<PAGE>
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, 1999
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, NY 10036
Telephone Number (212) 395-2121
-------------------------
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 I(1)(a) AND (b) OF FORM 10-K AND
IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION I(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
SCHEDULE A
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
- ----------------------------------------------------- ---------------------
<S> <C>
4 1/4% Refunding Mortgage Bonds, Series N, due January 1, 2000 New York Stock
Exchange
4 5/8% Refunding Mortgage Bonds, Series M, due January 1, 2002 "
4 5/8% Refunding Mortgage Bonds, Series O, due January 1, 2004 "
4 7/8% Refunding Mortgage Bonds, Series P, due January 1, 2006 "
6% Refunding Mortgage Bonds, Series Q, due September 1, 2007 "
7 3/8% Refunding Mortgage Bonds, Series V, due December 15, 2011 "
Twelve year 6 1/2% Debentures, due March 1, 2005 "
Twelve year 6 1/8% Debentures, due January 15, 2010 "
Twenty-one Year 8 5/8% Debentures, due November 15, 2010 "
Twenty year 7% Debentures, due May 1, 2013 "
Twenty year 7% Debentures, due June 15, 2013 "
Thirty year 7 5/8% Debentures, due February 1, 2023 "
Thirty year 6.70% Debentures, due November 1, 2023 "
Thirty year 7 1/4% Debentures, due February 15, 2024 "
Thirty-two year 7% Debentures, due August 15, 2025 "
Forty year 9 3/8% Debentures, due July 15, 2031 "
Forty year 7% Debentures, due December 1, 2033 "
Ten year 5 7/8% Notes, due September 1, 2003 "
Ten year 5 5/8% Notes, due November 1, 2003 "
Ten year 6 1/4% Notes, due February 15, 2004 "
</TABLE>
<PAGE>
New York Telephone Company
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page
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<S> <C>
PART I
1. Business
(Abbreviated pursuant to General Instruction I(2).).............................................. 1
2. Properties ...................................................................................... 7
3. Legal Proceedings ............................................................................... 7
4. Submission of Matters to a Vote of Security Holders
(Omitted pursuant to General Instruction I(2).).................................................. 7
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ........................... 8
6. Selected Financial Data
(Omitted pursuant to General Instruction I(2).).................................................. 8
7. Management's Discussion and Analysis of Results of Operations
(Abbreviated pursuant to General Instruction I(2).) ............................................. 9
7A. Quantitative and Qualitative Disclosures About Market Risk....................................... 17
8. Financial Statements and Supplementary Data ..................................................... 17
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............ 17
PART III
(Omitted pursuant to General Instruction I(2).):
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 ................................ 18
</TABLE>
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 28, 2000.
<PAGE>
New York Telephone Company
PART I
Item 1. Business
GENERAL
New York Telephone Company is incorporated under the laws of the State of
New York. Our principal offices are located at 1095 Avenue of the Americas, New
York, New York 10036 (telephone number 212-395-2121). We are a wholly owned
subsidiary of NYNEX Corporation (NYNEX), which is a wholly owned subsidiary of
Bell Atlantic Corporation (Bell Atlantic).
Our wholly-owned subsidiary, Empire City Subway Company (Limited) is
primarily in the business of leasing underground conduit in Manhattan and the
Bronx, principally to us, but also to other companies in the telecommunications
business.
We presently serve a territory consisting of six Local Access and Transport
Areas (LATAs) in New York, as well as a small portion of Connecticut (Greenwich
and Byram only). 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 we have been permitted by the "Modification
of Final Judgment" (MFJ) to provide telephone service.
We currently provide two basic types of telecommunications services. First,
we transport telecommunications traffic between subscribers located within the
same LATA (intraLATA service), including both local and long distance 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 us and by other pay telephone providers). Among other local
services provided are Centrex (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. Long distance service includes message
toll service (calling service beyond the local calling area) within LATA
boundaries, and intraLATA Wide Area Toll Service (WATS) and 800 services (volume
discount offerings for customers with highly concentrated demand). We also earn
long distance revenue from the provision of telecommunications service between
LATAs (interLATA service) in the corridor between the cities (and certain
surrounding counties) of New York, New York and Newark, New Jersey. Second, we
provide exchange access service, which links a subscriber's telephone or other
equipment to the transmission facilities of interexchange carriers which, in
turn, provide interLATA telecommunications service to their customers. We also
provide exchange access service to interexchange carriers which provide
intrastate intraLATA long distance telecommunications service, as well as local
exchange access to competitive local exchange carriers for calls within a LATA.
PROPOSED BELL ATLANTIC-GTE MERGER
Bell Atlantic and GTE Corporation (GTE) have announced a proposed merger of
equals under a definitive merger agreement dated as of July 27, 1998. Under the
terms of the agreement, GTE shareholders will receive 1.22 shares of Bell
Atlantic common stock for each share of GTE common stock that they own. Bell
Atlantic shareholders will continue to own their existing shares after the
merger. We will continue to be a wholly owned indirect subsidiary of Bell
Atlantic.
It is expected that the merger will qualify as a pooling of interests,
which means that for accounting and financial purposes, the companies will be
treated as if they had always been combined. At annual meetings held in May
1999, the shareholders of each company approved the merger. The completion of
the merger is subject to a number of conditions, including certain regulatory
approvals (all of which have been obtained except that of the Federal
Communications Commission (FCC)) and receipt of opinions that the merger will be
tax-free.
The companies are targeting completion of the merger in the second quarter
of 2000.
1
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New York Telephone Company
OPERATIONS
We are one of nine operating telephone companies owned by Bell Atlantic.
Bell Atlantic has organized certain telecommunications group functions into
business units operating across the telephone subsidiaries. The business units
focus on specific market segments. Each of the operating telephone subsidiaries,
including us, remains responsible within its respective service area for the
provision of telephone services, financial performance and regulatory matters.
We have one reportable segment, which comprises four strategic business units.
The Consumer unit markets communications services to residential customers,
as well as operator services.
The General Business unit markets communications and information services
to small and medium-sized businesses as well as pay telephone services.
The Enterprise Business unit markets communications and information
technology and services to large businesses and to departments, agencies and
offices of the executive, judicial and legislative branches of the federal and
state governments. 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 optimization (disaster avoidance,
911 service, and intelligent vehicle highway systems), video services (distance
learning, telemedicine, and videoconferencing) and interactive multimedia
applications services.
The Network Services unit markets (i) switched and special access to the
telephone subsidiaries' local exchange networks, and (ii) billing and collection
services, including recording, rating, bill processing and bill rendering.
Telecommunications Act of 1996
The Telecommunications Act of 1996 (1996 Act) became effective on February
8, 1996, and replaced the MFJ, a consent decree that arose out of an antitrust
action brought by the United States Department of Justice against AT&T. In
general, the 1996 Act includes provisions that open local exchange markets to
competition and permit Bell Operating Companies, including ours, to engage in
manufacturing and to provide long distance service under certain conditions.
The 1996 Act permits us to offer in-region long distance services (that is,
services originating in the states where we operate as a local exchange
carrier), once we have demonstrated to the FCC that we have satisfied certain
requirements. The requirements include a 14-point "competitive checklist" of
steps which we must take to help competitors offer local services through
resale, through purchase of unbundled network elements, or through their own
networks. We must also demonstrate to the FCC that our entry into the in-region
long distance market would be in the public interest.
In-Region Long Distance
On December 22, 1999, the FCC released an order approving our application
for permission to enter the in-region long distance market in New York. The FCC
concluded that we have satisfied the 14-point "competitive checklist" required
under the 1996 Act for entry into the in-region long distance market, and that
our entry into the long distance business in New York would benefit the public
interest. As of January 2000, in-region long distance service is being offered
by a separate subsidiary as required by law. Following the FCC's decision, AT&T,
and Covad sought a stay of the Commission's order. The stay request was denied,
first by the FCC and later by the U.S. Court of Appeals. AT&T's and Covad's
appeal of the order remains pending and is on an accelerated schedule, with
argument scheduled for April 2000.
2
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New York Telephone Company
FCC Regulation and Interstate Rates
We are subject to the jurisdiction of the FCC with respect to interstate
services and certain related matters. In 1999, the FCC continued to implement
reforms to the interstate access charge system and to implement the "universal
service" and other requirements of the 1996 Act.
Access Charges
Interstate access charges are the rates long distance carriers pay for use
and availability of our facilities for the origination and termination of
interstate service. The FCC required a phased restructuring of access charges,
which began in January 1998, so that our non-usage-sensitive costs will be
recovered from long distance carriers and end-users through flat rate charges,
and usage-sensitive costs will be recovered from long distance carriers through
usage-based rates.
In addition, the FCC has required that different levels of usage-based
charges for originating and for terminating interstate traffic be established.
The final phase of this restructuring was completed on January 1, 2000.
Price Caps
Under the FCC price cap rules that apply to interstate access rates, each
year our price cap index is adjusted downward by a fixed percentage intended to
reflect increases in productivity (productivity factor) and adjusted upward by
an allowance for inflation (GDP-PI). Our annual price cap filing, effective July
1, 1999, reflects the effects of the current productivity factor of 6.5 %.
In May 1999, the U. S. Court of Appeals reversed the FCC's order that
adopted the 6.5 % productivity factor. The Court concluded that the FCC had not
justified its choice of a productivity factor and directed the FCC to reconsider
and explain the methods used in selecting the productivity factor. The Court
granted the FCC a stay of its order, however, until April 1, 2000. As a result,
the FCC is now conducting a proceeding to determine an appropriate productivity
factor in response to the Court's order.
At the same time, the FCC is considering a proposal to further restructure
access rates by an industry coalition that includes both local exchange carriers
(including us) and long distance carriers. Among other things, that proposal
would set into place a mechanism to transition to a set target of $.0055 per
minute for switched access services. Once that target rate is reached, local
exchange carriers would no longer be required to make further annual price cap
reductions to their switched access prices. To allow time to consider this
industry proposal, parties have requested that the Court further extend the stay
of its price cap decision order until June 30, 2000.
The FCC has adopted rules for special access services that provide for
added pricing flexibility and ultimately the removal of services from price
regulation when certain competitive thresholds are met. In order to take
advantage of this relief, however, carriers must forego the ability to take
advantage of provisions in the current rules that provide relief in the event
earnings fall below certain thresholds, and we have not filed for this relief.
The order also allows certain services, including those included in the
interexchange basket of services, to be removed from price regulation
immediately. In response, effective in October 1999, we removed approximately
$12 million in annual revenues of our services in the interexchange basket from
price regulation and from the operation of the productivity offset which
otherwise would require annual price reductions.
Universal Service
In July 1999, the U.S. Court of Appeals reversed certain aspects of the
FCC's order implementing the "universal service" provision of the 1996 Act. The
universal service fund includes a multi-billion dollar interstate fund to link
schools and libraries to the Internet and to subsidize high cost areas, low
income consumers and rural healthcare providers. Previously, under the FCC's
rules, all providers of interstate telecommunications services had to contribute
to the schools and libraries fund based on their total interstate and intrastate
retail revenues. The court reversed the decision to include intrastate revenues
as part of the basis for assessing contributions to that fund. As a result of
this decision, our contributions to the universal service fund were reduced
annually beginning on November 1, 1999, and our interstate access rates will be
reduced accordingly because we will no longer have to recover these
contributions in our rates. AT&T and MCI WorldCom, Inc. have since asked the
U.S. Supreme Court to review this latter portion of the appeals court decision.
Other parties have asked the Supreme Court to review additional aspects of the
court of appeals decision.
3
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New York Telephone Company
In November 1999, the FCC adopted a new mechanism for providing universal
service support to high cost areas served by large local telephone companies.
This funding mechanism will provide additional support for local telephone
services in several states served by Bell Atlantic. State regulatory commissions
must take these funds into account in the ratemaking process.
Unbundling of Network Elements
In November 1999, the FCC announced its decision setting forth new
unbundling requirements. The FCC had previously identified seven elements that
had to be provided to competitors on an unbundled basis. With respect to those
seven elements, the FCC concluded that incumbent local exchange carriers, such
as us, do not have to provide unbundled switching (or combinations of elements
that include switching, such as the so-called unbundled element "platform")
under certain circumstances to business customers with four or more lines in
certain offices in the top 50 Metropolitan Statistical Areas (MSAs). It also
held that incumbents do not have to provide unbundled access to their directory
assistance or operator services. The remaining elements on the FCC's original
list still must be provided.
With respect to new elements, the FCC concluded that new equipment to
provide advanced services such as Asymmetric Digital Subscriber Line (ADSL) does
not have to be unbundled as a general matter. On the other hand, the FCC
concluded that incumbents must provide dark fiber as an unbundled element, and
that sub-loop unbundling should be provided. Finally, the FCC ruled that
combinations of loops and transport must be made available under certain
circumstances, but left to a further rulemaking that it initiated certain issues
relating to the use of these combinations to substitute for special access
services. While this rulemaking proceeds, the FCC adopted interim rules limiting
the instances in which such combinations of elements must be made available. The
FCC set a target date of June 30, 2000 to decide the further rulemaking.
