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 March 31, 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 1-8608
NYNEX Corporation
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 13-3180909
1113 Westchester Avenue, White Plains, New York 10604
Telephone Number (914) 644-6400
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 .
At April 30, 1994, 417,882,505 common shares were outstanding.
<PAGE>
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<TABLE>
Form 10-Q Part I PART I - FINANCIAL INFORMATION
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions, except per share amounts) (Unaudited)
<CAPTION>
For the Three Months Ended March 31, 1994 1993
<S> <C> <C>
OPERATING REVENUES
Local service $1,629.9 $1,584.3
Long distance 281.0 279.3
Network access 864.2 852.0
Other 498.2 604.6
Total operating revenues 3,273.3 3,320.2
OPERATING EXPENSES
Maintenance and support 769.3 719.8
Depreciation and amortization 652.0 615.2
Marketing and customer services 340.2 318.2
Taxes other than income 249.0 271.4
Selling, general and administrative 485.4 527.9
Other 181.9 198.8
Total operating expenses 2,677.8 2,651.3
Operating income 595.5 668.9
Other income (expense) - net (9.1) (6.8)
Interest expense 159.6 169.4
Earnings before income taxes and cumulative
effect of change in accounting principle 426.8 492.7
Income taxes
Federal 113.4 135.4
State, local and other 22.8 26.2
Total income taxes 136.2 161.6
Earnings before cumulative effect of change
in accounting principle 290.6 331.1
Cumulative effect of change in accounting for
postemployment benefits, net of taxes - (123.5)*
NET INCOME $ 290.6 $ 207.6 *
Earnings per share before cumulative
effect of change in accounting principle $ .70 $ .80**
Cumulative effect per share of change in
accounting principle - (.30)*
Earnings per share $ .70 $ .50
Weighted average number of shares outstanding 416.3 412.9**
Dividends declared per share $ .59 $ .59**
Retained earnings
Beginning of period $2,388.3 $3,958.7
Net income 290.6 207.6*
Dividends declared (246.3) (243.0)
Other 4.8 2.3
End of period $2,437.4 $3,925.6
* Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 112 in the fourth quarter of 1993 retroactive to January 1,
1993.
** Restated to reflect a two-for-one common stock split in the form of a
100 percent stock dividend declared on July 15, 1993.
See accompanying notes to consolidated financial statements.
</TABLE>
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Form 10-Q Part I
<TABLE>
NYNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions)
<CAPTION>
March 31, December 31,
1994 1993
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 144.0 $ 157.8
Receivables (net of allowance of $210.8
and $210.2, respectively) 2,297.5 2,439.1
Inventories 166.9 169.2
Prepaid expenses 399.2 306.2
Deferred charges and other current assets 689.6 849.4
Total current assets 3,697.2 3,921.7
Property, plant and equipment - at cost 34,446.7 33,969.4
Less: accumulated depreciation (14,184.5) (13,719.4)
20,262.2 20,250.0
Deferred charges and other assets 5,309.3 5,286.7
Total Assets $29,268.7 $29,458.4
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,667.0 $ 2,853.3
Short-term debt 3,031.3 3,190.1
Other current liabilities 741.4 763.3
Total current liabilities 6,439.7 6,806.7
Long-term debt 6,934.7 6,937.8
Deferred income taxes 3,462.7 3,545.0
Unamortized investment tax credits 346.8 360.3
Other long-term liabilities and deferred credits 3,519.1 3,393.1
Total liabilities 20,703.0 21,042.9
Commitments and contingencies [Notes (d) and (e)]
Stockholders' equity:
Preferred stock - $1 par value - -
shares authorized: 70,000,000
shares issued: None
Preferred stock - Series A Junior Participating - -
- $1 par value
shares authorized: 5,000,000
shares issued: None
Common stock - $1 par value 433.6 431.1
shares authorized: 750,000,000
shares issued:
at March 31, 1994 - 433,568,087
at December 31, 1993 - 431,080,155
Additional paid-in capital 6,718.2 6,624.5
Retained earnings 2,437.4 2,388.3
Treasury stock (16,200,269 and 16,215,353
shares, respectively, at cost) (647.5) (648.1)
Deferred compensation - LESOP Trust (376.0) (380.3)
Total stockholders' equity 8,565.7 8,415.5
Total Liabilities and Stockholders' Equity $29,268.7 $29,458.4
See accompanying notes to consolidated financial statements.
