance
carriers and affiliates for billing and collection services, increased demand
for voice messaging services and higher facilities rental revenues from
affiliates.


DIRECTORY AND INFORMATION SERVICES REVENUES

                                               Increase
--------------------------------------------------------------------------------
   1998 - 1997                            $.4             3.3%
--------------------------------------------------------------------------------

   Directory and information services revenues are earned primarily from fees
for nonpublication of telephone numbers and multiple white page listings, and
from a contract with an affiliate for usage of our directory listings.

   The increase in directory and information services revenues in 1998 was due
to higher fees received from an affiliate for use of  our directory listings and
higher demand for multiple white page listings.


 
OPERATING EXPENSES
------------------
(Dollars in Millions)
 
For the Years Ended December 31                       1998      1997
--------------------------------------------------------------------------------
 
Employee costs, including benefits and taxes.....  $  327.3   $  327.2
Depreciation and amortization....................     448.9      458.9
Other operating expenses.........................     811.0      769.0
                                                   --------   --------
Total............................................  $1,587.2   $1,555.1
                                                   ========   ========

EMPLOYEE COSTS

                                               Increase
------------------------------------------------------------------------------- 
    1998 - 1997                           $.1             ---%
------------------------------------------------------------------------------- 
 
    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 contractual basis,
are allocated to us and are included in Other Operating Expenses.

    Employee costs increased in 1998 primarily from a combination of annual
salary and wage increases for management and associate employees and higher work
force levels.  Other items contributing to the increase, but to a lesser extent,
were higher overtime pay and additional costs billed to us by an affiliate for a
centralized repair and maintenance center.

                                       12
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

   These cost increases were almost entirely offset by lower pension and benefit
costs and the effect of severance and direct incremental merger-related costs
recorded in the third quarter of 1997, as described earlier.  A number of
factors contributed to the reduction in pension and benefit costs, including
favorable pension plan investment returns and lower than expected retiree
medical claims.

   In 1998, we executed a new contract with the union representing associate
employees.  The new contract provides for wage and pension increases and other
benefit improvements as described below.

   The wages, pension and other benefits for our associate employees are
negotiated with a union.  During 1998, we entered into a new 2-year contract
with the Communications Workers of America (CWA).  This contract, which expires
in August 2000, provides for wage increases of up to 3.8 percent effective
August 9, 1998, and up to 4 percent effective August 8, 1999.  Over the course
of this two-year contract period, pensions will increase by 11 percent.  The
contract also includes cash payments, working condition improvements, and
continuation of certain employment security provisions.


DEPRECIATION AND AMORTIZATION

                                               Decrease
-------------------------------------------------------------------------------
   1998 - 1997                         $(10.0)           (2.2)%
-------------------------------------------------------------------------------

   Depreciation and amortization expense decreased in 1998 principally as a
result of lower rates of depreciation and amortization and the recording of a
write-down of obsolete fixed assets in the third quarter of 1997, as described
earlier. These decreases were partially offset by additional expense resulting
from growth in depreciable telephone plant.


OTHER OPERATING EXPENSES

                                               Increase
-------------------------------------------------------------------------------
   1998 - 1997                          $42.0             5.5%
-------------------------------------------------------------------------------

   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
costs for centralized services allocated from NSI, higher costs for network
software purchases, and additional costs in 1998 as a result of our contribution
to the federal universal service fund, as described earlier.  The rise in
centralized services expenses incurred at NSI was primarily caused by higher
contract services costs, additional Year 2000 readiness costs, and transition
and integration costs in connection with the merger of Bell Atlantic and NYNEX.
Partially offsetting this rise were lower pension and benefit costs incurred by
NSI.  We also recognized higher interconnection (reciprocal compensation)
payments to competitive local exchange and other carriers to terminate calls on
their networks.  For more information on reciprocal compensation, see Item 1
"Description of Business, Operations - FCC Regulation and Interstate Rates -
Reciprocal Compensation."

   These increases were partially offset by lower costs for contract services
due, in part, to the disposition of Bell Atlantic's ownership interest in Bell
Communications Research Inc. (Bellcore) in November 1997.  The effect of merger-
related costs and other special items recorded in the third quarter of 1997, as
described earlier, further offset the increases in other operating expenses.

                                       13
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

OTHER INCOME, NET

                                               Increase
-------------------------------------------------------------------------------
   1998 - 1997                           $4.9           233.3%
-------------------------------------------------------------------------------

   The change in other income, net, was attributable to a gain on the sale of
our paging licenses and interest income in connection with the settlement of
tax-related matters in 1998.


INTEREST EXPENSE
                                               Increase
-------------------------------------------------------------------------------
   1998 - 1997                           $1.6             2.4%
-------------------------------------------------------------------------------

   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 increased principally due to the effect of higher levels of
average short-term debt.  This increase was partially offset by higher
capitalized interest costs resulting from higher levels of average telephone
plant under construction.

   See Note 7 to the financial statements for additional information about our
debt.


EFFECTIVE INCOME TAX RATES

   For the Years Ended December 31
-------------------------------------------------------------------------------
   1998                                        38.7%
-------------------------------------------------------------------------------
   1997                                        38.1%
-------------------------------------------------------------------------------

   The effective income tax rate is the provision for income taxes as a
percentage of income before provision for income taxes and cumulative effect of
change in accounting principle.  Our effective income tax rate was higher in
1998 principally due to higher income tax credits recorded in 1997.

   A reconciliation of the statutory federal income tax rate to our effective
income tax rate for each period is provided in Note 12 to the financial
statements.


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 December 31,
1998 and 1997, 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 additional development activities or to maintain our
capital structure to ensure financial flexibility.

   As of December 31, 1998, we had $83.4 million available under our line of
credit with an affiliate, Bell Atlantic Network Funding Corporation, and $116.6
million of borrowings outstanding.  In addition, we had $100.0 million 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.  In a subsequent and unrelated event, Moody's Investor
Services 

                                       14
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

changed its methodology for rating diversified U.S. Telecommunications
Companies.  As a result, our debt rating was downgraded to reflect this new
rating methodology.

   Our debt ratio was 47.1% at December 31, 1998, compared to 51.1% at December
31, 1997.

   On February 1, 1999, we declared and paid a dividend in the amount of $39.1
million to Bell Atlantic.


OTHER MATTERS
-------------

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, in fact 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 February 1999, Bell
   Atlantic had repaired or replaced approximately 50% 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.

 . 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 February
   1999, Bell Atlantic successfully completed certification testing/evaluation
   of approximately 70% of all application systems.  Bell Atlantic also has 

                                       15
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

   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,
   and related network components and software products that 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 February 1999, Bell Atlantic has successfully completed
   certification testing/evaluation of approximately 90% of all 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.

                                       16
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

Costs

   From the inception of Bell Atlantic's Year 2000 project through December 31,
1998, and based on the cost tracking methods it has historically applied to this
project, Bell Atlantic has incurred total pre-tax expenses of approximately $122
million ($97 million of which was incurred in 1998), and it has made capital
expenditures of approximately $80 million (all of which was made in 1998).

   For 1999, Bell Atlantic expects to incur total pre-tax expenses for its Year
2000 project of approximately $100 million to $200 million and total capital
expenditures of $125 million to $175 million.

   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 anticipates that an initial draft of its corporate contingency
plan will be ready by the end of the first quarter of 1999.

                                       17
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

Recent Accounting Pronouncements

Costs of Computer Software
   In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use."  SOP 98-1 provides,
among other things, guidance for determining whether computer software is for
internal use and when the cost related to such software should be expensed as
incurred or capitalized and amortized.  SOP 98-1 is required to be applied
prospectively and will be adopted effective January 1, 1999.  Bell Atlantic
estimates that the implementation of SOP 98-1 will result in a net after-tax
benefit of $200 million to $250 million in 1999 results of operations due to the
prospective capitalization of costs which were previously expensed as incurred.
We anticipate that costs for maintenance and training, as well as the cost of
software that does not add functionality to the existing system will continue to
be expensed as incurred.

