<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
---------------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 1-3435
NEW YORK TELEPHONE COMPANY
A New York Corporation I.R.S. Employer Identification No. 13-5275510
1095 Avenue of the Americas, New York, New York 10036
Telephone Number (212) 395-2121
_____________________
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 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>
New York Telephone Company
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES (including $3.9, $39.0,
$132.2 and $162.4 from affiliates)......................... $ 1,942.2 $ 2,013.0 $ 5,950.7 $ 6,000.3
---------- ---------- ---------- ----------
OPERATING EXPENSES
Employee costs, including benefits and taxes............... 625.2 565.0 1,846.9 1,689.8
Depreciation and amortization.............................. 471.9 322.8 1,107.0 1,006.5
Taxes other than income.................................... 167.9 174.9 516.3 502.7
Other (including $346.5, $309.5, $1,084.7
and $957.3 to affiliates)............................. 711.6 552.9 1,796.1 1,753.8
---------- ---------- ---------- ----------
1,976.6 1,615.6 5,266.3 4,952.8
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS)......................................... (34.4) 397.4 684.4 1,047.5
OTHER INCOME, NET (including $3.7, $2.8, $11.8
and $13.7 from affiliates)................................. 3.0 2.7 10.2 13.9
INTEREST EXPENSE (including $12.4, $7.9, $31.5
and $17.6 to affiliates)................................... 77.2 72.9 252.7 215.2
---------- ---------- ---------- ----------
Income (Loss) Before Provision for Income Taxes and
Cumulative Effect of Change in Accounting Principle........ (108.6) 327.2 441.9 846.2
PROVISION FOR INCOME TAXES...................................... (42.4) 111.2 144.8 283.0
---------- ---------- ---------- ----------
Income (Loss) Before Cumulative Effect of Change
in Accounting Principle.................................... (66.2) 216.0 297.1 563.2
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
Directory Publishing, Net of Tax........................... --- --- --- 55.7
---------- ---------- ---------- ----------
NET INCOME (LOSS)............................................... $ (66.2) $ 216.0 $ 297.1 $ 618.9
========== ========== ========== ==========
ACCUMULATED DEFICIT
At beginning of period..................................... $ (531.2) $ (1,360.4) $ (894.5) $ (1,763.3)
Add: net income (loss).................................... (66.2) 216.0 297.1 618.9
---------- ---------- ---------- ----------
At end of period................................................ $ (597.4) $ (1,144.4) $ (597.4) $ (1,144.4)
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
New York Telephone Company
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash........................................... $ 89.4 $ 22.8
Accounts receivable:
Trade and other, net of allowances for
uncollectibles of $164.7 and $162.3.. 1,503.3 1,560.1
Affiliates................................ 85.4 27.8
Material and supplies.......................... 127.7 110.8
Prepaid expenses............................... 127.6 93.6
Deferred income taxes.......................... 3.2 .8
Other.......................................... 59.8 74.8
--------- ---------
1,996.4 1,890.7
--------- ---------
PLANT, PROPERTY AND EQUIPMENT.................. 21,367.7 20,764.7
Less accumulated depreciation.................. 12,007.2 11,472.3
--------- ---------
9,360.5 9,292.4
--------- ---------
OTHER ASSETS................................... 847.0 832.2
--------- ---------
TOTAL ASSETS................................... $12,203.9 $12,015.3
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
New York Telephone Company
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Millions)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Note payable to affiliate................. $ 1,143.3 $ 568.4
Other..................................... 161.2 61.2
Accounts payable and accrued liabilities:
Affiliates................................ 907.0 848.9
Other..................................... 895.3 1,176.6
Other liabilities.............................. 386.9 362.8
--------- ---------
3,493.7 3,017.9
--------- ---------
LONG-TERM DEBT................................. 3,710.2 3,852.6
--------- ---------
EMPLOYEE BENEFIT OBLIGATIONS................... 3,162.7 3,058.2
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes.......................... 16.8 16.4
Unamortized investment tax credits............. 95.9 106.8
Other.......................................... 126.7 175.1
--------- ---------
239.4 298.3
--------- ---------
SHAREOWNER'S INVESTMENT
Common stock - one share, without par value.... 1.0 1.0
Additional paid in capital..................... 2,194.3 2,681.8
Accumulated deficit............................ (597.4) (894.5)
--------- ---------
1,597.9 1,788.3
--------- ---------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT.. $12,203.9 $12,015.3
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
New York Telephone Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES........... $ 1,357.6 $ 1,081.1
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to plant, property and equipment.......... (1,082.9) (828.7)
Other, net.......................................... (40.2) (30.7)
---------- ----------
Net cash used in investing activities............... (1,123.1) (859.4)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of borrowings and capital
lease obligations.............................. (44.0) (60.3)
Net change in note payable to affiliate............. 574.9 488.0
Dividends paid...................................... (679.0) (563.7)
Net change in outstanding checks drawn
on controlled disbursement accounts............ (19.8) (94.1)
---------- ----------
Net cash used in financing activities............... (167.9) (230.1)
---------- ----------
NET CHANGE IN CASH.................................. 66.6 (8.4)
CASH, BEGINNING OF PERIOD........................... 22.8 39.9
---------- ----------
CASH, END OF PERIOD................................. $ 89.4 $ 31.5
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
New York Telephone Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
New York Telephone Company (the Company) is a wholly owned subsidiary of
NYNEX Corporation (NYNEX). The accompanying unaudited condensed consolidated
financial statements have been prepared based upon Securities and Exchange
Commission rules that permit reduced disclosure for interim periods. These
financial statements include certain reclassifications in presentation and
certain retroactive adjustments to conform accounting methodologies as a result
of the merger of Bell Atlantic Corporation (Bell Atlantic) and NYNEX (see Note
2). These financial statements reflect all adjustments which are necessary for a
fair presentation of results of operations and financial position for the
interim periods shown including normal recurring accruals and other items (see
Note 2). The results for the interim periods are not necessarily indicative of
results for the full year. For a more complete discussion of significant
accounting policies and certain other information, refer to the financial
statements filed with the Company's 1996 Form 10-K.
