Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
(Mark one)
---
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
- ---
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-8608
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 April 30, 1997, 440,285,879 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>
For the Three Months Ended March 31, 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES
Local services $1,627.8 $1,669.0
Long distance 234.1 274.5
Network access 941.7 863.7
Other 497.9 446.8
-------- --------
Total operating revenues 3,301.5 3,254.0
-------- --------
OPERATING EXPENSES
Maintenance and support 804.2 807.9
Depreciation and amortization 614.1 640.3
Marketing and customer services 354.9 343.4
Taxes other than income 235.1 214.1
Selling, general and administrative 694.7 649.8
Other 175.9 161.0
-------- --------
Total operating expenses 2,878.9 2,816.5
-------- --------
Operating income 422.6 437.5
Other income (expense) - net (26.8) (11.1)
Interest expense 202.5 165.1
Income (loss) from long-term investments 40.9 69.0
-------- -------
Earnings before income taxes and cumulative
effect of change in accounting principle 234.2 330.3
Income taxes
Federal 68.5 94.7
State, local and other 6.1 21.8
-------- --------
Total income taxes 74.6 116.5
-------- --------
Earnings before cumulative effect
of change in accounting principle 159.6 213.8
Cumulative effect of change in accounting for
directory publishing income, net of taxes (Note(b)) - 131.0
-------- --------
NET INCOME $ 159.6 $ 344.8
-------- --------
Earnings per share before cumulative effect of change
in accounting principle $ .36 $ .49
--------- --------
Cumulative effect, per share, of change in accounting
principle $ - $ .30
--------- --------
Earnings per share $ .36 $ .79
--------- --------
Weighted average number of shares outstanding 440.1 434.5
--------- --------
Dividends declared per share $ .59 $ .59
--------- --------
Retained earnings
Beginning of period $ 610.8 $ -
Net income 159.6 344.8
Dividends declared (259.8) (255.7)
Other (82.2) (17.3)
--------- --------
End of period $ 428.4 $ 71.8
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
----------------------------
(In millions) (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and temporary cash investments $ 88.2 $ 81.6
Receivables (net of allowance of $243.8
and $241.5, respectively) 2,922.6 3,009.4
Inventories 251.1 243.7
Prepaid expenses 376.3 294.7
Deferred charges and other current assets 350.1 326.7
--------- ---------
Total current assets 3,988.3 3,956.1
--------- ---------
Property, plant and equipment - at cost 37,743.7 37,317.3
Less: accumulated depreciation (20,122.4) (19,642.3)
--------- ---------
17,621.3 17,675.0
--------- ---------
Long-term investments 3,944.5 3,880.3
Deferred charges and other assets 2,171.0 2,147.7
--------- ---------
Total Assets $27,725.1 $27,659.1
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 2,469.5 $ 3,017.6
Short-term debt 2,685.0 327.9
Other current liabilities 505.2 508.6
--------- ---------
Total current liabilities 5,659.7 3,854.1
--------- ---------
Long-term debt 7,557.4 9,325.8
Deferred income taxes 1,381.1 1,460.5
Unamortized investment tax credits 159.8 165.8
Other long-term liabilities and deferred credits 4,285.9 3,973.8
Minority interest, including a portion subject to
redemption requirements
1,811.6 1,819.8
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 455.1 455.0
shares authorized: 750,000,000
shares issued:
at March 31, 1997 - 455,062,556
at December 31, 1996 - 454,952,817
Additional paid-in capital 6,899.7 6,913.4
Retained earnings 428.4 610.8
Treasury stock (14,836,921 and 14,890,848 shares,
respectively, at cost) (598.3) (597.2)
Deferred compensation - LESOP Trust (315.3) (322.7)
--------- ---------
Total stockholders' equity 6,869.6 7,059.3
--------- ---------
Total Liabilities and Stockholders' Equity $27,725.1 $27,659.1
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 159.6 $ 344.8
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 614.1 640.3
Amortization of unearned lease income-net (25.8) (22.6)
Deferred income taxes - net (57.6) (36.2)
Deferred tax credits - net (16.7) (12.8)
Changes in operating assets and liabilities:
Receivables 86.8 (232.4)
Inventories (7.5) (0.2)
Prepaid expenses (81.6) 43.4
Deferred charges and other current assets (23.5) 115.0
Accounts payable (548.2) (233.8)
Other current liabilities (3.4) (129.1)
Other-net 316.6 178.7
-------- --------
Total adjustments 253.2 310.3
-------- --------
Net cash provided by operating activities 412.8 655.1
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (590.8) (633.1)
Investment in leased assets (9.4) (23.3)
Cash received from leasing activities 32.1 27.8
Other investing activities-net (120.2) (70.3)
-------- --------
Net cash used in investing activities (688.3) (698.9)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of commercial paper and short-term debt 6,018.4 5,801.2
Repayment of commercial paper and short-term debt (5,429.0) (6,042.9)
Issuance of long-term debt 69.8 -
Repayment of long-term debt and capital leases (74.1) (64.7)
Issuance of common stock 85.6 111.9
Purchase of treasury stock (110.0) -
Dividends paid (259.7) (238.6)
Minority interest (18.9) 485.1
-------- --------
Net cash provided by financing activities 282.1 52.0
-------- --------
Net increase in Cash and temporary
cash investments 6.6 8.2
Cash and temporary cash investments at
beginning of period 81.6 93.2
-------- --------
Cash and temporary cash investments at
end of period $ 88.2 $ 101.4
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(a) BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of NYNEX Corporation ("NYNEX") and its subsidiaries. Investments in
entities in which NYNEX does not have control, but has the ability to exercise
significant influence over operations and financial policies, are accounted for
using the equity method. Other investments are accounted for using the cost
method.