</TABLE>
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Form 10-Q Part I
<TABLE>
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
<CAPTION>
For the Three Months Ended March 31, 1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 290.6 $ 207.6*
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 652.0 615.2
Amortization of unearned lease income-net (23.4) (18.6)
Allowance for funds used during construction-
equity component (6.9) (7.9)
Changes in operating assets and liabilities:
Receivables 141.6 27.2
Inventories 2.3 (7.4)
Prepaid expenses (93.0) (68.9)
Deferred charges and other current assets 159.8 (133.3)
Accounts payable (187.8) (97.4)*
Other current liabilities (21.9) (152.0)
Deferred income taxes and Unamortized
investment tax credits (95.8) 88.8*
Other long-term liabilities and deferred credits 48.2 237.9*
Other-net (85.2) 19.1
Total adjustments 489.9 502.7
Net cash provided by operating activities 780.5 710.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (639.7) (493.7)
Investment in leased assets (5.9) (51.1)
Cash received from leasing activities 19.8 19.1
Other investing activities-net 78.7 (53.4)
Net cash used in investing activities (547.1) (579.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of commercial paper and short-term debt 5,679.7 2,215.3
Repayment of commercial paper and short-term debt (6,426.7) (2,183.3)
Issuance of long-term debt 593.5 556.6
Repayment of long-term debt and capital leases (14.9) (14.8)
Debt refinancings and call premiums - (380.5)
Issuance of common stock 62.1 10.9
Purchase of treasury stock - (92.3)
Dividends paid (218.7) (239.9)
Minority interest 77.8 -
Net cash used in financing activities (247.2) (128.0)
Net (decrease) increase in Cash and temporary
cash investments (13.8) 3.2
Cash and temporary cash investments at
beginning of year 157.8 88.9
Cash and temporary cash investments at
end of year $ 144.0 $ 92.1
* Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 112 in the fourth quarter of 1993 retroactive to January 1,
1993.
See accompanying notes to consolidated financial statements.
</TABLE>
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Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) BASIS OF PRESENTATION - The consolidated financial statements have been
prepared by 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
incorporated by reference in the NYNEX 1993 Annual Report on Form 10-K.
(b) CASH AND TEMPORARY CASH INVESTMENTS - NYNEX's cash management policy is
to make funds available in banks when checks are presented. At March 31,
1994, NYNEX had recorded in Accounts payable checks outstanding but not yet
presented for payment of $204.0 million.
(c) ADOPTION OF FINANCIAL ACCOUNTING STANDARDS - Effective January 1, 1994,
NYNEX adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
("Statement No. 115"). The effect of implementing Statement No. 115 on
NYNEX's results of operations and financial position was not significant.
(d) REVENUES SUBJECT TO POSSIBLE REFUND - Several state and federal
regulatory matters, including affiliate transaction issues in New York
Telephone Company's ("New York Telephone") 1990 intrastate rate case and
overearnings complaints by interstate access customers, may possibly require
the refund of a portion of the revenues collected in the current and prior
periods. As of March 31, 1994, the aggregate amount of such revenues that was
estimated to be subject to possible refund was approximately $189 million,
plus related interest. The outcome of each pending matter, as well as the
time frame within which each will be resolved, is not presently determinable.
(e) LITIGATION AND OTHER CONTINGENCIES - It is probable that various state
and local tax claims aggregating approximately $305 million in tax and
associated interest will be asserted against New York Telephone for the
period 1983 through the first quarter of 1994. While New York Telephone's
counsel cannot give assurance as to the outcome, counsel believes that
New York Telephone has strong legal positions in these matters.
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Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(Unaudited)
(e) LITIGATION AND OTHER CONTINGENCIES (CONT'D)
Various other legal actions and regulatory proceedings are pending that may
affect NYNEX, including matters involving Racketeer Influenced and Corrupt
Organizations Act, antitrust, tort, contract and tax deficiency claims. While
counsel cannot give assurance as to the outcome of any of these matters, in
the opinion of Management based upon the advice of counsel, the ultimate
resolution of these matters in future periods is not expected to have a
material effect on NYNEX's financial position or annual operating results but
could have a material effect on quarterly operating results.
