Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-1150
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
Incorporated under the laws of the State of New York
I.R.S. Employer Identification Number 04-1664340
125 High Street, Boston, Massachusetts 02110
Telephone Number (617) 743-9800
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF NYNEX CORPORATION, MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1) (a) AND (b) OF FORM 10-Q AND IS
THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO
GENERAL INSTRUCTION H(2).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
PART I - FINANCIAL INFORMATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions) (Unaudited)
For the Three Months Ended
March 31,
1996 1995
OPERATING REVENUES
Local service $ 503.4 $ 479.3
Long distance 171.7 172.2
Network access 339.2 317.9
Other 119.1 84.2
Total operating revenues 1,133.4 1,053.6
OPERATING EXPENSES
Maintenance and support 286.5 282.0
Depreciation and amortization 235.5 227.8
Marketing and customer services 162.0 125.7
Taxes other than income 35.0 31.7
Provision for uncollectible revenues 13.5 14.7
Other 167.5 132.0
Total operating expenses 900.0 813.9
Operating income 233.4 239.7
Other income (expense) - net (.6) 3.2
Interest expense 35.8 40.3
Earnings before income taxes
and cumulative effect of
change in accounting principle 197.0 202.6
Income taxes
Federal 62.7 64.5
State and local 13.0 14.1
Total income taxes 75.7 78.6
Earnings before cumulative effect of
change in accounting principle 121.3 124.0
Cumulative effect of change in
accounting for directory
publishing income, net of
taxes (Note B) 55.2 -
NET INCOME $ 176.5 $ 124.0
RETAINED EARNINGS
Beginning of year $ 414.9 $ 979.9
Net income 176.5 124.0
Dividends declared (116.6) (110.6)
End of period $ 474.8 $ 993.3
See accompanying notes to financial statements.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
BALANCE SHEETS
(In millions) (Unaudited)
March 31, December 31,
1996 1995
ASSETS
Current assets:
Cash $ 12.3 $ 8.4
Receivables
Trade and other (net of allowance of
$52.6 and $49.7, respectively) 912.2 890.0
Affiliates 126.5 27.1
Deferred charges 71.6 95.9
Deferred income taxes 65.8 106.2
Inventory 68.9 53.7
Prepaid expenses and other 47.6 36.1
Total current assets 1,304.9 1,217.4
Telephone plant - at cost 12,713.2 12,543.4
Less: accumulated depreciation 6,889.4 6,681.9
5,823.8 5,861.5
Deferred charges and other 136.5 139.9
TOTAL ASSETS $ 7,265.2 $ 7,218.8
LIABILITIES AND SHARE OWNER'S EQUITY
Current liabilities:
Accounts Payable
Affiliates 461.6 473.7
Other 482.9 608.0
Short-term debt 352.4 387.6
Dividends payable 116.7 110.7
Taxes accrued 126.2 27.7
Advance billing and cust`omers' deposits 20.8 19.5
Interest accrued 52.4 38.1
Total current liabilities 1,613.0 1,665.3
Long-term debt 1,822.2 1,822.0
Deferred income taxes 300.5 345.5
Unamortized investment tax credits 66.0 67.9
Other long-term liabilities and deferred credits 899.6 814.1
Total liabilities 4,701.3 4,714.8
Commitments and contingencies (Notes C and D)
Share owner's equity:
Common stock - one share, without par value 1.0 1.0
Additional paid-in capital 2,088.1 2,088.1
Retained earnings 474.8 414.9
Total share owner's equity 2,563.9 2,504.0
TOTAL LIABILITIES AND
SHARE OWNER'S EQUITY $ 7,265.2 $ 7,218.8
See accompanying notes to financial statements.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
For The Three Months Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 176.5 $ 124.0
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 235.5 227.8
Deferred income taxes - net (40.4) (18.2)
Deferred credits - net (1.9) (3.1)
Change in operating assets
and liabilities:
Receivables (121.6) 15.2
Deferred charges 24.3 6.5
Deferred income taxes 40.4 11.3
Inventory (15.2) 0.6
Prepaid expenses and other (11.5) (13.8)
Accounts payable (137.2) (35.0)
Taxes Accrued 98.5 74.9
Advance billing and customers'
deposits 1.3 0.9
Interest accrued 14.3 7.5
Other - net 181.2 13.2
Total adjustments 267.7 287.8
Net cash provided by operating
activities 444.2 411.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (294.2) (222.1)
