<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
---------------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 1-3488
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 (973) 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
CONDENSED STATEMENTS OF INCOME AND REINVESTED EARNINGS
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $31.4, $29.1,
$61.9 and $60.4 from affiliates)...................... $ 881.9 $ 942.6 $1,788.3 $1,866.6
-------- -------- -------- --------
OPERATING EXPENSES
Employee costs, including benefits and taxes.......... 171.4 171.0 342.1 343.7
Depreciation and amortization......................... 180.5 176.9 355.3 352.3
Taxes other than income............................... 28.7 52.4 57.5 104.2
Other (including $188.2, $184.1,
$355.7 and $364.7 to affiliates).................... 274.9 281.7 538.3 545.5
-------- -------- -------- --------
655.5 682.0 1,293.2 1,345.7
-------- -------- -------- --------
OPERATING INCOME........................................ 226.4 260.6 495.1 520.9
OTHER INCOME, NET....................................... 2.3 1.9 2.9 1.9
INTEREST EXPENSE (including $5.9, $4.0,
$11.8 and $7.1 to affiliate).......................... 26.2 25.3 52.8 49.7
-------- -------- -------- --------
Income Before Provision For Income Taxes................ 202.5 237.2 445.2 473.1
PROVISION FOR INCOME TAXES.............................. 83.4 79.4 181.9 161.7
-------- -------- -------- --------
NET INCOME.............................................. $ 119.1 $ 157.8 $ 263.3 $ 311.4
======== ======== ======== ========
REINVESTED EARNINGS
At beginning of period................................ $ 382.0 $ 287.4 $ 291.8 $ 220.5
Add: net income...................................... 119.1 157.8 263.3 311.4
-------- -------- -------- --------
501.1 445.2 555.1 531.9
Deduct: dividends.................................... 93.4 157.5 146.2 244.0
other changes................................ .1 .5 1.3 .7
-------- -------- -------- --------
At end of period...................................... $ 407.6 $ 287.2 $ 407.6 $ 287.2
======== ======== ======== ========
</TABLE>
See Notes to Condensed Financial Statements.
1
<PAGE>
Bell Atlantic - New Jersey, Inc.
CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Short-term investments........................ $ 40.0 $ 61.0
Accounts receivable:
Trade and other, net of allowances for
uncollectibles of $84.4 and $88.4........ 745.5 812.7
Affiliates.................................. 13.4 12.6
Material and supplies......................... 30.1 42.7
Prepaid expenses.............................. 161.2 155.6
Other......................................... 9.0 4.9
--------- --------
999.2 1,089.5
--------- --------
PLANT, PROPERTY AND EQUIPMENT................. 10,127.0 9,741.1
Less accumulated depreciation................. 5,823.4 5,597.0
--------- --------
4,303.6 4,144.1
--------- --------
OTHER ASSETS.................................. 104.6 176.3
--------- --------
TOTAL ASSETS.................................. $ 5,407.4 $5,409.9
========= ========
</TABLE>
See Notes to Condensed Financial Statements.
2
<PAGE>
Bell Atlantic - New Jersey, Inc.
CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in Millions)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate......................... $ 494.5 $ 427.4
Other............................................. 5.6 5.4
Accounts payable and accrued liabilities:
Affiliates........................................ 296.5 368.0
Other............................................. 482.1 565.9
Other liabilities................................... 131.1 116.6
-------- --------
1,409.8 1,483.3
-------- --------
LONG-TERM DEBT...................................... 1,284.5 1,287.2
-------- --------
EMPLOYEE BENEFIT OBLIGATIONS........................ 756.8 791.1
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized investment tax credits.................. 26.5 28.3
Other............................................... 141.0 147.0
-------- --------
167.5 175.3
-------- --------
SHAREOWNER'S INVESTMENT
Common stock - one share, without par value, owned
by parent.......................................... 1,381.2 1,381.2
Reinvested earnings................................. 407.6 291.8
-------- --------
1,788.8 1,673.0
-------- --------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT....... $5,407.4 $5,409.9
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE>
Bell Atlantic - New Jersey, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
Six months ended
June 30,
-------------------
1998 1997
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... $ 581.0 $ 530.7
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments............... 21.0 25.6
Additions to plant, property and equipment......... (513.0) (355.3)
Other, net......................................... (3.5) 11.7
-------- --------
Net cash used in investing activities.............. (495.5) (318.0)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of capital lease obligations.. (2.6) (2.3)
Net change in note payable to affiliate............ 67.1 46.8
Dividends paid..................................... (146.2) (244.0)
Net change in outstanding checks drawn
on controlled disbursement accounts........... (3.8) (13.2)
-------- --------
Net cash used in financing activities.............. (85.5) (212.7)
-------- --------
NET CHANGE IN CASH................................. --- ---
CASH, BEGINNING OF PERIOD.......................... --- ---
-------- --------
CASH, END OF PERIOD................................ $ --- $ ---
======== ========
See Notes to Condensed Financial Statements.
4
<PAGE>
Bell Atlantic - New Jersey, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Bell Atlantic - New Jersey, Inc. (the Company) is a wholly owned subsidiary
of Bell Atlantic Corporation (Bell Atlantic). The accompanying unaudited
condensed financial statements have been prepared based upon Securities and
Exchange Commission rules that permit reduced disclosure for interim periods.
These financial statements reflect all adjustments which are necessary for a
fair presentation of results of operations and financial position for the
interim periods shown including normal recurring accruals. The results for the
interim periods are not necessarily indicative of results for the full year.
For a more complete discussion of significant accounting policies and certain
other information, refer to the financial statements included in the Company's
1997 Form 10-K.
The Company has reclassified certain amounts from prior year's data to
conform with the 1998 presentation.
2. Dividend
On August 3, 1998, the Company declared and paid a dividend in the amount of
$93.4 million to Bell Atlantic.
3. Transfer of Directory Publishing Activities
On March 1, 1998, the Company 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 Bell Atlantic's and the
Company's response to the requirements of the Telecommunications Act of 1996,
which prohibits the Company from engaging in electronic publishing or joint
sales and marketing of electronic products.
Net assets transferred by the Company totaled approximately $2 million, and
consisted of deferred directory production costs (included in prepaid expenses),
fixed assets and related deferred tax liabilities.
Revenues related to the Company's directory publishing activities transferred
were approximately $47 million and $153 million for the six months ended June
30, 1998 and 1997, respectively. Direct expenses related to the directory
publishing activities transferred were approximately $18 million and $67 million
for the six months ended June 30, 1998 and 1997, respectively. The Company does
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.
4. Litigation and Other Contingencies
Various legal actions and regulatory proceedings are pending to which the
Company is a party. The Company has established reserves for liabilities in
connection with regulatory and legal matters which it currently deems to be
probable and estimable. The Company does not expect that the ultimate
resolution of these matters in future periods will have a material effect on the
Company's financial position, but it could have a material effect on results of
operations.
5
<PAGE>
Bell Atlantic - New Jersey, Inc.
5. Recent Accounting Pronouncement
Costs of Computer Software
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," (SOP 98-1). 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 adopted no later than
January 1, 1999.
The Company currently capitalizes 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. The Company is currently evaluating the
provisions of SOP 98-1 and has not yet quantified the effect at this time. The
adoption of SOP 98-1 is expected to result in an increase in earnings in the
year of adoption due to the prospective capitalization of costs which were
previously expensed.
6. Proposed Bell Atlantic - GTE Merger
Bell Atlantic and GTE Corporation (GTE) have announced a proposed merger of
equals under a definitive merger agreement dated as of July 27, 1998. Under the
terms of the agreement, GTE shareholders will receive 1.22 shares of Bell
Atlantic common stock for each share of GTE common stock that they own. Bell
Atlantic shareholders will continue to own their existing shares after the
merger.
