Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
---
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 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 .
<PAGE>
- 2 -
Form 10-Q Part I New England Telephone and Telegraph
Company
PART I - FINANCIAL INFORMATION
<TABLE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions) (Unaudited)
<CAPTION>
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. . . . . . . . . . . . . . . 139.8 96.5 222.0 199.5
Total operating expenses. . . . . 830.9 765.7 1,619.9 1,499.9
Operating income . . . . . . . . . . 220.6 250.8 484.3 526.7
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. . . . . . . 182.9 197.6 409.1 413.9
Income taxes
Federal. . . . . . . . . . . . . . 52.9 52.3 119.0 113.1
State and local. . . . . . . . . . 12.9 13.4 28.3 28.7
Total income taxes. . . . . . . . 65.8 65.7 147.3 141.8
Earnings before cumulative effect of
change in accounting principle. . 117.1 131.9 261.8 272.1
Cumulative effect of change in
accounting for postemployment
benefits, net of taxes. . . . . . - - - (25.3)*
NET INCOME . . . . . . . . . . . . . $ 117.1 $ 131.9 $ 261.8 $ 246.8 *
RETAINED EARNINGS
Beginning of period. . . . . . . . $ 968.6 $1,273.5* $ 929.9 $1,262.0
Net income . . . . . . . . . . . 117.1 131.9 261.8 246.8 *
Dividends declared . . . . . . . (106.2) (103.3) (212.2) (206.7)
End of period. . . . . . . . . . . $ 979.5 $1,302.1* $ 979.5 $1,302.1 *
*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.
</TABLE>
<PAGE>
- 3 -
Form 10-Q Part I New England Telephone and Telegraph Company
<TABLE>
BALANCE SHEETS
(In millions)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
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 . . . . . . . . . . . . . . . . $ 401.0 $ 404.3
Trade and other. . . . . . . . . . . . . . 547.5 587.7
Short-term debt. . . . . . . . . . . . . . . 163.9 158.5
Dividends payable. . . . . . . . . . . . . . 106.1 103.4
Taxes accrued. . . . . . . . . . . . . . . . 19.6 26.5
Advance billing and customers' deposits. . . 20.6 18.2
Interest accrued . . . . . . . . . . . . . . 37.4 37.8
Total current liabilities. . . . . . . . . 1,296.1 1,336.4
Long-term debt . . . . . . . . . . . . . . . . 2,164.7 2,164.0
Deferred income taxes. . . . . . . . . . . . . 803.0 841.7
Unamortized investment tax credits . . . . . . 104.2 115.4
Other long-term liabilities
and deferred credits. . . . . . . . . . . . . 824.5 794.5
Total liabilities. . . . . . . . . . . . . 5,192.5 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. . . . . . . . . . . . . . 979.5 929.9
Total share owner's equity . . . . . . . . 3,068.6 3,019.0
TOTAL LIABILITIES AND SHARE OWNER'S EQUITY . $ 8,261.1 $ 8,271.0
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- 4 -
Form 10-Q Part I New England Telephone and Telegraph Company
<TABLE>
STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
<CAPTION>
For The
Six Months Ended
June 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income. . . . . . . . . . . . . . . . . . . . $ 261.8 $ 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 . . . . . . . . . . . . . . . (43.5) (59.3)*
Taxes accrued. . . . . . . . . . . . . . . . . (6.9) (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 . . . . . . . . . . . (49.9) (138.1)*
Other long-term liabilities and
deferred credits . . . . . . . . . . . . . . 30.0 120.3 *
Other - net. . . . . . . . . . . . . . . . . . 1.3 28.0
Total adjustments . . . . . . . . . . . . . . . . 418.2 331.8
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
*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.
</TABLE>
<PAGE>
- 5 -
Form 10-Q 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.
(c) SUPPLEMENTAL INFORMATION - The following information is
provided in accordance with Statement of Financial Accounting
Standards No. 95, "Statement of Cash Flows":
<TABLE>
<CAPTION>
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.
<PAGE>
- 6 -
Form 10-Q 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 $35 million of pretax charges
($23 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 $16 million of the pretax charges ($12 million
after-tax) were recorded by the Company and included the
following: $6 million ($5 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 $19 million of the pretax charges ($11 million
after-tax) were allocated to the Company from Telesector
Resources for costs associated with its force reductions during
the quarter, which included $5 million ($3 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 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
<PAGE>
- 7 -
Form 10-Q 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)
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.
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:
<TABLE>
<CAPTION>
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 increased $4.3 million due
principally to increased message toll service
<PAGE>
- 8 -
Form 10-Q 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)
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.
OPERATING EXPENSES
Operating expenses for the six months ended June 30, 1994 increased
$120.0 million, or 8.0%, over the same period last year. This
increase in total operating expenses is comprised of the following:
<TABLE>
<CAPTION>
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. . . . . . . . . . . . 35.4
Employee related costs . . . . . . . . . (6.8)
Other operating expenses . . . . . . . . 50.2
$120.0
</TABLE>
<PAGE>
-9 -
Form 10-Q 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.
<PAGE>
-10 -
Form 10-Q 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 increased $5.5 million over the same period last
year. The increase was principally due to 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.
