<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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-3488
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
----- ----
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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,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $24.6, $14.7, $58.5
and $53.9 from affiliates)........................... $902.7 $864.1 $ 2,676.0 $ 2,571.9
------ ------ --------- ---------
OPERATING EXPENSES
Employee costs, including benefits and taxes......... 197.7 201.4 571.1 583.9
Depreciation and amortization........................ 168.7 169.2 491.0 503.0
Other (including $181.3, $167.5, $528.3
and $476.4 to affiliates)........................... 310.6 305.2 915.6 846.5
------ ------ --------- ---------
677.0 675.8 1,977.7 1,933.4
------ ------ --------- ---------
OPERATING INCOME....................................... 225.7 188.3 698.3 638.5
OTHER EXPENSE, NET..................................... .6 1.2 3.3 2.3
INTEREST EXPENSE (including $3.7, $3.5, $10.9
and $9.6 to affiliate)............................... 25.2 21.6 72.5 64.9
------ ------ -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES............... 199.9 165.5 622.5 571.3
PROVISION FOR INCOME TAXES............................. 68.6 56.3 212.2 196.7
------ ------ -------- --------
NET INCOME............................................. $131.3 $109.2 $ 410.3 $ 374.6
====== ====== ======== ========
REINVESTED EARNINGS
At beginning of period............................... $176.5 $204.2 $ 178.5 $ 174.8
Add: net income..................................... 131.3 109.2 410.3 374.6
------ ------ -------- --------
307.8 313.4 588.8 549.4
Deduct: dividends................................... 114.4 128.0 394.6 364.0
other changes............................... --- .1 .8 .1
------ ------ -------- --------
At end of period..................................... $193.4 $185.3 $ 193.4 $ 185.3
====== ====== ======== ========
</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,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments....................... $ 7.9 $ ---
Accounts receivable:
Trade and other, net of allowances for
uncollectibles of $60.0 and $58.1........ 630.5 638.8
Affiliates................................. 14.5 18.1
Material and supplies........................ 22.0 16.4
Prepaid expenses............................. 233.6 211.8
Deferred income taxes........................ 12.4 18.7
Other........................................ 10.3 4.8
-------- --------
931.2 908.6
-------- --------
PLANT, PROPERTY AND EQUIPMENT................ 9,224.8 8,977.2
Less accumulated depreciation................ 5,158.1 4,923.3
-------- --------
4,066.7 4,053.9
-------- --------
OTHER ASSETS................................. 59.9 57.3
-------- --------
TOTAL ASSETS................................. $5,057.8 $5,019.8
======== ========
</TABLE>
See Notes to Financial Statements.
2
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Bell Atlantic - New Jersey, Inc.
BALANCE SHEETS
(Unaudited)
(Dollars in Millions)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate........................ $ 246.7 $ 227.2
Other............................................ 4.8 4.6
Accounts payable and accrued liabilities:
Affiliates....................................... 293.0 268.1
Other............................................ 477.9 497.0
Advance billings and customer deposits............. 130.8 133.5
-------- --------
1,153.2 1,130.4
-------- --------
LONG-TERM DEBT..................................... 1,292.7 1,296.3
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS....................... 838.6 816.0
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized investment tax credits................. 34.7 39.6
Other ............................................. 164.0 177.8
-------- --------
198.7 217.4
-------- --------
SHAREOWNER'S INVESTMENT
Common stock-one share, without par value, owned
by parent......................................... 1,381.2 1,381.2
Reinvested earnings................................ 193.4 178.5
-------- --------
1,574.6 1,559.7
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT...... $5,057.8 $5,019.8
======== ========
</TABLE>
See Notes to Financial Statements.
3
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Bell Atlantic - New Jersey, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... $ 895.8 $ 750.7
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............... (7.9) (10.7)
Additions to plant, property and equipment......... (514.9) (476.0)
Other, net......................................... 10.7 20.7
------- -------
Net cash used in investing activities.............. (512.1) (466.0)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations.. (3.3) (3.2)
Net change in note payable to affiliate............ 19.5 99.3
Dividends paid..................................... (394.6) (364.0)
Net change in outstanding checks drawn
on controlled disbursement accounts.............. (5.3) (16.8)
------- -------
Net cash used in financing activities.............. (383.7) (284.7)
------- -------
NET CHANGE IN CASH................................. --- ---
CASH, BEGINNING OF PERIOD.......................... --- ---
------- -------
CASH, END OF PERIOD................................ $ --- $ ---
======= =======
</TABLE>
See Notes to Financial Statements.