It is expected that the merger will qualify as a "pooling of interests,"
which means for accounting and financial reporting purposes the companies will
be treated as if they had always been combined. The completion of the merger is
subject to a number of conditions, including certain regulatory approvals,
receipt of opinions that the merger will be tax free, and the approval of the
shareholders of both Bell Atlantic and GTE. The companies expect to close the
merger in the second half of 1999.
6
<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 of $263.3 million for the six month period
ended June 30, 1998, compared to net income of $311.4 million for the same
period in 1997.
Transfer of Directory Publishing Activities
On March 1, 1998, the Company 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 Bell Atlantic's and the
Company's response to the requirements of the Telecommunications Act of 1996,
which prohibits the Company from engaging in electronic publishing or joint
sales and marketing of electronic products.
Net assets transferred by the Company totaled approximately $2 million, and
consisted of deferred directory production costs (included in prepaid expenses),
fixed assets and related deferred tax liabilities.
Revenues related to the Company's directory publishing activities transferred
were approximately $47 million and $153 million for the six months ended June
30, 1998 and 1997, respectively. Direct expenses related to the directory
publishing activities transferred were approximately $18 million and $67 million
for the six months ended June 30, 1998 and 1997, respectively. The Company
does 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.
Effective March 1, 1998, revenues from directory publishing activities
transferred are no longer earned, and the related expenses are no longer
incurred, by the Company. Certain other revenues, primarily fees for
nonpublication of telephone numbers and multiple white page listings continue to
be earned by the Company. Additionally, contracts between the Company and
another affiliate of Bell Atlantic for billing and collection services related
to the directory activities, use of directory listings, and rental charges have
created new revenue sources for the Company.
These and other items affecting the comparison of the Company's results of
operations for the six month periods ended June 30, 1998 and 1997 are discussed
in the following sections. This Management's Discussion and Analysis should
also be read in conjunction with the Company's 1997 Annual Report on Form 10-K.
OPERATING REVENUE STATISTICS
- ----------------------------
1998 1997 % Change
- -----------------------------------------------------------------------------
At June 30
- ----------
Access Lines in Service (in thousands)*
Residence.............................. 3,975 3,800 4.6%
Business............................... 2,268 2,053 10.5
Public................................. 95 95 ---
------ ------
6,338 5,948 6.6
====== ======
Six Month Period Ended June 30
- ------------------------------
Access Minutes of Use (in millions)..... 15,719 13,826 13.7
====== ======
* 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.
7
<PAGE>
Bell Atlantic - New Jersey, Inc.
OPERATING REVENUES
- ------------------
(Dollars in Millions)
Six Month Period Ended June 30 1998 1997
- --------------------------------------------------------------------------------
Local services...................... $ 764.7 $ 713.0
Network access services............. 580.1 538.4
Long distance services.............. 257.2 325.8
Ancillary services.................. 125.8 123.5
Directory and information services.. 60.5 165.9
-------- --------
Total............................... $1,788.3 $1,866.6
======== ========
LOCAL SERVICES REVENUES
1998 - 1997 Increase
- --------------------------------------------------------------------------------
Six Months $51.7 7.3%
- --------------------------------------------------------------------------------
Local services revenues are earned by the Company 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.
Higher usage of the Company's network facilities was the primary reason for
the increase in local services revenues in the first half of 1998. This growth
was generated by an increase in access lines in service of 6.6% from June 30,
1997, and higher business message volumes. Access line growth reflects
primarily 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.
The Company also recognized higher revenues from public telephone and value-
added services. Value-added services revenues grew principally due to higher
customer demand and usage, while price increases for usage of the Company's pay
phones and the implementation of new charges to carriers resulting from pay
phone deregulation in April 1997 were the principal reasons for the improvement
in public telephone services revenues.
