<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
-------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-3488
BELL ATLANTIC - NEW JERSEY, INC.
A New Jersey Corporation I.R.S. Employer Identification No. 22-1151770
540 Broad Street, Newark, New Jersey 07101
Telephone Number (201) 649-9900
-------------
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF BELL ATLANTIC CORPORATION, MEETS
THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND
IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION H(2).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
<PAGE>
Bell Atlantic - New Jersey, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $14.7, $13.8,
$53.9 and $43.4 from affiliates).................. $ 864.1 $ 848.4 $2,571.9 $2,545.6
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes..... 201.4 240.7 583.9 636.5
Depreciation and amortization.................... 169.2 162.2 503.0 466.4
Other (including $167.5, $155.5, $476.4
and $455.2 to affiliates)....................... 305.2 305.7 846.5 867.2
-------- -------- -------- --------
675.8 708.6 1,933.4 1,970.1
-------- -------- -------- --------
OPERATING INCOME................................... 188.3 139.8 638.5 575.5
OTHER INCOME (EXPENSE), NET
Allowance for funds used during construction..... --- 1.3 --- 8.4
Other, net....................................... (1.2) (1.1) (2.3) (4.2)
-------- -------- -------- --------
(1.2) 0.2 (2.3) 4.2
INTEREST EXPENSE (including $3.5, $1.4, $9.6,
and $3.9 to affiliate)............................ 21.6 24.0 64.9 76.5
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEMS........................... 165.5 116.0 571.3 503.2
PROVISION FOR INCOME TAXES......................... 56.3 38.0 196.7 160.7
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS.................. 109.2 78.0 374.6 342.5
EXTRAORDINARY ITEMS
Discontinuation of Regulatory Accounting Principles,
Net of Tax..................................... --- (589.7) --- (589.7)
Early Extinguishment of Debt, Net of Tax......... --- --- --- (6.7)
-------- -------- -------- --------
NET INCOME (LOSS).................................. $ 109.2 $ (511.7) $ 374.6 $ (253.9)
======== ======== ======== ========
REINVESTED EARNINGS
At beginning of period........................... $ 204.2 $ 811.2 $ 174.8 $ 750.1
Add: net income (loss).......................... 109.2 (511.7) 374.6 (253.9)
-------- -------- -------- --------
313.4 299.5 549.4 496.2
Deduct: dividends............................... 128.0 133.0 364.0 329.7
other changes........................... 0.1 (0.1) 0.1 (0.1)
-------- -------- -------- --------
At end of period................................. $ 185.3 $ 166.6 $ 185.3 $ 166.6
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
Bell Atlantic - New Jersey, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................ $ 10.7 $ ---
Accounts receivable:
Customers and agents, net of allowances for
uncollectibles of $58.2 and $51.4.......... 577.5 577.8
Affiliates.................................. 17.1 17.7
Other....................................... 31.6 28.4
Material and supplies......................... 18.8 9.9
Prepaid expenses.............................. 234.0 192.6
Deferred income taxes......................... 26.5 24.5
Other......................................... 3.3 5.8
-------- --------
919.5 856.7
-------- --------
PLANT, PROPERTY AND EQUIPMENT................... 8,944.0 8,697.3
Less accumulated depreciation................. 4,850.5 4,555.7
-------- --------
4,093.5 4,141.6
-------- --------
OTHER ASSETS.................................... 78.1 54.8
-------- --------
TOTAL ASSETS.................................... $5,091.1 $5,053.1
======== ========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
Bell Atlantic - New Jersey, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Millions)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate................... $ 216.7 $ 117.4
Other....................................... 29.6 29.3
Accounts payable and accrued liabilities:
Affiliates.................................. 243.0 246.8
Taxes....................................... 16.5 20.4
Other....................................... 424.6 462.4
Advance billings and customer deposits........ 135.5 151.4
-------- --------
1,065.9 1,027.7
-------- --------
LONG-TERM DEBT.................................. 1,297.5 1,301.3
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS.................... 846.8 821.3
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes......................... 34.1 48.1
Unamortized investment tax credits............ 40.8 46.6
Other......................................... 239.5 252.1
-------- --------
314.4 346.8
-------- --------
SHAREOWNER'S INVESTMENT
Common stock - one share, without par value,
owned by parent.............................. 1,381.2 1,381.2
Reinvested earnings........................... 185.3 174.8
-------- --------
1,566.5 1,556.0
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT... $5,091.1 $5,053.1