In addition to the unbundling requirements released in November 1999, the
FCC released an order on December 9, 1999 in a separate proceeding requiring
incumbent local exchange companies also to unbundle and provide to competitors
the higher frequency portion of their local loop. This provides competitors with
the ability to provision data services on top of incumbent carriers' voice
services.
State Regulation of Rates and Services
The New York State Public Service Commission (NYSPSC) and the Connecticut
Department of Public Utility Control (CDPUC) regulate our communications
services with respect to intrastate rates and services and certain other matters
in New York and Connecticut, respectively.
The NYSPSC has regulated us under the Performance Incentive Plan since
1995. The plan is performance-based, replacing rate of return regulation with a
form of price regulation and incentives to improve service, and does not
restrict our earnings. The plan:
. caps prices at current rates for "basic" services such as residence
and business exchange access, residence and business local calling,
and LifeLine Service;
. establishes price reduction commitments for a number of services,
including toll and intraLATA carrier access services;
. adjusts prices annually based on certain costs associated with state
commission mandates and other defined "exogenous" events; and
. establishes service quality targets with stringent rebate provisions
if we are unable to meet some or all of the targets.
Our operations in Connecticut are subject to rate of return regulation, but
an incentive regulation plan which would eliminate regulation of our earnings
has been filed with the CDPUC.
Reciprocal Compensation
State regulatory decisions have required us to pay "reciprocal
compensation" under the 1996 Act for the increasing volume of one-way traffic
from our customers to customers of other carriers, primarily calls to Internet
service providers. In February 1999, the FCC confirmed that such traffic is
largely interstate but concluded that it would not interfere with state
regulatory decisions requiring payment of reciprocal compensation for such
traffic and that carriers are bound by their existing interconnection
agreements. The U.S. Court of Appeals has vacated and remanded the FCC's
decision for a better explanation of why this traffic is interstate.
4
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New York Telephone Company
The NYSPSC issued a decision that high volume, convergent traffic (which
includes Internet-bound traffic) has different cost characteristics and should
be compensated at the lower end-office rate. The NYSPSC determined that traffic
in excess of a 3:1 ratio is presumed to be high volume, convergent traffic,
although this presumption may be rebutted.
Competition
Legislative changes, including provisions of the 1996 Act discussed above
under the section "Telecommunications Act of 1996," regulatory changes and new
technology are continuing to expand the types of available communications
services and equipment and the number of competitors offering such services. We
anticipate 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, foreign
telecommunications providers, electric utilities, Internet service providers and
other companies that offer network services. Many of these companies have a
strong market presence, brand recognition and existing customer relationships,
all of which contribute to intensifying competition and may affect our future
revenue growth.
Local Exchange Services
State regulatory commissions have historically regulated the ability to
offer local exchange services. The NYSPSC has approved applications from
competitors to provide and resell local exchange services.
One of the purposes of the 1996 Act was to ensure, and accelerate, the
emergence of competition in local exchange markets. Toward this end, the 1996
Act requires most existing local exchange carriers (incumbent local exchange
carriers, or ILECs), including us, to permit potential competitors (competitive
local exchange carriers, or CLECs) to
. purchase service from the ILEC for resale to CLEC customers
. purchase unbundled network elements from the ILEC, and/or
. interconnect the CLEC network with the ILEC's network.
The 1996 Act provides for arbitration by the state public utility
commission if an ILEC and a CLEC are unable to reach agreement on the terms of
the arrangement sought by the CLEC.
Our negotiations with various CLECs, and arbitrations before the NYSPSC and
the CDPUC have continued. As of January 31, 2000, we had entered into 125
agreements with CLECs of which 107 have been approved by the state regulators.
We expect that these agreements, and the 1996 Act, will continue to lead to
substantially increased competition in our local exchange market in 2000 and
subsequent years. We believe that this competition will be both on a facilities
basis and in the form of resale by CLECs of our service. Under the various
agreements and arbitrations discussed above, we are generally required to sell
our services to CLECs at discounts ranging from approximately 19% to 22% from
the prices we charge our retail customers.
IntraLATA Toll Services
IntraLATA toll calls originate and terminate within the same LATA, but
generally cover a greater distance than a local call. State regulatory
commissions rather than federal authorities generally regulate these services.
The NYSPSC permits other carriers to offer intraLATA toll services within the
state.
Until the implementation of "presubscription," we completed intraLATA toll
calls unless the customer dialed a code to access a competing carrier.
Presubscription changed this dialing method and enabled customers to make these
toll calls using another carrier without having to dial an access code. We fully
completed implementation of presubscription in September of 1996.
5
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New York Telephone Company
Alternative Access
A substantial portion of our revenues from business and government
customers is derived from a relatively small number of large, multiple-line
subscribers.
We face 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 our
plant. The FCC's orders requiring us to offer collocated interconnection for
special and switched access services have enhanced the ability of such
alternative access providers to compete with us.
Other potential sources of competition include cable television systems,
shared tenant services and other noncarrier systems which are capable of
bypassing our local plant, either partially or completely, through substitution
of special access for switched access or through concentration of
telecommunications traffic on fewer of our lines.
Wireless Services
Wireless services also constitute potential sources of competition to our
wireline telecommunications services, especially as wireless carriers continue
to lower their prices to end users. Wireless portable telephone services employ
analog and digital technology that allows customers to make and receive
telephone calls from any location using small handsets, and can also be used for
data transmission.
Public Telephone Services
We face increasing competition in the provision of pay telephone services
from other providers. In addition, the growth of wireless communications
decreases usage of public telephones.
Operator Services
Alternative operator services providers have entered into competition with
our operator services product line.
EMPLOYEES
As of December 31, 1999, we had approximately 36,500 employees.
6
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New York Telephone Company
Item 2. Properties
GENERAL
Our principal properties do not lend themselves to simple description by
character and location. Our investment in plant, property and equipment
consisted of the following at December 31:
1999 1998
- --------------------------------------------------------------------------------
Outside communications plant 40% 41%
Central office equipment 40 40
Land and buildings 9 9
Furniture, vehicles and other work equipment 6 6
Other 5 4
--------------------------
100% 100%
==========================
"Outside communications plant" consists primarily of aerial cable,
underground cable, conduit and wiring, and telephone poles. "Central office
equipment" consists of switching equipment, transmission equipment and related
facilities. "Land and buildings" consists of land and land improvements, and
principally central office buildings. "Furniture, vehicles and other work
equipment" consists of public telephone instruments and telephone equipment,
furniture, office equipment, motor vehicles and other work equipment. "Other"
property consists primarily of plant under construction, capital leases,
capitalized computer software costs and leasehold improvements.
Our customers are served by electronic switching systems that provide a
wide variety of services. Since December 31, 1998, our network has been fully
transitioned from an analog to a digital network, which provides the
capabilities to furnish advanced data transmission and information management
services.
Substantially all of our assets are subject to lien under our refunding
mortgage bond indenture.
CAPITAL EXPENDITURES
We have been making and expect to continue to make significant capital
expenditures to meet the demand for communications services and to further
improve such services. Capital expenditures were approximately $2.2 billion in
1999, $1.7 billion in 1998 and $1.5 billion in 1997. Capital expenditures
exclude additions under capital leases. Our total investment in plant, property
and equipment was approximately $24.1 billion at December 31, 1999, $22.6
billion at December 31, 1998 and $21.4 billion at December 31, 1997, including
the effect of retirements, but before deducting accumulated depreciation.
Item 3. Legal Proceedings
There were no proceedings reportable under Item 3.
Item 4. Submission of Matters to a Vote of Security Holders
(Omitted pursuant to General Instruction I(2).)
7
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New York Telephone Company
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Not applicable.
Item 6. Selected Financial Data
(Omitted pursuant to General Instruction I(2).)
8
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New York Telephone Company
Item 7. Management's Discussion and Analysis of Results of Operations
(Abbreviated pursuant to General Instruction I(2).)
This discussion should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements listed in
the index set forth on page F-1.
The communications services we provide are subject to regulation by the New
York State Public Service Commission (NYSPSC) and the Connecticut Department of
Public Utility Control (CDPUC) with respect to intrastate rates and services and
certain other matters. For a further discussion of the company and our
regulatory plan, see Item 1 - "Description of Business."
RESULTS OF OPERATIONS
- ---------------------
We reported net income of $882.4 million in 1999, compared to net income of
$307.5 million in 1998.
Our results for 1999 and 1998 were affected by special items. The special
items in both years include our allocated share of charges from Telesector
Resources Group, Inc. (Telesector Resources). Allocated merger transition costs
in both years also include our share of charges from Bell Atlantic Network
Services, Inc. (NSI).
The following table shows how special items are reflected in our
consolidated statements of income for each year:
(Dollars in Millions)
Years Ended December 31 1999 1998
- -------------------------------------------------------------------------------
Employee Costs
Merger transition costs $ 6.5 $ 2.6
Retirement incentive costs --- 671.2
Other Operating Expenses
Merger transition costs 3.5 8.6
Allocated merger transition costs 48.3 49.8
Allocated retirement incentive --- 33.1
---------------------------
$58.3 $765.3
===========================
Merger-related Costs
In connection with the Bell Atlantic-NYNEX merger, which was completed in
August 1997, we recorded pre-tax costs totaling $58.3 million in 1999 and $61.0
million in 1998.
Transition and integration costs consist of our proportionate share of
costs associated with integrating the operations of Bell Atlantic and NYNEX,
such as systems modifications costs and advertising and branding costs.
Transition and integration costs are expensed as incurred.
Retirement Incentives
In 1993, we recorded costs totaling $630.9 million (pre-tax) for severance
and postretirement medical benefits under an involuntary force reduction plan.
Beginning in 1994, retirement incentives were offered under a voluntary program
as a means of implementing substantially all of the work force reductions
announced in 1993.
Since the inception of the retirement incentive program, we recorded
additional costs totaling $1,882.4 million (pre-tax) through December 31, 1998.
These additional costs and the corresponding number of employees accepting the
retirement incentive offer for each year ended December 31 are as follows:
9
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New York Telephone Company
(Dollars in Millions)
Year Amount Employees
- -------------------------------------------------------------------------------
1994 $ 523.4 4,802
1995 304.0 2,551
1996 87.8 1,295
1997 262.9 2,314
1998 704.3 5,155
---------------------------------
$1,882.4 16,117
=================================
The additional costs were comprised of special termination pension and
postretirement benefit amounts, as well as employee costs for other items. These
costs were reduced by severance and postretirement medical benefit reserves
established in 1993 and transferred to offset the pension and postretirement
benefit liabilities as employees accepted the retirement incentive offer. The
severance and postretirement medical reserve balances were fully utilized at
December 31, 1998. The voluntary retirement program covering associate employees
was completed in September 1998. You can find additional information on
retirement incentive costs in Note 10 to the consolidated financial statements.
These and other items affecting the comparison of our results of operations
for the years ended December 31, 1999 and 1998 are discussed in the following
sections.
Segmental Results of Operations
We have one reportable segment, which provides domestic wireline
telecommunications services. You can find additional information about segment
reporting in Note 15 to the financial statements.
OPERATING REVENUE STATISTICS
- ----------------------------
<TABLE>
<CAPTION>
1999 1998 % Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At Year-End
Access Lines in Service (in thousands)*
Residence 7,701 7,519 2.4%
Business 4,290 4,172 2.8
Public 165 166 (.6)
-----------------------------
12,156 11,857 2.5
=============================
For the Year
Access Minutes of Use (in millions) 47,435 46,371 2.3
=============================
</TABLE>
* 1998 reflects a restatement of access lines in service.
OPERATING REVENUES
- ------------------
(Dollars in Millions)
<TABLE>
<CAPTION>
For the Years Ended December 31 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Local services $5,206.1 $5,075.7
Network access services 2,292.2 2,322.4
Long distance services 239.1 236.7
Ancillary services 686.6 635.1
--------------------------------
Total $8,424.0 $8,269.9
================================
</TABLE>
10
<PAGE>
New York Telephone Company
LOCAL SERVICES
Increase
- --------------------------------------------------------------------------------
1999 - 1998 $130.4 2.6%
- --------------------------------------------------------------------------------
Local service revenues are earned 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 that expand the utilization of the
network. These services include products such as Caller ID, Call Waiting and
Return Call.
Local service revenues increased in 1999 primarily due to higher usage of
our network facilities. Revenue growth was generated, in part, by an increase in
access lines in service of 2.5% from December 31, 1998. Strong growth in
residence and business message volumes also contributed to the increase in local
service revenues.
Revenues from our value-added services were boosted in 1999 by marketing
and promotional campaigns offering new service packages. The introduction of
national directory assistance services in 1999 also contributed to revenue
growth.
These increases in local service revenues were partially offset by the
effect of resold access lines and the provision of unbundled network elements to
competitive local exchange carriers. Lower revenues from our pay phone services
due to the increasing popularity of wireless communications further reduced
revenues in 1999.