NETWORK ACCESS SERVICES REVENUES
1998 - 1997 Increase
- --------------------------------------------------------------------------------
Six Months $41.7 7.7%
- --------------------------------------------------------------------------------
Network access services revenues are earned from carriers for their use of
the Company's local exchange facilities in providing usage services to their
customers. In addition, end-user subscribers pay flat rate access fees to
connect to the Company's network.
Network access services revenues grew in the first six months of 1998
primarily as a result of higher customer demand as reflected by growth in access
minutes of use of 13.7% over the same period in 1997. Volume growth was boosted
by the expansion of the business market, particularly for high-capacity
services. Demand for special access services grew as Internet service providers
and other high-capacity users increased their utilization of the Company's
network. Growth in access revenues also reflects higher network usage by
alternative providers of intraLATA toll services. Network access revenues were
also higher due to the effect of recording amounts received from other local
exchange carriers for terminating calls on the Company's network in Network
Access Services Revenues, beginning in 1998. In 1997, these amounts were
recorded in Ancillary Services Revenues. In addition, higher end-user revenues
attributable to an increase in access lines in service contributed to revenue
growth in 1998. These increases were partially offset by net price reductions
mandated by a federal price cap plan.
Effective July 1, 1998, the Company implemented price decreases of
approximately $15 million on an annual basis for interstate services, in
connection with the Federal Communications Commission's (FCC) Price Cap Plan.
The rates included in
8
<PAGE>
Bell Atlantic - New Jersey, Inc.
this 1998 filing will be in effect through June 1999. The July 1, 1998 rates
include amounts necessary to recover the Company's contribution to the FCC's new
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. The
Company's contributions to the universal service fund are included in Other
Operating Expenses.
LONG DISTANCE SERVICES REVENUES
1998 - 1997 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(68.6) (21.1)%
- --------------------------------------------------------------------------------
Long distance services revenues are earned primarily from calls made outside
a customer's local calling area, but within the same service area of the Company
(intraLATA toll). Other long distance services that the Company provides
include 800 services, Wide Area Telephone Service (WATS), and corridor services
(between LATAs in southern New Jersey and Philadelphia and between LATAs in
northern New Jersey and New York City).
Long distance services revenues declined in the first half of 1998 due to
increased competition for intraLATA toll services as a result of the
introduction of presubscription in May 1997. Presubscription permits customers
to use an alternative provider of their choice for intraLATA toll calls without
dialing a special access code when placing a call. The adverse impact on
revenues as a result of presubscription was partially mitigated by increased
network access services revenues for usage of the Company's network by these
alternative providers.
Price reductions on certain toll services as part of the Company's response
to competition also contributed to the decline in long distance services
revenues in 1998. These revenue reductions were partially offset by higher
calling volumes generated by an increase in access lines in service.
ANCILLARY SERVICES REVENUES
1998 - 1997 Increase
- --------------------------------------------------------------------------------
Six Months $2.3 1.9%
- --------------------------------------------------------------------------------
The Company provides ancillary services which include billing and collection
services provided to long distance carriers and affiliates, customer premises
equipment (CPE) services, facilities rental services for affiliates and
nonaffiliates, usage of separately priced (unbundled) components of its
network, sales of materials and supplies to affiliates and voice messaging
services.
Ancillary services revenues grew in the first six months of 1998 as a result
of increased demand by long distance carriers and affiliates for billing and
collection services and increased market penetration for voice messaging
services, principally Home Voice Mail.
These revenue increases were partially offset by the effect of recording
amounts received from other local exchange carriers for terminating calls on
the Company's network in Network Access Services Revenues, beginning in 1998. In
1997, these amounts were recorded in Ancillary Services Revenues.
9
<PAGE>
Bell Atlantic - New Jersey, Inc.
DIRECTORY AND INFORMATION SERVICES REVENUES
1998 - 1997 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(105.4) (63.5)%
- --------------------------------------------------------------------------------
As described earlier, the Company transferred certain assets and liabilities
associated with its directory publishing activities to a newly formed, wholly
owned subsidiary, effective March 1, 1998. As a result, revenues associated
with directory publishing activities transferred are no longer earned by the
Company. Beginning March 1, 1998, the Company's 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 the Company's directory listings.