======== ========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Bell Atlantic - New Jersey, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1995 1994
----------- ----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES............ $ 750.7 $ 676.3
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............... (10.7) ---
Additions to plant, property and equipment......... (476.0) (378.2)
Net change in note receivable from affiliate....... --- 9.4
Other, net......................................... 20.7 5.9
------ ------
Net cash used in investing activities................ (466.0) (362.9)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings........................... --- 249.5
Principal repayments of capital lease obligations.. (3.2) (3.0)
Early extinguishment of debt....................... --- (350.0)
Net change in note payable to affiliate............ 99.3 132.6
Dividends paid..................................... (364.0) (329.7)
Net change in outstanding checks drawn
on controlled disbursement accounts............... (16.8) (12.8)
------ ------
Net cash used in financing activities................ (284.7) (313.4)
------ ------
NET CHANGE IN CASH................................... --- ---
CASH, BEGINNING OF PERIOD............................ --- ---
------ ------
CASH, END OF PERIOD.................................. $ --- $ ---
====== ======
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Bell Atlantic - New Jersey, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by Bell Atlantic - New Jersey, Inc. (the Company) pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). The December 31,
1994 balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles. In
the opinion of management, these financial statements include all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the results of operations, financial position and cash flows. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The Company
believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
Effective August 1, 1994, the Company discontinued accounting for its operations
in accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation."
2. Dividend
On November 1, 1995, the Company declared and paid a dividend in the amount
of $128.0 million to Bell Atlantic Corporation.
3. Reclassifications
Certain reclassifications of the prior year's data have been made to
conform to 1995 classifications.
5
<PAGE>
Bell Atlantic - New Jersey, Inc.
Item 2. Management's Discussion and Analysis of Results of Operations
(Abbreviated pursuant to General Instruction H(2).)
This discussion should be read in conjunction with the Financial Statements
and Notes to Financial Statements.
RESULTS OF OPERATIONS
- ---------------------
The Company reported net income for the first nine months of 1995 of $374.6
million, compared to a loss of $253.9 million for the same period in 1994.
Results for the nine months ended September 30, 1994 included non-cash,
after-tax extraordinary charges of $589.7 million in connection with the
Company's decision to discontinue application of regulatory accounting
principles required by Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" and $6.7 million
related to the early extinguishment of debt.
Major items affecting the comparison of results for the nine month period
ended September 30, 1995, versus the nine month period ended September 30, 1994,
are discussed in the following sections.
OPERATING REVENUES
- ------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30 1995 1994
- --------------------------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C>
Transport Services
Local service............................... $ 646.1 $ 626.1
Network access.............................. 726.8 676.5
Toll service................................ 517.8 558.9
Ancillary Services
Directory publishing........................ 256.9 262.4
Other....................................... 99.2 106.3
Value-added Services.......................... 325.1 315.4
------- --------
Total......................................... $2,571.9 $2,545.6
======== ========
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- -----------------------------------------------
Percentage
Increase
1995 1994 (Decrease)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
At September 30
- ---------------
Access Lines in Service (In thousands)
Residence.................................. 3,571 3,491 2.3%
Business................................... 1,798 1,695 6.1
Public..................................... 94 95 (1.1)
------ ------
5,463 5,281 3.4
====== ======
For the Nine Month Period Ended September 30
- --------------------------------------------
Access Minutes of Use (In millions)
Interstate................................. 14,071 13,184 6.7
Intrastate................................. 3,571 2,905 22.9
------ ------
17,642 16,089 9.7
====== ======
Toll Messages (In millions)
Intrastate................................. 1,624 1,664 (2.4)
Interstate................................. 48 55 (12.7)
------ ------
1,672 1,719 (2.7)
====== ======
</TABLE>
6
<PAGE>
Bell Atlantic - New Jersey, Inc.
