-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VzHXFA5vWa6PP0lBNxmaCSoGU0RsBoX3ruUccsP9szLNAvTxx3Y/GAb3kyrD5VbG JMvuHCYEP23AEa7HGP6YhQ== 0000950109-96-001790.txt : 19960329 0000950109-96-001790.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950109-96-001790 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL ATLANTIC NEW JERSEY INC CENTRAL INDEX KEY: 0000071428 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 221151770 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03488 FILM NUMBER: 96539504 BUSINESS ADDRESS: STREET 1: 1717 ARCH ST 47W CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2016499900 MAIL ADDRESS: STREET 1: NEW JERSEY BELL TELEPHONE CO STREET 2: 540 BROAD ST CITY: NEWARK STATE: NJ ZIP: 07101 10-K405 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------------- FORM 10-K -------------------------------------- (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 ------------------------------------------------ Securities registered pursuant to Section 12(b) of the Act: See attached Schedule A. Securities registered pursuant to Section 12(g) of the Act: None. THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF BELL ATLANTIC CORPORATION, MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION J(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 ----- ----- Bell Atlantic - New Jersey, Inc. SCHEDULE A Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ----------------------------------------------- --------------------- Forty Year 7 1/4% Debentures, due April 1, 2011 New York Stock Exchange Forty Year 7 3/8% Debentures, due June 1, 2012 " Bell Atlantic - New Jersey, Inc. TABLE OF CONTENTS Item No. Page - -------- ---- PART I 1. Business........................................................ 1 2. Properties...................................................... 6 3. Legal Proceedings............................................... 7 4. Submission of Matters to a Vote of Security Holders............. 8 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................................... 8 6. Selected Financial Data......................................... 8 7. Management's Discussion and Analysis of Results of Operations (Abbreviated pursuant to General Instruction J(2).)............. 9 8. Financial Statements and Supplementary Data..................... 17 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ 17 PART III 10. Directors and Executive Officers of the Registrant.............. 17 11. Executive Compensation.......................................... 17 12. Security Ownership of Certain Beneficial Owners and Management.. 17 13. Certain Relationships and Related Transactions.................. 17 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................................ 17 UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 25, 1996. Bell Atlantic - New Jersey, Inc. PART I ITEM 1. BUSINESS GENERAL Bell Atlantic - New Jersey, Inc. (the "Company") is incorporated under the laws of the State of New Jersey and has its principal offices at 540 Broad Street, Newark, New Jersey 07101 (telephone number 201-649-9900). The Company is a wholly owned subsidiary of Bell Atlantic Corporation ("Bell Atlantic"), which is one of the seven regional holding companies ("RHCs") formed in connection with the court-approved divestiture (the "Divestiture"), effective January 1, 1984, of those assets of American Telephone and Telegraph Company ("AT&T") related to exchange telecommunications, exchange access functions, printed directories and cellular mobile communications. The Company presently serves a territory consisting of three Local Access and Transport Areas ("LATAs"). These LATAs are generally centered on a city or based on some other identifiable common geography and, with certain limited exceptions, each LATA marks the boundary within which the Company has historically been permitted to provide telephone service. The Company currently provides two basic types of telecommunications services. First, the Company transports telecommunications traffic between subscribers located within the same LATA ("intraLATA service"), including both local and toll services. Local service includes the provision of local exchange ("dial tone"), local private line and public telephone services (including dial tone service for pay telephones owned by the Company and other pay telephone providers). Among other local services provided are Centrex (telephone company central office-based switched telephone service enabling the subscriber to make both intercom and outside calls) and a variety of special and custom calling services. Toll service includes message toll service (calling service beyond the local calling area) within LATA boundaries, and intraLATA Wide Area Toll Service (WATS)/800 services (volume discount offerings for customers with highly concentrated demand). The Company also earns toll revenue from the provision of telecommunications service between LATAs ("interLATA service") in the corridors between the cities (and certain surrounding counties) of (i) New York, New York and Newark, New Jersey and (ii) Philadelphia, Pennsylvania and Camden, New Jersey. Second, the Company provides exchange access service, which links a subscriber's telephone or other equipment to the transmission facilities of interexchange carriers which, in turn, provide interLATA service to their customers. The Company also provides exchange access service to interexchange carriers which provide intrastate intraLATA long distance telecommunications service. LINE OF BUSINESS RESTRICTIONS AND THE TELECOMMUNICATIONS ACT OF 1996 The consent decree entitled "Modification of Final Judgment" ("MFJ") approved by the United States District Court for the District of Columbia (the "D.C. District Court") which, together with the Plan of Reorganization ("Plan") approved by the D.C. District Court, set forth the terms of Divestiture also established certain restrictions on the post-Divestiture activities of the RHCs, including Bell Atlantic and its subsidiaries. The MFJ's principal restrictions on post-Divestiture RHC activities included prohibitions on (i) providing interexchange telecommunications, and (ii) engaging in the manufacture of telecommunications equipment and customer premises equipment ("CPE"). The Telecommunications Act of 1996 (the "Act") became effective on February 8, 1996 and replaces the MFJ. In general, the Act includes provisions that would open the Company's local exchange markets to competition and would permit local exchange carriers, such as the Company, to provide interLATA services (long distance) and video programming and to engage in manufacturing. However, the ability of the Company to engage in businesses previously prohibited by the MFJ is largely dependent on satisfying certain conditions contained in the Act and regulations to be promulgated thereunder. For a brief discussion of certain provisions of the Act, see "Management's Discussion and Analysis of Results of Operations - Factors That May Impact Future Results, Federal Legislation" on pages 14 and 15. 1 Bell Atlantic - New Jersey, Inc. OPERATIONS During 1993, Bell Atlantic reorganized certain functions formerly performed by each of the seven Bell System operating companies ("BOCs") transferred to it pursuant to the Divestiture, including the Company (collectively, the "Network Services Companies"), into lines of business ("LOBs") organized across the Network Services Companies around specific market segments. The Network Services Companies, however, remain responsible within their respective service areas for the provision of telephone services, financial performance and regulatory matters. The LOBs are: The Consumer Services LOB markets communications services to residential ----------------- customers within the service territories of the Network Services Companies, including the service territory of the Company. The Carrier Services LOB markets (i) switched and special access to the ---------------- Company's local exchange network, and (ii) billing and collection services, including recording, rating, bill processing and bill rendering. The principal customers of this LOB are interexchange carriers; AT&T is the largest single customer. Other customers include business customers and government agencies with their own special access network connections, wireless companies and other local exchange carriers ("LECs") which resell network connections to their own customers. The Small Business Services LOB markets communications and information ----------------------- services to small businesses (customers having up to 20 access lines). The Large Business Services LOB markets communications and information ----------------------- services to large businesses (customers having more than 20 access lines). These services include voice switching/processing services (e.g., dedicated private lines, custom Centrex, call management and voice messaging), end-user networking (e.g., credit and debit card transactions, and personal computer- based conferencing, including data and video), internetworking (establishing links between the geographically disparate networks of two or more companies or within the same company), network integration (integrating multiple geographically disparate networks into one system), network optimization (disaster avoidance, 911, intelligent vehicle highway systems), video services (distance learning, telemedicine, videoconferencing) and interactive multi-media applications services. The Directory Services LOB manages the provision of (i) advertising and ------------------ marketing services to advertisers, and (ii) listing information (e.g., White Pages and Yellow Pages). These services are currently provided primarily through print media, but the Company expects that use of electronic formats will increase in the future. In addition, the Directory Services LOB manages the provision of photocomposition, database management and other related products and services to publishers. The Public and Operator Services LOB markets pay telephone and operator ---------------------------- services in the service territories of the Network Services Companies to meet consumer needs for accessing public networks, locating and identifying network subscribers, providing calling assistance and arranging billing alternatives (e.g., calling card, collect and third party calls). The Federal Systems LOB markets communications and information technology and --------------- services to departments, agencies and offices of the executive, judicial and legislative branches of the federal government. The Network LOB manages the technologies, services and systems platforms ------- required by the other LOBs and the Network Services Companies, including the Company, to meet the needs of their respective customers, including switching, feature development and on-premises installation and maintenance services. FCC REGULATION AND INTERSTATE RATES The Company is subject to the jurisdiction of the Federal Communications Commission ("FCC") with respect to interstate services and certain related matters. The FCC prescribes a uniform system of accounts for telephone companies, interstate depreciation rates and the principles and standard procedures used to separate plant investment, expenses, taxes and reserves between those applicable to interstate services under the jurisdiction of the FCC and those applicable to intrastate services under the jurisdiction of the respective state regulatory authorities ("separations procedures"). The FCC also prescribes procedures for allocating costs and revenues between regulated and unregulated activities. 2 Bell Atlantic - New Jersey, Inc. The FCC has prescribed structures for exchange access tariffs to specify the charges ("access charges") for use and availability of the Company's facilities for the origination and termination of interstate interLATA service. In general, the tariff structures prescribed by the FCC provide that interstate costs which do not vary based on usage ("non-traffic sensitive costs") are recovered from subscribers through flat monthly charges ("subscriber line charges"), and from interexchange carriers through usage-sensitive Carrier Common Line ("CCL") charges. Traffic-sensitive interstate costs are recovered from carriers through variable access charges based on several factors, primarily usage. Price Caps The price cap system, which became effective in 1991, (the "Prior Price Cap Plan") placed a cap on overall LEC prices for interstate access services which was modified annually, in inflation-adjusted terms, by a fixed percentage which was intended to reflect increases in productivity. The price cap level could also be adjusted to reflect "exogenous" changes, such as changes in FCC separations procedures or accounting rules. Under the Prior Price Cap Plan, the Company was required to share with customers in the form of prospective rate reductions a portion of its earnings above a certain authorized rate of return. In March 1995, the FCC approved an Interim Price Cap Plan ("Interim Plan") for interstate access charges, which became effective on August 1, 1995, and replaced the Prior Price Cap Plan. 