<TABLE>
(f) SUPPLEMENTAL INFORMATION - The following information is provided in
accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows":
<CAPTION>
For the
Three Months Ended
March 31,
In millions 1994 1993
<S> <C> <C>
Income tax payments $ 35.8 $ 81.4
Interest payments $118.8 $133.2
Additions to property, plant and
equipment under capital lease obligations $ 9.3 $ -
Common Stock issued for Dividend Reinvestment and
Stock Purchase Plan and stock compensation plans $ 8.5 $ 3.5
</TABLE>
(g) SEGMENT INFORMATION - The following table sets forth summary financial
information by business segment. Information regarding operating revenues by
business segment is presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 10 - 12. Total
intersegment sales for the first quarter of 1994 and 1993 were $97.0 and
$82.7 million, respectively, principally in the telecommunications segment.
The financial services segment had total outstanding debt of $602.0 and
$600.0 million at March 31, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
(In millions) 1994 1993
OPERATING INCOME:
<S> <C> <C>
Telecommunications $612.4 $693.3
Cellular 10.0 12.7
Publishing 15.3 19.6
Financial services 21.4 16.4
Other diversified operations (20.2) (16.2)
Total operating income by segment 638.9 725.8
Adjustments/Eliminations (2.5) .2
Corporate expenses (40.9) (57.1)
Operating Income $595.5 $668.9
</TABLE>
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Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(Unaudited)
(g) SEGMENT INFORMATION (CONT'D)
Cellular operating income includes certain amounts that are subsequently paid
out to minority shareholders. Minority interest expense for the cellular
segment for the three months ended March 31, 1994 and 1993 was $13.5 and $9.2
million, respectively.
<TABLE>
<CAPTION>
March 31, March 31,
(In millions) 1994 1993
IDENTIFIABLE ASSETS:
<S> <C> <C>
Telecommunications $24,768.5 $24,426.0
Cellular 738.0 540.7
Publishing 536.6 507.0
Financial services 1,493.7 1,304.1
Other diversified operations 1,706.8 1,753.9
Total identifiable assets by segment 29,243.6 28,531.7
Adjustments/Eliminations (1,415.0) (878.3)
Investment in unconsolidated subsidiary 29.5 29.6
Corporate assets 1,410.6 215.5
Total Assets $29,268.7 $27,898.5
</TABLE>
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-8-
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATE REGULATORY MATTERS
As previously reported (see NYNEX'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 New York
Telephone to provide IntraLATA Presubscription ("ILP") within 18 months of a
bona fide request from a carrier. 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 New York
Telephone should be compensated for contribution losses resulting from ILP.
In its decision, the NYSPSC suggested that certain issues relating to ILP
would be made the subject of negotiations and a "collaborative effort"
between the parties to the incentive regulation proceeding.
As previously reported (see NYNEX's Annual Report on Form 10-K for the year
ended December 31, 1993), in the first phase of the incentive regulation
proceeding, the NYSPSC issued Orders on December 24, 1993 and January 28,
1994 for a reduction in New York Telephone'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 will be
pursued in a second phase of the proceeding during 1994. New York Telephone
has set aside $31 million of the $153 million as ordered by the NYSPSC, as an
incentive to improve overall service quality in the Brooklyn-Queens-Bronx
service area.