NETWORK ACCESS SERVICES
(Decrease)
- --------------------------------------------------------------------------------
1999 - 1998 $(30.2) (1.3)%
- --------------------------------------------------------------------------------
Network access revenues are earned from end-user subscribers and long
distance and other competing carriers who use our local exchange facilities to
provide services to their customers. Switched access revenues are derived from
fixed and usage-based charges paid by carriers for access to our local network.
Special access revenues originate from carriers and end-users that buy dedicated
local exchange capacity to support their private networks. End-user access
revenues are earned from our customers and from resellers who purchase dial-tone
services.
Network access revenues declined in 1999 due to price reductions associated
with federal and state price cap filings and other regulatory decisions. The
Federal Communications Commission (FCC) regulates the rates that we charge long
distance carriers and end-user subscribers for interstate access services. We
are required to file new access rates with the FCC each year. In July 1999, we
implemented interstate price decreases of approximately $123 million on an
annual basis in connection with the FCC's Price Cap Plan. The rates included in
our July 1999 filing will be in effect through June 2000. Interstate price
decreases were $78 million on an annual basis for the period July 1998 through
June 1999. The rates include amounts necessary to recover our contribution to
the FCC's universal service fund and are subject to change every quarter due to
potential increases or decreases in our contribution to the universal service
fund. Our contributions to the universal service fund are included in Other
Operating Expenses. You can find additional information on price caps, access
charges and universal service in Item 1 - "Description of Business, Operations -
FCC Regulation and Interstate Rates."
The NYSPSC regulates us with respect to certain intrastate rates and
services and certain other matters. Beginning in the third quarter of 1998,
intrastate access charges in New York were reduced by approximately $94 million
annually due to a NYSPSC order.
These revenue decreases were partially offset by higher customer demand, as
reflected by growth in access minutes of use of 2.3% in 1999. Volume growth also
reflects a continuing expansion of the business market, particularly for
high capacity data services. In 1999, demand for special access services
increased, reflecting a greater utilization of our network. Higher network usage
by alternative providers of intraLATA toll services and higher end-user revenues
attributable to an increase in access lines in service further contributed to
revenue growth in 1999.
11
<PAGE>
New York Telephone Company
Network access services revenues in 1999 include approximately $28 million
received from customers for the recovery of local number portability (LNP)
costs. LNP allows customers to change local exchange carriers while maintaining
their existing telephone numbers. In December 1998, the FCC issued an order
permitting us to recover costs incurred for LNP in the form of monthly end-user
charges for a five-year period beginning in March 1999.
LONG DISTANCE SERVICES
Increase
- --------------------------------------------------------------------------------
1999 - 1998 $2.4 1.0%
- --------------------------------------------------------------------------------
Long distance revenues are earned primarily from calls made to points
outside a customer's local calling area, but within our service area (intraLATA
toll). Other long distance services that we provide include 800 services, Wide
Area Telephone Service (WATS), private line services and corridor services
(between LATAs in New York City and northern New Jersey).
IntraLATA toll calls originate and terminate with the same LATA, but
generally cover a greater distance than a local call. These services are
regulated by the NYSPSC and the CDPUC, except where they cross state lines. The
NYSPSC and the CDPUC permit other carriers to offer intraLATA toll services.
Until the implementation of presubscription, intraLATA toll calls were
completed by us unless the customer dialed a code to access a competing carrier.
Presubscription changed this dialing method and enabled customers to make these
toll calls using another carrier without having to dial an access code. We
implemented presubscription in 1996.
The increase in long distance revenues in 1999 was generated by strong
growth in private line services. Higher calling volumes resulting, in part, from
customer win-back initiatives also contributed to the increase in long distance
services revenues.
Lower rates included in toll calling discount packages and product bundling
offers substantially offset the growth in long distance revenues. These toll
calling discount packages and product bundling offers were implemented in
response to presubscription for intraLATA toll services. The negative effect of
presubscription on long distance revenues was partially mitigated by increased
network access services for usage of our network by these alternative providers.
ANCILLARY SERVICES
Increase
- --------------------------------------------------------------------------------
1999 - 1998 $51.5 8.1%
- --------------------------------------------------------------------------------
Our ancillary services include such services as billing and collections for
long distance carriers and affiliates, facilities rentals to affiliates and
nonaffiliates, collocation for competitive local exchange carriers, usage of
separately priced (unbundled) components of our network by competitive local
exchange carriers, voice messaging, customer premises equipment (CPE) and wiring
and maintenance services, and sales of software to nonaffiliates. Amounts
recognized in connection with obligations and commitments for regulatory
matters, if any, are also included in this revenue category. Ancillary services
revenues also include payments from an affiliate, Bell Atlantic Yellow Pages
Company (Yellow Pages), for earnings related to its directory activities in New
York based on a regulated rate of return. We also earn revenues from Yellow
Pages for the use of our name in soliciting directory advertising and in
publishing and distributing directories and from customers for nonpublication of
telephone numbers and multiple white page listings.
Ancillary services revenues were higher in 1999 due to higher payments
received from Yellow Pages for earnings related to its directory activities.
Higher payments received from competitive local exchange carriers for
interconnection of their networks with our network and for the purchase of
unbundled network elements also contributed to the increase in ancillary
services revenues.
This growth in ancillary services revenues was partially offset by the
effect of current year accruals for service rebate obligations.
12
<PAGE>
New York Telephone Company
OPERATING EXPENSES
- ------------------
(Dollars in Millions)
For the Years Ended December 31 1999 1998
- --------------------------------------------------------------------------------
Employee costs, including benefits and taxes $2,244.2 $2,908.7
Depreciation and amortization 1,526.2 1,418.6
Other operating expenses 3,097.2 3,175.0
------------------------------
Total $6,867.6 $7,502.3
==============================
EMPLOYEE COSTS
(Decrease)
- --------------------------------------------------------------------------------
1999 - 1998 $(664.5) (22.8)%
- --------------------------------------------------------------------------------
Employee costs consist of salaries, wages and other employee compensation,
employee benefits and payroll taxes paid directly by us. Similar costs incurred
by employees of Telesector Resources, NSI and NYNEX, who provide centralized
services on a contract basis, are allocated to us and are included in Other
Operating Expenses.
Employee costs decreased in 1999 primarily as a result of the completion of
the retirement incentive program covering associate employees in 1998, as
discussed in the Results of Operations section. The effect of lower work force
levels also contributed to the decrease in employee costs, but to a lesser
extent.
The decreases in employee costs were partially offset by annual salary and
wage increases for management and associate employees and higher overtime
payments partially due to severe rainstorms in the second half of 1999. In 1998,
we executed new contracts with the unions representing associate employees. The
new contracts provide for wage and pension increases and other benefit
improvements as described below:
. The wages, pension and other benefits for our associate employees are
negotiated with unions. During 1998, we entered into 2-year contracts
with the Communications Workers of America (CWA) and the International
Brotherhood of Electrical Workers (IBEW). These contracts, which
expire in August 2000, provide for wage increases of up to 3.8%
effective August 9, 1998, and up to 4% effective August 8, 1999. Over
the course of this two-year contract period, pensions increase by 20%.
The contracts also include cash payments, working condition
improvements, and continuation of certain employment security
provisions.
DEPRECIATION AND AMORTIZATION
Increase
- --------------------------------------------------------------------------------
1999 - 1998 $107.6 7.6%
- --------------------------------------------------------------------------------
Depreciation and amortization expense increased in 1999 principally as a
result of growth in depreciable telephone plant and changes in the mix of plant
assets. The adoption of Statement of Position (SOP) No. 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" also
contributed to the increase in depreciation and amortization expense in 1999,
but to a lesser extent. Under this new accounting standard, computer software
developed or obtained for internal use is now capitalized and amortized.
Previously, we expensed most of these software purchases in the period in which
they were incurred. For additional information on SOP No. 98-1, see Note 1 to
the consolidated financial statements. These expense increases were partially
offset by the effect of lower rates of depreciation.
13
<PAGE>
New York Telephone Company
OTHER OPERATING EXPENSES
(Decrease)
- --------------------------------------------------------------------------------
1999 - 1998 $(77.8) (2.5)%
- --------------------------------------------------------------------------------
Other operating expenses consist of contract services including centralized
services expenses allocated from Telesector Resources, NYNEX and NSI, rent,
network software costs, operating taxes other than income, the provision for
uncollectible accounts receivable, and other costs.
The decrease in other operating expenses was attributable to lower
centralized services expenses, partially due to the effect of the completion of
the retirement incentive program for associated employees of Telesector
Resources in 1998. Other items contributing to the decrease in other operating
expenses were the effect of adopting SOP No. 98-1, lower costs for contract
services and the reduction of an accrual associated with the settlement of a
state regulatory matter. The adoption of SOP No. 98-1 reduced other operating
expenses as a result of capitalizing expenditures for internal-use software
previously expensed in 1998 and prior years.
The decreases in other operating expenses were partially offset by higher
interconnection payments to competitive local exchange and other carriers to
terminate calls on their networks (reciprocal compensation). For additional
information on reciprocal compensation refer to Item 1 -"Description of
Business, Operations - Reciprocal Compensation."
OTHER INCOME, NET
Increase
- --------------------------------------------------------------------------------
1999 - 1998 $56.2 160.1%
- --------------------------------------------------------------------------------
The change in other income, net, was attributable to the effect of a gain
recognized on the disposition of property in August 1999. Higher income
recognized from Telesector Resources under the equity method also contributed to
the increase in other income, net, but to a lesser extent.
INTEREST EXPENSE
(Decrease)
- --------------------------------------------------------------------------------
1999 - 1998 $(33.3) (9.7)%
- --------------------------------------------------------------------------------
Interest expense includes costs associated with borrowings and capital
leases, net of interest capitalized as a cost of acquiring or constructing plant
assets.
Interest expense decreased in 1999 principally due to the effect of
recording additional interest costs in 1998 in connection with the settlement of
tax-related matters and certain regulatory issues. The effect of refinancing
long-term debt at more favorable interest rates also contributed to the decrease
in interest expense, but to a lesser extent. These decreases were partially
offset by higher interest costs generated by higher levels of average borrowings
from an affiliate.
See Note 6 to the consolidated financial statements for additional
information about our debt.
14
<PAGE>
New York Telephone Company
EFFECTIVE INCOME TAX RATES
For the Years Ended December 31
- --------------------------------------------------------------------------------
1999 33.8%
- --------------------------------------------------------------------------------
1998 31.4%
- --------------------------------------------------------------------------------
The effective income tax rate is the provision for income taxes as a
percentage of income before the provision for income taxes and extraordinary
item. Our effective income tax rate was higher in 1999 due to the effects of
adjustments to deferred income tax balances resulting from a change in the New
York State income tax rate and income tax credits recorded in 1998.
You can find a reconciliation of the statutory federal income tax rate to
the effective income tax rate for each period in Note 11 to the consolidated
financial statements.
EXTRAORDINARY ITEMS
During 1999, we recorded an extraordinary charge associated with the early
extinguishment of long-term debt. This charge reduced net income by $2.7 million
(net of an income tax benefit of $1.5 million). During 1998, we recorded
extraordinary charges that reduced net income by $7.5 million (net of an income
tax benefit of $4.0 million) associated with early extinguishments of long-term
debt.
You can find additional information about these extraordinary charges in
Note 6 to the consolidated financial statements.
FINANCIAL CONDITION
- -------------------
We use 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 both December
31, 1999 and 1998, our sources of funds, primarily from operations and, to the
extent necessary, from readily available financing arrangements with affiliates,
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 our capital structure to
ensure financial flexibility.
We obtain our short-term financing through advances from Bell Atlantic
Administrative Services, Inc. (BAAS) and a line of credit with Bell Atlantic
Network Funding Corporation (BANFC). As of December 31, 1999, we had $50.0
million available under our line of credit with BANFC, and no borrowings
outstanding. We had $1,961.6 million outstanding with BAAS at December 31, 1999.
In addition, we had $400.0 million remaining under a shelf registration
statement filed with the Securities and Exchange Commission for the issuance of
unsecured debt securities. Our debt securities continue to be accorded high
ratings by primary rating agencies. After the announcement of the Bell
Atlantic-GTE merger, the rating agencies placed the rating of our securities
under review for a potential downgrade. In January 2000, Standard & Poor's
revised its regulatory separation policy as it applies to U.S. telephone
companies. Under the revised policy, Standard & Poor's will no longer assign
higher corporate credit ratings to telephone operating subsidiaries. Rating
actions by Standard & Poor's on us reflect both the new policy and their
continued CreditWatch listings, which resulted from the pending Bell
Atlantic-GTE merger.
Our debt ratio was 73.6% at December 31, 1999, compared to 79.4% at
December 31, 1998.
On November 23, 1999, we declared a dividend in the amount of $62.0 million
from Additional Paid-in-Capital. The dividend was paid to NYNEX on February 1,
2000.