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 provided 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 eliminated the recovery of certain "exogenous" cost changes, including changes in accounting costs that the FCC believes have no economic consequences. In May 1995, Bell Atlantic selected the 5.3% Productivity Factor for the August 1995 to June 1996 tariff period. The rates included in the May 1995 filing resulted in price decreases totaling approximately $87.8 million on an annual basis. These price decreases included 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 resulted from compliance with the Interim Plan. The remaining 20% represented reductions that the Company was required to make under the Prior Price Cap Plan. Bell Atlantic appealed the Interim Price Cap Order to the Court of Appeals for the D.C. Circuit, and that case is currently pending. FCC Cost Allocation and Affiliate Transaction Rules FCC rules govern: (i) the allocation of costs between the regulated and unregulated activities of a communications common carrier and (ii) transactions between the regulated and unregulated affiliates of a communications common carrier. The cost allocation rules apply to certain unregulated activities: activities that have never been regulated as communications common carrier offerings and activities that have been preemptively deregulated by the FCC. The costs of these activities are removed prior to the separations procedures process and are assigned to unregulated activities in the aggregate, not to specific services, for pricing purposes. Other activities must be accounted for as regulated activities, and their costs are subject to separations procedures. The affiliate transaction rules govern the pricing of assets transferred to and services provided by affiliates. These rules generally require that assets be transferred between affiliates at "market price", if such price can be established through a tariff or a prevailing price actually charged to third parties. In the absence of a tariff or prevailing price, "market price" cannot be established, in which case (i) asset transfers from a regulated to an unregulated affiliate must be valued at the higher of cost or fair market value, and (ii) asset transfers from an unregulated to a regulated affiliate must be valued at the lower of cost or fair market value. 3 Bell Atlantic - New Jersey, Inc. The FCC has not attempted to make its cost allocation or affiliate transaction rules preemptive. State regulatory authorities are free to use different cost allocation methods and affiliate transaction rules for intrastate ratemaking and to require carriers to keep separate allocation records. STATE REGULATION AND COMPETITIVE ENVIRONMENT The communications services of the Company are subject to regulation by the New Jersey Board of Public Utilities (the "BPU") with respect to intrastate rates and services and certain 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 filed a Plan for Alternative Form of Regulation (the "NJPAR"), which became effective with modifications required by the BPU in May 1993. The NJPAR divides the Company's services into Rate-Regulated Services and Competitive Services. Rate-Regulated Services are grouped in two categories: -"Protected Services": Basic residence and business service, Touch-Tone, access services, message toll services and the ordering, installation and restoration of these services. Rates for Protected Services, other than basic residence service, may be increased in an amount limited to the prior year's increase in the Gross National Product-Price Index ("GNP-PI") less a 2% productivity offset, as long as the return on equity for Rate-Regulated Services does not exceed 11.7%. Basic residence service rates are capped through December 1999. However, revenue neutral rate restructuring for Rate- Regulated Services, including Protected Services and basic residence service, is permitted. -"Other Services": Custom Calling, Custom Local Area Signaling Services ("CLASS" services which utilize Signaling System 7), operator services and 911 enhanced service. Rates for Other Services may be increased beginning January 1996 in an amount limited to the prior year's increase in the GNP-PI less a 2% productivity offset, as long as the return on equity for Rate-Regulated Services does not exceed 12.7%. All earnings above a return on equity of 13.7% for Rate-Regulated Services will be shared equally with customers. There is no point at which the earnings are capped. Competitive Services are deregulated under the New Jersey Telecommunications Act. An appeal of the NJPAR is pending. COMPETITION General Regulatory changes, as well as new technology, are continuing to expand the types of available communications services and equipment and the number of competitors offering such services. An increasing amount of this competition is from large companies which have substantial capital, technological and marketing resources. For a discussion of competition in the local exchange and intraLATA toll markets, see "Management's Discussion and Analysis of Results of Operations - - Factors That May Impact Future Results" on pages 14 and 15. Alternative Access A substantial portion of the Company's revenues from business and government customers is derived from a relatively small number of large, multiple-line subscribers. The Company faces competition from alternative communications systems, constructed by large end users, interexchange carriers and alternative access vendors, which are capable of originating and/or terminating calls without the use of the Company's plant. Teleport Communications Group Inc. ("Teleport") and MFS Communications Company, Inc. ("MFS") provide competitive access service in the Princeton-Trenton corridor and northern New Jersey. 4 Bell Atlantic - New Jersey, Inc. The ability of such alternative access providers to compete with the Company has been enhanced by the FCC's orders requiring the Company to offer virtual collocated interconnection for special and switched access services. Other potential sources of competition are cable television systems, shared tenant services and other non-carrier systems which are capable of bypassing the Company's local plant, either partially or completely, through substitution of special access for switched access or through concentration of telecommunications traffic on fewer of the Company's lines. Personal Communications Services Radio-based personal communications services ("PCS") also constitute potential sources of competition to the Company. PCS consists of wireless portable telephone services which would allow customers to make and receive telephone calls from any location using small handsets, and which could also be used for data transmission. Directories The Company continues to face significant competition from other providers of directories, as well as competition from other advertising media. In particular, the former sales representative of several of the Network Services Companies publishes directories in competition with those published by the Company in its service territory. Public Telephone Services The Company faces increasing competition in the provision of pay telephone services from other pay telephone service providers. In addition, the growth of wireless communications negatively impacts usage of public telephones. Operator Services Alternative operator services providers have entered into competition with the Company's operator services product line. CERTAIN CONTRACTS AND RELATIONSHIPS Certain planning, marketing, procurement, financial, legal, accounting, technical support and other management services are provided on behalf of the Company on a centralized basis by Bell Atlantic's wholly owned subsidiary, Bell Atlantic Network Services, Inc. ("NSI"). Bell Atlantic Network Funding Corporation provides short-term financing and cash management services to the Company. The seven RHCs each own (directly or through subsidiaries) a one-seventh interest in Bell Communications Research, Inc. ("Bellcore"). Pursuant to the Plan, Bellcore furnishes the RHCs and their BOC subsidiaries with technical assistance such as network planning, engineering and software development, as well as various other consulting services that can be provided more effectively on a centralized basis. Bellcore is the central point of contact for coordinating the efforts of the RHCs in meeting the national security and emergency preparedness requirements of the federal government. It also helps to mobilize the combined resources of the RHCs in times of natural disasters. EMPLOYEES As of December 31, 1995, the Company had approximately 12,800 employees. This workforce is augmented by employees of the centralized staff of NSI, who perform services for the Company on a contract basis. 5 Bell Atlantic - New Jersey, Inc. ITEM 2. PROPERTIES GENERAL The principal properties of the Company do not lend themselves to simple description by character and location. The Company's investment in plant, property and equipment consisted of the following at December 31:
1995 1994 ----- ----- Central office equipment.............. 37% 37% Cable, wiring and conduit............. 38 38 Land and buildings.................... 8 8 Other equipment....................... 12 12 Other................................. 5 5 ---- ---- 100% 100% ==== ====
"Central office equipment" consists of switching equipment, transmission equipment and related facilities. "Cable, wiring and conduit" consists primarily of aerial cable, underground cable, conduit and wiring. "Land and buildings" consists of land owned in fee and improvements thereto, principally central office buildings. "Other equipment" consists of public telephone terminal equipment and other terminal equipment, poles, furniture, office equipment, and vehicles and other work equipment. "Other" property consists primarily of plant under construction, capital leases and leasehold improvements. The Company's customers are served by electronic switching systems that provide a wide variety of services. The Company's network is in a transition from an analog to a digital network, which provides the capabilities to furnish advanced data transmission and information management services. At December 31, 1995, approximately 80% of the access lines were served by digital capability. CAPITAL EXPENDITURES The Company has been making and expects to continue to make significant capital expenditures to meet the demand for communications services and to further improve such services. Capital expenditures were approximately $590 million in 1993, $629 million in 1994 and $604 million in 1995. The total investment in plant, property and equipment was approximately $8.38 billion at December 31, 1993, $8.70 billion at December 31, 1994, and $8.98 billion at December 31, 1995, in each case after giving effect to retirements, but before deducting accumulated depreciation at such date. 6 Bell Atlantic - New Jersey, Inc. ITEM 3. LEGAL PROCEEDINGS PRE-DIVESTITURE CONTINGENT LIABILITIES AND LITIGATION The Plan provides for the recognition and payment by AT&T and the former BOCs (including the Company) of liabilities that are attributable to pre-Divestiture events but do not become certain until after Divestiture. These contingent liabilities relate principally to litigation and other claims with respect to the former Bell System's rates, taxes, contracts and torts (including business torts, such as alleged violations of the antitrust laws). Except to the extent that affected parties otherwise agree, contingent liabilities that are attributable to pre-Divestiture events are shared by AT&T and the BOCs in accordance with formulas prescribed by the Plan, whether or not an entity was a party to the proceeding and regardless of whether an entity was dismissed from the proceeding by virtue of settlement or otherwise. Each company's allocable share of liability under these formulas depends on several factors, including the type of contingent liability involved and each company's relative net investment as of the effective date of Divestiture. Under the formula generally applicable to most of the categories of these contingent liabilities, the Company's aggregate allocable share of liability is approximately 2.8%. AT&T and various of its subsidiaries and the BOCs (including, in some cases, the Company) have been and are parties to various types of litigation relating to pre-Divestiture events, including actions and proceedings involving environmental claims and allegations of violations of equal employment laws. Damages, if any, ultimately awarded in the remaining actions relating to pre- Divestiture events could have a financial impact on the Company whether or not the Company is a defendant since such damages will be treated as contingent liabilities and allocated in accordance with the allocation rules established by the Plan. Effective in 1994, the Company and the other Regional Holding Companies agreed to discontinue sharing of new pre-Divestiture claims and certain existing claims other than claims relating to environmental matters. AT&T is not a party to this agreement. While complete assurance cannot be given as to the outcome of any contingent liabilities or litigation, in the opinion of the Company's management, any monetary liability or financial impact to which the Company would be subject after final adjudication of all of the remaining potential or actual pre- Divestiture claims would not be material in amount to the financial position of the Company. 7 Bell Atlantic - New Jersey, Inc. PART I ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Omitted pursuant to General Instruction J(2).) PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (Inapplicable.) ITEM 6. SELECTED FINANCIAL DATA (Omitted pursuant to General Instruction J(2).) 8 Bell Atlantic - New Jersey, Inc. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (ABBREVIATED PURSUANT TO GENERAL INSTRUCTION J(2).) This discussion should be read in conjunction with the Financial Statements and Notes to the Financial Statements included in the index set forth on page F-1. RESULTS OF OPERATIONS - --------------------- The Company reported net income of $496.2 million in 1995, compared to a loss of $140.7 million in 1994. In 1994, the Company recorded a pretax charge of $44.9 million, in accordance with Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement No. 112), to recognize the Company's proportionate share of benefit costs for the separation of employees who are entitled to benefits under preexisting Bell Atlantic separation pay plans. Results for 1994 also included noncash, 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" (see Note 2 to the Financial Statements) and $6.7 million for the early extinguishment of debt. These and other items affecting the comparison of operating results between 1995 and 1994 are discussed in the following sections.
