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 1-8608
NYNEX CORPORATION
A Delaware I.R.S. Employer
Corporation Identification No. 13-3180909
1113 Westchester Avenue, White Plains, New York 10604
Telephone Number (914) 644-6400
Securities registered pursuant to
Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock (par value New York, Boston, Chicago,
$1.00 per share) Pacific and Philadelphia Stock Exchanges
Twenty year 9.55% Debentures New York Stock Exchange,Inc.
due May 1, 2010
Securities registered pursuant to Section 12(g) of the Act: None.
At February 28, 1994, approximately 417,068,000 shares of Common Stock
were outstanding.
At February 28, 1994, the aggregate market value of the voting stock held
by nonaffiliates was approximately $15,527,000,000.
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. [ ]
AMENDMENT NO.2
The registrant hereby amends the following items of its Annual Report 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 Financial
Condition and 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>
page 21 1993 Consolidated Financial Statements
NYNEX
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Review
NYNEX Corporation and its subsidiaries ("NYNEX") are grouped into five
segments for financial reporting purposes. The telecommunications segment
("Telecommunications") provides local telephone service, network access to long
distance services, technical and support services, and is involved in product
development and marketing. Intrastate communications services are regulated by
state public service commissions, and interstate communications services are
regulated by the Federal Communications Commission ("FCC"). The cellular segment
("Cellular") provides wireless telecommunications services and products. The
publishing segment ("Publishing") publishes White and Yellow Pages directories
and provides database products and services. The financial services segment
("Financial Services") primarily engages in leasing activities. The other
diversified operations segment ("Other Diversified Operations") provides
information products and services and consulting services nationally and
internationally, and cable television and telephone services internationally;
NYNEX is exiting the information products and services business (see Business
Restructuring). Operating revenues and operating income are discussed by segment
on pages 28 to 31 and 34 to 35, respectively.
Business Restructuring
Externally, rapid changes in technology and regulation are opening NYNEX's
markets to competitors in all segments (see Competition and Other Matters and
State 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. NYNEX is in a vulnerable position at the
present time, since competitors can serve parts of NYNEX's market at lower
costs. As a result, 1993 results include pretax charges of approximately $2.1
billion ($1.4 billion 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 NYNEX to operate in an
increasingly competitive environment. The most significant restructuring is
within the telecommunications segment. The restructuring plan within the
nontelecommunications segments includes work force reductions and results from
the decision to focus on core businesses, including the exit from certain
nontelephone businesses and investments. The charges taken in 1993 were not
related to the restructure charges recorded in 1991.
Approximately $1.1 billion of the charges ($700 million after-tax) is for
severance and postretirement medical costs for employees leaving NYNEX through
1996. NYNEX expects to reduce its work force by approximately 16,800 employees
by the end of 1996, consisting of 4,200 management employees and 12,600
employees covered under existing union agreements. The expected work force
reductions by year are as follows:
1994 1995 1996 Total
------ ------ ------ ------
Management 2,400 1,000 800 4,200
Nonmanagement 4,100 4,300 4,200 12,600
------ ------ ------ ------
Total 6,500 5,300 5,000 16,800
====== ====== ====== ======
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page 22 1993 Consolidated Financial Statements
NYNEX
Approximately $586 million was recorded for employee severance payments,
including salary, payroll taxes, and outplacement costs to be paid under
provisions of NYNEX'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 $160 $ 91 $ 78 $329
Nonmanagement 123 100 34 257
------ ------ ------ ------
Subtotal 283 191 112 586
Remaining 1991 reserve 45 -- -- 45
------ ------ ------ ------
Total $328 $191 $112 $631
====== ====== ====== ======
* 1994 includes the severance amounts associated with the balance of
the 1991 restructuring reserve at December 31, 1993.
Approximately $520 million was recorded for postretirement medical costs
for these employees, including $316 million for the expected increase in the
accumulated postretirement benefit obligation and $204 million for recognition
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 $ 85 $ 35 $ 29 $149
Nonmanagement 171 142 58 371
---- --- --- ---
Total $256 $177 $ 87 $520
==== ==== ==== ====
A pension enhancement to the 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 NYNEX. 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 NYNEX to reduce expenses.
Approximately $626 million of the charges ($395 million after-tax) consists
of costs associated with re-engineering the way service is delivered to
customers. 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.
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page 23 1993 Consolidated Financial Statements
NYNEX
The following items were included in these charges:
(In millions) 1994 1995 1996 Total
----- ----- ----- -----
Systems redesign $113 $119 $ 16 $248
Work center consolidation 11 129 21 161
Branding 47 - - 47
Relocation 17 24 2 43
Training 26 34 - 60
Re-engineering implementation 24 28 15 67
----- ----- ----- -----
Total $238 $334 $ 54 $626
===== ===== ===== =====
System redesign is the cost of developing new systems, processes and
procedures to realize operational efficiencies and enable NYNEX 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. Only software purchases and external contractor expenses,
which are normally expensed in accordance with NYNEX policy, were included in
the restructuring charges for the following business processes:
(In millions) 1994 1995 1996 Total
------ ------ ----- ------
Customer contact $ 36.4 $ 31.5 $ 3.0 $ 70.9
Customer provisioning 9.8 15.0 4.0 28.8
Customer operations 35.0 35.0 - 70.0
Customer support 31.8 37.5 9.0 78.3
---- ------ ------ ------
Total $113.0 $119.0 $16.0 $248.0
====== ====== ====== ======
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 NYNEX.
Customer provisioning involves the development of the network infrastructure,
circuit and dialtone provisioning and installation, and process standardization.
Customer operations focuses on network monitoring and surveillance, trouble
testing, dispatch control, and proactive repair with reliability as a critical
source of competitive advantage. Customer support facilitates low cost reliable
service by providing support to the other three business processes.
Work center consolidation costs are primarily for consolidation of work
centers from 300 to approximately 50 by the end of 1996. These charges include
incremental costs associated with building work teams in fewer locations 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
NYNEX'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,
<PAGE>
page 24 1993 Consolidated Financial Statements
NYNEX
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 $283 million of the restructuring charges ($271 million
after-tax) relates to NYNEX's sale or discontinuance of its information products
and services businesses, including the sale of AGS Computers, Inc. ("AGS") and
several of its business units and The BIS Group Limited ("BIS"). These charges
include the write-off of the net book value of the businesses and estimated
provision for future operating losses and disposal costs. An additional $106
million ($69 million after-tax) was recorded for write-offs of assets and
accrual of loss contingencies directly associated with restructuring at other
nontelephone subsidiaries.
The restructuring charges reflect approximately $550 million of future cash
outflows, primarily for severance and re-engineering, expected to be incurred
during the three-year period from 1994 through 1996 (approximately $210 million,
$260 million and $80 million in 1994, 1995 and 1996, respectively). Non-cash
restructuring charges include the postretirement medical costs; charges related
to discontinuance of information products and services businesses; and
write-offs of assets at other nontelephone subsidiaries. In addition, future
expected capital expenditures from 1994 through 1996 as a result of
restructuring amount to approximately $400 million, primarily related to systems
re-engineering and work center consolidations. It is anticipated that savings
generated by restructuring will provide the funds required, with any short-term
cash flow needs being met through NYNEX's usual financing channels.
It is anticipated that the restructuring will result in reduced costs
during the period of restructuring and reduced annual operating expenses of
approximately $1.7 billion beginning in 1997. These savings include
approximately $1.1 billion in reduced wage and benefit expenses due to lower
work force levels, and approximately $600 million in non-wage savings including
reduced rent expense for fewer work locations and lower purchasing costs. It is
anticipated that these cost savings will be partially offset by higher costs due
to inflation and growth in the business.
The 1991 results include a pretax charge of approximately $563 million
($362 million after-tax) for force reduction programs. An early retirement
incentive for nonmanagement employees was included in agreements ratified by
NYNEX and the Communications Workers of America and the International
Brotherhood of Electrical Workers (collectively, the "unions") in October 1991
(see Collective Bargaining Agreements). Approximately 7,300 nonmanagement
employees took advantage of this incentive. NYNEX implemented its plan to reduce
its management force and reduced it by approximately 2,700 in 1992 and 600 in
1993. An additional pretax charge of approximately $278 million ($188 million
after-tax) was recorded in 1991, primarily for commencement of plans to exit the
real estate business and to streamline other operations primarily related to
Other Diversified Operations.
<PAGE>
page 25 1993 Consolidated Financial Statements
NYNEX
Collective Bargaining Agreements
In October 1991, NYNEX and certain of its subsidiaries ratified agreements
with the unions to extend the collective bargaining agreements until August 5,
1995 (see Operating Expenses). Under the terms of these agreements, wages
increased 4.0% in 1992, 4.25% in 1993 and will increase 4.0% on August 7, 1994.
In August 1994, there may also be a cost-of-living adjustment. NYNEX and certain
of the unions have been discussing possible extension of the existing labor
contracts and the impact of the business restructuring plan (see Business
Restructuring) on union-represented employees.
State Regulatory Matters
New York
The New York State Public Service Commission ("NYSPSC") authorized a $250
million increase in New York Telephone Company's ("New York Telephone") 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 of the 1990 general rate case (the "Second and Third Stages") that
approximately $27 million of revenues attributable to the reduction in ad
valorem taxes on central office equipment (see Operating Revenues and Operating
Expenses) would be retained to reduce the balance of regulatory assets on New
York Telephone'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, New York Telephone filed a response to the NYSPSC's
order in which it updated the Regulatory Asset Recovery Plan. New York Telephone
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 New York Telephone's Regulatory Asset
Recovery Plan.
On February 4, 1993, the NYSPSC issued an order with respect to the Second
and Third Stages, permitting New York Telephone 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 New York Telephone's 1993
service-quality results.
In July 1992, the NYSPSC initiated a proceeding to investigate
performance-based incentive regulatory plans for New York Telephone for 1994 and
beyond. The NYSPSC noted that incentive regulatory agreements provide incentives
to increase efficiency and provide greater consumer benefits by permitting New
York Telephone 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 New York Telephone's rates of $170 million annually, effective January 1,
1994. An additional $153 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 New York Telephone to record a $75
million charge in 1993, representing a reversal of a portion of a regulatory
asset related to deferred pension costs that New York Telephone expected to
recover through the regulatory process and recorded under the provisions of
Statement of Financial Accounting Statndards No. 71, "Accounting for the Effects
of Certain Types of Regulation" ("Statement No. 71") (see Operating Expenses).
<PAGE>
page 26 1993 Consolidated Financial Statements
NYNEX
The NYSPSC did not make a final finding on return on equity for 1994.
Subject to New York Telephone's achieving net productivity gains, according to
the Orders, New York Telephone 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.
Massachusetts
In June 1990, the Massachusetts Department of Public Utilities ("MDPU")
issued an order in Phase III of a proceeding that culminated a five-year
investigation into New England Telephone and Telegraph Company's ("New England
Telephone") rates, costs and revenues. The order calls for the gradual
restructuring of local and long distance rates within the state, with the
objective of moving prices for services closer to the costs of providing them.