4
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Bell Atlantic - New Jersey, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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,
1995 balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles. In
the opinion of management, these financial statements include all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the results of operations, financial position and cash flows. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The Company
believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2. Dividend
On November 1, 1996, the Company declared and paid a dividend in the amount
of $93.0 million to Bell Atlantic Corporation (Bell Atlantic).
3. Reclassifications
Certain reclassifications of the prior year's data have been made to
conform to 1996 classifications.
4. Proposed Bell Atlantic - NYNEX Merger
Bell Atlantic and NYNEX Corporation have announced a proposed merger of
equals under a definitive merger agreement entered into on April 21, 1996, and
amended on July 2, 1996. Under the terms of the amended agreement, a newly-
formed subsidiary will merge with NYNEX, with NYNEX becoming a subsidiary of
Bell Atlantic. As a result of the merger, NYNEX stockholders will receive 0.768
of a share of Bell Atlantic common stock for each share of NYNEX common stock
that they own. Bell Atlantic stockholders will continue to own their existing
shares after the merger.
The merger is expected to qualify as a "pooling of interests," which means
for accounting and financial reporting purposes, the companies will be treated
as if they had always been combined. The completion of the merger is subject to
a number of conditions, including regulatory approvals, receipt of opinions that
the merger will be tax free, and the approval of the shareholders of both Bell
Atlantic and NYNEX. The companies expect to close the merger in the first
quarter of 1997.
5
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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 1996 of $410.3
million, compared to net income of $374.6 million for the same period in 1995.
Items affecting the comparison of operating results between the nine month
periods ended September 30, 1996 and 1995 are discussed in the following
sections.
<TABLE>
<CAPTION>
OPERATING REVENUES
- ------------------
(Dollars in Millions)
For the Nine Month Period Ended September 30 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Transport Services
Local service............................. $ 683.1 $ 646.1
Network access............................ 765.8 726.8
Toll service.............................. 523.7 517.8
Ancillary Services
Directory publishing...................... 255.5 256.9
Other..................................... 83.6 99.2
Value-added Services.......................... 364.3 325.1
-------- ----------
Total......................................... $2,676.0 $2,571.9
======== ==========
<CAPTION>
TRANSPORT SERVICES OPERATING STATISTICS
- ---------------------------------------
Percentage
Increase
1996 1995 (Decrease)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
At September 30
- ---------------
Access Lines in Service (In thousands)
Residence................................ 3,683 3,571 3.1%
Business................................. 1,914 1,798 6.5
Public................................... 93 94 (1.1)
------ --------
5,690 5,463 4.2
====== ========
<CAPTION>
For the Nine month Period Ended September 30
- --------------------------------------------
<S> <C> <C> <C>
Access Minutes of Use (In millions)
Interstate............................... 15,213 14,071 8.1
Intrastate............................... 4,111 3,571 15.1
------ --------
19,324 17,642 9.5
====== ========
Toll Messages (In millions)
Intrastate............................... 1,658 1,624 2.1
Interstate............................... 44 48 (8.3)
------ --------
1,702 1,672 1.8
====== ========
</TABLE>
6
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Bell Atlantic - New Jersey, Inc.
LOCAL SERVICE REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Nine Months $37.0 5.7%
- --------------------------------------------------------------------------------
Local service revenues are earned by the Company from the provision of
local exchange, local private line and public telephone services.
Higher network usage by both business and residential customers increased
local service revenues during 1996. Access lines in service grew by 4.2% from
September 30, 1995. Revenues in 1996 were also higher as a result of price
increases and reduced allowances for certain directory assistance services
associated with the Company's revenue neutral rate change filing, which became
effective on July 1, 1996. The filing provided for increases in local service
and other ancillary services revenues of approximately $18 million and $8
million, respectively, with a corresponding decrease in toll service revenues of
approximately $26 million, on an annual basis.