Costs of Start-Up Activities
   In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-up Activities." SOP No. 98-5, which will be adopted effective January 1,
1999, requires that costs of start-up activities including pre-operating, pre-
opening and other organizational costs be expensed as incurred. In addition, at
the time of adoption the unamortized balance of any previously deferred start-up
costs must be expensed. The adoption of SOP 98-5 will have no material effect on
our results of operations or financial condition in 1999 because we have not
historically capitalized start-up activities.

Derivatives and Hedging Activities
   In June 1998, the Financial Accounting Standards Board issued 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 and hedging activities.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

   We are exposed to interest rate risk in the normal course of our business.
The majority of our debt is fixed rate debt and we do not use derivatives such
as interest rate swap agreements.  Our short-term borrowings from an affiliate
expose our earnings to changes in short-term interest rates since the interest
rate charged on such borrowings is typically fixed for less than one month.

   The following table summarizes the fair values of our long-term debt as of
December 31, 1998 and 1997.  The table also provides a sensitivity analysis of
the estimated fair values of these financial instruments assuming 100-basis-
point upward and downward parallel shifts in the yield curve. The sensitivity
analysis did not include the fair values of our short-term borrowings from an
affiliate since they are not significantly affected by changes in market
interest rates.
 
                                                (Dollars in Millions)
                                                     December 31,
                                                ---------------------
                                                   1998       1997
                                                ----------  ---------
Fair value of long-term debt                      $1,027.6   $  978.0
Fair value assuming a +100-basis-point shift         955.5      907.9
Fair value assuming a -100-basis-point shift       1,100.3    1,054.8

   The primary reason for the increase in 1998 was the overall decrease in
market interest rates during 1998.

                                       18
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

Item 8.   Financial Statements and Supplementary Data

          The information required by this Item is set forth on Pages F-1
          through F-22.


Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

          Not applicable.


                                    PART III
                                        

Item 10.  Directors and Executive Officers of Registrant

          (Omitted pursuant to General Instruction I(2).)


Item 11.  Executive Compensation

          (Omitted pursuant to General Instruction I(2).)


Item 12.  Security Ownership of Certain Beneficial Owners and Management

          (Omitted pursuant to General Instruction I(2).)


Item 13.  Certain Relationships and Related Transactions

          (Omitted pursuant to General Instruction I(2).)


                                    PART IV


Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K


    (a)   The following documents are filed as part of this report:

          (1)  Financial Statements

               See Index to Financial Statements and Financial Statement
               Schedule appearing on Page F-1.

          (2)  Financial Statement Schedules

               See Index to Financial Statements and Financial Statement
               Schedule appearing on Page F-1.

                                       19
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                                    PART IV


Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
          (Continued)

          (3)  Exhibits

                   Exhibits identified in parentheses below, on file with the
                   Securities and Exchange Commission (SEC), are incorporated
                   herein by reference as exhibits hereto.
                
           3a      Certificate of Incorporation of the registrant, as amended
                   July 28, 1977. (Exhibit 3a to the registrant's Annual Report
                   on Form 10-K for the year ended December 31, 1985, File No.
                   1-6964.)

                   3a(i)  Certificate of Amendment to the registrant's
                          Certificate of Incorporation, as amended August 24,
                          1990. (Exhibit 3a(i) to the registrant's Annual Report
                          on Form 10-K for the year ended December 31, 1990,
                          File No. 1-6964.)
                     
                   3a(ii) Certificate of Amendment to the registrant's
                          Certificate of Incorporation, adopted December 31,
                          1993 and filed January 13, 1994. (Exhibit 3a(ii) to
                          the registrant's Annual Report on Form 10-K for the
                          year ended December 31, 1993, File No. 1-6964.)

           3b      By-Laws of the registrant, as amended December 31, 1996.
                   
                   3b(i)  Consent of Sole Stockholder of Bell Atlantic -
                          Virginia, Inc., dated December 31, 1996.
                          
           4       No instrument which defines the rights of holders of long-
                   term debt of the registrant is filed herewith pursuant to
                   Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
                   regulation, the registrant hereby agrees to furnish a copy of
                   any such instrument to the SEC upon request.

          10a      Agreement among Bell Atlantic Network Services, Inc. and the
                   Bell Atlantic Corporation telephone subsidiaries, dated
                   November 7, 1983. (Exhibit 10b to Bell Atlantic Corporation
                   Annual Report on Form 10-K for the year ended December 31,
                   1993, File No. 1-8606.)
                 
          23       Consent of Independent Accountants.
                 
          27       Financial Data Schedule.

 
     (b)  Reports on Form 8-K:

                   There were no Current Reports on Form 8-K filed during the
                   quarter ended December 31, 1998.

                                       20
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

SIGNATURES


  Pursuant to the requirements of Section 13 or 15(d) 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 - Virginia, Inc.


                                      By    /s/  Edwin F. Hall
                                        -------------------------
                                            Edwin F. Hall
                                            Controller


March 29, 1999

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.


Signature                      Title                           Date
---------                      -----                           ----
                                                              
                                                              
/s/  Hugh R. Stallard          President and                   March 29, 1999
---------------------------    Chief Executive Officer         
 Hugh R. Stallard              and Director                    
                               (Principal Executive Officer) 
                                                              


/s/ Edwin F. Hall              Controller                      March 29, 1999
---------------------------    (Principal Financial Officer)                 
 Edwin F. Hall                  


/s/ Warner F. Brundage, Jr.    Director                        March 29, 1999
---------------------------                           
 Warner F. Brundage, Jr.


/s/  Robert W. Woltz, Jr.      Director                        March 29, 1999
---------------------------                                    
 Robert W. Woltz, Jr.



                                        

                                       21
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.        
                                        
         Index to Financial Statements and Financial Statement Schedule

 
                                                                  Page
                                                                  ----
 
     Report of Independent Accountants..........................   F-2
 
     Statements of Income 
     For the years ended December 31, 1998, 1997 and 1996.......   F-3
 
     Balance Sheets - December 31, 1997 and 1996................   F-4
 
     Statements of Shareowner's Investment
          For the years ended December 31, 1998, 1997 and 1996..   F-6
 
     Statements of Cash Flows
          For the years ended December 31, 1998, 1997 and 1996..   F-7
 
     Notes to Financial Statements..............................   F-8
 
     Schedule II - Valuation and Qualifying Accounts
          For the years ended December 31, 1998, 1997 and 1996..  F-22
 

Financial statement schedules other than that listed above have been omitted
because such schedules are not required or applicable.

                                      F-1
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareowner of Bell Atlantic - Virginia, Inc.

In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Bell
Atlantic  Virginia, Inc. at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.  These financial statements and the financial statement schedule are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.  We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for the opinion expressed
above.

As discussed in Note 1 to the financial statements, in 1996, the Company changed
its method of accounting for directory publishing revenues and expenses.




/s/ PricewaterhouseCoopers LLP



New York, New York
February 9, 1999

                                      F-2
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                  STATEMENTS OF INCOME AND REINVESTED EARNINGS
                        For the Years Ended December 31
                             (Dollars in Millions)
 
 
                                                     1998      1997      1996
                                                   --------  --------  --------
OPERATING REVENUES (including $17.4, $4.4,        
     and $5.2 from affiliates).................... $2,190.0  $2,071.1  $2,156.6
                                                   --------  --------  --------
                                                  
OPERATING EXPENSES                                
     Employee costs, including benefits and 
      taxes.......................................    327.3     327.2     362.8
     Depreciation and amortization................    448.9     458.9     420.1
     Other (including $537.9, $508.0              
          and $519.7 to affiliates)...............    811.0     769.0     812.9
                                                   --------  --------  --------
                                                    1,587.2   1,555.1   1,595.8
                                                   --------  --------  --------
                                                  
OPERATING INCOME..................................    602.8     516.0     560.8
                                                  
OTHER INCOME, NET (including $0, $.1              
     and $.5 from affiliate)......................      7.0       2.1       1.9
                                                  
INTEREST EXPENSE (including $7.5, $3.0            
     and $1.5 to affiliate).......................     67.6      66.0      62.9
                                                   --------  --------  --------
 
Income Before Provision for Income Taxes and
     Cumulative Effect of Change in Accounting 
     Principle....................................    542.2     452.1     499.8
                                                    
PROVISION FOR INCOME TAXES........................    210.0     172.2     189.1
                                                   --------  --------  --------
 
Income Before Cumulative Effect of Change
     in Accounting Principle......................    332.2     279.9     310.7

CUMULATIVE EFFECT OF CHANGE IN
     ACCOUNTING PRINCIPLE
     Directory publishing, net of tax.............      ---       ---      16.4
                                                   --------  --------  --------
                                                  
NET INCOME........................................ $  332.2  $  279.9  $  327.1
                                                   ========  ========  ========
 
                       See Notes to Financial Statements.