2. BELL ATLANTIC--NYNEX MERGER
On August 14, 1997, Bell Atlantic and NYNEX completed a merger of equals
under a definitive merger agreement entered into on April 21, 1996 and amended
on July 2, 1996. The stockholders of each company approved the merger at special
meetings held in November 1996. Under the terms of the amended agreement, NYNEX
became a wholly owned subsidiary of Bell Atlantic. The merger has been accounted
for as a pooling of interests.
As a result of conforming the accounting methodologies of Bell Atlantic and
NYNEX, the Company has increased Accumulated Deficit as of December 31, 1995 by
a net $493.9 million primarily for the immediate recognition of the transition
benefit obligation for postretirement benefits other than pensions in accordance
with Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" as if the merger had occurred
as of the beginning of the earliest period presented. In its historical
financial statements, the Company had amortized the transition benefit
obligation over a twenty year period. The net increase in Accumulated Deficit
also includes amounts reallocated from Additional Paid-in Capital to cover
dividend payments (see Note 3).
Merger-Related Costs
Results of operations for the third quarter of 1997 include merger-related
pre-tax costs totaling approximately $102 million, consisting of $11 million for
direct incremental costs, $88 million for employee severance costs, and $3
million for transition and integration costs. These costs include the Company's
allocated share of merger-related costs from Telesector Resources Group, Inc.
(Telesector Resources), an affiliate which provides centralized services on a
contract basis.
Direct incremental costs consist of expenses associated with compensation
arrangements related to completing the merger transaction. Employee severance
costs represent the Company's proportionate share of benefit costs for the
separation by the end of 1999 of management employees who are entitled to
benefits under preexisting Bell Atlantic separation pay plans. Transition and
integration costs consist of the Company's proportionate share of costs
associated with integrating the operations of Bell Atlantic and NYNEX.
Additional Charges
In the third quarter of 1997, the Company recorded pre-tax charges of
approximately $251 million in connection with consolidating operations and
combining organizations and for special items arising in the quarter. These
charges include the Company's allocated share of charges from Telesector
Resources. A discussion of these charges follows:
The Company recognized pre-tax charges of approximately $147 million
for the write-down of obsolete fixed assets ($137 million) and for the cost of
consolidating certain redundant real estate properties ($10 million).
The Company also recognized pre-tax charges of approximately $63 million
for contingencies associated with various regulatory and legal matters, and $41
million for other miscellaneous expense items.
5
<PAGE>
New York Telephone Company
3. DIVIDEND
Pursuant to the resolutions of the Board of Directors of the Company,
adopted on June 21, 1995, the Common Stock of the Company was reduced by
approximately $4.1 billion and such amount was reallocated to Additional Paid-in
Capital. All subsequent dividends have been declared from Additional Paid-in
Capital. A dividend was not declared by the Company in the third quarter of 1997
and 1996. Dividends declared for the first nine months of 1997 and 1996 were
$487.4 million and $383.2 million, respectively.
4. FINANCIAL COMMITMENTS
As of December 31, 1996, the Company had approximately $68 million of
revenues remaining deferred under a plan approved by the New York State Public
Service Commission (NYSPSC) in 1995 associated with commitments for fair
competition, universal service, service quality and infrastructure improvements
(the "Incentive Plan"), and approximately $27 million of revenues were deferred
for a 1994 service improvement plan obligation. The deferred revenues will be
recognized as commitments are met or obligations are satisfied under the plans.
If the Company is unable to meet certain commitments, the NYSPSC has the
authority to require the Company to rebate the deferred revenues to customers.
In February 1997, the NYSPSC determined that the Company had not met all of
the targets established in the 1994 service improvement plan and directed the
Company to rebate to customers approximately $12 million, plus related interest
of $5 million, of the $27 million of deferred revenues. In the first quarter of
1997, approximately $10 million of the remaining deferred revenues were
recognized.
During the first nine months of 1997, approximately $12 million of the
deferred revenues were recognized in connection with Incentive Plan commitments
that were met and approximately $56 million of revenues remained deferred as of
September 30, 1997.
The Incentive Plan also established annual service quality targets with
stringent rebate provisions if the Company is unable to meet some or all of the
targets. The Company accrued approximately $62 million of revenues in 1996 based
on service performance results for 1996 (Plan Year 1), which ended August 31,
1996, $16 million of which had been rebated to customers in 1996, and $46
million of which remained accrued at December 31, 1996. During the first nine
months of 1997, an additional $10 million in rebates was ordered and accrued as
a result of the NYSPSC's denial of the Company's claim of miscalculation of
certain service performance data. As of September 30, 1997, all Plan Year 1
rebates had been made to customers.
In connection with service performance results for 1997 (Plan Year 2),
which ended on August 31, 1997, the Company accrued approximately $6 million, of
which $5 million was rebated to customers during the first nine months of 1997.
As of September 30, 1997, approximately $1 million of revenues remained accrued
for Plan Year 2 service rebates. The reduction in service rebates for Plan Year
2, as compared to Plan Year 1, reflects improvements in the Company's service
performance results.