For a discussion of the Telecommunications Act of 1996, which opens the
local exchange market to competition, see "Factors That May Impact Future
Results" beginning on page 10.
NETWORK ACCESS REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Nine Months $39.0 5.4%
- --------------------------------------------------------------------------------
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. 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 of 9.5%
over the same period in 1995. Revenues were further increased by higher
revenues from affiliated companies pursuant to an interstate revenue sharing
agreement. Revenue growth was partially offset by the effect of price
reductions under the Federal Communications Commission's (FCC) Interim Price Cap
Plan implemented in 1995. On July 20, 1996, the Company implemented price
increases as part of Bell Atlantic's annual price cap filing with the FCC.
These price increases did not have a significant impact on network access
revenues in the third quarter of 1996.
Continued strong growth in network usage and the FCC rate increases
effective on July 20, 1996 are expected to positively impact network access
revenues for the remainder of 1996, relative to the same period last year. See
also "Factors That May Impact Future Results - FCC Interim Price Cap Plan" on
page 12 for a discussion of Bell Atlantic's FCC price cap filing.
TOLL SERVICE REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Nine Months $5.9 1.1%
- --------------------------------------------------------------------------------
Toll service revenues are earned from calls made outside a customer's local
calling area, but within the same service area of the Company, commonly referred
to as Local Access and Transport Areas (LATAs). Other toll services include 800
services, Wide Area Telephone Service (WATS) and corridor services (between
southern New Jersey and Philadelphia and between northern New Jersey and New
York City).
Toll service revenues increased in 1996 due to higher network usage, as
reflected by a 1.8% increase in toll message volumes. This revenue growth was
substantially offset by company-initiated price reductions and a discount
offering on certain toll services in response to competition. The price
reductions and the discount offering, which are expected to reduce toll service
7
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Bell Atlantic - New Jersey, Inc.
revenues by approximately $26 million annually, were implemented as a result of
the Company's aforementioned revenue neutral rate change filing. Increased
competition for WATS services also reduced toll service revenues in 1996.
The Company expects that toll service revenues will be negatively impacted
for the remainder of 1996 by the effect of its revenue neutral rate change
filing. See "Factors That May Impact Future Results" beginning on page 10 for a
further discussion of toll service revenue issues.
DIRECTORY PUBLISHING REVENUES
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Nine Months $(1.4) (.5)%
- --------------------------------------------------------------------------------
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.
The decline in directory publishing revenues was primarily due to lower
advertising volumes resulting from competition from other directory companies as
well as other advertising media.
OTHER ANCILLARY SERVICES REVENUES
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Nine Months $(15.6) (15.7)%
- --------------------------------------------------------------------------------
Other ancillary services include billing and collection services provided
to IXCs, facilities rental services provided to affiliates and non-affiliates,
and sales of materials and supplies to affiliates.
Other ancillary services revenues decreased primarily due to the
elimination in the fourth quarter of 1995 of an intraLATA toll surcharge earned
from IXCs. This decrease was partially offset by the introduction of customer
late payment charges pursuant to the Company's aforementioned revenue neutral
rate change filing. The customer late payment charges are expected to increase
other ancillary services revenues by approximately $8 million annually.
VALUE-ADDED SERVICES REVENUES
1996-1995 Increase
- --------------------------------------------------------------------------------
Nine Months $39.2 12.1%
- --------------------------------------------------------------------------------
Value-added services represent a family of services which expand the
utilization of the network. These services include recent products such as
voice messaging services, Caller ID and Return Call as well as more mature
products such as Centrex, Touch-Tone, and other customer premises wiring and
maintenance services.
The increase in value-added services revenues during 1996 was primarily
attributable to continued growth in the network customer base and higher demand
for certain central office and voice messaging services. Increased demand for
certain customer premises wiring services, primarily from residential customers,
also contributed to revenue growth in 1996.
8
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Bell Atlantic - New Jersey, Inc.