                                      F-3
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                                 BALANCE SHEETS
                             (Dollars in Millions)


                                     ASSETS
                                     ------
 
                                                       December 31
                                                   ------------------
                                                     1998      1997
                                                   --------  --------
CURRENT ASSETS
Short-term investments...........................  $   31.3  $   26.0
Accounts receivable:                        
  Trade and other, net of allowances for 
     uncollectibles of $28.1 and $27.6...........     455.3     436.5
  Affiliates.....................................      29.1      29.6
Material and supplies............................      11.0      15.5
Prepaid expenses.................................      11.0       8.9
Deferred income taxes............................       6.2       3.4
Other............................................        .2        .2
                                                   --------  --------
                                                      544.1     520.1
                                                   --------  --------
                                            
PLANT, PROPERTY AND EQUIPMENT....................   6,416.8   5,957.0
Less accumulated depreciation....................   3,603.9   3,265.8
                                                   --------  --------
                                                    2,812.9   2,691.2
                                                   --------  --------
                                            
OTHER ASSETS.....................................      29.4      70.5
                                                   --------  --------
                                            
TOTAL ASSETS.....................................  $3,386.4  $3,281.8
                                                   ========  ========
 

                       See Notes to Financial Statements.

                                      F-4
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                                 BALANCE SHEETS
                             (Dollars in Millions)


                    LIABILITIES AND SHAREOWNER'S INVESTMENT
                    ---------------------------------------
 
                                                         December 31
                                                     -------------------
                                                       1998       1997
                                                     ---------  --------
CURRENT LIABILITIES                          
Debt maturing within one year:               
     Note payable to affiliate.....................  $  116.6   $  110.7
     Other.........................................     101.2        1.3
Accounts payable and accrued liabilities:    
     Affiliates....................................     210.8      226.1
     Other.........................................     302.8      343.8
Advance billings and customer deposits.............      66.5       61.8
                                                     --------   --------
                                                        797.9      743.7
                                                     --------   --------
                                             
LONG-TERM DEBT.....................................     844.6      945.7
                                                     --------   --------
                                             
EMPLOYEE BENEFIT OBLIGATIONS.......................     337.8      384.0
                                                     --------   --------
                                             
DEFERRED CREDITS AND OTHER LIABILITIES       
Deferred income taxes..............................     143.1      107.9
Unamortized investment tax credits.................      14.6       17.1
Other..............................................      54.4       69.7
                                                     --------   --------
                                                        212.1      194.7
                                                     --------   --------
COMMITMENTS (Note 6)                         
                                             
SHAREOWNER'S INVESTMENT                      
Common stock - one share, without            
     par value, owned by parent....................     873.7      873.7
Reinvested earnings................................     320.5      140.0
Accumulated other comprehensive loss...............       (.2)       ---
                                                     --------   --------
                                                      1,194.0    1,013.7
                                                     --------   --------
                                             
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT......  $3,386.4   $3,281.8
                                                     ========   ========
 
                       See Notes to Financial Statements.

                                      F-5
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                STATEMENTS OF CHANGES IN SHAREOWNER'S INVESTMENT
                             (Dollars in Millions)
 
                                                    1998      1997      1996
                                                 --------   -------   -------
COMMON STOCK                                 
     Balance at beginning of year..............  $  873.7   $ 873.7   $ 873.7
                                                 --------   -------   -------
     Balance at end of year....................     873.7     873.7     873.7
                                                 ========   =======   =======
                                               
REINVESTED EARNINGS                            
     Balance at beginning of year..............     140.0     204.8     166.1
     Net income................................     332.2     279.9     327.1
     Dividends paid to Bell Atlantic...........    (152.0)   (331.6)   (288.2)
     Other.....................................        .3     (13.1)      (.2)
                                                 --------   -------   -------
     Balance at end of year....................     320.5     140.0     204.8
                                                 ========   =======   =======
                                               
ACCUMULATED OTHER COMPREHENSIVE LOSS           
     Balance at beginning of year..............       ---       ---       ---
     Minimum pension liability adjustment......       (.2)      ---       ---
                                                 --------   -------   -------
     Balance at end of year....................       (.2)      ---       ---
                                                 ========   =======   =======
                                               
TOTAL SHAREOWNER'S INVESTMENT..................  $1,194.0  $1,013.7  $1,078.5
                                                 ========  ========  ========
                                              
COMPREHENSIVE INCOME                          
     Net income................................  $  332.2  $  279.9  $  327.1
     Minimum pension liability adjustment......       (.2)      ---       ---
                                                 --------  --------  --------
                                                 $  332.0  $  279.9  $  327.1
                                                 ========  ========  ========
 
                       See Notes to Financial Statements.

                                      F-6
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                            STATEMENTS OF CASH FLOWS
                        For the Years Ended December 31
                             (Dollars in Millions)
 

                                                    1998      1997      1996
                                                  --------  --------  --------
                                                  
CASH FLOWS FROM OPERATING ACTIVITIES              
Net income....................................... $ 332.2   $ 279.9   $ 327.1
Adjustments to reconcile net income to            
  net cash provided by operating activities:      
    Depreciation and amortization................   448.9     458.9     420.1
    Cumulative effect of change in                
      accounting principle, net of tax...........     ---       ---     (16.4)
    Deferred income taxes, net...................    30.2      (3.3)     17.5
    Investment tax credits.......................    (2.5)     (3.3)     (4.4)
    Other items, net.............................     1.0       (.4)      (.1)
    Changes in certain assets and liabilities: 
      Accounts receivable........................   (18.3)     31.2     (37.3)
      Material and supplies......................     4.5      (5.6)      (.8)
      Other assets...............................    (2.5)     10.6     (14.9)
      Accounts payable and accrued liabilities...   (13.7)     11.9      28.6
      Employee benefit obligations...............   (46.1)    (26.7)     (1.3)
      Other liabilities..........................   (10.6)      8.5       6.4
                                                  -------   -------   -------
Net cash provided by operating activities........   723.1     761.7     724.5
                                                  -------   -------   -------
                                               
CASH FLOWS FROM INVESTING ACTIVITIES           
Purchases of short-term investments..............   (45.4)    (40.6)    (45.8)
Proceeds from sale of short-term investments.....    40.1      47.3      13.2
Additions to plant, property and equipment.......  (587.1)   (498.7)   (436.4)
Other, net.......................................    15.8      15.0      13.5
                                                  -------   -------   -------
Net cash used in investing activities............  (576.6)   (477.0)   (455.5)
                                                  -------   -------   -------
 
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations    (1.2)     (1.0)     (2.0)
Net change in note payable to affiliate..........     5.9      58.0       (.9)
Dividends paid...................................  (152.0)   (331.6)   (288.2)
Net change in outstanding checks drawn           
  on controlled disbursement accounts............      .8     (10.1)     22.1
                                                  -------   -------   -------
Net cash used in financing activities............  (146.5)   (284.7)   (269.0)
                                                  -------   -------   -------
                                                 
NET CHANGE IN CASH...............................     ---       ---       ---
                                                    
CASH, BEGINNING OF YEAR..........................     ---       ---       ---
                                                  -------   -------   -------
CASH, END OF YEAR................................ $   ---   $   ---   $   ---
                                                  =======   =======   =======
 

                       See Notes to Financial Statements.