5. 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 December 31, 1996, the aggregate amount of such revenues that was
estimated to be subject to possible refund was approximately $284 million, plus
related interest. In the first quarter of 1997, the NYSPSC approved a settlement
agreement with respect to affiliate transaction issues resulting from the
Company's 1990 intrastate rate case. Pursuant to that agreement the Company
refunded approximately $89 million (including interest) to customers. (The
Company recorded charges for the refund in 1995 and 1996). The settlement
resolved all pending issues related to affiliate transactions. As of September
30, 1997, the aggregate amount of revenues estimated to be subject to possible
refund was approximately $59 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.
6
<PAGE>
New York Telephone Company
6. LITIGATION AND OTHER CONTINGENCIES
Various legal actions and regulatory proceedings are pending to which the
Company is a party. The Company has established reserves for liabilities in
connection with regulatory and legal matters which it currently deems to be
probable and estimable. The Company does not expect that the ultimate resolution
of these matters in future periods will have a material effect on the Company's
financial position, but it could have a material effect on results of
operations.
7
<PAGE>
New York Telephone Company
Item 2. Management's Discussion and Analysis of Results of Operations
(Abbreviated pursuant to General Instruction H(2).)
This discussion should be read in conjunction with the Financial Statements
and Notes to Financial Statements.
RESULTS OF OPERATIONS
- ---------------------
The Company reported net income for the first nine months of 1997 of $297.1
million, compared to net income of $618.9 million for the same period in 1996.
Bell Atlantic--NYNEX Merger
On August 14, 1997, Bell Atlantic and NYNEX completed a merger of equals
under a definitive merger agreement entered into on April 21, 1996 and amended
on July 2, 1996. The stockholders of each company approved the merger at special
meetings held in November 1996. Under the terms of the amended agreement, NYNEX
became a wholly owned subsidiary of Bell Atlantic. The merger has been accounted
for as a pooling of interests.
As a result of conforming the accounting methodologies of Bell Atlantic and
NYNEX, the Company has increased Accumulated Deficit as of December 31, 1995 by
a net $493.9 million primarily for the immediate recognition of the transition
benefit obligation for postretirement benefits other than pensions in accordance
with Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" as if the merger had occurred
as of the beginning of the earliest period presented. In its historical
financial statements, the Company had amortized the transition benefit
obligation over a twenty year period. The net increase in Accumulated Deficit
also includes amounts reallocated from Additional Paid-in Capital to cover
dividend payments (see Note 3 to the consolidated financial statements).
Merger-Related Costs
Results of operations for the third quarter of 1997 include merger-related
pre-tax costs totaling approximately $102 million, consisting of $11 million for
direct incremental costs, $88 million for employee severance costs, and $3
million for transition and integration costs. These costs include the Company's
allocated share of merger-related costs from Telesector Resources Group, Inc.
(Telesector Resources), an affiliate which provides centralized services on a
contract basis.
Direct incremental costs consist of expenses associated with compensation
arrangements related to completing the merger transaction. Employee severance
costs represent the Company's proportionate share of benefit costs for the
separation by the end of 1999 of management employees who are entitled to
benefits under preexisting Bell Atlantic separation pay plans. Transition and
integration costs consist of the Company's proportionate share of costs
associated with integrating the operations of Bell Atlantic and NYNEX.
Bell Atlantic expects to incur between $400 million and $500 million (pre-
tax) in additional transition and integration merger-related expenses over the
three years following the closing of the merger. It is anticipated that the
Company will recognize a portion of these costs.
Additional Charges
In the third quarter of 1997, the Company recorded pre-tax charges of
approximately $251 million in connection with consolidating operations and
combining organizations and for special items arising in the quarter. These
charges include the Company's allocated share of charges from Telesector
Resources. A discussion of these charges follows:
The Company recognized pre-tax charges of approximately $147 million
for the write-down of obsolete fixed assets ($137 million) and for the cost of
consolidating certain redundant real estate properties ($10 million).
The Company also recognized pre-tax charges of approximately $63 million
for contingencies associated with various regulatory and legal matters, and $41
million for other miscellaneous expense items.
8
<PAGE>
New York Telephone Company
Other Charges
In 1997, costs associated with the Company's retirement incentive program
totaled $219.2 million for the first nine months, compared to $65.9 million for
the first nine months of 1996.
The retirement incentive costs for the first nine months of 1997 and 1996
include amounts charged to the Company by Telesector Resources for an allocated
portion of the employees who left Telesector Resources under the retirement
incentive program. In the first nine months of 1997, the retirement incentive
costs allocated to the Company by Telesector Resources were $84.8 million,
compared to $17.5 million for the same period in 1996. The total number of
employees who left Telesector Resources under the retirement incentive program
during the first nine months of 1997 and 1996 were 915 and 480, of which 565 and
295, were allocated to the Company for determining the Company's portion of
Telesector Resources' charges for retirement incentives. Most of the cost of the
retirement incentive program is funded by Bell Atlantic's pension plans.
Cumulative Effect of Change in Accounting - Directory Publishing
The Company changed its method of accounting for directory publishing
revenues and expenses, effective January 1, 1996. The Company adopted the point-
of-publication method, which requires directory revenues and expenses to be
recognized upon publication rather than over the lives of the directories. The
Company recorded an after-tax increase in income of $55.7 million in the first
quarter of 1996, representing the cumulative effect of this accounting change.
- --------------------------------------------------------------------------------
These and other items affecting the comparison of the Company's results of
operations for the nine month periods ended September 30, 1997 and 1996 are
discussed in the following sections. This Management's Discussion and Analysis
should also be read in conjunction with the Company's 1996 Annual Report on Form
10-K.