OPERATING REVENUES - ------------------ FOR THE YEARS ENDED DECEMBER 31 1995 1994 - -------------------------------------------------------------------------- (DOLLARS IN MILLIONS) Transport Services Local service............................. $ 867.6 $ 833.9 Network access............................ 971.4 904.1 Toll service.............................. 690.2 732.0 Ancillary Services Directory publishing...................... 342.2 350.9 Other..................................... 125.6 141.6 Value-added Services....................... 441.8 421.8 -------- -------- Total...................................... $3,438.8 $3,384.3 ======== ========
9 Bell Atlantic - New Jersey, Inc. TRANSPORT SERVICES OPERATING STATISTICS - ------------------------------------------
PERCENTAGE INCREASE 1995 1994 (DECREASE) - ----------------------------------------------------------------------------------- AT YEAR-END - ----------- Access Lines in Service (In thousands) Residence............................. 3,603 3,513 2.6% Business.............................. 1,822 1,717 6.1 Public................................ 94 96 (2.1) ------ ------ 5,519 5,326 3.6 ====== ====== FOR THE YEAR - ------------ Access Minutes of Use (In millions) Interstate............................ 18,912 17,670 7.0 Intrastate............................ 4,892 4,069 20.2 ------ ------ 23,804 21,739 9.5 ====== ====== Toll Messages (In millions) Intrastate............................ 2,161 2,190 (1.3) Interstate............................ 64 73 (12.3) ------ ------ 2,225 2,263 (1.7) ====== ======
LOCAL SERVICE REVENUES DOLLARS IN MILLIONS INCREASE - -------------------------------------------------------------------------------- 1995 - 1994 $ 33.7 4.0% - -------------------------------------------------------------------------------- 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 a 3.6% growth in network access lines in service. NETWORK ACCESS REVENUES DOLLARS IN MILLIONS INCREASE - -------------------------------------------------------------------------------- 1995 - 1994 $ 67.3 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. 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 of 9.5% in access minutes of use. Higher revenues from affiliated companies pursuant to an interstate revenue sharing agreement and higher end-user revenues attributable to increases in access lines in service also contributed to revenue growth in 1995. Revenues in 1995 were 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 Plans. 10 Bell Atlantic - New Jersey, Inc. In March 1995, the FCC adopted an order approving an Interim Price Cap Plan for interstate access charges, which replaced 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 included 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. Also as part of the filing, Bell Atlantic selected a 5.3% Productivity Factor, which eliminates the requirement to share a portion of interstate overearnings related to the August 1995 to June 1996 tariff period. While the Company expects current volume growth trends to continue, the impact of the August 1, 1995 price decreases is expected to substantially offset volume-related growth during the first half of 1996, relative to 1995 network access revenues. TOLL SERVICE REVENUES DOLLARS IN MILLIONS (DECREASE) - -------------------------------------------------------------------------------- 1995 - 1994 $ (41.8) (5.7)% - -------------------------------------------------------------------------------- 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 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 northern New Jersey and New York City). The reduction in toll service revenues was caused by a decline in toll message volumes of 1.7% and company-initiated price reductions on certain toll services. The decrease in toll messages was due primarily to increased competition for intraLATA toll, WATS, private line and corridor services, including the July 1994 introduction of intraLATA toll services competition on an access code basis. Price reductions were implemented on certain toll services as part of the Company's competitive response. The Company expects that competition for toll service revenues will continue in 1996. See "Factors That May Impact Future Results" below for a further discussion of toll service revenue issues. DIRECTORY PUBLISHING REVENUES DOLLARS IN MILLIONS (DECREASE) - -------------------------------------------------------------------------------- 1995 - 1994 $ (8.7) (2.5)% - -------------------------------------------------------------------------------- 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. 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) - -------------------------------------------------------------------------------- 1995 - 1994 $ (16.0) (11.3)% - -------------------------------------------------------------------------------- Other ancillary services include billing and collection services provided to IXCs and facilities rental services provided to affiliates and non-affiliates. 11 Bell Atlantic - New Jersey, Inc. Other ancillary services revenues decreased primarily due to a reduction in billing and collection services revenues as a result of the elimination of certain services from a contract with an IXC. Also contributing to the decline in other ancillary services revenues was a decrease in facilities rental revenues and the elimination of intraLATA toll compensation coincident with the July 1994 commencement of intraLATA toll competition. VALUE-ADDED SERVICES REVENUES DOLLARS IN MILLIONS INCREASE - -------------------------------------------------------------------------------- 1995 - 1994 $ 20.0 4.7% - -------------------------------------------------------------------------------- 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 customer premises wiring and maintenance services. Continued growth in the network customer base (access lines) and higher demand by 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 contracted with another affiliate of Bell Atlantic. OPERATING EXPENSES - ------------------
FOR THE YEARS ENDED DECEMBER 31 1995 1994 - -------------------------------------------------------------------------------- (DOLLARS IN MILLIONS) Employee costs, including benefits and taxes......... $ 751.4 $ 818.5 Depreciation and amortization........................ 669.8 632.4 Other operating expenses............................. 1,169.6 1,158.9 -------- -------- Total................................................ $2,590.8 $2,609.8 ======== ========
EMPLOYEE COSTS DOLLARS IN MILLIONS (DECREASE) - -------------------------------------------------------------------------------- 1995 - 1994 $ (67.1) (8.2)% - -------------------------------------------------------------------------------- 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 principally due to the effect of a third quarter 1994 charge of $35.4 million to recognize benefit costs, in accordance with Statement No. 112, for the separation of employees who are entitled to benefits under preexisting Bell Atlantic separation pay plans. Benefit costs associated with the separation of employees of NSI were allocated to the Company and included in other operating expenses. Decreased overtime pay, the effect of lower workforce levels and a reduction in pension cost further reduced employee costs in 1995. These cost reductions were partially offset by annual salary and wage increases and the recognition of certain contract labor and separation pay costs in 1995 associated with a new five-year labor contract with the International Brotherhood of Electrical Workers (IBEW) and the contract settlement with the Communications Workers of America (CWA). 12 Bell Atlantic - New Jersey, Inc. In June 1995, the Company executed a contract with the IBEW, representing approximately 7,400 employees. The IBEW contract, which became 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 base wage increases in the second and third years were modified in a revised agreement, dated March 6, 1996, to total 17.4% over the five years. The Company's contract with the CWA, representing approximately 4,200 employees, expired on August 5, 1995. In January 1996, a tentative three-year labor agreement was reached, which was subsequently ratified in February 1996. The agreement includes a 10.6% wage increase over the three-year contract period, a ratification bonus, improved pensions and benefits, and certain employment security provisions. DEPRECIATION AND AMORTIZATION DOLLARS IN MILLIONS INCREASE - -------------------------------------------------------------------------------- 1995 - 1994 $ 37.4 5.9% - -------------------------------------------------------------------------------- Depreciation and amortization increased due to higher depreciation rates and growth in depreciable telephone plant. The composite depreciation rates were 7.9% in 1995 and 7.7% in 1994. OTHER OPERATING EXPENSES DOLLARS IN MILLIONS INCREASE - -------------------------------------------------------------------------------- 1995 - 1994 $ 10.7 .9% - -------------------------------------------------------------------------------- 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 attributable to higher centralized services costs allocated from NSI, primarily as a result of additional costs incurred in that organization to enhance systems, consolidate work activities and market value-added services at Bell Atlantic's network services subsidiaries. This increase was substantially offset by a reduction in the provision for uncollectibles, principally as a result of a lower level of fraudulent calling card toll calls in 1995. The effect of a third quarter 1994 charge for the Company's allocated share of separation benefit costs associated with employees of NSI also partially offset the increase in other operating expenses. OTHER INCOME AND (EXPENSE), NET DOLLARS IN MILLIONS (DECREASE) - -------------------------------------------------------------------------------- 1995 - 1994 $ (4.7) - -------------------------------------------------------------------------------- The change in other income and (expense), net was attributable to the elimination of 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. This reduction was offset, in part, by the recognition of interest income related to short-term investments. 13 Bell Atlantic - New Jersey, Inc. INTEREST EXPENSE DOLLARS IN MILLIONS (DECREASE) - -------------------------------------------------------------------------------- 1995 - 1994 $ (12.4) (12.4)% - -------------------------------------------------------------------------------- Interest expense decreased principally due to the recognition of increased capitalized interest costs, subsequent to the discontinued application of regulatory accounting principles, effective August 1, 1994. PROVISION FOR INCOME TAXES DOLLARS IN MILLIONS INCREASE - -------------------------------------------------------------------------------- 1995 - 1994 $ 40.7 18.5% - -------------------------------------------------------------------------------- EFFECTIVE INCOME TAX RATES FOR THE YEARS ENDED DECEMBER 31 - -------------------------------------------------------------------------------- 1995 34.5% - -------------------------------------------------------------------------------- 1994 32.6% - -------------------------------------------------------------------------------- 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 income tax rate differential applied to reversing timing differences, both as a result of the discontinued application of regulatory accounting principles in August 1994. A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is provided in Note 8 to the Financial Statements. FACTORS THAT MAY IMPACT FUTURE RESULTS - -------------------------------------- FEDERAL LEGISLATION The Telecommunications Act of 1996 (the Act), which became effective on February 8, 1996, is the most comprehensive revision of the federal communications laws in over 60 years. In general, the Act includes provisions that would open the Company's local exchange markets to competition and would permit local exchange carriers, such as the Company, upon meeting certain conditions, to provide interLATA services (long distance) and video programming and to engage in manufacturing. With regard to the rules governing competition in the interLATA market, the Act takes a two-fold approach. Effective February 8, 1996, Bell Atlantic is permitted to apply for approval to offer interLATA services outside of the geographic region in which it currently operates as a local exchange carrier. Bell Atlantic has announced its plans to offer such services in several states. Secondly, within Bell Atlantic's geographic region, each of the telephone subsidiaries, including the Company, must demonstrate to the FCC that it has satisfied certain requirements in order to be permitted to offer interLATA services within its jurisdiction. Among the requirements with which the Company must comply is a 14-point "competitive checklist" which is aimed at ensuring that competitors have the ability to connect to the Company's network. The Company must also demonstrate to the FCC that its entry into the interLATA market would be in the public interest. The Act also imposes specific requirements on the Company that are intended to promote competition in the local exchange markets. These requirements include the duty to: (i) provide interconnection to any other carrier for the transmission and routing of telephone exchange service and exchange access at any technically feasible point; (ii) provide unbundled access to network elements at any technically feasible point; (iii) provide retail services for resale at wholesale 14 Bell Atlantic - New Jersey, Inc. prices; (iv) establish reciprocal compensation arrangements for the origination and termination of telecommunications and (v) provide physical collocation. 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 be dependent on several factors, including the timing, extent and success of competition in the Company's market and the timing, extent and success of the Company's pursuit of new business opportunities resulting from the Act. COMPETITION IntraLATA Toll Services Competition to offer intrastate intraLATA toll services is currently permitted in the Company's jurisdiction. Increased competition from IXCs has resulted in a decline in several components of the Company's toll services revenues. Currently, intraLATA toll calls are completed by the Company unless the customer dials a five-digit access code. Presubscription for intraLATA toll services would enable customers to make intraLATA toll calls using the carrier of their choice without having to dial the five-digit access code. In general, the Act prohibits 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 an operating telephone company to implement presubscription that was issued on or prior to December 19, 1995. During 1995, the Board of Public Utilities (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. The BPU is expected to issue final rules in the second quarter of 1996. Implementation of presubscription for intraLATA toll services could have a material negative impact on toll service revenues, especially if the Company is not permitted contemporaneously to offer interLATA services. Local Exchange Services The ability to offer local exchange services has historically been subject to regulation by the BPU. Applications from competitors to provide local exchange services are currently pending. The Act is expected to significantly increase the level of competition in the Company's local exchange market. However, increased competition in the local exchange market will facilitate FCC approval of the Company's entry into the interLATA markets. Other See Item 1 - Description of Business, Competition on pages 4 and 5 for additional information on the Company's competitive environment. OTHER STATE REGULATORY MATTERS The communications services of the Company are subject to regulation by the BPU with respect to intrastate rates and certain other matters. See Item 1 - Description of Business, State Regulation on page 4 for a description of the Company's current regulatory plan. 15 Bell Atlantic - New Jersey, Inc. 