Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
- ---
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
- ---
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-8608
NYNEX CORPORATION
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 13-3180909
1095 Avenue of the Americas, New York, New York 10036
Telephone Number (212) 395-2121
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 ___.
---
At October 31, 1996, 439,989,478 common shares were outstanding.
<PAGE>
Form 10-Q Part I Part I - FINANCIAL INFORMATION
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions, except per share amounts) (Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
For the Period Ending September 30, 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Local services $1,695.7 $1,694.0 $5,038.9 $5,036.0
Long distance 274.0 261.0 812.1 774.4
Network access 935.6 869.6 2,715.0 2,658.6
Other 518.4 428.2 1,557.5 1,633.6
-------- -------- -------- --------
Total operating revenues 3,423.7 3,252.8 10,123.5 10,102.6
-------- -------- -------- --------
OPERATING EXPENSES
Maintenance and support 852.4 780.5 2,474.6 2,290.3
Depreciation and amortization 611.3 622.9 1,891.4 1,935.6
Marketing and customer services 357.6 359.8 1,055.5 1,041.4
Taxes other than income 229.3 206.0 670.6 711.5
Selling, general and administrative 435.5 500.4 1,585.5 1,930.1
Other 181.7 155.3 547.8 596.1
-------- --------- -------- --------
Total operating expenses 2,667.8 2,624.9 8,225.4 8,505.0
-------- --------- -------- --------
Operating income 755.9 627.9 1,898.1 1,597.6
Gain on sale of stock
by subsidiary - - - 264.1
Other income (expense) - net (25.4) 77.7 (32.6) 20.1
Interest expense 155.3 194.0 476.8 577.0
Income (loss) from long-term investments 49.8 37.8 135.7 48.3
-------- --------- --------- -------
Earnings before income taxes, extraordinary
item and cumulative effect of change
in accounting principle 625.0 549.4 1,524.4 1,353.1
Income taxes
Federal 199.2 174.1 473.3 385.0
State, local and other 31.3 32.4 84.8 134.2
-------- --------- -------- --------
Total income taxes 230.5 206.5 558.1 519.2
-------- --------- -------- --------
Earnings before extraordinary item and
cumulative effect of change in
accounting principle 394.5 342.9 966.3 833.9
Extraordinary item for the discontinuance
of regulatory accounting principles,
net of taxes - - - (2,919.4)
Cumulative effect of change in accounting
for directory publishing income, net
of taxes (Note(b)) - - 131.0 -
-------- --------- -------- ---------
NET INCOME (LOSS) $ 394.5 $ 342.9 $ 1,097.3 $(2,085.5)
======== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Continued)
(In millions, except per share amounts) (Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
For the Period Ending September 30, 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per share before extraordinary item
and cumulative effect of change in
accounting principle $ .90 $ .80 $ 2.22 $ 1.96
Extraordinary item per share - - - (6.86)
Cumulative effect, per share, of change
in accounting principle - - .30 -
-------- -------- -------- --------
Earnings (loss) per share $ .90 $ .80 $ 2.52 $ (4.90)
-------- -------- -------- --------
Weighted average number of shares
outstanding 439.0 428.1 436.3 425.9
-------- -------- -------- --------
Dividends declared per share $ .59 $ .59 $ 1.77 $ 1.77
-------- -------- -------- --------
Retained earnings (Accumulated deficit)
Beginning of period $ 195.6 $ (457.0) $ - 2,208.2
Net income (loss) 394.5 342.9 1,097.3 (2,085.5)
Dividends declared* (259.2) - (774.9) (251.0)
Other 9.4 (6.2) 17.9 8.0
-------- -------- -------- --------
End of period $ 340.3 $ (120.3) $ 340.3 $ (120.3)
======== ========= ======== ========
</TABLE>
* The second and third quarter 1995 dividends were declared out of Additional
paid-in capital.
See accompanying notes to consolidated financial statements.
3
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions) (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 94.2 $ 93.2
Receivables (net of allowance of $249.0
and $221.6, respectively) 2,972.6 2,636.2
Inventories 187.8 141.3
Prepaid expenses 324.2 360.2
Deferred charges and other current assets 342.8 450.2
--------- ---------
Total current assets 3,921.6 3,681.1
--------- ---------
Property, plant and equipment - at cost 36,836.1 35,734.6
Less: accumulated depreciation (19,725.5) (18,679.3)
--------- ---------
17,110.6 17,055.3
--------- ---------
Long-term investments 3,647.0 3,286.2
Deferred charges and other assets 2,030.8 1,873.3
--------- ---------
Total Assets $26,710.0 $25,895.9
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,618.9 $ 2,902.2
Short-term debt 433.1 506.6
Other current liabilities 392.1 577.4
--------- ---------
Total current liabilities 3,444.1 3,986.2
--------- ---------
Long-term debt 9,195.5 9,336.9
Deferred income taxes 1,373.4 1,332.4
Unamortized investment tax credits 175.6 198.8
Other long-term liabilities and deferred credits 4,070.4 3,885.0
Minority interest, including a portion subject to
redemption requirements (Note (d)) 1,679.7 1,077.4
Commitments and contingencies (Notes (c), (f) and (g))
Stockholders' equity:
Preferred stock - $1 par value - -
shares authorized: 70,000,000
shares issued: None
Preferred stock - Series A Junior Participating - -
- $1 par value
shares authorized: 5,000,000
shares issued: None
Common stock - $1 par value 454.5 447.2
shares authorized: 750,000,000
shares issued:
at September 30, 1996 - 454,458,352
at December 31, 1995 - 447,174,181
Additional paid-in capital * 6,894.7 6,566.9
Retained earnings 340.3 -
Treasury stock 14,766,318 and 14,756,356 shares,
respectively, at cost) (591.5) (591.1)
Deferred compensation - LESOP Trust (326.7) (343.8)
--------- ---------
Total stockholders' equity 6,771.3 6,079.2
--------- ---------
Total Liabilities and Stockholders' Equity $26,710.0 $25,895.9
========= =========
</TABLE>
* The second and third quarter 1995 dividends were declared out of Additional
paid-in capital.
See accompanying notes to consolidated financial statements.
4
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,097.3 $(2,085.5)
---------- ---------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Extraordinary item, net of taxes - 2,919.4
Depreciation and amortization 1,891.4 1,935.6
Amortization of unearned lease income-net (72.2) (68.3)
Deferred income taxes - net 21.9 18.6
Deferred tax credits - net (33.6) (27.9)
Gain on sale of stock by subsidiary - (264.1)
Changes in operating assets and liabilities:
Receivables (336.6) (64.4)
Inventories (46.5) 25.3
Prepaid expenses 36.0 (158.0)
Deferred charges and other current assets 107.4 (48.7)
Accounts payable (287.3) 75.1
Other current liabilities (185.3) (11.9)
Other-net 68.0 287.0
-------- ---------
Total adjustments 1,163.2 4,617.7
-------- ---------
Net cash provided by operating activities 2,260.5 2,532.2
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,901.3) (2,125.3)
Investment in leased assets (97.1) (171.3)
Cash received from leasing activities 85.3 72.7
Other investing activities-net (231.6) (384.9)
-------- ---------
Net cash used in investing activities (2,144.7) (2,608.8)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of commercial paper and short-term debt 16,733.9 9,900.6
Repayment of commercial paper and short-term debt (16,864.0) (9,916.1)
Issuance of long-term debt 49.9 134.5
Repayment of long-term debt and capital leases (144.2) (120.4)
Issuance of common stock 234.7 120.2
Dividends paid (691.9) (672.4)
Minority interest 566.8 12.6
Proceeds from sale of stock by subsidiary, net - 610.3
-------- ---------
Net cash (used in) provided by financing activities (114.8) 69.3
--------- ---------
Net increase (decrease) in Cash and temporary
cash investments 1.0 (7.3)
Cash and temporary cash investments at
beginning of period 93.2 137.5
-------- ---------
Cash and temporary cash investments at
end of period $ 94.2 $ 130.2
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) BASIS OF PRESENTATION - The consolidated financial statements have been
prepared by NYNEX Corporation ("NYNEX") pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC") and, in the opinion of
Management, include all adjustments necessary for a fair presentation of the
financial information for each period shown. Certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such SEC rules and regulations. Management believes that the
disclosures made are adequate to make the information presented not misleading.