This is accomplished through an annual transitional filing of new rates by New
England Telephone. At the time the rates are established, revenue neutrality is
maintained. New England Telephone's first and second transitional filings became
effective on November 15, 1991 and January 15, 1993, respectively (see Operating
Revenues). On January 13, 1994, the MDPU approved the third transitional filing
with minor modifications to become effective April 14, 1994.
Rhode Island
In August 1992, the Rhode Island Public Utilities Commission approved a
Price Regulation Trial ("PRT") that provides New England Telephone with
significantly increased pricing and earnings freedom through 1995 and calls for
specific investment and service-quality commitments. As a part of the PRT, New
England Telephone makes an annual filing, with overall price increases capped by
a formula indexing prices to the Gross National Product Price Index, adjusted
for productivity and exogenous factors. The PRT allows New England Telephone to
continue moving the prices of its services closer to the costs of providing
them. New England Telephone's most recent annual filing became effective on
January 15, 1994. This filing calls for an overall revenue reduction of
approximately $3.2 million for 1994, resulting from decreases in long distance
revenues partially offset by increases in local service revenues.
Federal Regulatory Matters
Access Rates
Effective January 1, 1991, the FCC lowered its interstate access rate of
return from 12% to 11.25%. Interstate access tariffs for New York Telephone
and New England Telephone (collectively, the "telephone subsidiaries") reflect
this rate of return.
Effective January 1, 1991, the FCC adopted incentive regulation in the form
of price caps with respect to interstate services provided by the telephone
subsidiaries. Price caps focus on local exchange carriers' ("LECs") prices
<PAGE>
page 27 1993 Consolidated Financial Statements
NYNEX
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. Future improvements in
interstate earnings will depend upon actual productivity improvements in excess
of the productivity rate established by the FCC, effective response to
competition and continued growth in the demand for interstate access services.
Moreover, the FCC retained cost of service rate-making methodologies for new
services, which may limit the benefits of incentive regulation. Under FCC price
cap regulation, the telephone subsidiaries may earn a return on equity 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%. Revised tariffs under the price cap rules became effective
in July 1991 and July 1992 and reduced interstate access rates by approximately
$68 million and $25 million, respectively. On July 2, 1993, the telephone
subsidiaries implemented the third annual update to the price cap rates, which
will result in a net reduction in interstate access rates of approximately $90
million by June 1994.
In September 1992, the FCC adopted rules requiring certain LECs, including
the telephone subsidiaries, to offer physical collocation to interexchange
carriers for the provision of special access services under terms and conditions
similar to the intrastate collocation arrangements already in existence in
Massachusetts and New York. The telephone subsidiaries filed Special Access
Expanded Interconnection tariffs on February 16, 1993. The FCC issued an order
on September 2, 1993 requiring certain LECs, including the telephone
subsidiaries, to file Switched Transport Expanded Interconnection tariffs. The
telephone subsidiaries filed their tariffs 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. The financial impact of the FCC
rules is not presently determinable.
On December 5, 1993, the telephone subsidiaries filed a petition with the
FCC for a waiver to implement the Universal Service Preservation Plan ("USPP")
in order to compete more effectively with alternative providers of local
telephone service. The USPP would reduce the Switched Access rate for multiline
business users in zones of high traffic density by approximately 40 percent and
would shift most of the revenues lost from this rate reduction to flat, per-line
charges applicable to all access lines. Overall annual access revenues would be
reduced by $25 million.
Unified Tariffs
In 1992, the telephone subsidiaries implemented a three-step transition
plan to unify their interstate access rates, with tariffs that became effective
in January, July, and November 1992.
With unification of interstate rates, the telephone subsidiaries report one
unified interstate rate of return to the FCC, which will be the basis for
determining any possible refund obligations due to overearnings as well as any
need to increase interstate rates due to underearnings under the price cap plan.
Previously, each telephone subsidiary's individual rate of return was used for
such purposes.
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page 28 1993 Consolidated Financial Statements
NYNEX
While the unified rate structure is designed to have no impact on the
telephone subsidiaries' aggregate interstate revenues, New England Telephone
experienced an overall increase in interstate rates, and New York Telephone
experienced an offsetting interstate rate decrease. In order to avoid sudden
changes in each of the telephone subsidiary's earnings, the telephone
subsidiaries implemented a transition plan to phase-in the earnings effect of
the unified rate structure.
Modification of Final Judgment
In July 1991, the Modification of Final Judgment ("MFJ") restriction on the
provision of the content of information services by NYNEX and the other regional
holding companies ("RHCs") was lifted. On May 28, 1993, the United States Court
of Appeals for the District of Columbia affirmed that decision, allowing the
RHCs and LECs, including NYNEX and the telephone subsidiaries, to create and own
the content of the information they transmit over the telephone lines and to
provide data processing services to customers. On November 15, 1993, the United
States Supreme Court declined to review the Court of Appeals decision.
Operating Revenues
Operating revenues increased in 1993, principally due to increased revenues
from Telecommunications and Cellular, partially offset by decreased revenues
from Other Diversified Operations principally due to the sale of BIS in July
1993. In 1992, operating revenues decreased principally due to decreased
revenues from Other Diversified Operations primarily resulting from the sale of
the NYNEX Business Centers in June 1991, partially offset by increased revenues
from Telecommunications and Cellular.
Analysis of Segment Revenues
(In millions) For the years ended December 31,
Unaffiliated Revenues 1993 1992 1991
----- ---- -----
Telecommunications $11,525.8 $11,301.0 $11,138.2
Cellular 440.5 351.4 324.1
Publishing 872.2 863.0 875.1
Financial Services 101.8 75.5 78.9
Other Diversified Operations 467.5 591.6 838.4
--------- --------- ---------
Consolidated revenues $13,407.8 $13,182.5 $13,254.7
--------- --------- ---------
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page 29 1993 Consolidated Financial Statements
NYNEX
Telecommunications
Telecommunications revenues increased $224.8 million, or 2.0%, in 1993 and
$162.8 million, or 1.5%, in 1992.
Local service and Long distance revenues increased a net $186.3 million, or
2.5%, in 1993. Local service revenues increased $165.3 million, or 2.6%,
primarily due to a net $225 million increase resulting from increased demand as
evidenced by growth in access lines, growth in sales of advanced calling
features, higher usage associated with winter storms and the World Trade Center
bombing in 1993 (see Operating Expenses), approximately $52 million from
increased rates for local services at New England Telephone due to the
restructuring of Massachusetts rates (see State Regulatory Matters), and an
increase in rates to cover higher gross receipts taxes at New York Telephone.
These increases were partially offset by a $55 million revenue reduction
pursuant to the Third Stage and a $5 million reduction associated with the
reversal of a 1990 deferral of private line revenues at New York Telephone. Long
distance revenues increased $21.0 million, or 1.9%, primarily due to a $55
million increase attributable to regulatory accounting adjustments relating to
intraLATA toll calling in upstate New York (see Operating Expenses). This
increase was partially offset by decreases in demand for long distance services,
primarily private line and wide area telecommunications, as a result of
increased competition and customer shifts to lower priced services offered by
the telephone subsidiaries, and a net $51 million decrease resulting from
decreased rates at New England Telephone due to the restructuring of
Massachusetts rates.
Local service and Long distance revenues increased a net $152.5 million in
1992 primarily due to increased demand for local services, growth in sales of
advanced calling features, increased rates for local services at New England
Telephone due to the restructuring of Massachusetts rates, and an increase in
rates to cover higher gross receipts taxes at New York Telephone. These
increases were partially offset by decreases in demand for long distance
services, primarily private line and wide area telecommunications, as a result
of increased competition and customer shifts to lower priced services offered by
the telephone subsidiaries, and decreased rates at New England Telephone due to
the restructuring of Massachusetts rates.
Network access revenues increased $31.4 million in 1993. Switched access
revenues increased $58 million as a result of increased usage partially offset
by a reduction in rates, which included decreased rates to reflect lower gross
receipts taxes at New York Telephone. This increase was partially offset by a
$27 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. The total effect of interstate rate
reductions on Network access revenues was $82 million.
Network access revenues increased $61.0 million in 1992 due principally to
an $18 million increase in interstate rates to cover higher gross receipts taxes
at New York Telephone and a $50 million increase in switched access revenues as
a result of increased usage partially offset by a reduction in rates. Special
access revenues declined $7 million primarily due to a reduction in rates,
increased competition, and customer shifts to lower priced services offered by
the telephone subsidiaries.
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page 30 1993 Consolidated Financial Statements
NYNEX
Other revenues increased $7.1 million in 1993, primarily due to the
following at New York Telephone: (1) a $24 million increase from the reversal of
previously recorded reductions in revenues in connection with the phase-out of
ad valorem taxes on central office equipment, (2) a $22 million increase due to
the imputed reduction of these revenues in 1992, (3) a $10 million reduction
associated with the reversal of a 1992 deferral of revenues for concession
service, (4) a $10 million decrease due to the 1992 imputation of these
revenues, and (5) a $9 million increase in wire installation revenues. There was
also a net $26 million decrease in billing and collection revenues primarily
attributable to a contract provision with American Telephone and Telegraph
Company ("AT&T").
Other revenues decreased $50.7 million in 1992 primarily due to the
following decreases: (1) $24 million attributable to a decrease in ad valorem
taxes on New York Telephone central office equipment (see Operating Expenses),
(2) $7 million at Telesector Resources Group, Inc. ("Telesector Resources")
because of a policy change curtailing sales to unaffiliated companies, and (3)
$25 million from a billing and collection contract provision with AT&T resulting
in the recognition of additional revenue in 1991. In 1990, NYNEX and AT&T signed
a six-year contract, extending the telephone subsidiaries' roles as AT&T's long
distance billing and collection agents. The agreement allows AT&T the
flexibility of gradually assuming certain administrative and billing functions
performed by the telephone subsidiaries.
Cellular
Cellular revenues increased $89.1 million, or 25.4%, in 1993 and $27.3
million, or 8.4%, in 1992. The segment's customer base for mobile
telecommunications services continued to expand, increasing 47% in 1993 and 27%
in 1992. This growth was spread across all cellular markets; however, in both
years, customer growth was partially offset by a decline in average minutes of
use per customer and lower average prices.
The growth in cellular revenues is expected to continue, consistent with
anticipated growth in the cellular industry as a whole. However, future revenues
may be impacted by increased competitive pressures on pricing and market share,
the effects of a broader customer base with lower average usage, and recovery of
the Northeast economy.
On December 3, 1993, NYNEX Mobile Communications Company ("NYNEX Mobile")
entered into a definitive agreement to purchase the northeastern properties of
Contel Cellular Inc. Some transactions have closed; the remainder are subject to
various governmental approvals and third party consents.
Publishing
Publishing revenues increased $9.2 million, or 1.1%, in 1993 and decreased
$12.1 million, or 1.4%, in 1992. The 1993 increase was primarily due to the
publication of directories in the Czech Republic. Yellow Pages advertising
revenues did not fluctuate significantly, as decreased sales volume was offset
by increased prices. The 1992 decrease was due to decreased Yellow Pages
advertising revenues as a result of decreased sales volume, partially offset by
increased prices. The decreased sales volume in both years is attributed
primarily to the recessionary impact on many companies' advertising
expenditures; however, revenues are expected to grow over the next several years
primarily as a result of increased revenues from the publication of directories
internationally and increased Yellow Pages prices.
