NEW YORK TELEPHONE CO, 10-K/A, 1994-12-14

NEW YORK TELEPHONE CO
10-K/A, 1994-12-14
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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FORM 10-K/A

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark one)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
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
A New York Corporation I.R.S. Employer
Identification No. 13-5275510

1095 Avenue of the Americas, New York, New York 10036

Telephone Number (212) 395-2121
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
See attached New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF NYNEX CORPORATION, MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF FORM 10-K AND IS
THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION J(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 ......

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [ ]*
*Not applicable

DOCUMENTS INCORPORATED BY REFERENCE:
None.
AMENDMENT No. 1
The registrant hereby amends the following items of its Annual Report on Form
10-K for the fiscal year ended December 31, 1993, as set forth in the pages
attached hereto:
Part II-Item 7 "Management's Discussion and Analysis of Results
of Operations"
Part II-Item 8 "Consolidated Financial Statements and
Supplementary Data"
Part IV-Item 14 "Exhibits, Consolidated Financial Statement
Schedules and Reports on Form 8-K"

<PAGE>

Attachment
Title of each class
REFUNDING MORTGAGE BONDS:
$ 55,000,000 3 3/8% Refunding Mortgage Bonds Series I
Due April 1, 1996
$ 60,000,000 4 5/8% Refunding Mortgage Bonds Series L
Due October 1, 1997
$ 60,000,000 4 5/8% Refunding Mortgage Bonds Series M
Due January 1, 2002
$ 70,000,000 4 1/4% Refunding Mortgage Bonds Series N
Due January 1, 2000
$130,000,000 4 5/8% Refunding Mortgage Bonds Series O
Due January 1, 2004
$100,000,000 4 7/8% Refunding Mortgage Bonds Series P
Due January 1, 2006
$ 75,000,000 6% Refunding Mortgage Bonds Series Q
Due September 1, 2007
$150,000,000 7 1/2% Refunding Mortgage Bonds Series R
Due March 1, 2009
$200,000,000 7 3/4% Refunding Mortgage Bonds Series T
Due December 15, 2006
$200,000,000 7 3/8% Refunding Mortgage Bonds Series V
Due December 15, 2011
DEBENTURES:
$200,000,000 Principal Amount of 40 Year 7 7/8% Debentures,
Due June 15, 2017
$150,000,000 Principal Amount of 21 Year 8 5/8% Debentures,
Due November 15, 2010
$200,000,000 Principal Amount of 40 Year 9 3/8% Debentures,
Due July 15, 2031
$100,000,000 Principal Amount of 30 Year 7 5/8% Debentures,
Due Feb. 1, 2023
$200,000,000 Principal Amount of 12 Year 6 1/2% Debentures,
Due March 1, 2005
$100,000,000 Principal Amount of 20 Year 7% Debentures,
Due May 1, 2013
$100,000,000 Principal Amount of 20 Year 7% Debentures,
Due June 15, 2013
$250,000,000 Principal Amount of 32 Year 7% Debentures,
Due August 15, 2025
$250,000,000 Principal Amount of 30 Year 6.70% Debentures,
Due November 1, 2023
$200,000,000 Principal Amount of 40 Year 7% Debentures,
Due December 1, 2033
$450,000,000 Principal Amount of 30 Year 7 1/4% Debentures,
Due February 15, 2024
NOTES:
$100,000,000 Principal Amount of 5 Year 5 1/4% Notes,
Due September 1, 1998
$200,000,000 Principal Amount of 10 Year 5 7/8% Notes,
Due September 1, 2003
$150,000,000 Principal Amount of 10 Year 5 5/8% Notes,
Due November 1, 2003
$150,000,000 Principal Amount of 10 Year 6 1/4% Notes,
Due February 15, 2004

<PAGE>

Item 7. 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 J(2) to Form 10-K.

BUSINESS RESTRUCTURING

Externally, rapid changes in technology and regulation are opening New York
Telephone Company's (the "Company") markets to competitors (see State Regulatory
Matters and Federal Regulatory Matters). There are more communications
alternatives available to customers, and their expectations for better quality
and service at lower prices are rising. The Company is in a vulnerable position
at the present time, since competitors can serve parts of the Company's market
at lower costs. As a result, 1993 results include pretax charges of
approximately $992 million ($645 million after-tax) for business restructuring.
These charges resulted from a comprehensive analysis of operations and work
processes, resulting in a strategy to redesign them to improve efficiency and
customer service, to adjust quickly to accelerating change, to implement work
force reductions, and to produce cost savings necessary for the Company to
operate in an increasingly competitive environment. The charges taken in 1993
were not related to the restructuring charges recorded in 1991.

Approximately $557 million of the charges ($362 million after-tax) is for
severance and postretirement medical costs for employees leaving the Company
through 1996. The Company expects to reduce its work force by approximately
9,000 employees by the end of 1996, consisting of 1,500 management employees and
7,500 employees covered under existing union agreements. The expected work force
reductions by year are as follows:

1994 1995 1996 Total
---- ---- ---- -----
Management 200 700 600 1,500
Nonmanagement 2,300 2,600 2,600 7,500
----- ----- ----- -----
Total 2,500 3,300 3,200 9,000
===== ===== ===== =====

Approximately $287 million was recorded for employee severance payments,
including salary, payroll taxes, and outplacement costs to be paid under
provisions of the Company's force management plan for management employees and
terms of collective bargaining agreements for nonmanagement employees. The
expected severance costs associated with these work force reductions by year are
as follows:

(In Millions) 1994 1995 1996 Total
---- ---- ---- -----
Management $ 17 $ 61 $56 $134
Nonmanagement 71 61 21 153
---- -- -- ---
Total $ 88 $122 $77 $287
==== ==== === ====

Approximately $270 million was recorded for postretirement medical costs for
these employees, including $158 million for the expected increase in the
accumulated postretirement benefit obligation and $112 million for recognition

<PAGE>

of the unrecognized transition obligation. The expected postretirement medical
costs associated with these work force reductions by year are as follows:

(In Millions) 1994 1995 1996 Total
---- ---- ---- -----
Management $ 7 $ 24 $22 $ 53
Nonmanagement 96 85 36 217
-- --- -- ---
Total $103 $109 $58 $270
===== ==== === ====

A pension enhancement to the NYNEX Corporation ("NYNEX") management pension plan
was announced in February 1994 in order to accomplish a portion of the
management work force reduction. Any additional costs related to the pension
enhancement will be recorded as employees choose to leave under the plan through
1996. If pension or other incentives were to be subsequently implemented in
order to accomplish a portion of the nonmanagement work force reduction, any
additional cost of the incentives would be recorded as employees leave the
Company. Force reductions will come in areas where redesigned processes can meet
customer service requirements with fewer people. The analysis of operations and
work processes resulted in recommendations for specific process and system
changes, and force reductions were identified as a result. Advances in
technology and streamlined processes are expected to make it possible for a
smaller work force to maintain the same-size network. This, in turn, will enable
the Company to reduce expenses.

Approximately $208 million of the charges ($135 million after-tax) consists of
costs 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") (collectively, the "Telephone Companies") as a single
enterprise under the "NYNEX" brand. During the period 1994 through 1996, NYNEX
intends to decentralize the provision of residence and business customer service
throughout the region, create regional businesses to focus on unique markets,
and centralize numerous operations and support functions.

The following items were included in these charges:

(In Millions) 1994 1995 1996 Total
---- ---- ---- -----
Systems redesign $ 8 $ 14 $- $ 22
Work center consolidation 3 88 1 92
Branding 28 - - 28
Relocation 9 15 1 25
Training 17 22 - 39
Re-engineering implementation 2 - - 2
--- ---- -- ----
Total $67 $139 $2 $208
=== ==== == ====

System redesign is the cost of developing new systems, processes and procedures
to realize operational efficiencies and enable the Company to reduce work force
levels. Commencing in 1994, certain specific new systems development initiatives
were begun to implement process re-engineering initiatives. These projects
consist of radical changes in applications and systems supporting redesigned
business functions which are an integral part of the restructuring plan, and all
the costs associated with these projects are incremental to ongoing operations.

<PAGE>

Only software purchases and external contractor expenses, which are normally
expensed in accordance with Company policy, were included in the restructuring
charges for the following business processes:

(In Millions) 1994 1995 1996 Total
---- ---- ---- -----
Customer contact $1 $ 8 $- $ 9
Customer operations 7 6 - 13
-- --- -- ---
Total $8 $14 $- $22
== === == ===

Customer contact represents the direct interface with the customer to provide
sales, billing inquiry and repair service scheduling on the first contact,
eliminating the number of handoffs that presently exist. New processes will
allow customers to define the way they want to do business with the Company.
Customer operations focuses on network monitoring and surveillance, trouble
testing, dispatch control, and proactive repair with reliability as a critical
source of competitive advantage.

Work center consolidation costs are incremental costs associated with building
work teams in fewer locations by the end of 1996 to take advantage of lower
force levels and system efficiencies, including costs associated with lease
terminations from the date premises are vacated, moving property to new
locations and other consolidation costs. Branding includes the costs to develop
a single "NYNEX" brand identity associated with the restructured business
operations. Relocation is the cost to relocate employees as a result of work
center consolidations. These charges are required to move personnel to different
locations and include employee home sale and purchase expenses, moving expenses,
travel and lodging expenses, and other costs based on the Company's relocation
guidelines and the provisions of collective bargaining agreements. Training is
the cost for training nonmanagement employees on newly designed,
cross-functional job positions and re-engineered systems created as part of the
restructuring plan. These charges include tuition, out of pocket course
development and administrative costs, facilities charges, and related travel and
lodging. This training reflects broadening of job skills that will permit one
employee to perform tasks formerly performed by several employees.
Re-engineering implementation represents the incremental cost to complete the
various re-engineering initiatives.