The consolidated financial statements have been prepared by 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. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to SEC
rules and regulations. GAAP requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Due to the uncertainty inherent in making estimates, actual
results could differ from those estimates. Certain information in the
consolidated financial statements for 1996 has been reclassified to conform to
the current period's presentation. The results for interim periods are not
necessarily indicative of the results for the entire year. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the NYNEX 1996 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 income
from the "amortized" method to the "point of publication" method. Under the
point of publication method, revenues and production expenses are 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 was reported as a cumulative effect of a change
in accounting principle which resulted in a one-time, non-cash gain of
$131.0 million, or $.30 per share, in the first quarter of 1996. The application
of the point of publication method did not have a material effect on operating
results for the year ended December 31, 1996.
5
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(c) FINANCIAL COMMITMENTS AND GUARANTEES - As of December 31, 1996, New York
Telephone Company ("New York Telephone"), a wholly-owned subsidiary of NYNEX,
had deferred $68 million of revenues under the 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 $27 million for a 1994 service
improvement plan obligation. The deferred revenues will be recognized as
commitments are met or obligations are satisfied under the plans. If New York
Telephone is unable to meet certain commitments, the NYSPSC has the authority to
require New York Telephone to rebate the deferred revenues to customers. As of
March 31, 1997, $68 million of the deferred revenues in connection with the
Incentive Plan remained deferred. In February 1997, the NYSPSC determined that
New York Telephone had not met all of the targets established in the 1994
service improvement plan and directed New York Telephone to rebate to customers
$12 million, plus related interest of $5 million, of the $27 million set aside
revenues. As of March 31, 1997, the remaining $10 million of the deferred
revenues was recognized.
The Incentive Plan establishes service quality targets with stringent rebate
provisions if New York Telephone is unable to meet some or all of the targets.
New York Telephone accrued $62 million of revenues based on service performance
results for Plan Year 1, $16 million of which had been rebated to customers in
1996, and $46 million of which remained accrued at December 31, 1996. During the
first quarter of 1997, an additional $10 million in rebates was ordered and
accrued as a result of the NYSPSC's denial of New York Telephone's claim of
miscalculation of certain service performance data, and $44 million was rebated
to customers. As of March 31, 1997, $12 million of the revenues remained
accrued.
(d) CABLECOMMS MERGER - Effective April 28, 1997, all of the conditions of the
recommended offers for NYNEX CableComms ("Cablecomms") by Cable & Wireless
Communications PLC ("CWC") had been either satisfied or waived. As a result,
NYNEX completed the transfer to CWC (in exchange for 18.5% of the outstanding
stock of CWC) of all of its equity interests in CableComms. In connection with
this exchange, CWC replaced the financing facilities arranged by NYNEX for the
North and the South. This exchange represents the consummation of the
transaction that was conditionally agreed to and announced in October 1996.
NYNEX accounted for the transaction as a nonmonetary exchange of similar
productive assets, and as a result, no gain or loss was recorded on the
exchange. NYNEX accounts for its resulting investment in CWC by the equity
method.
6
<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":
For the Three Months Ended
(In millions) March 31,
1997 1996
---- ----
Income tax payments - net $ 22.7 $ 23.0
Interest payments* $ 167.5 $ 174.3
Non-cash transactions:
Common Stock issued for Dividend Reinvestment and
Stock Purchase Plan and stock compensation
plans $ 5.7 $ 31.2
Commercial paper borrowings classified as
Long-term debt# - $1,697.8
*Amounts shown are net of capitalized interest of $8.4 million and $9.7 million,
in 1997 and 1996, respectively.
#As of March 31, 1997, NYNEX no longer has the intent to refinance commercial
paper borrowings on a long-term basis.
(f) REVENUES SUBJECT TO POSSIBLE REFUND - Several state and federal regulatory
matters may possibly require New York Telephone and New England Telephone and
Telegraph Company ("New England Telephone") (collectively, the "telephone
subsidiaries") to refund a portion of the revenues collected in the current and
prior periods. As of December 31, 1996, the aggregate amount of such revenues
that was estimated to be subject to possible refund was approximately
$319.0 million, plus related interest. In the first quarter of 1997, the NYSPSC
approved a settlement agreement with respect to affiliate transaction issues
resulting from New York Telephone's 1990 intrastate rate case. Pursuant to that
agreement New York Telephone will refund $87 million to customers. (New York
Telephone accrued charges for the refund in 1995 and 1996). The settlement
resolved all pending issues related to affiliate transactions. As of March 31,
1997, the aggregate amount of revenues estimated to be subject to possible
refund was approximately $90 million, plus related interest. The outcome of each
pending matter, as well as the time frame within which each will be resolved, is
not presently determinable.
(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 opinion 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.
7
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(h) PROPOSED MERGER - On April 22, 1996, NYNEX and Bell Atlantic Corporation
("Bell Atlantic") announced a proposed merger of equals pursuant to a definitive
merger agreement (the "Merger"), dated April 21, 1996 that provided for the
formation of a new company to be named Bell Atlantic Corporation. On July 2,
1996, NYNEX and Bell Atlantic executed an amendment to the agreement effecting a
technical change in the transaction structure of the Merger. 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.