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page 31 1993 Consolidated Financial Statements
NYNEX
Financial Services
Financial Services revenues increased $26.3 million, or 34.8%, in 1993 and
decreased $3.4 million, or 4.3%, in 1992. The 1993 increase was principally due
to continued growth in the portfolio of leveraged leases. The 1992 decrease was
due to decreased revenues from real estate operations, partially offset by
increased revenues from leveraged leases. Major leasing projects in both years
included financing for aircraft, industrial equipment, railroad cars, power
generation equipment, residential real estate and telecommunications and
computer equipment.
Other Diversified Operations
Other Diversified Operations revenues decreased $124.1 million, or 21.0%,
in 1993 and $246.8 million, or 29.4%, in 1992. The sale of BIS in July 1993 (see
Business Restructuring) resulted in a reduction in 1993 revenues of $104
million. In 1993, there was also a decrease in demand for professional services,
partially offset by growth in the customer base for international cable
television and telephone operations. In January 1994, NYNEX completed the sale
of AGS (see Business Restructuring). Total 1993 revenues from AGS were $296
million. In 1992, there was a decrease in demand for professional services,
partially offset by increased revenues from international operations. The sale
of the NYNEX Business Centers in June 1991 and the 1991 reorganization of NYNEX
Business Information Systems Company's ("NBISC") Office Systems Division
resulted in a reduction in revenues in 1992 of $261 million.
Operating Expenses
Operating expenses in 1993, 1992 and 1991 were $13.1, $10.7 and $11.7
billion, respectively, representing an increase over the prior year of $2.4
billion, or 22.7%, in 1993 and a decrease of $1.0 billion, or 8.7%, in 1992.
Operating expenses excluding Depreciation and amortization and Taxes other
than income (in millions)
93............................$9,501.6
92............................$7,082.4
91............................$8,144.4
In 1993, Operating expenses excluding Depreciation and amortization and
Taxes other than income increased $2.0 billion at the "telecommunications group"
(consisting of New York Telephone, New England Telephone and Telesector
Resources), principally due to $1.6 billion of 1993 pretax restructuring charges
(see Business Restructuring) and increased employee benefit costs. Operating
expenses excluding Depreciation and amortization and Taxes other than income at
NYNEX's subsidiaries other than the telecommunications group increased $465.2
million, principally due to $465.8 million of 1993 restructuring charges
recorded in operating expenses; increased data processing, commissions, and
advertising costs associated with the continued expansion of the customer base
for cellular telecommunications services; and increased expenses related to the
growth in international cable television and telephone operations. These
increases were partially offset by decreased expenses resulting from the sale of
BIS.
<PAGE>
page 32 1993 Consolidated Financial Statements
NYNEX
Employee costs, consisting primarily of wages, payroll taxes, and employee
benefits, increased $294.9 million in 1993 at the telecommunications group.
There was a $141 million increase in benefit costs for active and retired
employees due primarily to increased medical costs and an accrual for a
supplemental executive retirement plan, and a $75 million charge resulting from
a reversal of deferred pension costs at New York Telephone as ordered by the
NYSPSC (see State Regulatory Matters). In 1993, wages and payroll taxes
increased $79 million due to increases in salary and wage rates and additional
labor costs due to winter storms, the World Trade Center bombing in 1993 (see
Operating Revenues), and initiatives to improve service-quality levels,
partially offset by a reduction in the work force due to force reduction plans.
All other operating expenses, consisting primarily of contracted and
centralized services, rent and other general and administrative costs, increased
$48.0 million in 1993 at the telecommunications group due primarily to a $64
million increase resulting from regulatory accounting adjustments relating to
intraLATA toll calling in upstate New York (see Operating Revenues), a $13
million increase due to the telephone subsidiaries' contractual share of a
predivestiture AT&T liability, and a $9 million increase at New York Telephone
primarily attributable to the reversal of deferred inside wire expense recorded
in 1991 and 1992. The increases were partially offset by a $15 million decrease
in bad debt expense recognized pursuant to provisions of the billing and
collections contract with AT&T, a $13 million decrease resulting from
capitalization in 1993 of certain 1993 and 1992 engineering charges at New
England Telephone, and a $13 million decrease in material and supply expense.
In 1992, Operating expenses excluding Depreciation and amortization and
Taxes other than income decreased $597.2 million at the telecommunications
group, principally due to $477 million of 1991 restructuring charges, force
reductions, and cost containment measures (see Business Restructuring).
Operating expenses excluding Depreciation and amortization and Taxes other than
income at NYNEX's subsidiaries other than the telecommunications group decreased
$464.8 million, principally due to the sale of the NYNEX Business Centers and
the reorganization of NBISC's Office Systems Division.
Employee costs decreased $456 million in 1992 at the telecommunications
group due principally to $386 million of pretax charges recorded in 1991
associated with force reduction programs (see Business Restructuring), which
included $153 million of pension-related expenses and $233 million for severance
and other costs. In 1992, wages and payroll taxes decreased $94 million due
primarily to a decreased number of employees, partially offset by increased wage
rates. There was a net $34 million increase in benefit costs for active and
retired employees primarily due to increased medical costs, partially offset by
a $10 million reduction in pension costs primarily as a result of lump sum
benefit payments to management employees.
All other operating expenses decreased $141 million in 1992 at the
telecommunications group due primarily to $91 million of pretax charges recorded
in 1991 (see Business Restructuring) and to the implementation of cost
containment measures throughout NYNEX. In 1992, decreases in contracted and
centralized services expense of $81 million and material and supply expense of
$10 million were partially offset by a $60 million increase in right-to-use fees
resulting primarily from software purchases.
<PAGE>
page 33 1993 Consolidated Financial Statements
NYNEX
Taxes other than income (in millions)
93............................$1,038.9
92............................$1,054.6
91............................$1,122.6
In 1993, Taxes other than income decreased $21.5 million at the
telecommunications group. At New York Telephone, there was: (1) a $29 million
decrease in ad valorem taxes primarily attributable to the completion of the
phase-out of the tax on central office equipment, (2) a $22 million decrease in
property taxes due principally to lower assessments, and (3) a $4 million
increase due to increased gross receipts tax rates. At New England Telephone,
there was a $19 million increase in property taxes primarily attributable to
increased tax rates and municipal assessments. At NYNEX's subsidiaries other
than the telecommunications group, there was a $5.8 million increase principally
due to increased property taxes.
In 1992, Taxes other than income decreased $63.8 million at the
telecommunications group. At New York Telephone, there was an $80 million
decrease in ad valorem taxes primarily attributable to the phase-out of the tax
on central office equipment, partially offset by a $16 million increase
resulting from higher gross receipts tax rates. At New England Telephone, there
was a $9 million increase in property taxes. At NYNEX's subsidiaries other than
the telecommunications group, there was a $4.2 million decrease principally due
to decreased property taxes.
Depreciation and amortization (in millions)
93............................$2,534.0
92............................$2,518.0
91............................$2,397.5
In 1993, Depreciation and amortization increased $18.1 million at the
telecommunications group. The increase included: (1) a $69 million increase due
to increased telephone plant in service, (2) a $41 million increase resulting
from revised intrastate depreciation rates in Massachusetts, Rhode Island, and
New Hampshire, (3) a $25 million increase due to represcribed interstate
depreciation rates at New England Telephone, (4) a $62 million decrease due to
the completion of intrastate amortization of electro-mechanical switching
equipment in Massachusetts in 1992, (5) a $20 million decrease due to the
completion of interstate amortization of the reserve deficiency in 1992, (6) an
$11 million decrease in the amortization of the reserve deficiency for analog
electronic switching systems offices in Rhode Island, (7) a $4 million decrease
due to recognition in 1992 of expenses that were previously deferred in
accordance with a prior regulatory agreement in New Hampshire, and (8) a $3
million decrease due to the completion of the amortization of customer premise
wiring in 1992 at New England Telephone. The 1993 net decrease in Depreciation
and amortization of $2.1 million at NYNEX's subsidiaries other than the
telecommunications group was primarily due to the sale of BIS.
<PAGE>
page 34 1993 Consolidated Financial Statements
NYNEX
In 1992, Depreciation and amortization increased $159.3 million at the
telecommunications group. The increase included: (1) a $91 million increase due
to represcribed interstate depreciation rates retroactive to January 1, 1992 at
New York Telephone, (2) a $35 million increase due to accelerated intrastate
amortization of electro-mechanical switching equipment in Massachusetts, (3) a
$27 million increase due to increased telephone plant in service, (4) an $18
million increase due to accelerated intrastate amortization associated with the
analog switch retirement program in Rhode Island, (5) a $16 million increase due
to a 1991 change in depreciable lives at New York Telephone, and (6) a $61
million decrease due to the amortization of the depreciation reserve deficiency
at the telephone subsidiaries. The 1992 net decrease in Depreciation and
amortization of $38.8 million at NYNEX's subsidiaries other than the
telecommunications group was primarily due to $45 million of 1991 restructuring
charges related to asset write-downs.
Operating Income
The decrease in Operating income for 1993 reflects the effect of $2.1
billion of pretax restructuring charges in 1993 (see Business Restructuring).
The 1992 increase in Operating income reflects the effect of $769 million of
pretax restructuring charges in 1991 (see Business Restructuring) and decreased
losses in Other Diversified Operations in 1992 due to the sale of the NYNEX
Business Centers and the reorganization of NBISC's Office Systems Division.
Analysis of Segment Operating Income
(In millions) For the years ended December 31,
Operating Income 1993 1992 1991
-------- -------- -------
Telecommunications $967.2 $2,643.7 $1,963.7
Cellular 1.4 61.3 48.5
Publishing 52.2 57.2 47.4
Financial Services 38.9 63.4 27.0
Other Diversified Operations (384.8) (67.6) (169.3)
-------- -------- -------
674.9 2,758.0 1,917.3
Adjustments and eliminations 14.9 2.5 13.0
Corporate expenses (356.5) (233.0) (340.1)
-------- -------- -------
Consolidated operating income $333.3 $2,527.5 $1,590.2
-------- -------- -------
Telecommunications
Telecommunications operating income decreased $1.7 billion, or 63.4%, in
1993 and increased $680.0 million, or 34.6%, in 1992. The 1993 decrease was
principally due to $1.6 billion of 1993 pretax restructuring charges (see
Business Restructuring) and increased benefit costs, partially offset by
increased revenues. The 1992 increase was principally due to $488 million of
1991 pretax restructuring charges (see Business Restructuring) and to increased
revenues, force reductions and cost containment in 1992.
Cellular
Cellular operating income decreased $59.9 million, or 97.7%, in 1993 and
increased $12.8 million, or 26.4%, in 1992. The 1993 decrease was principally
due to $61 million of pretax restructuring charges (see Business Restructuring).
Excluding these charges, 1993 operating income was flat compared to 1992. In
1993, increased revenues were offset by increased data processing, commissions,
and advertising costs associated with the expansion of the customer base. In
1992, growth in revenues exceeded the growth in operating expenses. Increased
depreciation associated with cell site
<PAGE>
page 35 1993 Consolidated Financial Statements
NYNEX
construction in New York and commissions related to customer additions in
1992 were partially offset by: (1) a reduction in data processing costs as a
result of the move to a new data center in 1991; (2) lower rent due to the
transfer of ownership of the cellular headquarters from NYNEX Properties
Company; (3) lower advertising and contracted services due to cost containment
efforts and (4) a $6 million credit related to a vendor contract modification.