Approximately $227 million of restructuring charges ($148 million after-tax) was
allocated to the Company from Telesector Resources Group, Inc. ("Telesector
Resources"), primarily related to its force reduction and re-engineering
programs. The following items were included in these charges:

(In Millions) 1994* 1995 1996 Total
---- ---- ---- -----
Severance $ 33 $ 7 $ 3 $ 43
Postretirement medical benefits 26 4 1 31
Systems re-engineering 57 50 6 113
Re-engineering implementation 14 14 7 35
Work center consolidation 1 4 - 5
---- ---- ---- -----
Subtotal 131 79 17 227
Remaining 1991 severance reserve 28 - - 28
---- ---- ---- -----
Total $159 $79 $17 $255
==== ==== ===== =====
*1994 includes the severance amounts associated with the balance of the 1991
restructuring reserve at December 31, 1993.

<PAGE>

COLLECTIVE BARGAINING AGREEMENTS

In October 1991, the Communications Workers of America and the International
Brotherhood of Electrical Workers ratified agreements with the Company to extend
until August 5, 1995 the collective bargaining agreements that were to have
expired on August 8, 1992.

STATE REGULATORY MATTERS

The New York State Public Service Commission ("NYSPSC") authorized a $250
million increase in the Company's rates, effective January 1, 1991, of which
$47.5 million annually remains subject to refund pending resolution of certain
affiliate transactions issues.

In September 1992, the NYSPSC issued an order in the Second and Third Stages
(the "Second and Third Stages") of the 1990 general rate case that approximately
$27 million of revenues attributable to the reduction in ad valorem taxes on
central office equipment (see OPERATING REVENUES and OPERATING EXPENSES below)
would be retained to reduce the balance of regulatory assets on the Company's
books, and the remaining revenues ($15 million in 1992 and $62 million in 1993)
would offset rate increases that would otherwise have been required to offset
revenue decreases in long distance, carrier access and other revenues. In
October 1992, the Company filed a response to the NYSPSC's order in which it
updated the Regulatory Asset Recovery Plan. In the updated plan, the Company
outlined how certain regulatory assets currently accounted for as deferred
charges could be recovered over six years, starting in 1993, by utilizing ad
valorem tax savings and other revenues currently being provided in rates. On
January 28, 1994, the NYSPSC approved the Company's Regulatory Asset Recovery
Plan.

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% if it met specified service-quality criteria,
with earnings above 12.7% return on equity to be held for the ratepayers'
benefit. On February 25, 1994, the NYSPSC preliminarily concluded that there
would be no financial penalty based on the Company's 1993 service-quality
results.

In July 1992, the NYSPSC initiated a proceeding to investigate
performance-based incentive regulatory plans for the Company for 1994 and
beyond. The NYSPSC noted that incentive regulatory agreements provide incentives
to increase efficiency and provide greater consumer benefits by permitting the
Company to keep some of its performance gains, i.e., earn a higher rate of
return than authorized under traditional rate of return regulation, and by
penalizing unsatisfactory performance. In the first phase of the proceeding, the
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. An
additional $153.3 million of current revenues is to 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 will be pursued in a second phase of the proceeding
during 1994. The Orders required the Company to record a $75 million charge in
1993, representing a reversal of a portion of a regulatory asset related to
deferred pension costs that the Company expected to recover through the
regulatory process and recorded under the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (see OPERATING EXPENSES below).

<PAGE>

The NYSPSC did not make a final finding on return on equity for 1994. Subject to
the Company's achieving net productivity gains, according to the Orders, the
Company would have an opportunity to earn above a 10.8% return on equity, with
equal sharing with ratepayers of any earnings above a 12% return on equity.

FEDERAL REGULATORY MATTERS

Effective January 1, 1991, the Federal Communications Commission ("FCC") adopted
incentive regulation in the form of price caps with respect to interstate
services provided by the Company. Price caps focus on local exchange carriers'
("LECs") prices rather than costs and set maximum limits on prices LECs can
charge for their services. These limits are subject to adjustment each year to
reflect inflation, a productivity factor and certain other cost changes. Under
FCC price cap regulation, the Company may earn a return on equity of up to
approximately 15%. Above that level, earnings are subject to equal sharing with
ratepayers until they reach an effective cap on interstate return on equity of
approximately 18.7%.

In 1992, the Telephone Companies implemented a three-step transition plan to
unify their interstate access rates, with tariffs that became effective in
January, July, and November 1992. These tariffs, including the effect of the
Company's annual price cap tariff filings, resulted in a decrease in the
Company's interstate access revenues of approximately $10 million during the
tariff period ending June 30, 1992, a decrease of approximately $80 million
during the tariff period ending July 1, 1993 and will result in a decrease of
approximately $55 million during the tariff period ending June 30, 1994. The
Telephone Companies implemented a phase-in payment plan in order to avoid sudden
changes in each of the Telephone Company's earnings resulting from the unified
rate structure. A substantial portion of the decrease in the Company's access
revenues during those tariff periods was offset by the payment plan, which
provided for transition payments from New England Telephone in the amounts of
$18 million in 1992 and $55 million in 1993.

In September 1992, the FCC adopted rules requiring certain LECs, including the
Company, to offer physical collocation to interexchange carriers for the
provision of special access services under terms and conditions similar to the
intrastate collocation arrangement already in existence in New York. The Company
filed Special Access Expanded Interconnection tariffs on February 16, 1993. The
FCC issued an order on September 2, 1993, requiring certain LECs, including the
Company, to file Switched Transport Expanded Interconnection tariffs. The
Company filed its tariff on November 18, 1993. Although the FCC rejected
requests by the LECs to impose contribution charges, the FCC granted the LECs
additional pricing flexibility to be effective after expanded interconnection
arrangements become available.

<PAGE>

OPERATING REVENUES

Operating revenues for the year ended December 31, 1993 increased $100.6
million, or 1.3%, over the same period last year. This increase in total
operating revenues is comprised of the following:

Increase (Decrease)
(Dollars in Millions)
-------------------
Local service. . . . . . . . . . . $ 77.0
Long distance. . . . . . . . . . . 45.4
Network access . . . . . . . . . . (39.9)
Other. . . . . . . . . . . . . . . 18.1
------
$100.6
======

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 $127 million increase attributable to increased
demand as evidenced by growth in access lines, growth in sales of advanced
calling features such as call waiting, remote call forwarding and touch-tone
services, higher usage associated with the severe winter storms and the World
Trade Center bombing in 1993 (see OPERATING EXPENSES below) and increased rates
to cover higher gross receipts taxes. These increases were partially offset by a
$55 million rate reduction and a $5 million reduction in revenues associated
with the reversal of a 1990 deferral of private line revenues.

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 increase in Long distance
revenues was primarily due to $55 million of revenues attributable to regulatory
accounting adjustments relating to intraLATA toll calling in upstate New York
(see OPERATING EXPENSES below). This increase was partially offset by a $17
million decrease primarily due to decreased demand for toll private line
services, as a result of increased competition and customer shifts to lower
priced Company services.

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 decreased a net $25 million due
principally to a reduction in rates, including the effect of the unification of
interstate access rates (see OTHER INCOME - NET below) and a decrease in
interstate rates to reflect lower gross receipts taxes, and to the phase-out of
the equal access cost recovery charge. These decreases were partially offset by
increased usage. Special access revenues are charges for dedicated lines that
connect terminal locations of interexchange carriers and end users. Special
access revenues decreased $15 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 increase in Other revenues
was due principally to a $24 million reversal of previously recorded reductions

<PAGE>

in revenues in connection with the phase-out of ad valorem taxes on central
office equipment (see STATE REGULATORY MATTERS above) and to a $22 million
imputed reduction of these revenues in 1992. In addition, wire installation
revenues increased $9 million and late payment charges increased $6 million due
to an increase in rates. These increases were partially offset by a $26 million
decrease in billing and collection revenues primarily attributable to a contract
provision with American Telephone and Telegraph Company ("AT&T"), a $10 million
reduction associated with the reversal of a 1992 deferral of revenues for
concession service and a $10 million reduction due to the 1992 imputation of
these revenues.

OPERATING EXPENSES

Operating expenses for the year ended December 31, 1993 increased $1.2 billion,
or 19.9%, over the same period last year. This increase in total operating
expenses is comprised of the following:

Increase (Decrease)
(Dollars in Millions)
-------------------
Depreciation and amortization. . . . . . $ 27.8
Taxes other than income taxes. . . . . . (51.4)
All other:
Business Restructuring charges
recorded in 1993 . . . . . . . . . . . 991.8
Employee related. . . . . . . . . . . . 165.8
Other . . . . . . . . . . . . . . . . . 111.9
-------
$1,245.9
========

Depreciation and amortization increased principally due to a $51 million
increase attributable to an increase in plant investment. This increase was
partially offset by a $15 million decrease due to the interstate amortization of
the reserve deficiency, which was completed in 1992.

