<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] 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 33-91250
ROCHESTER TELEPHONE CORP.
(Exact name of registrant as specified in its charter)
New York 16-1469713
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
180 South Clinton Avenue, Rochester, NY 14646-0700
(Address of principal executive offices) (Zip Code)
(716) 777-1000
(Registrant's telephone number, including area code)
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
___
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
No Par, No Stated Value Common Stock: 772 shares
outstanding as of July 31, 1997
The Registrant meets the conditions set forth in general
instruction H(1)(a) and (b) of Form 10-Q and is therefore
filing this form with the reduced disclosure format.
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ROCHESTER TELEPHONE CORP.
Form 10-Q
Index
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the three months ended
and for the six months ended June 30, 1997 and
June 30, 1996 3
Balance Sheets as of June 30, 1997 and
December 31, 1996 4
Statements of Cash Flows for the six
months ended June 30, 1997 and
June 30, 1996 5
Notes to Financial Statements 6
Item 2. Management's Narrative Analysis of the
Results of Operations 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 5. Employees and Labor Relations 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Index to Exhibits 18
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ROCHESTER TELEPHONE CORP.
Statements of Income
(Unaudited)
3 Months Ended June 30, 6 Months Ended June 30,
In thousands of dollars 1997 1996 1997 1996
- ------------------------------------------------------------------------
Revenues $82,512 $81,971 $163,310 $163,105
- ------------------------------------------------------------------------
Costs and Expenses
Operating expenses 38,983 39,195 75,727 80,566
Depreciation and amortization 13,692 13,122 27,364 25,921
Taxes other than income taxes 5,840 5,801 11,801 10,899
- ------------------------------------------------------------------------
Total Costs and Expenses 58,515 58,118 114,892 117,386
- ------------------------------------------------------------------------
Operating Income 23,997 23,853 48,418 45,719
Interest expense 750 755 1,402 1,653
Other expense 365 460 644 1,091
- ------------------------------------------------------------------------
Income Before Taxes and Cumulative Effect of
Change in Accounting Principle 22,882 22,638 46,372 42,975
Income taxes 7,973 7,899 16,168 15,035
- ------------------------------------------------------------------------
Income Before Cumulative Effect of Change
in Accounting Principle 14,909 14,739 30,204 27,940
Cumulative effect of change in
accounting principle - - - (6,949)
- ------------------------------------------------------------------------
Net Income $14,909 $14,739 $30,204 $20,991
========================================================================
See accompanying Notes to Financial Statements.
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ROCHESTER TELEPHONE CORP.
Balance Sheets
June 30, December 31,
1997 1996
In thousands of dollars (Unaudited)
- ---------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,711 $ 3,591
Accounts receivable, (less allowance for
uncollectibles of $1,857 and $1,501,
respectively) 45,951 47,777
Accounts receivable - affiliates 2,908 2,670
Advances to affiliates 7,985 -
Materials and supplies 1,108 2,006
Prepaid directory 7,054 12,463
Other prepayments 986 1,406
- ---------------------------------------------------------------------------
Total Current Assets 67,703 69,913
- ---------------------------------------------------------------------------
Property, plant and equipment, net 331,067 330,552
Prepaid pension 15,987 14,204
Deferred and other assets 1,327 1,247
- ---------------------------------------------------------------------------
Total Assets $416,084 $415,916
===========================================================================
LIABILITIES AND SHAREOWNER'S EQUITY
Current Liabilities
Accounts payable $ 27,481 $31,759
Accounts payable - affiliates 10,069 19,022
Advances from affiliate - 3,827
Advance billings 4,790 4,994
Taxes accrued 2,885 3,047
Other current liabilities 3,663 5,908
- ---------------------------------------------------------------------------
Total Current Liabilities 48,888 68,557
- ---------------------------------------------------------------------------
Long-term debt 53,319 62,872
Deferred income taxes 22,596 25,266
Postretirement benefits obligation 24,163 23,176
Other long-term liabilities 4,749 4,971
- ---------------------------------------------------------------------------
Total Liabilities 153,715 184,842
- ---------------------------------------------------------------------------
Shareowner's Equity
Common stock, no par value and additional paid in
capital: authorized, 1,000 shares: issued, 772 shares
in 1997 and 1996 232,165 231,074
Retained earnings 30,204 -
- ---------------------------------------------------------------------------
Total Shareowner's Equity 262,369 231,074
- ---------------------------------------------------------------------------
Total Liabilities and Shareowner's Equity $416,084 $415,916
- ---------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
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ROCHESTER TELEPHONE CORP.