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 Modification of Final Judgment. 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 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. 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 December 31, 1995, the Company had $244.9 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 December 31, 1995, compared to 48.2% at December 31, 1994. On February 1, 1996, the Company declared and paid a dividend in the amount of $149.0 million to Bell Atlantic. 16 Bell Atlantic - New Jersey, Inc. PART II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is set forth on pages F-1 through F-20. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Omitted pursuant to General Instruction J(2).) ITEM 11. EXECUTIVE COMPENSATION (Omitted pursuant to General Instruction J(2).) ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (Omitted pursuant to General Instruction J(2).) ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Omitted pursuant to General Instruction J(2).) PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) Financial Statements See Index to Financial Statements and Financial Statement Schedule appearing on Page F-1. (2) Financial Statement Schedule See Index to Financial Statements and Financial Statement Schedule appearing on Page F-1. 17 Bell Atlantic - New Jersey, Inc. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) (3) Exhibits Exhibits identified in parentheses below, on file with the Securities and Exchange Commission (SEC), are incorporated herein by reference as exhibits hereto. Exhibit Number (Referenced to Item 601 of Regulation S-K) --------------------------------------------------------- 3a Restated Certificate of Incorporation of the registrant, dated September 28, 1989 and filed November 28, 1989. (Exhibit 3a to the registrant's Annual Report on Form 10-K for 1989, File No. 1-3488.) 3a(i) Certificate of Amendment to the registrant's Certificate of Incorporation, dated January 7, 1994 and filed January 13, 1994. (Exhibit 3a(i) to the registrant's Annual Report on Form 10-K for 1993, File No. 1-3488.) 3b By-Laws of the registrant, as amended December 15, 1995. 3b(i) Consent of Sole Stockholder of Bell Atlantic - New Jersey, Inc., dated December 15, 1995. 4 No instrument which defines the rights of holders of long and intermediate term debt of the registrant is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request. 10a Agreement Concerning Contingent Liabilities, Tax Matters and Termination of Certain Agreements among AT&T, Bell Atlantic Corporation, and the Bell Atlantic Corporation telephone subsidiaries, and certain other parties, dated as of November 1, 1983. (Exhibit 10a to Bell Atlantic Corporation Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-8606.) 10b Agreement among Bell Atlantic Network Services, Inc. and the Bell Atlantic Corporation telephone subsidiaries, dated November 7, 1983. (Exhibit 10b to Bell Atlantic Corporation Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-8606.) 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. (b) Reports on Form 8-K: There were no Current Reports on Form 8-K filed during the quarter ended December 31, 1995. 18 Bell Atlantic - New Jersey, Inc. SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Bell Atlantic - New Jersey, Inc. By /s/ Joseph M. Milanowycz --------------------------------- Joseph M. Milanowycz Controller and Treasurer and Chief Financial Officer March 27, 1996 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED. Principal Executive Officer: Len J. Lauer President and Chief Executive Officer Principal Accounting and Financial Officer: Joseph M. Milanowycz Controller and Treasurer and Chief Financial Officer Directors: By /s/ Joseph M. Milanowycz --------------------------------- Bruce S. Gordon Joseph M. Milanowycz Len J. Lauer (individually and as Leslie A. Vial attorney-in-fact) March 27, 1996 19 Bell Atlantic - New Jersey, Inc. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page ---- Report of Independent Accountants.......................... F-2 Statements of Operations and Reinvested Earnings For the years ended December 31, 1995, 1994 and 1993.... F-3 Balance Sheets - December 31, 1995 and 1994................ F-4 Statements of Cash Flows For the years ended December 31, 1995, 1994 and 1993.... F-6 Notes to Financial Statements.............................. F-7 Schedule II - Valuation and Qualifying Accounts For the years ended December 31, 1995, 1994 and 1993.... F-20
Financial statement schedules other than that listed above have been omitted because such schedules are not required or applicable. F-1 Bell Atlantic - New Jersey, Inc. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareowner of Bell Atlantic - New Jersey, Inc. We have audited the financial statements and financial statement schedule of Bell Atlantic - New Jersey, Inc. as listed in the index on page F-1 of this Form 10-K. The financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bell Atlantic - New Jersey, Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Notes 1 and 2 to the financial statements, 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," effective August 1, 1994. Also, as discussed in Notes 1, 7 and 8 to the financial statements, the Company changed its method of accounting for income taxes and postemployment benefits in 1993. /s/ COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania February 5, 1996 F-2 Bell Atlantic - New Jersey, Inc. STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS FOR THE YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS)
1995 1994 1993 --------- --------- --------- OPERATING REVENUES (including $69.0, $56.9 and $57.2 from affiliates)................... $3,438.8 $3,384.3 $3,276.1 -------- -------- -------- OPERATING EXPENSES Employee costs, including benefits and taxes...................................... 751.4 818.5 760.2 Depreciation and amortization............... 669.8 632.4 596.6 Other (including $645.4, $598.7 and $569.9 to affiliates)...................... 1,169.6 1,158.9 1,119.0 -------- -------- -------- 2,590.8 2,609.8 2,475.8 -------- -------- -------- OPERATING INCOME.............................. 848.0 774.5 800.3 OTHER INCOME AND (EXPENSE), NET Allowance for funds used during construction............................... --- 8.4 11.3 Other, net (including $0, $.1 and $.1 from affiliate)............................ (3.4) (7.1) 4.5 -------- -------- -------- (3.4) 1.3 15.8 INTEREST EXPENSE (including $12.7, $5.5 and $3.1 to affiliate)....................... 87.6 100.0 112.4 -------- -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES, EXTRAORDINARY ITEMS, AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE..... 757.0 675.8 703.7 PROVISION FOR INCOME TAXES.................... 260.8 220.1 216.4 -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.................................... 496.2 455.7 487.3 -------- -------- -------- EXTRAORDINARY ITEMS Discontinuation of Regulatory Accounting Principles, Net of Tax..................... --- (589.7) --- Early Extinguishment of Debt, Net of Tax.... --- (6.7) (6.9) -------- -------- -------- --- (596.4) (6.9) -------- -------- -------- CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE Postemployment Benefits, Net of Tax......... --- --- (30.0) -------- -------- -------- NET INCOME (LOSS)............................. $ 496.2 $ (140.7) $ 450.4 ======== ======== ======== REINVESTED EARNINGS At beginning of year........................ $ 174.8 $ 750.1 $ 739.4 Add: net income (loss)..................... 496.2 (140.7) 450.4 -------- -------- -------- 671.0 609.4 1,189.8 Deduct: dividends.......................... 492.0 434.7 439.5 other changes...................... .5 (.1) .2 -------- -------- -------- At end of year.............................. $ 178.5 $ 174.8 $ 750.1 ======== ======== ========
See Notes to Financial Statements. F-3 Bell Atlantic - New Jersey, Inc. BALANCE SHEETS (DOLLARS IN MILLIONS) ASSETS ------
DECEMBER 31 ------------------ 1995 1994 -------- -------- CURRENT ASSETS Accounts receivable: Customers and agents, net of allowances for uncollectibles of $58.1 and $51.4 $ 589.0 $ 577.8 Affiliates.............................. 18.1 17.7 Other................................... 49.8 28.4 Material and supplies..................... 16.4 9.9 Prepaid expenses.......................... 211.8 192.6 Deferred income taxes..................... 18.7 24.5 Other..................................... 4.8 5.8 -------- -------- 908.6 856.7 -------- -------- PLANT, PROPERTY AND EQUIPMENT............. 8,977.2 8,697.3 Less accumulated depreciation............. 4,923.3 4,555.7 -------- -------- 4,053.9 4,141.6 -------- -------- DEFERRED CHARGES AND OTHER ASSETS Deferred income taxes..................... 2.1 --- Other..................................... 55.2 54.8 -------- -------- 57.3 54.8 -------- -------- TOTAL ASSETS.............................. $5,019.8 $5,053.1 ======== ========
See Notes to Financial Statements. F-4 Bell Atlantic - New Jersey, Inc. BALANCE SHEETS (DOLLARS IN MILLIONS) LIABILITIES AND SHAREOWNER'S INVESTMENT ---------------------------------------
DECEMBER 31 -------------------- 1995 1994 --------- --------- CURRENT LIABILITIES Debt maturing within one year: Note payable to affiliate............................... $ 227.2 $ 117.4 Other................................................... 4.6 29.3 Accounts payable and accrued liabilities: Affiliates.............................................. 268.1 247.4 Other................................................... 497.0 482.2 Advance billings and customer deposits.................... 133.5 151.4 -------- -------- 1,130.4 1,027.7 -------- -------- LONG-TERM DEBT............................................ 1,296.3 1,301.3 -------- -------- EMPLOYEE BENEFIT OBLIGATIONS.............................. 816.0 821.3 -------- -------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes..................................... --- 48.1 Unamortized investment tax credits........................ 39.6 46.6 Other..................................................... 177.8 252.1 -------- -------- 217.4 346.8 -------- -------- COMMITMENTS (Note 4) SHAREOWNER'S INVESTMENT Common stock-one share, without par value, owned by parent.................................................. 1,381.2 1,381.2 Reinvested earnings....................................... 178.5 174.8 -------- -------- 1,559.7 1,556.0 -------- -------- TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT............. $5,019.8 $5,053.1 ======== ========
See Notes to Financial Statements. F-5 Bell Atlantic - New Jersey, Inc. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS)
1995 1994 1993 ------------ ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................... $ 496.2 $ (140.7) $ 450.4 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......... 669.8 632.4 596.6 Extraordinary items, net of tax................................... --- 596.4 6.9 Cumulative effect of change in accounting principle, net of tax... --- --- 30.0 Allowance for funds used during construction................... --- (8.4) (11.3) Other items, net....................... .7 (10.0) (2.0) Changes in certain assets and liabilities: Accounts receivable.................. (39.6) (11.9) (17.5) Material and supplies................ (7.8) 4.5 4.7 Other assets......................... (18.3) (92.3) (38.0) Accounts payable and accrued taxes... 31.9 5.0 106.8 Deferred income taxes, net........... (44.4) (40.1) (42.8) Unamortized investment tax credits... (7.0) (15.2) (13.8) Employee benefit obligations......... (5.3) 76.8 23.3 Other liabilities.................... (68.9) 25.9 12.5 -------- -------- -------- Net cash provided by operating activities............................... 1,007.3 1,022.4 1,105.8 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments....... (32.2) --- --- Proceeds from sale of short-term investments.............................. 32.2 --- --- Additions to plant, property and equipment................................ (603.9) (628.9) (594.8) Net change in note receivable from affiliate................................ --- 9.4 (9.4) Other, net................................ 20.9 3.4 4.2 -------- -------- -------- Net cash used in investing activities..... (583.0) (616.1) (600.0) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings.................. --- 249.5 198.2 Principal repayments of borrowings and capital lease obligations............... (29.0) (4.0) (37.9) Early extinguishment of debt.............. --- (350.0) (100.0) Net change in note payable to affiliate... 109.8 117.4 (57.9) Dividends paid............................ (492.0) (434.7) (439.5) Net change in outstanding checks drawn on controlled disbursement accounts..... (13.1) 15.5 (68.7) -------- -------- -------- Net cash used in financing activities..... (424.3) (406.3) (505.8) -------- -------- -------- NET CHANGE IN CASH........................ --- --- --- CASH, BEGINNING OF PERIOD................. --- --- --- -------- -------- -------- CASH, END OF PERIOD....................... $ --- $ --- $ --- ======== ======== ========