Taxes other than income taxes decreased from the same period last year due
principally to a $22 million decrease in property taxes resulting from lower
assessments of property value in 1993, and a $29 million decrease in ad valorem
taxes, primarily attributable to the phase-out of the tax on central office
equipment (see STATE REGULATORY MATTERS above).

Business restructuring charges recorded in the fourth quarter of 1993 consisted
of costs related to consolidation of work locations, re-engineering, and
incremental costs associated with work force reductions (see BUSINESS
RESTRUCTURING above).

Employee related costs consist primarily of wages, payroll taxes, and employee
benefits. Benefit expenses increased $154 million primarily due to higher costs
of providing medical coverage for active and retired employees, a $75 million
increase due to the reversal of deferred pension costs ordered by the NYSPSC
(see STATE REGULATORY MATTERS above) and an $18 million increase due to an
accrual for a supplemental executive retirement plan. Wages and payroll taxes

<PAGE>

increased $12 million principally due to increases in salary and wage rates,
including a 4.25% wage increase for nonmanagement employees pursuant to the 1991
collective bargaining agreements, additional labor costs due to severe winter
storms and the bombing of New York City's World Trade Center in 1993, and
initiatives to improve service quality, partially offset by decreases resulting
from a reduction in the Company's work force due to force reduction plans and
transfers to Telesector Resources (see Other operating expenses below). In 1993,
the Company reduced its management force by approximately 900 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 $64 million increase in intrastate
access expense due to regulatory accounting adjustments relating to intraLATA
toll calling in upstate New York (see OPERATING REVENUES above), a net
$19 million increase in contracted and centralized services, which includes a
$17 million increase attributable to increased training costs resulting from the
transfer of the training function previously performed by the Company to
Telesector Resources (see Employee related costs above), a $16 million increase
in right-to-use fees due to increased purchases of software to enhance existing
equipment, a $9 million increase primarily attributable to the reversal of
deferred inside wire expense recorded in 1991 and 1992 and a $9 million increase
due to the Company's contractual share of a predivestiture AT&T liability.
Partially offsetting these increases was a $19 million decrease in bad debt
expense recognized pursuant to provisions of the billing and collection contract
with AT&T.

OTHER INCOME - NET

Other income - net for the year ended December 31, 1993 decreased $54.4 million
from the same period last year. This decrease was due principally to $64 million
of interstate expense related to the refinancing of long-term debt and $20
million of interest received in 1992 as a result of the settlement of an
Internal Revenue Service 1987 summary assessment. These decreases were offset by
a $37 million increase in payments received from New England Telephone pursuant
to the transition plan to phase-in the earnings impact of the unified tariff
access rate structure (see FEDERAL REGULATORY MATTERS above).

INTEREST EXPENSE

Interest expense for the year ended December 31, 1993 decreased $14.3 million
from the same period last year. This decrease was due primarily to a decrease in
the average level of external debt, and lower average interest rates resulting
from long-term debt refinancings during 1993.

INCOME TAXES

Income taxes for the year ended December 31, 1993 decreased $410.6 million from
the same period last year, principally due to a decrease in taxable income. This
decrease was partially offset by an increase in tax expense associated with the
enactment of the Revenue Reconciliation Act of 1993, which increased the
statutory corporate federal income tax rate from 34 percent to 35 percent,
retroactive to January 1, 1993. The Company deferred the intrastate portion of
the effect of the tax rate increase.

<PAGE>

ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 112, "EMPLOYERS'
ACCOUNTING FOR POSTEMPLOYMENT BENEFITS"

The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("Statement No. 112"), in
the fourth quarter of 1993, retroactive to January 1, 1993. Statement No. 112
applies to postemployment benefits, including workers' compensation, disability
plans and disability pensions, provided to former or inactive employees, their
beneficiaries, and covered dependents after employment but before retirement.
Statement No. 112 changed the Company's method of accounting from recognizing
costs as benefits are paid to accruing the expected costs of providing these
benefits. The initial effect of adopting Statement No. 112 was reported as a
cumulative effect of a change in accounting principle and resulted in a
one-time, non-cash charge of $137.4 million ($89.3 million after-tax). In
subsequent years, the effect of Statement No. 112 is not expected to result in
periodic expense materially different from the expense recognized under the
prior method.

FINANCING

In 1993, the Company took advantage of favorable interest rates and refinanced a
substantial amount of long-term debt. During 1993, the Company issued $1.2
billion of Debentures and $450 million of Notes and used $1.55 billion of the
proceeds from these issuances and short-term borrowings from NYNEX to redeem
$2.15 billion of Debentures and Refunding Mortgage Bonds.

On June 21, 1993, the Company filed a registration statement with the Securities
and Exchange Commission ("SEC") for the issuance of up to $1.2 billion in
unsecured debt securities. On October 15, 1993, the Company filed a registration
statement with the SEC for the issuance of up to $800 million in unsecured debt
securities, which became effective on October 22, 1993. At December 31, 1993,
the Company had $850 million of unissued, unsecured debt securities registered
with the SEC.

On February 28, 1994, the Company issued $450 million of its Thirty Year 7 1/4%
Debentures, due February 15, 2024, and $150 million of its Ten Year 6 1/4%
Notes, due February 15, 2004. The net proceeds were used to repay short-term
advances from NYNEX. This reduces the remaining unissued, unsecured debt
securities registered with the SEC to $250 million.

Item 8. CONSOLIDATED FINANCIAL STATEMENTS

Report of Management

Management of New York Telephone Company and its subsidiary (the "Company") has
the responsibility for preparing the accompanying consolidated financial
statements and for their integrity and objectivity. The consolidated financial
statements were prepared in accordance with generally accepted accounting
principles and, in Management's opinion, are fairly presented. The consolidated
financial statements include amounts that are based on Management's best
estimates and judgments. Management also prepared the other information in this
report and is responsible for its accuracy and consistency with the consolidated
financial statements.

<PAGE>

The consolidated financial statements have been audited by Coopers & Lybrand,
independent accountants, whose appointment was approved by the Company's Board
of Directors. Management has made available to Coopers & Lybrand all of the
Company's financial records and related data, as well as the minutes of the
shareowner's and directors' meetings. Furthermore, Management believes that all
representations made to Coopers & Lybrand during its audit were valid and
appropriate.

Management of the Company has established and maintains an internal control
structure that is designed to provide reasonable assurance as to the integrity
and reliability of the consolidated financial statements, the protection of
assets from unauthorized use or disposition, and the prevention and detection of
fraudulent financial reporting. The concept of reasonable assurance recognizes
that the cost of the internal control structure should not exceed the benefits
to be derived. The internal control structure provides for appropriate division
of responsibility and is documented by written policies and procedures that are
communicated to employees with significant roles in the financial reporting
process. Management monitors the internal control structure for compliance,
considers recommendations for improvement from both the internal auditors and
Coopers & Lybrand and updates such policies and procedures as necessary.
Monitoring includes an internal auditing function to independently assess the
effectiveness of the internal controls and recommend possible improvements
thereto. Management believes that the internal control structure of the Company
is adequate to accomplish the objectives discussed herein.

The Audit Committee of the Board of Directors, which is comprised of directors
who are not employees, meets periodically with Management, the internal auditors
and Coopers & Lybrand to review the manner in which they are performing their
responsibilities and to discuss matters relating to auditing, internal controls
and financial reporting. Both the internal auditors and Coopers & Lybrand
periodically meet privately with the Audit Committee and have access to the
Audit Committee at any time.

Management also recognizes its responsibility for conducting Company activities
under the highest standards of personal and corporate conduct. This
responsibility is accomplished by fostering a strong ethical climate as
characterized in the NYNEX Code of Business Conduct of the Company, which is
publicized throughout the Company. The Code of Conduct addresses, among other
things, standards of personal conduct, potential conflicts of interest,
compliance with all domestic and foreign laws, accountability for Company
property and the confidentiality of proprietary information.

R. A. Jalkut
President and Chief Executive Officer

Mel Meskin
Vice President - Finance & Treasurer

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Share Owner and Board of Directors of
New York Telephone Company:

We have audited the consolidated financial statements and the consolidated
financial statement schedules of New York Telephone Company and Subsidiary
listed in Item 14(a)(1) and (2) of this Form 10-K. These consolidated financial
statements and consolidated financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and consolidated financial statement
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
York Telephone Company and Subsidiary as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. In addition, in our opinion, the consolidated
financial statement schedules referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.

As discussed in Notes A and C to the consolidated financial statements, the
Company changed its methods of accounting for income taxes, postretirement
benefits other than pensions, and postemployment benefits in 1993.