Statements of Cash Flows
(Unaudited)
6 Months Ended June 30,
In thousands of dollars 1997 1996
- --------------------------------------------------------------------------
Operating Activities
Net income $30,204 $20,991
- --------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle - 10,691
Depreciation and amortization 27,364 25,921
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,588 3,423
Decrease (increase) in materials and supplies 898 (42)
Decrease in prepaid directory 5,409 5,749
Decrease in other prepayments 420 907
Increase in prepaid pension (1,783) (923)
Increase in deferred and other assets (148) (265)
Decrease in advance billings (204) (514)
(Decrease) increase in accrued taxes (162) 1,275
Decrease in other current liabilities (2,245) (2,017)
Increase in postretirement benefits obligation 987 1,914
Decrease in other long term liabilities (222) (7,499)
--------------------------------------------------------------------------
Total adjustments 17,092 24,270
--------------------------------------------------------------------------
Net cash provided by operating activities 47,296 45,261
--------------------------------------------------------------------------
Investing Activities
Expenditures for property, plant and equipment (27,811) (24,095)
- ---------------------------------------------------------------------------
Net cash used in investing activities (27,811) (24,095)
- ---------------------------------------------------------------------------
Financing Activities
Repayments of long-term debt (9,553) -
Proceeds of long-term debt - 9,315
Advances to/from affiliate (11,812) (5,351)
Dividends paid - (8,537)
Return of capital to Frontier Corporation - (19,463)
- ---------------------------------------------------------------------------
Net cash used in financing activities (21,365) (24,036)
- ---------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (1,880) (2,870)
Cash and Cash Equivalents at Beginning of Period 3,591 5,643
- ---------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 1,711 $ 2,773
===========================================================================
See accompanying Notes to Financial Statements.
<PAGE>
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Rochester Telephone Corp.
Notes to Financial Statements
(Unaudited)
Note 1: Accounting Policies
The accounting policies of Rochester Telephone Corp.
("RTC" or "the Company"), a wholly owned subsidiary of
Frontier Corporation ("Frontier"), are in conformity with
generally accepted accounting principles. Preparation of
financial statements in conformity with generally accepted
accounting principles 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. Actual results could differ from those
estimates.
Note 2: Long-Lived Assets to Be Disposed Of
Effective January 1, 1996, the Company adopted
Financial Accounting Standards No. 121 ("FAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." FAS 121 requires that
certain long-lived assets and identifiable intangibles be
written down to fair value whenever an impairment review
indicates that the carrying value cannot be recovered on an
undiscounted cash flow basis. The statement also requires
that certain long-lived assets and identifiable intangibles
to be disposed of be reported at fair value less selling
costs. The Company's adoption of this standard resulted in
a non-cash charge of $6.9 million (net of a tax benefit of
$3.7 million) and is reported in the Statement of Income as
a cumulative effect of a change in accounting principle.
The charge represents the cumulative adjustment required by
FAS 121 to remeasure the carrying amount of certain assets
held for disposal as of January 1, 1996. It applies to an
asset write-down for the expected impairment loss and
disposal costs for telephone switching equipment as a result
of the Company implementing a central office switch
consolidation project.
Note 3: Long-Term Debt
Effective June 30, 1997, the Company reduced its
available line of credit under its Revolving Credit
Agreement from $100.0 million to $50.0 million.