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. At special meetings held in November
1996, the shareholders of both companies voted to approve the Merger. The state
regulatory commissions in NYNEX's region have approved or have not sought
jurisdiction over the Merger. Effective March 21, 1997, the NYSPSC issued an
order approving the Merger, subject to certain conditions, which were accepted
by NYNEX and Bell Atlantic on March 31, 1997. On April 24, 1997, the United
States Department of Justice announced that its Antitrust Division had closed
its investigation of the proposed Merger, having concluded that the Merger does
not violate the antitrust laws. 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 subsidiaries. The completion of the Merger is subject to a number of
conditions, including certain regulatory approvals 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 Merger is expected
to qualify as a pooling of interests for accounting purposes. NYNEX expects to
be able to complete the Merger in the second quarter of 1997.
8
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
FIRST QUARTER OF 1997 AS COMPARED TO FIRST QUARTER 1996
Net income
- ----------
Net income for the first quarter of 1997 was $159.6 million, or $.36 per share.
Net income for the first quarter of 1996 was $344.8 million, or $.79 per share.
Net income for the first quarter of 1997 includes after-tax charges of
$243.6 million for retirement incentives (see Retirement Incentives), an
after-tax net benefit of $18.1 million resulting primarily from the resolution
of various regulatory contingencies, and $18.0 million accrued for loss
contingencies. Net income for the first quarter of 1996 included a gain of
$131.0 million for the cumulative effect of a change in accounting for directory
publishing income (see Note (b)) and a gain of $45.8 million, from the sale of
NYNEX's interest in Vanstar Corporation ("Vanstar"). Net income for the first
quarter of 1996 also included charges of $127.0 million, for accruals related to
various self-insurance programs, legal, regulatory and other obligations and
contingencies, and a $66.5 million charge for retirement incentives.
Excluding the above items, net income for the first quarter of 1997 would have
been $403.1 million, or $.92 per share, an improvement of $41.6 million, or
11.5% over adjusted net income for the first quarter of 1996.
Operating revenues
- ------------------
Operating revenues for the first quarter of 1997 were $3.3 billion, an increase
of $47.5 million, or 1.5%, over the first quarter of 1996.
Included in operating revenues for the first quarter of 1997 was an
$83.0 million reduction for refunds to customers in connection with the
resolution of various regulatory contingencies which were recorded in Other
operating expenses in prior periods (see Operating expenses). Included in
operating revenues for the first quarter of 1996 were charges of $55.0 million
related to customer claims and a $14.0 million refund ordered by the NYSPSC
pertaining to intrastate gross receipts tax collected by New York Telephone on
behalf of interexchange carriers.
Excluding the items discussed above, operating revenues would have improved
$61.5 million, or 1.9%, over adjusted operating revenues for the first quarter
of 1996. Revenues from New York Telephone, New England Telephone and Telesector
Resources Group, Inc. (collectively, the "telecommunications group") would have
improved $42.8 million, or 1.4% to $3.1 billion. Revenues from NYNEX's other
subsidiaries (the "nontelephone subsidiaries") would have improved 6.1% to
$327.0 million.
9
<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 $61.5 million, or 1.9%, includes
the following categories:
Local service revenues increased $27.8 million, or 1.6%. The $27.8 million
increase results primarily from the net of (i) a $62 million increase resulting
primarily from increased demand, driven by growth in access lines and sales of
calling features and Optional Calling Plans ("OCPs") which were recorded in Long
distance revenues in the first quarter of 1996 (see Long Distance revenues), and
(ii) a $12 million reduction for rebates to customers as ordered under the 1994
service improvement plan (see Note (c)), $10 million in rate reductions
primarily in New York and Massachusetts and a $10 million reduction for service
rebates issued pursuant to a performance-based regulatory plan (the "Incentive
Plan") (see Note (c)). 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.
Long distance revenues decreased $40.4 million, or 14.7%. The $40.4 million
decrease results from a $23 million decrease attributable to revenues earned
from OCPs which were recorded in Long distance revenues in the first quarter of
1996 and are currently recorded in Local service revenues (see Local service
revenues), and a $17 million decrease primarily due to decreased demand. Certain
decreases in 1997 and 1996, primarily due to ILP, are being partially offset by
increases in Network access revenues.
Network access revenues improved $23.0 million, or 2.5%. The $23.0 million
improvement results from the net of (i) a $54 million increase primarily due to
increased demand, including the previously mentioned shift from Local and Long
distance revenues, and (ii) a $24 million reduction in interstate rates and a
$7 million reduction in intrastate rates.
Other revenues improved $51.1 million, or 11.4%. At the telecommunications
group, the $32.4 million improvement results primarily from the net of (i) a
$27 million increase resulting from the reversal of the reduction of Other
revenues for service rebate obligations pursuant to the 1994 service improvement
plan (see Local revenues), a $17 million increase resulting from the reduction
of revenues in 1996 for service rebate obligations under the Incentive Plan, a
$9 million increase in revenues from increased demand for voice messaging
services and other enhanced customer services, and (ii) a $20 million decrease
attributable to the recognition in 1996 of previously deferred revenues in
connection with ILP commitments that were met. At the nontelephone subsidiaries,
the $18.7 million improvement in other revenues results primarily from an
increase in NYNEX Cablecomms revenues due to an increased customer base,
marketing activity, and continuing construction of the network.