                                      F-7
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                         NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Description of Business

   Bell Atlantic - Virginia, Inc. is a wholly owned subsidiary of Bell Atlantic
Corporation (Bell Atlantic). We presently serve a territory consisting of five
complete Local Access and Transport Areas (LATAs) and part of a sixth LATA in
the state of Virginia. We have one reportable segment which provides domestic
wireline telecommunications services. We currently provide two basic types of
telecommunications services. First, we transport telecommunications traffic
between subscribers located within the same LATA (intraLATA service), including
both local and long distance services. Local service includes voice and data
transport, enhanced and custom calling features, directory assistance, private
lines and public telephones. Long distance service includes message toll service
within LATA boundaries and intraLATA Wide Area Toll Service/800 services.
Second, we provide exchange access service, which links a subscriber's telephone
or other equipment to the transmission facilities of interexchange carriers
which, in turn, provide telecommunications service between LATAs (interLATA
service) to their customers. We also provide exchange access service to
interexchange carriers which provide intrastate intraLATA long distance
telecommunications service, as well as local exchange access to competitive
local exchange carriers for calls within a LATA. Other services we provide
include customer premises wiring and maintenance and billing and collection
services. Effective January 1, 1997, we transferred certain assets and
liabilities associated with our directory publishing activities to a newly
formed, wholly owned subsidiary (see Note 4).

   The telecommunications industry is undergoing substantial changes as a result
of the Telecommunications Act of 1996, other public policy changes and
technological advances.  These changes are likely to bring increased competitive
pressures, but will also open new markets to Bell Atlantic, such as long
distance services within its geographic region, upon completion of certain
requirements of the Telecommunications Act of 1996.

   Basis of Presentation

   On August 14, 1997, Bell Atlantic and NYNEX Corporation (NYNEX) completed a
merger, which was accounted for as a pooling of interests.  The financial
statements include certain reclassifications in presentation and certain
retroactive adjustments to conform accounting methodologies as a result of the
merger (see Note 2).

   We prepare our financial statements under generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amounts or certain disclosures.  Actual results could differ
from those estimates.

   Revenue Recognition

   We recognize revenues when services are rendered based on usage of our local
exchange network and facilities.

   Maintenance and Repairs

   We charge the cost of maintenance and repairs, including the cost of
replacing minor items not constituting substantial betterments, to Operating
Expenses.

   Cash and Cash Equivalents

   We consider all highly liquid investments with a maturity of 90 days or less
when purchased to be cash equivalents, except cash equivalents held as short-
term investments.  Cash equivalents are stated at cost, which approximates
market value.

   Short-term Investments

   Our short-term investments consist of cash equivalents held in trust to pay
for certain employee benefits.  Short-term investments are stated at cost, which
approximates market value.

                                      F-8
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

   Material and Supplies

   We include in inventory new and reusable materials which are stated
principally at average original cost, except that specific costs are used in the
case of large individual items.

   Plant and Depreciation

   We state plant, property, and equipment at cost.  Depreciation expense is
principally based on the composite group remaining life method and straight-line
composite rates.  This method provides for the recognition of the cost of the
remaining net investment in telephone plant, less anticipated net salvage value,
over the remaining asset lives. This method requires the periodic revision of
depreciation rates. We used the following asset lives:
 
                                              Average Lives (in years)
                                              ------------------------
   Buildings................................                      30
   Central office equipment.................                    2 - 10
   Outside communications plant.............                   16 - 50
   Furniture, vehicles and other equipment..                    5 - 15

   When we replace or retire depreciable telephone plant, we deduct the carrying
amount of such plant from the respective accounts and charge accumulated
depreciation.  Gains or losses on disposition are amortized with the remaining
net investment in telephone plant.

   Computer Software Costs

   We capitalize initial right-to-use fees for central office switching
equipment, including initial operating system and initial application software
costs.  For noncentral office equipment, only the initial operating system
software is capitalized. Subsequent additions, modifications, or upgrades of
initial software programs, whether operating or application packages, are
expensed as incurred.

   Capitalization of Interest Costs

   We capitalize interest associated with the acquisition or construction of
plant assets. Capitalized interest is reported as a cost of plant and a
reduction in interest cost.

   Income Taxes

   Bell Atlantic and its domestic subsidiaries, including us, file a
consolidated federal income tax return.

   The consolidated amount of current and deferred tax expense is allocated by
applying the provisions of Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes" to each subsidiary as if it were a
separate taxpayer.

   We use the deferral method of accounting for investment tax credits earned
prior to repeal of investment tax credits by the Tax Reform Act of 1986.  We
also defer certain transitional credits earned after the repeal.  We amortize
these credits over the estimated service lives of the related assets as a
reduction to the Provision for Income Taxes.

   Advertising Costs

   We expense advertising costs as they are incurred.

   Stock-Based Compensation

   We participate in stock-based compensation plans sponsored by Bell Atlantic.
Bell Atlantic accounts for stock-based employee compensation plans under
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations and follows the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."

                                      F-9
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

   Change in Accounting Principle - Directory Publishing

   Effective January 1, 1996, we changed our method of accounting for directory
publishing revenues and expenses from the amortized method to the point-of-
publication method.  Under the point-of-publication method, revenues and
expenses are recognized when the directories are published rather than over the
lives of the directories, as under the amortized method.  We believe the point-
of-publication method is preferable because it is the method generally followed
by publishing companies.  This accounting change resulted in a one-time, noncash
increase in net income of $16.4 million (net of income tax of $10.5 million),
which is reported as a cumulative effect of a change in accounting principle at
January 1, 1996.  On an annual basis, the financial impact of applying this
method in 1996 was not significant.

   Adoption of New Accounting Standards

   In 1998, we adopted SFAS No. 130, "Reporting Comprehensive Income" (see Note
9), SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (see Note 17) and SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (see Note 11).  Prior year amounts
have been provided or restated, as required.  These standards require new
disclosures only and do not impact our results of operations or financial
position.

   Recent Accounting Pronouncements

   Costs of Computer Software
   In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use."  SOP 98-1 provides,
among other things, guidance for determining whether computer software is for
internal use and when the cost related to such software should be expensed as
incurred or capitalized and amortized.  SOP 98-1 is required to be applied
prospectively and will be adopted effective January 1, 1999.  Bell Atlantic
estimates that the implementation of SOP 98-1 will result in a net after-tax
benefit of $200 million to $250 million in 1999 results of operations due to the
prospective capitalization of costs which were previously expensed as incurred.
We anticipate that costs for maintenance and training, as well as the cost of
software that does not add functionality to the existing system will continue to
be expensed as incurred.

   Costs of Start-Up Activities
   In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-up Activities." SOP No. 98-5, which will be adopted effective January 1,
1999, requires that costs of start-up activities including pre-operating, pre-
opening and other organizational costs be expensed as incurred. In addition, at
the time of adoption the unamortized balance of any previously deferred start-up
costs must be expensed. The adoption of SOP 98-5 will have no material effect on
our results of operations or financial condition in 1999 because we have not
historically capitalized start-up activities.

   Derivatives and Hedging Activities
   In June 1998, the Financial Accounting Standards Board issued 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 and hedging activities.

                                      F-10
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

2. BELL ATLANTIC - NYNEX MERGER

   On August 14, 1997, Bell Atlantic and NYNEX completed a merger of equals
under a definitive merger agreement entered into on April 21, 1996 and amended
on July 2, 1996.  Under the terms of the amended agreement, NYNEX became a
wholly owned subsidiary of Bell Atlantic.  The merger qualified as a tax-free
reorganization and has been accounted for as a pooling of interests.  Under this
method of accounting, the companies are treated as if they had always been
combined for accounting and financial reporting purposes.

   As a result of conforming the accounting methodologies of Bell Atlantic and
NYNEX, we recorded an after-tax charge of $3.6 million to reinvested earnings as
if the merger had occurred as of the beginning of the earliest period presented.

Merger-Related Costs

   In the third quarter of 1997, we recorded merger-related pre-tax costs of
approximately $3 million for direct incremental costs and $11 million for
employee severance costs.  These costs include approximately $10 million
representing our allocated share of merger-related costs from Bell Atlantic
Network Services, Inc. (NSI), an affiliate which provides centralized services
on a contract basis.  Costs allocated from NSI are included in Other Operating
Expenses.