Publishing
Publishing operating income decreased $5.0 million, or 8.7%, in 1993 and
increased $9.8 million, or 20.7%, in 1992. The 1993 decrease was principally due
to $6 million of pretax restructuring charges (see Business Restructuring).
Excluding these charges, 1993 operating income was flat compared to 1992. In
1993, increased revenues from the publication of directories in the Czech
Republic were offset by increased data processing costs and increased expenses
for the publication of international directories. Excluding the effect of 1991
restructuring charges, 1992 operating income was flat compared to 1991. Although
Yellow Pages advertising revenues decreased in 1992, cost containment measures
resulted in lower expenses.
Financial Services
Financial Services operating income decreased $24.5 million, or 38.6% in
1993 and increased $36.4 million in 1992. The 1993 decrease was principally due
to $40 million of pretax restructuring charges associated with plans to sell
certain real estate holdings (see Business Restructuring), partially offset by
increased revenues from leveraged leases. The 1992 increase was primarily due to
1991 restructuring charges and increased revenues from leveraged leases,
partially offset by the discontinuance of real estate development efforts.
Other Diversified Operations
The operating loss from Other Diversified Operations increased $317.2
million in 1993 and decreased $101.7 million, or 60.1%, in 1992. The 1993
increase was principally due to $301 million of pretax restructuring charges
(see Business Restructuring), increased expenses related to growth in
international cable television and telephone operations, and decreased operating
income associated with the sale of BIS in July 1993. The 1992 decrease was due
primarily to the sale of the NYNEX Business Centers, the reorganization of
NBISC's Office Systems Division and the effect of restructuring charges in 1991,
partially offset by losses from the professional services and software
businesses and start-up and business development costs in international
operations.
Other income (expense)-net (In millions) 1993 1992 1991
- ----------------------------------------------------------------------------
$(118.9) $38.7 $(71.3)
- ----------------------------------------------------------------------------
The decrease in 1993 was primarily due to $84 million for the interstate
portion of call premiums and other charges associated with the refinancing of
long-term debt, a net $37 million of interest received in 1992 as a result of
tax audit settlements, primarily at the telephone subsidiaries, and $31 million
of pretax restructuring charges (see Business Restructuring). The increase in
1992 was primarily due to 1991 restructuring charges and the aforementioned 1992
tax audit settlements.
<PAGE>
page 36 1993 Consolidated Financial Statements
NYNEX
Interest expense
(In millions) 1993 1992 1991
- -----------------------------------------------------------------------------
$659.5 $684.6 $726.0
- ------------------------------------------------------------------------------
In 1993, average interest rates declined from 7.8% in 1992 to 7.1%
primarily as a result of long-term debt refinancings, and average debt levels
increased from $8.5 billion in 1992 to $8.8 billion (see Capital Resources and
Liquidity). In 1992, average interest rates declined from 8.0% in 1991 to 7.8%,
and average debt levels decreased from $8.8 billion in 1991 to $8.5 billion.
Income taxes
(In millions) 1993 1992 1991
- ------------------------------------------------------------------------------
$(172.7) $570.4 $192.1
- ------------------------------------------------------------------------------
Earnings (loss) before income taxes and cumulative effect of change in
accounting principle decreased $2.3 billion in 1993, principally due to pretax
restructuring charges, and there was an increase in the reversal of excess
deferred taxes from previous years that had been deferred at a tax rate higher
than the 1993 statutory rate. These decreases were partially offset by the
effect of the Revenue Reconciliation Act of 1993, which increased the statutory
corporate federal income tax rate from 34 percent to 35 percent. Earnings (loss)
before income taxes and cumulative effect of change in accounting principle
increased $1.1 billion in 1992, and there was a decrease in the reversal of
excess deferred taxes from previous years that had been deferred at a tax rate
higher than the 1992 statutory rate.
Adoption of Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits"
NYNEX 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 NYNEX'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 $189.2 million ($121.7 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. The
rate recovery of these costs in the intrastate jurisdictions for New England
Telephone has not been determined.
Anticipated Effects of Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities"
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("Statement No. 115"), effective for fiscal years beginning
after December 15, 1993. Statement No. 115 addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. At acquisition, debt and
equity securities will be classified into one of three categories, and at
<PAGE>
page 37 1993 Consolidated Financial Statements
NYNEX
each reporting date, the classification of the securities will be assessed as to
its appropriateness. Management anticipates that the implementation of Statement
No. 115 will not have a material effect on NYNEX's results of operations and
financial position.
Capital Resources and Liquidity
Cash provided by operating activities was $3.7, $3.5 and $3.2 billion in
1993, 1992 and 1991, respectively. Excluding the effects of restructuring
charges (see Business Restructuring), Management anticipates cash provided by
operating activities in 1994 to continue in the range attained in recent years.
Capital expenditures were $2.7, $2.4 and $2.5 billion in 1993, 1992 and
1991, respectively, and are projected to remain at a comparable level in 1994,
excluding capital expenditures resulting from the re-engineering of systems and
work processes (see Business Restructuring). In 1993, the telephone subsidiaries
continued their capital expenditure program designed to upgrade and extend the
existing telecommunications network, including new construction, optical fiber
and modernization. These capital expenditures were funded primarily through cash
generated from operations, and it is anticipated that 1994 capital expenditures
will be similarly funded. Capital expenditures in 1993 also included the
construction of 94 mobile cell sites, cell site digital upgrades, and the
building of combined cable television/telephony networks in the United Kingdom.
Other investing activities for 1993 included NYNEX's investment of $1.2
billion in Viacom Inc. ("Viacom"), which owns and operates cable television
networks and other businesses worldwide. NYNEX and Viacom will pursue strategic
partnership opportunities in domestic and international cable television, media
entertainment, video transmission, and telecommunications. Under the terms of
the agreement, either NYNEX or Viacom may reduce NYNEX's investment by $600
million if Viacom has not acquired a majority of the outstanding voting capital
stock of Paramount Communications Inc. ("Paramount") by August 31, 1994 or if
Paramount is acquired by a third party. Other investments in 1993 included a
$176.8 million investment in Orient Telecom & Technology Holdings Ltd. to
acquire an indirect interest of approximately five percent in TelecomAsia
Corporation Public Company Limited ("TelecomAsia"), primarily for a network
expansion project in Bangkok, Thailand, and to develop telecommunications
opportunities in China, a $25.7 million investment in STET Hellas
Telecommunications S.A. for a Greek cellular project, and an additional $23.7
million investment in TelecomAsia. Other investing activities for 1992 included
the initial investment of $289.1 million in TelecomAsia.
During 1993, commercial paper and other short-term debt increased a net
$2.5 billion, resulting primarily from the investment in Viacom, long-term debt
refinancings at the telephone subsidiaries, and increased capital expenditures.
In 1993, financing activities included payments of $3.1 billion and proceeds of
$2.4 billion, due to debt refinancings at the telephone subsidiaries to obtain
lower interest rates. The majority of refinancing charges for the telephone
subsidiaries, including call premiums, are deferred and amortized for intrastate
rate-making purposes. It is estimated that these refinancings will result in an
annual interest savings of approximately $62 million for the next five years,
with savings thereafter varying.
<PAGE>
page 38 1993 Consolidated Financial Statements
NYNEX
In general, the purpose of NYNEX's hedging program is to protect against
adverse changes in foreign exchange rates, interest rates and other prices or
rates, or to otherwise contribute to NYNEX's financing strategy. For example, in
1993, NYNEX entered into a hedging strategy to reduce the adverse impact of a
tax rate increase on the earnings of NYNEX Credit Company's leveraged lease
portfolio. The expected cash flows associated with the hedge are not expected to
be material to NYNEX.
The derivative instruments used by NYNEX to manage these risks may be
separated into three fundamental components. These components are forwards,
options, and swaps. NYNEX does not trade derivative positions for profit or
speculation. Rather, it matches its derivative positions to proportional
underlying financial exposures. Neither liquidity nor results of operations are
expected to be materially affected by the hedging program.
The extent of NYNEX's involvement in derivative transactions for hedging
purposes is represented by contractual or notional amounts. These amounts serve
as general volume indicators only and do not represent the potential gain or
loss from market or credit risks.
At December 31, 1993, NYNEX had derivative transactions with notional
amounts totalling $2.0 billion maturing between 1994 and 2004. The estimated
fair value of these transactions was a net payable position of $18.1 million
including the $12 million of premiums received on basis swaption agreements. At
December 31, 1992, NYNEX had derivative transactions with notional amounts
totalling $352.2 million and an estimated fair value resulting in a net payable
position of $7.4 million maturing between 1993 and 1997.
NYNEX's use of foreign currency derivatives to hedge certain investments in
foreign subsidiaries resulted in cumulative net gains on these derivatives of
approximately $19.3 million and $14.4 million at December 31, 1993 and 1992,
respectively, recorded as adjustments to stockholders' equity. In addition, as
of December 31, 1993, approximately $12 million of premiums received on basis
swaption agreements exercised in January 1994 will be amortized to income
ratably over the life of the resultant basis swap agreements maturing in January
2004. In 1993, 1992 and 1991, NYNEX's income from continuing operations was
reduced by $10.7, $7.6, and $1.8 million, respectively, from hedging activities,
primarily as a result of increased interest expense relating to interest rate
swaps.
As of December 31, 1993, in connection with its hedging program, NYNEX had
entered into various interest rate swap agreements to modify the interest rate
structure associated with a portion of NYNEX's outstanding commercial paper and
three outstanding medium-term notes. NYNEX entered into several interest rate
swaps with notional amounts totalling $76.7 million and a $10 million interest
rate cap to hedge commercial paper with a weighted average maturity of 39 days
and a weighted average interest rate of 3.3% at December 31, 1993. The interest
rate swaps, which have original maturities ranging from two to eight years,
require NYNEX to receive a floating rate based primarily on the three-month
London Interbank Offered Rate ("LIBOR") or the one-month Federal Composite
Commercial Paper Rate and to pay a fixed rate. This has effectively created an
average annual fixed rate on the hedged commercial paper of approximately 6.2%
at December 31, 1993. The interest rate cap for the $10 million contracted
amount protects NYNEX against increases above five percent in the monthly
Federal Composite Commercial Paper Rate through September 1995. NYNEX has also
entered into several interest rate swap agreements with notional amounts
totalling $131 million relating to three
<PAGE>
page 39 1993 Consolidated Financial Statements
NYNEX
outstanding fixed rate, non-callable medium-term notes with interest rates
ranging from 7.5% to 9.4% and maturities from 1997 to 2001. The interest rate
agreements, which require NYNEX to receive a fixed rate and to pay a floating
rate based upon six-month LIBOR, have effectively converted the underlying notes
to a floating rate averaging approximately 6.1% at December 31, 1993.
In addition, in connection with managing the interest element related to
the hedging of NYNEX's overseas investments and as an alternative to borrowing
at higher interest rates in foreign countries, NYNEX had contracts with notional
amounts of approximately $715.2 million with interest rate swap components.