10
<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 first quarter of 1997 were $2.9 billion, an increase
of $62.4 million, or 2.2%, over the first quarter of 1996.
Included in operating expenses for the first quarter of 1997 were charges of
$386.8 million for retirement incentives (see Retirement Incentives), a net
$110.6 million decrease in expenses resulting primarily from the resolution of
various regulatory contingencies ($83 million of which is currently reflected as
a reduction of revenues (see Operating revenues), and $4 million of which is
currently reflected as interest expense (see Interest expense)), the
reclassification of charges accrued in a prior period for tax issues to Interest
expense (see Interest expense)and an accrual for loss contingencies. Included in
operating expenses for the first quarter of 1996 were charges of $107.8 million
for retirement incentives, a $14.0 million intrastate gross receipts tax refund
(see Operating revenues above) and charges of $110.0 million related to various
self-insurance programs and legal and regulatory contingencies.
Excluding the items discussed above, operating expenses would have decreased
$10.0 million, or 0.4%, from adjusted operating expenses for the first quarter
of 1996. Telecommunications group operating expenses would have decreased
$30.5 million, or 1.3% and the nontelephone subsidiaries' operating expenses
would have increased $20.5 million, or 7.6%.
At the telecommunications group, adjusted operating expenses were $2.3 billion
in 1997, a decrease of $30.5 million, or 1.3% from adjusted operating expenses
in 1996. Depreciation decreased $37.6 million primarily due to revised estimates
of future net salvage value and remaining useful lives, offset by the growth in
depreciable plant investment. Employee related costs decreased $23.8 million
primarily due to a reduction in overtime, benefit costs, and an increase in
capitalized costs that are partially offset by additional labor costs
attributable to increased force needed to continue improving service quality and
wage rate increases. Offsetting these decreases is the increase in non-employee
related costs. Non-employee costs increased a net $31.4 million primarily due to
costs resulting from the Telecommunications Act of 1996 (the "Act"), including
the costs of implementing the competitive checklist provisions, the effects of
which are expected to continue (see Regulatory Environment - State).
At the nontelephone subsidiaries, the $20.5 million adjusted increase results
primarily from an increase in Cablecomms operating expenses as a result of the
continuing network construction and an increase in the customer base.
Operating income
- ----------------
Operating income for the first quarter of 1997 was $422.6 million, a decrease of
$14.9 million, or 3.4%, from the first quarter of 1996.
11
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Operating income, after adjusting for the items discussed above in Operating
revenues and Operating expenses, would have been $781.8 million, an improvement
of $71.5 million, or 10.1%, over adjusted operating income for the first quarter
of 1996. Operating margin for the first quarter of 1997 would have improved 1.7
percentage point to 23.1% from 21.4% adjusted. This improvement resulted from
improved productivity as adjusted expenses were better by 0.4% and adjusted
revenues grew 1.9%.
Other income (expense) - net
- ----------------------------
Other income (expense) - net for first quarter of 1997 was $15.7 million worse
than the first quarter of 1996. The $15.7 million results primarily from an
$11 million increase in minority interest expense and increased merger-related
costs of $4 million.
Interest expense
- ----------------
Interest expense for the first quarter of 1997 increased $37.4 million, or
22.7%, over the first quarter of 1996. Interest expense for the first quarter of
1997 includes charges of $27.6 million resulting from the resolution of various
regulatory contingencies and tax issues. Excluding these charges, adjusted
interest expense for the first quarter of 1997 would have been $175.0 million,
an increase of $9.9 million, or 6.0%, over interest expense for the first
quarter of 1996 primarily due to lower capitalized interest and the settlement
of obligations pursuant to a service improvement plan implemented in 1994.
Income (loss) from long-term investments
- ----------------------------------------
Income (loss) from long-term investments for the first quarter of 1997 was a
$28.1 million decrease from the first quarter of 1996. The $28.1 million
decrease results primarily from the net of (i) an increase in equity income of
$5 million from the Bell Atlantic NYNEX Mobile cellular partnership and
$31 million of 1996 costs associated with the formation of the partnership, and
increases of approximately $20 million from other investments, including NYNEX's
Information Resources' sale of a 25% interest in an international venture,
offset by (ii) equity income in 1996 of $64 million for the goodwill associated
with Vanstar and quarter over quarter losses of $22 million from PrimeCo
Personal Communications, L.P. ("PrimeCo").
Income taxes
- ------------
Income taxes for the first quarter of 1997 decreased $41.9 million, or 36.0%,
from the first quarter of 1996 primarily attributable to lower pretax income of
$96.1 million or 29.1% and a 3.4 percentage point decrease in the effective tax
rate primarily due to the successful settlements of various state tax audits.
12
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RETIREMENT INCENTIVES
The number of employees who elected to leave under retirement incentives in the
first quarter of 1997 and 1996 are as follows:
1997 1996
----- -----
Management 1,900 400
Associates 1,000 600
----- -----
Total 2,900 1,000
===== =====
The components of the charges for retirement incentives for the first quarter of
1997 and 1996 are as follows:
(In millions) 1997 1996
---- ----
Pretax After-tax Pretax After-Tax
------ --------- ------ ---------
Pension enhancement charges $287.6 $180.8 $ 87.4 $ 54.1
Postretirement medical costs 99.2 62.8 20.4 12.4
------ ------ ------ ------
$386.8 $243.6 $107.8 $ 66.5
====== ====== ====== ======
The severance reserves established in 1993 have been and will continue to be
transferred to the pension liability on a per employee basis as employees accept
the retirement incentives. The postretirement medical liability established in
1993 has been and will continue to be applied to retired employees on a per
employee basis as employees accept the retirement incentives. The reserves for
management employees were completely utilized during 1996.