Coopers & Lybrand

New York, New York
February 9, 1994

<PAGE>

NEW YORK TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Dollars in Millions
<TABLE>
<CAPTION>
For the Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
OPERATING REVENUES
Local service. . . . . . . . . . . . . . $4,695.9 $4,618.9 $4,491.6
Long distance. . . . . . . . . . . . . . 379.8 334.4 364.7
Network access (Note (G)). . . . . . . . 2,230.1 2,270.0 2,288.5
Other (Notes (G) and (H)). . . . . . . . 541.2 523.1 552.0
-------- -------- --------
Total operating revenues . . . . . . 7,847.0 7,746.4 7,696.8
-------- -------- --------

OPERATING EXPENSES (Note (N))
Maintenance and support. . . . . . . . . 2,527.6 2,184.8 2,347.3
Depreciation and amortization. . . . . . 1,438.8 1,411.0 1,324.7
Marketing and customer services. . . . . 1,140.7 930.3 907.6
Taxes other than income taxes
(Note (I)). . . . . . . . . . . . . . 818.5 869.9 941.1
Provision for uncollectibles . . . . . . 77.8 75.8 71.1
Other expenses . . . . . . . . . . . . . 1,501.2 786.9 1,059.5
-------- -------- --------
Total operating expenses . . . . . . 7,504.6 6,258.7 6,651.3
-------- -------- --------

Operating income . . . . . . . . . . . . 342.4 1,487.7 1,045.5

Other income - net . . . . . . . . . . . 20.0 74.4 22.7

Interest expense (Notes (D) and (E)) . . 348.6 362.9 375.1
-------- -------- --------

Earnings before Income taxes and
cumulative effect of change in
accounting principle . . . . . . . . 13.8 1,199.2 693.1

Income taxes (Note (B)). . . . . . . . . (67.8) 342.8 157.2
-------- -------- --------

Earnings before cumulative effect of
change in accounting principle . . . 81.6 856.4 535.9

Cumulative effect of change in
accounting for postemployment
benefits, net of taxes (Note (C)). . (89.3) - -
-------- -------- --------

NET INCOME (LOSS). . . . . . . . . . . . $ (7.7) $ 856.4 $ 535.9
======== ======== =======

RETAINED EARNINGS
Beginning of year. . . . . . . . . . . . $1,813.6 $1,556.7 $1,625.1
Net income (loss). . . . . . . . . . (7.7) 856.4 535.9
Dividends. . . . . . . . . . . . . . (723.9) (599.5) (604.3)
-------- -------- --------
End of year. . . . . . . . . . . . . . . $1,082.0 $1,813.6 $1,556.7
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

NEW YORK TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS
Dollars in Millions
December 31,
1993 1992
ASSETS

Current assets:
Cash and temporary cash investments . . . . . . $ 7.5 $ 24.7
Receivables
Customers (net of allowance of $134.8 and
$128.3, respectively) (Note (G)). . . . . . 1,368.4 1,369.3
Affiliates (Note (H)) . . . . . . . . . . . . 30.9 26.8
Other . . . . . . . . . . . . . . . . . . . . 28.2 19.0
Deferred charges (Notes (B) and (C)). . . . . . 55.5 121.9
Deferred income taxes (Note (B)). . . . . . . . 99.4 -
Inventory . . . . . . . . . . . . . . . . . . . 72.4 82.6
Prepaid expenses and other. . . . . . . . . . . 102.9 66.1
------- -------
Total current assets . . . . . . . . . . . . 1,765.2 1,710.4
------- -------

Telephone plant:
In service. . . . . . . . . . . . . . . . . . . 19,171.1 18,552.5
Under construction. . . . . . . . . . . . . . . 525.4 481.9
------- -------
19,696.5 19,034.4
Less: accumulated depreciation . . . . . . . . 7,580.5 6,900.1
------- -------
Telephone plant - net. . . . . . . . . . . . 12,116.0 12,134.3
-------- --------

Deferred charges and other (Notes (B) and (C)). . 1,554.2 1,758.0
------- -------
Total Assets . . . . . . . . . . . . . . . . $15,435.4 $15,602.7
======== ========

See accompanying notes to consolidated financial statements.

<PAGE>

NEW YORK TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS
Dollars in Millions
<TABLE>
<CAPTION>

December 31,
1993 1992
<S> <C> <C>

LIABILITIES AND SHARE OWNER'S EQUITY

Current liabilities:
Accounts payable
AT&T (Note (G)) . . . . . . . . . . . . . . . $ 216.8 $ 230.0
Affiliates (Note (H)) . . . . . . . . . . . . 662.5 321.0
Compensated absences. . . . . . . . . . . . . 154.4 144.3
Payroll . . . . . . . . . . . . . . . . . . . 50.2 64.0
Trade and other (Note (N)). . . . . . . . . . 660.8 641.0
Short-term debt (Note (E)). . . . . . . . . . . 255.7 261.5
Dividends payable . . . . . . . . . . . . . . . 181.0 174.9
Taxes accrued . . . . . . . . . . . . . . . . . 48.3 170.3
Advance billing and customers' deposits . . . . 187.2 179.4
Interest accrued. . . . . . . . . . . . . . . . 58.2 70.5
Deferred income taxes (Note (B)). . . . . . . . - 94.5
------- --------
Total current liabilities. . . . . . . . . 2,475.1 2,351.4
------- --------

Long-term debt (Notes (D) and (M)). . . . . . . . 3,972.1 3,984.2
Deferred income taxes (Note (B)). . . . . . . . . 1,826.9 1,846.2
Unamortized investment tax credits. . . . . . . . 244.9 282.3
Other long-term liabilities and deferred credits
(Notes (B), (C) and (N)). . . . . . . . . . . 1,731.2 1,223.1
------- --------
Total long-term liabilities . . . . . . . . 7,775.1 7,335.8
------- --------

Total Liabilities. . . . . . . . . . . . . 10,250.2 9,687.2
------- --------

Commitments and contingencies (Notes (F), (G), (J)
and (K))
Share owner's equity:
Common stock - one share,
without par value . . . . . . . . . . . . . . 4,103.2 4,101.9
Retained earnings . . . . . . . . . . . . . . . 1,082.0 1,813.6
------- --------
Total Share Owner's Equity . . . . . . . . 5,185.2 5,915.5
------- --------
Total Liabilities and Share Owner's Equity. . . $15,435.4 $15,602.7
========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

NEW YORK TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
<TABLE>
<CAPTION>
For the Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . $ (7.7) $ 856.4 $ 535.9
------- ------- -------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization. . . . . 1,438.8 1,411.0 1,324.7
Allowance for funds used during
construction - equity component. . . (23.1) (24.6) (21.5)
Changes in operating assets
and liabilities:
Receivables. . . . . . . . . . . . . (12.4) 52.8 (44.4)
Current Deferred charges, Inventory
and Prepaid expenses and other . . 39.8 78.1 15.5
Deferred income taxes. . . . . . . . (193.9) (40.0) (95.1)
Accounts payable, Taxes accrued,
Advance billing and customers'
deposits and Interest accrued. . . 217.9 (258.1) 155.8
Deferred income taxes and Unamortized
investment tax credits . . . . . . . (56.7) 4.0 35.8
Other long-term liabilities and
deferred credits . . . . . . . . . . 508.1 (118.3) 391.1
Other - net. . . . . . . . . . . . . . 235.0 (28.7) (461.8)
------- ------- -------
Total adjustments. . . . . . . . . . . 2,153.5 1,076.2 1,300.1
------- ------- -------

Net cash provided by operating activities 2,145.8 1,932.6 1,836.0
------- ------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . (1,342.4) (1,220.6) (1,354.1)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from NYNEX. . . . . . . . . . 485.0 263.7 (18.9)
Dividends paid to NYNEX. . . . . . . . (717.9) (600.8) (595.7)
Issuance of long-term debt . . . . . . 1,622.1 - 197.8
Repayment of long-term debt and
capital leases . . . . . . . . . . . (5.3) (304.8) (5.1)
Debt refinancings and call premiums. . (2,204.5) (66.1) (70.8)
------- ------- -------

Net cash used in financing activities. . (820.6) (708.0) (492.7)
------- ------- -------

Net (decrease) increase in Cash and
temporary cash investments . . . . . . (17.2) 4.0 (10.8)
Cash and temporary cash investments at
beginning of year. . . . . . . . . . . 24.7 20.7 31.5
------- ------- -------
Cash and temporary cash investments at
end of year. . . . . . . . . . . . . . $ 7.5 $ 24.7 $ 20.7
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>

NEW YORK TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(A) Accounting Policies

Basis Of Presentation

The consolidated financial statements include the accounts of New York Telephone
Company and its wholly-owned subsidiary, Empire City Subway Company (Limited)
(jointly referred to as the "Company"). For financial statement purposes all
significant intercompany transactions have been eliminated. The Company is a
wholly-owned subsidiary of NYNEX Corporation ("NYNEX") and primarily provides
exchange telecommunications and exchange access services. The 1992 and 1991
consolidated financial statements have been reclassified to conform to the
current year's format.

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles, including the application of Statement
of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" ("Statement No. 71"), to the effects of rate actions by the
Federal Communications Commission (the "FCC") and the New York State Public
Service Commission ("NYSPSC"). The rate actions of regulators can provide
reasonable assurance of the existence of an asset, reduce or eliminate the value
of an asset, impose a liability, or eliminate a previously imposed liability on
a regulated enterprise. The Company applies Statement No. 71 instead of any
conflicting provisions of accounting standards in other authoritative
pronouncements. The effects of Statement No. 71 are reflected in the
consolidated financial statements and material effects, where practicable to
determine, are detailed in this Note and the individual Notes to Consolidated
Financial Statements related to the specific financial statement line items.

The major components of non-plant regulatory net assets (liabilities) at
December 31, 1993 and December 31, 1992 are as follows:
December 31,
Dollars in Millions 1993 1992
- ------------------- ---- ----

Compensated absences $129.0 $129.5
Deferred pension costs 317.0 392.0
Refinancing costs 208.5 147.4
Deferred taxes 41.5 (93.1)
Other 155.4 193.7
------ -----
Total $851.4 $769.5
====== ======

The Company has a 66 2/3% ownership interest in Telesector Resources Group, Inc.
("Telesector Resources") and shares voting rights equally with the other owner,
New England Telephone and Telegraph Company ("New England Telephone"). The
Company uses the equity method of accounting for its investment in Telesector
Resources.

