Form 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
---
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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 1-1150
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
Incorporated under the laws of the State of New York
I.R.S. Employer Identification Number 04-1664340
125 High Street, Boston, Massachusetts 02110
Telephone Number (617) 743-9800
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF NYNEX CORPORATION,
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1) (a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
AMENDMENT NO. 1
The registrant hereby amends the Form 10-Q for the quarterly period ended
June 30, 1994, to correct an error by the outside actuary of the registrant
in calculating the cost of pension enhancements, as set forth in
"Part 1 - Financial Information" attached hereto.
The effect of the correction on net income for the second quarter was a
decrease of $11.7 million, net of income tax of $7.2 million.
<PAGE>
Form 10-Q/A Part I New England Telephone and
Telegraph Company
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions) (Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
1994# 1993 1994# 1993
<S> <C> <C> <C> <C>
OPERATING REVENUES
Local service $ 479.7 $ 451.5 $ 949.9 $ 897.2
Long distance 185.6 187.9 379.0 374.7
Network access 295.4 289.5 594.3 584.0
Other 90.8 87.6 181.0 170.7
Total operating revenues 1,051.5 1,016.5 2,104.2 2,026.6
OPERATING EXPENSES
Maintenance and support 288.4 285.0 593.4 543.4
Depreciation and amortization 222.9 200.8 442.7 396.7
Marketing and customer services 139.2 145.2 285.5 279.1
Taxes other than income taxes 29.8 27.8 53.3 58.1
Provision for uncollectible
revenues 10.8 10.4 23.0 23.1
Other 158.7 96.5 240.9 199.5
Total operating expenses 849.8 765.7 1,638.8 1,499.9
Operating income 201.7 250.8 465.4 526.7
Other income (expense) - net 3.5 (10.7) 6.2 (24.0)
Interest expense 41.2 42.5 81.4 88.8
Earnings before income taxes and
Cumulative effect of change in
accounting principle 164.0 197.6 390.2 413.9
Income taxes
Federal 46.9 52.3 113.0 113.1
State and local 11.7 13.4 27.1 28.7
Total income taxes 58.6 65.7 140.1 141.8
Earnings before cumulative effect of
change in accounting principle 105.4 131.9 250.1 272.1
Cumulative effect of change in
accounting for postemployment
benefits, net of taxes - - - (25.3)*
NET INCOME $ 105.4 $ 131.9 $ 250.1 $ 246.8 *
<PAGE>
RETAINED EARNINGS
Beginning of period $ 968.6 $1,273.5* $ 929.9 $1,262.0
Net income 105.4 131.9 250.1 246.8 *
Dividends declared (106.2) (103.3) (212.2) (206.7)
End of period $ 967.8 $1,302.1* $ 967.8 $1,302.1*
</TABLE>
#Second quarter 1994 amounts have been restated to correct an error
by the outside actuary of the registrant in calculating the cost
of pension enhancements.
*Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 112 in the fourth quarter of 1993 retroactive to
January 1, 1993.
See accompanying notes to financial statements.
- 2 -
<PAGE>
Form 10-Q/A Part I New England Telephone and Telegraph Company
<TABLE>
<CAPTION>
BALANCE SHEETS
(In millions)
June 30, December 31,
1994# 1993
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 8.6 $ 11.2
Receivables (net of allowance of $46.6
and $51.7, respectively) 767.9 732.5
Deferred income taxes 88.5 120.6
Deferred charges 88.0 99.5
Inventories 42.5 57.6
Prepaid expenses and other 45.7 69.6
Total current assets 1,041.2 1,091.0
Telephone plant - at cost 11,964.3 11,591.1
Less: accumulated depreciation 5,329.4 5,013.9
6,634.9 6,577.2
Deferred charges and other 585.0 602.8
TOTAL ASSETS $ 8,261.1 $ 8,271.0
LIABILITIES AND SHARE OWNER'S EQUITY
Current liabilities:
Accounts payable
Affiliates $ 411.9 $ 404.3
Trade and other 547.5 587.7
Short-term debt 163.9 158.5
Dividends payable 106.1 103.4
Taxes accrued 15.3 26.5
Advance billing and customers' deposits 20.6 18.2
Interest accrued 37.4 37.8
Total current liabilities 1,302.7 1,336.4
Long-term debt 2,164.7 2,164.0
Deferred income taxes 800.1 841.7
Unamortized investment tax credits 104.2 115.4
Other long-term liabilities
and deferred credits 832.5 794.5
Total liabilities 5,204.2 5,252.0
Commitments and contingencies (Notes (d) and (e))
Share owner's equity:
Common stock - one share, without par value 2,089.1 2,089.1
Retained earnings 967.8 929.9
Total share owner's equity 3,056.9 3,019.0
TOTAL LIABILITIES AND SHARE OWNER'S EQUITY $ 8,261.1 $ 8,271.0
</TABLE>
#Second quarter 1994 amounts have been restated to correct an error
by the outside actuary of the registrant in calculating the cost of
pension enhancements.