<TABLE>
<CAPTION>
OPERATING EXPENSES
- ------------------
(Dollars in Millions)
For the Nine Month Period Ended September 30 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Employee costs, including benefits and taxes.. $ 571.1 $ 583.9
Depreciation and amortization................. 491.0 503.0
Other operating expenses...................... 915.6 846.5
-------- --------
Total......................................... $1,977.7 $1,933.4
======== ========
</TABLE>
EMPLOYEE COSTS
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Nine Months $(12.8) (2.2)%
- --------------------------------------------------------------------------------
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 due to savings associated with lower
work force levels in 1996 and the effect of certain contract labor and
separation pay costs recognized in 1995 associated with a five-year contract
with the International Brotherhood of Electrical Workers. These cost reductions
were substantially offset by annual salary and wage increases, as well as
increased overtime pay for repair and maintenance activity, principally as a
result of higher business volumes.
DEPRECIATION AND AMORTIZATION
1996-1995 (Decrease)
- --------------------------------------------------------------------------------
Nine Months $(12.0) (2.4)%
- --------------------------------------------------------------------------------
Depreciation and amortization decreased due to lower rates of depreciation
and amortization. This decrease was substantially offset by growth in
depreciable telephone plant. The composite depreciation rate was 7.4% for the
nine month period ended September 30, 1996, compared to 7.9% for the same period
in 1995.
OTHER OPERATING EXPENSES
1996-1995 Increase
- --------------------------------------------------------------------------------
Nine Months $ 69.1 8.2%
- --------------------------------------------------------------------------------
Other operating expenses consist primarily of contract 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.
The increase in other operating expenses was largely attributable to higher
centralized services expenses allocated from NSI. This increase was due, in
part, to higher employee costs incurred in that organization as a result of
annual salary and wage increases. Additional operating costs incurred to
enhance billing and operating systems and market value-added services also
contributed to the increase in centralized services expenses in 1996. Other
operating expenses were further increased by higher costs for contract labor and
engineering, as well as additional costs to upgrade network software and comply
with the Telecommunications Act of 1996.
9
<PAGE>
Bell Atlantic - New Jersey, Inc.
OTHER EXPENSE, NET
1996-1995 Increase
- --------------------------------------------------------------------------------
Nine Months $ 1.0
- --------------------------------------------------------------------------------
The increase in other expense, net was attributable to higher nonoperating
costs incurred in 1996 and lower interest income related to short-term
investments.
INTEREST EXPENSE
1996-1995 Increase
- --------------------------------------------------------------------------------
Nine Months $ 7.6 11.7%
- --------------------------------------------------------------------------------
Interest expense increased principally due to a reduction in capitalized
interest costs and additional interest expense resulting from higher levels of
average short-term debt in 1996.
PROVISION FOR INCOME TAXES
1996-1995 Increase
- --------------------------------------------------------------------------------
Nine Months $ 15.5 7.9%
- --------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATES
For the Nine Months Ended September 30
- --------------------------------------------------------------------------------
1996 34.1%
- --------------------------------------------------------------------------------
1995 34.4%
- --------------------------------------------------------------------------------
The Company's effective income tax rate was lower as a result of
adjustments to tax liabilities recorded in 1996.
FACTORS THAT MAY IMPACT FUTURE RESULTS
- --------------------------------------
Federal Legislation
The Telecommunications Act of 1996 (the Act) became law on February 8, 1996
and takes the place of the Modification of Final Judgment (MFJ). In general,
the Act includes provisions that open the local exchange market to competition
and permit Bell Atlantic to provide interLATA services (long distance) and to
engage in manufacturing. However, the ability of Bell Atlantic to engage in
businesses previously prohibited by the MFJ is largely dependent on satisfying
certain conditions contained in the Act. The following is a brief discussion
regarding certain provisions of the Act.
With regard to the rules governing competition in the long distance market,
the Act takes a two-fold approach. Effective February 8, 1996, Bell Atlantic's
operating telephone subsidiaries, such as the Company, and affiliates were
permitted to offer long distance services outside of the geographic region in
which they currently operate as a local exchange carrier. On July 31, 1996, a
subsidiary of Bell Atlantic began marketing such services in three states
outside its region and plans to offer such services in several other states. In
addition, Bell Atlantic's wireless businesses are now permitted to offer long
distance services without having to comply with the conditions imposed in
waivers granted under the MFJ.