On March 31, 1997, Standard & Poor's ("S& P")
announced their new domestic telephone company rating
methodology, which addresses the impact of deregulation on
operating and holding company ratings. As a result, the
ratings of 16 companies were affected by S&P's announcement,
and S&P lowered their rating of the Company's long-term debt
from "AA" to "AA-". Under S&P's revised rating methodology,
a local telephone company is typically allowed a rating one
"notch" higher than that of the consolidated entity (i.e.,
holding company and operating subsidiaries). However, the
Company was allowed a two "notch" differential, largely as a
result of the regulatory controls in existence under the
Company's Open Market Plan.
Note 4: Common Stock and Additional Paid In Capital
The value assigned to the Company's common stock and
additional paid in capital was determined based on the
historical book value of the assets transferred from
Frontier to the Company on January 1, 1995. In the first
quarter of 1997, a $1.1 million adjustment to this valuation
was required relating to deferred taxes associated with the
assets transferred. This adjustment is reflected as an
increase to common stock and additional paid in capital and
a decrease to deferred taxes.
Note 5: Regulatory Matters
The Open Market Plan prohibits the payment of dividends
by the Company to Frontier Corporation if (i) the
Company's senior debt has been downgraded to "BBB" by S&P,
or the equivalent rating by other rating agencies or is
placed on credit watch for such a downgrade, or (ii) certain
service quality measures deteriorate below minimum levels
stipulated in the Open Market Plan. Dividend payments to
Frontier also require that the Company's directors certify
that such dividends will not impair the Company's service
quality nor its ability to finance its short and long-term
capital needs on reasonable terms while maintaining an S&P
debt rating target of "A".
In 1996, the Company failed to achieve the service
quality levels required by the Open Market Plan. On
December 19, 1996, pursuant to the Open Market Plan, RTC
requested the New York State Public Service Commission
("NYSPSC") staff to exclude certain months from the
calculation used to measure service quality, due to
operating conditions considered by management to be abnormal
and beyond the Company's control. In April 1997, the Company
received notice from the NYSPSC that its request for a
waiver of certain conditions in the Open Market Plan related
to service quality results was denied. The NYSPSC's ruling
resulted in a temporary restriction on the payment of
dividends from the Company to Frontier and a refund to the
Company's customers of approximately $.9 million. Reserves
sufficient to cover the refund were established in 1996. The
Company has presented a plan for disposition of the refund
to the NYSPSC. A decision is expected by the end of the
year.
The temporary restriction of dividend payments remains
in place as the Company has not yet reached 1997 service
quality levels that are sufficiently adequate to justify its
removal.
Note 6: Cash Flows
For purposes of the Statement of Cash Flows, the
Company considers all highly-liquid investments with an
original maturity of three months or less to be cash
equivalents.
As previously discussed in Note 4, in the first quarter
of 1997, an adjustment was required relating to deferred
taxes associated with assets transferred from Frontier to
the Company as of January 1, 1995. This $1.1 million
adjustment has been reflected as a noncash transaction in
the Statement of Cash Flows, increasing common stock and
additional paid-in-capital and decreasing deferred taxes.
The Company paid cash dividends to Frontier in the
amount of $28.0 million through the first six months of
1996. As a result of the temporary restriction on dividends
discussed in Note 5, no dividends were paid during the first
six months of 1997.
Actual interest paid was $2.1 million and $2.2 million
for the six months ended June 30, 1997 and 1996,
respectively. Actual income taxes paid were $19.1 million
for the six months ended June 30, 1997. No income taxes were
paid during the first half of 1996.
ITEM 2 - MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS
OF OPERATIONS
Three and Six Months Ended June 30, 1997 and 1996
The matters discussed throughout this Form 10-Q, except
for historical financial results contained herein, may be
forward looking in nature or "forward looking statements."
Actual results may differ materially from the forecasts or
projections presented. Forward looking statements are
identified by such words as "expects," "anticipates,"
"believes," "intends," "plans" and variations of such words
and similar expressions. The Company believes that its
primary risk factors include, but are not limited to:
changes in the overall economy and the economy in Rochester,
New York, the nature and pace of technological change, the
number and size of competitors in the Company's market,
changes in law and regulatory policy and the mix of products
and services offered in the Company's markets. Any forward
looking statements in the June 30, 1997 Form 10-Q should be
evaluated in light of these important risk factors.