15
<PAGE>
New York Telephone Company
OTHER MATTERS
- -------------
Recent Accounting Pronouncement - Derivatives and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires that all
derivatives be measured at fair value and recognized as either assets or
liabilities on our balance sheet. Changes in the fair values of the derivative
instruments will be recognized in either earnings or comprehensive income,
depending on the designated use and effectiveness of the instruments. The FASB
amended this pronouncement in June 1999 to defer the effective date of SFAS No.
133 for one year. We must adopt SFAS No. 133 no later than January 1, 2001.
On March 3, 2000, the FASB issued a Proposed SFAS "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which would amend SFAS
No. 133. The proposed amendments address certain implementation issues and
relate to such matters as the normal purchases and normal sales exception, the
definition of interest rate risk, hedging recognized foreign-currency-
denominated debt instruments, and intercompany derivatives.
The adoption of SFAS No. 133 will have no material effect on our results of
operations or financial condition because we currently do not enter into the use
of derivative instruments or participate in hedging activities.
New Staff Accounting Bulletin - Revenue Recognition
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which currently must be adopted by June 30, 2000. SAB No. 101
provides additional guidance on revenue recognition, as well as criteria from
when revenue is generally realized and earned, and also requires the deferral of
incremental direct selling costs. We are currently assessing the impact of SAB
No. 101 on our results of operations and financial position.
Year "2000" Update
Bell Atlantic implemented a comprehensive program to evaluate and address
the impact of the Year 2000 date transition on its operations, including our
operations. Bell Atlantic did not experience any material interruption or
failure of its normal business functions or operations as a result of an actual
or perceived Year 2000 problem.
From the inception of Bell Atlantic's Year 2000 project through December
31, 1999, and based on the cost tracking methods it has historically applied to
this project, Bell Atlantic incurred total pre-tax expenses of approximately
$230 million, and it has made capital expenditures of approximately $181
million. For 1999, total pre-tax expenses for Bell Atlantic's Year 2000 project
were approximately $108 million and total capital expenditures were
approximately $101 million.
16
<PAGE>
New York Telephone Company
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate risk in the normal course of our business.
The majority of our debt is fixed rate debt and we do not use derivatives. Our
short-term borrowings from an affiliate expose our earnings to changes in
short-term interest rates since the interest rate charged on such borrowings is
typically fixed for less than one month.
The following table summarizes the fair values of our long-term debt as of
December 31, 1999 and 1998. The table also provides a sensitivity analysis of
the estimated fair values of these financial instruments assuming
100-basis-point upward and downward parallel shifts in the yield curve. The
sensitivity analysis did not include the fair values of our short-term
borrowings from an affiliate since they are not significantly affected by
changes in market interest rates.
December 31
-----------------------------
(Dollars in Millions) 1999 1998
- --------------------------------------------------------------------------------
Fair value of long-term debt $3,444.8 $3,963.3
Fair value assuming a +100-basis-point shift 3,218.5 3,698.1
Fair value assuming a -100-basis-point shift 3,685.1 4,232.0
Item 8. Financial Statements and Supplementary Data
The information required by this Item is set forth on Pages F-1
through F-25.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of Registrant
(Omitted pursuant to General Instruction I(2).)
Item 11. Executive Compensation
(Omitted pursuant to General Instruction I(2).)
Item 12. Security Ownership of Certain Beneficial Owners and Management
(Omitted pursuant to General Instruction I(2).)
Item 13. Certain Relationships and Related Transactions
(Omitted pursuant to General Instruction I(2).)
17
<PAGE>
New York Telephone Company
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
See Index to Financial Statements and Financial
Statement Schedule appearing on Page F-1.
(2) Financial Statement Schedules
See Index to Financial Statements and Financial
Statement Schedule appearing on Page F-1.
(3) Exhibits
Exhibits identified in parentheses below, on file with
the Securities and Exchange Commission (SEC), are
incorporated herein by reference as exhibits hereto.
3a Certificate of Incorporation of New York Telephone
Company, as amended and restated December 2, 1987
(Exhibit No. 3(a) to the registrant's filing on Form SE
dated March 24, 1988, File No. 1-3435).
3b By-Laws of the registrant, as amended April 22, 1987
(Exhibit No. 3(b) to the registrant's filing on Form SE
dated March 24, 1988, File No. 1-3435).
4 No instrument which defines the rights of holders of
long-term debt of the registrant and its subsidiary 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.
10(ii)(B) Service agreement concerning provision by Telesector
Resources Group, Inc. to the registrant of numerous
services, including (i) purchasing, materials handling,
inspection, distribution, storage and similar services
and (ii) technical, regulatory, government relations,
marketing operational support and similar services,
dated March 31, 1992 (Exhibit No. 19(I)1 to the
registrant's filing on Form SE dated March 23, 1993,
File No. 1-3435).
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, 1999.
18
<PAGE>
New York Telephone Company
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.
New York Telephone Company
By /s/ Edwin F. Hall
------------------------------------------
Edwin F. Hall
Chief Financial Officer and Controller
March 28, 2000
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:
Ivan G. Seidenberg Chairman of the Board,
President and
Chief Executive Officer
Principal Financial Officer:
Edwin F. Hall Chief Financial Officer
and Controller By /s/ Edwin F. Hall
------------------
Edwin F. Hall
Directors: (individually and as
attorney-in-fact)
Richard L. Carrion March 28, 2000
Lodewijk J.R. de Vink
Stanley P. Goldstein
Helene L. Kaplan
Elizabeth T. Kennan
John F. Maypole
Joseph Neubauer
Hugh B. Price
Ivan G. Seidenberg
Walter V. Shipley
John R. Stafford
19
<PAGE>
New York Telephone Company
Index to Financial Statements and Financial Statement Schedule
Page
----
Report of Independent Accountants ..................................... F-2
Consolidated Statements of Income
For the years ended December 31, 1999, 1998 and 1997 ............. F-3
Consolidated Balance Sheets - December 31, 1999 and 1998............... F-4
Consolidated Statements of Shareowner's Investment
For the years ended December 31, 1999, 1998 and 1997.............. F-6
Consolidated Statements of Cash Flows
For the years ended December 31, 1999, 1998 and 1997 ............. F-7
Notes to Consolidated Financial Statements ............................ F-8
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 1999, 1998 and 1997.............. F-25
Financial statement schedules other than that listed above have been omitted
because such schedules are not required or applicable.
F-1
<PAGE>
New York Telephone Company
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareowner of New York Telephone Company:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of New
York Telephone Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements. These financial statements and the financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for computer software costs in accordance with
AICPA Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective January 1, 1999.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 14, 2000
F-2
<PAGE>
New York Telephone Company
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31
(Dollars in Millions)
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES (including $330.4, $247.3 and $235.3 from affiliates) $8,424.0 $8,269.9 $7,957.3
-------------------------------------------------
OPERATING EXPENSES
Employee costs, including benefits and taxes 2,244.2 2,908.7 2,435.6
Depreciation and amortization 1,526.2 1,418.6 1,446.0
Other (including $1,323.1, $1,355.4 and $1,443.1 to affiliates) 3,097.2 3,175.0 3,122.6
-------------------------------------------------
6,867.6 7,502.3 7,004.2
-------------------------------------------------
OPERATING INCOME 1,556.4 767.6 953.1
OTHER INCOME, NET (including $42.8, $31.6 and $36.5 from affiliates) 91.3 35.1 16.6
INTEREST EXPENSE (including $66.4, $48.4 and $46.2 to affiliates) 310.5 343.8 332.1
-------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM 1,337.2 458.9 637.6
PROVISION FOR INCOME TAXES 452.1 143.9 207.6
-------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 885.1 315.0 430.0
EXTRAORDINARY ITEM
Early extinguishment of debt, net of tax (2.7) (7.5) ---
-------------------------------------------------
NET INCOME $ 882.4 $ 307.5 $ 430.0
=================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
New York Telephone Company
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
ASSETS
------
<TABLE>
<CAPTION>
December 31
----------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 78.3 $ 50.4
Short-term investments 337.0 349.9
Note receivable from affiliate 251.3 ---
Accounts receivable:
Trade and other, net of allowances for uncollectibles of $131.6 and $169.2 1,556.4 1,534.4
Affiliates 176.2 146.8
Material and supplies 104.7 148.6
Prepaid expenses 114.7 103.1
Other 72.1 80.9
----------------------------------
2,690.7 2,414.1
----------------------------------
PLANT, PROPERTY AND EQUIPMENT 24,108.0 22,632.9
Less accumulated depreciation 13,570.6 12,748.6
----------------------------------
10,537.4 9,884.3
----------------------------------
DEFERRED INCOME TAXES 483.9 592.8
----------------------------------
OTHER ASSETS 384.8 380.8
----------------------------------
TOTAL ASSETS $14,096.8 $13,272.0
==================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
New York Telephone Company
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
LIABILITIES AND SHAREOWNER'S INVESTMENT
---------------------------------------
<TABLE>
<CAPTION>
December 31
------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Debt maturing within one year:
Notes payable to affiliates $ 1,961.6 $ 1,586.6
Other 72.9 2.7
Accounts payable and accrued liabilities:
Affiliates 1,155.8 1,195.8
Other 1,200.9 1,125.3
Other liabilities 333.2 283.0
------------------------------------
4,724.4 4,193.4
------------------------------------
LONG-TERM DEBT 3,617.0 3,755.0
------------------------------------
EMPLOYEE BENEFIT OBLIGATIONS 3,446.3 3,689.6
------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 14.3 13.8
Unamortized investment tax credits 74.4 83.3
Other 189.6 149.9
------------------------------------
278.3 247.0
------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 13)
SHAREOWNER'S INVESTMENT
Common stock-one share, without par value 1.0 1.0
Additional paid-in capital 1,299.7 1,545.1
Reinvested Earnings/(Accumulated deficit) 732.2 (157.1)
Accumulated other comprehensive loss (2.1) (2.0)
------------------------------------
2,030.8 1,387.0
------------------------------------
TOTAL LIABILITIES AND SHAREOWNER'S INVESTMENT $14,096.8 $13,272.0
====================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
New York Telephone Company
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNER'S INVESTMENT
(Dollars in Millions)
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year $ 1.0 $ 1.0 $ 1.0
--------------------------------------------------
Balance at end of year 1.0 1.0 1.0
--------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year 1,545.1 2,194.4 2,681.8
Distributions of additional paid-in capital to NYNEX (248.0) (649.3) (487.4)
Other 2.6 --- ---
--------------------------------------------------
Balance at end of year 1,299.7 1,545.1 2,194.4
--------------------------------------------------
REINVESTED EARNINGS/(ACCUMULATED DEFICIT)
Balance at beginning of year (157.1) (464.6) (894.5)
Net income 882.4 307.5 430.0
Other 6.9 --- (.1)
--------------------------------------------------
Balance at end of year 732.2 (157.1) (464.6)
--------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of year (2.0) --- ---
Minimum pension liability adjustment (.1) (2.0) ---
--------------------------------------------------
Balance at end of year (2.1) (2.0) ---
--------------------------------------------------
TOTAL SHAREOWNER'S INVESTMENT $2,030.8 $1,387.0 $1,730.8
==================================================
COMPREHENSIVE INCOME
Net income $ 882.4 $ 307.5 $ 430.0
Minimum pension liability adjustment (.1) (2.0) ---
--------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 882.3 $ 305.5 $ 430.0
==================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
New York Telephone Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31
(Dollars in Millions)
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 882.4 $ 307.5 $ 430.0
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,526.2 1,418.6 1,446.0
Extraordinary item, net of tax 2.7 7.5 ---
Equity income in affiliate (40.2) (31.4) (36.0)
Dividends received from equity affiliate 53.3 42.9 16.5
Deferred income taxes, net 142.5 (164.1) 96.1
Investment tax credits (8.9) (10.3) (13.1)
Other items, net (1.4) (8.4) (40.5)
Changes in certain assets and liabilities:
Accounts receivable (51.5) (24.1) (49.7)
Material and supplies 38.2 (9.3) (28.5)
Other assets 6.0 (5.7) (128.2)
Accounts payable and accrued liabilities 33.5 267.7 87.6
Employee benefit obligations (243.7) 512.7 113.4
Other liabilities 58.7 16.7 (42.4)
-----------------------------------------------
Net cash provided by operating activities 2,397.8 2,320.3 1,851.2
-----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (337.0) (427.9) (310.9)
Proceeds from sale of short-term investments 349.9 388.9 ---
Capital expenditures (2,219.7) (1,749.1) (1,529.4)
Net change in note receivable from affiliate (251.3) --- ---
Other, net 61.1 (78.7) (57.3)
-----------------------------------------------
Net cash used in investing activities (2,397.0) (1,866.8) (1,897.6)
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings --- 597.0 ---
Early extinguishment of debt (32.1) (550.0) ---
Principal repayments of borrowings and capital lease obligations (38.2) (102.6) (104.6)
Net change in notes payable to affiliates 375.0 135.2 883.0
Distributions of additional paid-in capital (287.4) (547.9) (679.0)
Net change in outstanding checks drawn on controlled
disbursement accounts 9.8 20.9 (31.5)
-----------------------------------------------
Net cash provided by/(used in) financing activities 27.1 (447.4) 67.9
-----------------------------------------------
NET CHANGE IN CASH 27.9 6.1 21.5
CASH, BEGINNING OF YEAR 50.4 44.3 22.8
-----------------------------------------------
CASH, END OF YEAR $ 78.3 $ 50.4 $ 44.3
===============================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
New York Telephone Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
New York Telephone Company and its wholly owned subsidiary, Empire City
Subway Company (Limited), are wholly owned subsidiaries of NYNEX Corporation
(NYNEX), which is a wholly owned subsidiary of Bell Atlantic Corporation (Bell
Atlantic). We presently serve a territory consisting of six Local Access and
Transport Areas (LATAs) in New York, as well as a small portion of Connecticut.