On April 14, 1994, New England Telephone and Telegraph Company ("New England
Telephone") filed comprehensive tariff provisions with the Massachusetts
Department of Public Utilities ("MDPU") as part of an Alternative Regulatory
Plan ("Plan") to govern New England Telephone's Massachusetts intrastate
operations. The Plan proposes the following: (1) regulation of New England
Telephone for a period of ten years from the date of MDPU approval under a
price framework; (2) pricing rules that limit New England Telephone's ability
to increase both overall average prices and specific rate elements, including
a ceiling on the weighted average price of all tariffed services based on a
formula of inflation minus a productivity factor plus or minus exogenous
changes; (3) no earnings restriction; (4) a cap on the monthly rates for
residence services until August 2001; (5) an increase of $2.50 monthly in the
credit on exchange services for Lifeline customers; (6) investment
commitments for the public telecommunications network, including commencing
the deployment of a broadband network in Massachusetts; (7) quality of
service commitments; (8) rate reductions for switched access services; and
(9) a new streamlined standard of regulation governing the
<PAGE>
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Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATE REGULATORY MATTERS (CONT'D)
review of tariff filings. On April 20, 1994, in accordance with its
statutory authority, the MDPU suspended the effective date of the proposed
tariffs until November 14, 1994, in order to investigate the filing.
As previously reported (see NYNEX's Annual Report on Form 10-K for the year
ended December 31, 1993), New England Telephone filed a petition for a price
regulation plan with the Vermont Public Service Board ("VPSB") on October 5,
1993. In a related proceeding, on December 1, 1993, the Vermont Department
of Public Service ("VDPS") filed a petition seeking to examine New England
Telephone's rates and to ensure that rates are at appropriate levels prior to
the initiation of a price regulation plan. On April 11, 1994, the VDPS filed
testimony alleging that New England Telephone is over earning in Vermont by
$27.5 million on an annual basis and asking the VPSB to direct that any rate
reduction be returned to the ratepayers of Vermont in the form of a rebate
retroactive to December 1993. A decision in both the incentive regulation
and rate dockets is due from the VPSB by October 5, 1994.
Pursuant to the Rhode Island price regulation trial, on March 1, 1994,
New England Telephone filed information with the Rhode Island Public
Utilities Commission ("RIPUC") proposing a 1993 shared earnings credit on
$0.4 million. The RIPUC has scheduled a hearing in May regarding the filing.
FEDERAL REGULATORY MATTERS
On April 1, 1994, New York Telephone and New England Telephone (collectively,
the "telephone subsidiaries") filed tariffs to implement the fourth annual
update to the price cap rates. These tariffs, as amended, will result in a
net reduction in the telephone subsidiaries' annual interstate access rates
of approximately $10.4 million during the tariff period from July 1, 1994 to
June 30, 1995.
BUSINESS RESTRUCTURING
As previously reported (see NYNEX's Annual Report on Form 10-K for the year
ended December 31, 1993), NYNEX recorded pretax charges of approximately $2.1
billion ($1.3 billion after tax) in the fourth quarter of 1993 for business
restructuring. A pension enhancement to the NYNEX management pension plan
was announced in February 1994 for eligible management employees who retire
through December 31, 1996. This enhancement will be offered at different
times through 1996 according to local force requirements. NYNEX has reached an
agreement with the Communications Workers of America and with the
<PAGE>
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Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS RESTRUCTURING (CONT'D)
International Brotherhood of Electrical Workers ("IBEW") in New York which
extends the existing labor agreements to August 1998 and provides a
retirement incentive. Negotiations to reach similar agreements with the
IBEW in New England continue. The management and nonmanagement retirement
incentives are intended to provide a voluntary means to implement a portion of
the planned work force reductions of approximately 16,800 employees by the
end of 1996. NYNEX anticipates recording additional pretax charges of
approximately $2.0 billion ($1.3 billion after-tax) as employees leave NYNEX
through 1996; the amount to be recorded in each year is not presently
determinable because it is dependent on employees' accepting the incentive.
Much of the cost of the enhancements will be funded by NYNEX's pension plans.
The restructuring reserve balance at March 31, 1994 was approximately
$1.9 billion. In December 1993, NYNEX utilized $181 million of the
restructuring reserves primarily relating to the sale or discontinuance of
its information products and services businesses. In the first quarter of
1994, NYNEX utilized approximately $57 million of the restructuring reserves,
primarily for the exit from the information products and services business,
for developing and marketing a single "NYNEX" brand identity, and for
systems re-engineering. There were no significant cost savings as a result
of business restructuring in the first quarter of 1994. Force reductions
will begin in the second quarter of 1994 as re-engineering initiatives are
implemented and as retirement incentives are offered to eligible employees.
NYNEX expects to reduce its work force by approximately 6,000 employees by the
end of 1994.