These contracts generally require NYNEX to receive interest at a fixed rate
averaging approximately 2.6% and to pay a floating interest rate based on the
three-month or six-month LIBOR averaging approximately 4.5% at December 31,
1993.
In 1993, 1992 and 1991, NYNEX issued new shares of common stock for
employee savings plans and the Dividend Reinvestment and Stock Purchase Plan,
which increased equity by approximately $32 million in 1993, $230 million in
1992, and $260 million in 1991. During most of 1993, NYNEX purchased shares on
the open market to fulfill plan requirements. As of November 1, 1993, NYNEX
discontinued purchasing shares and began issuing new shares. In January 1993,
NYNEX began a stock repurchase program in connection with employee stock option
plans established in 1992. NYNEX expects to repurchase common shares in the open
market over a period of up to ten years; as stock options are exercised,
repurchased shares will be released into the open market. Approximately one
million common shares were repurchased in 1993 in connection with this program.
On July 15, 1993, the Board of Directors of NYNEX declared a two-for-one stock
split in the form of a 100 percent stock dividend.
At December 31, 1993, NYNEX's capital structure consisted of 53.9% debt and
46.1% equity, compared with 45.8% debt and 54.2% equity at December 31, 1992,
due primarily to the 1993 net loss resulting from business restructuring and to
increased commercial paper.
NYNEX CableComms, Ltd. is constructing a $3 billion fiber-optic network, to
be completed by 1999, for the provision of cable television/telephony services
in the northwest region of the United Kingdom. In December 1993, NYNEX invested
in two newly-formed partnerships for the purpose of funding the construction
program for this network. NYNEX, as the general partner, contributed assets with
an aggregate market value of $130 million to the partnership that will manage
the assets to be used to fund the construction program. This partnership is
consolidated in NYNEX's financial statements. NYNEX contributed $4 million,
accounted for as an equity method investment, as a limited partner in a second
partnership which will obtain $384 million in financing with a term of ten years
for the construction program. NYNEX has provided certain guarantees and
indemnifications to the financing partnership regarding the completion of the
construction program and any breach of the agreements due to events prior to the
creation of the partnerships. This type of financing could provide significant
additional funds over the next five years.
NYNEX Capital Funding Company ("CFC") has unissued registered medium-term
debt securities of $1.5 billion at December 31, 1993. When issued, these
securities will be guaranteed by NYNEX. The proceeds of these securities will be
used to provide financing for NYNEX Corporation and the nontelephone
subsidiaries. It is anticipated that CFC securities will be issued to meet
funding requirements of NYNEX and certain nontelephone subsidiaries throughout
1994.
<PAGE>
page 40 1993 Consolidated Financial Statements
NYNEX
In December 1993, an independent bond rating agency lowered its rating of
the long-term debt of NYNEX Corporation, which includes NYNEX Credit Company and
CFC. Although Management cannot predict that the bond ratings of NYNEX
Corporation, New York Telephone and New England Telephone will remain at current
levels, Management believes that the bond ratings will remain at levels that are
indicative of strong credit support for timely principal and interest payments
in the foreseeable future.
On February 28, 1994, New York Telephone issued $450 million in debentures
and $150 million in notes and used the proceeds to repay short-term borrowings
from NYNEX. The proceeds were used by NYNEX to repay commercial paper
borrowings. 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 (see
Business Restructuring), New York Telephone does not currently meet the earnings
coverage requirement.
NYNEX is evaluating the benefits of additional debt refinancings and the
issuance of additional debt and equity securities in 1994 to meet financing
needs.
Competition and Other Matters
Various business alliances and other undertakings were announced in the
telecommunications industry in 1993 that indicate an intensifying level of
competition, especially with respect to the operations of the telephone
subsidiaries. AT&T intends to acquire McCaw Cellular Communications Inc.
("McCaw") through a merger. McCaw operates in a number of areas within NYNEX's
region in the Northeast. US WEST Inc. acquired a major interest in Time Warner
Entertainment Co. L.P., which includes Time Warner Cable. Time Warner Cable has
extensive operations in the Northeast, including New York City. Cablevision
Systems Corp., which operates in Boston, Long Island, and Westchester County,
plans to construct a fiber-optic network to deliver telecommunications and video
services. MCI Communications Corp. ("MCI") plans to spend $2 billion to
establish local fiber-optic networks in 20 major cities, including New York and
Boston, offering a way to bypass the local exchange carrier, including the
telephone subsidiaries, and connect directly to MCI's long-distance network. In
certain markets in New York City and Boston, the telephone subsidiaries face
significant competition from local access providers with substantial resources.
In October 1993, the FCC issued rules for the licensing of wireless
personal communications services ("PCS") under an auction process scheduled to
begin in 1994. NYNEX can participate in the auction for PCS licenses on the same
basis as other applicants except that its participation is limited in those PCS
service areas where NYNEX Mobile provides cellular service. NYNEX is considering
its options for participating in the PCS auction process.
NYNEX is implementing a major restructuring of its business (see Business
Restructuring) and is pursuing strategic alliances in order to meet this
competition. NYNEX expects that such competition will affect its revenues in the
future; however, Management is unable to predict with any certainty the effects
such competition may have on NYNEX's results of operations.
<PAGE>
page 41 1993 Consolidated Financial Statements
NYNEX
NYNEX is aggressively pursuing the enactment of changes to current
restrictions on providing certain communication, information, and entertainment
services over the network. NYNEX currently provides some of these services
overseas, such as joint telephone and cable television service in the United
Kingdom and advanced voice, data, video and cable services in Thailand. If
legislation pending before Congress were passed, NYNEX would be able to offer
video programming in its own service areas, offer long-distance service and
manufacture telecommunications equipment.
The telephone subsidiaries currently account for the economic effects of
regulation in accordance with the provisions of 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. The impact of such a change
would result in a material non-cash charge and would be reported as an
extraordinary item. This charge would include: (1) the write-off of previously
established regulatory assets and liabilities, and (2) and an adjustment to the
carrying value of telephone plant if it is determined, using a projected cash
flow approach, that impairment exists. It is not practicable to estimate the
charge at this time due to the effect of possible regulatory settlements that
would affect the recovery of asset balances should subsequent events require
discontinuance of Statement No. 71.
<PAGE>
page 42 1993 Consolidated Financial Statements
NYNEX
Item 8. Consolidated Financial Statements
Report of Independent Accountants
To the Stockholders and Board of Directors of NYNEX Corporation:
We have audited the consolidated financial statements and the consolidated
financial statement schedules of NYNEX Corporation and its subsidiaries listed
in Item 14(a)(1) and (2) of this Form 10-K/A, Amendment No. 2. These
consolidated financial statements and consolidated financial statement schedules
are the responsibility of NYNEX Corporation'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
NYNEX Corporation and its subsidiaries 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,
NYNEX Corporation changed its methods of accounting for income taxes,
postretirement benefits other than pensions, and postemployment benefits in
1993.
Coopers & Lybrand
Coopers & Lybrand
New York, New York
February 9, 1994
<PAGE>
page 43 1993 Consolidated Financial Statements
NYNEX
Report of Management
Management of NYNEX Corporation and its subsidiaries ("NYNEX") has the
responsibility for preparing the accompanying consolidated financial statements
and for their integrity and objectivity. The 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.
The consolidated financial statements have been audited by Coopers &
Lybrand, independent accountants, whose appointment was ratified by NYNEX's
stockholders. Management has made available to Coopers & Lybrand all of NYNEX's
financial records and related data, as well as the minutes of stockholders' and
directors' meetings. Furthermore, Management believes that all representations
made to Coopers & Lybrand during its audit were valid and appropriate.
Management of NYNEX 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 NYNEX 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 NYNEX
activities under the highest standards of personal and corporate conduct. This
responsibility is accomplished by fostering a strong ethical climate as
characterized in NYNEX's Codes of Business Conduct, publicized throughout NYNEX.
These codes of conduct address, among other things, standards of personal
conduct, potential conflicts of interest, compliance with all domestic and
foreign laws, accountability for NYNEX property, and the confidentiality of
proprietary information.
William C. Ferguson
William C. Ferguson
Chairman of the Board and Chief Executive Officer
Peter M. Ciccone
Peter M. Ciccone
Vice President and Comptroller
<PAGE>
page 44 1993 Consolidated Financial Statements
NYNEX
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the year ended December 31, in millions, except per share amounts 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues
Local service $ 6,472.9 $ 6,307.6 $ 6,097.0
Long distance 1,134.4 1,113.4 1,171.5
Network access 3,387.2 3,355.8 3,294.8
Other 2,413.3 2,405.7 2,691.4
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating revenues 13,407.8 13,182.5 13,254.7
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses [Note Q]
Maintenance and support 3,194.2 2,778.6 2,973.9
Depreciation and amortization 2,534.0 2,518.0 2,397.5
Marketing and customer services 1,441.1 1,281.0 1,287.6
Taxes other than income [Note M] 1,038.9 1,054.6 1,122.6
Selling, general and administrative 4,031.1 2,163.9 2,778.5
Other 835.2 858.9 1,104.4
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 13,074.5 10,655.0 11,664.5
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 333.3 2,527.5 1,590.2
Other income (expense)-net (118.9) 38.7 (71.3)
Interest expense 659.5 684.6 726.0
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes and cumulative effect of
change in accounting principle (445.1) 1,881.6 792.9
Income taxes [Note B] (172.7) 570.4 192.1
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before cumulative effect of change in
accounting principle (272.4) 1,311.2 600.8
Cumulative effect of change in accounting for
postemployment benefits, net of taxes [Note C] (121.7) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(394.1) $ 1,311.2 600.8
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share before cumulative effect of
change in accounting principle* $ (.66) $ 3.20 $ 1.49
Cumulative effect per share of change in accounting principle (.29) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share* $ (.95) $ 3.20 $ 1.49
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding* 412.7 409.8 403.0
- ----------------------------------------------------------------------------------------------------------------------------------
*Amounts for 1991 and 1992 have been restated to reflect a two-for-one common stock split in the form of a 100 percent stock
dividend declared on July 15, 1993.