DESCRIPTION OF BUSINESS
Rochester Telephone Corp. (the "Company") is a
regulated independent telephone company that serves
approximately 536,000 access lines in the greater Rochester,
New York area. The Company was incorporated in December 1994
as a wholly owned subsidiary of Frontier Corporation.
Frontier Corporation, previously known as Rochester
Telephone Corporation, has been providing local telephone
service in the greater Rochester market since 1920. The
Company is the primary provider of basic telephone services
in the Rochester market and offers its customers a full
complement of local telephone network services, access to
long distance network services, directory and other operator
services. The Company also offers all of its network
services for sale on a wholesale basis to other
telecommunication service providers in the Rochester market.
RESULTS OF OPERATIONS
Revenues for the three and six month periods ended June
30, 1997 were $82.5 million and $163.3 million,
respectively. These levels are consistent with the same
periods in the prior year. The Company experienced revenue
growth from increased demand for dedicated circuits,
enhanced features and the expansion of its Internet service
customer base. The growth in revenue continues to be
negatively impacted by the elimination of the surcharge on
wholesale, flat rate, local measured service, an increase in
the discount to wholesale providers from 5% to 17%, as
ordered by the New York State Public Service Commission
("NYSPSC") and the $1.5 million annual rate reduction,
effective January 1, 1997, associated with the Open Market
Plan.
Costs and expenses for the three months ended June 30,
1997 amounted to $58.5 million, consistent with the three
month period ended June 30, 1996. On a year to date basis,
excluding certain one-time charges that were incurred in the
first six months of 1996, costs and expenses also remained
consistent totaling $114.9 million at June 30, 1997, as
compared to $114.5 million at June 30, 1996. The one-time
costs that were incurred during the first six months of 1996
related to higher labor and associated expenses resulting
from the expiration of the Communication Workers of America
("CWA") Local 1170 union labor agreement with the Company.
These increased costs were necessary to ensure reliable and
uninterrupted customer service in the event of a work
stoppage or slowdown. Expense reductions are being driven by
operating efficiencies implemented late in 1996 and the
absence of work stoppage preparation costs associated with
the Rochester CWA contract negotiations. However, these
reductions are being offset by increases in depreciation
expense and carrier services operations.
Depreciation and amortization expense for the second
quarter of 1997 increased $.6 million or 4.3% over the
comparable 1996 period. For the six months ended June 30,
1997, depreciation and amortization rose $1.4 million or
5.6% over the same 1996 period. Increases are due primarily
to capital additions to telephone plant and equipment in
service during 1997.
Net income for the three months ended June 30, 1997 was
$14.9 million, an increase of $.2 million or 1.2% over the
same period in 1996. On a year to date basis, net income was
$30.2 million, an increase of $9.2 million or 43.9% over
1996. Results for the first six months of 1996 reflect a one-
time after tax charge of $6.9 million for the adoption of
Financial Accounting Standards Board Statement No. 121 ("FAS
121"), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which relates
to the accounting for a central office switch consolidation
project. Excluding this charge, 1997 net income increased
by $2.3 million or 8.1% over the comparable 1996 period.
The increase in net income is largely due to the reduction
in operating expenses during the first six months of 1997.
During 1995, management committed to a plan which makes
Rochester Telephone Corp. the first company in the United
States to begin a central office switch consolidation
project in a major market. The three-year plan to
consolidate host switches by over 60% is projected to
improve network efficiency and reduce the cost of
maintenance and software upgrades. The project is
progressing as scheduled and as of June 30, 1997 six host
switches have been consolidated, representing approximately
50% of total switches that will be consolidated. The Company
anticipates that the project will be substantially complete
by July 1998.
Other Income Statement Items
Interest expense for the three months ended June 30,
1997 amounted to $.7 million, consistent with the same
period in 1996. For the six months ended June 30, 1997,
interest expense decreased $.2 million to $1.4 million, a
15.2 % decrease from 1996. The decrease is attributed to
lower average outstanding debt levels and an increase in
capitalized interest.