   Direct incremental costs consist of expenses associated with compensation
arrangements related to completing the merger transaction.  Employee severance
costs, as recorded under SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," represent our proportionate share of benefit costs for the separation
by the end of 1999 of management employees who are entitled to benefits under
pre-existing Bell Atlantic separation pay plans.  During 1997 and 1998, 18 and
79 management employees were separated with severance benefits.  Accrued
postemployment benefit liabilities are included in our balance sheets as a
component of Employee Benefit Obligations.

Other Initiatives

   During 1997, we recorded other charges and special items totaling
approximately $39 million in connection with consolidating operations and
combining organizations and for special items arising during the year.  These
charges were comprised of the following significant items.

Write-down of Assets and Real Estate Consolidation
   In the third quarter of 1997, we recorded pre-tax charges of approximately
$23 million for the write-down of obsolete fixed assets and for the cost of
consolidating redundant real estate properties.  As part of the merger
integration planning, a review was conducted of the carrying values of long-
lived assets.  This review included estimating remaining useful lives and cash
flows and identifying assets to be abandoned.  As a result of these reviews, we
recorded a charge of approximately $22 million for the write-off of assets.
These assets primarily included computers and other equipment used to transport
data for internal purposes.  None of these assets are being held for disposal.

  In connection with the merger integration efforts, Bell Atlantic consolidated
real estate to achieve a reduction in the total square footage of building space
that it utilizes.  We recorded a charge of approximately $1 million in the third
quarter of 1997 related to this initiative.

Regulatory Contingencies and Other Special Items
  In 1997, we also recorded reductions to operating revenues and charges to
operating expenses totaling approximately $16 million (pre-tax), which consisted
of the following:

  .    Revenue reductions consisted of approximately $15 million for federal
       regulatory matters. These matters relate to specific issues that are
       currently under investigation by federal regulatory commissions. We
       believe that it is probable that the ultimate resolution of these
       pending matters will result in refunds to our customers.
  .    Charges to operating expenses totaled approximately $1 million for
       other post-merger initiatives.

                                      F-11
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

   The following table provides a reconciliation of the liabilities associated
with merger-related costs and other charges and special items at December 31,
1998 and 1997.

<TABLE> 
<CAPTION> 
 
                                                 Charged to                              1997                              1998
                                      Beginning  Expense or                             End of                            End of
(Dollars in Millions)                  of Year    Revenue    Deductions   Adjustments    Year   Deductions   Adjustments   Year
------------------------------------  ---------  ----------  -----------  ------------  ------  -----------  -----------  ------
<S>                                   <C>        <C>         <C>          <C>           <C>     <C>          <C>          <C> 
Merger-Related                                                                          
    Direct incremental costs........      $ ---       $  .5      $  (.5)a       $ ---    $ ---       $ ---          $---   $ ---
    Severance obligation............       16.9         3.3         (.9)a        (6.4)    12.9        (1.9)a         2.4    13.4
 
Other Initiatives
    Write-down of fixed assets and
        real estate consolidation...        ---        22.7       (21.6)b         ---      1.1         ---           ---     1.1
    Regulatory contingencies
        and other special items.....        ---        16.0        (3.9)c         ---     12.1        (3.3)d         ---     8.8
                                      ---------  ----------  ----------   -----------   ------  ----------   -----------  ------
                                          $16.9       $42.5      $(26.9)        $(6.4)   $26.1       $(5.2)          2.4   $23.3
                                      =========  ==========  ==========   ===========   ======  ==========   ===========  ======
</TABLE>

 .      Adjustments refer to deductions to the liability that reduced expense, or
       additions to the liability that increased expense resulting from changes
       in circumstances or experience in implementing the planned activities.
 .      Deductions refer to the utilization of the liability through payments,
       asset write-offs, or refunds to customers.
       a - primarily comprised of cash payments
       b - primarily comprised of asset write-offs
       c - comprised of asset write-offs of $2.5 million and refunds to
           customers of $1.4 million
       d - primarily comprised of refunds to customers


3. 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.  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.


4. TRANSFER OF DIRECTORY PUBLISHING ACTIVITIES

   On January 1, 1997, we transferred, at net book value without gain or loss,
certain assets and liabilities associated with its directory publishing
activities to a newly formed, wholly owned subsidiary.  The stock of the
subsidiary was immediately distributed to Bell Atlantic.  The transfer of such
assets and liabilities was completed as part of our and Bell Atlantic's response
to the requirements of the Telecommunications of Act of 1996, which prohibits us
from engaging in electronic publishing or joint sales and marketing of
electronic products.

   We transferred net assets which totaled approximately $13 million, and
consisted of deferred directory production costs (included in prepaid expenses),
fixed assets, and related deferred tax liabilities.

   Revenues related to the directory publishing activities we transferred were
approximately $186 million for the year ended December 31, 1996.  Direct
expenses related to the directory publishing activities we transferred were
approximately $75 million for the same period.  We do not separately identify
indirect expenses attributable to the directory publishing activities, including
expenses related to billing and data management and processing services, legal,
external affairs, depreciation, interest expense and any corresponding tax
expense.

                                      F-12
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

5. PLANT, PROPERTY AND EQUIPMENT

   The following table displays the details of plant, property and equipment,
which is stated at cost:
 
                                                         December 31
                                                      1998         1997
                                                   -----------  ----------
                                                    (Dollars in Millions)
   Land..........................................   $    21.8   $    21.8
   Buildings.....................................       392.7       373.4
   Central office equipment......................     2,936.3     2,634.1
   Outside communications plant..................     2,533.6     2,412.9
   Furniture, vehicles and other work equipment..       422.1       376.4
   Other.........................................        48.8        49.5
   Construction-in-progress......................        61.5        88.9
                                                    ---------   ---------
                                                      6,416.8     5,957.0
   Accumulated depreciation......................    (3,603.9)   (3,265.8)
                                                    ---------   --------- 
   Total.........................................   $ 2,812.9   $ 2,691.2
                                                    =========   =========

6. LEASES

   We lease certain facilities and equipment for use in our operations under
both capital and operating leases  We incurred initial capital lease obligations
of $.006 million in 1998, $1.0 million in 1997 and $.1 million in 1996.

   Capital lease amounts included in plant, property and equipment are as
follows:
 
                                                          December 31
                                                       1998        1997
                                                    ---------   --------- 
                                                    (Dollars in Millions)
                                                 
   Capital leases............                           $20.2       $21.1
   Accumulated amortization..                            (8.5)       (7.4)
                                                    ---------   --------- 
   Total.....................                           $11.7       $13.7
                                                    =========   =========


   Total rent expense amounted to $58.4 million in 1998, $54.5 million in 1997
and $45.1 million in 1996.  Of these amounts, $44.4 million in 1998, $44.7
million in 1997 and $36.4 million in 1996, were lease payments to affiliated
companies.

   This table displays the aggregate minimum rental commitments under
noncancelable leases for the periods shown at December 31, 1998:


 
 Years                                     Capital Leases   Operating Leases
 -----                                    ---------------  -----------------
                                                  (Dollars in Millions)

 1999...................................      $  3.3             $  4.0
 2000...................................         3.2                3.2
 2001...................................         4.2                2.7
 2002...................................         2.7                1.6
 2003...................................         2.7                1.2
 Thereafter.............................        13.3                5.8
                                              ------             ------
 Total minimum rental commitments.......        29.4             $ 18.5
                                                                 ======
 Less interest and executory costs......        13.8
                                              ------
 Present value of minimum                 
  lease payments........................        15.6
 Less current installments..............         1.2
                                              ------
 Long-term obligation at                  
  December 31, 1998.....................      $ 14.4
                                              ======

                                      F-13
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.