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993
OPERATING REVENUES
Operating revenues for the quarter ended March 31, 1994 decreased
$46.9 million, or 1.4%, from the same period last year. A summary of
revenues by segment is as follows:
<TABLE>
<CAPTION>
UNAFFILIATED REVENUES BY SEGMENT:
(In millions)
For the Three Months Ended
March 31, March 31,
1994 1993
<S> <C> <C>
Telecommunications $2,869.1 $2,859.9
Cellular 140.3 90.6
Publishing 215.1 214.7
Financial services 27.8 21.7
Other diversified operations 21.0 133.3
Total Consolidated Operating Revenues $3,273.3 $3,320.2
</TABLE>
<PAGE>
-11-
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993 (CONT'D)
OPERATING REVENUES (CONT'D)
Telecommunications
Telecommunications revenues for the first quarter of 1994 increased
$9.2 million, or 0.3%, over the first quarter of 1993.
Local service revenues increased $45.6 million, or 2.9%, primarily due to a
net $69 million increase resulting from increased demand as evidenced by
growth in access lines, growth in sales of calling features, 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 at New York Telephone
and a reversal of $5 million of revenues deferred in 1993, which were in
excess of the required one-time credit to customers' bills pursuant to the
Rhode Island price regulation trial for 1993, at New England Telephone.
These increases were partially offset by a $33 million revenue reduction at
New York Telephone pursuant to an NYSPSC order (see STATE REGULATORY MATTERS
above).
Long distance revenues increased $1.7 million, or 0.6%, primarily due to
increased demand for message toll services, partially offset by decreases 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 telephone subsidiaries, and a $3 million revenue reduction at New York
Telephone pursuant to an NYSPSC order (see STATE REGULATORY MATTERS above).
Network access revenues increased $12.2 million, or 1.4%. Switched access
revenues increased $22 million as a result of increased usage partially
offset by a reduction in interstate rates and a $3 million revenue reduction
at New York Telephone pursuant to an NYSPSC order (see STATE REGULATORY
MATTERS above). This increase was partially offset by a $10 million decline
in special access revenues primarily due to a reduction in rates, increased
competition and customer shifts to lower priced services offered by the
telephone subsidiaries.
Other revenues decreased $50.3 million primarily due to the following at
New York Telephone: (1) a $38 million reduction in revenues representing the
first quarter deferral of the $153 million to be set aside as ordered by the
NYSPSC (see STATE REGULATORY MATTERS above), (2) a $24 million decrease
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 (3) a $10 million increase associated with the 1993
reversal of a 1992 deferral of revenues for concession service.
<PAGE>
-12-
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993 (CONT'D)
OPERATING REVENUES (CONT'D)
Cellular
Cellular revenues for the first quarter of 1994 increased $49.7 million, or
54.9%, over the first quarter of 1993. The segment's customer base for mobile
telecommunications services continued to expand, increasing 57% as compared to
the first quarter of 1993. This growth was spread across all cellular markets;
however, customer growth was partially offset by a decline in average minutes
of use per customer.
Publishing
Publishing revenues for the first quarter of 1994 increased $0.4 million over
the first quarter of 1993 primarily due to the publication of directories in
the Czech Republic. In addition, Yellow Pages advertising revenues in the
New England market increased as a result of higher prices. These increases
were partially offset by decreased revenues due to the planned disposal of
United Publishers Corporation ("UPC") as part of the 1993 business
restructuring. UPC was sold in April 1994. Publishing revenue growth
continues to be adversely affected by decreasing sales volume attributed
primarily to the recessionary impact on many companies' advertising
expenditures.
Financial Services
Financial services revenues for the first quarter of 1994 increased
$6.1 million, or 28.1%, over the first quarter of 1993 principally due to
continued growth in the leased asset portfolio.
Other Diversified Operations
Other diversified operations revenues for the first quarter of 1994 decreased
$112.3 million, or 84.2%, from the first quarter of 1993 primarily attributable
to NYNEX's exit from the information products and services business. The BIS
Group Limited ("BIS") and AGS Computers, Inc. ("AGS") were sold in July 1993
and January 1994, respectively, and had contributed $117.0 million in revenues
in the first quarter of 1993. These decreases were partially offset by growth
in the customer base for international cable television and telephone
operations.