During the first quarter of 1997, severance reserves of $28 million were
transferred to the pension liability and $36 million of postretirement medical
liability was applied on a per employee basis as a result of associates leaving
under the retirement incentives. At March 31, 1997, $94 million of severance
reserves and $107 million of unapplied postretirement medical liability
remained.
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 income from the
"amortized" method to the "point of publication" method. Under the point of
publication method, revenues and production expenses are 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 was reported as a cumulative effect of a change
in accounting principle which resulted in a one-time, non-
13
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
cash gain of $131.0 million, or $.30 per share, in the first quarter of 1996.
The application of the point of publication method did not have a material
effect on operating results for the year ended December 31, 1996.
PROPOSED MERGER
On April 22, 1996, NYNEX and Bell Atlantic announced a proposed Merger, dated
April 21, 1996 that provided for the formation of a new company to be named Bell
Atlantic Corporation. On July 2, 1996, NYNEX and Bell Atlantic executed an
amendment to the agreement effecting a technical change in the transaction
structure of the Merger. 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. 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. At special meetings held in November 1996, the shareholders
of both companies voted to approve the Merger. The state regulatory commissions
in NYNEX's region have approved or have not sought jurisdiction over the Merger.
Effective March 21, 1997, the NYSPSC issued an order approving the Merger,
subject to certain conditions, which were accepted by NYNEX and Bell Atlantic on
March 31, 1997. On April 24, 1997, the United States Department of Justice
announced that its Antitrust Division had closed its investigation of the
proposed Merger, having concluded that the Merger does not violate the antitrust
laws. NYNEX and Bell Atlantic have filed applications with the FCC seeking
approval of the transfer of control of certain FCC licenses and authorizations
held by their telephone subsidiaries. The completion of the Merger is subject to
a number of conditions, including certain regulatory approvals 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 Merger is expected to qualify as a pooling of interests for
accounting purposes. NYNEX expects to be able to complete the Merger in the
second quarter of 1997.
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 twelve months
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
14
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
companies are expected to incur certain transition and integration charges of
approximately $500 million in the first twelve months following the consummation
of the Merger. An additional $200 to $400 million in charges are anticipated
over the two succeeding years.
NYNEX and Bell Atlantic have established a target range for the new company's
long-term earnings per share growth, following the completion of the Merger and
excluding the transition and integration costs described above, of 10-12%.
Information contained above with respect to the expected financial impact of the
proposed Merger is forward looking (see Cautionary Statement Concerning Forward
Looking Statements).
CABLECOMMS MERGER
Effective April 28, 1997, all of the conditions of the recommended offers for
CableComms by CWC had been either satisfied or waived. As a result, NYNEX
completed the transfer to CWC (in exchange for 18.5% of the outstanding stock of
CWC) of all of its equity interests in CableComms. In connection with this
exchange, CWC replaced the financing facilities arranged by NYNEX for the North
and the South. This exchange represents the consummation of the transaction that
was conditionally agreed to and announced in October 1996.
NYNEX accounted for the transaction as a nonmonetary exchange of similar
productive assets, and as a result, no gain or loss was recorded on the
exchange. NYNEX accounts for its resulting investment in CWC by the equity
method.
RESTRUCTURE OF CAI INVESTMENT
In March 1995, NYNEX and Bell Atlantic collectively invested approximately $100
million in certain securities issued by CAI Wireless Systems, Inc. ("CAI"), a
wireless cable television company that utilizes multichannel, multipoint
distribution system technology. In April 1997, NYNEX and Bell Atlantic
restructured their investments in CAI through amended agreements which provide,
among other things, for a current mutual exchange of releases, an agreement to
share certain patent and intellectual property rights related to the companies'
digital wireless venture, and a renegotiated repurchase option for CAI. As a
result of this transaction, NYNEX is presently updating its assessment of the
fair value of its investment in CAI and anticipates a charge to earnings in the
second quarter of 1997.
15
<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 $412.8 and
$655.1 million for the first quarter of 1997 and 1996, respectively, a decrease
of $242.3 million. There was a $185.2 million decrease in net income and a
$26.2 million decrease in depreciation and amortization. Changes in operating
assets and liabilities used $577.4 million of cash flows in the first quarter of
1997, as compared to $437.1 million in the first quarter of 1996. Costs
associated with re-engineering activities reserved for in 1993 resulted in cash
outlays of $1 million and $20 million in the first quarter of 1997 and 1996,
respectively. The large increase in retirement incentive charges in the first
quarter of 1997 as compared with the first quarter of 1996 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 $688.3 million
and $698.9 million for the first quarter of 1997 and 1996, respectively, a
decrease of $10.6 million.
Capital expenditures were $590.8 million in the first quarter of 1997, a
decrease of $42.3 million, from the first quarter of 1996. The decrease results
primarily from lower expenditures at NYNEX Cablecomms and the telecommunications
subsidiaries of approximately $30 million and $15 million, respectively.