We have one reportable segment which provides domestic wireline
telecommunications services. We currently provide two basic types of
telecommunications services. First, we transport telecommunications traffic
between subscribers located within the same LATA (intraLATA service), including
both local and long distance services. Local service includes voice and data
transport, enhanced and custom calling features, directory assistance, private
lines and public telephones. Long distance service includes message toll service
within LATA boundaries and intraLATA Wide Area Toll Service/800 services. We
also earn long distance revenue from the provision of telecommunications service
between LATAs (interLATA service) in the corridor between New York City and
northern New Jersey. Second, we provide exchange access service, which links a
subscriber's telephone or other equipment to the transmission facilities of
interexchange carriers which, in turn, provide interLATA telecommunications
service to their customers. We also provide exchange access service to
interexchange carriers which provide intrastate intraLATA long distance
telecommunications service, as well as local exchange access to competitive
local exchange carriers for calls within a LATA. Other services we provide
include customer premises wiring and maintenance and billing and collection
services.
The telecommunications industry is undergoing substantial changes as a
result of the Telecommunications Act of 1996, other public policy changes and
technological advances. These changes are bringing increased competitive
pressures in our current businesses, but will also open new markets to Bell
Atlantic.
Basis of Presentation
We prepare our financial statements under generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amounts or certain disclosures. Actual results could differ
from those estimates.
The consolidated financial statements include the accounts of New York
Telephone Company and its subsidiary. We have a 66-2/3% ownership interest in
Telesector Resources Group, Inc. (Telesector Resources) and share voting rights
equally with the other owner, New England Telephone and Telegraph Company (New
England Telephone), which is a wholly owned subsidiary of NYNEX. We use the
equity method of accounting for our investment in Telesector Resources. We also
have an 8.49% ownership interest in SMS/800, a venture that is jointly owned by
the Bell Operating Companies. SMS/800 administers the centralized national
database system associated with toll free numbers. We use the equity method of
accounting for our investment in SMS/800.
We have reclassified certain amounts from prior periods to conform with our
current presentation.
Revenue Recognition
We recognize revenues when services are rendered based on usage of our
local exchange network and facilities.
Maintenance and Repairs
We charge the cost of maintenance and repairs, including the cost of
replacing minor items not constituting substantial betterments, to Operating
Expenses.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of 90 days or
less when purchased to be cash equivalents, except cash equivalents held as
short-term investments. Cash equivalents are stated at cost, which approximates
market value.
F-8
<PAGE>
New York Telephone Company
Short-term Investments
Our short-term investments consist of cash equivalents held in trust to pay
for certain employee benefits. Short-term investments are stated at cost, which
approximates market value.
Material and Supplies
We include in inventory new and reusable materials which are stated
principally at average original cost, except that specific costs are used in the
case of large individual items.
Plant and Depreciation
We state plant, property, and equipment at cost. Depreciation expense is
principally based on the composite group remaining life method and straight-line
composite rates. This method provides for the recognition of the cost of the
remaining net investment in telephone plant, less anticipated net salvage value,
over the remaining asset lives. This method requires the periodic revision of
depreciation rates. We used the following asset lives:
Average Lives (in years)
---------------------------------------------------------------------------
Buildings 20 - 60
Central office equipment 5 - 12
Outside communications plant 8 - 65
Furniture, vehicles and other 3 - 15
When we replace or retire depreciable telephone plant, we deduct the
carrying amount of such plant from the respective accounts and charge
accumulated depreciation. Gains or losses on disposition are amortized with the
remaining net investment in telephone plant.
We capitalize interest associated with the acquisition or construction of
plant assets. Capitalized interest is reported as a cost of plant and a
reduction in interest cost.
Computer Software Costs
Effective January 1, 1999, we adopted Statement of Position (SOP) No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Under SOP No. 98-1, we capitalize the cost of internal-use
software which has a useful life in excess of one year. Subsequent additions,
modifications or upgrades to internal-use software are capitalized only to the
extent that they allow the software to perform a task it previously did not
perform. Software maintenance and training costs are expensed in the period in
which they are incurred. Also, we capitalize interest associated with the
development of internal-use software. Capitalized computer software costs are
amortized using the straight-line method over a period of 3 to 5 years. The
effect of adopting SOP No. 98-1 for Bell Atlantic was an increase in net income
of approximately $230 million in 1999. We also capitalized approximately $62
million as an intangible asset in 1999.
Prior to 1999, we capitalized initial right-to-use fees for central office
switching equipment, including initial operating system and initial application
software costs. For noncentral office equipment, only the initial operating
system software was capitalized. Subsequent additions, modifications, or
upgrades of initial software programs, whether operating or application
packages, were expensed as incurred.
Income Taxes
Bell Atlantic and its domestic subsidiaries, including us, file a
consolidated federal income tax return.
Current and deferred tax expense is determined by applying the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes" to each subsidiary as if it were a separate taxpayer. For periods
prior to the Bell Atlantic - NYNEX merger (see Note 2), NYNEX filed its own
consolidated federal income tax return.
We use the deferral method of accounting for investment tax credits earned
prior to the repeal of investment tax credits by the Tax Reform Act of 1986. We
also defer certain transitional credits earned after the repeal. We amortize
these credits over the estimated service lives of the related assets as a
reduction to the Provision for Income Taxes.
Advertising Costs
We expense advertising costs as they are incurred.
F-9
<PAGE>
New York Telephone Company
Stock-Based Compensation
We participate in stock-based compensation plans sponsored by Bell
Atlantic. Bell Atlantic accounts for stock-based employee compensation plans
under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations and follows the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
Costs of Start-Up Activities
Effective January 1, 1999, we adopted SOP No. 98-5, "Reporting on the Costs
of Start-up Activities." Under this accounting standard, we expense costs of
start-up activities as incurred, including pre-operating, pre-opening and other
organizational costs. The adoption of SOP No. 98-5 did not have a material
effect on our results of operations or financial condition because we did not
historically capitalize start-up activities.
New Accounting Standard - Derivatives and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement requires that all derivatives be measured at fair value and
recognized as either assets or liabilities on our balance sheet. Changes in the
fair values of derivative instruments will be recognized in either earnings or
comprehensive income, depending on the designated use and effectiveness of the
instruments. The FASB amended this pronouncement in June 1999 to defer the
effective date of SFAS No. 133 for one year. We must adopt SFAS No. 133 no later
than January 1, 2001.
On March 3, 2000, the FASB issued a Proposed SFAS "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which would amend SFAS
No. 133. The proposed amendments address certain implementation issues and
relate to such matters as the normal purchases and normal sales exception, the
definition of interest rate risk, hedging recognized
foreign-currency-denominated debt instruments, and intercompany derivatives.
The adoption of SFAS No. 133 will have no material effect on our results of
operations or financial condition because we currently do not enter into the use
of derivative instruments or participate in hedging activities.
New Staff Accounting Bulletin - Revenue Recognition
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which currently must be adopted by June 30, 2000. SAB No. 101
provides additional guidance on revenue recognition, as well as criteria from
when revenue is generally realized and earned, and also requires the deferral of
incremental direct selling costs. We are currently assessing the impact of SAB
No. 101 on our results of operations and financial position.
F-10
<PAGE>
New York Telephone Company
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. Under the terms of the amended agreement, NYNEX became a wholly
owned subsidiary of Bell Atlantic. The merger qualified as a tax-free
reorganization and has been accounted for as a pooling of interests. Under this
method of accounting, the companies are treated as if they had always been
combined for accounting and financial reporting purposes.
As a result of conforming the accounting methodologies of Bell Atlantic and
NYNEX, we reduced Reinvested Earnings as of December 31, 1994 by a net $1,006.2
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" (SFAS No. 106) as if the merger had
occurred as of the beginning of the earliest period presented. In our historical
financial statements, we had amortized the transition benefit obligation over a
twenty year period. The net reduction in Reinvested Earnings also includes
amounts reallocated from Additional Paid-in Capital to cover dividend payments.
Merger-Related Costs
In the third quarter of 1997, we recorded merger-related pre-tax costs of
approximately $11 million for direct incremental costs and $88 million for
employee severance costs. These costs include approximately $39 million
representing our allocated share of merger-related costs from Telesector
Resources, an affiliate which provides centralized services on a contract basis.
Costs allocated from Telesector Resources are included in Other Operating
Expenses.
Direct incremental costs consist of expenses associated with compensation
arrangements related to completing the merger transaction. Employee severance
costs, as recorded under SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," represent our proportionate share of benefit costs for the separation
by the end of 1999 of management employees who are entitled to benefits under
pre-existing Bell Atlantic separation pay plans. During 1997, 1998 and 1999, 42,
140 and 33 management employees were separated with severance benefits. Accrued
postemployment benefit liabilities are included in our balance sheets as a
component of Employee Benefit Obligations.
Other Initiatives
During 1997, we recorded other charges and special items totaling
approximately $273 million (pre-tax) in connection with consolidating operations
and combining organizations, and for other special items arising during the
year. These charges were comprised of the following significant items.
Write-down of Assets and Real Estate Consolidation
In the third quarter of 1997, we recorded pre-tax charges of approximately
$147 million for the write-down of obsolete or impaired fixed assets and for the
cost of consolidating redundant real estate properties. As part of the merger
integration planning, a review was conducted of the carrying values of
long-lived assets. This review included estimating remaining useful lives and
cash flows and identifying assets to be abandoned. In the case of impaired
assets, we analyzed cash flows related to those assets to determine the amount
of the impairment. As a result of these reviews, we recorded a charge of
approximately $112 million for the write-off of assets and $25 million for the
impairment of other assets. These assets primarily included copper wire to
provide telecommunications service and duplicate voice mail platforms. None of
these assets are being held for disposal. At December 31, 1998, the impaired
assets had no remaining carrying value.
In connection with the merger integration efforts, Bell Atlantic
consolidated real estate to achieve a reduction in the total square footage of
building space that it utilizes. We recorded a charge of approximately $10
million in the third quarter of 1997 related to this initiative.
Regulatory and Legal Contingencies and Other Special Items
In 1997, we also recorded reductions to operating revenues and charges to
operating expenses totaling approximately $126 million (pre-tax). Of this
amount, approximately $8 million represents our proportionate share of special
items from Telesector Resources. These items consisted of the following:
. Revenue reductions consisted of approximately $50 million for federal
regulatory matters. These matters relate to specific issues that are
currently under investigation by federal regulatory commissions. We
believe that it is probable that the ultimate resolution of these
pending matters will result in refunds to our customers.
F-11
<PAGE>
New York Telephone Company
. Charges to operating expenses totaled approximately $76 million,
including $35 million for legal contingencies. These contingencies
were accounted for under the rules of SFAS No. 5 "Accounting for
Contingencies." These charges also included approximately $41 million
for other post-merger initiatives.
The following table provides a reconciliation of the liabilities associated
with merger-related costs and other charges and special items described above:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
1997 1998
-------------------------------------------------------------------------------------------------------
Charged to
Beginning Expense or End of End of
of Year Revenue Deductions Adjustments Year Deductions Adjustments Year
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Merger-Related:
Direct incremental costs $ --- $ 1.6 $ (1.6)a $--- $ --- $ --- $ --- $ ---
Severance obligation --- 57.4 --- 3.0 60.4 (1.7)a 9.2 67.9
Other Initiatives:
Write-down of fixed
assets and real
estate consolidation --- 146.8 (136.9)b --- 9.9 --- --- 9.9
Regulatory and legal
contingencies and
other special items --- 118.7 (24.3)b --- 94.4 (17.7)c (3.0) 73.7
-------------------------------------------------------------------------------------------------------
$ --- $324.5 $(162.8) $3.0 $164.7 $(19.4) $ 6.2 $151.5
-------------------------------------------------------------------------------------------------------
<CAPTION>
(DOLLARS IN MILLIONS)
1999
------------------------------------
End of
Deductions Adjustments Year
------------------------------------
<S> <C> <C> <C>
Merger-Related:
Direct incremental costs $ --- $ --- $ ---
Severance obligation (1.1)a (5.8) 61.0
Other Initiatives:
Write-down of fixed
assets and real
estate consolidation (2.1)b (7.8) ---
Regulatory and legal
contingencies and
other special items (4.9)d --- 68.8
------------------------------------
$(8.1) $(13.6) $129.8
------------------------------------
</TABLE>
. Adjustments refer to deductions to the liability that reduced expense, or
additions to the liability that increased expense resulting from changes in
circumstances or experience in implementing the planned activities.