<TABLE>
<CAPTION>
OPERATING REVENUE STATISTICS
- ----------------------------
1997 1996 % Change
- --------------------------------------------------------------------------------
At September 30
- ---------------
<S> <C> <C> <C>
Access Lines in Service (in thousands)
Residence............................. 7,283 7,132 2.1%
Business.............................. 3,983 3,803 4.7
Public................................ 111 115 (3.5)
------ ------
11,377 11,050 3.0
====== ======
Nine Month Period Ended September 30
- ------------------------------------
Access Minutes of Use (in millions)..... 32,892 30,521 7.8
</TABLE>
<TABLE>
<CAPTION>
OPERATING REVENUES
- ------------------
(Dollars in Millions)
Nine Month Period Ended September 30 1997 1996 % Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Local service............................. $3,598.6 $3,506.4 2.6%
Network access............................ 1,714.9 1,690.6 1.4
Long distance services.................... 194.9 300.0 (35.0)
Ancillary services........................ 314.3 344.0 (8.6)
Directory and information services........ 128.0 159.3 (19.6)
-------- --------
Total..................................... $5,950.7 $6,000.3 (.8)
======== ========
</TABLE>
9
<PAGE>
New York Telephone Company
LOCAL SERVICE REVENUES
1997-1996 Increase
- --------------------------------------------------------------------------------
Nine Months $92.2 2.6%
- --------------------------------------------------------------------------------
Local service revenues are earned by the Company from the provision of
local exchange, local private line, public telephone (pay phone) and value-added
services. Value-added services are a family of services which expand the
utilization of the network. These services include products such as Caller ID,
Call Waiting and Return Call, as well as more mature products such as
Touch-Tone.
The increase in local service revenues principally resulted from a change
in the classification of revenues earned from Optional Calling Plans (OCPs),
which were recorded as long distance services revenues in the first nine months
of 1996. In the fourth quarter of 1996, the annual amount was reclassified from
long distance services revenues to local service revenues. For the nine month
period ended September 30, 1997, approximately $101 million of OCP revenues were
recognized in local service revenues.
Revenue growth in 1997 was boosted by increased revenues from value-added
services. This increase was principally the result of higher customer demand and
usage, fueled in part by the introduction of new and enhanced optional features.
Higher usage of network facilities also contributed to the increase in
local service revenues in the nine month period ended September 30, 1997. This
growth was generated by an increase in access lines in service of 3.0% from
September 30, 1996. Access line growth reflects primarily higher demand for
Centrex services. Revenues were also increased by a reduction in the amount of
service rebates issued to customers during the first nine months of 1997, as
compared to the same period in 1996. The service rebates were accrued for in
ancillary services revenues in prior periods.
Revenue increases were partially offset by approximately $83 million of
refunds to customers in connection with the resolution of affiliate transaction
issues resulting from the Company's 1990 intrastate rate case (see Note 5 to the
consolidated financial statements). The refunds were accrued for in other
operating expenses in prior periods. In addition, revenues were negatively
affected by customer selection of competing carriers as a result of intraLATA
presubscription (ILP). The effect of ILP on local service revenues is being
partially offset by an increase in network access revenues, the effect of which
is expected to continue.
For a discussion of the Telecommunications Act of 1996, which will open the
local exchange market to competition, see "Factors That May Impact Future
Results" beginning on page 15.
NETWORK ACCESS REVENUES
1997-1996 Increase
- --------------------------------------------------------------------------------
Nine Months $24.3 1.4%
- --------------------------------------------------------------------------------
Network access revenues are earned from long distance carriers for their
use of the Company's local exchange facilities in providing long distance
services to their customers, and from end-user subscribers. Switched access
revenues are derived from usage-based charges paid by long distance carriers for
access to the Company's network. Special access revenues arise from access
charges paid by long distance carriers and end-users who have private networks.
End-user access revenues are earned from the Company's customers who pay for
access to the network.
Network access revenues increased principally due to higher customer demand
as reflected by growth in access minutes of use of 7.8% over the same period in
1996. Network access revenue growth was positively impacted by the effects of
prior year accruals of approximately $41 million related to customer claims and
an approximate $14 million refund ordered by the New York State Public Service
Commission (NYSPSC) pertaining to intrastate gross receipts tax collected by the
Company on behalf of long distance carriers. The effect of ILP on network access
revenues also contributed to revenue growth in 1997.
Network access revenues in the first nine months of 1997 were negatively
affected by price reductions as mandated by federal and state price cap and
incentive plans. Effective July 1, 1997, the Company implemented price decreases
of
10
<PAGE>
New York Telephone Company
approximately $122 million on an annualized basis for interstate access
services, in connection with the Federal Communications Commission's (FCC) price
cap plan. Revenues were also reduced by special charges of approximately $29
million for contingencies associated with regulatory matters.
The Company expects that the impact of price decreases, in connection with
the FCC's price cap plan effective July 1, 1997, will be substantially offset by
volume increases. For a further discussion of FCC rulemakings concerning price
caps, access charges and universal service, see "Factors That May Impact Future
Results - Recent Developments - FCC Orders" beginning on page 16.
LONG DISTANCE SERVICES REVENUES
1997-1996 (Decrease)
- --------------------------------------------------------------------------------
Nine Months $(105.1) (35.0)%
- --------------------------------------------------------------------------------
Long distance services revenues are earned primarily from calls made
outside a customer's local calling area, but within the same service area of the
Company (intraLATA toll). Other long distance services that the Company provides
include 800 services, Wide Area Telephone Service (WATS), and corridor services.
Revenues in 1997 were negatively affected by the aforementioned change in
the classification of OCP revenues to local service. For the nine month period
ended September 30, 1996, approximately $68 million of OCP revenues were
recognized as long distance services revenues.