LOCAL SERVICE REVENUES
(Dollars in Millions) Increase
================================================================================
Nine Months $ 20.0 3.2%
================================================================================
Local service revenues are earned by the Company from the provision of
local exchange, local private line and public telephone services.
Local service revenues increased primarily due to 3.4% growth in the number
of access lines in service, and increased usage and data transport by business
customers.
NETWORK ACCESS REVENUES
(Dollars in Millions) Increase
================================================================================
Nine Months $ 50.3 7.4%
================================================================================
Network access revenues are received from interexchange carriers (IXCs) for
their use of the Company's local exchange facilities in providing long-distance
services to IXCs' customers and from end-user subscribers. Switched access
service revenues are derived from usage-based charges paid by IXCs for access to
the Company's network. Special access revenues arise from access charges paid by
IXCs and end-users who have private networks, and end-user access revenues are
earned from local exchange carrier customers who pay for access to the network.
Network access revenues increased principally due to higher customer demand
for access services as reflected by growth in access minutes of use and in
private networks, as well as growth in revenues from end-user charges
attributable to increasing access lines in service. Access minutes of use for
the nine months ended September 30, 1995 were higher than the corresponding
period of 1994 by 9.7%. Higher revenues recognized through an interstate revenue
sharing agreement with affiliated companies also contributed to growth in access
revenues. Revenues in 1995 were also positively impacted by a temporary rate
increase that was in effect from March 17, 1995 through July 31, 1995 to recover
prior years "exogenous" postemployment benefit costs.
Revenue growth from volume increases was partially offset by the effect of
price reductions. Under the Federal Communications Commission's (FCC) Price Cap
Plan, price reductions on interstate access services were in effect from July 1,
1994 through July 31, 1995.
In March 1995, the FCC adopted an order approving an Interim Price Cap Plan
for interstate access charges, which replaces the prior Price Cap Plan. As
required by the FCC's order, Bell Atlantic filed its Transmittal of Interstate
Rates, which resulted in price decreases for the Company totaling approximately
$87.8 million on an annual basis, effective August 1, 1995. These price
decreases include the scheduled expiration of a temporary rate increase of
approximately $28.2 million on an annualized basis that was in effect from March
17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment
benefit costs. Approximately 80% of the remaining $59.6 million reduction
results from compliance with the Interim Plan. The remaining 20% represents
reductions that the Company was required to make under the prior Price Cap Plan.
It is expected that these price decreases will be partially offset by volume
increases. Also as part of the filing, Bell Atlantic selected a 5.3%
Productivity Factor, which eliminates the requirement to share a portion of
interstate earnings related to the August 1995 to June 1996 tariff period. See
"Competitive and Regulatory Environment - Federal Regulation" for a further
discussion of FCC interstate access revenue issues.
TOLL SERVICE REVENUES
(Dollars in Millions) (Decrease)
================================================================================
Nine Months $ (41.1) (7.4)%
================================================================================
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area boundaries of the Company,
commonly referred to as "LATAs." Other toll services include 800 services, Wide
Area Telephone Service (WATS) and corridor services (between southern New Jersey
and Philadelphia and northern New Jersey and New York City).
7
<PAGE>
Bell Atlantic - New Jersey, Inc.
The decrease in toll service revenues was caused by a decline in toll
message volumes and price reductions on certain toll services. Toll message
volumes for the nine month period ended September 30, 1995 decreased 2.7% over
the comparable period last year. The decrease in toll messages was primarily due
to increased competition for intraLATA toll, WATS and corridor services,
including the July 1994 introduction of intraLATA toll services competition on
an access code basis. The reduction in toll service revenues also reflects the
impact of customers switching to lower priced optional calling plans offered by
the Company. See "Competitive and Regulatory Environment - State Regulation" for
a further discussion of toll service revenue issues.