<PAGE>

Cash and Temporary Cash Investments

The Company's cash management policy is to make funds available in banks when
checks are presented. At December 31, 1993 and 1992, the Company had recorded in
Accounts payable checks outstanding but not yet presented for payment of $95.4
and $102.6 million, respectively.

Inventory

Inventory, consisting of materials and supplies, is carried principally at
average cost.

Telephone Plant

Telephone plant is stated at its original cost.

When depreciable plant is disposed of, the carrying amount, salvage, and the
cost to remove such plant are charged to accumulated depreciation.

Depreciation rates used by the Company are prescribed by the FCC and by the
NYSPSC (the "commissions")for interstate operations and intrastate operations,
respectively. All rates are calculated on a straight-line basis using the
concept of "remaining life." The represcription process requires the Company to
perform a detailed study using actual and estimated factors to develop future
life expectancy of telephone plant investments, including technological
evolution, competition, asset utilization, modernization plans and regulatory
commitments. Both the Company and the commission staffs submit factors deemed
appropriate to permit asset recovery. The commissions select the one they
believe to be the most appropriate from among these alternatives. Utilizing
these factors, new depreciation rates are set to enable the Company to recover
costs of plant additions as well as to permit the prospective recovery of
deficiencies in existing depreciation reserve balances as a result of shorter
asset lives to be utilized on a going forward basis. The represcription process
occurs on a triennial basis and includes the commissions and the Company. Once
new depreciation rates are set, the commissions may take rate actions to permit
the Company to recover costs if deemed necessary. In 1992, the FCC prescribed
new depreciation rates for interstate operations, and in 1991, the NYSPSC
adopted new depreciation rates for intrastate operations. The application of the
interstate and intrastate rates resulted in average effective composite rates of
7.6%, 7.8% and 7.5% for 1993, 1992 and 1991, respectively.

The quantification of the difference between recorded depreciation and
depreciation that would have been recorded in accordance with generally accepted
accounting principles for an entity not subject to the provisions of Statement
No. 71 is not practicable at the present time.

The NYSPSC allows the Company to capitalize interest, including an allowance on
share owner's equity, as a cost of constructing certain telephone plant, which
is included in Telephone Plant Under Construction, and as income, included in

<PAGE>

Other income - net. Such income will be realized over the service life of the
plant as the resulting higher depreciation expense is recovered through the
rate-making process. The FCC requires the same treatment as the NYSPSC for
long-term plant under construction, while short-term plant under construction is
included in the rate base, thereby eliminating the need for any interest accrual
mechanism.

Computer Software Costs

The Company capitalizes initial right-to-use fees for central office switching
equipment, including initial operating system and initial application software
costs. For non-central office equipment, only the initial operating system
software is capitalized. Subsequent additions, modifications, or upgrades of
initial software programs, whether operating or application packages, are
expensed. This accounting treatment conforms to the rules set forth by the FCC.

Compensated Absences

Effective January 1, 1988, the Uniform System of Accounts Rewrite ("USOAR")
required the Company to change its accounting for compensated absences to record
expenses in the year in which the liability is incurred. Previously, the Company
recorded the current year's liability for compensated absences with a
corresponding deferred charge and recorded the expense when paid. As a result of
implementation of the USOAR, the deferred charge as of December 31, 1987 is
being recovered over a ten-year period for interstate purposes. In its order in
the first phase of the incentive regulatory proceeding, the NYSPSC adopted
recognition of compensated absences. Management believes these costs will be
recovered through the rate-making process.

Refinancing Charges

The Company defers the intrastate portion of call premiums and other charges
associated with the redemption of long-term debt and expenses the interstate
portion of these charges, as required by the NYSPSC and the FCC, respectively.
The deferred amounts are amortized over periods stipulated by the NYSPSC. Prior
to January 1, 1988, these charges were deferred and amortized for both
intrastate and interstate purposes.

Income Taxes

NYNEX and its subsidiaries, including the Company, file a consolidated Federal
income tax return. The Company's provision for federal income taxes currently
payable is allocated in accordance with its contribution to the consolidated
group's taxable income and tax credits.

Deferred income taxes are provided to reflect the effect of temporary
differences in the recognition of revenue and expenses for financial reporting
and income tax purposes.

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement No.
109"), which superseded Statement of Financial Accounting Standards No. 96,

<PAGE>

"Accounting for Income Taxes." The effect of implementing Statement No. 109 on
the Company's financial position and results of operations was not significant.
Statement No. 109 requires that deferred tax assets and liabilities be measured
based on the enacted tax rates that will be in effect in the years in which
temporary differences are expected to reverse. However, for the Company, the
treatment of excess deferred taxes resulting from the reduction of tax rates
prior to 1993 is subject to federal income tax and regulatory rules.

Deferred income tax provisions of the Company are based upon amounts recognized
for rate-making purposes. The Company recognizes a deferred tax liability and
establishes a corresponding regulatory asset for tax benefits previously flowed
through to ratepayers. The major temporary difference that gave rise to the net
deferred tax liability is depreciation, which for income tax purposes is
determined based on accelerated methods and shorter lives.

Statement No. 71, requires the Company to reflect the additional
deferred income taxes as regulatory assets to the extent that they will be
recovered in the rate-making process. In accordance with the normalization
provisions under federal tax law, the Company reverses excess deferred taxes
relating to depreciation of regulated assets over the regulatory lives of those
assets. For other excess deferred taxes, the regulatory agencies generally allow
amortization of excess deferred taxes over the reversal period of the temporary
difference giving rise to the deferred taxes.

On August 10, 1993, the Revenue Reconciliation Act of 1993 was signed into law,
and the statutory corporate federal income tax rate increased to 35 percent from
34 percent, retroactive to January 1, 1993. In accordance with Statement No.
109, the Company adjusted its current and deferred income tax balances to
reflect the tax rate change. The Company reflected the additional deferred
income taxes arising from the tax rate increase primarily as increases to the
regulatory asset and decreases to the regulatory liability.

The Tax Reform Act of 1986 repealed the investment tax credit ("ITC"), effective
January 1, 1986. As required by tax law, ITC for the Company was deferred and is
amortized as a reduction to tax expense over the estimated service lives of the
related assets giving rise to the credits.

<PAGE>

(B) Income Taxes

The components of Income tax expense are as follows:

Dollars in Millions 1993* 1992 1991

Federal:
Current . . . . . . . . . . . $ 352.5 $ 478.2 $ 335.1
Deferred - net. . . . . . . . (388.3) (97.3) (137.4)
Deferred tax credits - net. . (37.4) (42.3) (43.5)
State and local. . . . . . . . 5.4 4.2 3.0
------- ------- -------
Total . . . . . . . . . . . $ (67.8) $ 342.8 $ 157.2
======= ======= =======

* Does not include the deferred tax benefit of $48.1 million associated with
the Cumulative effect of change in accounting for postemployment benefits.

A reconciliation between federal income tax expense computed at the statutory
rate and the Company's effective tax (benefit) expense is as follows:

1993* 1992 1991

Federal income tax expense
computed at statutory rate . . . . . . . $ 4.8 $407.7 $235.7

a. Amortization of excess deferred
federal income taxes due to
change in the tax rates . . . . . . (38.7) (42.2) (55.5)

b. Amortization of investment tax
credits over the life of the assets
which gave rise to the credits. . . (37.4) (42.3) (43.5)

c. Depreciation of certain taxes and
payroll-related construction costs
capitalized for financial statement
purposes, but deducted for income
tax purposes in prior years . . . . 14.8 22.2 17.3

d. Federal income tax return
adjustment for the difference
between the accrued and actual
tax expense . . . . . . . . . . . . (5.7) ( .5) 6.2

e. Allowance for funds used during
construction, which is excluded
from taxable income, net of
applicable depreciation . . . . . . 6.6 2.0 2.8

f. Other items-net. . . . . . . . . . . (12.2) (4.1) (5.8)
------ ------ ------
Income tax (benefit) expense. . . . . . . $(67.8) $342.8 $157.2
====== ====== ======

* Does not include the deferred tax benefit of $48.1 million associated with
the Cumulative effect of change in accounting for postemployment benefits.

<PAGE>

Instead of a state income tax, the Company is subject to a gross receipts tax
that is not included above. Temporary differences for which deferred income
taxes have not been provided by the Company are represented principally by "c"
above. Only taxes currently payable on these temporary differences are
recognized in the rate-making process.

The components of current and long-term deferred tax assets and liabilities at
December 31, 1993 are as follows:

Dollars in millions Assets Liabilities

Deferred tax due to:

Depreciation and amortization $ - $2,152.8
Restructuring charges 179.6 -
Benefits 362.6 -
Unamortized investment tax credits 132.7 -
Other 131.4 381.0
------ --------
Total deferred taxes $806.3 2,533.8
======
806.3
--------
Net deferred tax liabilities $1,727.5
========

At December 31, 1993 and 1992, the Company recorded approximately $450.3 and
$372.7 million, respectively, in deferred taxes representing the cumulative
amount of income taxes on temporary differences that were previously flowed
through to ratepayers. The Company recorded a corresponding regulatory asset in
deferred charges for these items, representing amounts that will be recovered
through the rate-making process. These deferrals have been increased for the tax
effect of future revenue requirements and will be amortized over the lives of
the related depreciable assets concurrently with their recovery in rates.