See accompanying notes to financial statements.
- 3 -
<PAGE>
Form 10-Q/A Part I New England Telephone and Telegraph Company
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
For The
Six Months Ended
June 30,
1994# 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 250.1 $ 246.8 *
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 442.7 396.7
Allowance for funds used during
construction - equity component (4.7) (3.9)
Change in operating assets and liabilities:
Receivables (35.4) (2.0)
Deferred income taxes 32.1 2.5 *
Deferred charges 11.5 6.5
Inventories 15.1 3.8
Prepaid expenses and other 23.9 (19.9)
Accounts payable (32.6) (59.3)*
Taxes accrued (11.2) (0.2)
Advance billing and customers' deposits 2.4 0.7
Interest accrued (0.4) (3.3)
Deferred income taxes and Unamortized
investment tax credits (52.8) (138.1)*
Other long-term liabilities and
deferred credits 38.0 120.3 *
Other - net 1.3 28.0
Total adjustments 429.9 331.8
Net cash provided by operating activities 680.0 578.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (478.4) (376.8)
Advances to NYNEX - 82.0
Net cash used in investing activities (478.4) (294.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from NYNEX 5.7 149.0
Dividends paid to NYNEX (209.4) (202.5)
Issuance of long-term debt - 323.2
Repayment of long-term debt and capital leases (0.5) (0.6)
Debt refinancings and call premiums - (551.0)
Net cash used in financing activities (204.2) (281.9)
Net (decrease) increase in Cash (2.6) 1.9
Cash at beginning of period 11.2 12.7
Cash at end of period $ 8.6 $ 14.6
</TABLE>
#Second quarter 1994 amounts have been restated to correct an error
by the outside actuary of the registrant in calculating the cost
of pension enhancements.
*Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 112 in the fourth quarter of 1993 retroactive to
January 1, 1993.
See accompanying notes to financial statements.
- 4 -
<APGE>
Form 10-Q/A Part I New England Telephone and Telegraph Company
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(a) BASIS OF PRESENTATION - The financial statements have been
prepared by New England Telephone and Telegraph Company (the
"Company"), a wholly owned subsidiary of NYNEX Corporation
("NYNEX"), pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") and, in the
opinion of management, include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair
presentation of the financial information for each period shown.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. Management believes
that the disclosures made are adequate to make the information
presented not misleading. Certain information in the financial
statements for 1993 has been reclassified to conform to the
current year's presentation. The results for interim periods are
not necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
1993 Annual Report on Form 10-K and the current year's previously
issued Quarterly Report on Form 10-Q.
(b) CASH - The Company's cash management policy is to make funds
available in banks when checks are presented. At June 30, 1994,
the Company had recorded in Accounts payable checks outstanding
but not yet presented for payment of $69.8 million.
<TABLE>
<CAPTION>
(c) SUPPLEMENTAL INFORMATION - The following information is
provided in accordance with Statement of Financial Accounting
Standards No. 95, "Statement of Cash Flows":
For the
Six Months Ended
June 30,
1994 1993
(In millions)
<S> <C> <C>
Income tax payments $121.5 $169.1
Interest payments $ 73.8 $ 90.5
</TABLE>
(d) REVENUES SUBJECT TO POSSIBLE REFUND - Several regulatory
matters, primarily involving the rates and charges for the
provision of certain interstate access and other related
services, may possibly require the refund of a portion of the
revenues collected for such services in the current and prior
periods. As of June 30, 1994, the aggregate amount of such
revenues that was estimated to be subject to possible refund was
approximately $15 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.