See Notes to Financial Statements. F-6 Bell Atlantic - New Jersey, Inc. NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Bell Atlantic - New Jersey, Inc. (the Company) is a wholly owned subsidiary of Bell Atlantic Corporation (Bell Atlantic). The Company provides two basic types of telecommunications services in a territory consisting of three Local Access and Transport Areas (LATAs) in the state of New Jersey. First, the Company transports telecommunications traffic between subscribers located within the same LATA (intraLATA service), including both local and toll services. Local service includes the provision of local exchange, local private line and public telephone services. Toll service includes message toll services and intraLATA Wide Area Toll Service/800 services. The Company also earns toll revenue from the provision of telecommunications service between LATAs (interLATA service) in the corridors between southern New Jersey and Philadelphia and northern New Jersey and New York City. Second, the Company provides exchange access service, which links a subscriber's telephone equipment to the facilities of an interexchange carrier (IXC) which, in turn, provides interLATA telecommunications service to their customers. The Company also provides exchange access service to IXCs which provide intrastate intraLATA long distance telecommunications service. Other services provided by the Company include directory publishing, customer premises wiring and maintenance, and billing and collection services. The Telecommunications Act of 1996 is the most comprehensive revision of the federal communications laws in over 60 years. In general, the Telecommunications Act includes provisions that would open the Company's local exchange markets to competition and would permit local exchange carriers, such as the Company, upon meeting certain conditions, to provide interLATA services (long distance) and video programming and to engage in manufacturing. BASIS OF PRESENTATION Effective August 1, 1994, the Company discontinued accounting for its operations under the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71) (see Note 2). USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingencies. Actual results could differ from those estimates. REVENUE RECOGNITION Revenues are recognized as earned on the accrual basis, which is generally when services are rendered based on the usage of the Company's local exchange network and facilities. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. SHORT-TERM INVESTMENTS Short-term investments consist of investments that mature 91 days to 12 months from the date of purchase. Short-term investments are stated at cost, which approximates market value. MATERIAL AND SUPPLIES New and reusable materials are carried in inventory, principally at average original cost, except that specific costs are used in the case of large individual items. F-7 Bell Atlantic - New Jersey, Inc. PREPAID DIRECTORY Costs of directory production and advertising sales are principally deferred until the directory is published. Such costs are amortized to expense and the related advertising revenues are recognized over the average life of the directory, which is generally 12 months. PLANT AND DEPRECIATION The Company's provision for depreciation is based principally on the composite group remaining life method of depreciation and straight-line composite rates. This method provides for the recovery of the remaining net investment in telephone plant, less anticipated net salvage value, over the remaining asset lives. The composite group method requires periodic revisions to depreciation rates based on a number of variables, including retirement estimates, survivor curves, salvage, and cost of removal. In connection with the discontinued application of Statement No. 71, effective August 1, 1994, for financial reporting purposes, the Company began using estimated asset lives for certain categories of plant and equipment that were shorter than the regulatory lives used prior to the discontinuance of Statement No. 71. The shorter lives result principally from the Company's expectation as to the revenue-producing lives of the assets. The following asset lives were used in 1994 and 1995:
JANUARY 1, 1994 EFFECTIVE AVERAGE LIVES (IN YEARS) TO JULY 31, 1994 AUGUST 1, 1994 1995 ------------------------------------------------------------------------- Buildings.................. 21 - 50 21 - 40 15 - 40 Central office equipment... 10 - 19 8 - 12 8 - 12 Cable, wiring and conduit.. 22 - 60 16 - 50 16 - 50 Other equipment............ 6 - 35 6 - 35 6 - 35
When depreciable plant is replaced or retired, the amounts at which such plant has been carried in plant, property and equipment are removed from the respective accounts and charged to accumulated depreciation, and any gains or losses on disposition are amortized over the remaining asset lives of the remaining net investment in telephone plant. MAINTENANCE AND REPAIRS The cost of maintenance and repairs, including the cost of replacing minor items not constituting substantial betterments, is charged to operating expense. CAPITALIZED INTEREST COST Upon the discontinued application of Statement No. 71, effective August 1, 1994, the Company began reporting capitalized interest as a cost of telephone plant and equipment and a reduction in interest expense, in accordance with the provisions of Statement of Financial Accounting Standards No. 34, "Capitalization of Interest Cost." Prior to the discontinued application of Statement No. 71, the Company recorded an allowance for funds used during construction, which included both interest and equity return components, as a cost of plant and as an item of other income. EMPLOYEE BENEFITS Pensions, Postretirement Benefits Other Than Pensions, and Postemployment Benefits Substantially all employees of the Company are covered under multi-employer noncontributory defined benefit pension plans and postretirement health and life insurance benefit plans sponsored by Bell Atlantic and certain of its subsidiaries, including the Company. F-8 Bell Atlantic - New Jersey, Inc. Amounts contributed to the Company's pension plans are actuarially determined, principally under the aggregate cost actuarial method, and are subject to applicable federal income tax regulations. Amounts contributed to 501(c)(9) trusts and 401(h) accounts under applicable federal income tax regulations to pay certain postretirement benefits are actuarially determined, principally under the aggregate cost actuarial method. The Company also provides employees with postemployment benefits such as disability benefits, workers' compensation, and severance pay. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." INCOME TAXES Bell Atlantic and its domestic subsidiaries, including the Company, file a consolidated federal income tax return. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement No. 109). The consolidated amount of current and deferred tax expense is allocated by applying the provisions of Statement No. 109 to each subsidiary as if it were a separate taxpayer. The Tax Reform Act of 1986 repealed the investment tax credit (ITC) as of January 1, 1986, subject to certain transitional rules. ITCs were deferred and are being amortized as a reduction to income tax expense over the estimated service lives of the related assets. RECLASSIFICATIONS Certain reclassifications of prior years' data have been made to conform to 1995 classifications. 2. DISCONTINUATION OF REGULATORY ACCOUNTING PRINCIPLES In the third quarter of 1994, the Company determined that it was no longer eligible for continued application of the accounting required by Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (Statement No. 71). In connection with the decision to discontinue regulatory accounting principles under Statement No. 71, the Company recorded a noncash, extraordinary charge of $589.7 million, which is net of an income tax benefit of $423.2 million. The Company's determination that it was no longer eligible for continued application of the accounting required by Statement No. 71 was based on the belief that the convergence of competition, technological change, actual and potential regulatory, legislative and judicial actions, and other factors were creating fully open and competitive markets. In such markets, the Company does not believe it can be assured that prices can be maintained at levels that will recover the net carrying amount of existing telephone plant and equipment, which has been depreciated over relatively long regulatory lives. A summary of the components of the after-tax charge recognized as a result of the discontinued application of Statement No. 71 follows:
(DOLLARS IN MILLIONS) ---------------------- Increase in plant and equipment depreciation reserve $615.0 Accelerated investment tax credit amortization...... (41.1) Tax-related regulatory asset and liability elimination........................................ (27.6) Other regulatory asset and liability elimination.... 43.4 ------ Total............................................... $589.7 ======
F-9 Bell Atlantic - New Jersey, Inc. The increase in the accumulated depreciation reserve was supported by both an impairment analysis, which identified estimated amounts not recoverable from future discounted cash flows, and a depreciation study, which identified inadequate depreciation reserve levels which the Company believes resulted principally from the cumulative underdepreciation of plant as a result of the regulatory process. Investment tax credit amortization was accelerated as a result of the reduction in remaining asset lives of the associated telephone plant and equipment. Tax-related regulatory assets of $117.5 million and tax-related regulatory liabilities of $145.1 million, which were established upon the adoption of Statement No. 109 and amortized as the related deferred taxes were recognized in the ratemaking process, were eliminated (see Note 8). The elimination of other regulatory assets and liabilities relates principally to deferred debt refinancing and vacation pay costs, which were being amortized as they were recognized in the ratemaking process. 3. PLANT, PROPERTY AND EQUIPMENT Plant, property and equipment, which is stated at cost, is summarized as follows at December 31:
1995 1994 ----------- ---------- (DOLLARS IN MILLIONS) Land....................... $ 47.1 $ 47.4 Buildings.................. 653.4 615.9 Central office equipment... 3,342.9 3,193.7 Cable, wiring and conduit.. 3,424.3 3,319.8 Other equipment............ 1,065.1 1,086.0 Other...................... 203.9 155.7 Construction-in-progress... 240.5 278.8 --------- --------- 8,977.2 8,697.3 Accumulated depreciation... (4,923.3) (4,555.7) --------- --------- Total...................... $ 4,053.9 $ 4,141.6 ========= =========
Certain prior year amounts previously included in Construction-in-progress have been reclassified to Other to conform to 1995 classifications. 4. LEASES The Company leases certain facilities and equipment for use in its operations under both capital and operating leases. Plant, property and equipment included capital leases of $68.1 million and $68.9 million, and related accumulated amortization of $42.6 million and $39.1 million at December 31, 1995 and 1994, respectively. The Company did not incur any initial capital lease obligations in 1995 and 1993. In 1994, the Company incurred initial capital lease obligations of $.5 million. Total rent expense amounted to $52.6 million in 1995, $53.3 million in 1994, and $53.6 million in 1993. Of these amounts, $13.8 million, $12.3 million and $6.8 million in 1995, 1994 and 1993, respectively, were lease payments to affiliated companies. F-10 Bell Atlantic - New Jersey, Inc. At December 31, 1995, the aggregate minimum rental commitments under noncancelable leases for the periods shown are as follows:
YEARS CAPITAL LEASES OPERATING LEASES ----- -------------- ---------------- (DOLLARS IN MILLIONS) 1996......................... $ 9.4 $ 7.3 1997......................... 9.2 5.7 1998......................... 9.3 4.0 1999......................... 8.7 2.7 2000......................... 8.4 2.0 Thereafter................... 17.4 10.3 ----- ----- Total........................ 62.4 $32.0 ===== Less imputed interest and executory costs............ 20.3 ----- Present value of net minimum lease payments..... 42.1 Less current installments.... 4.6 ----- Long-term obligation at December 31, 1995.......... $37.5 =====
5. DEBT DEBT MATURING WITHIN ONE YEAR Debt maturing within one year consists of the following at December 31:
1995 1994 ----------- ---------- (DOLLARS IN MILLIONS) Note payable to affiliate (BANFC)................ $227.2 $117.4 Long-term debt maturing within one year.......... 4.6 29.3 ------ ------ Total............................................ $231.8 $146.7 ====== ====== Weighted average interest rate for note payable outstanding at year-end........................ 5.8% 5.7% ====== ======
The Company has a contractual agreement with an affiliated company, Bell Atlantic Network Funding Corporation (BANFC), for the provision of short-term financing and cash management services. BANFC issues commercial paper and secures bank loans to fund the working capital requirements of Bell Atlantic's network services subsidiaries, including the Company, and invests funds in temporary investments on their behalf. At December 31, 1995, the Company had $244.9 million of an unused line of credit with BANFC. F-11 Bell Atlantic - New Jersey, Inc. LONG-TERM DEBT Long-term debt consists principally of debentures issued by the Company. Interest rates and maturities of the amounts outstanding are as follows at December 31:
1995 1994 ----------- ---------- (DOLLARS IN MILLIONS) Forty year 3 3/8%, due 1995......................... $ --- $ 25.0 Forty year 4 7/8%, due 2000......................... 20.0 20.0 Ten year 7 1/4%, due 2002........................... 100.0 100.0 Ten year 5 7/8%, due 2004........................... 250.0 250.0 Forty year 4 5/8%, due 2005......................... 40.0 40.0 Forty year 5 7/8%, due 2006......................... 55.0 55.0 Forty year 6 5/8%, due 2008......................... 50.0 50.0 Forty year 7 1/4%, due 2011......................... 125.0 125.0 Forty year 7 3/8%, due 2012......................... 75.0 75.0 Thirty year 8%, due 2022............................ 200.0 200.0 Thirty year 7 1/4%, due 2023........................ 100.0 100.0 Thirty-one year 6.80%, due 2024..................... 100.0 100.0 Forty year 7.85%, due 2029.......................... 150.0 150.0 -------- -------- 1,265.0 1,290.0 Unamortized discount and premium, net............... (6.2) (6.5) Capital lease obligations - average rate 11.1% and 11.1%................................... 42.1 47.1 -------- -------- Total long-term debt, including current maturities.. 1,300.9 1,330.6 Less maturing within one year....................... 4.6 29.3 -------- -------- Total long-term debt................................ $1,296.3 $1,301.3 ======== ========
Long-term debt outstanding at December 31, 1995 includes $365.0 million that is callable by the Company. The call prices range from 102.5% to 100.0% of face value, depending upon the remaining term to maturity of the issue. In addition, $150.0 million of long-term debt, bearing interest at 7.85%, will become redeemable only on November 15, 1999 at the option of the holders. The redemption price will be 100.0% of face value, plus accrued interest. The Company recorded extraordinary charges associated with the early extinguishment of debentures called by the Company of $6.7 million, net of an income tax benefit of $3.6 million in 1994, and $6.9 million, net of an income tax benefit of $3.6 million in 1993. At December 31, 1995, the Company had $50.0 million remaining under a shelf registration statement filed with the Securities and Exchange Commission. 6. FINANCIAL INSTRUMENTS CONCENTRATIONS OF CREDIT RISK Financial instruments that subject the Company to concentrations of credit risk consist primarily of trade receivables. Concentrations of credit risk with respect to trade receivables other than those from AT&T are limited due to the large number of customers in the Company's customer base. For the years ended December 31, 1995, 1994 and 1993, revenues generated from services provided to AT&T, primarily network access and billing and collection, were $421.4 million, $419.2 million and $423.8 million, respectively. At December 31, 1995 and 1994, Accounts receivable, net, included $43.7 million and $53.5 million, respectively, from AT&T. F-12 Bell Atlantic - New Jersey, Inc. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments. Note Payable to Affiliate (BANFC) The carrying amount approximates fair value. Debt Fair value is estimated based on the quoted market prices for the same or similar issues or on the net present value of the expected future cash flows using current interest rates. The estimated fair values of the Company's financial instruments are as follows at December 31:
1995 1994 -------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------- --------- --------- --------- (DOLLARS IN MILLIONS) Debt *........................ $1,492.2 $1,558.7 $1,407.4 $1,269.1