DIRECTORY PUBLISHING REVENUES
(Dollars in Millions) (Decrease)
================================================================================
Nine Months $ (5.5) (2.1)%
================================================================================
Directory publishing revenues are earned primarily from local advertising
and marketing services provided to businesses in White and Yellow Pages
directories. Other directory publishing services include database and foreign
directory marketing.
Directory publishing revenues decreased due to lower advertising volumes
resulting from competition from other directory companies as well as other
advertising media, and the effect of a change in billing procedures in 1994.
This decrease was partially offset by increased revenues resulting from higher
rates charged for advertising services.
OTHER ANCILLARY SERVICES REVENUES
(Dollars in Millions) (Decrease)
================================================================================
Nine Months $ (7.1) (6.7)%
================================================================================
Other ancillary services include billing and collection services provided
to IXCs and facilities rental services provided to affiliates and non-
affiliates.
Other ancillary services revenues decreased due to a reduction in billing
and collection revenues as a result of revisions made in early 1995 to the terms
of a contract with an IXC. The revised contract no longer includes certain
billing and collection services. Also contributing to the decline in other
ancillary services revenues was the elimination of intraLATA toll compensation
coincident with the July 1994 commencement of intraLATA toll competition.
VALUE-ADDED SERVICES REVENUES
(Dollars in Millions) Increase
================================================================================
Nine Months $ 9.7 3.1%
================================================================================
Value-added services represent a family of enhanced services including Call
Waiting, Return Call, Caller ID, Answer Call, and Voice Mail. These services
also include customer premises services such as inside wire installation and
maintenance and other central office services and features.
Continued growth in the network customer base (access lines) and higher
demand by residence customers for certain value-added central office and voice
messaging services offered by the Company increased value-added services
revenues in 1995. These increases were partially offset by a reduction in
contract billing for certain advanced premises services for large business
customers. Such premises services, which were primarily performed by the Company
until May 1994, are now being contracted with another affiliate of Bell
Atlantic.
8
<PAGE>
Bell Atlantic - New Jersey, Inc.
OPERATING EXPENSES
- ------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30 1995 1994
- --------------------------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C>
Employee costs, including benefits and taxes... $ 583.9 $ 636.5
Depreciation and amortization.................. 503.0 466.4
Other operating expenses....................... 846.5 867.2
-------- --------
Total.......................................... $1,933.4 $1,970.1
======== ========
</TABLE>
EMPLOYEE COSTS
(Dollars in Millions) (Decrease)
================================================================================
Nine Months $ (52.6) (8.3)%
================================================================================
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes paid directly by the Company. Similar costs
incurred by employees of Bell Atlantic Network Services, Inc. (NSI), who provide
centralized services on a contract basis, are allocated to the Company and are
included in other operating expenses.
The decrease in employee costs was principally due to the effect of a third
quarter 1994 charge of $35.4 million to recognize benefit costs for the
separation of employees who are entitled to benefits under preexisting Bell
Atlantic separation pay plans. Reduced overtime pay and the effect of lower
workforce levels in 1995 also contributed to the decrease in employee costs.
These cost reductions were partially offset by annual salary and wage increases
and the recognition of certain contract labor and separation pay costs
associated with a new five-year labor contract with the International
Brotherhood of Electrical Workers (IBEW).
In June 1995, the Company ratified a contract with the IBEW, representing
approximately 7,800 employees. The IBEW contract, which was effective May 21,
1995, provided for a 14.5% wage increase over the five-year contract period; a
ratification bonus; improved benefits and pensions; and certain employment
security provisions.
The Company's contract with the Communications Workers of America (CWA)
expired on August 5, 1995. As of November 6, 1995, the Company and the CWA have
not reached a settlement on a new contract and the Company continues to make
work available to employees represented by the CWA at the same wages and
benefits as under the expired contract until further notice.