Certain information in the consolidated financial statements for 1995 has been
reclassified to conform to the current year's presentation. The results for
interim periods are not necessarily indicative of the results for the full year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto incorporated by reference in
NYNEX's 1995 Annual Report on Form 10-K and the current year's previously issued
Quarterly Reports on Form 10-Q. In the second quarter of 1995, NYNEX
discontinued using generally accepted accounting principles applicable to
regulated entities for the operations of New York Telephone Company and New
England Telephone and Telegraph Company (collectively, the "telephone
subsidiaries") as disclosed in the NYNEX 1995 Annual Report on Form 10-K.
(b) CHANGE IN ACCOUNTING PRINCIPLE - Effective January 1, 1996, NYNEX
Information Resources Company ("Information Resources"), a wholly owned
subsidiary of NYNEX, changed the recognition of its directory publishing revenue
and production expenses from the "amortized" method to the "point of
publication" method. Under the point of publication method, revenues and product
expenses will be recognized when the directories are published rather than over
the lives of the directories (generally one year) as was the case under the
amortized method. NYNEX believes the change to the point of publication method
is preferable because it is the method that is generally followed by publishing
companies and reflects more precisely the operations of the business. The
initial effect of the change to the point of publication method is reported as a
cumulative effect of a change in accounting principle which resulted in a
one-time, non-cash after-tax gain of $131.0 million, or $.30 per share, in the
first quarter of 1996. The impact of applying the point of publication method
during the three months and the nine months ended September 30, 1996 resulted in
a $1.2 million, or $.00 per share and a $25.8 million, or $.05 per share
increase to net income, respectively.
6
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pro forma results, assuming the point of publication method had been applied
during the third quarter and first nine months of 1995, are as follows:
<TABLE>
<CAPTION>
(In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
Pro forma As Reported Pro forma As Reported
<S> <C> <C> <C> <C>
Net Income (Loss) $ 346.3 $ 342.9 $(2,062.9) $(2,085.5)
Earnings (Loss) Per Share $.81 $ .80 $(4.84) $(4.90)
</TABLE>
(c) FINANCIAL COMMITMENTS AND GUARANTEES - As of December 31, 1995, New York
Telephone Company ("New York Telephone"), a wholly-owned subsidiary of NYNEX,
had deferred $188 million of revenues ($161 million under a New York State
Public Service Commission ("NYSPSC") approved regulatory plan associated with
commitments for fair competition, universal service, service quality and
infrastructure improvements, and $27 million for a service improvement plan
obligation). These deferred revenues will be recognized as commitments are met
or obligations are satisfied under the plans. If New York Telephone is unable to
meet certain of these commitments, the NYSPSC has the authority to require New
York Telephone to rebate these revenues to its customers. During the first nine
months of 1996, $43 million of the deferred revenues were recognized in
connection with intraLATA presubscription ("ILP") and other commitments that
were met in 1996 and $50 million of the deferred revenues were utilized for
rebates issued to customers for not meeting service commitments in prior
periods. As of September 30, 1996, $95 million of revenues remained deferred.
The Incentive Plan approved by the NYSPSC in 1995 (as disclosed in NYNEX's
1995 Annual Report) establishes service quality targets with stringent rebate
provisions if New York Telephone is unable to meet some or all of the targets.
In November the NYSPSC announced its decision that, based on service performance
results for Plan Year 1, which ended August 31, 1996, New York Telephone will be
required to issue rebates to customers in the aggregate amount of at least $62
million, approximately $14 million of which has been already issued and $32
million of which has already been accrued. The NYSPSC staff is reviewing New
York Telephone's claims of miscalculation of certain service performance data
related to approximately $10 million in additional rebates.
(d) MINORITY INTEREST - Consistent with the terms and conditions of the December
1995 non-recourse securitization transaction (as disclosed in the 1995 Annual
Report), during March 1996, NYNEX monetized its investment in Viacom Inc.
("Viacom") Series B Cumulative Preferred Stock by an additional $500 million. As
a result, NYNEX has monetized a total of $600 million which represents
approximately 50% of NYNEX's investment in Viacom. The additional $500 million
of proceeds from this transaction were used to further reduce outstanding
commercial paper. These additional proceeds received by Kipling Associates
L.L.C. (a 50% owned and controlled NYNEX subsidiary) from Mandalay Investors
L.L.C. ("Mandalay") (a third-party owned and controlled entity) are reflected in
"Minority Interest, including a portion subject to redemption requirements."
7
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(e) SUPPLEMENTAL CASH FLOW INFORMATION - The following information is provided
in accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows":
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
(In millions) 1996 1995
---- ----
<S> <C> <C>
Income tax payments - net $ 420.0 $365.2
Interest payments $ 461.1 $448.9
Non-cash transactions:
Additions to property, plant, and equipment
under capital lease obligations - $ .1
Contribution of certain cellular net assets in
exchange for an equity investment in
Bell Atlantic NYNEX Mobile cellular
partnership - $593.5
Common Stock issued for Dividend Reinvestment and
Stock Purchase Plan and stock compensation plans $ 84.1 $ 83.7
Commercial paper borrowings classified as
Long-term debt $1,807.8 -
</TABLE>
(f) REVENUES SUBJECT TO POSSIBLE REFUND - Several state and federal regulatory
matters may possibly require the telephone subsidiaries to refund a portion of
the revenues collected in the current and prior periods. As of September 30,
1996, the aggregate amount of such revenues that was estimated to be subject to
possible refund was approximately $354 million, plus related interest, of which
approximately $273 million is attributable to affiliate transaction issues in
New York Telephone's 1990 intrastate rate case. In July of 1996, New York
Telephone filed with the NYSPSC a joint stipulation and settlement agreement on
behalf of New York Telephone, the NYSPSC staff, the New York State Consumer
Protection Board and the New York State Department of Law. The agreement
provides for a refund of $83 million by New York Telephone, with no other
revenues subject to refund, and resolves all pending issues, as well as certain
portions of the proceeding instituted in 1992 to review New York Telephone's
Directory License Agreement with Information Resources. The agreement is subject
to approval by the NYSPSC. The outcome of each pending matter, as well as the
time frame within which each will be resolved, is not presently determinable.
(g) LITIGATION AND OTHER CONTINGENCIES - Various legal actions and regulatory
proceedings are pending that may affect NYNEX. While counsel cannot give
assurance as to the outcome of any of these matters, in the opinion of
Management based upon the advice of counsel, the ultimate resolution of these
matters in future periods is not expected to have a material effect on NYNEX's
financial position but could have a material effect on operating results.
8
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(h) NYNEX AND BELL ATLANTIC CORPORATION MERGER - On July 2, 1996, NYNEX and
Bell Atlantic Corporation ("Bell Atlantic") executed an amendment to their
definitive merger agreement (the "Merger"), effecting a technical change in the
transaction structure of the Merger of equals announced on April 22, 1996. As
amended, the agreement provides that a newly formed subsidiary of Bell Atlantic
will merge with and into NYNEX, thereby making NYNEX a wholly owned subsidiary
of Bell Atlantic. There is no change in the fundamental elements of the proposed
Merger. The exchange ratio for shares is restated to reflect the difference in
the transaction. Each NYNEX shareholder will receive 0.768 shares of Bell
Atlantic common stock in exchange for one share of NYNEX common stock. The
purpose of the amendment to the Merger agreement is to expedite the regulatory
approval process by eliminating the need to obtain congressional approval of the
Merger under a 1913 District of Columbia "anti-merger" law. The Merger, which is
expected to qualify as a pooling of interests for accounting purposes, is
subject to a number of conditions, including regulatory approvals, the approval
of the shareholders of both NYNEX and Bell Atlantic and receipt of opinions that
the Merger will be tax free, except, in the case of NYNEX shareholders, for tax
payable because of cash received for a fractional share and the payment by NYNEX
of certain transfer taxes on behalf of its shareholders. The transaction is
expected to close by April 1997. A Special Meeting of Share Owners of NYNEX was
held on November 6, 1996. At the meeting NYNEX announced preliminary voting
results, indicating that proxies representing approximately 76 percent of the
outstanding shares had been returned, of which 96.4 percent voted to approve the
Merger.