OPERATING EXPENSES
Operating expenses for the first quarter of 1994 were $2.7 billion, an increase
of $26.5 million, or 1.0%, over the first quarter of 1993.
Operating expenses excluding Depreciation and amortization and Taxes other than
income increased $12.1 million, or 0.7%, over the first quarter of 1993 due to:
(1) a $92.4 million increase at the telephone subsidiaries and Telesector
Resources Group, Inc. (collectively, the "telecommunications group") and (2) an
$80.3 million decrease at NYNEX's subsidiaries other than the
telecommunications group.
<PAGE>
-13-
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993 (CONT'D)
OPERATING EXPENSES (CONT'D)
At the telecommunications group, employee costs, consisting primarily of
wages, payroll taxes, and employee benefits, increased $60.8 million. Wages
and payroll taxes increased $47.6 million due principally to increases in
salary and wage rates and additional labor costs due to initiatives to
improve service quality, partially offset by a reduction in the work force
due to force reduction plans. In addition, benefit expenses increased $13.2
million due primarily to higher medical costs for active and retired
employees.
At the telecommunications group, all other operating expenses, which consist
primarily of contracted and centralized services, rent and other general and
administrative costs, increased $31.6 million. The increase in other
operating expenses was due principally to an $8 million increase in material
and supply expenses, an $8 million increase in bad debt expense pursuant to
provisions of the billing and collection contract with AT&T, a $7 million
increase at New England Telephone resulting from capitalization in 1993 of
certain 1992 engineering charges, a $6 million increase in the provision for
uncollectible revenues, and a $6 million increase in right to use fees.
Partially offsetting these increases was a $9 million decrease attributable
to the 1993 reversal of deferred inside wire expense at New York Telephone.
At NYNEX's subsidiaries other than the telecommunications group, the decrease
was due primarily to the sale of BIS and AGS. The decrease was partially
offset by increased commissions and data processing costs associated with the
continued expansion of the customer base for mobile telecommunications
services, increased expenses related to the growth in the customer base for
international cable television and telephone operations, and business
development costs in other international operations.
Taxes other than income decreased $22.4 million, or 8.3%, principally due to
a $23 million decrease in property taxes at New York Telephone resulting
primarily from lower assessments of property value and an $8 million decrease
in property taxes at New England Telephone primarily attributable to a
reversal of a 1993 accrual as a result of unasserted municipal assessments.
Depreciation and amortization increased $36.8 million, or 6.0%, principally
at the telecommunications group. There was a $17 million increase due to
revised intrastate depreciation rates in Massachusetts effective July 1993
and a $17 million increase due to increased plant investment.
OTHER INCOME (EXPENSE) - NET
Other income (expense) - net for the first quarter of 1994 decreased
$2.3 million, or 33.8%, from the first quarter of 1993. The decrease was
principally due to increased minority interest expense and a decrease in the
allowance for funds used during construction. These decreases were partially
offset by dividends received from Viacom Inc. and higher expenses in the
first quarter of 1993 for the interstate portion of call premiums and other
charges associated with the refinancings of long-term debt.
<PAGE>
-14-
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993 (CONT'D)
INTEREST EXPENSE
Interest expense for the first quarter of 1994 decreased $9.8 million, or
5.8%, from the first quarter of 1993, principally due to a decline in average
interest rates resulting from long-term debt refinancings in 1993, partially
offset by increased average debt levels.
INCOME TAXES
Income taxes for the first quarter of 1994 decreased $25.4 million, or 15.7%,
from the same period last year. The decrease was principally due to a
decrease in pretax income partially offset by 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. In addition, there was a $12 million reduction in the
deferred tax valuation allowance as a result of the implementation of a tax
planning strategy to utilize capital losses generated from the exit from the
information products and services business.