Advances to NYNEX - (30.6)
Net cash used in investing activities (294.2) (252.7)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from NYNEX (35.3) (55.1)
Dividends paid to NYNEX (110.7) (106.1)
Repayment of long-term debt and
capital leases (0.1) (0.1)
Net cash used in financing activities (146.1) (161.3)
Net increase (decrease) in Cash 3.9 (2.2)
Cash at beginning of period 8.4 9.1
Cash at end of period $ 12.3 $ 6.9
See accompanying notes to financial statements.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
A Basis of Presentation
The financial statements have been prepared by New England Telephone and
Telegraph Company (the "Company"), a wholly-owned subsidiary of NYNEX
Corporation ("NYNEX"), pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC") and, in the opinion of Management, include
all adjustments necessary for a fair presentation of the financial information
for each period shown. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. Management believes that the disclosures made are adequate to
make the information presented not misleading. Certain information in the
financial statements for 1995 has been reclassified to conform to the current
year's presentation. The results for interim periods are not necessarily
indicative of the results for the full year. These financial statements should
be read in conjunction with the financial statements and notes thereto
incorporated by reference in the Company's 1995 Annual Report on Form 10-K.
B Change in Accounting Principle
Effective January 1, 1996, NYNEX Information Resources Company ("Information
Resources"), a wholly owned subsidiary of NYNEX, changed the recognition of its
directory publishing revenue and production expenses from the "amortized" method
to the "point of publication" method. Under the point of publication method,
revenues and product expenses will be recognized when the directories are
published rather than over the lives of the directories (generally one year) as
was the case under the amortized method. NYNEX and the Company believes the
change to the point of publication method is preferable because it is the method
that is generally followed by publishing companies and reflects more precisely
the operations of the business. Pursuant to the directory licensing agreement
with Information Resources and the Company, the Company's portion of the initial
effect of the change to the point of publication method is reported as a
cumulative effect of a change in accounting principle which resulted in a
one-time, non-cash gain of $91.7 million ($55.2 million after-tax) in the first
quarter of 1996. The impact of applying the point of publication method during
the first quarter of 1996 resulted in an $8.5 million increase in net income.
Pro forma results, assuming the point of publication method had been applied
during the first quarter of 1995, are as follows:
Three Months Ended
March 31, 1995
(In millions)
Pro forma As Reported
--------- -----------
Net Income $132.6 $124.0
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
C Revenues Subject to Possible Refund
Several state and federal regulatory matters, may possibly require the Company
to refund a portion of the revenues collected in the current and prior periods.
As of March 31, 1996, the aggregate amount of such revenues that was estimated
to be subject to possible refund was approximately $32.8 million, plus related
interest. The outcome of each pending matter, as well as the time frame within
which each will be resolved, is not presently determinable.
D Litigation and Other Contingencies
Various legal actions and regulatory proceedings are pending that may affect the
Company. While counsel cannot give assurance as to the outcome of any of these
matters, in the opinion of Management based upon the advice of counsel, the
ultimate resolution of these matters in future periods is not expected to have a
material effect on the Company's financial position or annual operating results
but could have a material effect on quarterly operating results.