The effective income tax rate for the second quarter of
1997 is 34.8%, consistent with the second quarter of 1996;
and 34.9% and 35.0% for each of the six months ended June
30, 1997 and June 30, 1996, respectively.
FINANCIAL CONDITION
Review of Cash Flow Activity
Cash provided by operating activities for the first six
months of 1997 increased $2.0 million or 4.5%. Offsetting
the cash provided by operating activities in 1997 and 1996
are outflows for capital expenditures of $27.8 million and
$24.1 million, respectively.
Cash flow from financing activities amounted to a net
outflow of $21.4 million for the six months ended June 30,
1997, compared with a net outflow of $24.0 million for the
same period last year. In the first half of 1997, the
Company repaid $9.6 million of outstanding debt under its
commercial paper program. Advances between the Company and
Frontier resulted in a net cash outflow of $11.8 million for
the period ended June 30, 1997. There were no cash dividends
paid during the first six months of 1997. (See discussion
relating to the dividend policy on page 14.) In the first
half of 1996, the Company paid cash dividends of $28.0
million and repaid advances to Frontier in the amount of
$5.4 million. In addition, during the first two quarters of
1996, the Company borrowed $9.3 million under its commercial
paper program.
Debt
At June 30, 1997, the Company's total outstanding long-
term debt amounted to $53.3 million. This debt consisted of
$13.3 million issued under the Company's commercial paper
program and $40.0 million of medium-term notes.
Effective June 30, 1997, the Company reduced its
available line of credit under its Revolving Credit
Agreement from $100.0 million to $50.0 million.
On March 31, 1997, Standard & Poor's ("S& P") announced
their new domestic telephone company rating methodology,
which addresses the impact of deregulation on operating and
holding company ratings. As a result, the ratings of 16
companies were affected by S&P's announcement, and S&P
lowered their rating of the Company's long-term debt from
"AA" to "AA-". Under S&P's revised rating methodology, a
local telephone company is typically allowed a rating one
"notch" higher than that of the consolidated entity (i.e.,
holding company and operating subsidiaries). However, the
Company was allowed a two "notch" differential, largely as a
result of the regulatory controls in existence under the
Company's Open Market Plan.
Debt Ratio and Interest Coverage
The Company's debt ratio (total debt as a percent of
total capitalization) was 16.9% at June 30, 1997 as compared
with 21.4% at December 31, 1996. This change is primarily
due to the reduction of outstanding debt under the Company's
commercial paper program. Pre-tax interest coverage was
22.6 times through the first six months of 1997. Excluding
nonrecurring charges, pre-tax interest coverage was 21.7
times through the first six months of 1996.
Capital Spending
For the six months ended June 30, 1997, capital
expenditures amounted to $27.5 million as compared to $23.9
million for the comparable period in 1996. The Company plans
to expend a total of approximately $55.0 million for
additions to property, plant and equipment in 1997.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard No. 130 ("FAS 130"),
"Reporting Comprehensive Income," effective for fiscal years
beginning after December 15, 1997. This statement
establishes standards for reporting and display of
comprehensive income and its components in a full-set of
general-purpose financial statements. Comprehensive income
is defined as "the change in equity of a company during a
period from transactions and other events and circumstances
from non-owner sources." It includes all changes in equity
during a period except those resulting from investments by
owners and distributions to owners. Early application of
this statement is permitted. If comparative financial
statements are provided for earlier periods,
reclassification to reflect the provisions of this statement
is required. The Company will adopt FAS 130 in the first
quarter of 1998.
OTHER ITEMS
Open Market Plan
The Company began its third year of operations under
the Open Market Plan in January 1997. The Open Market Plan
promotes telecommunications competition in the Rochester,
New York marketplace by providing for (1) interconnection of
competing local networks including reciprocal compensation
for terminating traffic, (2) equal access to network
databases, (3) access to local telephone numbers, (4)
service provider telephone number portability, and (5)
certain wholesale discounts to resellers of local services.