Increased competition for intraLATA toll, WATS and private line services
and company-initiated price reductions also contributed to the reduction in long
distance services revenues in 1997. The effect on revenues from competition for
intraLATA toll services increased in 1997 as a result of presubscription. The
Company implemented price reductions on certain long distance services as part
of its response to competition. These revenue decreases were partially offset by
higher calling volumes generated by an increase in access lines in service.
The Company believes that competition for long distance services, including
the introduction of presubscription, which began in the second quarter of 1996,
will continue to impact future revenue trends. See "Factors That May Impact
Future Results - Competition - IntraLATA Toll Services" on page 17 for a further
discussion of presubscription.
ANCILLARY SERVICES REVENUES
1997-1996 (Decrease)
- --------------------------------------------------------------------------------
Nine Months $(29.7) (8.6)%
- --------------------------------------------------------------------------------
The Company provides ancillary services which include billing and
collection services for long distance carriers, customer premises equipment
services, facilities rental services for affiliates and non-affiliates, voice
messaging, ISDN, and other high bandwidth services. Amounts recognized in
connection with obligations and commitments for regulatory matters, if any, are
also included in this revenue category.
The decline in ancillary services revenues was principally attributable to
the lower recognition of previously deferred revenues in 1997, compared to 1996.
These revenues were deferred under the Incentive Plan and a 1994 service
improvement plan (see Note 4 to the consolidated financial statements).
This decrease was partially offset by increased revenues resulting from
lower accruals for anticipated service rebate obligations in 1997, compared to
1996, due to significantly improved service performance results (see Note 4 to
the consolidated financial statements).
11
<PAGE>
New York Telephone Company
DIRECTORY AND INFORMATION SERVICES REVENUES
1997-1996 (Decrease)
- --------------------------------------------------------------------------------
Nine Months $(31.3) (19.6)%
- --------------------------------------------------------------------------------
Directory and information services revenues consist of payments from an
affiliate, NYNEX Information Resources Company (Information Resources), for
earnings related to publishing directories in New York in excess of a regulated
return and fees paid by Information Resources for the use of the Company's name
in soliciting directory advertising and in publishing and distributing
directories.
The decrease in directory and information services revenues in 1997 was
principally due to reduced payments from Information Resources due to the
effects of merger-related costs, retirement incentive costs and other charges on
Information Resources' earnings related to publishing directories in New York.
Revenues during the first nine months of 1997 were also negatively affected
by the timing of publication of the Queens, New York directory. The publication
date for this directory changed from September to October.
<TABLE>
<CAPTION>
OPERATING EXPENSES
- ------------------
(Dollars in Millions)
Nine Month Period Ended September 30 1997 1996 % Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee costs, including benefits and taxes.. $1,846.9 $1,689.8 9.3%
Depreciation and amortization................. 1,107.0 1,006.5 10.0
Taxes other than income....................... 516.3 502.7 2.7
Other operating expenses...................... 1,796.1 1,753.8 2.4
-------- --------
Total......................................... $5,266.3 $4,952.8 6.3
======== ========
</TABLE>
EMPLOYEE COSTS
1997-1996 Increase
- --------------------------------------------------------------------------------
Nine Months $157.1 9.3%
- --------------------------------------------------------------------------------
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes paid directly by the Company. Similar costs
incurred by employees of Telesector Resources, who provide centralized services
on a contract basis, are allocated to the Company and are included in other
operating expenses.
Employee costs increased in the first nine months of 1997 principally as a
result of higher costs of approximately $86 million associated with the
Company's retirement incentive program. Employee costs were also higher as a
result of annual salary and wage increases, the effect of increased work force
levels attributable to higher business volumes, and merger-related costs
recorded in the third quarter of 1997. The Company recognized approximately $57
million in benefit costs for the separation by the end of 1999 of management
employees who are entitled to benefits under preexisting Bell Atlantic
separation pay plans. The Company also recorded approximately $2 million of
direct incremental merger-related costs associated with compensation
arrangements. Merger-related costs associated with employees of Telesector
Resources were allocated to the Company and are included in other operating
expenses.
The expense increases were partially offset by a reduction in benefit costs
caused by a number of factors, including an increase in the discount rate used
to develop pension and postretirement benefit costs, favorable pension plan
asset returns, lower than expected medical claims and plan changes. Lower
overtime pay for repair and maintenance activity also reduced employee costs in
1997. This decline was due to the impact of severe weather experienced in the
first quarter of 1996 which caused a higher level of costs to be expensed during
that period, and due to improvement in the service delivery program.
12
<PAGE>
New York Telephone Company
For a further discussion of the Company's retirement incentive program see
"Other Matters - Retirement Incentives" on pages 17 and 18.
DEPRECIATION AND AMORTIZATION
1997-1996 Increase
- --------------------------------------------------------------------------------
Nine Months $100.5 10.0%
- --------------------------------------------------------------------------------
Depreciation and amortization expense increased in the first nine months of
1997 over the same period in 1996 principally as a result of the recording of
approximately $137 million for write-downs of obsolete fixed assets in the third
quarter of 1997, as previously mentioned. Higher depreciation expense was also
caused by growth in depreciable telephone plant and changes in the mix of plant
assets. These expense increases were partially offset by the effect of lower
rates of depreciation and amortization.
TAXES OTHER THAN INCOME
1997-1996 Increase
- --------------------------------------------------------------------------------
Nine Months $13.6 2.7%
- --------------------------------------------------------------------------------
Taxes other than income consist of taxes for gross receipts, property,
capital stock and other nonincome-based items.
The increase in taxes other than income is primarily attributable to the
settlement of a New York State Sales Tax Audit of approximately $14 million,
which had been accrued in other operating expense in a prior period.