E Supplemental Cash Flow Information
The following information is provided in accordance with Statement of Financial
Accounting Standards No. 95, "Statement of Cash Flows":
For the
Three Months Ended
March 31,
1996 1995
--------------
(In millions)
Income tax payments $33.3 $36.6
Interest payments $37.8 $29.9
F Subsequent Events
On April 22, 1996, NYNEX and Bell Atlantic Corporation ("Bell Atlantic")
announced a proposed merger of equals pursuant to a definitive merger agreement
dated April 21, 1996 that provides for the formation of a new company to be
named Bell Atlantic Corporation. Under the terms of the agreement, NYNEX
shareholders will receive one share in the new company for each NYNEX share
owned and Bell Atlantic shareholders will receive 1.302 shares in the new
company for each Bell Atlantic share owned. The merger, which is expected to
qualify as a pooling of interests for accounting purposes, is subject to a
number of conditions, including regulatory approvals, receipt of opinions that
the merger will be tax free, and the approval of the shareholders of both NYNEX
and Bell Atlantic. The transaction is expected to close within twelve months.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The following Management's Narrative Analysis of Results of Operations is
provided pursuant to General Instruction H(2) to Form 10-Q.
Results of Operations
Net income for the first quarter of 1996 was $176.5 million. Net income for the
first quarter of 1995 was $124.0 million.
Net income for the first quarter of 1996 includes a gain of $55.2 million for
the cumulative effect of a change in accounting for directory publishing income
(see Note B). Net income for the first quarter of 1996 also includes charges of
$51.5 million for certain special charges related to pension enhancements and
various self-insurance programs. Net income for the first quarter of 1995
included a charge of $20.9 million for pension enhancements.
Excluding the above items, net income for the first quarter of 1996 would have
been $172.8 million, an improvement of $27.9 million, or 19.3%, over adjusted
net income for the first quarter of 1995.
Operating Revenues
Operating revenues for the first quarter of 1996 were $1.1 billion, an increase
of $79.8 million, or 7.6%, over the first quarter of 1995.
Local service revenues are earned from the provision of local exchange, local
private line and local public network services. The $24.1 million, or 5.0%,
improvement results from the net of (i) an increase of $31 million, primarily in
demand, driven by growth in access lines and sales of calling features, and (ii)
a $7 million decrease in rates primarily in Massachusetts pursuant to the price
regulation plan.
Long distance revenues are earned from the provision of services beyond the
local service area, but within the local access and transport area ("LATA"), and
include public and private network switching. The $.5 million decrease results
from the net of (i) an increase in demand of $7 million, and (ii) an $8 million
decrease in rates principally due to a $3 million rate reduction in Maine
required by the Maine Public Utilities Commission and a $3 million required rate
reduction in Massachusetts pursuant to the price regulation plan.
Network access revenues are earned from the provision of exchange access service
primarily to interexchange carriers. The $21.3 million, or 6.7%, improvement
results from the net of (i) a $17 million increase in switched access revenues
due to a $26 million increase resulting primarily from increased demand,
partially offset by a $7 million reduction in interstate rates and a $2 million
reduction in intrastate rates primarily in Massachusetts pursuant to the price
regulation plan, and (ii) a $5 million increase in special access revenues
primarily due to increased demand.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Other revenues are earned from the provision of products and services other than
Local service, Long distance and Network access. The $34.9 million, or 41.4%,
improvement results from the net of (i) a $33 million increase in directory
revenues from the directory licensing agreement with Information Resources due
primarily to a change in accounting principle (see Cumulative effect of change
in accounting principles below), and pension enhancement costs recorded in the
first quarter of 1995, and (ii) a $3 million increase primarily in voice
messaging services revenue.
Operating Expenses
Operating expenses for the first quarter of 1996 were $900.0 million, an
increase of $86.1 million, or 10.6%, over the first quarter of 1995.
Included in the operating expenses for the first quarter of 1996 were pension
enhancement charges of $77.5 (see components below) and a special charge of $7.0
million for various self-insurance programs. Included in operating expenses for
the first quarter of 1995 were pension enhancement charges of $31.2 million.
Excluding the items discussed above, operating expenses would have increased
$32.8 million, or 4.2%, over adjusted operating expenses for the first quarter
of 1995.