. Deductions refer to the utilization of the liability through payments,
asset write-offs, or refunds to customers.
a - primarily comprised of cash payments
b - primarily comprised of asset write-offs
c - primarily comprised of refunds to customers
d - comprised of cash payments of $3.3 million and asset write-offs of
$1.6 million
Liabilities for regulatory and legal contingencies and other special items
will be utilized as the respective matter is settled. The obligation for
severance benefits, which has been determined under SFAS No. 112, represents
expected payments to employees who leave the company with benefits provided
under pre-existing separation pay plans. The severance obligation is adjusted
through annual costs, which are actuarially determined based upon financial
market interest rates, experience, and management's best estimate of future
benefit payments. At December 31, 1999, the merger-related separations were
completed and the remaining balance represents our obligation for ongoing
separations under the pre-existing separation pay plans, in accordance with SFAS
No. 112.
3. PROPOSED BELL ATLANTIC - GTE MERGER
Bell Atlantic and GTE Corporation (GTE) have announced a proposed merger of
equals under a definitive merger agreement dated as of July 27, 1998. Under the
terms of the agreement, GTE shareholders will receive 1.22 shares of Bell
Atlantic common stock for each share of GTE common stock that they own. Bell
Atlantic shareholders will continue to own their existing shares after the
merger.
It is expected that the merger will qualify as a pooling of interests,
which means that for accounting and financial reporting purposes the companies
will be treated as if they had always been combined. At annual meetings held in
May 1999, the shareholders of each company approved the merger. The completion
of the merger is subject to a number of conditions, including certain regulatory
approvals (all of which have been obtained except that of the Federal
Communications Commission) and receipt of opinions that the merger will be
tax-free.
The companies are targeting completion of the merger in the second quarter
of 2000.
F-12
<PAGE>
New York Telephone Company
4. PLANT, PROPERTY AND EQUIPMENT
The following table displays the details of plant, property and equipment,
which is stated at cost:
<TABLE>
<CAPTION>
December 31
-------------------------------------
(Dollars in Millions) 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 107.4 $ 71.8
Buildings 2,155.9 2,044.5
Central office equipment 9,580.7 9,142.4
Outside communications plant 9,751.2 9,184.8
Furniture, vehicles and other work equipment 1,412.7 1,387.9
Other 457.4 418.9
Construction-in-progress 642.7 382.6
------------------------------------
24,108.0 22,632.9
Accumulated depreciation 13,570.6 (12,748.6)
------------------------------------
Total $10,537.4 $ 9,884.3
====================================
</TABLE>
5. LEASES
We lease certain facilities and equipment for use in our operations under
both capital and operating leases. Total rent expense amounted to $82.5 million
in 1999, $88.8 million in 1998 and $106.1 million in 1997. We incurred no
initial capital lease obligations in 1999, 1998 and 1997.
Capital lease amounts included in plant, property and equipment are as
follows:
<TABLE>
<CAPTION>
December 31
--------------------------------
(Dollars in Millions) 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital leases $45.0 $112.2
Accumulated amortization (31.4) (56.1)
--------------------------------
Total $13.6 $ 56.1
================================
</TABLE>
This table displays the aggregate minimum rental commitments under
noncancelable leases for the periods shown at December 31, 1999.
<TABLE>
<CAPTION>
(Dollars in Millions)
Years Capital Leases Operating Leases
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 5.4 $ 22.6
2001 5.3 20.0
2002 1.2 13.1
2003 .7 11.4
2004 .6 10.5
Thereafter 6.8 36.0
-----------------------------------
Total minimum rental commitments 20.0 $113.6
==============
Less interest and executory costs 9.0
-------------
Present value of minimum lease payments 11.0
Less current installments 2.9
-------------
Long-term obligation at December 31, 1999 $ 8.1
=============
</TABLE>
F-13
<PAGE>
New York Telephone Company
6. DEBT
Debt Maturing Within One Year
Debt maturing within one year consists of the following at December 31:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to affiliate (BAAS) $1,961.6 $ ---
Note payable to affiliate (BANFC) --- .3
Note payable to affiliate (NYNEX) --- 1,586.3
Long-term debt maturing within one year 72.9 2.7
-------------------------------
Total debt maturing within one year $2,034.5 $1,589.3
===============================
Weighted average interest rate for note payable outstanding at year-end 6.1% 4.9%
===============================
</TABLE>
Beginning in 1999, we obtain short-term financing through advances from an
affiliated company, Bell Atlantic Administrative Services, Inc. (BAAS). Prior to
1999, we had an agreement with NYNEX for the provision of short-term financing
and cash management services. We also have a contractual agreement with another
affiliated company, Bell Atlantic Network Funding Corporation (BANFC), for the
provision of short-term financing and cash management services. BANFC issues
commercial paper and obtains bank loans to fund the working capital requirements
of Bell Atlantic's network services subsidiaries, including us, and invests
funds in temporary investments on their behalf. At December 31, 1999, we had
$50.0 million of an unused line of credit with BANFC.
Long-Term Debt
Long-term debt consists of debentures, refunding mortgage bonds and notes
that we have issued. Interest rates and maturities of the amounts outstanding
are as follows at December 31:
<TABLE>
<CAPTION>
Interest
Description Rate Maturity 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Twelve year debenture 6 1/2% 2005 $ 200.0 $ 200.0
Ten year debenture 6 2008 250.0 250.0
Twelve year debenture 6 1/8 2010 250.0 250.0
Twenty-one year debenture 8 5/8 2010 150.0 150.0
Twenty year debenture 7 2013 100.0 100.0
Twenty year debenture 7 2013 100.0 100.0
Thirty year debenture 7 5/8 2023 100.0 100.0
Thirty year debenture 6.70 2023 250.0 250.0
Thirty year debenture 7 1/4 2024 450.0 450.0
Thirty-two year debenture 7 2025 250.0 250.0
Thirty year debenture 6 1/2 2028 100.0 100.0
Forty year debenture 9 3/8 2031 167.9 200.0
Forty year debenture 7 2033 200.0 200.0
Thirty-seven year refunding mortgage bond, Series N 4 1/4 2000 70.0 70.0
Forty year refunding mortgage bond, Series M 4 5/8 2002 60.0 60.0
Forty year refunding mortgage bond, Series O 4 5/8 2004 130.0 130.0
Forty year refunding mortgage bond, Series P 4 7/8 2006 100.0 100.0
Forty year refunding mortgage bond, Series Q 6 2007 75.0 75.0
Forty year refunding mortgage bond, Series V 7 3/8 2011 200.0 200.0
Ten year note payable 5 7/8 2003 200.0 200.0
Ten year note payable 5 5/8 2003 150.0 150.0
Ten year note payable 6 1/4 2004 150.0 150.0
----------------------------
3,702.9 3,735.0
Unamortized discount and premium, net (24.0) (26.7)
Capital lease obligations - average rate 8.7% and 13.1% 11.0 49.4
----------------------------
Total long-term debt, including current maturities 3,689.8 3,757.7
Less maturing within one year 72.9 2.7
----------------------------
Total long-term debt $3,617.0 $3,755.0
============================
</TABLE>
F-14
<PAGE>
New York Telephone Company
At December 31, 1999, all of our outstanding refunding mortgage bonds,
totaling $635.0 million, are callable. The call prices range from 101.72% to
100.0% of face value, depending upon the remaining term to maturity of the
issue. Substantially all of our assets are subject to lien under the Refunding
Mortgage Bond indenture.
During 1999, we recorded extraordinary charges associated with the early
extinguishment of long-term debt. These charges reduced net income by $2.7
million (net of an income tax benefit of $1.5 million). These extinguishments
consisted of the following:
. In April 1999, we repurchased $2.5 million of 9.375% debentures, due
on July 15, 2031.
. In May 1999, we repurchased $29.6 million of 9.375% debentures, due on
July 15, 2031
During 1998, we recorded extraordinary charges that reduced net income by
$7.5 million (net of an income tax benefit of $4.0 million) associated with
early extinguishments of long-term debt. These extinguishments, and subsequent
issuances of debt, consisted of the following:
. In January 1998, we issued $250.0 million of 6.125% debentures due on
January 15, 2010. The proceeds of this issuance were used in February
1998 to redeem $200.0 million of 7.75% refunding mortgage bonds due in
2006.
. In April 1998, we issued $250.0 million of 6.0% debentures due on
April 15, 2008 and $100.0 million of 6.5% debentures due on April 15,
2028. The proceeds of these issuances were used in May 1998 to redeem
$200.0 million of 7.875% debentures due in 2017 and $150.0 million of
7.5% refunding mortgage bonds due in 2009.
7. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk
consist primarily of short-term investments and 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. We generated
revenues from services provided to AT&T (primarily network access and billing
and collection) of $604.4 million in 1999, $754.7 million in 1998 and $908.7
million in 1997.
Fair Value of Financial Instruments
The table below provides additional information about our material
financial instruments at December 31:
<TABLE>
<CAPTION>
Financial Instrument Valuation Method
------------------------------------------------------ -------------------------------------------------------------
<S> <C>
Notes payable to affiliates (BAAS, BANFC and NYNEX) Carrying amounts
and short-term investments
Debt (excluding capital leases) Market quotes for similar terms and maturities or future cash
flows discounted at current rates
<CAPTION>
1999 1998
--------------------------------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Debt $5,640.5 $5,406.4 $5,294.9 $5,549.9
</TABLE>
F-15
<PAGE>
New York Telephone Company
8. COMPREHENSIVE INCOME
Comprehensive income consists of net income and other gains and losses
affecting shareowner's investment that, under generally accepted accounting
principles, are excluded from net income.
The change in other comprehensive loss, net of an income tax benefit, is as
follows:
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------
(Dollars in Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other comprehensive loss:
Minimum pension liability adjustment (net of income tax benefit of $0, $1.1
and $0) $(.1) $(2.0) $ ---
-------------------------------------
$(.1) $(2.0) $ ---
======================================
</TABLE>
Accumulated other comprehensive loss is comprised of the following:
<TABLE>
<CAPTION>
December 31
------------------------------
(Dollars in Millions) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated other comprehensive loss:
Minimum pension liability adjustment $(2.1) $ (2.0)
------------------------------
$(2.1) $ (2.0)
==============================
</TABLE>
9. STOCK INCENTIVE PLANS
We participate in stock-based compensation plans sponsored by Bell
Atlantic. Bell Atlantic applies APB Opinion No. 25 and related interpretations
in accounting for the plans and has adopted the disclosure-only provisions of
SFAS No. 123. If Bell Atlantic had elected to recognize compensation expense
based on the fair value at the grant dates for 1997 and subsequent awards
consistent with the provisions of SFAS No. 123, our net income would have been
changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $882.4 $307.5 $430.0
Pro forma 858.4 293.1 409.5
</TABLE>
These results may not be representative of the effects on pro forma net
income for future years.
The pro forma net income amounts were determined using the Black-Scholes
option-pricing model based on the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 3.98% 4.59% 4.86%
Expected volatility 21.51% 18.63% 14.87%
Risk-free interest rate 4.82% 5.55% 6.35%
Expected lives (in years) 5 5 5
</TABLE>
The weighted average value of options granted was $9.60 per option during
1999, $6.47 per option during 1998 and $4.30 per option during 1997.
The NYNEX stock options outstanding and exercisable at the date of the
merger were converted to Bell Atlantic stock options using the exchange ratio of
0.768 shares of Bell Atlantic common stock to one share of NYNEX common stock.
F-16
<PAGE>
New York Telephone Company
10. EMPLOYEE BENEFITS
We participate in the Bell Atlantic benefit plans. Bell Atlantic maintains
noncontributory defined benefit pension plans for substantially all management
and associate employees, as well as postretirement healthcare and life insurance
plans for our retirees and their dependents. Bell Atlantic also sponsors savings
plans to provide opportunities for eligible employees to save for retirement on
a tax-deferred basis and to encourage employees to acquire and maintain an
equity interest in Bell Atlantic.
In 1998, following the completion of the merger with NYNEX, the assets of
the Bell Atlantic and NYNEX pension and savings plans were commingled in a
master trust, and effective January 1, 1998, Bell Atlantic established common
pension and savings plan benefit provisions for all management employees.
The structure of Bell Atlantic's benefit plans does not provide for the
separate determination of certain disclosures for our company. The required
information is provided on a consolidated basis in Bell Atlantic's Annual Report
on Form 10-K for the year ended December 31, 1999. What follows are our benefit
costs and obligations for 1999, 1998 and 1997. The disclosures in 1997 reflect
the historic benefit plans and actuarial assumptions in effect during those
years, as shown in the tables below.