OTHER OPERATING EXPENSES
1997-1996 Increase
- --------------------------------------------------------------------------------
Nine Months $42.3 2.4%
- --------------------------------------------------------------------------------
Other operating expenses consist of contract services including centralized
services, rent, network software costs, the provision for uncollectible accounts
receivable, and other costs.
The rise in other operating expenses was largely due to the recording of
merger-related costs and other special items aggregating approximately $79
million in the third quarter of 1997. The charges contributing to the increases
in other operating expenses included; transition merger-related costs of
approximately $1 million, costs to consolidate certain redundant real estate
properties of approximately $10 million, charges for regulatory, legal and other
contingencies of approximately $35 million, and other miscellaneous expense
items of approximately $33 million.
Other operating expenses also includes the Company's allocated share of
Telesector Resources' retirement incentive program, employee severance costs,
and transition merger-related costs incurred by Telesector Resources. Higher
right-to-use fees resulting from software upgrades and an increase in charges
from Telesector Resources for data processing services and materials management
also contributed to the increase in other operating expense in 1997.
These increases were partially offset by the impact of accrual reversals
associated with the resolution of certain regulatory and tax contingencies.
Charges associated with these contingencies were recorded in other operating
expenses in prior periods, while the actual settlements were recorded primarily
in local service revenues and taxes other than income in 1997. The effect of
higher charges for self-insurance programs, as well as the effect of other legal
and regulatory contingencies recorded in 1996 further offset the increases in
other operating expenses.
13
<PAGE>
New York Telephone Company
OTHER INCOME, NET
1997-1996 (Decrease)
- --------------------------------------------------------------------------------
Nine Months $(3.7) (26.6)%
- --------------------------------------------------------------------------------
The change in other income, net, was primarily attributable to a decrease
in the income recorded from Telesector Resources under the equity method.
INTEREST EXPENSE
1997-1996 Increase
- --------------------------------------------------------------------------------
Nine Months $37.5 17.4%
- --------------------------------------------------------------------------------
Interest expense increased principally due to an increase in the level of
advances from an affiliate, the settlement of a New York State Sales Tax Audit,
and charges related to the settlement of various regulatory issues.
EFFECTIVE INCOME TAX RATES
Nine Months Ended September 30
- --------------------------------------------------------------------------------
1997 32.4%
- --------------------------------------------------------------------------------
1996 33.8%
- --------------------------------------------------------------------------------
The effective income tax rate is the provision for income taxes as a
percentage of income before provision for income taxes and cumulative effect of
change in accounting principle.
The Company's effective income tax rate was lower in the first nine months
of 1997 principally due to a decrease in pre-tax income in 1997.
FINANCIAL CONDITION
- -------------------
The Company uses the net cash generated from operations and from external
financing to fund capital expenditures for network expansion and modernization,
and pay dividends. While current liabilities exceeded current assets at
September 30, 1997, September 30, 1996 and December 31, 1996, the Company's
sources of funds, primarily from operations and, to the extent necessary, from
readily available financing arrangements with an affiliate, are sufficient to
meet ongoing operating requirements. Management expects that presently
foreseeable capital requirements will continue to be financed primarily through
internally generated funds. Additional long-term debt may be needed to fund
development activities or to maintain the Company's capital structure to ensure
financial flexibility.
The Company had $250.0 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 75.8% as of September 30, 1997, compared to
73.1% as of September 30, 1996 and 71.4% as of December 31, 1996.
On October 1, 1997, $60.0 million of the Company's 4.625% refunding
mortgage bonds matured and were repaid.
14
<PAGE>
New York Telephone Company
FACTORS THAT MAY IMPACT FUTURE RESULTS
- --------------------------------------
Bell Atlantic-NYNEX Merger
The merger of Bell Atlantic and NYNEX was completed on August 14, 1997.
Bell Atlantic expects to recognize recurring expense savings following
completion of the merger as a result of consolidating operating systems and
other administrative functions and reducing management positions. It is
anticipated that the Company will recognize a portion of these savings.
Telecommunications Industry Changes
The telecommunications industry is undergoing substantial changes as a
result of the Telecommunications Act of 1996 (the Act), other public policy
changes and technological advances. These changes are likely to bring increased
competitive pressures in the Company's current business, but will also open new
markets to Bell Atlantic.
The Act became law on February 8, 1996 and replaced the Modification of
Final Judgment (MFJ). In general, the Act includes provisions that open local
exchange markets to competition and permit Bell Atlantic to provide interLATA
(long distance) services and to engage in manufacturing, previously prohibited
by the MFJ. However, the ability of Bell Atlantic to provide in-region long
distance service is largely dependent on satisfying certain conditions contained
in the Act. The requirements include a 14-point "competitive checklist" of steps
the Company must take which will help competitors offer local service, through
resale, the purchase of unbundled network elements, or through their own
networks. Bell Atlantic must also demonstrate to the FCC that its entry into the
in-region long distance market would be in the public interest.
Bell Atlantic expects to petition the FCC for permission to enter the in-
region long distance market in New York by early 1998 and one or more other
states during the first half of 1998, and anticipates entering the long distance
market in at least one jurisdiction during the second half of 1998. The timing
of Bell Atlantic's long distance entry in each of its 14 jurisdictions depends
on the receipt of FCC approval. There can be no assurance that any approval will
be forthcoming in time to permit Bell Atlantic to enter the in-region long
distance market on this schedule.