Depreciation and amortization increased $7.7 million over the first quarter of
1995, resulting from the net of (i) an $8 million increase due to growth in
depreciable plant investment, (ii) a $4 million increase in depreciation rates
as a result of the discontinuance of regulatory accounting principles in the
second quarter of 1995, and (iii) a decrease of $4 million due to a 1995
retroactive represcription in Vermont.
Taxes other than income, which include gross receipts taxes, property taxes and
other non-income based taxes, increased $3.3 million over the first quarter of
1995, resulting from (i) a $2 million increase in municipal tax rates for real
estate in Massachusetts, and (ii) a $1 million increase in the gross receipts
tax in Rhode Island.
Employee related costs, which consist primarily of wages, payroll taxes, and
employee benefits, decreased $5.0 million from the first quarter of 1995,
resulting from (i) a $2 million decrease in wages and payroll taxes as a result
of reductions in the Company's work force due to the transfer of employees to
Telesector Resources associated with re-engineering service delivery to
customers and the Company's force reduction program partially offset by salary
and wage rate increases, and (ii) a $3 million decrease in benefit expenses
primarily due to a $2 million decrease in pension expense attributable to
changes in actuarial assumptions.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Other operating expenses, which consist primarily of contracted and centralized
services, rent and other general and administrative costs, increased $26.8
million over the first quarter of 1995, resulting primarily from a $24 million
increase in charges from affiliated companies, primarily attributable to
increases in Telesector Resources' contracted and centralized services and the
transfer of employees from the Company to Telesector Resources, partially offset
by decreases due to Telesector Resources' force reduction program.
The components of the pension enhancement charges for the first quarter of 1996
and 1995 are as follows:
For the Three Months Ended
March 31,
(In millions) 1996* 1995*
------------------ ------------------
Pretax After-Tax Pretax After-Tax
------ --------- ------ ---------
Pension enhancement charges $60.6 $36.9 $27.9 $18.5
Postretirement medical costs 16.9 10.3 3.3 2.4
---- ---- --- ---
$77.5 $47.2 $31.2 $20.9
===== ===== ===== =====
* 1996 - 70 management and 530 nonmanagement employees
1995 - 100 management and 220 nonmanagement employees
For the first three months of 1996 and 1995, $5.2 million and $3.2
million, respectively ($3.2 million and $2.0 million, respectively,
after-tax) were allocated to the Company from Telesector Resources for
its pension enhancements and $.4 million and $1.3 million, respectively
($.2 million and $.8 million, respectively, after-tax) for its
associated postretirement medical benefits.
Much of the cost of the enhancements is funded by NYNEX's pension plans.
Other income (expense) - net
Other income (expense) - net decreased $3.8 million from the same period last
year. This decrease was principally due to the reclassification of capitalized
interest to Interest expense associated with the discontinuance of regulatory
accounting principles (Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation").
Interest expense
Interest expense decreased $4.5 million, or 11.2%, from the same period last
year, due primarily to the aforementioned reclassification of capitalized
interest from Other income (expense)- net and lower levels of advances from
NYNEX.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Income taxes
Income taxes decreased $2.9 million, or 3.7%, from the same period last year,
principally due to a decrease in pretax income, partially offset by a decrease
in the amortization of investment tax credits and the elimination of excess
deferred tax reversals as a result of the discontinuance of regulatory
accounting principles.
Cumulative effect of change in accounting principles
Effective January 1, 1996, Information Resources, a wholly owned subsidiary of
NYNEX, changed the recognition of its directory publishing revenue and
production expenses from the "amortized" method to the "point of publication"
method. Under the point of publication method, revenues and product expenses
will be recognized when the directories are published rather than over the lives
of the directories (generally one year) as was the case under the amortized
method. NYNEX and the Company believes the change to the point of publication
method is preferable because it is the method that is generally followed by
publishing companies and reflects more precisely the operations of the business.
Pursuant to the directory licensing agreement with Information Resources and the
Company, the Company's portion of the initial effect of the change to the point
of publication method is reported as a cumulative effect of a change in
accounting principle which resulted in a one-time, non-cash gain of $91.7
million ($55.2 million after-tax) in the first quarter of 1996. The impact of
applying the point of publication method during the first quarter of 1996
resulted in an $8.5 million increase to net income.