Within Bell Atlantic's geographic region, each of the operating telephone
subsidiaries, including the Company, must demonstrate to the FCC that it has
satisfied certain requirements in order for Bell Atlantic to offer new long
distance services. Among the requirements with which the Company must comply is
a 14-point "competitive checklist" which will enable competitors to offer
competitive local service, either through resale, through the purchase of
unbundled network elements, or
10
<PAGE>
Bell Atlantic - New Jersey, Inc.
through their own networks. The Company must also demonstrate to the FCC that
its entry into the long distance market would be in the public interest.
The Act also imposes specific requirements that are intended to promote
competition in the local exchange markets. These requirements (collectively
known as interconnection requirements) include the duty to: (i) provide
interconnection to any other carrier for the transmission and routing of
telephone exchange service at any technically feasible point; (ii) provide
unbundled access to network elements at any technically feasible point; (iii)
provide retail services at wholesale prices for resale; (iv) establish
reciprocal compensation arrangements for the origination and termination of
telecommunications; and (v) provide physical collocation. The specific terms
under which the carriers interconnect are to be negotiated with those carriers,
or determined through state arbitrations when negotiations fail.
On August 1, 1996, the FCC adopted an order establishing rules for
implementation of the interconnection requirements set forth in the Act. The
FCC's order establishes rules to govern interconnection agreements that are
reached through state arbitrations, when negotiations fail. The FCC stated that
it plans to issue regulations regarding universal service obligations and access
charges in subsequent orders.
Bell Atlantic and others appealed the interconnection order to the U.S.
Court of Appeals. That case is currently pending. On October 14, 1996, the Court
issued a partial stay of the FCC's interconnection order. The Court's order
stays the effectiveness of the uniform national pricing rules adopted by the
FCC. The order also stays the FCC rule that permitted competitors to "pick and
choose" isolated terms out of negotiated interconnection agreements. Private
negotiations and state arbitrations will continue while the stay is in effect,
pending the Court's final determinations of the issues raised by the pending
petitions for review.
No definitive prediction can be made as to the specific impact of the Act
on the business or financial condition of the Company. The financial impact on
the Company will depend on several factors, including the timing, extent and
success of competition in the Company's markets, as well as the timing, extent
and success of the Company's pursuit of new business opportunities resulting
from the Act, the provisions of the FCC's regulations that survive judicial
review, and the outcome of state interconnection proceedings.
Competition
IntraLATA Toll Services
IntraLATA toll services are calls that both originate and terminate within
the same LATA (Local Access and Transport Area), but cover a greater distance
than a local call. These revenues are generally regulated by the Board of Public
Utilities (BPU) rather than federal authorities. Competition to offer intrastate
intraLATA toll services is currently permitted in the Company's jurisdiction.
Currently, intraLATA toll calls are completed by the Company unless the
customer dials an access code. This dialing method would be changed by
"presubscription". Presubscription would enable customers to make intraLATA
toll calls using another carrier without having to dial the access code.
The recent telecommunications legislation addressed the issue of
presubscription by prohibiting a state from requiring presubscription or
"dialing parity" until the earlier of such time as an operating telephone
company in the state is authorized to provide long distance services within the
state or three years from the effective date of the Act. This prohibition does
not apply to a final order requiring presubscription that was issued on or prior
to December 19, 1995.
During 1995, the BPU conducted proceedings to determine whether, and under
what conditions, to authorize presubscription. On December 14, 1995, the BPU
issued an order finding that implementation of presubscription for intraLATA
toll services in New Jersey would be in the public interest and proposed rules
for implementation. In August of 1996, the BPU proposed to adopt a rule by the
end of the year that would require implementation of presubscription on May 5,
1997. Implementation of presubscription for intraLATA toll services in this
time-frame could have a material negative effect on toll service revenues,
especially if the Company is not permitted contemporaneously to offer interLATA
services. The ability to offset the impact of presubscription will depend, in
part, upon how quickly the Company meets the requirements of the "competitive
checklist."
11
<PAGE>
Bell Atlantic - New Jersey, Inc.
Local Exchange Services
Local exchange services have historically been subject to regulation by the
BPU. Applications from competitors to provide local exchange services were
approved by the BPU in June 1996.