A U.S. Court of Appeals recently found that the FCC unlawfully attempted to
preempt state authority in implementing key provisions of the Act. It also found
that several particularly objectionable provisions of the FCC's rules were
inconsistent with the statutory requirements. In particular, it affirmed that
states have exclusive jurisdiction over the pricing of interconnection elements
and that the FCC could not lawfully allow competitors to "pick and choose"
isolated terms out of negotiated interconnection agreements. This decision
should not delay the advent of local competition, since, under the previous stay
of the FCC's rules, a number of interconnection agreements have been concluded
and the NYSPSC has proceeded to address pricing and other standards for local
interconnection.
Pursuant to the Act, in February 1997, the Company filed both its "Statement
of Generally Available Terms and Conditions (SGAT) for Interconnection,
Unbundled Network Elements, Ancillary Services and Resale of Telecommunications
Services" and its "Draft 271 Application for Long Distance" with the NYSPSC.
The NYSPSC then instituted a Proceeding and conducted a Technical Conference to
review both the SGAT and Draft 271 Application. In July 1997, the presiding
administrative law judge issued a Ruling noting several areas in which the
Company had yet to prove its compliance with the competitive checklist. On
November 6, 1997, the Company submitted additional evidence to the NYSPSC
demonstrating its checklist compliance.
The Company is unable to predict definitively the impact that the Act will
ultimately have on its business, results of operations or financial condition.
The financial impact will depend on several factors, including the timing,
extent and success of competition in the Company's markets, and the timing,
extent and success of Bell Atlantic's pursuit of new opportunities resulting
from the Act.
The Company anticipates that these industry changes, together with the rapid
growth, enormous size and global scope of these markets, will attract new
entrants and encourage existing competitors to broaden their offerings. Current
and potential competitors in telecommunication services include long distance
companies, other local telephone companies, cable companies, wireless service
providers, and other companies that offer network services. Some of these
companies have a strong market presence, brand recognition and existing customer
relationships, all of which contribute to intensifying competition and may
affect the Company's future revenue growth. See the "Competition" section below
for additional information.
15
<PAGE>
New York Telephone Company
Recent Developments - FCC Orders
On May 7, 1997, the FCC adopted orders to reform the interstate access
charge system, to modify its price cap system and to implement the "universal
service" requirements of the Act. While there are additional decisions pending
on Universal Service and Access Reform, based on the decisions to date the
Company does not believe that these proceedings will result in a material
adverse impact on its results of operations or financial condition.
Access Charges
Interstate access charges are the rates long distance carriers pay for use
and availability of the Company's facilities for the origination and termination
of interstate interLATA service. On May 7, 1997, the FCC adopted changes to the
tariff structures it has prescribed for such charges in order to permit the
Company to recover a greater portion of its costs through rates which reflect
the manner in which those costs are incurred. Beginning in January 1998, the FCC
will require a phased restructuring of access charges, so that interstate costs
of the Company which do not vary based on usage will be recovered from long
distance carriers through flat rate charges, and those interstate costs that do
vary based on usage be recovered from long distance carriers through usage-based
rates. In addition, the FCC will require establishment of separate usage-based
charges for originating and for terminating interstate interLATA traffic.
A portion of the Company's interstate costs are also recovered through flat
monthly charges to subscribers (subscriber line charges). Under the FCC's
order, subscriber line charges for primary residential and single line
businesses will remain unchanged initially, but such charges for additional
residential lines and multi-line businesses will rise.
Price Caps
The FCC also adopted modifications to its price cap rules that affect access
rate levels. Under the FCC's price cap rules, the Company's price cap index is
adjusted annually by an inflation index (GDP-PI) less a fixed percentage
intended to reflect increases in productivity (Productivity Factor). In the
prior year, the Company's Productivity Factor was 5.3%. Effective July 1, 1997,
the FCC created a single Productivity Factor of 6.5% for all price cap
companies, and eliminated requirements to share a portion of future interstate
earnings. The FCC required that rates be set as if the higher Productivity
Factor had been in effect since July 1996. Any local exchange company that
earns a rate of return on its interstate services of less than 10.25% in any
calendar year will be permitted to increase its interstate rates in the
following year. The FCC also ordered elimination of recovery for amortized
costs associated with the Company's implementation of equal access to all long
distance carriers.
On June 30, 1997, Bell Atlantic made its Annual Access Tariff Filing of
Interstate Rates, which became effective on July 1, 1997. The rates included in
the filing resulted in annual price decreases for the Company totaling
approximately $122 million, of which $3 million is a result of one-time
adjustments which will only be in effect until July 1998.
The FCC is expected to adopt an order in 1998 to address the conditions
under which the FCC would relax or remove existing access rate structure
requirements and price cap restrictions as increased local market competition
develops. The Company is unable to predict the results of this further
proceeding.
Universal Service
The FCC also adopted rules designed to preserve "universal service" by
ensuring that a basket of designated services is widely available and affordable
to all customers, including low-income customers and customers in areas that are
expensive to serve. The FCC's universal service support will approximate $1.5
billion for high cost areas pending completion of further FCC proceedings. The
FCC, in conjunction with the Federal-State Joint Board on Universal Service,
will determine the methodology for determining high cost areas for non-rural
carriers, and the proper amount of federal universal service support for high
cost areas. A new federal high cost universal service support mechanism will
become effective January 1, 1999.
The FCC also adopted rules to implement the Act's requirements to provide
discounted telecommunications services to schools and libraries, beginning
January 1, 1998, and to ensure that not-for-profit rural health care providers
have access to such services at rates comparable to those charged their urban
counterparts.
16
<PAGE>
New York Telephone Company
All telecommunications carriers will be required to contribute funding for
these universal service programs. The federal universal service funding needs
as of January 1, 1998 will require the Company to contribute approximately 2% of
its interstate retail revenues for high cost and low income subsidies. The
Company will also be contributing a portion of its total retail revenues for
schools, libraries and not-for-profit health care. The Company will recover its
contributions through interstate charges to long distance carriers and end
users.