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
page 45 1993 Consolidated Financial Statements
NYNEX
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, in millions 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and temporary cash investments $ 157.8 $ 88.9
Receivables (net of allowance of $205.9 and $190.3, respectively) 2,439.1 2,382.2
Inventories 169.2 186.5
Prepaid expenses 306.2 321.0
Deferred charges and other current assets 849.4 545.7
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 3,921.7 3,524.3
- ----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment-net [Note D] 20,250.0 19,973.2
Deferred charges and other assets [Note E] 5,286.7 4,234.2
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $29,458.4 $27,731.7
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable [Note M] $ 2,853.3 $ 2,564.1
Short-term debt [Note G] 3,190.1 1,419.4
Other current liabilities [Note M] 763.3 811.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,806.7 4,794.5
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt [Notes F and L] 6,937.8 7,018.2
Deferred income taxes 3,545.0 3,406.8
Unamortized investment tax credits 360.3 426.1
Other long-term liabilities and deferred credits [Notes B and C] 3,393.1 2,362.4
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 21,042.9 18,008.0
- ----------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies [Notes K, L, O, and P]
Stockholders' equity: [Notes I and J]
Preferred stock--$1 par value, 70,000,000 shares authorized - -
Preferred stock--Series A Junior Participating--$1 par value,
5,000,000 shares authorized - -
Common stock--$1 par value, 750,000,000 shares authorized 431.1 214.2
Additional paid-in capital 6,624.5 6,520.0
Retained earnings 2,388.3 3,958.7
Treasury stock--(16,215,353 and 7,375,946 shares, respectively, at cost) (648.1) (572.9)
Deferred compensation--LESOP Trust (380.3) (396.3)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,415.5 9,723.7
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $29,458.4 $27,731.7
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
page 46 1993 Consolidated Financial Statements
NYNEX
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
Deferred Total
Additional Compensation- Stock-
Common Common Paid-In Retained Treasury LESOP holders'
In millions Shares Stock Capital Earnings Stock Trust Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 207.5 $207.5 $6,016.7 $3,935.9 $(572.9) $(438.4) $9,148.8
Employee benefit and
dividend reinvestment
plans [Notes I and J] 3.6 3.6 265.5 - - 23.0 292.1
Dividends
($2.28 per common share) - - - (923.0) - - (923.0)
Other - - .1 1.1 - - 1.2
Net income - - - 600.8 - - 600.8
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1991 211.1 $211.1 $6,282.3 $3,614.8 $(572.9) $(415.4) $9,119.9
Employee benefit and
dividend reinvestment
plans [Notes I and J] 3.1 3.1 237.2 (.1) - 19.1 259.3
Dividends
($2.32 per common share) - - - (954.3) - - (954.3)
Other - - .5 (12.9) - - (12.4)
Net income - - - 1,311.2 - - 1,311.2
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,1992 214.2 $214.2 $6,520.0 $3,958.7 $(572.9) $(396.3) $9,723.7
Employee benefit and
dividend reinvestment
plans [Notes I and J] 2.3 2.3 100.3 - (67.0) 16.0 51.6
Stock split [Note I] 214.6 214.6 - (206.4) (8.2) - -
Dividends
($2.36 per common share) - - - (974.8) - - (974.8)
Other - - 4.2 4.9 - - 9.1
Net loss - - - (394.1) - - (394.1)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 431.1 $431.1 $6,624.5 $2,388.3 $(648.1) $(380.3) $8,415.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1993 there were 972,151 stockholders of record of common
shares. See accompanying notes to consolidated financial statements.
<PAGE>
page 47 1993 Consolidated Financial Statements
NYNEX
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the year ended December 31, in millions 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (394.1) $1,311.2 $ 600.8
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustments to
reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 2,534.0 2,518.0 2,397.5
Amortization of unearned lease income-net (91.7) (67.1) (57.8)
Allowance for funds used during construction-equity component (30.8) (30.6) (28.6)
Changes in operating assets and liabilities:
Receivables (56.9) 107.8 152.1
Inventories 17.3 51.4 198.8
Prepaid expenses 14.8 22.1 (16.4)
Deferred charges and other current assets (303.7) 43.4 (202.9)
Accounts payable 284.4 (483.6) 56.5
Other current liabilities (47.7) 24.4 (257.9)
Deferred income taxes and Unamortized investment tax credits 72.4 214.4 191.6
Other long-term liabilities and deferred credits 1,030.7 (168.5) 892.9
Other-net 626.5 (35.2) (679.5)
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 4,049.3 2,196.5 2,646.3
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,655.2 3,507.7 3,247.1
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Capital expenditures (2,717.2) (2,449.6) (2,499.3)
Investment in leased assets (241.5) (198.6) (133.5)
Cash received from leasing activities 57.7 62.8 68.9
Other investing activities-net (1,349.5) (308.0) 17.8
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,250.5) (2,893.4) (2,546.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Issuance of commercial paper and short-term debt 14,438.6 9,030.2 17,132.0
Repayment of commercial paper and short-term debt (11,985.6) (8,781.0) (17,447.8)
Issuance of long-term debt 2,410.9 573.0 521.2
Repayment of long-term debt and capital leases (141.3) (673.7) (148.4)
Debt refinancings and call premiums (3,120.3) (123.2) (70.8)
Issuance of common stock 98.3 146.9 170.3
Purchase of treasury stock (92.3) - -
Dividends paid (944.1) (855.6) (821.2)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 664.2 (683.4) (664.7)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in Cash and temporary cash investments 68.9 (69.1) 36.3
Cash and temporary cash investments at beginning of year 88.9 158.0 121.7
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of year $ 157.8 $ 88.9 $ 158.0
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
page 48 1993 Consolidated Financial Statements
NYNEX
Notes to Consolidated Financial Statements
A ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the
accounts of NYNEX Corporation and its subsidiaries ("NYNEX"). The 1992 and 1991
consolidated financial statements have been reclassified to conform to the
current year's format.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles, which includes 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 certain state
regulatory commissions for New York Telephone Company ("New York Telephone") and
New England Telephone and Telegraph Company ("New England Telephone")
(collectively, the "telephone subsidiaries"). 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 telephone subsidiaries apply 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) are
as follows:
December 31,
In millions 1993 1992
-------- -------
Compensated absences $ 186.4 $ 191.1
Deferred pension costs 448.4 523.4
Refinancing costs 286.5 208.9
Deferred taxes 38.0 (232.8)
Other 172.9 227.6
-------- -------
Total $1,132.2 $ 918.2
-------- -------
Cash and Temporary Cash Investments
Temporary cash investments are liquid investments with maturities of three
months or less. Temporary cash investments are stated at cost, which
approximates market value.
NYNEX's cash management policy is to make funds available in banks when
checks are presented. At December 31, 1993 and 1992, NYNEX had recorded in
Accounts payable checks outstanding but not presented for payment of $203.1 and
$266.0 million, respectively.
Inventories
The telephone subsidiaries' inventories consist of materials and supplies
that are stated principally at average cost. Inventories purchased for resale
are calculated using weighted average cost and are stated at the lower of cost
or market. Certain other inventories are carried on a last-in, first-out basis
and are stated at the lower of cost or market.
<PAGE>
page 49 1993 Consolidated Financial Statements
NYNEX
Property, Plant and Equipment
Property, plant and equipment is stated at its original cost.
When depreciable plant is disposed of by the telephone subsidiaries, the
carrying amount, salvage, and cost to remove such plant are charged to
accumulated depreciation.
Depreciation rates used by the telephone subsidiaries are prescribed by the
FCC and by the various state public service commissions ("commissions") for
interstate operations and for intrastate operations, respectively. All rates are
calculated on a straight-line basis using the concept of "remaining life". The
represcription process requires the telephone subsidiaries 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
telephone subsidiaries 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 telephone
subsidiaries 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 telephone subsidiaries. Once new depreciation rates are set, the
commissions may take rate actions to permit the telephone subsidiaries to
recover costs if deemed necessary.
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 present. Property, plant and equipment for all
other subsidiaries is depreciated on a straight-line basis over its useful life.
Regulatory authorities allow the telephone subsidiaries to capitalize
interest, including an allowance on share owner's equity, as a cost of
constructing certain plant and as income, included in Other income
(expense)-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.
Financial Instruments
NYNEX hedges certain portions of its exposure to foreign currency and
interest rate fluctuations through a variety of strategies and instruments.
Generally, foreign currency forwards and range forwards are carried at fair
value. Gains and losses applicable to these derivatives are recorded to income
currently with the exception of amounts related to foreign currency derivatives
that have been identified as a hedge of a net investment in a foreign
subsidiary. Hedge results of a net investment in a foreign subsidiary are
excluded from income and recorded as adjustments to stockholders' equity until
the related subsidiary is sold or substantially liquidated. The interest
elements of these foreign currency derivatives are recognized to income ratably
over the life of the contracts. Interest rate swaps and related interest rate
derivatives (swaptions, caps) identified as hedges are generally not carried at
fair value. Rather, interest rate swap receipts or payments are recognized as
adjustments to interest expense as received or paid. Swap termination payments
and fees or premiums applicable to swaptions and caps are recognized as
adjustments to interest expense over the life of the agreements.
<PAGE>
page 50 1993 Consolidated Financial Statements
NYNEX
Computer Software Costs
The telephone subsidiaries capitalize 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. The nontelephone subsidiaries expense computer software
acquired or developed for internal use, as incurred.
Refinancing Charges
The telephone subsidiaries defer the intrastate portion of call premiums
and other charges associated with the redemption of long-term debt and expense
the interstate portion of these charges, as required by the state regulatory
commissions and the FCC, respectively. The deferred amounts are amortized over
periods stipulated by state regulatory commissions. Prior to January 1, 1988,
these charges were deferred and amortized for both intrastate and interstate
purposes.
Income Taxes
Effective January 1, 1993, NYNEX adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("Statement No. 109"), which
superseded Statement of Financial Accounting Standards No. 96, "Accounting for
Income Taxes." The effect of implementing Statement No. 109 on NYNEX'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 telephone subsidiaries,
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 telephone subsidiaries are based on
amounts recognized for rate-making purposes. The telephone subsidiaries
recognize a deferred tax liability and establish 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 telephone subsidiaries 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 telephone subsidiaries
reverse 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, NYNEX adjusted its current and deferred income tax balances to reflect
the tax rate change. The telephone subsidiaries reflected the
<PAGE>
page 51 1993 Consolidated Financial Statements
NYNEX
additional deferred income taxes arising from the tax rate increase
primarily as regulatory assets.
The Tax Reform Act of 1986 repealed the investment tax credit ("ITC"),
effective January 1, 1986. As required by tax law, ITC for the telephone
subsidiaries 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.
B INCOME TAXES
The components of income tax (benefit) expense are as follows:
In millions 1993* 1992 1991
- -----------------------------------------------------------------------------
Federal:
Current $ 466.9 $553.8 $ 438.0
Deferred-net (611.9) 13.2 (212.3)
Deferred tax credits-net (59.7) (63.8) (68.0)
- -----------------------------------------------------------------------------
(204.7) 503.2 157.7
- -----------------------------------------------------------------------------
State and local:
Current 88.1 25.8 44.7
Deferred-net (59.2) 35.7 (9.8)
- -----------------------------------------------------------------------------
28.9 61.5 34.9
- -----------------------------------------------------------------------------
Foreign 3.1 5.7 (.5)
- -----------------------------------------------------------------------------
Total $(172.7) $570.4 $ 192.1
- -----------------------------------------------------------------------------
*Does not include the deferred tax benefit of $67.5 million associated with
the Cumulative effect of change in accounting for postemployment benefits.