(i) SUBSEQUENT EVENT - On October 22, 1996 Cable & Wireless plc, NYNEX and Bell
Canada International Inc. announced an agreement to form a new company, Cable &
Wireless Communications ("C&W Communications"), to merge the operations, and
ultimately hold 100 percent ownership, of their United Kingdom subsidiaries and
affiliates: Mercury Communications Limited, NYNEX Cablecomms Group PLC and NYNEX
Cablecomms Group, Inc., Bell Cablemedia plc and Videotron Holdings Plc. Upon
completion of all transactions, which are subject to certain pre-conditions,
NYNEX will own 18.5 percent of the fully diluted share capital of C&W
Communications.
9
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income
Net income for the three months and nine months ended September 30, 1996 was
$394.5 million, or $.90 per share, and $1.1 billion, or $2.52 per share,
respectively. Net income (loss) for the three months and nine months ended
September 30, 1995 was $342.9 million, or $.80 per share, and $(2.1) billion, or
$(4.90) per share, respectively.
Net income for the third quarter of 1996 includes an after-tax gain of $5.9
million or $.01 per share resulting from revised charges related to customer
claims as a result of favorable negotiations with interexchange carriers and a
charge of $13.9 million, or $.03 per share, for pension enhancements. Net income
for the third quarter of 1995 included an after-tax gain of $67.4 million, or
$.16 per share, as a result of the formation of the Bell Atlantic NYNEX Mobile
cellular partnership, and after-tax charges of $91.3 million, or $.22 per share,
for accruals related to various self insurance programs, legal and regulatory
contingencies, operating tax provisions, revised benefit charges and pension
enhancements.
Excluding the above items, net income for the third quarter of 1996 would have
been $402.5 million, or $.92 per share, an improvement of $35.7 million, or
9.7%, over adjusted net income for the third quarter of 1995.
THIRD QUARTER OF 1996 AS COMPARED TO THIRD QUARTER 1995
Operating revenues
Operating revenues for the third quarter of 1996 were $3.4 billion, an
improvement of $170.9 million, or 5.3%, from the third quarter of 1995.
Included in operating revenues for the third quarter of 1996 was a $9 million
increase resulting from revised charges related to customer claims as a result
of favorable negotiations with interexchange carriers. Included in operating
revenues for the third quarter of 1995 was a net reversal of $23.7 million
(($3.5) million intrastate and $27.2 million interstate) of revenues collected
on behalf of the taxing authority from interexchange carriers associated with
gross receipts tax. (New York Telephone is no longer required to collect gross
receipts tax from interexchange carriers and to remit to the taxing authority.)
Excluding the item discussed above, operating revenues would have improved
$138.2 million, or 4.2%, over adjusted operating revenues for the third quarter
of 1995. Revenues from New York Telephone, New England Telephone ("New England
Telephone") and Telesector Resources Group, Inc. ("Telesector Resources")
(collectively, the "telecommunications group") would have improved by 2.7% to
$3.1 billion. Revenues from NYNEX's other subsidiaries (the "nontelephone
subsidiaries") improved 19.7% to $355.5 million.
10
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The adjusted operating revenue improvement of $138.2 million, or 4.2%, includes
the following categories:
Local service revenues improved $5.2 million, or .3%. The $5.2 million increase
results primarily from the net of (i) a $42 million increase resulting primarily
from increased demand, driven by growth in access lines and sales of calling
features and (ii) $23 million in rate reductions primarily in New York and
Massachusetts and a $14 million decrease due to service rebates paid to
customers pursuant to an NYSPSC-approved performance-based regulatory plan (the
"Plan"). Certain decreases, primarily due to customer selection of competing
carriers as a result of intraLATA presubscription ("ILP") are being partially
offset by increases in network access revenues, the effects of which are
expected to continue. Certain substantial increases due to marketing-based
competitive responses, primarily Optional Calling Plans ("OCPs"), are included
in long distance revenues.
Long distance revenues improved $13.0 million, or 5.0%. The $13.0 million
improvement results primarily from the net of (i) a $20 million increase
primarily due to increased demand for message toll service, resulting from the
previously mentioned OCPs, and (ii) $7 million in rate reductions in Maine, New
York, Massachusetts and New Hampshire. Certain decreases primarily due to ILP,
are being partially offset by increases in network access revenues.
Network access revenues improved $29.8 million, or 3.3%. The $29.8 million
improvement results primarily from the net of (i) a $65 million increase
primarily due to increased demand, including the previously mentioned shift from
local and long distance revenues, and (ii) a $28 million reduction in interstate
rates and a $7 million reduction in intrastate rates primarily in New York.
Other revenues improved $90.2 million, or 21.1%. At the telecommunications
group, the $31.7 million improvement in other revenues results primarily from
the net of (i) the recognition of $22 million previously deferred revenues in
connection with Plan commitments that were met in 1996, an $8 million increase
in revenues from increased demand for voice messaging services and other
miscellaneous customer services and (ii) a $4 million decrease due to the
reduction of revenues for anticipated service rebate obligations under the Plan.
At the nontelephone subsidiaries, the $58.5 million improvement in other
revenues results primarily from a $30 million increase in publishing revenues
resulting from the change in the recognition of directory publishing revenues
(see Cumulative effect of change in accounting principle), changes in
publication dates, and growth in traditional publishing markets, and a $24
million improvement in revenues due to significant increases in cable
television/telephone customers and telecommunications lines in the United
Kingdom.
11
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating expenses
Operating expenses for the third quarter of 1996 were $2.7 billion, an increase
of $42.9 million, or 1.6%, from the third quarter of 1995.
Included in operating expenses for the third quarter of 1996 were pension
enhancement charges of $21.9 million. Included in operating expenses for the
third quarter of 1995 were charges of $39.0 million for accruals related to
various self insurance programs, legal and regulatory contingencies, operating
tax provisions and revised benefit charges, pension enhancement charges of $38.0
million, and a net reversal of $23.7 million of gross receipts tax collected and
remitted to the taxing authority (see Operating revenues).
Excluding the items discussed above, operating expenses would have increased
$74.3 million, or 2.9%, over adjusted operating expenses for the third quarter
of 1995. Telecommunications group operating expenses would have increased $30.9
million, or 1.3% and the nontelephone subsidiaries' operating expenses would
have increased $43.4 million, or 17.3%.
At the telecommunications group, the $30.9 million adjusted increase results
primarily from the net of (i) a $22 million increase to implement the
competitive checklist provisions of the Telecommunications Act of 1996, (the
"Act") the effects of which are expected to continue (see REGULATORY ENVIRONMENT
- - Federal), a $35 million increase in wages primarily due to additional labor
costs attributable to initiatives to improve service quality, and (ii) a $19
million decrease in benefit expenses primarily due to changes in accruals for
benefit assumptions and reductions in the work force attributable to the force
reduction program and a net $15 million decrease in depreciation due to revised
estimates of future net salvage value and remaining useful lives, partially
offset by growth in depreciable plant investment. At the nontelephone
subsidiaries, the $43.4 million adjusted increase results primarily from an
increase in publishing expenses resulting from the change in the recognition of
directory production expenses (see Cumulative effect of change in accounting
principle), changes in publication dates and growth in traditional publishing
markets and significant increases in cable television/telephone customers and
telecommunications lines in the United Kingdom.
The components of the pension enhancement charges for the third quarter of 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
(In millions) 1996* 1995*
---- ----
Pretax After-Tax Pretax After-Tax
<S> <C> <C> <C> <C>
Pension enhancement charges $ 19.4 $ 12.3 $ 80.6 $ 50.7
Postretirement medical costs 2.5 1.6 (42.6) (27.0)
------ ------ ------ ------
$ 21.9 $ 13.9 $ 38.0 $ 23.7
====== ====== ====== ======
</TABLE>
* 1996 - 160 management and 180 nonmanagement employees
1995 - 410 management and 470 nonmanagement employees
12
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating income
Operating income for the third quarter of 1996 was $755.9 million, an
improvement of $128.0 million, or 20.4% over the third quarter of 1995.
Operating income, after adjusting for the items discussed above in Operating
revenues and Operating expenses, would have been $768.8 million, an improvement
of $63.9 million, or 9.1%, over adjusted operating income for the third quarter
of 1995. Operating margin for the third quarter of 1996 would have improved 1.0
percentage points to 22.5 from 21.5 adjusted. This improvement resulted from
improved productivity as adjusted expense growth of 2.9% was outpaced by
adjusted revenue growth of 4.2%.