CAPITAL RESOURCES AND LIQUIDITY
Capital expenditures increased $146.0 million, or 29.6%, over the first
quarter of 1993. During the first quarter of 1994, NYNEX continued its
capital expenditure program designed to meet the expanding needs for
telecommunications services by upgrading the existing telecommunications
network, including new construction, optical fiber and modernization at the
telephone subsidiaries. Telecommunications capital expenditures were funded
primarily through cash generated from operations. Capital expenditures in
the first quarter of 1994 also included the addition of 30 mobile cell sites
and the construction of cable television and telephone networks in the United
Kingdom.
Other investing activities for the first quarter of 1994 included the receipt
of proceeds from the exit from the information products and services business
and the use of funds for the purchase of cellular properties.
NYNEX issued new shares of common stock for employee savings plans and the
Dividend Reinvestment and Stock Purchase Plan, which increased equity by
approximately $85 million in the first quarter of 1994.
During the first quarter of 1994, the net decrease in cash flows from
issuances and repayments of commercial paper was due primarily to the
issuance of long-term debt at New York Telephone. The net increase in cash
flows from issuances and repayments of long-term debt and capital leases
resulted principally from proceeds from debt issuances of $594 million at New
York Telephone. The activity at New York Telephone was primarily due to
refinancings to obtain lower interest rates. There was a net cash outflow at
NYNEX Credit Company of $10 million, resulting from medium-term note payments.
Financing activities in 1994 included funds provided through a partnership
formed in December 1993 for the network construction program in the United
Kingdom.
<PAGE>
-15-
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993 (CONT'D)
CAPITAL RESOURCES AND LIQUIDITY (CONT'D)
Pursuant to the indentures for certain of its debentures, New York Telephone
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,
New York Telephone does not currently meet the earnings coverage requirement.
NYNEX expects to file a registration statement with the SEC for the issuance
of $900 million of debt and equity securities in the second quarter of 1994.
The proceeds from the sale of securities would be used to provide funds for
NYNEX and/or NYNEX's subsidiaries other than the telecommunications group.
OTHER MATTERS
The telephone subsidiaries currently account for the economic effects of
regulation in accordance with the provisions of Statement of Financial
Accounting Standards No. 71 ("Statement No. 71"). Statement No. 71 would no
longer apply in the event that the recoverability of operating costs through
rates becomes unlikely or uncertain, whether resulting from competitive
effects or specific regulatory actions. NYNEX continuously assesses its
position and the recoverability of its telecommunications assets with respect
to Statement No. 71 and believes that Statement No. 71 still applies.
However, it is possible that events in the industry and the markets in which
NYNEX operates could change NYNEX's position in the near future, and the
impact of such a change would be material.
<PAGE>
-16-
Form 10-Q Part II
NYNEX CORPORATION
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously reported (see NYNEX Corporation's ("NYNEX") Annual
Report on Form 10-K for the year ended December 31, 1993), on
November 12, 1993, the Court of Appeals for the District of
Columbia Circuit reversed and vacated a lower court judgment that
had found NYNEX guilty of criminal contempt for an alleged
violation of the Modification of Final Judgment. The United
States did not seek review of the Court of Appeals decision and
has repaid to NYNEX the $1 million fine imposed by the lower court.
As previously reported (see NYNEX's Annual Report on Form 10-K for
the year ended December 31, 1993), on November 12, 1993, a final
judgment in favor of defendants was issued by the United States
District Court for the Southern District of New York in the
lawsuit filed against various NYNEX companies and individuals by
Scott J. Rafferty. Mr. Rafferty has appealed.
ITEM 5. Other Information
State Regulatory Matters
Maine. As previously reported (see NYNEX's Annual Report on Form
10-K for the year ended December 31, 1993), on July 6, 1992,
New England Telephone and Telegraph Company ("New England
Telephone") filed a comprehensive rate design proposal with the
Maine Public Utilities Commission ("MPUC"). In a decision dated
April 13, 1994, the MPUC rejected New England Telephone's rate
design proposal. The MPUC found that New England Telephone had
not adequately supported its proposal. Because New England
Telephone's proposal was designed to be revenue neutral, there
will be no immediate earnings impact from the MPUC's decision.
The MPUC expressed an interest in exploring how the rate
realignment proposed by New England Telephone might be
accomplished through an alternative form of regulation, in lieu of
traditional rate of return regulation. The MPUC announced its
intention to commence such an investigation, as well as a related
investigation into competition, interconnection and the unbundling
of tariffed services.