(e) LITIGATION AND OTHER CONTINGENCIES - Various legal actions
and regulatory proceedings are pending that may affect the
Company, including matters involving Racketeer Influenced and
Corrupt Organizations Act, antitrust, tort, contract and tax
deficiency claims. While counsel cannot give assurance as to the
outcome of any of these matters, in the opinion of management
based upon the advice of counsel, the ultimate resolution of
these matters in future periods is not expected to have a
material effect on the Company's financial position or annual
operating results but could have a material effect on quarterly
operating results.
- 5 -
<PAGE>
Form 10-Q/A Part I New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The following Management's Narrative Analysis of Results of
Operations is provided pursuant to General Instruction H(2) to
Form 10-Q.
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993
BUSINESS RESTRUCTURING
Second quarter 1994 results include $54 million of pretax charges
($35 million after-tax) for pension enhancements for employees
who elected during the quarter to leave New England Telephone and
Telegraph Company (the "Company") and Telesector Resources Group,
Inc. ("Telesector Resources") under retirement incentives. A
portion of the year-end 1993 accrual for severance was utilized
on a per employee basis, and the incremental costs of both the
Company's pension enhancements and the Company's allocation of
Telesector Resources' pension enhancements were recorded. The
retirement incentives are intended to provide a voluntary means
to implement a portion of the planned work force reduction of
approximately 6,300 employees by the end of 1996.
Approximately $24 million of the pretax charges ($17 million
after-tax) were recorded by the Company and included the
following: $14 million ($10 million after-tax) for pension
enhancements for approximately 400 employees who elected during
the quarter to leave the Company under retirement incentives, and
$10 million ($7 million after-tax) for associated postretirement
medical benefits.
Approximately $30 million of the pretax charges ($18 million
after-tax) were allocated to the Company from Telesector
Resources for costs associated with its force reductions during
the quarter, which included $16 million
($10 million after-tax) for pension enhancements and $14 million
($8 million after-tax) for associated postretirement medical benefits.
The retirement incentives credit employees with an additional six
years toward both their age and their length of service for the
purpose of determining pension eligibility and benefits. Much of
the cost of the incentives will be funded by NYNEX's pension
plans. These incentives also resulted in more individuals
qualifying for lifetime medical coverage than under the severance
plan. In February of 1994, the Board of Directors of NYNEX
Corporation approved a pension enhancement for eligible
management employees who retire through December 31, 1996. This
enhancement will be offered at different times through 1996
according to local force requirements. An agreement has been
reached with the Communications Workers of America which extends
the existing labor agreement to August 1998 and provides a
retirement incentive. On August 5, 1994, a similar agreement
with the International Brotherhood of Electrical Workers in New
England was tentatively reached, subject to ratification by the
union membership. (See COLLECTIVE BARGAINING AGREEMENTS below.)
The restructuring reserve balance for the 1993 business restructuring
charges at June 30, 1994 was approximately $336 million,
excluding the liability recorded at year-end for postretirement
medical benefits associated with employees leaving the Company
under the business restructuring. In the first six months of
1994, the Company reduced 1993 restructuring reserves by
approximately $90 million as follows: $29 million of reserves
established for severance were transferred to the pension liability on a per
employee basis as a result of employees leaving under the pension
enhancements as opposed to
- 6 -
<PAGE>
Form 10-Q/A Part I New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993 (Continued)
BUSINESS RESTRUCTURING (continued)
severance provisions as previously accrued for; $3 million was
utilized for other retiree costs; $5 million was utilized for
developing a single "NYNEX" brand identity and $6 million was
reversed to reflect a revised estimate of costs related to a
"NYNEX" brand identity; $20 million was utilized for the
Company's allocation of Telesector Resources' pension enhancements;
$15 million was utilized for the Company's allocation of
Telesector Resources' postretirement medical benefits; and $12
million was utilized for the Company's allocation of Telesector
Resources' system re-engineering. Additionally, $14 million of
reserves established in 1991 for severance costs related to
Telesector Resources were utilized for the Company's allocation
of Telesector Resources pension enhancements.