A reconciliation between the federal income tax (benefit) expense computed at
the statutory rate and NYNEX's effective tax (benefit) expense is as follows:
1993 1992 1991
- -------------------------------------------------------------------------------
Federal income tax (benefit)
expense computed at statutory rate $(155.8) $639.7 $269.5
a. Amortization of investment tax
credits over the life of the assets
which gave rise to the credits (65.8) (69.4) (71.2)
b. Amortization of excess deferred
federal taxes due to change
in the tax rates (66.8) (56.3) (76.5)
c. State and local income taxes, net
of federal tax benefit 18.8 40.5 23.0
d. Depreciation of certain taxes
and payroll-related construction
costs capitalized for financial
statement purposes, but
deducted for income tax
purposes in prior years 31.6 38.4 37.0
e. Exit from the information
products and services business 87.1 - -
f. Other items-net (21.8) (22.5) 10.3
- -------------------------------------------------------------------------------
Income tax (benefit) expense $(172.7) $570.4 $192.1
- -------------------------------------------------------------------------------
<PAGE>
page 52 1993 Consolidated Financial Statements
NYNEX
Instead of a state income tax, New York Telephone is subject to a gross
receipts tax that is not included in "c" above. Temporary differences for which
deferred income taxes have not been provided by the telephone subsidiaries are
represented principally by "d" 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:
In millions Assets Liabilities
- -----------------------------------------------------------------------------
Deferred tax due to:
Depreciation and amortization $ - $3,265.0
Leveraged leases - 787.7
Restructuring charges 707.6 -
Benefits 860.0 191.1
Unamortized investment tax credits 197.1 -
Deferred publishing revenues 178.2 -
Other 195.5 633.1
- -----------------------------------------------------------------------------
Total deferred taxes 2,138.4 4,876.9
- -----------------------------------------------------------------------------
Valuation allowance* (113.9)
- -----------------------------------------------------------------------------
Net deferred tax assets $2,024.5 2,024.5
- -----------------------------------------------------------------------------
Net deferred tax liabilities $2,852.4
- -----------------------------------------------------------------------------
* The valuation allowance primarily represents capital losses generated
from the exit from the information products and services business which
will probably not be utilized during the carryforward period.
At December 1993 and 1992, the telephone subsidiaries recorded
approximately $674 and $597 million, respectively, in deferred taxes
representing the cumulative amount of income taxes on temporary differences that
were previously flowed through to ratepayers. The telephone subsidiaries
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 telephone subsidiaries recorded a regulatory liability at December 31,
1993 and 1992 of approximately $630 and $871 million, respectively, in Other
long-term liabilities and deferred credits and in Other current liabilities. A
substantial portion of the regulatory liability relates to the reduction in the
statutory federal income tax rate in 1986 and unamortized ITC. These liabilities
have been increased for the tax effect of future revenue requirements.
C EMPLOYEE BENEFITS
Pensions
Substantially all NYNEX employees are covered by one of two 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
<PAGE>
page 53 1993 Consolidated Financial Statements
NYNEX
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. Total pension (benefit) cost for 1993, 1992 and 1991 was ($167.0),
$22.8, and $27.9 million, respectively.
The components are as follows:
In millions 1993 1992 1991
- -------------------------------------------------------------------------------
Estimated return on plan assets:
Actual $(1,964) $ (757) $(2,518)
Deferred portion 833 (350) 1,485
- -------------------------------------------------------------------------------
Net (1,131) (1,107) (1,033)
Service cost 199 213 228
Interest cost on projected
benefit obligation 928 997 895
Other-net (163) (77) (71)
- -------------------------------------------------------------------------------
Net pension (benefit) cost (167) 26 19
Deferred benefits (costs)
principally due to state
regulatory decisions - (3) 9
- -------------------------------------------------------------------------------
Total pension (benefit) cost $ (167) $ 23 $ 28
- -------------------------------------------------------------------------------
The pension benefit for 1993 includes the effect of plan amendments and
changes in actuarial assumptions for future compensation levels.
The following table sets forth the Plans' funded status and amounts recognized
in the consolidated balance sheets:
December 31,
In millions 1993 1992
- -------------------------------------------------------------------------------
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $10,154 and $9,367, respectively $11,082 $10,473
- -------------------------------------------------------------------------------
Plan assets at fair value, primarily listed stock,
corporate and governmental debt and
real estate $14,607 $13,515
Less: Actuarial present value of projected
benefit obligation 12,570 11,459
- -------------------------------------------------------------------------------
Excess of plan assets over projected
benefit obligation 2,037 2,056
Unrecognized prior service cost (2,008) (674)
Unrecognized net gain (785) (2,244)
Unrecognized transition asset (548) (609)
- -------------------------------------------------------------------------------
Accrued pension cost $(1,304) $(1,471)
- -------------------------------------------------------------------------------
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
<PAGE>
page 54 1993 Consolidated Financial Statements
NYNEX
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 $11.7
million, of which $5.8 million was expensed and $5.9 million was deferred. In
addition, management employees who left NYNEX 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 $75.3 million in 1992, of which $42.9 million was recognized as
a reduction to expense and $32.4 million was deferred. The impact of the 1993
reduction in the number of employees and the lump sum option 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 $491.8 million, of which $150.0 million was expensed and $341.8 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
NYNEX provides certain health care and life insurance benefits for retired
employees and their families. Substantially all of NYNEX's employees may become
eligible for these benefits if they reach pension eligibility while working for
NYNEX.
Effective January 1, 1993, NYNEX 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
paid to accruing the expected cost of providing these benefits during an
employee's working life. NYNEX 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.
Net postretirement benefit cost for 1993 includes the following components:
In millions
- -----------------------------------------------------------------------------
Service cost $ 45.6
Interest cost 333.6
Estimated return on plan assets (92.6)
Deferred asset gain 9.4
Amortization of transition obligation 177.6
- -----------------------------------------------------------------------------
Net postretirement benefit cost $473.6
- -----------------------------------------------------------------------------
<PAGE>
page 55 1993 Consolidated Financial Statements
NYNEX
The following table sets forth the funded status and amounts
recognized, as of December 31, 1993, for postretirement benefit plans:
In millions
- -----------------------------------------------------------------------------
Accumulated postretirement benefit
obligation attributable to:
Retirees $(3,431.5)
Fully eligible plan participants (456.1)
Other active plan participants (881.1)
- -----------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation (4,768.7)
Fair value of plan assets 1,063.5
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets (3,705.2)
Unrecognized net loss 269.0
Unrecognized transition obligation 3,170.3
- -----------------------------------------------------------------------------
Accrued postretirement benefit cost $ (265.9)
- -----------------------------------------------------------------------------
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.
A one percent increase in the assumed health care cost trend rates for each
future year would have increased the aggregate of the service and interest cost
components of net postretirement benefit cost for 1993 by $29.2 million and
would have increased the accumulated postretirement benefit obligation at
December 31, 1993 by $298.6 million.
As a result of planned work force reductions, NYNEX recorded an additional
$519.5 million of postretirement benefit cost in 1993 accounted for as a
curtailment.
Total costs of providing benefits for retired employees and their families
were $198.5 and $153.9 million in 1992 and 1991, respectively.
A substantial portion of the expense recognized under Statement No. 106
relates to the telephone subsidiaries, which are subject to rate regulation.
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 their April 1993 filing of interstate access tariffs under the
FCC's price cap rules, the telephone subsidiaries sought an exogenous cost
increase of $12 million to reflect the transition obligation for current
retirees under Statement No. 106. The proposed rates went into effect July 1,
1993, subject to possible refund pending resolution of the accounting treatment
of postretirement health care costs.
<PAGE>
page 56 1993 Consolidated Financial Statements
NYNEX
With respect to intrastate treatment, in January 1994 the New York State
Public Service Commission ("NYSPSC") approved New York Telephone'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 New York
Telephone 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.
New England Telephone has implemented a similar plan as previously
discussed with each of its state regulatory commissions. Approval of the plan is
still pending in the State of Rhode Island.
The telephone subsidiaries implemented Statement No. 106 for financial
reporting purposes in accordance with the accounting plans submitted to state
regulatory commissions.
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
and fixed income securities. Additional contributions to the VEBA Trusts are
evaluated and determined by NYNEX management.
Postemployment Benefits
NYNEX 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 NYNEX'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 $189.2 million ($121.7 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. The
rate recovery of these costs in the intrastate jurisdictions for New England
Telephone has not been determined.
<PAGE>
page 57 1993 Consolidated Financial Statements
NYNEX
D PROPERTY, PLANT AND EQUIPMENT-NET
The components of property, plant and equipment-net are as follows:
December 31,
In millions 1993 1992
- -----------------------------------------------------------------------------
Buildings $ 2,796.0 $ 2,725.8
Telephone plant and equipment 28,568.9 27,860.0
Furniture and other equipment 1,462.1 1,438.9
Other 151.0 174.1
- -----------------------------------------------------------------------------
Total depreciable property, plant and equipment 32,978.0 32,198.8
Less: accumulated depreciation 13,719.4 13,105.2
- -----------------------------------------------------------------------------
19,258.6 19,093.6
Land 161.4 163.1
Plant under construction and other 830.0 716.5
- -----------------------------------------------------------------------------
Total property, plant and equipment-net $20,250.0 $19,973.2
- -----------------------------------------------------------------------------
E LONG-TERM INVESTMENTS
NYNEX's long-term investments were $1.9 billion and $500.8 million at
December 31, 1993 and 1992, respectively, and are included in Deferred charges
and other assets. In November 1993, NYNEX invested $1.2 billion in Viacom Inc.
("Viacom"), which owns and operates cable television networks worldwide. NYNEX
purchased 24 million shares of Viacom preferred stock, carrying an annual
dividend of five percent. The stock is convertible into shares of Viacom Class B
non-voting common stock at a price of $70 per share. NYNEX has two seats on
Viacom's board and will pursue strategic partnership opportunities in domestic
and international cable television, media entertainment, video transmission, and
telecommunications. Under the terms of the agreement, either NYNEX or Viacom may
reduce NYNEX's investment by $600 million if Viacom has not acquired a majority
of the outstanding voting capital stock of Paramount Communications Inc.
("Paramount") by August 31, 1994 or if Paramount is acquired by a third party.
In November 1993, NYNEX invested $176.8 million for a 23.1% interest in Orient
Telecom & Technology Holdings Ltd. ("OTT") to acquire an indirect interest of
approximately five percent in TelecomAsia Corporation Public Company Limited
("TelecomAsia"), primarily for a network expansion project in Bangkok, Thailand,
and to develop telecommunications opportunities in China. In 1992 and 1993,
NYNEX invested $289.1 million and $23.7 million, respectively, in TelecomAsia.
Viacom, OTT, and TelecomAsia are accounted for under the cost method. NYNEX's
other long-term investments include equity and cost method investments in
domestic and international interests, including cellular, real estate,
telecommunications, and publishing ventures.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 115, "Accounting For Certain Investments in Debt and
Equity Securities" ("Statement No. 115"), effective for fiscal years beginning
after December 15, 1993. Statement No. 115 addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. At acquisition, debt and
equity securities will be classified into one of three categories, and at each
reporting date, the classification of the securities will be assessed as to its
appropriateness. Management anticipates that the implementation of Statement No.
115 will not have a material effect on NYNEX's results of operations and
financial position.
<PAGE>
page 58 1993 Consolidated Financial Statements
NYNEX
F LONG-TERM DEBT
Interest rates and maturities on long-term debt outstanding are as
follows:
Interest December 31,
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: 4%-8 1/5% 1996-2006 655.0 625.0
6 3/8%-9 3/5% 2007-2018 1,262.6 1,680.2
6 7/8%-9 3/8% 2022-2033 1,800.0 2,000.0
Notes 3 1/3%-14 1/2% 1995-2008 1,475.5 779.5
Other 619.4 151.4
Unamortized discount-net (45.5) (49.8)
- -----------------------------------------------------------------------------
6,867.0 6,936.3
- -----------------------------------------------------------------------------
Long-term capital lease
obligations 70.8 81.9
- -----------------------------------------------------------------------------
Total long-term debt $6,937.8 $7,018.2
- -----------------------------------------------------------------------------
The annual requirements for principal payments on long-term debt, excluding
capital leases, are $113.1, $112.9, $133.1, $365.0 and $242.5 million for the
years 1994 through 1998, respectively.