* Debt includes Long-term debt and Debt maturing within one year, but excludes capital lease obligations and unamortized discount and premium. 7. EMPLOYEE BENEFITS PENSION PLANS Substantially all of the Company's management and associate employees are covered under multi-employer noncontributory defined benefit pension plans sponsored by Bell Atlantic and certain of its subsidiaries, including the Company. The pension benefit formula is based on a flat dollar amount per year of service according to job classification under the associate plan. The pension benefit formula for plans covering management employees in 1995 and prior years is based on a stated percentage of adjusted career average earnings. The Company's objective in funding the plans is to accumulate funds at a relatively stable level over participants' working lives so that benefits are fully funded at retirement. Plan assets consist principally of investments in domestic and foreign corporate equity securities, U.S. and foreign government and corporate debt securities, and real estate. Effective January 1, 1996, the plan covering management employees was converted to a cash balance plan. Under the cash balance plan, pension benefits are determined by a combination of compensation credits based on age and service and individual account-based interest credits. Each management employee's opening account balance is based on accrued pension benefits as of December 31, 1995, and converted to a lump-sum amount determined under the prior plan's provisions. The lump-sum value is multiplied by a transition factor, based on age and service, to arrive at the opening balance. Pension cost was $7.2 million, $25.7 million and $25.4 million for the years ended December 31, 1995, 1994 and 1993, respectively. The reduction in 1995 pension cost is principally due to an increase in the discount rate from 7.25% at December 31, 1993 to 8.25% at December 31, 1994, and plan changes. Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" (Statement No. 87) requires a comparison of the actuarial present value of projected benefit obligations with the fair value of plan assets, the disclosure of the components of net periodic pension costs and a reconciliation of the funded status of the plans with amounts recorded on the balance sheets. The Company participates in multi-employer plans and therefore, such disclosures are not presented for the Company because the structure of the plans does not allow for the determination of this information on an individual participating company basis. F-13 Bell Atlantic - New Jersey, Inc. The significant assumptions used for the pension measurements were as follows at December 31:
1995 1994 1993 ----- ----- ----- Discount rate.................................... 7.25% 8.25% 7.25% Rate of future increases in compensation levels.. 4.75% 5.25% 5.25%
The expected long-term rate of return on plan assets was 8.25% for 1995, 1994 and 1993. Pension benefits for associate employees are subject to collective bargaining. Modifications in pension benefits have been bargained from time to time. Additionally, the Company has amended the benefit formula under pension plans maintained for its management employees. Substantive commitments for future amendments to the Company's pension plans have been reflected in determining the Company's pension cost. The actuarial assumptions used to determine pension cost are based on financial market interest rates, past experience, and management's best estimate of future benefit changes and economic conditions. Changes in these assumptions may impact future pension cost levels and benefit obligations. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Substantially all of the Company's management and associate employees are covered under postretirement health and life insurance benefit plans sponsored by Bell Atlantic and certain of its subsidiaries, including the Company. The determination of benefit cost for postretirement health benefit plans is based on comprehensive medical and dental benefit plan provisions. The postretirement life insurance benefit formula used in the determination of postretirement benefit cost is primarily based on annual basic pay at retirement. The Company funds the postretirement health and life insurance benefits of current and future retirees. Plan assets consist principally of investments in domestic and foreign corporate equity securities, and U.S. Government and corporate debt securities. Postretirement benefit cost was $52.4 million, $61.5 million and $64.1 million for the years ended December 31, 1995, 1994 and 1993, respectively. Postretirement benefit cost decreased in 1995 principally as a result of an increase in the discount rate from 7.25% at December 31, 1993 to 8.25% at December 31, 1994, and the effect of favorable plan experience. Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," (Statement No. 106) requires a comparison of the actuarial present value of projected postretirement benefit obligations with the fair value of plan assets, the disclosure of the components of net periodic postretirement benefit costs, a reconciliation of the funded status of the plan with amounts recorded on the balance sheets and the effect of a one-percentage-point increase in the assumed health care cost trend rates for each future year on net periodic postretirement benefit cost and the accumulated postretirement benefit obligation. The Company participates in multi-employer plans and therefore, such disclosures are not presented for the Company because the structure of the plans does not provide for the determination of this information on an individual participating company basis. Assumptions used in the actuarial computations for postretirement benefits are as follows at December 31:
1995 1994 1993 ------ ------ ------ Discount rate.................................... 7.25% 8.25% 7.25% Rate of future increases in compensation levels.. 4.75 5.25 5.25 Medical cost trend rate: Year ending.................................... 11.00 12.00 13.00 Ultimate (year 2003)........................... 5.00 5.00 5.00 Dental cost trend rate........................... 4.00 4.00 4.00
The expected long-term rate of return on plan assets was 8.25% for 1995, 1994 and 1993. Postretirement benefits other than pensions for associate employees are subject to collective bargaining agreements and have been modified from time to time. The Company has also periodically modified benefits under plans maintained for its management employees. Substantive commitments for future amendments to the Company's postretirement benefit F-14 Bell Atlantic - New Jersey, Inc. plans have been reflected in determining the Company's postretirement benefit cost. The actuarial assumptions used to determine postretirement benefit cost are based on financial market interest rates, past experience, and management's best estimate of future benefit changes and economic conditions. Changes in these assumptions may impact future postretirement benefit cost levels and benefit obligations. POSTEMPLOYMENT BENEFITS Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement No. 112). The cumulative effect at January 1, 1993 of adopting Statement No. 112 reduced net income by $30.0 million, net of a deferred income tax benefit of $15.4 million. In the third quarter of 1994, the Company recorded a pretax charge of $44.9 million to recognize the Company's proportionate share of benefit costs for the separation of employees who are entitled to benefits under preexisting Bell Atlantic separation pay plans. The charge, which was actuarially determined, represents benefits earned through July 1, 1994 for employees who are expected to receive separation payments in the future. SAVINGS PLANS AND EMPLOYEE STOCK OWNERSHIP PLANS Substantially all of the Company's employees are eligible to participate in savings plans established by Bell Atlantic to provide opportunities for eligible employees to save for retirement on a tax-deferred basis and encourage employees to acquire and maintain an equity interest in Bell Atlantic. Under these plans, a certain percentage of eligible employee contributions are matched with shares of Bell Atlantic common stock. Bell Atlantic funds the matching contribution through two leveraged employee stock ownership plans (ESOPs). Bell Atlantic accounts for its ESOPs in accordance with the accounting rules applicable to companies with ESOP trusts that held securities prior to December 15, 1989. The Company recognizes its proportionate share of total ESOP cost based on the Company's matching obligation attributable to participating Company employees. The Company recorded total ESOP cost of $16.9 million, $14.4 million and $12.8 million in 1995, 1994 and 1993, respectively. 8. INCOME TAXES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement No. 109). As of January 1, 1993, the Company recorded a charge to income of $.8 million, representing the cumulative effect of adopting Statement No. 109, which has been reflected in the Provision for Income Taxes in the Statement of Operations and Reinvested Earnings. Upon adoption of Statement No. 109, the effects of required adjustments to deferred tax balances of the Company, which would be recognized in the future for regulatory purposes, were deferred on the balance sheet as regulatory assets and liabilities in accordance with Statement No. 71. At January 1, 1993, the Company recorded income tax-related regulatory assets totaling $130.6 million in Other Assets and income tax-related regulatory liabilities totaling $228.6 million in Deferred Credits and Other Liabilities - Other. During 1993, these regulatory assets were increased by $5.9 million and regulatory liabilities were reduced by $21.7 million for the effect of the federal income tax rate increase from 34% to 35%, effective January 1, 1993. The income tax-related regulatory assets and liabilities were eliminated as a result of the discontinued application of Statement No. 71, effective August 1, 1994 (see Note 2). F-15 Bell Atlantic - New Jersey, Inc. The components of income tax expense are as follows:
YEARS ENDED DECEMBER 31 -------------------------- 1995 1994 1993 -------- ------- ------- (DOLLARS IN MILLIONS) Current: Federal.................. $312.2 $275.4 $273.0 Deferred: Federal.................. (44.4) (40.1) (42.8) Investment tax credits.... (7.0) (15.2) (13.8) ------ ------ ------ Total income tax expense.. $260.8 $220.1 $216.4 ====== ====== ======
As a result of the increase in the federal corporate income tax rate from 34% to 35%, effective January 1, 1993, the Company recorded a net charge to the tax provision of $.1 million in 1993. The provision for income taxes varies from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The difference is attributable to the following factors:
YEARS ENDED DECEMBER 31 -------------------------- 1995 1994 1993 --------- -------- ----- Statutory federal income tax rate.................. 35.0% 35.0% 35.0% Investment tax credits............................. (.6) (2.3) (1.9) Benefit of rate differential applied to reversing timing differences...................... -- (1.4) (2.8) Other, net......................................... .1 1.3 .4 ---- ---- ---- Effective income tax rate.......................... 34.5% 32.6% 30.7% ==== ==== ====
Significant components of deferred tax liabilities (assets) were as follows at December 31:
1995 1994 ------- ------- (DOLLARS IN MILLIONS) Deferred tax liabilities: Depreciation..................................... $ 426.1 $ 470.5 Gross receipts tax............................... 25.6 26.0 Other............................................ 8.9 17.6 ------- ------- 460.6 514.1 ------- ------- Deferred tax assets: Employee benefits................................ (383.7) (346.2) Investment tax credits........................... (13.9) (16.3) Advance payments................................. (27.1) (30.4) Other............................................ (56.7) (97.6) ------- ------- (481.4) (490.5) ------- ------- Net deferred tax (asset) liability................. $ (20.8) $ 23.6 ======= =======
Total deferred tax assets include approximately $267 million and $256 million at December 31, 1995 and 1994, respectively, related to postretirement benefit costs recognized in accordance with Statement No. 106. This deferred tax asset will gradually be realized over the estimated lives of current retirees and employees. F-16 Bell Atlantic - New Jersey, Inc. 9. ADDITIONAL FINANCIAL INFORMATION
DECEMBER 31 ---------------------- 1995 1994 ------ ------ (DOLLARS IN MILLIONS) BALANCE SHEETS: Accounts payable and accrued liabilities: Accounts payable - affiliates................ $267.0 $246.8 Accounts payable - other..................... 330.6 321.7 Accrued expenses............................. 86.0 69.7 Accrued vacation pay......................... 52.1 54.5 Accrued taxes................................ 12.6 20.4 Interest payable - other..................... 15.7 15.9 Interest payable - affiliate................. 1.1 .6 ------ ------ $765.1 $729.6 ====== ======
YEARS ENDED DECEMBER 31 ----------------------- 1995 1994 1993 ------ ------ ------ (DOLLARS IN MILLIONS) STATEMENTS OF CASH FLOWS: Cash paid during the year for: Interest, net of amounts capitalized......... $ 93.0 $ 98.8 $102.6 Income taxes, net of amounts refunded........ 320.5 281.1 259.3 STATEMENTS OF OPERATIONS AND REINVESTED EARNINGS: Interest expense, net of amounts capitalized.. 87.6 100.0 112.4 Capitalized interest.......................... 19.7 5.1 ---
Interest paid during the year includes $12.9 million in 1995, $5.1 million in 1994 and $3.0 million in 1993 related to short-term financing services provided by Bell Atlantic Network Funding Corporation (see Note 5). At December 31, 1995 and 1994, $24.4 million and $37.5 million, respectively, of negative cash balances were classified as accounts payable. Total advertising expense amounted to $29.8 million in 1995, $26.1 million in 1994 and $27.3 million in 1993. Of these amounts, $20.6 million, $17.4 million and $16.7 million in 1995, 1994 and 1993, respectively, were advertising expenses allocated to the company by Bell Atlantic Network Services, Inc. (NSI). 10. TRANSACTIONS WITH AFFILIATES The financial statements include transactions with NSI, Bell Atlantic Network Funding Corporation (BANFC), Bell Atlantic, and various other affiliates. The Company has contractual arrangements with NSI for the provision of various centralized corporate, administrative, planning, financial and other services. These arrangements serve to fulfill the common needs of Bell Atlantic's operating telephone subsidiaries on a centralized basis. The Company's allocated share of NSI costs include costs billed by Bell Communications Research, Inc. (Bellcore), another affiliated company owned jointly by the seven regional holding companies. The Company recognizes interest expense and income in connection with contractual arrangements with BANFC to provide short-term financing, investing and cash management services to the Company (see Note 5). F-17 Bell Atlantic - New Jersey, Inc. Operating revenues include amounts from or (to) affiliates in connection with an interstate revenue sharing arrangement with Bell Atlantic's operating telephone subsidiaries. Operating revenues and expenses also include miscellaneous items of income and expense resulting from transactions with other affiliates, primarily rental of facilities and equipment. The Company also paid cash dividends to its parent company, Bell Atlantic. Transactions with affiliates are summarized as follows:
YEARS ENDED DECEMBER 31 --------------------------- 1995 1994 1993 ------- -------- -------- (DOLLARS IN MILLIONS) Operating revenues: Interstate revenue sharing from/(to) affiliates.................................. $ 13.5 $ (2.9) $ (4.6) Other revenue from affiliates................ 55.5 59.8 61.8 ------ ------ ------ 69.0 56.9 57.2 ------ ------ ------ Operating expenses: NSI.......................................... 546.3 499.7 458.8 Bellcore..................................... 28.4 27.1 39.9 Other........................................ 70.7 71.9 71.2 ------ ------ ------ 645.4 598.7 569.9 ------ ------ ------ Interest income from BANFC..................... --- .1 .1 Interest expense to BANFC...................... 12.7 5.5 3.1 Dividends paid to Bell Atlantic................ 492.0 434.7 439.5
Outstanding balances with affiliates are reported on the Balance Sheets at December 31, 1995 and 1994 as Accounts receivable - affiliates, Note payable to affiliate, and Accounts payable and accrued liabilities - affiliates. In 1994, NSI operating expenses included $9.5 million, representing the Company's proportionate share of separation benefit costs for employees of NSI. Bellcore expenses in 1994 included reimbursements of $14.2 million from other Bellcore owners in connection with their decision to participate in the Advanced Intelligent Network project. This project previously had been supported entirely by Bell Atlantic's operating telephone subsidiaries, including the Company. In 1993, the Company's reported charge for the cumulative effect of the change in accounting for postemployment benefits included $2.5 million, net of a deferred income tax benefit of $1.3 million, representing the Company's proportionate share of NSI's accrued cost of postemployment benefits at January 1, 1993. On February 1, 1996, the Company declared and paid a dividend in the amount of $149.0 million to Bell Atlantic. F-18 Bell Atlantic - New Jersey, Inc. 11. QUARTERLY FINANCIAL INFORMATION (unaudited)
INCOME BEFORE NET OPERATING OPERATING EXTRAORDINARY INCOME QUARTER ENDED REVENUES INCOME ITEMS (LOSS) - ------------- --------- --------- ------------- --------- (DOLLARS IN MILLIONS) 1995: March 31 ........ $ 847.7 $234.4 $139.1 $ 139.1 June 30.......... 860.1 215.8 126.3 126.3 September 30..... 864.1 188.3 109.2 109.2 December 31...... 866.9 209.5 121.6 121.6 -------- ------ ------ ------- Total............ $3,438.8 $848.0 $496.2 $ 496.2 ======== ====== ====== ======= 1994: March 31......... $ 843.1 $209.5 $127.1 $ 120.4 June 30.......... 854.1 226.2 137.4 137.4 September 30*.... 848.4 139.8 78.0 (511.7) December 31...... 838.7 199.0 113.2 113.2 -------- ------ ------ ------- Total............ $3,384.3 $774.5 $455.7 $(140.7) ======== ====== ====== =======
* The loss for the third quarter of 1994 includes an extraordinary charge of $589.7 million, net of an income tax benefit of $423.2 million, related to the discontinuation of regulatory accounting principles (see Note 2). F-19 Bell Atlantic - New Jersey, Inc. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN MILLIONS)
ADDITIONS ---------------------- CHARGED BALANCE AT CHARGED TO OTHER BALANCE BEGINNING TO ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES NOTE(a) NOTE(b) OF PERIOD - ----------- ---------- -------- ----------- ------------- --------- Allowance for Uncollectible Accounts Receivable: Year 1995.................. $51.4 $45.0 $52.2 $ 90.5 $58.1 Year 1994.................. $57.7 $59.6 $48.7 $114.6 $51.4 Year 1993.................. $40.6 $57.2 $48.1 $ 88.2 $57.7
- ------------------------------------------ (a) (i) Amounts previously written off which were credited directly to this account when recovered; and (ii) accruals charged to accounts payable for anticipated uncollectible charges on purchases of accounts receivable from others which were billed by the Company. (b) Amounts written off as uncollectible. F-20 EXHIBITS FILED WITH ANNUAL REPORT FORM 10-K UNDER THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 Bell Atlantic - New Jersey, Inc. COMMISSION FILE NUMBER 1-3488 Form 10-K for 1995 File No. 1-3488 Page 1 of 1 EXHIBIT INDEX Exhibits identified in parentheses below, on file with the Securities and Exchange Commission (SEC), are incorporated herein by reference as exhibits hereto. Exhibit Number (Referenced to Item 601 of Regulation S-K) - --------------------------------------------------------- 3a Restated Certificate of Incorporation of the registrant, dated September 28, 1989 and filed November 28, 1989. (Exhibit 3a to the registrant's Annual Report on Form 10-K for 1989, File No. 1-3488.) 3a(i) Certificate of Amendment to the registrant's Certificate of Incorporation, dated January 7, 1994 and filed January 13, 1994. (Exhibit 3a(i) to the registrant's Annual Report on Form 10-K for 1993, File No. 1-3488.) 3b By-Laws of the registrant, as amended December 15, 1995. 3b(i) Consent of Sole Stockholder of Bell Atlantic - New Jersey, Inc., dated December 15, 1995. 4 No instrument which defines the rights of holders of long and intermediate term debt of the registrant is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request. 10a Agreement Concerning Contingent Liabilities, Tax Matters and Termination of Certain Agreements among AT&T, Bell Atlantic Corporation, and the Bell Atlantic Corporation telephone subsidiaries, and certain other parties, dated as of November 1, 1983. (Exhibit 10a to Bell Atlantic Corporation Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-8606.) 10b Agreement among Bell Atlantic Network Services, Inc. and the Bell Atlantic Corporations telephone subsidiaries, dated November 7, 1983. (Exhibit 10b to Bell Atlantic Corporation Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-8606.) 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. EX-3.B 2 BY-LAWS Exhibit 3b BELL ATLANTIC-NEW JERSEY, INC. ------------------------------ BY-LAWS ------- As Amended December 15, 1995 ---------------------------- STOCKHOLDERS' MEETINGS Place of Meeting. Meetings of the stockholders shall be held at the principal office of the Corporation in the State of New Jersey, or at such other place in the municipality in which the principal officer may be located as may be designated from time to time by the Board of Directors. Annual Meeting; Election of Directors and Inspectors of Election. There shall be an annual meeting of the stockholders of the Corporation for the election of Directors and Inspectors of Election, and for the transaction of such other business as may be brought before the meeting. Any business which may properly be brought before a general meeting of the stockholders and, if due notice is given, any business which may be considered and transacted at a special meeting of the stockholders, may be considered at the annual meeting. The annual meeting shall be held on the third Tuesday in March of each year (unless that day be a holiday, then on the next business day) between the hours of 10 o'clock in the forenoon and 3 o'clock in the afternoon or as soon thereafter as may be convenient. Inspectors of Election. There shall be two Inspectors of Election elected at the annual meeting of the stockholders to serve for one year and until their successors are elected. They shall act as inspectors at elections held during the ensuing year and at the next succeeding annual election for Directors and Inspectors of Election. Either of the Inspectors, in the absence of the other shall have power to conduct an election. If none of the Inspectors is present at an election, the stockholders present at the opening of the meeting shall fill the vacancies by the vote of the holders of record of a majority in interest of the issued and outstanding stock entitled to vote and who are present in person or by proxy. No person who is a candidate for the office of Director shall act as judge, inspector or clerk of any election for Directors. Elections. The polls at every election for Directors and Inspectors of Election shall remain open until all of the stockholders present in person or by proxy have voted or have had an opportunity to vote. At every election each stockholder, whether resident or non-resident, shall be entitled to one vote, in person or by proxy, for each share of stock held by such stockholder, but no proxy shall be voted on after three years from its date. Special Meetings. A special meeting of the stockholders may be called by the Directors or the President at any time, and the President shall call a special meeting whenever he is requested, in writing, to do so by two of the Directors, or by the holders of record of not less than one-third in interest of the issued and outstanding stock of the Corporation. Notice of Meetings. Unless otherwise required by law, a written or printed notice of the time and place of every annual meeting, and of the time, place and purpose of every special meeting of the stockholders shall be given, or caused to be given, by the Secretary to each stockholder of record at least two days before the date specified for such meeting. Quorum. At any meeting of the stockholders, the holders of a majority in interest of all the issued and outstanding stock of the Corporation, who are present in person or by proxy, shall constitute a quorum. If less than a quorum be present, a majority of those present shall nevertheless have power to adjourn such meeting to another date. BOARD OF DIRECTORS Number and Qualifications of Directors. The Board of Directors shall consist of not less than one (1) nor more than 2 ten (10) Directors. Each director shall continue in office for one year, and until his successor shall be elected and qualified. Meetings; Time and Place. A stated meeting of the Board of Directors shall be held as soon as practicable, but not later than thirty days after the annual meeting of the stockholders. Thereafter stated meetings shall be held at such times and places as may be fixed from time to time by the Board; provided, however, that if it be determined by the President that it would be desirable to hold any such meeting at a time or place other than that fixed by the Board, the President may designate another time or place for holding that meeting. Any or all directors may participate in a meeting of the Board or a committee of the Board by means of conference telephone or any means of communication by which all persons participating in the meeting are able to hear each other. A Board or committee meeting may be held entirely or partially by such means and any director so participating shall be counted as present at the meeting for all purposes. A special meeting of the Board of Directors may be called by the President whenever he shall deem it advisable, and he shall call such a meeting whenever requested, in writing, to do so by two members of the Board. If at any meeting of the Board of Directors, the Chairman of the Board, if there be one, and the President are absent, then the Board shall select from among the Directors present one of their number to preside at that meeting. Notice of Meetings. Unless otherwise required by law, a written or printed notice of the time and place of every stated meeting of the Board of Directors, and of the time, place and purpose of every special meeting of the Board shall be given, or caused to be given, by the Secretary to each Director at least two days before the date specified for such meeting. Quorum. At any meeting of the Board of Directors a majority of the Directors then in office shall constitute a quorum, except that in the event of a major catastrophe of the kind referred to in Section 2.6 of these By-Laws a quorum shall 3 consist of a majority of the Directors then available until such time as it shall be determined that all of the Directors are available for service on the Board. If less than a quorum be present, a majority of those present shall nevertheless have power to adjourn such meeting to another date. Powers. The Board of Directors shall manage the business, affairs, and property of the Corporation. Any directorship not filled at the annual meeting and any vacancy, however caused, occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining Directors. They may appoint an Executive Committee and may appoint such other committees as they may from time to time deem necessary or desirable. No committee shall consist of less than two Directors. The Board shall elect the officers provided for in Section 5.1 of these By- Laws and may appoint a General Counsel, one or more than one Assistant Secretary, one or more than one Assistant Treasurer, and such other officers and agents as in the judgment of the Board may be necessary. Any officer elected by the Board and any officer or agent appointed by the Board shall be removable at the pleasure of the Board, and the Board may fill any vacancy occurring in any office or position. Emergency Authority. The Board of Directors by resolution adopted by a majority of the whole Board, may make advance provision for the continuity and authority of the Corporation's management in the event of a major catastrophe, such as a nuclear attack, resulting in the loss or unavailability of members of the Board of Directors, whether by death, incapacity, isolation or otherwise, or in loss or unavailability of officers of the Corporation, and in the event of such a major catastrophe, the terms of any such resolution shall have the same effect as if included in these By-Laws and shall supersede the terms of these By-Laws to the extent that they may be inconsistent therewith. BOARD OF DIRECTORS COMMITTEES 4 Meetings and Notices. The Executive Committee or any other Committee may fix the time and place of holding their stated meetings, and after such time and place are fixed, no notice of such stated meetings shall be necessary. A special meeting of the Executive Committee or of any other Committee may be called by the President whenever he shall deem it advisable, and he shall call such a meeting whenever requested, in writing, to do so by two members of any Committee. If at any meeting of the Executive Committee, the Chairman of the Board of Directors, if there be one, and the President are absent, then the Committee shall select from among the members present one of their number to preside at that meeting. A written or printed notice of the time, place and purpose of every special meeting of any Committee shall be given, or caused to be given, by the Secretary to each member at least two days before the date specified for the meeting. Absences. The President may designate from time to time a member of the Board to act as a member of the Executive Committee or of any other Committee at any meeting or meetings thereof in the place of any member of such Committee absent therefrom. Quorum. At any meeting of the Executive Committee or of any other Committee a majority of the members of such Committee shall constitute a quorum. If less than a quorum be present, a majority of those present shall nevertheless have power to adjourn such meeting to another date. Powers. The Executive Committee shall have and exercise the powers of the Board of Directors in the management of the business, affairs and property of the Corporation during the intervals between meetings of the Board, except that the Executive Committee shall not have the power of election, appointment or removal, or assignment of any powers