See, also, discussion of STATE REGULATORY MATTERS in Part I,
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<PAGE>
-17-
Form 10-Q Part II
NYNEX CORPORATION
PART II - OTHER INFORMATION (CONT'D)
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number
(12) Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K.
NYNEX's Current Report on Form 8-K, date of report
December 24, 1993 and filed January 13, 1994, reporting on
Item 5.
NYNEX's Current Report on Form 8-K, date of report
January 24, 1994 and filed February 11, 1994, reporting on
Item 5.
NYNEX's Current Report on Form 8-K, date of report
January 24, 1994 and filed March 1, 1994, reporting on
Item 5.
NYNEX's Current Report on Form 8-K, date of report March 3, 1994
and filed March 4, 1994, reporting on Item 7.
NYNEX's Current Report on Form 8-K, date of report March 24, 1994
and filed March 31, 1994, reporting on Item 5.
<PAGE>
-18-
Form 10-Q
NYNEX CORPORATION
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.
NYNEX CORPORATION
P. M. Ciccone
P. M. Ciccone
Vice President and Comptroller
(Principal Accounting Officer)
May 11, 1994
-19-
<TABLE>
EXHIBIT 12
NYNEX CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
<CAPTION>
For The
Three Months
Ended
March 31, For The Year Ended December 31,
1994 1993 1992 1991 1990 1989
(Unaudited) Earnings
<S> <C> <C> <C> <C> <C> <C>
Earnings before Interest Expense and
Cumulative Effect of Change in
Accounting Principle $450.2 $387.1 $1,995.8 $1,326.8 $1,649.4 $1,499.0
Federal, State and Local Income Taxes 136.2 (172.7) 570.4 192.1 368.3 265.9
Estimated Interest Portion of
Rental Expense* 26.9 112.3 120.9 123.9 123.8 117.1
Total Earnings* $613.3 $326.7 $2,687.1 $1,642.8 $2,141.5 $1,882.0
Fixed Charges
Total Interest Expense $159.6 $659.5 $ 684.6 $ 726.0 $ 700.0 $ 691.4
Estimated Interest Portion of
Rental Expense* 26.9 112.3 120.9 123.9 123.8 117.1
Total Fixed Charges* $186.5 $771.8 $ 805.5 $ 849.9 $ 823.8 $ 808.5
Ratio of Earnings to Fixed Charges ** 3.29 .42 3.34 1.93 2.60 2.33
* Amounts for years prior to 1991 have been restated for adjustments to rent expense.
** Earnings were inadequate to cover Fixed Charges by $445.1 million for the year ended December 31, 1993 as a
result of $2.1 billion of fourth quarter 1993 business restructuring charges.
</TABLE>
-20-
<TABLE>
NYNEX CORPORATION
VOLUNTARY SCHEDULE - CERTAIN FINANCIAL INFORMATION
(Unaudited)
<CAPTION>
Data Stated In Millions
First Quarter First Quarter Year To Date
Regulation Statement Caption 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
5-02(1) Cash and temporary cash investments $ 144.0 $ 92.1
5-02(9) Total current assets 3,697.2 3,709.9
5-02(18) Total assets 29,268.7 27,898.5
5-02(21) Total current liabilities 6,439.7 4,861.4
5-02(22) Long-term debt 6,934.7 6,897.4
5-02(29) Preferred stock - -
5-02(30) Common stock 433.6 214.4
5-03(b)(10) Earnings before income taxes and cumulative
effect of change in accounting principle 426.8 492.7 426.8 492.7
5-03(b)(11) Income tax expense 136.2 161.6 $136.2 $161.6
5-03(b)(16) Earnings before cumulative effect
of change in accounting principle 290.6 331.1 290.6 331.1
5-03(b)(18) Cumulative effect of change in accounting
for postemployment benefits, net of taxes - (123.5)* - (123.5)*
5-03(b)(19) Net income 290.6 207.6* 290.6 207.6*
* Restated to reflect the adoption of Statement of Financial Accounting Standards No. 112 in the fourth quarter
of 1993 retroactive to January 1, 1993.
</TABLE>