Pension and Other Postretirement Benefits
Substantive commitments for future plan amendments are reflected in the
pension costs and benefit obligations. Pension and other postretirement benefits
for our associate employees are subject to collective bargaining agreements.
Modifications in associate benefits have been bargained from time to time, and
Bell Atlantic may also periodically amend the benefits in the management plans.
As a result of the merger of Bell Atlantic and NYNEX, we recorded
conforming adjustments for the immediate recognition of the postretirement
transition benefit obligation as if the merger had occurred as of the beginning
of the earliest period presented. In our historical financial statements prior
to the merger, we amortized the transition obligation over a twenty-year period.
The following table summarizes our benefit costs for 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Years ended December 31
Pension Healthcare and Life
------------------------------------------------------------------
(Dollars in Millions) 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net periodic (income) benefit cost $(209.0) $(170.7) $(140.4) $155.3 $139.9 $173.4
------------------------------------------------------------------
Special termination benefits --- 733.7 258.7 --- 27.3 19.9
Curtailment (gain)loss (including recognition of
prior service cost) --- (97.8) (85.2) --- 80.7 46.5
Release of severance and postretirement medical
Reserves --- (31.8) (30.2) --- (44.8) (38.8)
------------------------------------------------------------------
Retirement incentive cost, net --- 604.1 143.3 --- 63.2 27.6
Total (income) benefit cost $(209.0) $ 433.4 $ 2.9 $155.3 $203.1 $201.0
</TABLE>
Above table does not include costs allocated from Telesector Resources. See
"Retirement Incentives" section for additional information.
Amounts recognized on the balance sheets consist of:
<TABLE>
<CAPTION>
December 31
Pension Healthcare and Life
-----------------------------------------------------------------------
(Dollars in Millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee benefit obligations $(1,289.6) $(1,475.4) $(1,968.6) $(2,023.1)
Other assets 2.5 2.2 --- ---
Accumulated other comprehensive loss 3.2 3.1 --- ---
</TABLE>
The changes in benefit obligations from year to year were caused by a
number of factors, including changes in actuarial assumptions (see Assumptions),
plan amendments and special termination benefits.
F-17
<PAGE>
New York Telephone Company
Assumptions
The actuarial assumptions used 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 benefit
costs and obligations. The weighted-average assumptions used in determining
expense and benefit obligations are as follows:
<TABLE>
<CAPTION>
Pension Healthcare and Life
---------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate at end of year 8.00% 7.00% 7.25% 8.00% 7.00% 7.25%
Long-term rate of return on plan assets for the year 9.00 8.90 8.90 9.00 8.90 8.40
Rate of future increases in compensation at end of year 4.00 4.00 4.00 4.20 4.00 4.00
Medical cost trend rate at end of year 5.50 6.00 6.50
Ultimate (year 2001) 5.00 5.00 5.00
Dental cost trend rate at end of year 3.50 3.50 3.50
Ultimate (year 2002) 3.00 3.00 3.00
</TABLE>
Retirement Incentives
In 1993, we recorded costs totaling $630.9 million (pre-tax) for severance
and postretirement medical benefits under an involuntary force reduction plan,
of which $74.1 million was our allocated portion of Telesector Resources' cost
for its force reduction plan. Beginning in 1994, retirement incentives were
offered as a voluntary means of implementing substantially all of the work force
reductions announced in 1993.
Since the inception of the retirement incentive program, we have recorded
additional costs totaling $1,882.4 million (pre-tax) through December 31, 1998.
The retirement incentive costs included amounts charged to us by Telesector
Resources for an allocated portion of the employees who left Telesector
Resources under the retirement incentive program. The Company's allocated
portion of Telesector Resources' costs were $33.1 million in 1998, $87.4 million
in 1997, $14.4 million in 1996, $82.5 million in 1995 and $57.4 million in 1994.
As of December 31, 1998, employees who left the business under the retirement
incentive program totaled 16,117, consisting of 5,475 management and 10,642
associate employees (including 2,433 management and 535 associate employees of
Telesector Resources). These additional costs and the corresponding number of
employees accepting the retirement incentive offer for each year are as follows:
(Dollars in Millions)
Year Amount Employees
- --------------------------------------------------------------------------------
1994 $ 523.4 4,802
1995 304.0 2,551
1996 87.8 1,295
1997 262.9 2,314
1998 704.3 5,155
--------------------------------------------
$1,882.4 16,117
============================================
The retirement incentive costs paid for our employees are included in
Employee Costs and the allocated costs from Telesector Resources are included in
Other Operating Expenses on our consolidated statements of income. The accrued
liability related to our employees is a component of the Employee Benefit
Obligations and the accrued liability related to our allocated portion of
Telesector Resources' employees is a component of Accounts payable and accrued
liabilities - Affiliates reported on our consolidated balance sheets. The
additional costs were comprised of special termination pension and
postretirement benefit amounts, as well as employee costs for other items. These
costs were reduced by severance and postretirement medical benefit reserves
established in 1993 and transferred to offset the pension and postretirement
benefit liabilities as employees accepted the retirement incentive offer. The
retirement incentive program covering management employees ended on March 31,
1997 and the program covering associate employees was completed in September
1998.
The following table provides the amounts transferred from the 1993 reserve
balance to pension and postretirement benefits (OPEB) liabilities:
(Dollars in Millions)
Years Severance OPEB Total
- --------------------------------------------------------------------------------
1994 $177.8 $113.4 $291.2
1995 40.4 35.9 76.3
1996 44.2 61.4 105.6
1997 33.7 43.5 77.2
1998 33.5 47.1 80.6
--------------------------------------------------------------
$329.6 $301.3 $630.9
==============================================================
F-18
<PAGE>
New York Telephone Company
The remaining severance and postretirement medical reserves balances
associated with the 1993 restructuring plan were as follows at December 31, 1997
and 1998:
(Dollars in Millions)
1997 1998
- --------------------------------------------------------------------------------
Beginning of year $157.8 $ 80.6
Utilization (77.2) (80.6)
-------------------------------
End of year $ 80.6 $ 0
===============================
Savings Plans and Employee Stock Ownership Plans
Substantially all of our employees are eligible to participate in savings
plans maintained by Bell Atlantic. Bell Atlantic maintains a leveraged employee
stock ownership plan (ESOP) for its management employees of the former NYNEX
companies. Under this plan, a certain percentage of eligible employee
contributions are matched with shares of Bell Atlantic common stock. At the date
of the merger, NYNEX common stock outstanding was converted to Bell Atlantic
shares using an exchange ratio of 0.768 of a share of Bell Atlantic common stock
to one share of NYNEX common stock. Bell Atlantic recognizes leveraged ESOP cost
based on the shares allocated method for this leveraged ESOP that held shares
after December 31, 1989. We recognize ESOP cost based on our matching obligation
attributable to our participating employees. We recorded savings plan costs for
management employees of $19.8 million in 1999, $16.7 million in 1998 and $11.6
million in 1997. In addition to the ESOP, Bell Atlantic maintains savings plans
for our associate employees. Compensation expense associated with these savings
plans was $57.2 million in 1999, $44.6 million in 1998 and $43.7 million in
1997.
11. INCOME TAXES
The components of income tax expense are presented in the following table:
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------------
(Dollars in Millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $316.1 $ 313.5 $120.6
State and local 2.4 4.8 4.0
-------------------------------------------
318.5 318.3 124.6
-------------------------------------------
Deferred:
Federal 141.2 (160.6) 96.4
State and local 1.3 (3.5) (.3)
-------------------------------------------
142.5 (164.1) 96.1
-------------------------------------------
461.0 154.2 220.7
Investment tax credits (8.9) (10.3) (13.1)
-------------------------------------------
Total income tax expense $452.1 $ 143.9 $207.6
===========================================
</TABLE>
The following table shows the principal reasons for the difference between
the effective income tax rate and the statutory federal income tax rate:
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Investment tax credits (.4) (1.4) (1.4)
State income taxes, net of federal tax benefits .2 .2 .4
Other, net (1.0) (2.4) (1.4)
-------------------------------------------
Effective income tax rate 33.8% 31.4% 32.6%
===========================================
</TABLE>
F-19
<PAGE>
New York Telephone Company
Deferred taxes arise because of differences in the book and tax bases of
certain assets and liabilities. Significant components of deferred tax (assets)
liabilities are shown in the following table:
<TABLE>
<CAPTION>
December 31
-----------------------------------
(Dollars in Millions) 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Employee benefits $(1,340.0) $(1,310.4)
Investment tax credits (26.7) (30.0)
Other (199.8) (94.7)
-----------------------------------
$(1,566.6) (1,435.1)
-----------------------------------
Deferred tax liabilities:
Depreciation 1,019.0 877.0
Other 211.5 79.8
-----------------------------------
1,230.5 956.8
-----------------------------------
Net deferred tax (asset) $ (336.1) $ (478.3)
===================================
</TABLE>
Deferred tax assets include approximately $752 million at December 31, 1999
and $746 million at December 31, 1998 related to postretirement benefit costs
recognized under SFAS No. 106. This deferred tax asset will gradually be
realized over the estimated lives of current retirees and employees.
12. ADDITIONAL FINANCIAL INFORMATION
The tables below provide additional financial information related to our
consolidated financial statements:
<TABLE>
<CAPTION>
December 31
-----------------------------------
(Dollars in Millions) 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEETS:
Accounts payable and accrued liabilities:
Accounts payable - affiliates $ 1,155.8 $ 1,195.8
Accounts payable - other 858.8 793.6
Accrued vacation pay 171.1 178.8
Accrued taxes 59.6 42.0
Accrued expenses 36.5 24.3
Interest payable - other 74.9 86.6
Interest payable - affiliate --- ---
-----------------------------------
$ 2,356.7 $ 2,321.1
===================================
Other current liabilities:
Advance billings and customer deposits $ 199.3 $ 180.2
Deferred income taxes 133.9 102.8
-----------------------------------
$ 333.2 $ 283.0
===================================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------------
(Dollars in Millions) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS:
Cash paid during the year for:
Income taxes, net of amounts refunded $290.8 $252.0 $280.0
Interest, net of amounts capitalized 296.5 335.2 313.2
STATEMENTS OF INCOME:
Interest expense incurred, net of amounts capitalized 310.5 343.8 332.1
Capitalized interest 28.8 24.0 21.6
Advertising expense 31.6 45.8 57.4
</TABLE>
Interest paid during the year includes $43.3 million in 1999, $47.5 million
in 1998 and $46.2 million in 1997 related to short-term financing services
provided by NYNEX. Interest paid during the year also includes $.5 million in
1999 and $.3 million in 1998 related to short-term financing services provided
by Bell Atlantic Network Funding Corporation. In 1999, interest paid during the
year also includes $19.6 million related to short-term financing services
provided by Bell Atlantic Administrative Services, Inc. (see Note 6).
F-20
<PAGE>
New York Telephone Company
Advertising expense includes $28.2 million in 1999, $44.0 million in 1998
and $57.4 million in 1997 allocated to us by Telesector Resources. Advertising
expense also includes $2.6 million in 1999 and $1.2 million in 1998 allocated to
us by Bell Atlantic Network Services, Inc.
At December 31, 1999 and 1998, $74.9 million and $65.1 million of bank
overdrafts were classified as accounts payable.
13. COMMITMENTS AND CONTINGENCIES
Various legal actions and regulatory proceedings are pending to which we
are a party. We have established reserves for specific liabilities in connection
with regulatory and legal matters which we currently deem to be probable and
estimable. We do not expect that the ultimate resolution of pending regulatory
and legal matters in future periods will have a material effect on our financial
condition, but could have a material effect on our results of operations.
We deferred revenues 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 also deferred revenues for a 1994 service improvement
plan obligation. These deferred revenues are included in Accounts Payable and
Accrued Liabilities and Deferred Credits and Other Liabilities - Other on our
consolidated balance sheet. We are permitted to recognize these deferred
revenues as commitments are met or obligations are satisfied under the plans. If
we are unable to meet certain commitments, the NYSPSC has the authority to
require us to rebate the deferred revenues to customers. A summary of the
deferred revenues related to the plans is shown below as of December 31:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 48.8 $56.3 $ 95.0
Transferred via PSC order 1.8 --- ---
Amounts utilized for rebates --- --- (16.5)
Amounts reversed into revenues (15.2) (7.5) (22.2)
-----------------------------------------
Balance at end of year $ 35.4 $48.8 $ 56.3
=========================================
</TABLE>
The Incentive Plan also established annual service quality targets with
stringent rebate provisions if we are unable to meet some or all of the targets.