There were no significant cost savings as a result of business
restructuring in the first six months of 1994. Since most of the
employees that left the Company under terms of the enhanced
pension offering left near the end of the period, the expense
savings associated with this force reduction have not yet been realized.
<TABLE>
<CAPTION>
OPERATING REVENUES
Operating revenues increased $77.6 million, or 3.8%, over the
same period last year. The increase in total operating revenues
is comprised of the following:
Increase (Decrease)
(In millions)
<S> <C>
Local service $ 52.7
Long distance 4.3
Network access 10.3
Other 10.3
$ 77.6
</TABLE>
Local service revenues are earned from the provision of local
exchange, local private line and local public network services.
Local service revenues increased $52.7 million due principally to
increased customer demand of approximately $33 million, evidenced
by growth in access lines and growth in sales of calling features
such as caller identification, call waiting and touch-tone
services, and to an increase of approximately $8 million in local
service rates primarily attributable to the implementation of the
third transitional filing of a restructuring of Massachusetts
rates effective April 14, 1994. In addition, there was a $5
million increase in local directory assistance revenues resulting
from the reversal of previously deferred revenues pursuant to a
regulatory agreement with the State of Massachusetts to offset
expenses to enhance E911 systems, and a $6 million increase
primarily due to the 1994 reversal of revenues deferred in 1993
that were in excess of the required one-time credit to customers'
bills pursuant to the Rhode Island price regulation trial for 1993.
Long distance revenues are earned from the provision of services
beyond the local service area, but within the local access
transport area ("LATA"), and include public and private network
switching. Long distance revenues
- 7 -
<PAGE>
Form 10-Q/A Part I New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993 (Continued)
OPERATING REVENUES (Continued)
increased $4.3 million due principally to increased message toll
service usage of approximately $11 million, including the effect of
severe weather, and a $5 million increase in long distance
directory assistance revenues resulting from the reversal of
previously deferred revenues pursuant to a regulatory agreement
with the State of Massachusetts to offset expenses to enhance
E911 systems. These increases were partially offset by decreases
in long distance rates of approximately $12 million primarily
attributable to the implementation of the third transitional
filing of a restructuring of Massachusetts rates effective April
14, 1994 and decreases in private line revenues and wide area
telecommunications service revenues due primarily to increased
competition and customer shifts to lower priced services offered
by the Company.
Network access revenues are earned from the provision of exchange
access services primarily to interexchange carriers. Network
access revenues increased $10.3 million due principally to a $16
million increase in switched access revenues partially offset by
a $6 million decrease in special access revenues. Switched
access revenues increased due principally to a $30 million
increase in network demand offset by a net decrease of approximately
$11 million primarily attributable to interstate rate changes.
Special access revenues decreased $6 million due principally to
decreased demand of approximately $5 million resulting from
increased competition and customer shifts to lower priced
services offered by the Company and a $1 million decrease
resulting from interstate rate reductions.
Other revenues are earned from the provision of products and
services other than Local service, Long distance and Network
access. Other revenues increased $10.3 million due principally
to a $7 million increase in revenues related to the directory
licensing agreement with NYNEX Information Resources Company
resulting from higher estimated pretax earnings from the
directories published pursuant to the agreement and to a $4
million increase in revenues from inside wire related charges and
voice messaging services.
<TABLE>
<CAPTION>
OPERATING EXPENSES
Operating expenses for the six months ended June 30, 1994 increased
$138.9 million, or 9.3%, over the same period last year. This
increase in total operating expenses is comprised of the following:
Increase (Decrease)
(In millions)
<S> <C>
Depreciation and amortization $ 46.0
Taxes other than income taxes (4.8)
All other:
Business restructuring charges
recorded in 1994 54.3
Employee related costs (6.8)
Other operating expenses 50.2
$138.9
</TABLE>
- 8 -
<PAGE>
Form 10-Q/A Part I New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993 (Continued)
OPERATING EXPENSES (Continued)
Depreciation and amortization increased $46.0 million due principally to a
$33 million increase due to revised intrastate depreciation rates
in Massachusetts effective July 1993 and a $15 million increase
associated with increased plant investment.
