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 1-3435
NEW YORK TELEPHONE COMPANY
Incorporated under the laws of the State of New York
I.R.S. Employer Identification Number 13-5275510
1095 Avenue of the Americas, New York, New York 10036
Telephone Number (212) 395-2121
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>
Form 10-Q Part I New York Telephone Company
PART I - FINANCIAL INFORMATION
<TABLE>
CONSOLIDATED 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. . . . . . . . . . . $1,189.3 $1,176.1 $2,357.5 $2,323.8
Long distance. . . . . . . . . . . 85.0 94.4 173.3 187.9
Network access . . . . . . . . . . 552.1 557.1 1,119.7 1,115.2
Other. . . . . . . . . . . . . . . 88.9 134.6 184.3 281.2
Total operating revenues. . . . . 1,915.3 1,962.2 3,834.8 3,908.1
OPERATING EXPENSES
Maintenance and support. . . . . . 602.0 599.2 1,230.0 1,155.5
Depreciation and amortization. . . 371.5 358.8 738.7 716.9
Marketing and customer services. . 246.1 247.8 495.8 478.3
Taxes other than income taxes. . . 199.7 203.9 399.7 423.1
Provision for uncollectibles . . . 22.5 13.7 43.7 28.7
Other. . . . . . . . . . . . . . . 494.4 154.5 642.0 366.1
Total operating expenses. . . . . 1,936.2 1,577.9 3,549.9 3,168.6
Operating income . . . . . . . . . . (20.9) 384.3 284.9 739.5
Other income - net . . . . . . . . . 4.8 19.6 8.1 39.3
Interest expense . . . . . . . . . . 76.6 89.3 151.3 177.9
Earnings before income taxes
and cumulative effect of change
in accounting principle. . . . . . (92.7) 314.6 141.7 600.9
Income taxes . . . . . . . . . . . . (42.7) 90.2 29.5 171.2
Earnings (loss) before cumulative
effect of change in accounting
principle. . . . . . . . . . . . . (50.0) 224.4 112.2 429.7
Cumulative effect of change in
accounting for postemployment
benefits, net of taxes . . . . . . - - - (90.8)*
NET INCOME (LOSS). . . . . . . . . . $ (50.0) $ 224.4 $ 112.2 $ 338.9 *
RETAINED EARNINGS
Beginning of period. . . . . . . . $1,062.9 $1,747.1* $1,082.0 $1,813.6
Net income (loss) . . . . . . . . (50.0) 224.4 112.2 338.9 *
Dividends . . . . . . . . . . . . (181.1) (180.9) (362.4) (361.9)
End of period. . . . . . . . . . . $ 831.8 $1,790.6* $ 831.8 $1,790.6 *
* 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 consolidated financial statements.
</TABLE>
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<PAGE>
Form 10-Q Part I New York Telephone Company
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In millions)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and temporary cash investments. . . . . $ 41.2 $ 7.5
Receivables (net of allowance of $135.2
and $134.8, respectively). . . . . . . . . 1,448.7 1,427.5
Deferred charges . . . . . . . . . . . . . . 75.2 55.5
Deferred income taxes. . . . . . . . . . . . 2.5 99.4
Inventory. . . . . . . . . . . . . . . . . . 65.6 72.4
Prepaid expenses and other . . . . . . . . . 90.5 102.9
Total current assets . . . . . . . . . . . 1,723.7 1,765.2
Telephone plant - at cost. . . . . . . . . . . 20,019.0 19,696.5
Less: accumulated depreciation. . . . . . . 8,018.3 7,580.5
12,000.7 12,116.0
Deferred charges and other . . . . . . . . . . 1,539.8 1,554.2
Total Assets . . . . . . . . . . . . . . . . $15,264.2 $15,435.4
LIABILITIES AND SHARE OWNER'S EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . $ 1,650.6 $ 1,744.7
Short-term debt. . . . . . . . . . . . . . . 350.7 255.7
Dividends payable. . . . . . . . . . . . . . 181.2 181.0
Taxes accrued. . . . . . . . . . . . . . . . 41.8 48.3
Advance billing and customers' deposits. . . 183.1 187.2
Interest accrued . . . . . . . . . . . . . . 11.4 58.2
Total current liabilities. . . . . . . . . 2,418.8 2,475.1
Long-term debt . . . . . . . . . . . . . . . . 3,975.0 3,972.1
Deferred income taxes. . . . . . . . . . . . . 1,588.1 1,826.9
Unamortized investment tax credits . . . . . . 228.8 244.9
Other long-term liabilities and deferred
credits. . . . . . . . . . . . . . . . . . . 2,118.5 1,731.2
Total liabilities. . . . . . . . . . . . . 10,329.2 10,250.2
Commitments and contingencies (Notes (d) and (e))
Share owner's equity:
Common stock - one share, without par value. 4,103.2 4,103.2
Retained earnings. . . . . . . . . . . . . . 831.8 1,082.0
Total share owner's equity . . . . . . . . 4,935.0 5,185.2
Total Liabilities and Share Owner's Equity . $15,264.2 $15,435.4
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
Form 10-Q Part I New York Telephone Company
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
<CAPTION>
For the Six Months Ended
June 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . $ 112.2 $ 338.9 *
Adjustments to reconcile net income to net. .