Other income (expense) - net
Other income (expense) - net for the third quarter of 1996 decreased $103.1
million from the third quarter of 1995. The $103.1 million decrease results
primarily from a $70 million gain in 1995 on the sale of cellular properties in
connection with the formation of the Bell Atlantic NYNEX Mobile ("BANM")
cellular partnership, a $14 million increase in minority interest expense
primarily as a result of NYNEX's investment in Mandalay, and an $8 million
decrease in other income at the telephone subsidiaries.
Interest expense
Interest expense for the third quarter of 1996 decreased $38.7 million, or
19.9%, from the third quarter of 1995, primarily due to a $10 million
increase in capitalized interest expense at the nontelephone subsidiaries, a
$9 million decrease in capitalized interest expense at the telephone
subsidiaries, and a $9 million decrease due to interest expense on corporate
owned life insurance borrowings in 1995. In addition, there was a $3 million
decrease due to total debt decreasing from $9.8 billion at the end of the
third quarter of 1995 to $9.6 billion at the end of the third quarter 1996
while average interest rates remained essentially flat at 7.0%.
Income (loss) from long-term investments
Income (loss) from long-term investments for the third quarter of 1996 improved
$12.0 million, or 31.7%, over the third quarter of 1995. The $12.0 million
improvement results primarily from the net of (i) equity income from the BANM
cellular partnership and (ii) losses from investments in PrimeCo Personal
Communications, L.P. ("PrimeCo").
13
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income taxes
Income taxes for the third quarter of 1996 increased $24.0 million, or 11.6%,
over the third quarter of 1995 primarily attributable to an increase in pretax
income.
FIRST NINE MONTHS OF 1996 AS COMPARED TO FIRST NINE MONTHS OF 1995
Operating revenues
Operating revenues for the nine months ended September 30, 1996 were $10.1
billion, an increase of $20.9 million from the first nine months of 1995.
Included in operating revenues for the first nine months of 1996 were charges of
$55.0 million related to customer claims which were subsequently revised to
$41.0 million as a result of favorable negotiations with interexchange carriers
and a $14.0 million refund ordered by the NYSPSC pertaining to intrastate gross
receipts tax collected by New York Telephone in 1995 on behalf of interexchange
carriers. Included in operating revenues for the first nine months of 1995 were
revenues of NYNEX Mobile Communications Company ("NYNEX Mobile"), which was
deconsolidated as a result of the BANM cellular partnership formed on July 1,
1995, amounting to $399.8 million and $10.5 million of intrastate revenues
collected on behalf of the taxing authority from interexchange carriers
associated with gross receipts tax. (New York Telephone is no longer required to
collect gross receipts tax from interexchange carriers and to remit to the
taxing authority.)
Excluding the items discussed above, operating revenues would have improved
$486.2 million, or 5.0%, over adjusted operating revenues for the first nine
months of 1995. Revenues from the telecommunications group would have improved
by 3.4% to $9.1 billion. Revenues from the nontelephone subsidiaries would have
improved 21.3% to $1.1 billion.
The adjusted operating revenue improvement of $486.2 million, or 5.0%, includes
the following categories:
Local service revenues improved $27.4 million, or .5%. The $27.4 million
improvement results primarily from the net of (i) a $164 million increase
resulting primarily from increased demand, driven by growth in access lines and
sales of calling features, and (ii) $73 million in rate reductions primarily in
New York and Massachusetts, a $50 million decrease resulting from the
reclassification of the reduction of revenues due to obligations pursuant to a
service improvement plan implemented in 1994, from Other revenues to Local
service revenues (see Other revenues) and a $14 million decrease due to service
rebates to customers in 1996 pursuant to the Plan. Certain decreases, primarily
due to customer selection of competing carriers as a result of ILP are being
partially offset by increases in Network access revenues, the
14
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
effects of which are expected to continue. Certain substantial increases due to
marketing-based competitive responses, primarily OCPs, are included in long
distance revenues.
Long distance revenues improved $37.7 million, or 4.9%. The $37.7 million
improvement results primarily from the net of (i) a $65 million increase
primarily due to increased demand for message toll service, resulting from the
previously mentioned OCPs, and (ii) $27 million in rate reductions in Maine, New
York, Massachusetts and New Hampshire. Certain decreases, primarily due to ILP,
are being partially offset by increases in network access revenues.
Network access revenues improved $97.4 million, or 3.7%. The $97.4 million
improvement results primarily from the net of (i) a $187 million increase
primarily due to increased demand, including the previously mentioned shift from
local and long distance revenues, and (ii) a $68 million reduction in interstate
rates and a $22 million reduction in intrastate rates.
Other revenues improved $323.7 million, or 26.2%. At the telecommunications
group, the $134.2 million improvement in other revenues results primarily from
the net of (i) a $50 million increase resulting from the reclassification of the
reduction of revenues from Other revenues to Local service revenues (see Local
service revenues), a net $44 million increase due to the 1995 cessation of
"setting aside" revenues and the recognition of previously "set aside" revenues
as a result of an NYSPSC order approving the Plan effective the second quarter
of 1995, the recognition of $43 million previously deferred revenues in
connection with ILP and other Plan commitments that were met in 1996, a $14
million increase in revenues from increased demand for voice messaging services
and other miscellaneous customer services, a $9 million increase due to the
elimination of the deferral of intrastate revenues as a result of the
discontinuance of regulatory accounting principles and (ii) a $30 million
decrease due to the reduction of revenues for anticipated service rebate
obligations under the Plan. At the nontelephone subsidiaries, the $189.5 million
improvement in other revenues results primarily from a $118 million increase in
publishing revenues resulting from the change in the recognition of directory
publishing revenues (see Cumulative effect of change in accounting principle),
changes in publication dates and growth in traditional publishing markets, and a
$72 million improvement in revenues due to significant increases in cable
television/telephone customers and telecommunications lines in the United
Kingdom.
Operating expenses
Operating expenses for the first nine months of 1996 were $8.2 billion, a
decrease of $279.6 million, or 3.3%, from the first nine months of 1995.
Included in operating expenses for the first nine months of 1996 were pension
enhancement charges of $176.9 million, charges of $110.0 million related to
various self-insurance programs and legal and regulatory contingencies and a
15
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
$14.0 million intrastate gross receipts tax refund (see Operating revenues).
Included in operating expenses for the first nine months of 1995 were NYNEX
Mobile expenses amounting to $336.3 million, pension enhancement charges of
$287.7 million, charges of $237.9 million for accruals related to various
self-insurance programs, legal and regulatory contingencies, operating tax
provisions and revised benefit charges and $10.5 million of gross receipts tax
collected and remitted to the taxing authority (see Operating revenues).
Excluding the items discussed above, operating expenses would have increased
$319.9 million, or 4.2% over adjusted operating expenses for the first nine
months of 1995. Telecommunications group operating expenses would have increased
$160.0 million, or 2.3%, and the nontelephone subsidiaries' operating expenses
would have increased $159.9 million, or 22.0%.
At the telecommunications group, the $160.0 million adjusted increase results
primarily from the net of (i) a $103 million increase in wages primarily due to
additional labor costs attributable to initiatives to improve service quality, a
$61 million increase in contracted and centralized services due to process
re-engineering costs not accrued for in 1993 restructuring reserves, a $38
million increase in advertising and marketing costs, a $29 million increase
relating to the implementation of the competitive checklist provisions of the
Act, the effects of which are expected to continue (see REGULATORY ENVIRONMENT -
Federal) and (ii) a $30 million decrease in benefit expenses primarily due to
changes in accruals for benefit assumptions and reductions in the work force
attributable to the force reduction program and a net $13 million decrease in
depreciation due to revised estimates of future net salvage value and remaining
useful lives and the discontinuance of regulatory accounting principles in 1995,
partially offset by growth in depreciable plant investment. At the nontelephone
subsidiaries, the $159.9 million adjusted increase results primarily from an
increase in publishing expenses resulting from the change in the recognition of
directory production expenses (see Cumulative effect of change in accounting
principle), changes in publication dates and growth in traditional publishing
markets and significant increases in cable television/telephone customers and in
telecommunications lines in the United Kingdom.
The components of the pension enhancement charges for the first nine months of
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
(In millions) 1996* 1995*
---- ----
Pretax After-Tax Pretax After-Tax
<S> <C> <C> <C> <C>
Pension enhancement charges $156.9 $ 98.3 $265.3 $168.9
Postretirement medical costs 20.0 12.2 22.4 14.8
------ ------ ----- ------
$176.9 $110.5 $287.7 $183.7
====== ====== ====== ======
</TABLE>
* 1996 - 1,065 management and 1,035 nonmanagement employees
1995 - 1,565 management and 1,365 nonmanagement employees
16
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating income
Operating income for the first nine months of 1996 was $1,898.1 million, an
increase of $300.5 million, or 18.8%, over the same period of 1995.