<PAGE>
-11 -
Form 10-Q Part II New England Telephone and Telegraph Company
PART II - OTHER INFORMATION
Item 5. Other Information
State Regulatory Matters
Maine
The Maine Public Utilities Commission ("MPUC") has
commenced an investigation into alternative forms of
regulation, in lieu of traditional rate of return
regulation, for New England Telephone and Telegraph
Company (the "Company"). The MPUC has also initiated,
on a parallel track, a proceeding with regard to
competition, interconnection and the unbundling of
tariffed services.
Massachusetts
In connection with the Company's proposed Alternative
Regulatory Plan (as previously reported in the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994), the Massachusetts Department of Public Utilities
("MDPU") ruled on May 24, 1994 that the Company's filing would be
treated as a petition for alternative regulation and, consequently,
the MDPU's review is not subject to the statutory suspension
period. Hearings concerning the Company's filing commenced
on July 11, 1994.
New Hampshire
On June 30, 1994, the New Hampshire Public Utilities
Commission ("NHPUC") approved the Company's proposed toll
rate reduction targeted at small and medium volume usage
customers, effective August 5, 1994. The annual revenue effect
of the toll rate reduction is estimated to be approximately $7.1
million. The NHPUC previously approved, effective
January 31, 1994, a Company-requested toll rate reduction
targeted at high and medium volume usage customers, with
an annual revenue effect of $3.5 million.
Rhode Island
On June 15, 1994, the Rhode Island Public Utilities
Commission approved a 1993 shared earnings credit of
$485,000 pursuant to the Rhode Island price regulation
trial. In July of 1994, the Company issued the 1993
shared earnings credit to Rhode Island customers.
Vermont
As previously reported (see the Company's Annual Report
on Form 10-K for the year ended December 31, 1993), the
Company filed a petition for a price regulation plan
with the Vermont Public Service Board ("VPSB") on
October 5, 1993. In a related proceeding, on December 1, 1993,
the Vermont Department of Public Service ("VDPS") filed a petition
seeking to examine the Company's rates and to ensure that rates
are at appropriate levels prior to the initiation
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Form 10-Q Part II New England Telephone and Telegraph Company
PART II - OTHER INFORMATION (Continued)
Item 5. Other Information (Continued)
State Regulatory Matters (Continued)
of a price regulation plan. On May 27, 1994, the
Company and the VDPS submitted to the VPSB a proposed
agreement to resolve the major issues in the Company's
Price Regulation Plan proceeding. The agreement
would afford the Company pricing and marketing
flexibility and would not restrict the Company's
earnings. In connection with the proposed agreement,
the VDPS has reduced its allegation of Company
overearnings from $27.5 million to $17.1 million on an
annual basis. Hearings before the VPSB concluded on
July 21, 1994 and a decision is expected in October.
Federal Regulatory Matters
In June of 1994, the Federal Communications Commission
("FCC") completed a review of the performance of local
exchange carriers ("LECs") during the initial period of
price cap regulation. The Company and New York Telephone Company
(collectively, the "Telephone Companies") filed comments
advocating price cap and access reform to keep pace with the
intensifying competitive environment. Among other things, the
Telephone Companies recommended increased pricing
flexibility, elimination of sharing and low end
adjustment mechanisms, and reduction of the productivity
factor. An FCC decision is pending.
On June 10, 1994, the United States Court of Appeals for
the District of Columbia Circuit (the "Court of Appeals")
overturned the FCC's requirement that LECs allow collocation,
on a physical or "virtual" basis, of third parties' transmission
equipment in the LECs' central offices. On July 14, 1994,
the FCC, on remand from the Court of Appeals, modified its
virtual collocation requirement and directed the LECs to file
compliance tariffs by September 1, 1994, to be effective
December 15, 1994.
On July 1, 1994, the Company implemented the fourth
annual update to the price cap rates. These tariffs
will result in a net reduction in the Company's annual
interstate access rates of approximately $0.3 million
during the tariff period from July 1, 1994 to June 30, 1995.
On July 8, 1994, the Company requested FCC authority to
provide commercial video dialtone service in communities
in Massachusetts and Rhode Island, and to construct the
necessary video facilities.
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10-Q Part II New England Telephone and Telegraph Company
PART II - OTHER INFORMATION (Continued)
Item 5. Other Information (Continued)
Federal Regulatory Matters (Continued)
On July 12, 1994, the Court of Appeals reversed the
FCC's order that had denied price cap LECs, including
the Company, recovery in interstate rates of increased
costs of other postretirement employee benefits
resulting from the implementation of Statement of
Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than
Pensions". The Court remanded the matter to the FCC for
further proceedings.
Operations Under the Modification of Final Judgment
On July 6, 1994, NYNEX Corporation, Bell Atlantic Corporation,
BellSouth Corporation and Southwestern Bell Corporation
filed a motion in the United States District Court for
the District of Columbia to vacate the Modification of
Final Judgment.
Item 6. Exhibits and Reports on Form 8-K
(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.
<PAGE>
Form 10-Q 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
s/Gail Deegan
Gail Deegan
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Chief Accounting Officer)
August 10, 1994