The Act is expected to significantly increase the level of competition in
the Company's local exchange market.
FCC Interim Price Cap Plan
The FCC regulates the rates that the Company can charge IXCs and end-user
subscribers for interstate access services. Each year, new access rates are
required to be filed with the FCC under the rules of their Interim Price Cap
Plan. In June of 1996, Bell Atlantic filed its Annual Access Tariff plan with
the FCC, which contained new access services rates for the period from July 1996
through June 1997. The rates included in the filing resulted in price increases
for the Company totaling approximately $6 million on an annual basis. The new
rates became effective on July 20, 1996.
The FCC is expected to adopt a revised price cap plan effective with the
1997 Annual Access Tariff Filing.
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 Superfund sites 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 situations where remediation activities are currently deemed to be
probable and where the cost of remediation is estimable. Management believes
that the aggregate amount of any additional potential liability would not have a
material effect on the Company's results of operations or financial condition.
Proposed Bell Atlantic - NYNEX Merger
Bell Atlantic and NYNEX Corporation have announced a proposed merger of
equals under a definitive merger agreement entered into on April 21, 1996, and
amended on July 2, 1996. Under the terms of the amended agreement, a newly-
formed subsidiary will merge with NYNEX, with NYNEX becoming a subsidiary of
Bell Atlantic. As a result of the merger, NYNEX stockholders will receive 0.768
of a share of Bell Atlantic common stock for each share of NYNEX common stock
that they own. Bell Atlantic stockholders will continue to own their existing
shares after the merger.
The merger is expected to qualify as a "pooling of interests," which means
for accounting and financial reporting purposes, the companies will be treated
as if they had always been combined. The completion of the merger is subject to
a number of conditions, including regulatory approvals, receipt of opinions that
the merger will be tax free, and the approval of the shareholders of both Bell
Atlantic and NYNEX. The companies expect to close the merger in the first
quarter of 1997.
As a result of the merger, Bell Atlantic expects to record a one-time
charge for employee severance costs in the quarter in which the merger is
completed. Such pretax charge is currently estimated to be in the range of $200
million to $300 million. The amount of the charge will vary depending on a
number of factors including: (i) the number of employees that will be terminated
under severance arrangements, (ii) the timing of employee terminations, and
(iii) changes, if any, to severance plan provisions. The Company expects to
incur a portion of the charge for these costs.
During the remainder of 1997, 1998 and 1999, Bell Atlantic expects to incur
an additional $300 million to $400 million of merger-related transition costs, a
portion of which may be borne by the Company.
12
<PAGE>
Bell Atlantic - New Jersey, Inc.
FINANCIAL CONDITION
- -------------------
The Company uses the net cash generated from operations and external
financing to fund capital expenditures for network expansion and modernization,
and pay dividends. While current liabilities exceeded current assets at both
September 30, 1996 and December 31, 1995, the Company's sources of funds,
primarily from operations and to the extent necessary, from readily available
financing arrangements with an affiliate, are sufficient to meet ongoing
operating requirements. Management expects that presently foreseeable capital
requirements will continue to be financed primarily through internally generated
funds. Additional long-term debt may be needed to fund development activities
and to maintain the Company's capital structure within management's guidelines.
As of September 30, 1996, the Company had $225.4 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 for the issuance of
unsecured debt securities.
The Company's debt ratio was 49.5% at September 30, 1996 and at December
31, 1995.
On November 1, 1996, the Company declared and paid a dividend in the amount
of $93.0 million to Bell Atlantic Corporation.
13
<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, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27 Financial Data Schedule.
(b) Report on Form 8-K filed during the quarter ended September 30,
1996:
A Current Report on Form 8-K, dated July 2, 1996, was filed
regarding the Amended and Restated Agreement and Plan of Merger,
dated as of April 21, 1996, as amended and restated on July 2,
1996, by and between Bell Atlantic Corporation and NYNEX
Corporation.
14
<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 7, 1996 By /s/ Joseph M. Milanowycz
--------------------------------
Joseph M. Milanowycz
Controller and Treasurer
and Chief Financial Officer
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 4, 1996.
15
<TABLE> <S> <C>
<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE
BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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