Operating income, after adjusting for the items discussed above in Operating
revenues and Operating expenses, would have been $2,226.0 million, an
improvement of $166.3 million, or 8.1%, over adjusted operating income for the
first nine months of 1995. Operating margin for the first nine months of 1996
would have improved .6 of one percentage point to 21.9% from 21.3% adjusted.
This improvement was a result of adjusted expense growth of 4.2% being outpaced
by adjusted revenue growth of 5.0%.
Other income (expense) - net
Other income (expense) - net for the first nine months of 1996 decreased $52.7
million from the same period of 1995. The $52.7 million decrease results
primarily from the net of (i) a $66 million gain on the sale of NYNEX's interest
in Vanstar Corporation ("Vanstar"), $9 million of amortization of transaction
costs related to nontelephone subsidiary financing in June of 1995, and a $5
million increase due to a decrease in minority interest expense and (ii) a $70
million gain on the sale of cellular properties and $31 million of costs
associated with the formation of the BANM cellular partnership and a $31 million
decrease in income due to a change in the recording of capitalized interest
expense at the telephone subsidiaries (in 1996, capitalized interest expense is
recorded as a reduction to Interest expense).
Interest expense
Interest expense for the first nine months of 1996 decreased $100.2 million, or
17.4%, from the same period of 1995, primarily due to a $27 million decrease
resulting from a change in the recording of capitalized interest expense by
the telephone subsidiaries (see other income (expense)-net), a decrease of
$23 million due to an increase in capitalized interest expense at the
nontelephone subsidiaries, a $9 million increase due to interest expense on
corporate owned life insurance borrowings in 1995, and a $7 million decrease
resulting from the reversal of interest charges on the revenues "set aside"
as required by the NYSPSC in 1995. In addition, there was a $16 million
decrease due to total debt decreasing from $9.8 billion at the end of the
third quarter of 1995 to $9.6 billion at the end of the third quarter 1996
while average interest rates remained essentially flat at 7.0%.
17
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income (loss) from long-term investments
Income (loss) from long-term investments for the first nine months of 1996
improved $87.4 million over the same period of 1995. The $87.4 million
improvement results primarily from the net of (i) equity income from the BANM
cellular partnership and (ii) losses from investments in the Tele-TV
Partnerships and PrimeCo.
Income taxes
Income taxes for the first nine months of 1996 increased $38.9 million, or 7.5%,
over the same period of 1995 primarily attributable to an increase in pretax
income, partially offset by a decrease resulting from a $30 million provision
for various tax issues recorded in the third quarter of 1995.
Extraordinary Item
In the second quarter of 1995, the discontinuance of regulatory accounting
principles required NYNEX, for financial accounting purposes, to adjust
telephone plant and equipment and to eliminate non-plant regulatory assets and
liabilities from the balance sheet. This change resulted in an after-tax
extraordinary charge of $2.9 billion, consisting of $2.2 billion to adjust the
carrying amount of telephone plant and equipment and $0.7 billion to write off
non-plant regulatory assets and liabilities.
Cumulative effect of change in accounting principle
Effective January 1, 1996, Information Resources, a wholly owned subsidiary of
NYNEX, changed the recognition of its directory publishing revenue and
production expenses from the "amortized" method to the "point of publication"
method. Under the point of publication method, revenues and product expenses
will be recognized when the directories are published rather than over the lives
of the directories (generally one year) as was the case under the amortized
method. NYNEX believes the change to the point of publication method is
preferable because it is the method that is generally followed by publishing
companies and reflects more precisely the operations of the business. The
initial effect of the change to the point of publication method is reported as a
cumulative effect of a change in accounting principle which resulted in a
one-time, non-cash after-tax gain of $131.0 million, or $.30 per share, in the
first quarter of 1996. The impact of applying the point of publication method
during the three months and the nine months ended September 30, 1996 resulted in
a $1.2 million, or $.00 per share and a $25.8 million, or $.05 per share
increase to net income, respectively.
The pro forma results, assuming the point of publication method had been applied
during the third quarter and first nine months of 1995, are as follows:
18
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(In millions, except per share amounts)
Three Months Ended Six Months Ended
September 30, 1995 September 30, 1995
Pro forma As Reported Pro forma As Reported
<S> <C> <C> <C> <C>
Net Income (Loss) $346.3 $342.9 $(2,062.9) $(2,085.5)
Earnings (Loss) Per Share $0.81 $0.80 $(4.84) $(4.90)
</TABLE>
While the application of the point of publication method is not expected to have
a material impact on total 1996 and pro forma 1995 results, the impact of the
change is likely to materially effect the results of certain quarters due to the
nature of the change.
NYNEX AND BELL ATLANTIC CORPORATION MERGER
On July 2, 1996, NYNEX and Bell Atlantic executed an amendment to their
definitive Merger agreement, effecting a technical change in the transaction
structure of the Merger of equals announced on April 22, 1996. As amended, the
agreement provides that a newly formed subsidiary of Bell Atlantic will merge
with and into NYNEX, thereby making NYNEX a wholly owned subsidiary of Bell
Atlantic. There is no change in the fundamental elements of the proposed Merger.
The exchange ratio for shares is restated to reflect the difference in the
transaction. Each NYNEX shareholder will receive 0.768 shares of Bell Atlantic
common stock in exchange for one share of NYNEX common stock. The purpose of the
amendment to the Merger agreement is to expedite the regulatory approval process
by eliminating the need to obtain congressional approval of the Merger under a
1913 District of Columbia "anti-merger" law. The Merger, which is expected to
qualify as a pooling of interests for accounting purposes, is subject to a
number of conditions, including regulatory approvals, the approval of the
shareholders of both NYNEX and Bell Atlantic, and receipt of opinions that the
Merger will be tax free, except, in the case of NYNEX shareholders, for tax
payable because of cash received for a fractional share and the payment by NYNEX
of certain transfer taxes on behalf of its shareholders. The transaction is
expected to close by April 1997. A Special Meeting of Share Owners of NYNEX was
held on November 6, 1996. At the meeting NYNEX announced preliminary voting
results, indicating that proxies representing approximately 76 percent of the
outstanding shares had been returned, of which 96.4 percent voted to approve the
Merger.
It is expected that the new combined company will recognize recurring expense
savings of approximately $600 million annually by the third year following the
consummation of the Merger as a result of consolidating operating systems and
other administrative functions and reducing management positions. Of these
savings, $300 million is expected to be achieved in the first year following the
consummation of the Merger with an additional $150 million in each of the two
succeeding years. Annual capital expenditures for the new combined company
should reflect approximately $250 to $300 million of incremental purchasing
efficiencies. As a result of the Merger, the merged companies are expected to
incur certain transition and integration charges of
19
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
approximately $500 million in the first year following the consummation of the
Merger. An additional $200 to $400 million in charges are anticipated over the
two succeeding years. Information contained above with respect to the expected
financial impact of the proposed Merger is forward-looking. These statements
represent NYNEX's and Bell Atlantic's reasonable judgment with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially. Such factors include: materially adverse changes
in economic conditions in the markets served by NYNEX and Bell Atlantic;
substantial delay in the expected closing of the Merger; competition from others
in the local exchange and toll service markets; and the timing of entry and
profitability of the new combined company in the long distance and video
markets.
SUBSEQUENT EVENT
On October 22, 1996 Cable & Wireless plc, NYNEX and Bell Canada International
Inc. announced an agreement, to form a new company, Cable & Wireless
Communications ("C&W Communications"), to merge the operations, and ultimately
hold 100 percent ownership, of their United Kingdom subsidiaries and affiliates:
Mercury Communications Limited, NYNEX Cablecomms Group PLC and NYNEX Cablecomms
Group, Inc., Bell Cablemedia plc and Videotron Holdings Plc. Upon completion of
all transactions, which are subject to certain pre-conditions, NYNEX will own
18.5 percent of the fully diluted share capital of C&W Communications.