The Company has recorded a regulatory liability at December 31, 1993 and 1992 of
approximately $383.6 and $516.1 million, respectively, in Other long-term
liabilities and deferred credits and in Accounts payable - Trade and other. A
substantial portion of the regulatory liability relates to the reduction in the
statutory federal income tax rate in 1986 and unamortized ITC (see Note A).
These liabilities have been increased for the tax effect of future revenue
requirements.

Pensions

Substantially all of the Company's employees are covered by one of two NYNEX
noncontributory defined benefit pension plans (the "Plans"). Benefits for
management employees are based on a modified career average pay plan while
benefits for nonmanagement employees are based on a nonpay-related plan.
Contributions are made, to the extent deductible under the provisions of the
Internal Revenue Code, to an irrevocable trust for the sole benefit of pension
plan participants.

<PAGE>

Total Company pension (benefit)/cost for 1993, 1992 and 1991 was $(99.0), $1.8
and $(9.0) million, respectively, of which $(6.6) and $1.2 million were deferred
in 1992 and 1991, respectively, as a result of state regulatory decisions that
required pension expense to be equivalent to amounts contributed to the Plans.
Deferral of pension cost was discontinued in 1993, and the Company has
implemented a plan to recover deferred pension costs through the rate-making
process (see Postretirement Benefits Other Than Pensions below). At December 31,
1993 and 1992, the Company recorded approximately $696.1 and $794.9 million,
respectively, in Other long-term liabilities and deferred credits representing
the Company's pension liability.

The assumptions used to determine the projected benefit obligation at December
31, 1993 and 1992 include a discount rate of 7.5% and 8.5%, respectively, and an
increase in future compensation levels of 4.5% in both years for management
employees and 4.0% in both years for nonmanagement employees. The expected
long-term rate of return on pension plan assets used to calculate pension
expense was 8.9% in 1993 and 1992 and 8.5% in 1991. Periodically, the Plans have
been amended to increase the level of plan benefits. The actuarial projections
included herein anticipate plan improvements in the future.

In 1992, NYNEX amended its management pension plan to provide early retirement
incentives, which increased the projected benefit obligation by $6.6 million, of
which $1.7 million was expensed and $4.9 million was deferred. In addition,
management employees who left the Company in 1992 and 1993 under the Force
Management Plan could elect to receive their pension benefit in a lump sum
distribution, or as a monthly annuity beginning when they left the Company. The
1992 reduction in the number of management employees and the lump sum option
were accounted for as a curtailment and a settlement, respectively, and reduced
pension costs by $31.3 million in 1992, of which $8.1 million was recognized as
a reduction to expense and $23.2 million was deferred. The impact of the
reduction in employees and the lump sum option in 1993 was not significant.

In October 1991, NYNEX amended its nonmanagement pension plan to provide an
early retirement incentive, which increased the projected benefit obligation in
1991 by $361 million, of which $99 million was expensed and $262 million was
deferred. The expense associated with the nonmanagement early retirement
incentive was included in the charges for force reduction programs in the fourth
quarter of 1991.

Postretirement Benefits Other Than Pensions

The Company provides certain health care and life insurance benefits for retired
employees and their families. Substantially all of the Company's employees may
become eligible for these benefits if they reach pension eligibility while
working for the Company.

Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("Statement No. 106"). Statement No. 106 changed the practice of
accounting for postretirement benefits from recognizing costs as benefits are

<PAGE>

paid to accruing the expected cost of providing these benefits during an
employee's working life. The Company is recognizing the transition obligation
for retired employees and the earned portion for active employees over a 20-year
period. The cost of health care benefits and group life insurance was determined
using the unit credit cost actuarial method. The net postretirement benefit cost
for 1993 for the Company was $278 million. As a result of planned work force
reductions, the Company recorded an additional $270.5 million of postretirement
benefit cost in 1993 accounted for as a curtailment. Total costs of providing
benefits for retired employees and their families were $119.6 and $91.6 million
in 1992 and 1991, respectively.

The Company participates in the NYNEX benefit plans, and the structure of the
plans is such that certain disclosures required by Statement No. 106 cannot be
presented for the Company on an individual basis. A comparison of the actuarial
present value of the accumulated postretirement benefit obligation with the fair
value of plan assets, the components of the net postretirement benefit cost, and
the reconciliation of the funded status of the plans with the amount recorded on
the balance sheet are provided on a consolidated basis in the Proxy Statement
and Consolidated Financial Statements for the year ended December 31, 1993 filed
by NYNEX.

The actuarial assumptions used to determine the 1993 obligation for
postretirement benefit plans under Statement No. 106 include the following:
discount rate of 7.5%; weighted average expected long-term rate of return on
plan assets of 8.4%; weighted average salary growth rate of 4.2%; medical cost
trend rate of 14.3% grading down to 4.5% in 2008; and dental cost trend rate of
5.0% grading down to 3.0% in 2002.

With respect to interstate treatment, the FCC released an order in January 1993
stating that costs recognized under Statement No. 106 are not exogenous costs
and, therefore, did not warrant an upward rate adjustment under price caps at
that time. In the April 2, 1993 filing of interstate access tariffs under the
FCC's price cap rules, the Company and New England Telephone (collectively, the
"Telephone Companies") sought an exogenous cost increase of $12 million to
reflect the transition obligation for current retirees under Statement No. 106.
On June 23, 1993, the FCC's Common Carrier Bureau (the "Bureau") issued an order
allowing the proposed rates to go into effect July 2, 1993, subject to an
investigation and an accounting order. In its order, the Bureau designated
several issues for investigation, including the accounting treatment of
postretirement health care costs. Commencing July 2, 1993, the Company began
collecting these revenues, subject to possible refund pending resolution of the
Bureau's investigation.

With respect to intrastate treatment, in January 1994 the NYSPSC approved the
Company's plan for regulatory accounting and rate-making treatment allowing the
adoption of both Statement No. 106 and Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions" ("Statement No. 87"), on
a revenue requirement neutral basis, providing for the amortization of existing
deferred pension costs within a ten-year period, except that the NYSPSC required
the Company to write-off $75 million of previously deferred pension costs in
1993, and eliminating the need for additional deferrals of Statement No. 106 and
Statement No. 87 costs.

<PAGE>

In 1991, NYNEX established two separate Voluntary Employees' Beneficiary
Association Trusts ("VEBA Trusts"), one for management and the other for
nonmanagement, to begin prefunding postretirement health care benefits. In 1991
and 1992, NYNEX transferred a portion of excess pension assets, totaling
$486 million, to health care benefit accounts within the pension plans and then
contributed those assets to the VEBA Trusts. The assets in the VEBA Trusts
consist primarily of equity securities and fixed income securities. Additional
contributions to the VEBA Trusts are evaluated and determined by NYNEX
management.

Postemployment Benefits

(D) Long-term Debt

Interest rates and maturities on long-term debt outstanding at December 31, 1993
and 1992 are as follows:

Interest December 31,
Dollars in Millions Rates Maturities 1993 1992
- -------

Refunding Mortgage Bonds . 3 3/8% - 7 3/4% 1996-2006 $675.0 $675.0
6% - 9% 2007-2014 425.0 1,075.0

Debentures . . . . . . . . 6 1/2% - 8 7/8% 2005-2018 750.0 950.0
6 7/10% - 9 3/8% 2023-2033 1,000.0 1,100.0

Notes. . . . . . . . . . . 5 1/4% - 8 1/5% 1998-2008 492.0 42.0

Other. . . . . . . . . . . 588.6 97.7

Unamortized discount - net (26.0) (28.8)
------- ------
3,904.6 3,910.9

Long-term capital lease
obligations . . . . . . 67.5 73.3
------- -------

Total Long-term debt . . . $3,972.1 $3,984.2
======== ========

In 1996 and 1997, $55.0 and $60.0 million, respectively, of the Refunding
Mortgage bonds will mature. In 1998, $100 million of the Notes will mature.

<PAGE>

The Company's Refunding Mortgage bonds are callable upon thirty days' notice, at
the option of the Company, five years after the issue date. The Company's
Forty-Year 9 3/8% Debentures due July 15, 2031, Thirty Year 7 5/8% Debentures
due February 1, 2023 and Thirty-Two Year 7% Debentures due August 15, 2025 are
callable upon thirty days' notice, at the option of the Company, ten years after
the issue date. The Company's Thirty Year 6.7% Debentures due November 1, 2023
and Forty Year 7% Debentures due December 1, 2033 are callable upon thirty
days' notice, at the option of the Company, twenty years after the issue date.
The Company's Twelve Year 6 1/2% Debentures due March 1, 2005, Twenty Year 7%
Debentures due May 1, 2013 and Twenty Year 7% Debentures due June 15, 2013 are
not callable.

Substantially all of the Company's assets are subject to lien under the
Company's Refunding Mortgage indenture.

On February 10, 1993, the Company issued $100 million of its Thirty Year 7 5/8%
Debentures due February 1, 2023 and callable on and after February 1, 2003. The
net proceeds were used to repay short-term advances from NYNEX and, accordingly,
$97.7 million of Short-term debt was classified as Long-term debt at December
31, 1992 and is presented in "Other" in the table above (see Note E).