The inherent risk associated with opening the Rochester
market to competition is that some customers are able to
purchase services from competitors, which may reduce the
number of retail customers and potentially cause a decrease
in the revenues and profitability for Rochester Telephone.
However, results since implementation of the Open Market
Plan indicate that a stimulation of demand in the use of the
network and new product revenue may offset the losses of
some retail customers. Increased competition may also lead
to additional price decreases for services, adversely
impacting the Company's margins. An additional positive
feature of the Open Market Plan provides that the Company
can retain additional earnings achieved through operating
efficiencies. Previously these earnings would have been
shared with customers.
During the seven year period of the Open Market Plan,
rate reductions of $21.0 million (the "Rate Stabilization
Plan") will be implemented for Rochester area consumers,
including $14.0 million of which occurred through 1996 and
an additional $1.5 million which commenced in January 1997.
Rates charged for basic residential and business telephone
service may not be increased during the seven year period of
the Plan. The Company is allowed to raise prices on certain
enhanced products such as caller ID and call forwarding.
Price increases on enhanced products partially offset the
rate reductions required under the Plan during 1997.
During the second quarter the Federal Communications
Commission ("FCC") issued decisions that are intended to
implement provisions of the Telecommunications Act of 1996.
Of significance were decisions that outlined changes in the
structure of universal service support and in the framework
that applies to certain interstate rates that are generally
characterized as access-related charges. During the second
quarter, a Federal appeals court rejected parts of an
earlier FCC order that set out conditions governing the
provisions of interconnection services. A preliminary review
of these orders suggests they will have no material impact
on the Company.
Under the Telecommunications Act of 1996 and a
statewide proceeding, the NYSPSC is considering the prices
that local exchange companies in New York may charge for
"unbundled" service elements such as links (the wire from
the switch to the customer premise), ports (the portion of
the switch that terminates the link) and switch usage
features. The Company is actively participating in this
proceeding and expects the NYSPSC to issue a decision on
service elements in 1997.
Management believes there are significant market and
business opportunities associated with the Company's Open
Market Plan. However, there are also uncertainties
associated with the Plan. In the Company's opinion, the
most significant risks relate to increased competition in
the Rochester, New York market, the risk inherent in the
Rate Stabilization Plan and the potential diversification
risk.
There can be no assurance that the changing regulatory
environment will not have a negative impact on the Company.
Dividend Policy
The Open Market Plan prohibits the payment of dividends
by the Company to Frontier Corporation if (i) the Company's
senior debt has been downgraded to "BBB" by S&P, or the
equivalent rating by other rating agencies or is placed on
credit watch for such a downgrade, or (ii) certain service
quality measures deteriorate below minimum levels stipulated
in the Open Market Plan. Dividend payments to Frontier also
require the Company's directors to certify that such
dividends will not impair the Company's service quality or
its ability to finance its short and long-term capital needs
on reasonable terms while maintaining an S&P debt rating
target of "A".
In 1996, the Company failed to achieve the service
quality levels required by the Open Market Plan. On
December 19, 1996, pursuant to the Open Market Plan, RTC
requested the NYSPSC staff to exclude certain months from
the calculation used to measure service quality, due to
operating conditions considered by management to be abnormal
and beyond the Company's control. In April 1997, the Company
received notice from the NYSPSC that its request for a
waiver of certain conditions in the Open Market Plan related
to service quality results was denied. The NYSPSC's ruling
resulted in a temporary restriction on the payment of
dividends to Frontier and a refund to the Company's
customers of approximately $.9 million. Reserves sufficient
to cover the refund were established in 1996. The Company
has presented to the NYSPSC a plan for disposition of the
refund. A decision is expected by the end of the year.