CURRENT STATUS OF RETIREMENT INCENTIVES
In July 1996, NYNEX extended the period for offering retirement incentives to
management employees to mid-1997 in order to better coordinate force sizing with
process re-engineering implementation and service improvement initiatives. It
was determined in 1995 that, due to volume of business growth, the expected
reduction in the number of nonmanagement employees would not be fully realized
until 1998. At the present time, NYNEX expects the total number of employees who
will elect to take the retirement incentives to be in the range of 19,000 to
20,000 consisting of approximately 9,000 management and 10,000 to 11,000
nonmanagement employees depending on work volumes, needs of the business, and
timing of the incentive offers. The increase of an estimated 2,000 additional
management employees expected to leave under the retirement incentives results
from higher than anticipated acceptances of the retirement incentives.
Due to the increase in management employees expected to accept the incentives,
NYNEX anticipates the total additional charges for the incentives to be in the
range of $2.2 billion ($1.4 billion after-tax), an increase over the $2.0
billion ($1.3 billion after-tax) estimated at December 31, 1995. As of September
30, 1996, the actual pretax additional charges for retirement
20
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
incentives recorded to date are $1,385 million and the expected future
additional pretax charges are approximately $700 to $900 million, consisting of
$350 million for management and in the range of $350 to $550 million for
nonmanagement employees.
CURRENT STATUS OF BUSINESS RESTRUCTURING
As a result of NYNEX's most recent experience and projections of remaining costs
and work effort for process re-engineering initiatives, systems development
costs are expected to exceed earlier projections by $24 million, while work
center consolidation and training costs are expected to be lower than originally
planned by approximately $19 million and $5 million, respectively.
Reserve Utilization in 1996
The restructuring reserve balance at September 30, 1996, which does not include
the liability for postretirement medical benefits associated with employees'
leaving NYNEX under the business restructuring, was approximately $207 million.
Summarized below are the components of $187 million of reserves utilized during
the first nine months of 1996:
<TABLE>
<CAPTION>
(In millions)
<S> <C> <C> <C>
Severance $ 70
Process Re-engineering:
Systems redesign:
Customer contact $34
Customer provisioning -
Customer operations 30
Customer support 2
---
Total systems redesign $ 66
Work center consolidation 2
Branding -
Relocation -
Training 5
Re-engineering implementation -
---
Total process re-engineering 73
Sale/discontinuance of information
products and services businesses 10
Nontelephone subsidiaries' restructuring 34
----
Total $187
====
</TABLE>
Cost Savings
Since the inception of process re-engineering and the special pension
enhancement program in 1994, approximately 14,100 employees have accepted the
retirement incentives. On an annualized basis, this will equate to an average
reduction in wages and benefits of approximately $761 million. A portion of
these cost savings will be offset by the effects of wage and price inflation,
growth in volume of business and higher costs attributable to service
improvements.
21
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Cash Flows
Operating activities: Net cash provided by operating activities was $2,260.5
million and $2,532.2 million for the first nine months of 1996 and 1995,
respectively, a decrease of $271.7 million. Changes in operating assets and
liabilities used $(712.3) million of cash flows in the first nine months of
1996, primarily as a result of increased accounts receivable and decreased
accounts payable. Costs associated with re-engineering activities reserved for
in 1993 resulted in cash outlays of approximately $45 million and $120 million
in the first nine months of 1996 and 1995, respectively. Pension enhancement
charges in the first nine months of 1996 and 1995 did not materially affect
operating cash flows because the cash outflows will be incurred primarily by the
NYNEX Pension Plans in future years.
Investing activities: Net cash used in investing activities was $2,144.7 million
and $2,608.8 million for the first nine months of 1996 and 1995, respectively, a
decrease of $464.1 million.
Capital expenditures were $1,901.3 million in the first nine months of 1996, a
decrease of $224.0 million, from the first nine months of 1995, primarily due to
the deconsolidation of NYNEX Mobile and decreased purchases of computer
equipment at Telesector Resources. The largest component of capital expenditures
continues to be for the telecommunications group which are funded through cash
generated from operations. Buildout of the cable television/telephone network in
the United Kingdom continued.
Other investing activities: In the first nine months of 1996, net cash outflows
from other investing activities were $153.3 million lower than the same period
of 1995. During the first nine months of 1996, cash outflows for additional
investments in PrimeCo, the Tele-TV Partnerships, FLAG Limited ("FLAG"), P.T.
Excelcomindo Pratama, and others were partially offset by cash received for the
sale of NYNEX's interest in Vanstar. During the same period of 1995, cash
outflows included the initial $264 million investment in PrimeCo, investments in
cellular properties and an additional investment in FLAG.
Financing activities: Net cash (used in) provided by financing activities was
$(114.8) million and $69.3 million for the first nine months of 1996 and 1995,
respectively, a decrease of $184.1 million. This decrease is primarily due to
the $610 million of proceeds from the sale of subsidiary stock in the second
quarter of 1995, partially offset by the proceeds from the monetization of a
portion of NYNEX's investment in Viacom Preferred Stock in 1996 (see Note (d))
which were used to reduce commercial paper.
22
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Total debt decreased $214.9 million from December 31, 1995. As a result, the
debt ratio decreased to 58.7% as of September 30, 1996, compared with 61.8% as
of December 31, 1995. On April 1, 1996, $55 million of New York Telephone's
3.375%, Series I Refunding Mortgage Bonds matured. Proceeds necessary to repay
these borrowings were raised through the issuance of commercial paper.
Issuance of common stock: During the first nine months of 1996, NYNEX continued
to issue common stock for employee savings plans, the Dividend Reinvestment and
Stock Purchase Plan ("DRISPP"), stock compensation plans and employee stock
option plans resulting in an increase in equity of approximately $318.8 million.
The dividends for common stock remained unchanged at $.59 per share in the third
quarter of 1996. Effective November 1, 1996, NYNEX resumed purchasing shares in
the open market for issuance in connection with employee stock option plans.
DRISPP and employee savings plans will also resume purchasing shares in the open
market to satisfy plan obligations.
Minority interest: Financing cash flows in the first nine months of 1996
included net funds of $485.1 million primarily provided by the Viacom
monetization proceeds (see below).
Liquidity
Viacom: Consistent with the terms and conditions of the December 1995
non-recourse securitization transaction (as disclosed in the 1995 Annual
Report), during March 1996, NYNEX monetized its investment in Viacom Series B
Cumulative Preferred Stock by an additional $500 million. As a result, NYNEX has
monetized a total of $600 million which represents approximately 50% of NYNEX's
investment in Viacom. The additional $500 million of proceeds from this
transaction were used to further reduce outstanding commercial paper. The
additional proceeds received by Kipling Associates L.L.C. (a 50% owned and
controlled NYNEX subsidiary) from Mandalay (a third-party owned and controlled
entity) are reflected in "Minority Interest, including a portion subject to
redemption requirements."
At September 30, 1996, NYNEX had $950 million of unissued, unsecured debt and
equity securities registered with the SEC. The proceeds from the sale of
securities would be used to provide funds to NYNEX for general corporate
purposes. At September 30, 1996, NYNEX Capital Funding Company ("CFC") had $637
million of unissued medium-term debt securities registered with the SEC and in
addition had established a US $1 billion Euro medium term note programme under
which no notes have yet been issued. In each case, when issued, the notes will
be guaranteed by NYNEX. The proceeds from the sale of these securities may be
used to provide financing for NYNEX and the nontelephone subsidiaries. At
September 30, 1996, New England Telephone and New York Telephone had $500 and
$250 million, respectively, of unissued, unsecured debt securities registered
with the SEC.
Following the announcement of the definitive Merger agreement between NYNEX and
Bell Atlantic, the credit rating agencies reaffirmed the current ratings
23
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
of NYNEX (including NYNEX Credit Company and CFC), New York Telephone and New
England Telephone and, in certain cases, negative outlooks were changed to
credit watch positive. Management believes that the bond ratings are indicative
of strong credit support for timely principal and interest payments in the
foreseeable future.
$1.8 billion of outstanding commercial paper borrowings was classified as
Long-term debt at September 30, 1996 under an unsecured revolving credit
facility. With this facility, NYNEX has the ability (and intent) to refinance
the commercial paper borrowings on a long-term basis. $350 million of New
England Telephone's Debentures are repayable on November 15, 1996, in whole or
in part, at the option of the holder, and as such are classified as Short-term
debt at September 30, 1996 and December 31, 1995. No options to elect repayment
were received and, therefore, the Debentures will be classified as Long-term
debt at December 31, 1996.