At December 31, 1993, the Company had $850 million of unissued, unsecured debt
securities registered with the Securities and Exchange Commission ("SEC"). On
February 28, 1994, the Company issued $450 million of its Thirty Year 7 1/4%
Debentures, due February 15, 2024, and $150 million of its Ten Year 6 1/4%
Notes, due February 15, 2004. The net proceeds were used to repay short-term
advances from NYNEX and, accordingly, $588.6 million of Short-term debt has been
classified as Long-term debt at December 31, 1993 and is presented in "Other" in
the table above (see Note E). This reduces the remaining unissued, unsecured
debt securities registered with the SEC to $250 million.

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 (see Note N), the Company does
not currently meet the earnings coverage requirement.

<PAGE>

(E) Short-term Debt

Short-term debt and related weighted average interest rates were as follows:

Dollars in Millions Weighted Average Interest Rates
December 31, December 31,
1993 1992 1991 1993 1992 1991
Advances from NYNEX . . $251.0 $257.0 $ 90.9 3.86% 4.17% 5.92%
Current maturity of
Long-term debt . . . - - 300.0 9.63%
Other . . . . . . . . . 4.7 4.5 3.8
------ ------ ------
Total Short-term debt .$255.7 $261.5 $394.7
====== ====== ======

On February 28, 1994, the Company issued $450 million of its Thirty Year 7 1/4%
Debentures, due February 15, 2024, and $150 million of its Ten Year 6 1/4%
Notes, due February 15, 2004. The net proceeds were used to repay short-term
advances from NYNEX and, accordingly, $588.6 million of Short-term debt was
classified as Long-term debt at December 31, 1993 (see Note D).

Dollars in Millions 1993 1992 1991 1993+ 1992+ 1991+

Average amount of
advances from NYNEX
outstanding during
the year . . . . . $164.6# $ 80.7# $260.9# 3.16% 3.69% 6.12%

Maximum amount of
advances from
NYNEX payable at
any month end
during the year. . $839.6 $354.7 $451.8

+ Computed by dividing the aggregate related interest expense by the
average daily face amount of advances.

# Computed by dividing the sum of the aggregate principal amounts
outstanding each day during the year by the total number of calendar days
in the year.

Interest expense on advances from NYNEX was $6.4, $3.4 and $16.0 million
for 1993, 1992 and 1991, respectively.

<PAGE>

(F) Lease Commitments

The Company leases certain facilities and equipment used in its operations. Rent
expense was $108.8, $116.6 and $113.7 million for 1993, 1992 and 1991,
respectively. At December 31, 1993, the minimum lease commitments under
noncancelable operating and capital leases for the periods shown were as
follows:

Dollars in Millions
Year Operating Capital
1994 . . . . . . . . . . . . . $ 32.7 $ 16.4
1995 . . . . . . . . . . . . . . . . 27.6 16.4
1996 . . . . . . . . . . . . . . . . 24.5 15.1
1997 . . . . . . . . . . . . . . . . 21.7 11.3
1998 . . . . . . . . . . . . . . . . 19.6 10.8
Thereafter . . . . . . . . . . . . . 68.0 403.1
------ ------
Total minimum lease payments . . . . $194.1 473.1
======
Less: executory costs. . . . . . 13.6
======
Net minimum lease payments . . . . . 459.5
Less: interest . . . . . . . . . 386.0
------
Present value of net minimum lease payments $ 73.5
======

In addition, the Company has agreed to guarantee up to $9.4 million of lease
commitments on behalf of Telesector Resources through 1995. From December 31,
1993 through 1995 the Company is guaranteeing Telesector Resources' lease
commitments of approximately $0.9 million.

(G) Transactions with American Telephone and Telegraph Company

For the years 1993, 1992 and 1991, American Telephone and Telegraph Company
("AT&T") provided approximately 19%, 20% and 21%, respectively, of the Company's
total operating revenues, primarily Network access revenues and Other revenues
from billing and collection services performed under contract by the Company for
AT&T. In connection with such services, the Company purchases the related
receivables with recourse, up to a contractual limit.

<PAGE>

(H) Transactions with Affiliates

The Company and other NYNEX subsidiaries receive corporate governance and
ownership services such as securities administration, investor relations,
certain tax support and human resources planning services from NYNEX. The costs
of these services are allocated to the Company and the other NYNEX subsidiaries
through intercompany billings. NYNEX performs a semi-annual study to identify on
whose behalf functions of corporate departments are being performed. Directly
charged costs apply exclusively to one subsidiary and are charged only to that
subsidiary. Directly attributable costs apply to more than one subsidiary and
are allocated based on usage, specific work plans, and relative size (composite
of employees and assets) of the applicable subsidiaries. Indirectly attributable
and unattributable costs for services performed on behalf of all subsidiaries
are allocated based on the relative size of the subsidiaries. For 1993, 1992 and
1991, the Company recorded allocated costs of $138.9, $92.4, and $122.9 million,
respectively, in connection with these services.

Telesector Resources performs data processing and related services and materials
management services on a centralized basis on behalf of the Company and New
England Telephone. Prior to 1993, the costs of these services were allocated to
the Company and New England Telephone based on an annual study which identified
on whose behalf functions were being performed. Since 1993, costs are allocated
based on identification of detailed work functions that are approved and
documented within Telesector Resources' planning and budgeting process. Costs
are directly assigned, directly attributed or indirectly attributed based on the
analysis of the work function. In 1993, 1992 and 1991, the Company recorded
charges from Telesector Resources of $802.9 million, $969.2 million and
$1.1 billion, respectively, for data processing services and material related
charges, including both materials management services (such as procurement
support, warehousing and transportation costs) and the Company's purchase of
materials (including items charged to plant accounts). The total materials
related charges to the Company in 1993, 1992 and 1991 were approximately $352.2,
$367.5 and $423.8 million, respectively. Effective in July 1991, arrangements
were made for Telesector Resources to act as a purchasing agent for the Company
for directly shipped materials and supplies. During 1993, 1992 and 1991, total
agency purchases by Telesector Resources amounted to $148.9, $133.6 and
$93.4 million, respectively. In addition, in 1993, approximately $227.3 million
of restructuring charges ($147.7 million after-tax) was allocated to the Company
from Telesector Resources, primarily related to its force reduction and
re-engineering programs.

Telesector Resources owns a one-seventh interest in Bell Communications
Research, Inc. ("Bellcore"). Bellcore furnishes technical and support services
relating to exchange telecommunications and exchange access services, a portion
of which is research and development. For 1993, 1992 and 1991, the Company
recorded charges of $77.3, $88.0 and $87.0 million, respectively, for services
provided by Bellcore.

In 1992, the FCC permitted the Telephone Companies to unify their interstate
access rates. As a result of the unified rate structure, the Company experienced

<PAGE>

an interstate rate decrease and New England Telephone experienced an offsetting
interstate rate increase. The Telephone Companies implemented a phase-in payment
plan in order to avoid sudden changes in each of the Telephone Company's
earnings resulting from the unified rate structure. In 1993 and 1992, the
Company received transition payments of $55 million and $18 million,
respectively, from New England Telephone.

The Company has an agreement with NYNEX Information Resources Company pursuant
to which NYNEX Information Resources Company pays a fee to the Company for the
use of the Company's name in soliciting directory advertising and in publishing
and distributing directories. For the years ended December 31, 1993, 1992 and
1991, licensing fees, included in Other revenues, amounted to $129.4, $134.7 and
$119.8 million, respectively. In April 1986, the NYSPSC issued an order which
disapproved the directory publishing agreement between the Company and NYNEX
Information Resources Company. The Company has submitted a proposal to the
NYSPSC for compliance with its decision. Beginning in January 1991, NYNEX
Information Resources Company has made payments to the Company of all of its
earnings related to publishing directories in New York in excess of a regulated
return. In April 1992, the NYSPSC instituted a proceeding to investigate the
directory publishing operations of the Company and its NYNEX affiliates. On
December 9, 1993, an Administrative Law Judge of the NYSPSC issued a Recommended
Decision urging that the Company's proposal not be accepted and that the
Company, instead, assume the directory publishing function itself and/or
negotiate a modified agreement with NYNEX Information Resources Company. On
January 27, 1994, the parties to the proceeding submitted their final briefs to
the NYSPSC, which will review the Administrative Law Judge's recommendation and
issue a final order.

(I) Taxes Other Than Income Taxes

Taxes other than income taxes consist of:

Dollars in Millions 1993 1992 1991

Gross receipts . . . . . . . . . . . . . $ 461.5 $ 457.4 $ 441.5
Property . . . . . . . . . . . . . . . . 299.0 355.4 435.0
Other. . . . . . . . . . . . . . . . . . 58.0 57.1 64.6
------- ------- -------
Total. . . . . . . . . . . . . . . $ 818.5 $ 869.9 $ 941.1
======= ======= =======

(J) 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 December 31, 1993,
the aggregate amount of such revenues that was estimated to be subject to
possible refund was approximately $164.7 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.

<PAGE>

(K) Litigation and Other Contingencies

It is probable that local tax claims aggregating approximately $200 million in
tax and $100 million in associated interest will be asserted against the Company
for the period 1984 through 1993. 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.