The decrease in directory and information services revenues in 1998 was
principally due to the effect of the transfer of directory publishing
activities.
OPERATING EXPENSES
- ------------------
(Dollars in Millions)
Six Month Period Ended June 30 1998 1997
- -----------------------------------------------------------------------
Employee costs, including benefits and taxes.. $ 342.1 $ 343.7
Depreciation and amortization................. 355.3 352.3
Taxes other than income....................... 57.5 104.2
Other operating expenses...................... 538.3 545.5
-------- --------
Total......................................... $1,293.2 $1,345.7
======== ========
EMPLOYEE COSTS
1998 - 1997 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(1.6) (.5)%
- --------------------------------------------------------------------------------
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes paid directly by the Company. Similar costs
incurred by employees of Bell Atlantic Network Services, Inc. (NSI), who provide
centralized services on a contractual basis, are allocated to the Company and
are included in Other Operating Expenses.
Employee costs decreased in the first six months of 1998 primarily as a
result of lower pension and benefit costs. The reduction in pension and benefit
costs was caused by a number of factors, including changes in actuarial
assumptions, favorable pension plan investment returns and lower than expected
medical claims. A decline in repair and maintenance activity further reduced
employee costs. These cost reductions were substantially offset by annual
salary and wage increases for management and associate employees, the effect of
higher work force levels and an increase in overtime pay.
Associate employee wages and pension and other benefits are determined under
contracts with unions representing associate employees of the Company. On August
11, 1998, the Company and the Communications Workers of America (CWA) reached a
tentative agreement on a new 2-year contract. The contract provides for wage
increases of up to 3.8 percent effective August 9, 1998, and up to 4 percent
effective August 8, 1999. Pensions will increase by 11 percent.
Union-represented employees are eligible for standard cash awards of $400 for
1998 and $500 for 1999, which can be increased or decreased based on financial
and customer care performance results. The new contract also includes other
benefit improvements and certain employment security provisions. The labor
agreement with the CWA is subject to ratification by the union membership,
which is expected within the next 30 days.
The contract covering International Brotherhood of Electrical Workers'
members does not expire until August 2000.
10
<PAGE>
Bell Atlantic - New Jersey, Inc.
DEPRECIATION AND AMORTIZATION
1998 - 1997 Increase
- --------------------------------------------------------------------------------
Six Months $3.0 .9%
- --------------------------------------------------------------------------------
Depreciation and amortization expense increased in the first six months of
1998 over the same period in 1997 principally due to growth in depreciable
telephone plant. This increase was substantially offset by the effect of lower
rates of depreciation and amortization.
TAXES OTHER THAN INCOME
1998 - 1997 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(46.7) (44.8)%
- --------------------------------------------------------------------------------
Taxes other than income consist principally of taxes for gross receipts,
property, capital stock and business licenses.
The decrease in taxes other than income was largely attributable to the
enactment of a New Jersey tax law that repealed the gross receipts tax
applicable to telephone companies and extended the net-income-based corporate
business tax to include telephone companies formerly subject to the gross
receipts tax. This state tax law change, which became effective on January 1,
1998, resulted in the reduction of gross receipts tax of approximately $36
million in the first six months of 1998. This reduction was offset by the
recognition of state income taxes of approximately $41 million attributable to
the enactment of the law. A reduction in property taxes resulting from lower
property assessments also contributed to the decrease in taxes other than
income.
OTHER OPERATING EXPENSES
1998 - 1997 (Decrease)
- --------------------------------------------------------------------------------
Six Months $(7.2) (1.3)%
- --------------------------------------------------------------------------------
Other operating expenses consist of contract services including centralized
services expenses allocated from NSI, rent, network software costs, the
provision for uncollectible accounts receivable, and other costs.