DEPRECIATION AND AMORTIZATION
(Dollars in Millions) Increase
================================================================================
Nine Months $ 36.6 7.8%
================================================================================
Depreciation and amortization increased due to higher depreciation rates
and growth in depreciable telephone plant. The higher depreciation rates
resulted principally from the discontinued application of regulatory accounting
principles, effective August 1, 1994. The composite depreciation rate was 7.9%
for the first nine months of 1995. The Company expects this composite
depreciation rate to remain substantially unchanged for the remainder of 1995.
OTHER OPERATING EXPENSES
(Dollars in Millions) (Decrease)
================================================================================
Nine Months $ (20.7) (2.4)%
================================================================================
Other operating expenses consist primarily of contracted services including
centralized services expenses allocated from NSI, rent, network software costs,
operating taxes other than income, provision for uncollectible accounts
receivable, and other costs.
9
<PAGE>
Bell Atlantic - New Jersey, Inc.
Other operating expenses decreased due to a reduction in the provision for
uncollectible accounts receivable, principally as a result of a higher level of
fraudulent calling card toll calls in 1994. Other operating expenses were
further reduced by lower contracted labor and engineering costs, lower directory
production costs and lower network software costs primarily due to the timing of
purchases.
These decreases were partially offset by higher centralized services costs
allocated from NSI, primarily as a result of increased advertising costs, as
well as additional costs incurred in that organization to enhance systems and
consolidate work activities at Bell Atlantic's network services subsidiaries.
OTHER INCOME (EXPENSE), NET
(Dollars in Millions) (Decrease)
================================================================================
Nine Months $ (6.5)
================================================================================
The change in other income (expense), net, was largely attributable to the
termination of income related to the allowance for funds used during
construction.
Upon the discontinued application of regulatory accounting principles,
effective August 1, 1994, the Company began recognizing capitalized interest
costs as a reduction of interest expense. Previously, the Company recorded an
allowance for funds used during construction as an item of other income.
INTEREST EXPENSE
(Dollars in Millions) (Decrease)
================================================================================
Nine Months $ (11.6) (15.2)%
================================================================================
Interest expense decreased principally due to the recognition of
capitalized interest costs, subsequent to the discontinued application of
regulatory accounting principles, effective August 1, 1994.
PROVISION FOR INCOME TAXES
(Dollars in Millions) Increase
================================================================================
Nine Months $ 36.0 22.4%
================================================================================
EFFECTIVE INCOME TAX RATES
For the Nine Months Ended September 30
================================================================================
1995 34.4%
- --------------------------------------------------------------------------------
1994 31.9%
================================================================================
The Company's effective income tax rate was higher in 1995 principally due
to the reduction in the amortization of investment tax credits and the
elimination of the benefit of the rate differential applied to reversing timing
differences, both as a result of the discontinued application of regulatory
accounting principles in August 1994.
COMPETITIVE AND REGULATORY ENVIRONMENT
- --------------------------------------
The communications industry continues to undergo fundamental changes which
may have a significant impact on future financial performance of
telecommunications companies. These changes are being driven by a number of
factors, including the accelerated pace of technological innovation, the
convergence of the telecommunications, cable television, information services
and entertainment businesses, and a regulatory environment in which traditional
barriers to entry are being lowered or eliminated and competition permitted or
encouraged.
10
<PAGE>
Bell Atlantic - New Jersey, Inc.
The Company's telecommunications business is subject to competition from
numerous sources. An increasing amount of this competition is from companies
that have substantial capital, technological and marketing resources, many of
which do not face the same regulatory constraints as the Company.
Well-financed competitors are seeking authority, or are likely soon to seek
authority, to offer competing local exchange services, such as dial tone and
local usage, in some of the most lucrative of the Company's local telephone
service areas. In January 1995, MFS-Intelenet filed a petition with the Board of
Public Utilities (BPU) to provide local exchange service in areas served by the
Company.