(L) Supplemental Cash Flow Information

The following information is provided in accordance with Statement of
Financial Accounting Standards No. 95, "Statement of Cash Flows":

For the Years Ended
December 31,
1993 1992 1991
(in millions)

Income tax payments . . . . . . . . . . . . $507.7 $408.4 $333.3
Interest payments . . . . . . . . . . . . . $303.9 $348.8 $343.3
Short-term debt classified as
Long-term debt (see Note D) . . . . . . . $588.6 $ 97.7 -

(M) Fair Value of Financial Instruments

The estimated fair value of Long-term debt is based on quoted market prices or
discounted future cash flows. Estimated fair values of financial instruments,
where different than the carrying amounts, are as follows:

Dollars in Millions At December 31,
1993 1992
Long-term debt

Carrying amount. . . . . . . . . . . . . . $3,904.6 $3,910.9
Fair value . . . . . . . . . . . . . . . . $3,968.1 $3,950.6

<PAGE>

(N) Business Restructuring

In the fourth quarter of 1993, approximately $992 million of pretax business
restructuring charges were recorded, primarily related to efforts to redesign
operations and work force reductions. These charges included: $557 million for
severance and postretirement medical costs for employees leaving the Company
through 1996; $208 million for re-engineering service delivery; and $227 million
of restructuring charges allocated to the Company from Telesector Resources. The
restructuring charges were included in the Consolidated Statements of Income as
follows: Maintenance and support - $198 million; Marketing and customer services
- - $129 million; and Other expenses - $664 million.

In the fourth quarter of 1991, approximately $317 million of pretax
organizational restructuring charges was recorded primarily related to force
reduction programs. The restructuring charges were included in the Consolidated
Statements of Income as follows: Other revenues - $7 million; Other expenses -
$300 million; and Other income - net - $10 million.

SUPPLEMENTARY INFORMATION
Quarterly Financial Information (Unaudited)

All adjustments (consisting only of normal recurring accruals) necessary for a
fair consolidated statement of income for each period have been included in the
following table.

For the quarter ended

In millions March 31, June 30, September 30, December 31,
1993
Operating revenues $1,945.9 $1,962.2 $1,950.0 $1,988.9
Operating income $ 355.2 $ 384.3 $ 351.0 $ (748.1)
Earnings (loss)
before cumulative
effect of change in
accounting principle $ 205.3 $ 224.4 $ 186.2 $ (534.3)
Cumulative effect of
change in accounting
for postemployment
benefits, net of
taxes $ (90.8) $ - $ 1.5 $ -
Net income (loss) $ 114.5 $ 224.4 $ 187.7 $ (534.3)

1992
Operating revenues $1,921.4 $1,943.0 $1,944.6 $1,937.4
Operating income $ 354.6 $ 396.6 $ 344.7 $ 391.8
Net income $ 211.7 $ 222.7 $ 194.1 $ 227.9

<PAGE>

Results for the first quarter of 1993 include the adoption of Statement No. 112
(see Note C, "Employee Benefits", for further discussion). Results for the third
quarter of 1993 reflect the effect of the increase in the statutory corporate
federal income tax rate (see Note A, "Accounting Policies - Income Taxes", for
further discussion). Results for the fourth quarter of 1993 reflect the effect
of $992 million of pretax charges for business restructuring, including
re-engineering operations and force reductions, which were reflected in
operating expenses. The after-tax effect of these charges was a reduction in net
income of approximately $645 million. (See the section entitled "Business
Restructuring" included in Management's Discussion and Analysis of Results of
Operations for further discussion of these charges.)

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

By Mel Meskin
---------------------------
Mel Meskin
Vice President - Finance
and Treasurer

December 13, 1994

<PAGE>

Principal Executive Officer:

R. A. Jalkut* President and Chief Executive Officer

Principal Financial
and Accounting Officer:

Mel Meskin Vice President - Finance and Treasurer

Directors:

Lilyan H. Affinito*
Joseph A. Califano, Jr.*
A.J. Eckelman*
Alice Stone Ilchman*
John E. Jacob*
R. A. Jalkut*
John F. X. Mannion*
Victor J. Riley, Jr.*
Gerald Schoenfeld*
Ivan Seidenberg* *By
Paul L. Snyder* Mel Meskin
Frank J. Tasco* (Mel Meskin, as attorney-in-fact,
and on his own behalf as Principal
Financial and Accounting Officer)

December 12, 1994

<PAGE>

Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.

(a) Documents filed as part of this Annual Report on Form 10-K/A.

(1) Consolidated Financial Statements. The following report and
consolidated financial statements are contained in Item 8:

Report of Independent Accountants

Consolidated Statements of Income and Retained Earnings for
each of the Three Years in the Period Ended December 31, 1993

Consolidated Balance Sheets as of December 31, 1993 and 1992

Consolidated Statements of Cash Flows for each of the Three
Years in the Period Ended December 31, 1993

Notes to Consolidated Financial Statements

Supplementary Information
Quarterly Financial Information (Unaudited)

(2) Consolidated Financial Statement Schedules. The following consolidated
financial statement schedules, in response to Item 14, were previously
filed on the Registrant's 1993 Form 10-K, dated March 25, 1994 (File
No. 1-3435):

V - Telephone Plant

VI - Accumulated Depreciation, Depletion and Amortization of Telephone
Plant

VIII - Valuation and Qualifying Accounts

Consolidated financial statement schedules other than those
listed above have been omitted because the required information
is contained in the consolidated financial statements and notes
thereto or because such schedules are not required or applicable.

<PAGE>

(3) Exhibits. Exhibits on file with the Securities and Exchange
Commission ("SEC"), as identified in parentheses below, are
incorporated herein by reference as exhibits hereto.

Exhibit
Number

(3)a Certificate of Incorporation of the Company as amended and
restated December 2, 1987 (Exhibit No. (3)a to the
Registrant's filing on Form SE dated March 24, 1988, File No.
1-3435).

(3)b By-laws of the Company as amended April 22, 1987 (Exhibit No.
(3)b to the Registrant's filing on Form SE, dated March 24,
1988, File No. 1-3435).

(4) No instrument which defines the rights of holders of
long-term debt of the Company and its subsidiary is
filed herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this regulation, the
Company hereby agrees to furnish a copy of any such
instrument to the SEC upon request.

(10)(i)1 Reorganization and Divestiture Agreement among American
Telephone and Telegraph Company, NYNEX Corporation
and Affiliates dated as of November 1, 1983 (Exhibit
No. (10)(i)1 to Form 10-K of NYNEX Corporation for 1983, File
No. 1-8608).

(10)(i)2 Shared Network Facilities Agreement among American Telephone
and Telegraph Company, AT&T Communications of New York, Inc.
and New York Telephone Company dated as of November 1, 1983
(Exhibit No. (10)(i)20 to Form 10-K of NYNEX Corporation for
1983, File No. 1-8608).

(10)(i)3 Agreement Concerning Contingent Liabilities, Tax Matters and
Termination of Certain Agreements among American Telephone and
Telegraph Company, Bell System Operating Companies, Regional
Holding Companies and Affiliates dated as of November 1, 1983
(Exhibit No. (10)(i)8 to Form 10-K of NYNEX Corporation for
1983, File No. 1-8608).

(10)(i)4 Post-Divestiture Shared Services Force Transfer Agreement
between American Telephone and Telegraph Company and New York
Telephone Company dated as of January 1, 1984
(Exhibit No. (10)(i)38 to Form 10-K of NYNEX Corporation for
1983, File No. 1-8608).

<PAGE>

(10)(i)5 Agreement Concerning the Sharing of Contingent Liabilities
dated as of January 28, 1985 (Exhibit No. (19)(i)2 to Form
10-K of NYNEX Corporation for 1984, File No. 1-8608).

(10)(ii)B Service Agreement concerning provision by Telesector Resources
Group, Inc. to New York Telephone Company of numerous
services, including (i) purchasing, materials handling,
inspection, distribution, storage and similar services and
(ii) technical, regulatory, government relations, marketing
operational support and similar services, dated March 31,
1992 (Exhibit No. (19)(i)1 to the Registrant's filing on
Form SE, dated March 23, 1993, File No. 1-3435).

(12) Computation of Ratio of Earnings to Fixed Charges (Exhibit
No. (12) to the Registrant's 1993 Annual Report on Form 10-K,
dated March 25, 1994, File No. 1-3435).

(23) Consent of Independent Accountants.

(24) Powers of attorney (Exhibit No. (24) to the Registrant's 1993
Annual Report on Form 10-K, dated March 25, 1994, File No.
1-3435).

(b) Reports on Form 8-K.

The Company's Current Report on Form 8-K, date of report
October 25, 1993 and filed October 25, 1993, reporting on Item 5.

The Company's Current Report on Form 8-K, date of report
October 26, 1993 and filed November 3, 1993, reporting on Item 7.

The Company's Current Report on Form 8-K, date of report
November 10, 1993 and filed November 19, 1993, reporting on
Item 5.

The Company's Current Report on Form 8-K, date of report
November 16, 1993 and filed November 19, 1993, reporting on
Item 7.

Exhibit 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the application of our report dated February 9, 1994, included in
the 1993 Annual Report on Form 10-K of New York Telephone Company for the year
ended December 31, 1993, to the amended notes to the consolidated financial
statements which are included in this amendment on Form 10-K/A.

Coopers & Lybrand, L.L.P.

New York, New York
December 13, 1994