REGULATORY ENVIRONMENT
In response to regulatory filings made by NYNEX in July, state regulatory
commissions in Connecticut, Maine, New York and Vermont have indicated that they
have the authority to approve the Merger and have initiated proceedings. The New
Hampshire Public Utilities Commission ("NHPUC") has also initiated proceedings
to review the Merger. The Massachusetts Department of Public Utilities has
issued an order stating that it will review the Merger within the context of its
general supervisory authority over telephone operations within the Commonwealth
and has scheduled public hearings. The Rhode Island Public Utilities Commission
("RIPUC") may also seek to review the Merger. Evidentiary hearings were held in
Connecticut in August and September, and are scheduled in November before the
Maine Public Utilities Commission, and in December before the New Hampshire, New
York and Vermont regulatory commissions. In October, the Connecticut Department
of Public Utility Control issued a Draft Decision, finding that the proposed
merger would be in the public interest. A Final Decision is expected in
November.
The governing legal standard varies from state to state, but generally requires
a showing that the Merger is consistent with the public interest. As part of
that standard, these state regulatory commissions may look at the impact of the
Merger on competition, rates, and service quality as well as the impact on the
customers and employees of the local telephone company.
In addition, NYNEX and Bell Atlantic have filed applications with the Federal
Communications Commission ("FCC") seeking approval of the transfer of control of
certain FCC licenses and authorizations held by their telephone companies.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act") and the rules promulgated thereunder by the Federal Trade Commission
("FTC"), the Merger may not be consummated until notifications have been given
and certain information has been furnished to the FTC and the Antitrust Division
of the United States Department of Justice (the "Antitrust
24
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Division") and specified waiting period requirements have been satisfied. Bell
Atlantic and NYNEX filed notification and report forms under the HSR Act with
the FTC and the Antitrust Division effective as of May 1, 1996. On May 31, 1996,
Bell Atlantic and NYNEX each received requests from the Antitrust Division for
additional information relating to the Merger. As of July 19, 1996, NYNEX and
Bell Atlantic certified substantial compliance with the Antitrust Division's
request for additional information and on August 8, 1996, the waiting period
ended. The Antitrust Division has the authority to challenge the Merger on
antitrust grounds before or after the Merger is completed and has indicated that
it will continue to review the information that NYNEX and Bell Atlantic have
furnished. The Merger is also subject to antitrust review under state law in
each of the states in which NYNEX and Bell Atlantic provide telephone service.
Attorneys General in most of these states have indicated that they intend to
review the Merger.
NYNEX expects that all necessary regulatory action will be completed by early
1997.
State
New York
Competition Proceedings: In July, evidentiary hearings concluded on issues
related to New York Telephone's permanent rates for resold services and
unbundled links (the network plant connecting the customer to the central
office) and ports (the connection in the central office). However, in light of
the FCC's Interconnection Order (see Regulatory Environment - Federal -
Telecommunications Act of 1996), a New York State Public Service Commission
("NYSPSC") Administrative Law Judge reopened the hearing record to allow New
York Telephone and other parties to submit supplemental cost studies and
supporting testimony with respect to links and other unbundled network elements
identified in the FCC's Order. Cost studies and supporting testimony for a
number of elements were filed in September; additional cost studies will be
filed by year-end. A second round of hearings began in October. New York
Telephone's interim resale rates, reflecting discounts of 11% for business
services to be resold and 17% for residence services to be resold, remain in
effect, subject to a retroactive "true-up" once permanent rates are set. Interim
link rates are also in effect.
Incentive Plan: The Incentive Plan approved by the NYSPSC in 1995 (as disclosed
in NYNEX's 1995 Annual Report) establishes service quality targets with
stringent rebate provisions if New York Telephone is unable to meet some or all
of the targets. In November the NYSPSC announced its decision that, based on
service performance results for Plan Year 1, which ended August 31, 1996, New
York Telephone will be required to issue rebates to customers in the aggregate
amount of at least $62 million, approximately $14 million of which has been
already issued and $32 million of which has already been accrued. The NYSPSC
staff is reviewing New York Telephone's claims of miscalculation of certain
service performance data related to approximately $10 million in additional
rebates.
25
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Massachusetts
New England Telephone's annual price cap filing became effective October 15,
1996, and will produce an overall decrease in New England Telephone's annual
intrastate revenues of approximately $29.6 million. The revenue reduction
includes a $16.3 million decrease in revenues from residential customers, a
$15.4 million decrease in revenues from business customers, a $7.4 million
decrease in revenues from access services, and a $9.3 million increase in
certain miscellaneous revenues.
New Hampshire
In August, the NHPUC issued an order approving intraLATA presubscription ("ILP")
and the method of implementation. New England Telephone has elected, and the
NHPUC has approved, an ILP implementation date of June 2, 1997. Implementation
shall include all switches serving customers in the state. The costs of
implementing ILP are to be recovered over a two year period from all intraLATA
toll carriers, including New England Telephone, on a minutes of use basis.
Rhode Island
The RIPUC postponed further hearings in its proceeding on local exchange
competition, inviting comments from the parties regarding the impact of the
Telecommunications Act of 1996 (the "Act") and related FCC orders. Discussions
are underway among the RIPUC and parties as to the future course of action.
Vermont
New England Telephone has reached stipulations with the parties on several
issues addressed in the Vermont Public Service Board's ("VPSB") Order in Phase I
of its proceeding on competition, including unbundling of network elements,
directory assistance and listings, and a cost study methodology. As a result of
the FCC's Interconnection Order, however, VPSB consideration of the stipulations
has been delayed. The parties continue to meet to determine which issues remain
for decision in the Vermont proceeding and which issues are resolved by the
FCC's Order.
Federal
Telecommunications Act of 1996: The telephone subsidiaries are actively engaged
in the negotiation of interconnection agreements with various competitive local
exchange carriers ("CLECs") under the terms of the Act. Agreements are
state-specific and have been reached with nine individual CLECs. Each agreement
must be reviewed by the appropriate state regulatory commission and approved or
disapproved within 90 days of filing.
Arbitration proceedings have been commenced in every state to resolve the terms
of interconnection where the telephone subsidiaries and the affected CLEC have
been unable to reach an agreement for interconnection. The principal
26
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
issues involve the wholesale pricing of services offered by the telephone
subsidiaries for resale, as well as the prices for unbundled network elements
and for the transport and termination of local traffic.
In August, the FCC issued its First Report and Order setting forth the terms and
conditions under which local exchange companies such as the telephone
subsidiaries are required to provide their services and facilities for use by
competitors in the provision of telecommunications services as required by the
Act. The Order establishes comprehensive technical rules, and sets national cost
and pricing standards for interconnection, the transport and termination of
local traffic, the provision of unbundled network elements and resale services.
The Order also sets "default" or "proxy" rates for these functions, which state
regulatory commissions may use until the FCC-mandated cost studies have been
completed. The proposed default rates and resale discount result in rates that
are significantly less than the interim rates approved by the NYSPSC in the
Competition proceedings (see REGULATORY ENVIRONMENT - State), the negotiated
rates contained in the telephone subsidiaries' various interconnection
agreements pending before the NYSPSC and other state regulatory commissions and
the telephone subsidiaries' costs. The Order provides further that, in
negotiating an interconnection agreement with a local exchange company, a CLEC
may select individual provisions from any other interconnection agreement the
local exchange company has negotiated. The Order requires that state regulatory
commissions reconsider any approved or arbitrated interconnection agreements in
light of the requirements of the Order.
In September, state regulatory commissions, local exchange carriers such as
NYNEX, and other parties filed appeals with U. S. Courts of Appeals to overturn
portions of the FCC's Order. The U. S. Court of Appeals for the 8th Circuit
issued a temporary stay of the Order, and all appeals have now been consolidated
with the Court. In October, the Court ordered that, pending completion of the
appeal, the stay will be continued with respect to the pricing rules and the
selective contract provision. The Court is expected to hear oral arguments on
the appeals in January. In the meantime, the FCC and several other parties,
including AT&T Corp. ("AT&T") and MCI Corp. ("MCI"), have petitioned the U. S.
Supreme Court to vacate the stay. In its petition the FCC stated that "the stay
draws into question not just the timing of competition in the local markets, but
also the timing of full entry by the Bell operating companies into the long
distance market." In late October the petitions were denied by Justice Thomas.