or duties, 5 with respect to any office or position provided for in Section 2.5 of these By- Laws. NOTICES AND WAIVERS OF NOTICE Notices. Any notice required to be given to any stockholder, director or officer under the provisions of these By-Laws or otherwise shall (subject to the provisions of law and of the Certificate of Incorporation of the Corporation) be deemed to be sufficiently given if such notice be written or printed and be deposited in the post office with postage prepaid addressed to such stockholder, director or officer at his address as the same appears on the books or records of the Corporation, and the mailing of such notice shall constitute due notice. Waivers of Notice. Any notice required to be given under the provisions of these By-Laws or otherwise may (subject to the provisions of law and of the Certificate of Incorporation of the Corporation) be waived by the stockholder, director or officer to whom such notice is required to be given, either before or after the meeting or action of which notice is waived. OFFICERS AND AGENTS Officers. There shall be a President of the Corporation, such number of Vice Presidents as the Board shall determine from time to time, a Secretary and a Treasurer, each of whom shall hold office until the first meeting of the Board of Directors following the next annual meeting of the stockholders, or any adjournment thereof at which directors shall have been elected, or until his successor shall have been elected and shall qualify. There may be a Chairman of the Board of Directors, who shall be chosen from the Directors, and who shall serve until the annual meeting of the stockholders next succeeding his election. The Board of Directors may from time to time appoint such subordinate officers, employees or agents (who may also be officers or employees of an affiliated company) as it deems 6 necessary, who shall hold such positions for such terms and shall exercise such powers and perform such duties as are provided in these By-Laws, or as the Board of Directors may from time to time determine. The Board of Directors may delegate to any officer or Committee of the Board of Directors the power to appoint or remove subordinate officers and to retain, appoint or remove employees or other agents, and to prescribe the authority and duties, not inconsistent with these By-Laws, of such subordinate officers, employees or other agents. In the absence of any such specific delegation, the President shall have the authority to appoint subordinate officers, employees or agents. The President shall have the authority to approve giving one or more subordinate officers the title of Vice President, if deemed appropriate under the circumstances. Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at meetings of the Board and shall be, ex officio, a member of the Executive Committee, if any, and Chairman thereof. He shall have such other powers and duties as may be assigned to him from time to time by the Board of Directors. President. The President shall be the chief executive officer of the Corporation. He shall perform all the duties pertaining to the office of president of a corporation and such other duties as may be assigned to him from time to time by the Board of Directors. All officers and agents elected or appointed by the Board of Directors, except the Chairman of the Board, shall report to the President. The President shall be, ex officio, a member of the Executive Committee, if any, and if there be no Chairman of the Board of Directors, or, if the Chairman be absent, the President shall, when present, preside at meetings of the Board of Directors and at meetings of the Executive Committee. Vice President or Vice Presidents. The Vice President and each of the Vice Presidents, if there be more than one, shall have such powers and perform such duties as may be assigned to him from time to time by the Board of Directors or the President. 7 Secretary and Assistant Secretaries. The Secretary and each Assistant Secretary shall be sworn to the faithful discharge of his duties. The Secretary shall give, or cause to be given, the necessary notices of all meetings of the stockholders, the Board of Directors and the Executive Committee. He shall keep and record the proceedings of all meetings of the stockholders, the Board of Directors and the Executive Committee and shall keep such books and records as the Board of Directors may direct. He shall have the custody of the corporate seal and generally shall perform such services and duties as may be assigned to him from time to time by the Board of Directors or the President. Each Assistant Secretary shall have all the powers and perform all the duties of the Secretary in the absence of that officer. He shall perform such other duties as may be assigned to him from time to time by the Board of Directors or the Secretary. Treasurer and Assistant Treasurers. The Treasurer and each Assistant Treasurer shall give bond for the faithful discharge of his duties in such sum and with such sureties as the Board of Directors shall approve, provided that where a blanket surety bond is in effect bonding such officers of the Corporation, a special bond as required above need not be given by them. The Treasurer shall receive and have charge of all funds and securities of the Corporation; he shall deposit, or cause to be deposited, the funds to the credit of the Corporation in such depositories as he shall deem appropriate subject to the approval of the Chief Financial Officer. He shall disburse the funds only under such rules and regulations as may be adopted from time to time by the Board of Directors. He shall keep an account of all receipts and disbursements, make such reports and perform such other duties as may be required from time to time by the Board of Directors or the President. 8 Each Assistant Treasurer shall have all the powers and perform all the duties of the Treasurer in the absence of that officer. He shall perform such other duties as may be assigned to him from time to time by the Board of Directors or the Treasurer. Chief Financial Officer. The Chief Financial Officer shall exercise accounting control over all receipts and disbursements and over the funds, securities and other similar property of the Corporation in the custody of officers and employees. He shall maintain the accounts of the Corporation and shall be responsible for compliance by the Corporation with the accounting regulations promulgated by public regulatory authorities. He shall perform such other duties as the Board of Directors or the President may assign to him from time to time. Other Officers and Agents. Any other officer or agent appointed pursuant to Section 2.5 of these By-Laws shall have such powers and perform such duties as the Board of Directors or the President may assign to him from time to time. 9 INDEMNIFICATION AND LIMITATION OF LIABILITY Actions Against Directors, Trustees or Officers. Any present or future director, trustee or officer of this Corporation or the legal representative of any such director, trustee or officer, shall be indemnified by this Corporation against reasonable costs, expenses (exclusive of any amount paid to the Corporation in settlements and counsel fees paid or incurred in connection with any action, suit or proceeding to which any such director, trustee or officer or his legal representative may be made a party by reason of his being or having been such director, trustee or officer; provided (1) that such action, suit or proceeding shall be prosecuted against such director, trustee or officer, or against his legal representative to final determination, and it shall not be finally adjudged in said action, suit or proceeding that he had been derelict in the performance of his duties as such director, trustee or officer, or (2) said action, suit or proceeding shall be settled or otherwise terminated as against such director, trustee or officer or his legal representative without a final determination on the merits, and it shall be determined by the Board of Directors of this Corporation that said director, trustee or officer had not been derelict in any substantial way in the performance of his duties as such director, trustee or officer as charged in said action, suit or proceeding. This Article shall not constitute a restriction or limitation upon the power of this Corporation to take any other action with respect to the indemnification or reimbursement of directors, trustees, officers or employees. Pursuant to further action by the stockholder on March 24, 1988, the following Amendment to the Certificate of lncorporation was approved: To the fullest extent that the New Jersey Business Corporation Act, as it exists on the date hereof or as it may hereafter be amended, permits the limitation or elimination of the liability of directors and officers, no director or officer of this 10 Corporation shall be liable to this Corporation or its stockholders for damages for breach of duty as a director or officer. No amendment or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director or officer of this Corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal. STOCK Stock Certificates. Stock certificates, signed in the manner prescribed by law, shall be issued to each stockholder, certifying the number of shares of stock to which he is entitled, and said certificates and the shares represented thereby shall be transferable only upon the books of the Corporation by the stockholder named in the certificate or his duly authorized attorney or representative. No new stock certificate shall be issued until the old certificate representing the same shares of stock has been surrendered and cancelled; provided, however, that in case of a lost stock certificate, another certificate in lieu thereof may be issued upon such conditions as the Board of Directors may prescribe. TRANSFER BOOKS Closing Transfer Books. The Board of Directors shall have the power to close the stock transfer books of the Corporation for a period not exceeding fifty days preceding the date of any meeting of stockholders or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect; provided, further, that in lieu of so closing the stock transfer books as aforesaid, the Board of Directors may fix, in advance, a date, not exceeding fifty days preceding the date of any meeting of stockholders, or the date 11 for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of capital stock, and in such case only stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at such meeting, or to receive payment of such dividend, or allotment of rights or exercise of such rights, as the case may be, and stockholders of record on such date shall be exclusively so entitled, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. 12 SEAL Form. The seal of the Corporation shall be circular in form and shall have the name of the Corporation, Bell Atlantic-New Jersey, Inc., on the circumference and the word Seal in the enter. CHANGES IN BY-LAWS Amendments, etc. These By-Laws may be altered, amended or repealed at any meeting of the Board of Directors by a majority vote of the number of Directors fixed pursuant to Section 2.1 of these By-Laws, or at any meeting of the stockholders by the vote of the holders of record of a majority in interest of the issued and outstanding stock, who are present in person or represented by proxy at the meeting; provided that in the call for any such meeting notice shall have been given of the proposed action to alter, amend or repeal the By- Laws. 13 EX-3.B.I 3 CONSENT OF SOLE STOCKHOLDER - NJ Exhibit 3b(i) CONSENT OF SOLE STOCKHOLDER OF BELL ATLANTIC - NEW JERSEY, INC. The undersigned, which holds all of the outstanding stock of Bell Atlantic - New Jersey, Inc. (the "Corporation"), does hereby consent to and adopt the following resolution pursuant to Section 14A:5-6 of the New Jersey Business Corporation Act: RESOLVED, that the By-Laws of the Corporation be, and they hereby are, amended and restated in their entirety as set forth on Exhibit A attached hereto and made a part hereof. IN WITNESS WHEREOF, the undersigned sole stockholder of Bell Atlantic - New Jersey, Inc. has executed this consent as of the 15th day of December, 1995. Bell Atlantic Corporation By: Raymond W. Smith Chairman of the Board and Chief Executive Officer EX-23 4 CONSENT OF INDEPENDENT ACCOUNTANT CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Bell Atlantic - New Jersey, Inc. on Form S-3 (File No. 33-49851) of our report dated February 5, 1996, which includes an explanatory paragraph stating that 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," effective August 1, 1994, and changed its method of accounting for income taxes and postemployment benefits in 1993, on our audits of the financial statements and financial statement schedule of the Company as of December 31, 1995 and December 31, 1994, and for each of the three years in the period ended December 31, 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania March 27, 1996 EX-24 5 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: WHEREAS, BELL ATLANTIC - NEW JERSEY, INC., a New Jersey corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; and WHEREAS, the undersigned is an officer and a director of the Company as indicated below under her name; NOW, THEREFORE, the undersigned hereby constitutes and appoints LEN J. LAUER AND JOSEPH M. MILANOWYCZ, and each of them, as attorneys for her and in her name, place and stead, and in each of her offices and capacities as an officer and a director of the Company, to execute and file such Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorney full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 28th day of March, 1996. /s/ Leslie A. Vial _______________________________ Leslie A. Vial Vice President-General Counsel and Secretary and Director POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: WHEREAS, BELL ATLANTIC - NEW JERSEY, INC., a New Jersey corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; and WHEREAS, the undersigned is an officer and a director of the Company as indicated below under his name; NOW, THEREFORE, the undersigned hereby constitutes and appoints JOSEPH M. MILANOWYCZ as attorney for him and in his name, place and stead, and in each of his offices and capacities as an officer of the Company, to execute and file such Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorney full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 27th day of March, 1996. /s/ Len J. Lauer ______________________________ Len J. Lauer President and Director POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: WHEREAS, BELL ATLANTIC - NEW JERSEY, INC., a New Jersey corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; and WHEREAS, the undersigned is a director of the Company; NOW, THEREFORE, the undersigned hereby constitutes and appoints LEN J. LAUER and JOSEPH M. MILANOWYCZ, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a director of the Company, to execute and file such Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 8, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day of March, 1996. /s/ Bruce S. Gordon ______________________________ Bruce S. Gordon EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE BALANCE SHEET AS OF DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 0 0 647 58 16 909 8,977 4,923 5,020 1,130 1,296 0 0 1,381 179 5,020 0 3,439 0 2,591 0 0 88 757 261 496 0 0 0 496 0 0
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