Other investing activities: In the first quarter of 1997, net cash used in other
investing activities were $49.9 million higher than the first quarter of 1996.
Cash inflows resulted from the sale of a 25% interest in Information Resources'
international venture in the first quarter of 1997, and from the sale of NYNEX's
interest in Vanstar in the first quarter of 1996. Cash outflows resulted
primarily from additional investments in PrimeCo and FLAG Limited in 1997, and
PrimeCo, Tele-TV Partnerships, FLAG Limited and P.T. Excelcomindo Pratama in
1996.
Financing activities: Net cash provided by financing activities was
$282.1 million and $52.0 million for the first quarter of 1997 and 1996,
respectively, an increase of $230.1 million. Total debt increased $702.6 million
over March 31, 1996 while the debt ratio decreased to 59.8% as of March 31,
1997, compared with 60.1% as of March 31, 1996. Commercial paper levels
increased due primarily due to additional borrowings to fund operations. NYNEX
Credit Company issued $70 million of medium-term notes in the first quarter of
1997 in order to fund long-term operations. On March 5, 1997, New York Telephone
redeemed its $42 million 8.20% Thirty Year Private Placement Notes, due July 1,
2008.
16
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
--------------------------
Issuance of common stock: Prior to November 1, 1996 and in 1995 and 1994, NYNEX
issued common stock for employee savings plans, the Dividend Reinvestment and
Stock Purchase Plan ("DRISPP") and stock compensation plans. NYNEX issued common
stock for employee option plans from November 1995 to October 1996. These
issuances increased equity by approximately $87 million in the first quarter of
1997. The noncash issuance of stock, primarily for certain incentive stock
compensation plans was $6 million. The dividends for common stock remained
unchanged at $.59 per share in the first quarter of 1997.
Minority interest: Financing cash flows in the first quarter of 1997 and 1996
included net funds of ($18.9) and $485.1 million, respectively. The funds
provided in 1996 were primarily from the March 1996 monetization of NYNEX's
investment in Viacom Series B Cumulative Preferred Stock of $500 million.
Liquidity
- ---------
At March 31, 1997, 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 and/or NYNEX's nontelephone subsidiaries
for their respective general corporate purposes. At March 31, 1997, NYNEX
Capital Funding Company ("CFC") had $637 million of unissued medium-term debt
securities registered with the SEC and a $1 billion Euro medium-term note
programme under which no notes have yet been issued. When issued, these
securities 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 March 31, 1997, New England Telephone and New York Telephone
had $500 and $250 million, respectively, of unissued, unsecured debt securities
registered with the SEC.
In April 1997, an independent bond rating agency raised the ratings of the short
and long-term debt securities of NYNEX (including NYNEX Credit Company and CFC),
New York Telephone and New England Telephone and removed all except Credit
Company from credit watch positive where they were placed following the
announcement of the definitive merger agreement between NYNEX and Bell Atlantic
in 1996. Management believes that the bond ratings are indicative of strong
credit support for timely principal and interest payments in the foreseeable
future.
At December 31, 1996, $1.8 billion of outstanding commercial paper was
classified as Long-term debt as a result of management's intent to refinance
these borrowings on a long-term basis using an unsecured credit facility. As of
March 31, 1997, NYNEX no longer has the intent to refinance this commercial
paper on a long-term basis and as a result short-term debt increased to
$2.7 billion, and long-term debt decreased to $7.6 billion, compared to
$327.9 million and $9.3 billion, respectively, at December 31, 1996.
17
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Management believes that NYNEX has adequate internal and external resources
available to finance ongoing operating requirements, business development,
network expansion, and new investments for the foreseeable future. While current
liabilities exceeded current assets at March 31, 1997, management believes
ongoing cash flow requirements will continue to be primarily provided by
operations on remaining requirements provided by readily available external
financing.
REGULATORY ENVIRONMENT
Telecommunications Act of 1996
- ------------------------------
On May 7, 1997, the FCC adopted orders to reform the interstate access charge
system, to modify its price cap system and to implement the "universal service"
requirements of the Act. NYNEX is unable to assess fully the potential impact of
these new rules until the FCC releases the full text of its access reform and
price cap orders later in May. Based on the information currently available,
however, NYNEX does not believe that these proceedings will result in a material
adverse impact on results of operations or financial condition.
Access Charges
Access charges are the rates long distance carriers pay for use and availability
of the telephone subsidiaries' facilities for the origination and termination of
interstate interLATA service. On May 7, 1997, the FCC adopted changes to the
tariff structures it has prescribed for such charges in order to permit the
telephone subsidiaries to recover their costs through rates which reflect the
manner in which those costs are incurred. As of January 1, 1998, the FCC will
require, in general, that interstate costs of the telephone subsidiaries which
do not vary based on usage be recovered from long distance carriers through flat
rate charges, and those interstate costs that do vary based on usage be
recovered from interexchange carriers through usage based rates. In addition,
the FCC will require establishment of separate usage based charges for
originating and for terminating interstate interLATA traffic.
A portion of the telephone subsidiaries' interstate costs are also
recovered through flat monthly charges to subscribers ("subscriber line
charges"). Under the FCC's order, subscriber line charges for primary
residential and single line businesses will remain unchanged, but such
charges for additional residential lines and multi-line businesses will rise.
The restructuring of access charges in January 1998 is expected to be revenue
neutral to NYNEX's telephone subsidiaries.
