Form 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
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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 following item of its Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1994, as set forth in the pages
attached hereto:
Part I - Item 2 "Management's Discussion and Analysis of Results of Operations"
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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.
BUSINESS RESTRUCTURING
As previously reported (see the Company's Annual Report on Form 10-K for the
year ended December 31, 1993), the Company recorded pretax charges of
approximately $619 million in the fourth quarter of 1993 for business
restructuring, of which approximately $201 million was for employee severance
payments and approximately $194 million was for postretirement medical costs
recognized as a result of the planned decrease in the work force. 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. A tentative agreement has been reached with the
Communications Workers of America which, subject to ratification, would extend
the existing labor agreement to August 1998 and would provide a retirement
incentive. Negotiations to reach a similar agreement with the International
Brotherhood of Electrical Workers continue. The management retirement incentive,
and any nonmanagement retirement incentive that may subsequently be implemented,
are intended to provide a voluntary means to implement a portion of the planned
work force reductions of approximately 6,300 employees by the end of 1996.
The reserves established for severance will be transferred to the pension
liability on a per employee basis as a result of employees' leaving under the
pension enhancements as opposed to severance provisions, and the incremental
cost of the pension enhancements will be charged to expense as employees leave.
The retirement incentives credit employees with an additional six years towards
both their age and their length of service for the purpose of determining
pension eligibility and benefits. Postretirement medical costs will be increased
on a per employee basis, because these incentives resulted in more individuals
qualifying for lifetime medical coverage than under the severance plan, and will
be charged to expense as employees leave. Under the assumption that
nonmanagement employees will leave under the retirement incentive, the expected
utilization of nonmanagement severance reserves and the application of the
postretirement medical liability per year have been revised from the expected
utilization as previously reported (see the Company's Annual Report on Form
10-K/A, Amendment No. 1, for the year ended December 31, 1993) as follows:
(In millions)
Severance 1994 1995 1996 Total
--------- -----------------------------
Management $80 $11 $ 9 $100
Nonmanagement 14 42 45 101
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Total $94 $53 $54 $201
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Medical 1994 1995 1996 Total
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Management $35 $ 4 $ 4 $ 43
Nonmanagement 24 61 66 151
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Total $59 $65 $70 $194
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Form 10-Q/A Part I New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
BUSINESS RESTRUCTURING (Continued)
The restructuring reserve balance at March 31, 1994, which does not include the
liability recorded at year-end for postretirement medical benefits associated
with employees' leaving the Company under the business restructuring, was
approximately $415 million. In the first quarter of 1994, the Company reduced
1993 restructuring reserves by $11 million in the following categories:
Severance $ -
Systems redesign:
Customer contact -
Customer provisioning -
Customer operations -
Customer support -
--
Total systems redesign -
Work center consolidation -
Branding 10
Relocation -
Training -
Re-engineering implementation -
--
Subtotal 10
Telesector Resources' allocated
reserves:
Severance -
Postretirement medical benefits -
Systems re-engineering -
Re-engineering implementation 1
Work center consolidation -
--
Total allocated reserves 1
---
Total $11
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The reduction in the reserve for branding includes approximately $6 million to
reflect a revised estimate of branding costs.
There were no significant cost savings as a result of business restructuring in
the first quarter of 1994. Force reductions will begin in the second quarter of
1994 as retirement incentives are offered to eligible employees. It is
anticipated that major re-engineering initiatives will begin in the second
quarter of 1994.
FIRST THREE MONTHS OF 1994 AS COMPARED TO FIRST THREE MONTHS OF 1993
OPERATING REVENUES
Operating revenues increased $42.6 million, or 4.2%, over the same period last
year. The increase in total operating revenues is comprised of the following:
Increase
(In millions)
-------------
Local service $24.5
Long distance 6.6
Network access 4.4
Other 7.1
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$42.6
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Form 10-Q/A Part I New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST THREE MONTHS OF 1994 AS COMPARED TO FIRST THREE MONTHS OF 1993
(Continued)
OPERATING REVENUES (Continued)
Local service revenues are earned from the provision of local exchange, local
private line and local public network services. Local service revenues increased
$24.5 million due principally to increased customer demand evidenced by growth
in access lines and growth in sales of calling features such as caller
identification, remote call forwarding and touch-tone services. This increase
also includes the 1994 reversal of $5 million 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 increased
$6.6 million principally due to increased message toll service usage, including
the effect of severe winter weather, partially offset by 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
$4.4 million due principally to a $7 million increase in switched access
revenues partially offset by a $3 million decrease in special access revenues.
Switched access revenues increased due principally to an $18 million increase in
network demand offset by a net decrease of approximately $6 million primarily
attributable to interstate rate changes. Special access revenues decreased due
principally to decreased demand resulting from increased competition and
customer shifts to lower priced services offered by the Company.
Other revenues are earned from the provision of products and services other than
Local service, Long distance and Network access. Other revenues increased $7.1
million due principally to a $4 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 $2 million increase in revenues from inside wire related
charges and voice messaging services.
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Form 10-Q/A Part I New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST THREE MONTHS OF 1994 AS COMPARED TO FIRST THREE MONTHS OF 1993
(Continued)
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 1994 increased $54.8
million, or 7.5%, over the same period last year. This increase in total
operating expenses is comprised of the following:
Increase (Decrease)
(In millions)
-------------
Depreciation and amortization $23.9
Taxes other than income taxes (6.8)
All other:
Employee related 1.7
Other 36.0
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$54.8
=====
Depreciation and amortization increased $23.9 million due principally to a $17
million increase due to revised intrastate depreciation rates in Massachusetts
effective July 1993 and a $7 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 $6.8 million due principally
to an $8 million decrease in property taxes primarily attributable to a reversal
of a 1993 accrual as a result of unasserted municipal assessments.
Employee related costs, which consist primarily of wages, payroll taxes and
employee benefits, increased $1.7 million. Wages and payroll taxes increased $2
million, due principally to increases in salary and wage rates, partially offset
by decreases resulting from reductions in the Company's work force due to
transfers of employees to Telesector Resources Group, Inc. ("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 under the "NYNEX" brand (see Other
operating expenses below).
Other operating expenses, which consist primarily of contracted and centralized
services, rent and other general and administrative costs, increased $36.0
million. This increase was principally due to: a $14 million net increase in
charges from affiliated companies primarily attributable to the transfer of
employees from the Company to Telesector Resources (see Employee related costs
above); a $9 million increase in right to use fees principally resulting from
increased software purchases; and a $7 million increase resulting from
capitalization in 1993 of certain 1992 engineering charges.
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Form 10-Q/A Part I New England Telephone and Telegraph Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST THREE MONTHS OF 1994 AS COMPARED TO FIRST THREE MONTHS OF 1993
(Continued)
INTEREST EXPENSE
Interest expense decreased $6.1 million from the same period last year,
primarily due to a decrease in average interest rates resulting from long-term
debt refinancings in 1993 and a decrease in the average level of external debt.
OTHER INCOME (EXPENSE) - NET
Other income (expense) - net increased $16.0 million over the same period last
year due principally to a $14 million increase resulting from termination in
1994 of payments to New York Telephone pursuant to the transition plan 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 three months
of 1993 for the interstate portion of call premiums and other charges associated
with the refinancing of long-term debt.
INCOME TAXES
Income taxes increased $5.4 million over the same period last year. The increase
was principally due to an increase in taxable income and a $3 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 March 31, 1994, the Company had $500 million of unissued, unsecured debt
securities registered with the SEC.
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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
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Gail Deegan
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Chief Accounting Officer)
December 14, 1994