cash provided by operating activities:
Depreciation and amortization . . . . . . . . 738.7 716.9
Allowance for funds used during
construction - equity component . . . . . . (9.3) (11.6)
Change in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . (21.2) 36.5
Current Deferred charges, Inventory,
Deferred income taxes and Prepaid
expenses and other. . . . . . . . . . . . 96.4 (115.3)
Accounts payable, Deferred income taxes,
Taxes accrued, Advance billing and
customers' deposits and Interest accrued. (151.5) (231.3)*
Deferred income taxes and Unamortized
investment tax credits. . . . . . . . . . . (254.9) 132.9 *
Other long-term liabilities and
deferred credits. . . . . . . . . . . . . . 387.3 41.2 *
Other - net . . . . . . . . . . . . . . . . . (16.1) 35.6
Total adjustments . . . . . . . . . . . . . . 769.4 604.9
Net cash provided by operating
activities. . . . . . . . . . . . . . . . . 881.6 943.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . (582.7) (531.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from NYNEX . . . . . . . . . . . . (493.7) (243.2)
Dividends paid to NYNEX . . . . . . . . . . (362.2) (355.9)
Issuance of long-term debt. . . . . . . . . 593.5 494.3
Repayment of long-term debt and capital
leases. . . . . . . . . . . . . . . . . . ( 2.8) ( 2.6)
Debt refinancings and call premiums . . . . - (309.2)
Net cash used in financing activities . . . . (265.2) (416.6)
Net increase (decrease) in Cash and
temporary cash investments. . . . . . . . . 33.7 (4.4)
Cash and temporary cash investments at
beginning of period . . . . . . . . . . . . 7.5 24.7
Cash and temporary cash investments at
end of period . . . . . . . . . . . . . . . $ 41.2 $ 20.3
* 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 consolidated financial statements.
</TABLE>
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<PAGE>
Form 10-Q Part I New York Telephone Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) BASIS OF PRESENTATION - The consolidated financial statements have been
prepared by New York Telephone 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 consolidated 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 consolidated 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 the results for the full year. These consolidated financial statements
should be read in conjunction with the consolidated 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 AND TEMPORARY CASH INVESTMENTS - 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 $48.8 million.
(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)
Income tax payments .......................... $166.6 $307.0
Interest payments ............................ $125.9 $159.1
(d) REVENUES SUBJECT TO POSSIBLE REFUND - Several state and federal
regulatory matters may possibly require the refund of a portion of the
revenues collected in the current and prior periods, including affiliate
transactions issues in the Company's 1990 intrastate rate case and
overearnings complaints by interstate access customers. As of June 30, 1994,
the aggregate amount of such revenues that was estimated to be subject to
possible refund was approximately $188 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.
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<PAGE>
Form 10-Q Part I New York Telephone Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(e) LITIGATION AND OTHER CONTINGENCIES - It is probable that local tax
claims aggregating approximately $210 million in tax and $137 million in
associated interest will be asserted against the Company for the period 1983
through the second quarter of 1994. The claims relate to the taxability of
the Company's interstate and intrastate network access revenues. The current
status is that these matters have been identified as possible audit
adjustments by the taxing authority, and the Company is presenting its
arguments against those adjustments. While the Company's counsel cannot give
assurance as to the outcome, counsel believes that the Company has strong
legal positions in these matters.