As a result of the transfer of directory publishing activities, certain
direct and allocated expenses related to the activities transferred are no
longer incurred by the Company.
The decrease in other operating expenses was largely attributable to the
transfer of directory publishing activities and lower costs for contract
services. The reduction in contract services was primarily due to the
disposition of Bell Atlantic's ownership interest in Bell Communications
Research Inc. (Bellcore) in November 1997. The Company continues to contract
with Bellcore for technical and support services, but to a lesser extent.
These decreases were substantially offset by the Company's contribution to
the federal universal service fund, as described earlier, higher network
software purchases and higher centralized services expenses allocated from NSI.
The rise in centralized services expenses was primarily due to transition and
integration costs allocated to the Company in connection with the merger of Bell
Atlantic and NYNEX Corporation, partially offset by lower pension and benefit
costs incurred by NSI. Higher costs for materials and higher interconnection
charges for terminating calls on the networks of competitive local exchange and
other carriers further offset the decreases in other operating expenses.
11
<PAGE>
Bell Atlantic - New Jersey, Inc.
OTHER INCOME, NET
1998 - 1997 Increase
- --------------------------------------------------------------------------------
Six Months $1.0 52.6%
- --------------------------------------------------------------------------------
The change in other income, net, was attributable to the recognition of
interest income in connection with the settlement of tax-related matters and the
recognition of a gain on the disposition of certain property in April 1998.
INTEREST EXPENSE
1998 - 1997 Increase
- --------------------------------------------------------------------------------
Six Months $3.1 6.2%
- --------------------------------------------------------------------------------
Interest expense increased in the first six months of 1998 principally as a
result 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.
EFFECTIVE INCOME TAX RATES
Six Months Ended June 30
- --------------------------------------------------------------------------------
1998 40.9%
- --------------------------------------------------------------------------------
1997 34.2%
- --------------------------------------------------------------------------------
The effective income tax rate is the provision for income taxes as a
percentage of income before the provision for income taxes. The Company's
effective income tax rate was higher in the first six months of 1998 principally
as a result of the recognition of state income taxes caused by the
aforementioned change in the state tax law in New Jersey.
FINANCIAL CONDITION
- -------------------
The Company uses the net cash generated from operations and from external
financing to fund capital expenditures for network expansion and modernization,
and to pay dividends. While current liabilities exceeded current assets at both
June 30, 1998 and 1997 and December 31, 1997, 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
or to maintain the Company's capital structure to ensure financial flexibility.
As of June 30, 1998, the Company had $55.5 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 49.9% as of June 30, 1998, compared to 49.0% as
of June 30, 1997 and 50.7% as of December 31, 1997.
On August 3, 1998, the Company declared and paid a dividend in the amount of
$93.4 million to Bell Atlantic.
12
<PAGE>
Bell Atlantic - New Jersey, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no proceedings reportable under this Item.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27 Financial Data Schedule.
(b) There were no Current Reports on Form 8-K filed during the
quarter ended June 30, 1998.
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: August 13, 1998 By /s/ Edwin F. Hall
------------------------------------
Edwin F. Hall
Chief Financial Officer
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF AUGUST 12, 1998.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME FOR THE SIX MONTHS END JUNE 30, 1998 AND THE BALANCE SHEET
AT JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 830
<ALLOWANCES> 84
<INVENTORY> 30
<CURRENT-ASSETS> 999
<PP&E> 10,127
<DEPRECIATION> 5,823
<TOTAL-ASSETS> 5,407
<CURRENT-LIABILITIES> 1,410
<BONDS> 1,285
0
0
<COMMON> 1,381
<OTHER-SE> 408
<TOTAL-LIABILITY-AND-EQUITY> 5,407
<SALES> 0
<TOTAL-REVENUES> 1,788
<CGS> 0
<TOTAL-COSTS> 1,293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 445
<INCOME-TAX> 182
<INCOME-CONTINUING> 263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 263
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