7.   DEBT
 
 Debt Maturing Within One Year
 
 Debt maturing within one year consists of the following at December 31:
 
                                                           1998        1997
                                                         ------      ------
(Dollars in Millions)                                             
                                                                  
 Note payable to affiliate (BANFC)...................    $116.6      $110.7
 Long-term debt maturing within one year.............     101.2         1.3
                                                         ------      ------
 Total debt maturing within one year.................    $217.8      $112.0
                                                         ======      ======
                                                                  
 Weighted average interest rate for note payable                  
  outstanding at year-end............................       5.0%        5.8%
                                                         ======      ======

   We have a contractual agreement with an affiliated company, Bell Atlantic
Network Funding Corporation (BANFC), for the provision of short-term financing
and cash management services.  BANFC issues commercial paper and obtains bank
loans to fund the working capital requirements of Bell Atlantic's network
services subsidiaries, including us, and invests funds in temporary investments
on their behalf.  At December 31, 1998, we had $83.4 million of an unused line
of credit with BANFC.

   Long-Term Debt

   Long-term debt consists principally of debentures that we have issued.
Interest rates and maturities of the amounts outstanding are as follows at
December 31:
 
   Description                    Interest Rate   Maturity   1998     1997
   ---------------------------------------------------------------   ---------
                                                         (Dollars in Millions) 
   Ten year debenture..............     7 1/8%      2002    $100.0   $100.0
   Thirty-nine year debenture......     5 1/4       2005      50.0     50.0
   Twelve year debenture...........     6 1/8       2005     100.0    100.0
   Forty year debenture............     5 5/8       2007      65.0     65.0
   Forty year debenture............     6 3/4       2008      70.0     70.0
   Twenty year debenture...........     7 5/8       2012     100.0    100.0
   Forty year debenture............     7 1/4       2012      50.0     50.0
   Thirty year debenture...........     7 7/8       2022     100.0    100.0
   Thirty-one year debenture.......     7 1/4       2024      75.0     75.0
   Thirty-two year debenture.......     7           2025     125.0    125.0
   Forty year debenture............     8 3/8       2029     100.0    100.0
                                                            ------   ------
                                                             935.0    935.0

   Unamortized discount and premium, net...................   (4.8)    (4.9)
   Capital lease obligations - average rate 9.1% and 9.3%..   15.6     16.9
                                                            ------   ------
   Total long-term debt, including current maturities......  945.8    947.0
   Less maturing within one year...........................  101.2      1.3
                                                            ------   ------
   Total long-term debt.................................... $844.6   $945.7
                                                            ======   ======

   Our long-term debt outstanding at December 31, 1998 includes $235.0 million
that is callable.  The call prices range from 101.58% to 100.38% of face value,
depending upon the remaining term to maturity of the issue.  In addition, $100.0
million of our long-term debt, bearing interest at 8 3/8%, will become
redeemable only on October 1, 1999 at the option of the holders.  The redemption
price will be 100.0% of face value plus accrued interest.

                                      F-14
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

8. FINANCIAL INSTRUMENTS

   Concentrations of Credit Risk

   Financial instruments that subject us to concentrations of credit risk
consist primarily of short-term investments and trade receivables.
Concentrations of credit risk with respect to trade receivables other than those
from AT&T are limited due to the large number of customers.  We generated
revenues from services provided to AT&T (primarily network access and billing
and collection) of $182.9 million in 1998, $194.7 million in 1997 and $199.0
million in 1996.

   Fair Value of Financial Instruments

   The table below provides additional information about our material financial
instruments at December 31:
 
Financial Instrument                     Valuation Method
-------------------------------------------------------------------------------
Note payable to affiliate (BANFC)        Carrying amounts
 and short-term investments
 
Debt (excluding capital leases)          Market quotes for similar terms
                                         and maturities or future cash flows
                                         discounted at current rates
 
                                             1998                1997
                                    --------------------  -------------------
                                     Carrying    Fair     Carrying    Fair
                                      Amount    Value     Amount     Value
                                    ---------  ---------  ---------  --------
                                               (Dollars in Millions)
                                  
Debt..............................   $1,046.8   $1,144.2   $1,040.8  $1,088.7
 

9. COMPREHENSIVE INCOME

   Effective January 1, 1998, we adopted SFAS No. 130, "Reporting Comprehensive
Income."  The new rules establish standards for the reporting of comprehensive
income and its components in financial statements.  Comprehensive income
consists of net income and other gains and losses affecting shareowner's
investment that, under generally accepted accounting principles, are excluded
from net income.  The adoption of SFAS No. 130 did not affect our statement of
income, but did affect the presentation of our balance sheet.  We also have
included a statement of shareowner's investment as part of our basic financial
statements.

   The change in other comprehensive loss, net of an income tax benefit, is as 
follows:

                                                        Years ended December 31,
                                                          1998    1997   1996
                                                         ------  ------  -----
                                                        (Dollars in Millions)

   Other comprehensive loss:
    Minimum pension liability adjustment (net of
     income tax benefit of $.1).......................   $ (.2)  $ ---   $ ---
                                                         ------  ------  -----
                                                         $ (.2)  $ ---   $ ---
                                                         ======  ======  =====
 
   Accumulated other comprehensive loss is comprised of the following:

                                                         December 31,
                                                          1998    1997
                                                         ------  ------
   Accumulated other comprehensive loss:
     Minimum pension liability adjustment.............   $ (.2)  $ ---
                                                         ------  ------
                                                         $ (.2)  $ ---
                                                         ======  ======

                                      F-15
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

10.  STOCK INCENTIVE PLANS

   We participate in stock-based compensation plans sponsored by Bell Atlantic.
Bell Atlantic applies APB Opinion No. 25 and related interpretations in
accounting for the plans and has adopted the disclosure-only provisions of SFAS
No. 123.  If Bell Atlantic had elected to recognize compensation expense based
on the fair value at the grant dates for 1996 and subsequent awards consistent
with the provisions of SFAS No. 123, our net income would have been changed to
the pro forma amounts indicated below:


                                         1998        1997       1996
                                        ------      ------     ------
                                            (Dollars in Millions)
   Net income  -As reported..........   $332.2      $279.9     $327.1
               -Pro forma............    328.4       277.2      324.6
                                                             
   These results may not be representative of the effects on pro forma net
income for future years.

   The pro forma net income amounts were determined using the Black-Scholes
option-pricing model based on the following weighted-average assumptions:


                                         1998        1997        1996
                                        ------      ------      ------
                             
   Dividend yield....................    4.59%       4.86%       4.90%
   Expected volatility...............   18.63%      14.87%      14.70%
   Risk-free interest rate...........    5.55%       6.35%       5.40%
   Expected lives (in years).........       5           5        4.5

   The weighted average value of options granted was $6.47 per option during
1998, $4.30 per option during 1997 and $3.62 per option during 1996.


11.  EMPLOYEE BENEFITS


   We participate in the Bell Atlantic benefit plans.  Bell Atlantic maintains
noncontributory defined benefit pension plans for substantially all management
and associate employees, as well as postretirement healthcare and life insurance
plans for our retirees and their dependents. Bell Atlantic also sponsors savings
plans to provide opportunities for eligible employees to save for retirement on
a tax-deferred basis and to encourage employees to acquire and maintain an
equity interest in Bell Atlantic.

   In 1997, following the completion of the merger with NYNEX, the assets of the
Bell Atlantic and NYNEX pension and savings plans were commingled in a master
trust, and effective January 1, 1998, Bell Atlantic established common pension
and savings plan benefit provisions for all management employees.

   The Financial Accounting Standards Board issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," (SFAS No. 132) in
February 1998. This new standard does not change the measurement or recognition
of costs for pensions or other postretirement plans. It standardizes disclosures
and eliminates those that are no longer useful.  The structure of Bell
Atlantic's benefit plans does not provide for the separate determination of
certain disclosures required by SFAS No. 132 for our company.  The required
information is provided on a consolidated basis in Bell Atlantic's Annual Report
on Form 10-K for the year ended December 31, 1998.  What follows are our benefit
costs and obligations for 1998, 1997 and 1996.  The disclosures in 1997 and 1996
reflect the historic benefit plans and actuarial assumptions in effect during
those years, as shown in the tables below.

                                      F-16
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

Pension and Other Postretirement Benefits

   Substantive commitments for future plan amendments are reflected in the
pension costs and benefit obligations. Pension and other postretirement benefits
for our associate employees are subject to collective bargaining agreements.
Modifications in associate benefits have been bargained from time to time, and
Bell Atlantic may also periodically amend the benefits in the management plans.
The following table provides our benefit costs for 1998, 1997 and 1996.