Each year, our performance results are reviewed and a determination is made
regarding the requirement for rebates to our customers. If targets are met, any
liabilities are reversed and recognized in revenues. Each year is defined as a
plan year, with Plan Year 1 being the year ended August 31, 1996 and continuing
through Plan Year 5, which is the year ended August 31, 2000. The amounts below
represent the cumulative totals for Plan Years 1 to 5. This liability has been
included in Accounts Payable and Accrued Liabilities and Deferred Credits and
Other Liabilities - Other on our consolidated balance sheet. A summary of the
liabilities related to this portion of the Incentive Plan is shown below as of
December 31:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 11.9 $ 7.8 $ 47.3
Additional amounts accrued 25.1 18.4 21.0
Transferred via PSC order (1.8) --- ---
Amounts utilized for rebates (8.6) (2.5) (60.5)
Amounts reversed into revenues (11.5) (11.8) ---
-----------------------------------------
Balance at end of year $ 15.1 $ 11.9 $ 7.8
=========================================
</TABLE>
Of the remaining liability balance at December 31, 1999, $12.8 million is
related to Plan Year 5 and $2.3 is related to Plan Year 4.
Several state and federal regulatory matters may require us to refund a
portion of the revenues collected in the current and prior periods. The outcome
of each pending matter, as well as the time frame within which each will be
resolved, is not presently determinable.
F-21
<PAGE>
New York Telephone Company
14. TRANSACTIONS WITH AFFILIATES
Our financial statements include transactions with Telesector Resources,
NYNEX, Bell Atlantic Network Services, Inc. (NSI), Bell Atlantic Network Funding
Corporation (BANFC), Bell Atlantic Administrative Services, Inc. (BAAS) and
various other affiliates.
We have contractual arrangements with Telesector Resources, NSI and NYNEX
for the provision of various centralized services. Telesector Resources
principally provides network related services which generally benefit only the
operating telephone subsidiaries, including us. These services include
marketing, legal and accounting, finance, data processing, and materials
management for various network operations. Costs may be either directly assigned
to one subsidiary or allocated to more than one subsidiary based on
identification of detailed work functions. We were also allocated a portion of
Telesector Resources retirement incentive program costs (see Note 10).
NSI services are divided into two broad categories. The first category is
comprised of network related services which generally benefit only Bell
Atlantic's operating telephone subsidiaries. These services include marketing,
sales, legal, accounting, finance, data processing, materials management,
procurement, labor relations, and staff support for various network operations.
The second category is comprised of overhead and support services which
generally benefit all subsidiaries of Bell Atlantic. Such services include
corporate governance, corporate finance, external affairs, legal, media
relations, employee communications, corporate advertising, human resources, and
treasury. Costs may be either directly assigned to one subsidiary or allocated
to more than one subsidiary based on functional reviews of the work performed.
NYNEX principally provided overhead and support services which generally
benefit the operating telephone companies as well as other subsidiaries. These
services include corporate governance, corporate finance, external affairs,
legal, media relations, employee communications, corporate advertising, human
resources, and treasury. Costs may be either directly assigned to one subsidiary
or allocated to more than one subsidiary based on work studies performed to
identify on whose behalf services are being performed. The costs of certain
functions which are performed on behalf of all subsidiaries are allocated to
those subsidiaries based on their relative size. On January 1, 1999, all NYNEX
employees and their associated functions were transferred to NSI, Telesector
Resources and Bell Atlantic.
We receive technical and support services from Bell Communications
Research, Inc. (Bellcore), a company previously owned jointly by the regional
holding companies. In 1997, Bell Atlantic and the other Bellcore owners sold
their jointly owned investment in Bellcore. We continue to contract with
Bellcore (now known as Telcordia Technologies, Inc.) for technical and support
services. The costs of these services were billed to us separately through
Telesector Resources until July 1998 and are now billed through NSI.
We recognize interest expense/income in connection with contractual
arrangements with NYNEX, BAAS and BANFC to provide short-term financing,
investing and cash management services to us (see Note 6).
Operating revenues include fees earned from Yellow Pages for the use of the
Company's name in soliciting directory advertising and in publishing and
distributing directories. These revenues are earned under an agreement whereby
Yellow Pages must pay all of its earnings related to directory publishing in New
York which are in excess of a regulated rate of return. Other operating revenues
and expenses include miscellaneous items of income and expense resulting from
transactions with other affiliates, primarily rental of facilities and
equipment.
We record income under the equity method of accounting from our investment
in Telesector Resources. We also paid cash distributions of additional paid-in
capital to our parent company, NYNEX.
On June 1, 1999, Bell Atlantic Full Services Channel, Inc., an affiliate,
sold its ownership interest in SMS/800 to us and the other operating telephone
companies of Bell Atlantic at its fair value in accordance with a Federal
Communications Commission order. SMS/800 is a venture jointly held by the Bell
Operating Companies that administers the centralized national database system
associated with toll free numbers. We paid $345,651 to receive a 6.79% ownership
interest in SMS/800. Our ownership percentage has increased to 8.49% as a result
of the merger of SBC Communications, Inc. and Ameritech Corporation. In
connection with our investment, we record equity income and receive cash
dividends.
F-22
<PAGE>
New York Telephone Company
Transactions with affiliates are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------
(Dollars in Millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues:
Yellow Pages directory revenues $ 185.7 $ 145.0 $ 148.4
Other revenue from affiliates 144.7 102.3 86.9
-----------------------------------------
330.4 247.3 235.3
-----------------------------------------
Operating expenses:
Telesector Resources 973.0 1,177.4 1,381.3
NSI 347.2 149.9 ---
NYNEX (.8) 22.0 27.4
Bellcore --- --- 28.2
Other 3.7 6.1 6.2
-----------------------------------------
1,323.1 1,355.4 1,443.1
-----------------------------------------
Other income:
Equity income from Telesector Resources 38.2 31.4 36.0
Equity income from SMS/800 2.0 --- ---
Interest income from NYNEX .2 .1 .5
Interest income from BANFC 2.4 .1 ---
-----------------------------------------
42.8 31.6 36.5
-----------------------------------------
Interest expense:
Interest expense to NYNEX 37.9 48.1 46.2
Interest expense to BAAS 28.0 --- ---
Interest expense to BANFC .5 .3 ---
-----------------------------------------
66.4 48.4 46.2
-----------------------------------------
Distributions of additional paid-in capital to NYNEX 248.0 649.3 487.4
Dividends received from Telesector Resources 51.3 42.9 16.5
Dividends received from SMS/800 2.0 --- ---
</TABLE>
Outstanding balances with affiliates are reported on the Balance Sheets at
December 31, 1999 and 1998 as Note Receivable from Affiliate, Accounts
Receivable - Affiliates, Notes Payable to Affiliates, and Accounts Payable and
Accrued Liabilities - Affiliates.
On November 23, 1999, we declared a dividend in the amount of $62.0 million
from Additional Paid-in-Capital. The dividend was paid to NYNEX on February 1,
2000.
15. SEGMENT INFORMATION
We have one reportable segment, which provides domestic wireline
telecommunications services. Specifically, we provide local telephone services
including voice and data transport, enhanced and custom calling features,
network access, directory assistance, private lines and public telephones. In
addition, we provide customer premises equipment distribution and billing and
collection services. We have four strategic business units (consumer,
enterprise, general and network services) supporting our operations that have
been aggregated into one reportable segment.
F-23
<PAGE>
New York Telephone Company
16. QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
Income (Loss)
Before
Operating Operating Extraordinary
Quarter Ended Revenues Income (Loss) Item Net Income
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions)
<S> <C> <C> <C> <C>
1999:
March 31 $2,047.6 $ 414.8 $ 227.5 $ 227.5
June 30 2,158.3 489.8 281.0 278.3
September 30 2,097.9 302.0 187.1 187.1
December 31 2,120.2 349.8 189.5 189.5
--------------------------------------------------------------------------------
Total $8,424.0 $1,556.4 $ 885.1 $ 882.4
================================================================================
1998:
March 31 $2,011.8 $ 380.6 $ 202.0 $ 200.5
June 30 2,151.9 464.1 244.0 238.0
September 30 2,025.9 (405.9) (306.2) (306.2)
December 31 2,080.3 328.8 175.2 175.2
--------------------------------------------------------------------------------
Total $8,269.9 $ 767.6 $ 315.0 $ 307.5
================================================================================
</TABLE>
F-24
<PAGE>
New York Telephone Company
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in Millions)
<TABLE>
<CAPTION>
Additions
----------------------------------
Balance at Charged to
Beginning of Charged to Other Accounts Deductions Balance at End
Description Period Expenses Note(a) Note (b) of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Uncollectible
Accounts Receivable:
Year 1999 $169.2 $116.1 $196.6 $350.3 $131.6
Year 1998 $184.9 $112.1 $216.8 $344.6 $169.2
Year 1997 $166.9 $122.5 $256.5 $361.0 $184.9
Restructuring Reserves:
Year 1999 $ --- $ --- $ --- $ --- $ ---
Year 1998 $ 80.6 $ --- $ --- $ 80.6 $ ---
Year 1997 $160.8 $ --- $ --- $ 80.2 $ 80.6
</TABLE>
(a) (1) Allowance for Uncollectible Accounts Receivable includes amounts
previously written off which were credited directly to this account when
recovered, and (2) accruals charged to accounts payable for anticipated
uncollectible charges on purchases of accounts receivable from others which
we billed.
(b) Amounts written off as uncollectible or transferred to other accounts or
utilized.
F-25
<PAGE>
EXHIBITS
FILED WITH ANNUAL REPORT FORM 10-K
UNDER THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
New York Telephone Company
COMMISSION FILE NUMBER 1-3435
<PAGE>
Form 10-K for 1999
File No. 1-3435
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.
(3) Exhibits
Exhibits identified in parentheses below, on file with the
Securities and Exchange Commission (SEC), are incorporated
herein by reference as exhibits hereto.
3a Certificate of Incorporation of New York Telephone Company,
as amended and restated December 2, 1987 (Exhibit No. 3(a)
to the registrant's filing on Form SE dated March 24, 1988,
File No. 1-3435).
3b By-Laws of the registrant, as amended April 22, 1987
(Exhibit No. 3(b) to the registrant's filing on Form SE
dated March 24, 1988, File No. 1-3435).
4 No instrument which defines the rights of holders of
long-term debt of the registrant and its subsidiary 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.
10(ii)(B) Service agreement concerning provision by Telesector
Resources Group, Inc. to the registrant of numerous
services, including (i) purchasing, materials handling,
inspection, distribution, storage and similar services and
(ii) technical, regulatory, government relations, marketing
operational support and similar services, dated March 31,
1992 (Exhibit No. 19(I)1 to the registrant's filing on Form
SE dated March 23, 1993, File No. 1-3435).
23 Consent of Independent Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (File No. 333-45779) of New York Telephone Company of our
report dated February 14, 2000 relating to the consolidated financial statements
and financial statement schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 28, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ Richard L. Carrion
------------------------------
Richard L. Carrion
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ Lodewijk J.R. de Vink
------------------------------
Lodewijk J.R. de Vink
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ Stanley P. Goldstein
------------------------------
Stanley P. Goldstein
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ Helene L. Kaplan
------------------------------
Helene L. Kaplan
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ Elizabeth T. Kennan
------------------------------
Elizabeth T. Kennan
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ John F. Maypole
------------------------------
John F. Maypole
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ Joseph Neubauer
------------------------------
Joseph Neubauer
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ Hugh B. Price
------------------------------
Hugh B. Price
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ Ivan G. Seidenberg
------------------------------
Ivan G. Seidenberg
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ Walter V. Shipley
------------------------------
Walter V. Shipley
<PAGE>
POWER OF ATTORNEY
WHEREAS, NEW YORK TELEPHONE COMPANY, a New York corporation
(hereinafter referred to as the "Company"), proposes to file 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 for the fiscal year ended
December 31, 1999.
NOW, THEREFORE, the undersigned hereby appoints each of Ivan G.
Seidenberg and Edwin F. Hall as attorney for the undersigned for the purpose of
executing and filing such Annual Report and any amendment or amendments or other
necessary documents, hereby giving to each said attorney full authority to
perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 28th day of March, 2000.
/s/ John R. Stafford
------------------------------
John R. Stafford
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 415
<SECURITIES> 0
<RECEIVABLES> 1,688
<ALLOWANCES> 132
<INVENTORY> 105
<CURRENT-ASSETS> 2,691
<PP&E> 24,108
<DEPRECIATION> 13,571
<TOTAL-ASSETS> 14,097
<CURRENT-LIABILITIES> 4,724
<BONDS> 3,617
0
0
<COMMON> 1
<OTHER-SE> 2,030
<TOTAL-LIABILITY-AND-EQUITY> 14,097
<SALES> 0
<TOTAL-REVENUES> 8,424
<CGS> 0
<TOTAL-COSTS> 6,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311
<INCOME-PRETAX> 1,337
<INCOME-TAX> 452
<INCOME-CONTINUING> 885
<DISCONTINUED> 0
<EXTRAORDINARY> (3)
<CHANGES> 0
<NET-INCOME> 882
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