The entry of well-financed competitors has the potential to adversely
affect multiple revenue streams of the Company, including toll, local exchange
and network access services in the markets and geographical areas in which the
competitors operate. The amount of revenue reductions will depend, in part, on
the competitors' success in marketing these services and the conditions
established by regulatory authorities. The potential impact is expected to be
offset, to some extent, by revenues from interconnection charges to be paid to
the Company by these competitors.
The Company continues to respond to competitive challenges by intensely
focusing on meeting customer requirements and cost controls through efficiency
and productivity initiatives.
Federal Regulation
On August 4, 1995, the U.S. House of Representatives passed a bill which
includes provisions that would open local exchange markets to competitors and
would permit local exchange carriers, such as the Company, to provide video
programming, as well as to provide interLATA services and engage in
manufacturing, upon meeting certain conditions. The Senate passed a similar bill
in June of 1995. The Company is cautiously optimistic that a conference
committee will reconcile the two bills, and Congress will pass comprehensive
telecommunications legislation by the end of 1995. However, no definitive
prediction can be made as to whether or when such legislation will be enacted,
the provisions thereof, or the impact on the business or financial condition of
the Company.
In February 1995, the FCC issued an Order to Show Cause with respect to
certain findings contained in an independent audit of Bell Atlantic's network
services subsidiaries' 1988 and first quarter 1989 reported adjustments to the
National Exchange Carrier Association (NECA) interstate common line pool. On May
2, 1995, Bell Atlantic filed its response to the Show Cause Order, asserting
that there is no legal basis for the FCC to institute enforcement proceedings
with respect to these findings. The FCC solicited comments on Bell Atlantic's
filing, and only one party filed comments challenging Bell Atlantic's response.
On September 11, 1995, Bell Atlantic filed a reply to these comments,
reasserting its position that no proceedings are warranted. Resolution of this
matter is expected late in 1995.
FCC Interim Price Cap Order
On March 30, 1995, the FCC adopted its Report and Order approving an
Interim Price Cap Plan for interstate access charges. The Interim Plan, which
was effective August 1, 1995, replaces the Price Cap Plan that the FCC adopted
in 1990.
Under the Interim Plan, the Company's Price Cap Index must be adjusted by
an inflation index (GDP-PI), less a fixed percentage, either 4.0%, 4.7%, or
5.3%, which is intended to reflect increases in productivity (Productivity
Factor). Companies selecting the 4.0% or 4.7% Productivity Factor are required
to reduce future prices and share a portion of their interstate return in excess
of 12.25%. Companies selecting the 5.3% Productivity Factor are also required to
reduce prices but are not required to share a portion of their future interstate
earnings. The Interim Plan also provides for a reduction in the Price Cap Index
of 2.8% to adjust for what the FCC believes was an underestimate in its
calculation of the Productivity Factor in prior years. The Interim Plan also
eliminates the recovery of certain "exogenous" cost changes, including changes
in accounting costs that the FCC believes have no economic consequences.
On May 9, 1995, Bell Atlantic filed its Transmittal of Interstate Rates as
required by the March 30, 1995 Order. In the filing, Bell Atlantic selected the
5.3% Productivity Factor for the August 1995 to June 1996 tariff period. The
rates included in the May 9, 1995 filing resulted in price decreases for the
Company totaling approximately $87.8 million on an annual basis. These price
decreases include the scheduled expiration of a temporary rate increase of
approximately $28.2 million on an annualized basis that was in effect from March
17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment
benefit costs. Approximately 80% of the remaining $59.6 million reduction
results from compliance with the
11
<PAGE>
Bell Atlantic - New Jersey, Inc.
Interim Plan. The remaining 20% represents reductions that the Company was
required to make under the prior Price Cap Plan. It is expected that these price
decreases will be partially offset by volume increases.
Bell Atlantic appealed the Interim Price Cap Plan Order to the U.S. Court
of Appeals for the D.C. Circuit, and that case is currently pending.