                                                        Years ended December 31,
                                                           (Dollars in Millions)
                                             Pension        Healthcare and Life
                           ----------------------------------------------------
                                     1998     1997    1996   1998   1997   1996
-------------------------------------------------------------------------------
Net periodic (income)                                               
  benefit cost                     $(35.1)  $(16.6)  $ 4.5  $ 7.1  $13.8  $23.2
-------------------------------------------------------------------------------

   Amounts recognized on the balance sheets consist of:
                                                              At December 31,
                                                        (Dollars in Millions)
                                        Pension           Healthcare and Life
                                  -------------------------------------------
                                     1998        1997       1998      1997
-----------------------------------------------------------------------------
 Employee benefit obligations       $(37.4)     $(71.3)    $(274.8)  $(286.0)
 Other assets                           .3          .7         ---       ---
 Accumulated other comprehensive loss   .3         ---         ---       ---
-----------------------------------------------------------------------------

   The changes in benefit obligations from year to year were caused by a number
of factors, including changes in actuarial assumptions (see Assumptions) and
plan amendments.

Assumptions

   The actuarial assumptions used are based on financial market interest rates,
past experience, and management's best estimate of future benefit changes and
economic conditions. Changes in these assumptions may impact future benefit
costs and obligations.  The weighted-average assumptions used in determining
expense and benefit obligations are as follows:

                                              Pension       Healthcare and Life
                                        ---------------------------------------
                                          1998   1997 1996   1998   1997   1996
------------------------------------------------------------------------------- 
 Discount rate at end of year             7.00% 7.25% 7.75%  7.00%  7.25%  7.75%
 Long-term rate of return on plan                     
   assets for the year                    8.90  8.90  8.25   8.90    8.90  8.25
Rate of future increases in                                                
  compensation at end of year             4.00  4.00  4.75   4.00    4.00  4.75
Medical cost trend rate at end of year                       6.00    6.50  7.00
Ultimate (year 2001 for 1998 and 1997,                                    
  year 2008 for 1996)                                        5.00    5.00  5.00
Dental cost trend rate at end of year                        3.50    3.50  4.00
 Ultimate (year 2002)                                        3.00    3.00   ---
-------------------------------------------------------------------------------

Savings Plans and Employee Stock Ownership Plans

   Substantially all of our employees are eligible to participate in savings
plans maintained by Bell Atlantic. Under these plans, a certain percentage of
eligible employee contributions are matched with shares of Bell Atlantic common
stock.  We match employee contributions through two leveraged employee stock
ownership plans (ESOPs) maintained by Bell Atlantic.  Bell Atlantic recognizes
leveraged ESOP cost based on the modified shares allocated method for these
leveraged ESOPs that held securities before December 15, 1989.  We recognize our
proportionate share of total ESOP cost based on our matching obligation
attributable to our participating employees.  We recorded total ESOP cost of
$4.2 million in 1998, $6.5 million in 1997 and $6.7 million in 1996.

                                      F-17
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

12.    INCOME TAXES

   The components of income tax expense are presented in the following table:
 
                                       Years Ended December 31
                                      -------------------------
                                        1998     1997     1996
                                      --------  -------  ------
                                         (Dollars in Millions)
   Current:                 
        Federal.....................   $153.9   $151.7   $151.2
        State and local.............     28.4     27.1     24.8
                                       ------   ------   ------
                                        182.3    178.8    176.0
                                       ------   ------   ------
   Deferred:                
        Federal.....................     25.9     (3.2)    15.1
        State and local.............      4.3      (.1)     2.4
                                       ------   ------   ------
                                         30.2     (3.3)    17.5
                                       ------   ------   ------
                                        212.5    175.5    193.5
   Investment tax credits...........     (2.5)    (3.3)    (4.4)
                                       ------   ------   ------
   Total income tax expense.........   $210.0   $172.2   $189.1
                                       ======   ======   ======

   The following table shows the principal reasons for the difference between
the effective income tax rate and the statutory federal income tax rate:
 
                                        Years Ended December 31
                                       -------------------------
                                         1998     1997     1996
                                       --------  -------  ------
 
   Statutory federal income 
     tax rate.......................     35.0%    35.0%    35.0%
   Investment tax credits...........      (.3)     (.5)     (.6)
   State income taxes, net of 
     federal tax benefits...........      3.9      3.9      3.5
   Other, net.......................       .1      (.3)     (.1)
                                        ------   ------   ------
   Effective income tax rate........     38.7%    38.1%    37.8%
                                        ======   ======   ======
 
   Deferred taxes arise because of differences in the book and tax bases of
certain assets and liabilities.  Significant components of deferred tax
liabilities (assets) are shown in the following table:
 
                                              December 31
                                           1998         1997
                                        -----------  ----------
                                         (Dollars in Millions)
   Deferred tax liabilities:    
        Depreciation................       $ 357.7     $ 351.7
        Other.......................           9.6         4.2
                                           -------     -------
                                             367.3       355.9
                                           -------     -------
   Deferred tax assets:
        Employee benefits...........        (191.0)     (212.3)
        Investment tax credits......          (5.6)       (6.6)
        Advance payments............           (.1)        (.3)
        Other.......................         (33.8)      (32.2)
                                           -------     -------
                                            (230.5)     (251.4)
                                           -------     -------
   Net deferred tax liability.......       $ 136.8     $ 104.5
                                           =======     =======

   Deferred tax assets include approximately $170 million at December 31, 1998
and $172 million at December 31, 1997, related to postretirement benefit costs
recognized under SFAS No. 106.  This deferred tax asset will gradually be
realized over the estimated lives of current retirees and employees.

                                      F-18
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

13.  ADDITIONAL FINANCIAL INFORMATION

     The tables below provide additional financial information related to our
financial statements:
 
                                                  December 31
                                                ---------------
                                                 1998     1997
                                                ------   ------
                                             (Dollars in Millions)
BALANCE SHEETS:                             
Accounts payable and accrued liabilities:   
 Accounts payable - affiliates................  $210.3   $225.6
 Accounts payable - other.....................   217.5    264.4
 Accrued vacation pay.........................    28.8     28.5
 Accrued expenses.............................    26.2     27.0
 Accrued taxes................................    10.1      3.6
 Interest payable - other.....................    20.2     20.3
 Interest payable - affiliate.................      .5       .5
                                                ------   ------
                                                $513.6   $569.9
                                                ======   ======
 
 
                                               Years Ended December 31
                                               ------------------------
                                                 1998     1997    1996
                                               -------   ------  ------
                                                (Dollars in Millions)
STATEMENTS OF CASH FLOWS:
Cash paid during the year for:
 Income taxes, net of amounts refunded........  $178.7   $167.7  $191.5
 Interest, net of amounts capitalized.........    66.8     65.3    64.6
 
STATEMENTS OF INCOME:
Interest expense incurred,
 net of amounts capitalized...................    67.6     66.0    62.9
Capitalized interest..........................     8.6      5.5     5.3
Advertising expense...........................    14.3     10.2    14.2

   Interest paid during the year includes $7.5 million in 1998, $2.6 million in
1997 and $1.6 million in 1996 related to short-term financing services provided
by BANFC (see Note 7).

   Advertising expense includes $13.9 million, $10.0 million and $11.5 million
in 1998, 1997 and 1996 allocated to us by NSI.

   At December 31, 1998 and 1997, $25.1 million and $24.3 million of bank
overdrafts were classified as accounts payable.


14.  TRANSACTIONS WITH AFFILIATES

   Our financial statements include transactions with NSI, BANFC, Bell Atlantic,
and various other affiliates.

   We have contractual arrangements with NSI for the provision of various
centralized services.  These services are divided into two broad categories.
The first category is comprised of network related services which generally
benefit only Bell Atlantic's operating telephone subsidiaries, including us.
These services include administration, marketing, product advertising, sales,
information systems, network technology planning, labor relations, and staff
support for various network operations. The second category is comprised of
overhead and support services which generally benefit all subsidiaries of Bell
Atlantic.  Such services include corporate governance and staff support in
finance, external affairs, legal and corporate secretary, media relations,
employee communications, corporate advertising, human resources, and treasury.
We receive technical and support services billed by Bell Communications
Research, Inc. (Bellcore), a company previously owned jointly by the regional
holding companies.  In 1997, Bell Atlantic and the other Bellcore owners sold
their jointly owned 

                                      F-19
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

investment in Bellcore. We continue to contract with Bellcore for technical and
support services. The costs of these services are billed to us through NSI and
are included with network related services in 1998 in the table below.