The FCC is expected to adopt an order later this year that would address the
conditions under which the FCC would relax or remove existing access rate
structure requirements and price cap restrictions as increased local market
competition develops. NYNEX is unable to predict the results of this further
proceeding.
Price Caps
The FCC also adopted modifications to its price cap rules that will affect
access rate levels. Under the current price cap rules effective through June 30,
1997, NYNEX's price cap index is adjusted by an inflation index (GDP-PI) less a
fixed percentage, either 4.0%, 4.7% or 5.3% as NYNEX may elect, which is
intended to reflect increases in productivity ("Productivity Factor"). For the
current period ending June 30, 1997, NYNEX has chosen the 5.3% Productivity
Factor.
The FCC has adopted new rules, effective July 1, 1997, that will create a single
Productivity Factor for all price cap companies of 6.5%, with no requirements to
share a portion of future interstate earnings, and will set rates as if the
higher factor had been in effect since July 1996. Any local exchange company
that earns a rate of return on its interstate services of less than 10.25% in
any calendar year will be permitted to increase its interstate rates in the
following year. The FCC also ordered elimination of recovery for amortized costs
associated with reconfiguration of the telephone subsidiaries' networks to
provide equal access to facilities for all long distance carriers.
Universal Service
The FCC also adopted rules designed to preserve "universal service" by ensuring
that local exchange service remains reasonably available to all residential
customers, including low-income customers and customers in areas that are
expensive to serve. The FCC will maintain existing levels of universal service
support for such high cost areas pending completion of further FCC proceedings.
By the end of 1997, the FCC, in conjunction with the Federal-State Joint Board
on Universal Service, will determine whether to increase the size of this
federal universal service fund for high cost areas, and how to assess the
appropriate level of federal financial support required to continue to ensure
affordable local telephone service. Any new high cost universal service support
mechanism will become effective January 1, 1999.
The FCC also adopted rules to implement the Act's requirements to provide
discounted telecommunications services to schools and libraries, beginning
January 1, 1998, and to ensure that not-for-profit rural health care providers
have access to such services at rates comparable to those charged their urban
counterparts.
All telecommunications carriers will be required to contribute funding for these
universal service programs. The federal universal service funding needs as of
January 1, 1998 will require each carrier to contribute approximately 1 to 2% of
its revenues. NYNEX, however, will be permitted to recover its universal service
contributions through higher interstate charges to long distance carriers and
end users.
Other
The Massachusetts Department of Public Utilities ("MDPU") and the New Hampshire
Public Utilities Commission ("NHPUC") have opened investigations into NYNEX's
plans for obtaining FCC approval under Section 271 to provide in-region long
distance services in Massachusetts and New Hampshire, respectively.
In May 1997, NYNEX submitted to the Maine Public Utilities Commission ("MPUC")
for its approval a proposed Statement of Terms and Conditions for
interconnection pursuant to Section 271. Also pending is the MPUC's
investigation of NYNEX's ability to satisfy the competitive checklist
requirements under Section 271 in order to obtain FCC approval to provide
in-region long distance services in Maine.
NYNEX has submitted to the NYSPSC for its approval a proposed Statement of Terms
and Conditions for interconnection pursuant to Section 271. NYNEX has also
submitted to the NYSPSC for its review a draft of NYNEX's Section 271
application to the FCC. These matters are pending before the NYSPSC. NYNEX
expects to file its Section 271 application with the FCC later this year. Under
Section 271, the FCC must approve or deny the application within 90 days of
filing.
18
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
State Regulatory
- ----------------
New York
The NYSPSC has opened a general proceeding to review the level of intrastate
access rates in New York. Hearings are scheduled in June.
In May 1997, New York Telephone filed a tariff in compliance with the NYSPSC's
order setting rates for an initial group of unbundled network elements. One
party has petitioned for reconsideration of the order, and other parties have
been granted additional time to file such petitions.
Evidentiary hearings were held in April concerning costs and rates for a second
group of unbundled network elements (including operator services) and related
"cost onsets". These hearings addressed, among other issues, recovery of the
expenditures that have been made and that continue to be made by New York
Telephone to provide its competitors with electronic access to its operations
support systems. A decision is expected sometime this summer.
Rhode Island
In March 1997, the Rhode Island Public Utilities Commission ("RIPUC") approved a
stipulation signed by New England Telephone, AT&T Corp. and the RIPUC staff to
implement ILP on August 1, 1997. The stipulation was based on an ILP plan
submitted by New England Telephone in New Hampshire and subsequently modified by
the NHPUC in orders issued in 1996 and 1997.
Maine
In its rulemaking on intrastate access charges, the MPUC is considering an
interim rate reduction, pending the completion of the FCC's access reform
proceeding. New England Telephone has commented that any such reduction should
be achieved in a revenue-neutral manner.
The MPUC has opened a proceeding to examine the manner in which New England
Telephone proposes to offer ILP. The MPUC has indicated that it expects ILP to
be implemented in the third quarter of 1997.
In April 1997, the MPUC awarded New England Telephone approximately $3 million
in additional annual revenues from basic exchange rates to compensate for the
loss of toll revenues occasioned by the MPUC's 1995 implementation of expanded,
toll-free local calling areas. The MPUC also permitted New England Telephone to
impose a temporary surcharge on basic exchange rates to recover approximately
$6 million in lost toll revenues retroactively to March 1995. The Maine Office
of Public Advocate has filed for reconsideration of the surcharge, claiming that
retroactive recovery constitutes impermissible retroactive ratemaking. A
decision by the MPUC on this issue is expected in May.