The temporary restriction of dividend payments remains
in place, as the Company has not yet reached 1997 service
quality levels that are sufficiently adequate to justify its
removal.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
AT&T Communications of New York filed a complaint with
the NYSPSC for reconsideration of the Open Market Plan on
October 3, 1995. The complaint sought a change in the
wholesale discount, a change in the minutes of use surcharge
and also changes in a number of operational and support
activities. Some of these issues are also being considered
in other states in other unrelated local competition
proceedings. On July 18, 1996, the NYSPSC increased the
wholesale discount to 13.5% on a temporary basis, effective
July 24, 1996. On November 27, 1996, the NYSPSC established
permanent wholesale discounts, retroactive to July 24, 1996,
of 17.0% for resellers using the Company's operator services
and 19.6% for resellers providing their own operator
services. In a statewide proceeding also examining New York
Telephone Company's and the Company's wholesale prices, the
NYSPSC is determining the prices applicable to the purchase
of unbundled network elements such as subscriber loops
("links"), switch ports and transport and switching
services. In a related statewide proceeding, the NYSPSC is
also examining possible changes in the prices and rate
structure of intrastate access charges paid by long distance
companies for the origination and termination of long
distance calls.
Item 5. Employees and Labor Relations
The labor contract between the CWA Local 1170 and the
Company expired on January 31, 1996. The Company's total
workforce was 1,523 employees at June 30, 1997. Membership
in the CWA Local accounted for approximately 40% of that
total.
After six months of collective bargaining without
reaching an agreement, the Company declared that the
negotiations were at impasse and implemented the terms of
its final offer effective April 9, 1996. The CWA Local 1170
challenged the Company's declaration of impasse and
implementation through the filing of several unfair labor
practice charges with the National Labor Relations Board
("NLRB"). All but one of these charges was dismissed by the
NLRB on December 2, 1996. The remaining charge was returned
to the NLRB's Regional Office in Buffalo, New York for an
administrative hearing that concluded in June 1997. The
Company is currently waiting the decision of an
Administrative Law Judge and does not anticipate a final
decision until late 1997. The Company cannot predict the
final outcome of these matters at this time. On May 6,
1997, the members of CWA Local 1170, ratified a tentative
agreement that was reached with Rochester Telephone on April
29, 1997 which contained provisions that differed from the
Company's final offer implemented at the time of impasse.
The differences between the Company's final offer and the
agreement that was ratified are not material in the view of
management. This new agreement will provide several
operational improvements and will result in a more
consistent alignment of benefits with the rest of the
Corporation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Index
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter:
SEC Filing Date Item No. Financial Statements
June 25, 1997 5 No
The Company filed no reports on Form 8-K subsequent to
the quarter ended June 30, 1997.
<PAGE>
<PAGE>
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.
ROCHESTER TELEPHONE CORP.
--------------------------------
(Registrant)
Dated: August 13, 1997 By: /s/Michael L. Evans
----------------
Michael L. Evans
Vice President and Treasurer
(and principal financial officer)
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Reference
3.1 Certificate of Incorporation Incorporated by reference
to Exhibit 3.1 to Form 10-K
for the year ended
December 31, 1995.
3.2 Certificate of Amendment to Incorporated by reference
Certificate of Incorporation to Exhibit 3.2 to Form
10-K for the year ended
December 31, 1995.
3.3 Bylaws Incorporated by reference
to Exhibit 3.3 to Form 10-K
for the year ended
December 31, 1995.
27 Financial Data Schedule Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL IINFORMATION EXTRACTED FROM
ROCHESTER TELEPHONE CORP.S FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000936105
<NAME> ROCHESTER TELEPHONE CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1711
<SECURITIES> 0
<RECEIVABLES> 47808
<ALLOWANCES> 1857
<INVENTORY> 1108
<CURRENT-ASSETS> 67703
<PP&E> 905424
<DEPRECIATION> 574357
<TOTAL-ASSETS> 416084
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<BONDS> 53319
0
0
<COMMON> 232165
<OTHER-SE> 30204
<TOTAL-LIABILITY-AND-EQUITY> 416084
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<TOTAL-REVENUES> 163310
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<TOTAL-COSTS> 114892
<OTHER-EXPENSES> 644
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<INTEREST-EXPENSE> 1402
<INCOME-PRETAX> 46372
<INCOME-TAX> 16168
<INCOME-CONTINUING> 30204
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