Various other 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 on 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.
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<PAGE>
Form 10-Q Part I New York Telephone 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.
STATE REGULATORY MATTERS
As previously reported (see the Company's Annual Report on Form 10-K for the
year ended December 31, 1993), in the first phase of the incentive regulation
proceeding, the New York State Public Service Commission ("NYSPSC") issued
Orders on December 24, 1993 and January 28, 1994 for a reduction in the
Company's rates of $170 million annually, effective January 1, 1994, and
required that an additional $153 million of current revenues be made
available "for the ultimate benefit of customers and the Company's
competitive position through earnings incentives for short-term service
improvements and a longer term plan for performance-based earning incentives
and network improvements." That incentive regulatory plan is currently being
pursued in the second phase of the proceeding. The $170 million rate
reduction was intended to reduce intrastate revenues by approximately
$141 million annually. As ordered by the NYSPSC, the Company has designated
$31 million of the $153 million as an incentive to improve overall service
quality in the Brooklyn-Queens-Bronx service area.
As previously reported (see the Company's Annual Report on Form 10-K for the
year ended December 31, 1993), on February 4, 1993, the NYSPSC issued an
order with respect to the Second and Third Stages, permitting the Company to
retain 1993 earnings above a return on equity of 11.7% and up to 12.7%,
depending on its attainment of specified service-quality criteria, with
earnings above 12.7% return on equity to be held for the ratepayers'
benefit. The Company has submitted a report to the NYSPSC showing 1993
earnings below 11.7%. The NYSPSC is currently reviewing the Company's
submission.
BUSINESS RESTRUCTURING
Second quarter 1994 results include approximately $300 million of pretax
charges ($195 million after-tax) for pension enhancements for approximately
500 management and 1,900 nonmanagement employees who elected during the
quarter to leave the Company under retirement incentives and for the
Company's allocation from Telesector Resources Group, Inc. ("TRG") for its
pension enhancements. 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 TRG's pension
enhancements were recorded. The retirement incentives are intended to
provide a voluntary means to implement a portion of the planned work force
reductions of approximately 9,000 employees by the end of 1996. The
components of the $300 million pretax charges are as follows:
$153 million ($100 million after-tax) for pension enhancements, $116 million
($75 million after-tax) for associated postretirement medical benefits,
$23 million ($15 million after-tax) for charges allocated to the Company from
TRG for its associated postretirement medical benefits and $8 million
($5 million after-tax) for charges allocated to the Company from TRG for its
pension enhancements.
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<PAGE>
Form 10-Q Part I New York Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
BUSINESS RESTRUCTURING (Continued)
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. Much of the cost of the
incentives will be funded by NYNEX's pension plans. This incentive also
resulted in more individuals qualifying for lifetime medical coverage than
under the severance plan. The pension enhancement to the NYNEX management
pension plan was announced in February 1994 and will be offered at different
times through 1996 according to local force requirements. The Company's
agreements with the Communications Workers of America and with the
International Brotherhood of Electrical Workers ("IBEW") in New York, which
extend the existing labor agreements to August 1998, provide a retirement
incentive (see COLLECTIVE BARGAINING AGREEMENTS below).
The restructuring reserve balance for the 1993 business restructuring charges
at June 30, 1994 was approximately $573 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
$148 million as follows: $54 million of severance reserves was transferred to
the pension liability on a per employee basis as a result of employees'
leaving under the special pension enhancements as opposed to severance
provisions as previously accrued for; $8 million was utilized for other
retiree costs; $12 million was utilized for developing a single "NYNEX" brand
identity; $31 million was utilized for the Company's allocation of TRG's
pension enhancements; $24 million was utilized for the Company's allocation
of TRG's postretirement medical benefits; and $19 million was utilized for
the Company's allocation of TRG's process re-engineering. Additionally, $26
million of reserves accrued in 1991 for severance costs related to TRG was
utilized for the Company's allocation of TRG's 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 the terms of the enhanced pension offering left in late June,
the expense savings associated with this force reduction have not yet been
realized.