Pro forma results, assuming the point of publication method had been applied
during the first quarter of 1995, are as follows:
Three Months Ended
March 31, 1995
(In millions)
Pro forma As Reported
--------- -----------
Net Income $132.6 $124.0
While the application of the point of publication method is not expected to have
a material impact on total 1996 and pro forma 1995 results, the impact of the
change is likely to materially effect the quarterly results due to the nature of
the change.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Current Status of Business Restructuring
Reserve Utilization in 1996
The restructuring reserve balance at March 31, 1996, which does not include the
liability for postretirement medical benefits associated with employees' leaving
the Company under the business restructuring, was approximately $78 million.
Summarized below are the components of $21 million of reserves utilized during
the first quarter of 1996:
Severance $15
Process Re-engineering:
Systems redesign:
Customer contact $2
Customer operations 3
--
Total systems redesign $5
Work center consolidation -
Branding -
Relocation -
Training 1
Re-engineering implementation -
--
Subtotal 6
Telesector Resources'
allocated reserves:
Systems re-engineering -
Re-engineering implementation -
Work center consolidation -
--
Total allocated -
--
Total process re-engineering 6
Total $21
===
The severance reduction amount is primarily reserves transferred to the pension
liability on a per employee basis as a result of employees' leaving under the
pension enhancements as opposed to severance provisions as previously accrued.
$3 million was transferred from the Company to Telesector Resources associated
with employees who transferred from the Company to Telesector Resources and
subsequently left under the pension enhancements.
Cost Savings
Since the inception of process re-engineering and the special pension
enhancement program in 1994, approximately 3,600 employees have accepted the
retirement incentives. On an annualized basis, this will equate to an average
reduction in wages and benefits of approximately $182 million. In addition, the
Company's share of the annualized average reduction in wages and benefits
attributable to employees of Telesector Resources leaving under retirement
incentives will be approximately $73 million. Partially offsetting these cost
savings will be the effects of wage and price inflation, growth in volume of
business and higher costs attributable to service improvements.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Financing
At March 31, 1996, the Company had $500 million of unissued, unsecured debt
securities registered with the SEC.
Regulatory Environment
State Regulatory
New Hampshire
In April 1996, the New Hampshire Public Utilities Commission ("NHPUC") initiated
proceedings for the purpose of implementing intraLATA presubscription by October
1996. The Company and other local exchange carriers ("LECs") are required to
file implementation plans with the NHPUC by the end of May. Hearings are
scheduled to begin in June.
In April 1996, the NHPUC solicited comments on proposed draft rules to govern
the authorization of local exchange competition. The NHPUC announced that draft
rules will be filed with the state legislature in June. By statute, the
rulemaking process must be completed by year-end.
Federal Regulatory
Telecommunications Act of 1996: During 1996, the Federal Communications
Commission ("FCC") will conduct a number of rulemaking proceedings in order to
implement the Telecommunications Act of 1996 ("1996 Act"). In March 1996, the
FCC issued Notices of Proposed Rulemaking to implement the Universal Service
provisions and the Open Video System provisions of the 1996 Act. In April 1996,
the FCC issued a Notice of Proposed Rulemaking to implement the interconnection
obligations imposed on LECs by the 1996 Act.
Price Cap Plan: The FCC expects to issue an order in the latter part of 1996 in
its Proposed Rulemaking regarding the productivity factor used by LECs in the
FCC price cap formula. The Proposed Rulemaking will consider changes in the
determination of the productivity factor, the recognition of exogenous costs,
the extent of carrier sharing, and the formula for calculating the price cap
index for certain services.