Taxes other than income taxes, which include gross receipts
taxes, property taxes and other non-income based taxes, decreased
$4.8 million due principally to an $8 million decrease in
property taxes primarily attributable to a 1994
reversal of a 1993 accrual as a result of unasserted municipal
assessments. This decrease was partially offset by a $2 million
increase in Massachusetts property taxes due to increased tax
rates and a $1 million increase in Rhode Island gross receipts
tax as a result of an increase in Rhode Island operating revenues.
Business restructuring charges recorded in the second quarter of
1994 consisted of incremental costs related to pension
enhancements (see Business Restructuring above).
Employee related costs, which consist primarily of wages, payroll
taxes and employee benefits, decreased $6.8 million due
principally to an $8 million net decrease in wages and payroll
taxes primarily attributable to reductions in the Company's work
force due to transfers of employees to Telesector Resources
associated with re-engineering the way service is delivered to customers,
including operating the Company and New York Telephone Company ("New York
Telephone") as a single enterprise (see Other operating expenses
below) and to the Company's force reduction program, partially
offset by increases in salary and wage rates. In addition, there
was a $1 million increase in employee benefit costs for active
and retired employees due principally to increased medical costs.
Other operating expenses, which consist primarily of contracted
and centralized services, rent and other general and
administrative costs, increased $50.2 million. This increase was
due principally to a $27 million net increase in charges from
affiliated companies primarily attributable to an increase in
contracted and centralized services and the transfer of employees
from the Company and NYNEX Corporate to Telesector Resources (see
Employee related costs above), a $15 million increase in right to
use fees resulting from increased software purchases and a $7
million increase resulting from capitalization in 1993 of certain
1992 engineering charges.
OTHER INCOME (EXPENSE) - NET
Other income (expense) - net increased $30.2 million over the
same period last year due principally to a $28 million increase
resulting from completion in 1993 of the transition plan with New
York Telephone to phase in the earnings impact of the unified
tariff access rate structure. In addition, there was a $3
million increase due to higher expenses in the first six months
of 1993 for the interstate portion of call premiums and other
charges associated with the refinancing of long-term debt.
- 9 -
<PAGE>
Form 10-Q/A Part I New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993 (Continued)
OPERATING EXPENSES (Continued)
INTEREST EXPENSE
Interest expense decreased $7.4 million from the same period last
year, primarily due to a decrease in average interest rates
resulting from long-term debt refinancings in 1993.
INCOME TAXES
Income taxes decreased $1.7 million from the same period last
year. The decrease was principally due to a decrease in pretax
income partially offset by a $5 million increase associated with
the enactment of the Revenue Reconciliation Act of 1993 on August
10, 1993, which increased the statutory corporate federal income
tax rate from 34 percent to 35 percent retroactive to January 1, 1993.
FINANCING
At June 30, 1994, the Company had $500 million of unissued,
unsecured debt securities registered with the SEC.
COLLECTIVE BARGAINING AGREEMENTS
On March 24, 1994, an agreement was reached with the
Communications Workers of America to extend through August 8,
1998 the collective bargaining agreement that was to expire on
August 5, 1995. The agreement was ratified in
May 1994. On August 5, 1994, a similar agreement was tentatively
reached with the International Brotherhood of Electrical Workers,
subject to ratification by the union membership. Under the
terms of the new agreements, there will be basic wage increases
of 10.5% during the life of the agreements. Wages will increase
4.0% on August 6, 1995, 3.5% on August 4, 1996 and 3.0% on
August 3, 1997. In 1997 there may also be a cost-of-living
adjustment. The agreements also provide for retirement
incentives, a commitment to no layoffs or loss of wages as a
result of Company-initiated "process change", an enhanced
educational program and incentives to improve service quality.
- 10 -
<PAGE>
Form 10-Q/A New England Telephone and Telegraph Company
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
Gail Deegan
Gail Deegan
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Chief Accounting Officer)
October 31, 1994