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993
OPERATING REVENUES
Operating revenues for the six months ended June 30, 1994 decreased
$73.3 million, or 1.9%, from the same period last year. This decrease in
total operating revenues is comprised of the following:
Increase (Decrease)
(In millions)
Local service. . . . . . . . . $ 33.7
Long distance. . . . . . . . . (14.6)
Network access . . . . . . . . 4.5
Other. . . . . . . . . . . . . (96.9)
$(73.3)
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<PAGE>
Form 10-Q Part I New York Telephone 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)
Local service revenues are earned from the provision of local exchange, local
private line and local public network services. The increase in Local
service revenues was primarily due to a net $95 million increase attributable
to increased demand as evidenced by growth in access lines, growth in sales
of calling features, such as call waiting, remote call forwarding and
touch-tone services, and higher usage associated with the severe winter
storms. In addition, there was a $5 million increase due to a 1993 reduction
in revenues associated with the reversal of a 1990 deferral of private line
revenues. These increases were partially offset by a $67 million revenue
reduction pursuant to an NYSPSC order (see STATE REGULATORY MATTERS above).
Long distance revenues are earned from the provision of services beyond the
local service area, but within the local access and transport area ("LATA"),
and include public and private network switching. The decrease in Long
distance revenues was primarily attributable to a $7 million revenue
reduction pursuant to an NYSPSC order (see STATE REGULATORY MATTERS above)
and a decrease in demand for private line and wide area telecommunications
services as a result of 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. Switched access revenues are
charges to telecommunications carriers for access to the Company's local
exchange facilities. Switched access revenues increased a net $17 million
principally due to increased usage, partially offset by a reduction in
interstate rates, which included the phase-out of the equal access cost
recovery charge, and by a $6 million revenue reduction pursuant to an NYSPSC
order (see STATE REGULATORY MATTERS above). Special access revenues are
charges for dedicated lines that connect terminal locations of interexchange
carriers and end users. Special access revenues decreased $12 million
primarily due to a reduction in interstate rates, increased competition and
customer shifts to lower priced Company services.
Other revenues are earned from the provision of products and services other
than Local service, Long distance and Network access. The decrease in Other
revenues was due principally to a $77 million reduction in revenues as
ordered by the NYSPSC representing the first and second quarter deferrals of
the $153 million (see STATE REGULATORY MATTERS above), a $24 million decrease
in revenues attributable to the 1993 reversal of previously recorded
reductions in revenues in connection with the phase-out of ad valorem taxes
on central office equipment, and a $7 million decrease due to the cessation
of imputed revenues for procurement costs. Partially offsetting these
decreases was a $10 million increase due to the 1993 reversal of a 1992
deferral of revenues for concession service.
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<PAGE>
Form 10-Q Part I New York Telephone 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
Operating expenses for the six months ended June 30, 1994 increased
$381.3 million, or 12.0%, over the same period last year. This increase in
total operating expenses is comprised of the following:
Increase (Decrease)
(In millions)
Depreciation and amortization. . . . $ 21.8
Taxes other than income taxes. . . . (23.4)
All other:
Business restructuring charges . . 299.7
Employee related . . . . . . . . . 37.1
Other. . . . . . . . . . . . . . . 46.1
$381.3
Depreciation and amortization increased principally due to a $25 million
increase in plant investment.
Taxes other than income taxes decreased principally due to a $28 million
decrease in property taxes resulting from lower assessments of property
value, partially offset by a $2 million increase in New York State capital
stock tax.
Business restructuring charges recorded in the second quarter consisted of
incremental costs related to pension enhancements (see BUSINESS RESTRUCTURING
above).
Employee related costs consist primarily of wages, payroll taxes, and
employee benefits. Wages and payroll taxes increased a net $32 million
principally due to increases in salary and wage rates and additional labor
costs due to initiatives to improve service quality, partially offset by
reductions in the Company's work force attributable to the Company's force
reduction program and the transfer of employees to TRG associated with
re-engineering the way service is delivered to customers, including operating
the Company and New England Telephone and Telegraph Company ("New England
Telephone") as a single enterprise under the "NYNEX" brand (see Other
operating expenses below). Benefit expenses increased $8 million primarily
due to higher costs of providing medical coverage for active and retired
employees.