19
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Massachusetts
The MDPU is conducting a proceeding to examine the manner in which New England
Telephone proposes to offer ILP and is expected to issue its decision in May.
Cautionary Statement Concerning Forward-Looking Statements
- ----------------------------------------------------------
Information contained above with respect to the expected financial impact of the
proposed merger and other statements regarding expected future events and
financial results is forward-looking, based on Management's estimates and
assumptions and subject to risks and uncertainties. For those statements, we
claim the protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995.
The following important factors could affect the future results of NYNEX and
cause those results to differ materially from those expressed in the forward
looking statements: (i) materially adverse changes in economic conditions in the
markets served by NYNEX, (ii) a significant delay in the expected closing of the
Merger, (iii) the final outcome of FCC rulemakings with respect to
interconnection agreements, access charge reform and universal service, (iv) the
timing of presubscription for toll services, (v) future state regulatory actions
and economic conditions in NYNEX's operating areas, (vi) the extent, timing and
success of competition from others in the local telephone and toll service
markets, and (vii) the timing of entry and profitability of NYNEX in the long
distance market.
20
<PAGE>
Form 10-Q Part II
NYNEX CORPORATION
PART II - OTHER INFORMATION
---------------------------
ITEM 5. Other Information
- ------ -----------------
State Regulatory Matters
------------------------
New Hampshire
-------------
In April 1997, the New Hampshire Public Utilities Commission ("NHPUC")
granted New England Telephone and Telegraph Company's ("New England
Telephone") request to increase the initial-period payphone coin rate
from 10 cents to 25 cents. The NHPUC required that, in order to
satisfy certain Federal Communications Commission ("FCC") requirements
as to the elimination of payphone subsidies, New England Telephone
must implement a corresponding decrease in local exchange and exchange
access service rates. New England Telephone had proposed to meet the
FCC requirements through a decrease in toll rates. The estimated
annual revenue effect of the filing is a reduction of approximately
$3.6 million in exchange and exchange access revenues, offset by the
estimated annual revenue effect of the local coin increase.
Vermont
-------
In April 1997, the Vermont Public Service Board ("VPSB") conducted
hearings on New England Telephone's request to increase the
initial-period payphone coin rate from 10 cents to 25 cents, and to
make additional adjustments to the overtime period and applicable
rate. The VPSB conducted hearings and will be issuing an order on New
England Telephone's proposed rate request and proposal to apply an
offset for the increase in payphone revenues against forgone rate
increases to basic service resulting from the implementation of
expanded local calling areas in a separate docket. The estimated
annual revenue effect of the offset is a reduction of approximately
$1.9 million in exchange and exchange access revenues, offset by the
estimated annual revenue effect of the local coin increase.
ITEM 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits.
---------
Exhibit
-------
Number
------
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
No report on Form 8-K was filed by the registrant during the
quarter for which this report is filed.
21
<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
/s/ M. Meskin
--------------------------------
M. Meskin
Vice President and Comptroller
May 12, 1997
22
NYNEX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions)
(unaudited)
<TABLE>
<CAPTION>
For the
Three Months
Ended March 31, For the Year Ended December 31,
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Earnings
Earnings before Interest Expense,
Extraordinary Item and Cumulative
Effect of Change in Accounting Principle $ 362.1 $1,982.6 $1,803.4 $1,466.4 $ 387.8 $1,995.8
Federal, State and Local Income Taxes 74.6 741.3 640.9 303.7 (172.7) 570.4
Estimated Interest Portion of Rental Expense 29.2 58.5 117.3 109.0 117.3 126.2
Priority Distributions 18.9 116.5 47.1 29.9 15.2 -
-------- -------- -------- -------- -------- --------
Total Earnings $ 484.8 $2,898.9 $2,608.7 $1,909.0 $ 346.9 $2,692.4
======== ======== ======== ======== ======== ========
Fixed Charges
Total Interest Expense $ 202.5 $ 636.6 $ 733.9 $ 673.8 $ 659.5 $ 684.6
Estimated Interest Portion of Rental Expense 18.9 58.5 117.3 109.0 117.3 126.2
Priority Distributions 29.2 116.5 47.1 29.9 15.2 -
-------- -------- -------- -------- -------- --------
Total Fixed Charges $ 250.6 $ 811.6 $ 898.3 $ 812.7 $ 792.0 $ 810.8
======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges* 1.93 3.57 2.90 2.35 .44 3.32
======== ======== ======== ======== ======== ========
</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> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1997
<CASH> 88
<SECURITIES> 0
<RECEIVABLES> 3,166
<ALLOWANCES> 244
<INVENTORY> 251
<CURRENT-ASSETS> 3,988
<PP&E> 37,744
<DEPRECIATION> 20,122
<TOTAL-ASSETS> 27,725
<CURRENT-LIABILITIES> 5,660
<BONDS> 7,557
0
0
<COMMON> 455
<OTHER-SE> 6,900
<TOTAL-LIABILITY-AND-EQUITY> 27,725
<SALES> 0
<TOTAL-REVENUES> 3,302
<CGS> 0
<TOTAL-COSTS> 2,879
<OTHER-EXPENSES> 14
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203
<INCOME-PRETAX> 234
<INCOME-TAX> 74
<INCOME-CONTINUING> 160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