The FCC and other petitioners have resubmitted their petitions to other Justices
of the Supreme Court.
NYNEX expects that the interconnection negotiation and arbitration process will
continue before the various state regulatory commissions, utilizing the FCC
interconnection rules that remain in effect, but with each commission
determining the appropriate pricing rules for its jurisdiction, as provided by
the Act. Arbitrated issues must be completed within nine months of the CLEC's
27
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
initial request to negotiate interconnection, with state approval of the
arbitrated agreement one month thereafter. In each of the states in which the
telephone subsidiaries operate, interconnection agreements with AT&T and MCI
must be arbitrated and approved by January 1997, and with Sprint Corp. by
February 1997.
The Order is the first of three FCC rulemakings that, taken together, will
determine the regulatory framework for competitive local exchange markets as
required by the Act. The FCC has previously indicated that the remaining
rulemakings, which will address universal service reform and access charge
reform, are scheduled to be completed by May 1997. While the outcome of these
proceedings cannot be predicted, they are likely to have a significant impact on
the telephone subsidiaries' future rate structures, rate levels and revenues.
The Order imposes additional requirements, not subject to the Court stay, that
NYNEX must complete in order to achieve operational compliance with the
competitive "checklist" and be permitted to provide interLATA long distance
service for calls originating within its region. NYNEX now expects to be in a
position to demonstrate compliance with the competitive checklist, and to file a
petition with the FCC for approval of entry into in-region long distance, in New
York in the first quarter of 1997, and in the rest of the states within its
region during the balance of 1997. With respect to out-of-region long distance,
NYNEX has been authorized to offer service in 19 states and has begun providing
service in Florida and Arizona.
28
<PAGE>
Form 10-Q Part II
NYNEX CORPORATION
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number
<S> <C>
(4)(a) Rights Agreement, dated as of October 19, 1989, between NYNEX and American Transtech Inc. (Exhibit
No. 1 to the Registrant's Current Report on Form 8-K, Date of Report, October 20, 1989, File No.
1-8608)
(a)1 First Amendment to Rights Agreement, dated April 21, 1996,
between NYNEX and First National Bank of Boston, as
successor rights agent (Exhibit No. 4(a) to the
Registrant's Quarterly Report on Form 10-Q, for the period
ended March 31, 1996)
(a)2 Second Amendment to Rights Agreement, dated July 2nd,
1996, between NYNEX and First National Bank of Boston, as
successor rights agent (Exhibit No. 4(a)2 to the Registrant's
Quarterly Report on Form 10-Q, for the period ended June 30, 1996)
(10)iii 1a Amendment to NYNEX Senior Management Short Term Incentive Plan
(Exhibit No. 10iii 1a to the Registrant's Quarterly Report on Form 10-Q,
for the period ended June 30, 1996)
(10)iii 5a Amendment to NYNEX Corporation Deferred Compensation Plan for Non-Employee Directors
(Exhibit No. 10iii 5a to the Registrant's Quarterly Report on Form 10-Q,
for the period ended June 30, 1996)
(10)iii 8 NYNEX Senior Management Incentive Award Deferral Plan (Exhibit No. 10iii 8
to the Registrant's Quarterly Report on Form 10-Q, for the period ended June 30, 1996)
(10)iii 13c Amendment to NYNEX Senior Management Long Term Incentive Plan (Exhibit No. 10iii 13c
to the Registrant's Quarterly Report on Form 10-Q, for the period ended June 30, 1996)
(10)iii 14g Amendment to NYNEX Senior Management Non-Qualified Pension Plan (Exhibit No. 10iii 14g
to the Registrant's Quarterly Report on Form 10-Q, for the period ended June 30, 1996)
(10)iii 15a NYNEX Corporation Non-Employee Director Pension Plan (Exhibit No. 99 to the Registrant's Proxy
Statement dated March 18, 1996, File No. 1-8608)
(10)iii 16 NYNEX Senior Management Non-Qualified Supplemental Savings Plan (Exhibit No. 10iii 16
to the Registrant's Quarterly Report on Form 10-Q, for the period ended June 30, 1996)
(10)iii 21 NYNEX Supplemental Life Insurance Plan (Exhibit No. 10iii 21 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 1996)
(10)iii 30a Amendment to NYNEX Executive Officer Short Term Incentive Plan (Exhibit No. 10iii 30a
to the Registrant's Quarterly Report on Form 10-Q, for the period ended June 30, 1996)
(10)iii 32 NYNEX Senior Management Non-Qualified Defined Contribution Pension Plan (Exhibit No. 10iii 32
to the Registrant's Quarterly Report on Form 10-Q, for the period ended June 30, 1996)
(10)iii 32a Description of amendment to NYNEX Senior Management Non-Qualified Defined Contribution Pension Plan
(Exhibit No. 10iii 32a to the Registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 1996)
(10)iii 33 NYNEX Account Balance Deferral Plan (Exhibit 10iii 33 to the Registrant's Quarterly Report
on Form 10-Q, for the period ended June 30, 1996)
29
<PAGE>
(10)iii 34 NYNEX Corporation Non-Employee Director Retainer Stock Plan (Exhibit No. 99 to the Registrant's
Proxy Statement dated March 18, 1996, File No. 1-8608)
(10)iii 35 NYNEX Executive Retention Agreement (Exhibit No. 10iii 35 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 1996)
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K.
NYNEX's Current Report on Form 8-K, date of report July 2,
1996, and filed July 3, 1996, reporting on Items 5 and 7.
</TABLE>
30
<PAGE>
Form 10-Q
NYNEX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NYNEX CORPORATION
M. Meskin
------------------------------
M. Meskin
Vice President - Financial
Operations and Comptroller
(Principal Accounting Officer)
November 8, 1996
31
<PAGE>
Exhibit (12)
NYNEX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions)
(unaudited)
<TABLE>
<CAPTION>
For the
Nine Months
Ended
September 30, For the Year Ended December 31,
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Earnings
Earnings before Interest Expense,
Extraordinary Item and Cumulative
Effect of Change in Accounting Principle $ 1,443.1 $1,803.4 $1,466.4 $ 387.1 $1,995.8 $1,326.8
Federal, State and Local Income Taxes 558.1 640.9 303.7 (172.7) 570.4 192.1
Estimated Interest Portion of Rental Expense 74.6 117.3 109.0 117.3 126.2 127.9
Priority Distributions 42.5 47.1 29.9 15.2 - -
--------- -------- -------- ------- ------ -------
Total Earnings $ 2,118.3 $2,608.7 $1,909.0 $ 346.9 $2,692.4 $1,646.8
========= ======== ======== ======= ======== ========
Fixed Charges
Total Interest Expense $ 476.8 $ 733.9 $ 673.8 $ 659.5 $ 684.6 $ 726.0
Estimated Interest Portion of Rental Expense 74.6 17.3 109.0 117.3 126.2 127.9
Priority Distributions 42.5 47.1 29.9 15.2 - -
---------- -------- ------- ------- ------- -----
Total Fixed Charges $ 593.9 $ 898.3 $ 812.7 $ 792.0 $ 810.8 $ 853.9
======== ======== ======= ======= ======= =======
Ratio of Earnings to Fixed Charges* 3.57 2.90 2.35 .44 3.32 1.93
======== ======== ======= ======= ======= =======
</TABLE>
* Earnings were inadequate to cover Fixed Charges by $445.1 million for the
year ended December 31, 1993 as a result of $2.1 billion of fourth quarter
1993 business restructuring charges ($1.4 billion after-tax).
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Sep-30-1996
<CASH> 94
<SECURITIES> 0
<RECEIVABLES> 3,222
<ALLOWANCES> 249
<INVENTORY> 188
<CURRENT-ASSETS> 3,922
<PP&E> 36,836
<DEPRECIATION> 19,726
<TOTAL-ASSETS> 26,710
<CURRENT-LIABILITIES> 3,444
<BONDS> 9,196
0
0
<COMMON> 455
<OTHER-SE> 6,895
<TOTAL-LIABILITY-AND-EQUITY> 26,710
<SALES> 0
<TOTAL-REVENUES> 10,124
<CGS> 0
<TOTAL-COSTS> 8,225
<OTHER-EXPENSES> (33)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477
<INCOME-PRETAX> 1,524
<INCOME-TAX> 558
<INCOME-CONTINUING> 966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 131
<NET-INCOME> 1,097
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.52
</TABLE>