   We recognize interest expense and income in connection with contractual
arrangements with BANFC to provide short-term financing, investing and cash
management services to us (see Note 7).

   Operating revenues include obligations to affiliates in connection with an
interstate revenue sharing arrangement with Bell Atlantic's operating telephone
subsidiaries.  Other operating revenues and expenses include miscellaneous items
of income and expense resulting from transactions with other affiliates,
primarily rental of facilities and equipment.  We also paid cash dividends to
our parent, Bell Atlantic.

   Transactions with affiliates are summarized as follows:

 
                                                     Years Ended December 31
                                                    -------------------------
                                                      1998     1997     1996
                                                    --------  -------  ------
                                                      (Dollars in Millions)
   Operating revenues:
        Interstate revenue sharing to affiliates..   $(25.5)  $(25.5)  $(25.5)
        Other revenue from affiliates.............     42.9     29.9     30.7
                                                     ------   ------   ------
                                                       17.4      4.4      5.2
                                                     ------   ------   ------
 
   Operating expenses:
        NSI - network.............................    260.7    273.3    276.8
        NSI - other...............................    199.2    143.0    139.4
        Bellcore..................................      ---     19.8     17.6
        Other.....................................     78.0     71.9     85.9
                                                     ------   ------   ------
                                                      537.9    508.0    519.7
                                                     ------   ------   ------
 
   Interest income from BANFC.....................      ---       .1       .5
 
   Interest expense to BANFC......................      7.5      3.0      1.5
 
   Dividends paid to Bell Atlantic................    152.0    331.6    288.2


   Outstanding balances with affiliates are reported on the balance sheets at
December 31, 1998 and 1997 as Accounts Receivable - Affiliates, Note Payable to
Affiliate, and Accounts Payable and Accrued Liabilities - Affiliates.

   On February 1, 1999, we declared and paid a dividend in the amount of $39.1
million to Bell Atlantic.


15.  REGULATORY MATTERS

   The communications services we provide are subject to regulation by the
Virginia State Corporation Commission (SCC) with respect to intrastate rates and
services and other matters.

   Effective in 1995, the SCC approved an optional regulatory plan that
regulates our noncompetitive services on a price cap basis and does not regulate
our competitive services.  The plan includes a moratorium on rate increases for
basic local telephone service until 2001 and eliminates regulation of profits.

   Prior to 1995, the SCC annually reviewed our earnings on noncompetitive
services.  On June 11, 1996, the SCC ordered us to refund to customers $10.2
million plus interest for the 1992 review period.  Upon completion of this
refund to customers in 1996, our rates are final for all years prior to 1995.

                                      F-20
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

16.  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 which 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.


17.  SEGMENT INFORMATION

   We have adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information."  SFAS No. 131 establishes standards for the way
companies must determine and report information about operating segments in
their annual and interim reports.

   We have one reportable segment, which provides domestic wireline
telecommunications services. Specifically, we provide local telephone services
including voice and data transport, enhanced and custom calling features,
network access, directory assistance, private lines and public telephones. In
addition, we provide customer premises equipment distribution and billing and
collection services. We have four strategic business units (consumer,
enterprise, general and network services) supporting our operations that have
been aggregated into one reportable segment.


18.  QUARTERLY FINANCIAL INFORMATION (unaudited)
 
 
                                Operating  Operating   Net
Quarter Ended                   Revenues    Income    Income
-------------                   ---------  ---------  ------
                                   (Dollars in Millions)
1998:
 March 31.................       $  530.8     $147.0  $ 80.8
 June 30..................          542.0      139.4    77.2
 September 30.............          563.3      169.5    93.2
 December 31..............          553.9      146.9    81.0
                                 --------     ------  ------
 Total....................       $2,190.0     $602.8  $332.2
                                 ========     ======  ======
1997:                      
 March 31.................       $  512.6     $138.2  $ 75.3
 June 30..................          520.5      134.5    75.2
 September 30*............          509.8       89.9    45.1
 December 31..............          528.2      153.4    84.3
                                 --------     ------  ------
 Total....................       $2,071.1     $516.0  $279.9
                                 ========     ======  ======

 * Results of operations for the third quarter of 1997 include costs incurred in
   connection with consolidating operations and combining the organizations of
   Bell Atlantic and NYNEX and for other special items arising during the
   quarter, as well as charges associated with the completion of the merger (see
   Note 2).

                                      F-21
<PAGE>
 
                         Bell Atlantic - Virginia, Inc.

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              For the Years Ended December 31, 1998, 1997 and 1996
                             (Dollars in Millions)
 
                                       Additions             
                                  --------------------                          
                                              Charged                          
                       Balance at  Charged    to Other                Balance  
                       Beginning      to      Accounts   Deductions    at End  
Description            of Period   Expenses    Note(a)     Note(b)    of Period
-----------           ----------  ----------  --------  ----------- ----------- 
                                                                
Allowance for                                                   
Uncollectible                                                   
Accounts Receivable:                                            

  Year 1998..........     $27.6     $15.9       $36.9       $52.3       $28.1
                                                                      
  Year 1997..........     $30.8     $13.9       $27.4       $44.5       $27.6
                                                                      
  Year 1996..........     $19.1     $21.8       $33.4       $43.5       $30.8
---------------------

(a)  (1) Allowance for Uncollectible Accounts Receivable includes amounts
     previously written off which were credited directly to this account when
     recovered, and (2) accruals charged to accounts payable for anticipated
     uncollectible charges on purchases of accounts receivable from others which
     we billed.

(b)  Amounts written off as uncollectible.

                                      F-22
<PAGE>
 
                                    EXHIBITS



                       FILED WITH ANNUAL REPORT FORM 10-K

                   UNDER THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998



                         Bell Atlantic - Virginia, Inc.



                         COMMISSION FILE NUMBER 1-6964
<PAGE>
 
Form 10-K for 1998
File No. 1-6964
Page 1 of 1


                                  EXHIBIT INDEX


Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission (SEC), are incorporated herein by reference as exhibits
hereto.


     Exhibit Number (Referenced to Item 601 of Regulation S-K)
     ---------------------------------------------------------

     3a    Certificate of Incorporation of the registrant, as amended July 28,
           1977.  (Exhibit 3a to the registrant's Annual Report on Form 10-K for
           the year ended December 31, 1985, File No. 1-6964.)

           3a(i)  Certificate of Amendment to the registrant's Certificate of
                  Incorporation, as amended August 24, 1990. (Exhibit 3a(i) to
                  the registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1990, File No. 1-6964.)

           3a(ii) Certificate of Amendment to the registrant's Certificate of
                  Incorporation, adopted December 31, 1993 and filed January 13,
                  1994. (Exhibit 3a(ii) to the registrant's Annual Report on
                  Form 10-K for the year ended December 31, 1993, File No. 1-
                  6964.)

     3b    By-Laws of the registrant, as amended December 31, 1996.

           3b(i) Consent of Sole Stockholder of Bell Atlantic - Virginia, Inc.,
                 dated December 31, 1996.

     4     No instrument which defines the rights of holders of long-term debt
           of the registrant is filed herewith pursuant to Regulation S-K, Item
           601(b)(4)(iii)(A). Pursuant to this regulation, the registrant hereby
           agrees to furnish a copy of any such instrument to the SEC upon
           request.

     10a   Agreement among Bell Atlantic Network Services, Inc. and the Bell
           Atlantic Corporation telephone subsidiaries, dated November 7, 1983.
           (Exhibit 10b to Bell Atlantic Corporation Annual Report on Form 10-K
           for the year ended December 31, 1993, File No. 1-8606.)

     23    Consent of Independent Accountants.

     27    Financial Data Schedule.