State Regulation
The communications services of the Company are subject to regulation by the
BPU with respect to intrastate rates and services and other matters.
The New Jersey Telecommunications Act of 1992 authorized the BPU to adopt
alternative regulatory frameworks to address changes in technology and the
structure of the telecommunications industry and to promote economic
development. It also deregulated services which the BPU found to be competitive.
Pursuant to that legislation, the Company proposed a Plan for Alternative Form
of Regulation, which the BPU approved with modifications in May 1993.
In May 1994, the BPU approved a settlement of a proceeding addressing
intraLATA toll competition. The settlement permits IXCs to compete for the
provision of intraLATA toll services on an access code basis (e.g., customers
must dial 10XXX to use an IXC), beginning July 1, 1994, and granted the Company
some flexibility in the pricing and marketing of the services it offers to
enable it to compete with the IXCs. In January 1995, the BPU commenced a further
proceeding to examine issues of intraLATA toll service competition including
whether presubscription should be authorized, and if so, under what terms and
conditions, and to address the issue of subsidies embodied in the Company's
rates. Presubscription would enable customers to make intraLATA toll calls using
the carrier of their choice without having to dial the five digit access code.
The Company's ability to offset such competition will depend, in part, upon the
terms and conditions under which presubscription of intraLATA toll services may
be authorized. Implementation of presubscription for intraLATA toll services
without the ability to offer interLATA services could have a material negative
impact on toll service revenues. A decision on this proceeding is expected by
the end of 1995 or early 1996.
OTHER MATTERS
- -------------
Environmental Issues
The Company is subject to a number of environmental proceedings as a result
of its operations and the shared liability provisions in the Plan of
Reorganization related to the MFJ. Certain of these environmental matters relate
to a Superfund site for which the Company has been joined as a third-party
defendant in pending Superfund litigation. Such joinder subjects the Company to
potential liability for costs relating to cleanup of the affected site. The
Company is also responsible for the remediation of sites with underground fuel
storage tanks and other expenses associated with environmental compliance.
The Company continually monitors its operations with respect to potential
environmental issues, including changes in legally mandated standards and
remediation technologies. The Company's recorded liabilities reflect those
specific issues where remediation activities are currently deemed to be probable
and where the cost of remediation is estimable. Management believes that the
aggregate amount of any additional potential liability would not have a material
effect on the Company's results of operations or financial condition.
FINANCIAL CONDITION
- -------------------
Management believes that the Company has adequate internal and external
resources available to meet ongoing operating requirements, including network
expansion and modernization, and payment of dividends. Management expects that
presently foreseeable capital requirements will be financed primarily through
internally generated funds. Additional long-term debt may be needed to fund
development activities and to maintain the Company's capital structure within
management's guidelines.
As of September 30, 1995, the Company had $255.4 million of an unused line
of credit with an affiliate, Bell Atlantic Network Funding Corporation. In
addition, the Company had $50.0 million remaining under a shelf registration
statement filed with the Securities and Exchange Commission.
The Company's debt ratio was 49.6% at September 30, 1995, compared to 48.2%
at December 31, 1994.
12
<PAGE>
Bell Atlantic - New Jersey, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For background concerning the Company's contingent liabilities under
the Plan of Reorganization governing the divestiture by AT&T Corp.
(formerly American Telephone and Telegraph Company) of certain assets
of the former Bell System Operating Companies with respect to private
actions relating to pre-divestiture events, including pending
antitrust cases, see Item 3 of the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27 Financial Data Schedule.
(b) There were no Current Reports on Form 8-K filed during the
quarter ended September 30, 1995.
13
<PAGE>
Bell Atlantic - New Jersey, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BELL ATLANTIC - NEW JERSEY, INC.
Date: November 9, 1995 By /s/ Joseph M. Milanowycz
----------------------------
Joseph M. Milanowycz
Controller and Treasurer
and Chief Financial Officer
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 6, 1995.
14
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE
BALANCE SHEET AS OF SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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