Competition
IntraLATA Toll Services
IntraLATA toll services are calls that originate and terminate within the
same LATA, but cover a greater distance than a local call. These services are
generally regulated by the NYSPSC rather than federal authorities. The NYSPSC
permits other carriers to offer intrastate intraLATA toll services in the
Company's jurisdiction.
The Company substantially completed the implementation of presubscription in
the first quarter of 1996. Full implementation of presubscription was completed
by September 1996, thus enabling customers to make intraLATA toll calls using
another carrier without having to dial an access code. Implementation of
presubscription for intraLATA toll services could have a material negative
effect on intraLATA toll service revenues, especially since Bell Atlantic is not
permitted to offer long distance services at this time. The adverse impact on
intraLATA toll service revenues is expected to be partially offset by an
increase in intraLATA access revenues.
Local Exchange Services
Local exchange services have historically been subject to regulation by
state regulatory commissions. Applications from competitors to provide and
resell local exchange services have been approved in New York. The Act is
expected to significantly increase the level of competition in the Company's
local exchange market.
Other State Regulatory Matters
The communications services of the Company are subject to regulation by the
NYSPSC with respect to intrastate rates and services and certain other matters.
For a discussion of financial commitments and revenues subject to possible
refund see Notes 4 and 5 to the consolidated financial statements.
OTHER MATTERS
- -------------
Retirement Incentives
The Company had previously disclosed that it expected the total number
of employees would elect to leave under its current retirement incentive program
through its completion in 1998 to be in the range of 9,500 to 10,100,
consisting of approximately 3,200 management and 6,300 to 6,900 associate
employees. The Company had accrued approximately $557 million of pre-tax
charges in 1993 for severance and postretirement medical benefits under a force
reduction plan.
As of September 30, 1997, 7,675 employees (3,050 management and 4,625
associates) had elected to leave under the program, and additional charges of
approximately $1,134.5 million ($737.4 million after-tax) had been recorded in
connection with the program. The management portion of the program was
completed as of March 31, 1997.
Based on the experience of employee take rates under the program and
management's most recent assessment of work volume and productivity trends, the
Company is currently considering and discussing with the unions possible changes
in the program for associates. The Company now expects that, if the program
were fully implemented, the total number of employees electing to leave under
the program, and the associated additional charges, would be substantially
greater than previously estimated.
17
<PAGE>
New York Telephone Company
Management's objective is to distribute the program take rates in a
way that allows the Company to match retirements with downsizing caused by
productivity improvements. This effort could result in an extension of the
program.
In connection with the 1993 force reduction plan, the total remaining
reserves were approximately $67 million for employee severance and $91 million
for postretirement medical costs, as of December 31, 1996. During the first nine
months of 1997, employee severance reserves of approximately $13 million were
transferred to the pension liability and $17 million of postretirement medical
liability was applied on a per employee basis for associates who left the
Company under the retirement incentive program. In addition, approximately $2
million of employee severance reserves and $4 million of postretirement medical
liability were transferred from the Company to Telesector Resources during the
first nine months of 1997 for the allocated number of Telesector Resources
associates who left under the retirement incentive program. At September 30,
1997, approximately $52 million of severance reserves and $70 million of
postretirement medical liability remained.
Cautionary Statement Concerning Forward-Looking Statements
Information contained above with respect to expected financial results and
future events and trends in this Management's Discussion and Analysis is
forward-looking, based on the Company's estimates and assumptions and subject to
risks and uncertainties. For those statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
The following important factors could affect the future results of the
Company and could cause those results to differ materially from those expressed
in the forward-looking statements: (i) materially adverse changes in economic
conditions in the markets served by the Company; (ii) the final outcome of FCC
rulemakings with respect to interconnection agreements, access charge reform and
universal service; (iii) future state regulatory actions and economic conditions
in the Company's operating area; and (iv) the extent, timing and success of
competition from others in the local telephone and intraLATA toll service
markets.
18
<PAGE>
New York Telephone Company
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For background concerning the Company's contingent liabilities under
the Plan of Reorganization governing the divestiture by AT&T Corp.
(formerly American Telephone and Telegraph Company) of certain assets
of the former Bell System Operating Companies with respect to private
actions relating to pre-divestiture events, see Item 3 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
27 Financial Data Schedule.
(b) Report on Form 8-K filed during the quarter ended September 30,
1997:
A Current Report on Form 8-K, dated August 14, 1997, was filed
regarding the consummation of the merger of a wholly owned
subsidiary of Bell Atlantic Corporation with and into NYNEX
Corporation.
19
<PAGE>
New York Telephone 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 YORK TELEPHONE COMPANY
Date: November 13, 1997 By /s/ Edwin F. Hall
---------------------------
Edwin F. Hall
Controller
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF NOVEMBER 10, 1997.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE BALANCE
SHEET AS OF SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 89
<SECURITIES> 0
<RECEIVABLES> 1,668
<ALLOWANCES> 165
<INVENTORY> 128
<CURRENT-ASSETS> 1,996
<PP&E> 21,368
<DEPRECIATION> 12,007
<TOTAL-ASSETS> 12,204
<CURRENT-LIABILITIES> 3,494
<BONDS> 3,710
0
0
<COMMON> 1
<OTHER-SE> 1,597
<TOTAL-LIABILITY-AND-EQUITY> 12,204
<SALES> 0
<TOTAL-REVENUES> 5,951
<CGS> 0
<TOTAL-COSTS> 5,266
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253
<INCOME-PRETAX> 442
<INCOME-TAX> 145
<INCOME-CONTINUING> 297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