Other operating expenses consist primarily of contracted and centralized
services, rent and other general and administrative costs. The increase in
other operating expenses was due principally to a $42 million net increase in
charges from affiliated companies due to an increase in contracted and
centralized services and the transfer of employees from the Company and NYNEX
Corporate to TRG (see Employee related costs above), a $23 million increase
in bad debt expense recognized pursuant to provisions of the billing and
collection contract with AT&T, and a $15 million increase in the
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<PAGE>
Form 10-Q Part I New York Telephone 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)
Provision for uncollectibles. Partially offsetting these increases were a
$12 million decrease in right-to-use fees due to lower purchases of software,
a $14 million decrease due to the completion of equal access amortization in
1993 and a $9 million decrease attributable to the reversal in 1993 of
deferred inside wire expense recorded in 1991 and 1992.
OTHER INCOME - NET
Other income - net for the six months ended June 30, 1994 decreased
$31.2 million from the same period last year due principally to a $28 million
decrease resulting from the completion in 1993 of the transition plan with
New England Telephone to phase in the earnings impact of the unified tariff
access rate structure. This decrease was partially offset by an 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.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 1994 decreased
$26.6 million from the same period last year, primarily due to lower average
interest rates resulting from long-term debt refinancings during 1993 and
higher expenses in the first six months of 1993 for interest on customer
overbillings.
INCOME TAXES
Income taxes for the six months ended June 30, 1994 decreased $141.7 million
from the same period last year, principally due to a $147 million decrease as
a result of a decrease in taxable income, partially offset by a $5 million
increase in tax expense 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 $250 million of unissued, unsecured debt
securities registered with the SEC.
Pursuant to the indentures for certain of its debentures, the Company has
covenanted that it will not issue additional funded debt securities ranking
equally with or prior to such debentures unless it has maintained an earnings
coverage of 1.75 for interest charges for a period of any 12 consecutive
months out of the 15 month period prior to the date of the proposed
issuance. As a result of the 1993 business restructuring charges and the
1994 pension enhancements, the Company does not currently meet the earnings
coverage requirement.
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<PAGE>
Form 10-Q Part I New York Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993 (Continued)
COLLECTIVE BARGAINING AGREEMENTS
On March 24, 1994, an agreement was reached with the Communications Workers
of America and Local 2213 of the International Brotherhood of Electrical
Workers ("IBEW") in New York to extend through August 8, 1998 the collective
bargaining agreements that were to expire on August 5, 1995. The agreements
were ratified in May 1994. 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.
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<PAGE>
Form 10-Q Part II New York Telephone Company
PART II - OTHER INFORMATION
ITEM 5. Other Information
STATE REGULATORY MATTERS
As previously reported (see New York Telephone Company ("the
Company's") Annual Report on Form 10-K for the year ended
December 31, 1993), the New York State Public Service Commission
("NYSPSC") has issued an Opinion and Order which would require the
Company to provide IntraLATA Presubscription ("ILP") within 18
months of a bona fide request from a carrier. ILP would give a
customer the option of designating, in advance, a carrier that
would carry the customer's intraLATA toll calls. On April 4, 1994,
the NYSPSC issued an opinion which confirmed the 18 month
requirement, provided that Interexchange Carriers should pay the
cost of ILP implementation, and ruled that the Company should be
compensated for contribution losses resulting from ILP. In its
decision, the NYSPSC suggested that certain issues relating to ILP,
including scheduling, would be made the subject of negotiations and
a "collaborative effort" between the parties to the incentive
regulation proceeding.
See, also, discussion of STATE REGULATORY MATTERS in Part I,
Management's Discussion and Analysis of Results of Operations.
FEDERAL REGULATORY MATTERS
In June of 1994, the Federal Communications Commission ("FCC")
concluded a review of the performance of local exchange carriers
("LECs") during the initial period of price cap regulation. The
Company and New England Telephone and Telegraph Company
("New England Telephone") (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 1992 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 $9.1 million during the tariff period from July 1,
1994 to June 30, 1995.
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<PAGE>
Form 10-Q Part II New York Telephone Company
PART II - OTHER INFORMATION (Continued)
ITEM 5. Other Information (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.
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<PAGE>
Form 10-Q New York Telephone 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 York Telephone Company
Mel Meskin
Mel Meskin
Vice President - Finance and Treasurer
(Principal Financial and Chief Accounting
Officer)
August 10, 1994
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