In March 1996, the U.S. Court of Appeals for the District of Columbia Circuit
denied petitions filed by the Company and New York Telephone Company
(collectively, the "Telephone Companies") and several other LECs for review of
the FCC decision that had required each LEC to (a) "reinitialize" its price cap
index to reflect a higher productivity factor, and (b) recalculate its price cap
index on a prospective basis to exclude cost increases due to changes in the
accounting treatment of other postemployment benefit expenses.
<PAGE>
Form 10-Q Part I
New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Other Federal Regulatory: In January 1996, the FCC issued a Notice of Proposed
Rulemaking addressing the charges made for interconnection between LECs and
wireless carriers. Currently, such charges are established by contracts under
the jurisdiction of the state regulatory commissions, some of which are also
reflected in state tariffs. The FCC requested comment on its tentative
conclusion to require, pending the conclusion of its Proposed Rulemaking,
reciprocal "bill-and-keep" compensation arrangements under which the originating
carrier would no longer pay the terminating carrier for access. Adoption of the
proposed procedure would have a negative effect on the revenues of the LECs,
including the Telephone Companies. The Telephone Companies have filed comments
opposing the imposition of "bill-and-keep" arrangements, but supporting
reciprocal payments. The Company has begun the negotiation of reciprocal
agreements with wireless carriers in its states.
<PAGE>
Form 10-Q Part II
New England Telephone and Telegraph Company
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number
(12) Computation of Ratio of Earnings to Fixed Charges
(18) Letter Regarding Change in Accounting Principle
(27) Financial Data Schedule
(b) Reports on Form 8-K.
No Report on Form 8-K was filed by the registrant during the
quarter for which this report is filed.
<PAGE>
Form 10-Q New England Telephone and Telegraph Company
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
/s/ Mel Meskin
------------------------------------------
Mel Meskin
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
May 10, 1996
Exhibit (12)
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions)
<TABLE>
<CAPTION>
For the
Three Months
Ended
March 31, For The Year Ended December 31,
1996 1995 1994 1993 1992 1991
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings
Earnings before Interest
Expense, Extraordinary
Item and Cumulative
Effect of Change in
Accounting Principle $157.1 $659.4 $637.3 $281.3 $676.3 $507.7
Federal, State and Local
Income Taxes 75.7 312.5 268.2 (39.1) 240.9 135.9
Estimated Interest
Portion of Rental Expense 6.7 28.0 28.3 27.8 30.2 30.7
Total Earnings $239.5 $999.9 $933.8 $270.0 $947.4 $674.3
Fixed Charges
Total Interest Deductions $ 35.8 $153.9 $163.0 $175.0 $189.7 $191.2
Estimated Interest Portion
of Rental Expense 6.7 28.0 28.3 27.8 30.2 30.7
Total Fixed Charges $ 42.5 $181.9 $191.3 $202.8 $219.9 $221.9
Ratio of Earnings to
Fixed Charges 5.64 5.50 4.88 1.33 4.31 3.04
</TABLE>
Exhibit (18)
May 8, 1996
New England Telephone and Telegraph Company
125 High Street
Boston, Massachusetts 02110
We are providing this letter to you for inclusion as an exhibit to your Form
10-Q filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting from the
"amortization" revenue recognition method to the "point of publication" method
contained in the New England Telephone and Telegraph Company's Form 10-Q for the
quarter ended March 31, 1996. Based on our reading of the data and discussions
with Company officials of the business judgment and business planning factors
relating to the change, we believe management's justification is reasonable.
Accordingly, in reliance on management's determination regarding elements of
business judgment and business planning, we concur that the newly adopted
accounting principle described above is preferable in New England Telephone and
Telegraph Company's circumstances to the method previously applied.
We have not audited any of the financial statements of New England Telephone and
Telegraph Company as of any date or for any period subsequent to December 31,
1995, nor have we audited the application of the accounting change in accounting
principle disclosed in Form 10-Q of New England Telephone and Telegraph Company
for the three months ended March 31, 1996; accordingly, our comments are subject
to revision on completion of an audit of the financial statements that include
the accounting change.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
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<NAME> New England Telephone Company
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 12
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0
0
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</TABLE>