The telephone subsidiaries' Refunding Mortgage Bonds and $2.0 billion of
Debentures outstanding at December 31, 1993 are callable, upon thirty days'
notice, by the respective telephone subsidiary, after the required term of
years. Additionally, $350 million of Debentures are repayable on November 15,
1996, in whole or in part, at the option of the holder.
Substantially all of New York Telephone's assets are subject to lien under
New York Telephone's Refunding Mortgage Bond indenture. At December 31, 1993,
New York Telephone's total assets were approximately $15.4 billion.
On February 10, 1993, New York Telephone issued $100 million of its Thirty
Year 7 5/8% Debentures due February 1, 2023 and callable on and after February
1, 2003. Net proceeds of the offering were used to repay short-term borrowings
from NYNEX. NYNEX used the amount received from New York Telephone to repay
commercial paper borrowings 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.
At December 31, 1993, New York Telephone had $850 million of unissued,
unsecured debt securities registered with the Securities and Exchange Commission
("SEC"). On February 28, 1994, New York Telephone issued $150 million of its Ten
Year 6 1/4% Notes due February 15, 2004 and $450 million of its Thirty Year 7
1/4% Debentures due February 15, 2024. Net proceeds of the offering were used to
repay short-term borrowings from NYNEX. NYNEX used the amount received from New
York Telephone to repay commercial paper borrowings 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. This reduces to $250
million the remaining unissued, unsecured debt securities registered with the
SEC.
<PAGE>
page 59 1993 Consolidated Financial Statements
NYNEX
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 proposed
issuance. As a result of the 1993 business restructuring charges (see Note Q),
New York Telephone does not currently meet the earnings coverage requirement.
At December 31, 1993, New England Telephone had $500 million of unissued,
unsecured debt securities registered with the SEC.
At December 31, 1993, NYNEX Capital Funding Company had $1.5 billion of
unissued medium-term debt securities registered with the SEC. When issued, these
securities will be guaranteed by NYNEX.
G SHORT-TERM DEBT
At December 31, 1993, NYNEX had unused lines of credit with various
financial institutions amounting to approximately $3.8 billion. These lines of
credit, together with cash and temporary cash investments, are used to support
outstanding commercial paper.
NYNEX's short-term borrowings and related weighted average interest rates
are as follows:
<TABLE>
<CAPTION>
Weighted average interest rates
December 31, December 31,
<S> <C> <C> <C> <C> <C> <C>
In millions 1993 1992 1991 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial paper and short-term debt@ $3,068.6 $1,100.9 $949.1 3.4% 3.5% 4.9%
Debt maturing within one year # 113.1 308.5 613.5 7.8% 8.1% 9.4%
Current portion of long-term capital lease obligations 8.4 10.0 10.8
- -----------------------------------------------------------------------------------------------
Total short-term debt $3,190.1 $1,419.4 $1,573.4
- -----------------------------------------------------------------------------------------------------------------------------------
In millions 1993 1992 1991 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Average amount of commercial paper
outstanding during the year! $1,743.7 $1,022.7 $1,454.9 3.6%* 4.2%* 6.4%*
Maximum amount of commercial paper outstanding
at any month's end during the year $3,642.1 $1,211.8 $1,807.4
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
@ At December 31, 1993 and 1992, $588.6 and $97.7 million, respectively, of
commercial paper borrowings were classified as Long-term debt because of their
repayment by long-term borrowings.
# At December 31, 1992, $175 million of New England Telephone's Thirty-Nine
Year 8 5/8% Debentures due September 1, 2009 were classified as Short-term debt
because of their redemption on January 19, 1993.
! 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.
* Computed by dividing the aggregate related interest expense by the
average daily face amount.
<PAGE>
page 60 1993 Consolidated Financial Statements
NYNEX
H FINANCING OF CABLECOMMS, LTD.
In December 1993, two partnerships were formed, South CableComms, L.P
("SC"), and Chartwell Investors L.P. ("Chartwell"), both Delaware limited
partnerships. These partnerships and their subsidiaries are separate and
distinct legal entities from NYNEX, as are their assets and liabilities. Two
wholly owned subsidiaries of NYNEX contributed assets, consisting of cash and
stock, with an aggregate market value of $130 million to SC in exchange for
general partner interests, and Chartwell contributed $20 million in cash to SC
in exchange for a limited partner interest. All of the partners have committed
to make future capital contributions as required by the Partnership Agreement.
SC's purpose is to manage and protect a portfolio of assets, which is being used
to fund the construction and operations of cable and telecommunications systems
in the United Kingdom under contracts with NYNEX CableComms, Ltd. (a wholly
owned subsidiary of NYNEX). SC is included in NYNEX's consolidated financial
statements, and Chartwell's interest in SC is reflected in minority interest
which is included in Other long-term liabilities and deferred credits.
NYNEX also contributed $4 million to Chartwell in exchange for an initial
20% limited partner interest. The purpose of Chartwell is to obtain $384 million
in financing for SC, and the funding of Chartwell will consist of equity and
debt. Debt raised by Chartwell is collateralized by Chartwell's assets. It is
non-recourse to the partners of Chartwell. The debt bears interest at a
fluctuating rate based on Sterling London InterBank Offered Rate. It includes
representations, warranties, covenants and events of default customary for bank
loan agreements in financings of this nature. The term of the debt is ten years,
with principal payments beginning after the fifth year, and Chartwell is
entitled to receive cumulative preferential payments from SC sufficient to meet
debt service requirements. For financial reporting purposes, NYNEX's investment
in Chartwell is reflected in Deferred charges and other assets. As of December
31, 1993, neither NYNEX nor any of its other affiliates was indebted to SC or
any of its affiliates.
NYNEX provides a completion guarantee to Chartwell for the first five years
of the debt. The completion guarantee requires that a minimum of 450,000 homes
be passed by the network by December 31, 1998. As of December 31, 1993, in
excess of 250,000 homes have been passed. In order to gain release from the
completion guarantee, NYNEX must demonstrate that various financial ratios, such
as operating cash flows to preferential payments for the cable and
telecommunications system in the United Kingdom, and other tests, such as
compliance with communication licenses, are satisfied. If the construction
program does not meet such tests and these shortfalls are not cured within a
specified time period, the completion agreement will necessitate payments to be
made directly to Chartwell. The extent of the obligation upon NYNEX is merely
the shortfall, if any, between the liquidation proceeds and the capital account
of Chartwell. NYNEX will also provide indemnification to Chartwell, among
others, in respect of certain liabilities, including all liability, loss or
damage incurred as a result of any breach of the agreements set forth, and tax
indemnifications relating to events prior to the creation of SC. In addition,
NYNEX will maintain certain financial and operating standards and may, at any
time, elect to purchase the general partner's interest in Chartwell's interest
at the market value of the general partner's investment at the time of purchase.
<PAGE>
page 61 1993 Consolidated Financial Statements
NYNEX
I STOCKHOLDERS' EQUITY
Common Stock
On July 15, 1993, the Board of Directors of NYNEX declared a two-for-one
common stock split in the form of a 100 percent stock dividend, payable
September 15, 1993 to holders of record at the close of business on August 16,
1993.
As of November 1, 1993, NYNEX discontinued purchasing shares of its common
stock and began issuing new shares in connection with employee savings plans and
the Dividend Reinvestment and Stock Purchase Plan.
Shareholder Rights Agreement
In October 1989, NYNEX adopted a Shareholder Rights Agreement, pursuant to
which shareholders received a dividend distribution of one right for each
outstanding share of NYNEX's common stock. As a result of the two-for-one common
stock split, the rights have been adjusted so that shareholders receive one
right for every two shares of common stock. Each right entitles the shareholder
to buy 1/100 of a share of $1.00 par value Series A Junior Participating
Preferred Stock from NYNEX at an exercise price of $250 per right. Five million
shares of this Preferred Stock have been authorized, with three million shares
reserved for exercise of the rights. The rights, which are subject to
adjustment, will not be exercisable or separable from the common stock until ten
days following a public announcement that a person or group has acquired
beneficial ownership of 15% or more of NYNEX's outstanding common stock or ten
business days following the commencement of, or public announcement of the
intent to commence, a tender or exchange offer by a beneficial owner of 15% or
more of the outstanding common stock.
If any person becomes the beneficial owner of 15% or more of the
outstanding common stock, each holder of a right will receive, upon exercise at
the right's then current exercise price, common stock having a value equal to
twice the exercise price. If NYNEX is acquired in a merger or business
combination, or if 50% or more of NYNEX's assets or earning power is sold, each
right holder will receive, upon exercise at the right's then current exercise
price, common stock in the new company having a value equal to twice the
exercise price of the right.
NYNEX may exchange rights for shares of common stock or redeem rights in
whole at a price of $.01 per right at any time prior to their expiration on
October 31, 1999.
Leveraged Stock Ownership Plan
In February 1990, NYNEX established a leveraged employee stock ownership
plan ("LESOP") and loaned $450 million to the LESOP Trust ("internal LESOP
note"). The LESOP Trust used the proceeds to purchase, at fair market value, 5.6
million shares of NYNEX's common stock held in treasury. NYNEX issued and
guaranteed $450 million of 9.55% Debentures, the proceeds of which were
principally used to repurchase 5.4 million shares in the open market, completing
the stock repurchase plan. The Debentures require payments of principal annually
and are due May 1, 2010. Interest payments are due semiannually. The Debentures
and the internal LESOP note are recorded as Long-term debt and as Deferred
compensation, respectively. Deferred compensation will be reduced as shares are
released and allocated to participants.
<PAGE>
page 62 1993 Consolidated Financial Statements
NYNEX
NYNEX maintains savings plans that cover substantially all of its
employees. Under these plans, NYNEX matches a certain percentage of eligible
employee contributions. Under provisions of the Savings Plan for Salaried
Employees, NYNEX's matching contributions are allocated to employees in the form
of NYNEX stock from the LESOP Trust, based on the proportion of principal and
interest paid by the LESOP Trust in a year to the remaining principal and
interest due over the life of the internal LESOP note. Compensation expense is
recognized based on the shares allocated method.
NYNEX's matching contributions to the savings plans and any change in the
required contribution as a result of leveraging this obligation are recorded as
compensation expense. Compensation expense applicable to the savings plans for
1993, 1992 and 1991 was $81.3, $76.9 and $74.1 million, respectively, and was
reduced by $26.2, $26.1 and $25.6 million, respectively, for the dividends paid
on LESOP shares used to service the internal LESOP note.
J STOCK OPTION PLANS
NYNEX has stock option plans for key management employees under which
options to purchase NYNEX common stock are granted at a price equal to or
greater than the market price of the stock at the date of grant. In November
1989, NYNEX established the 1990 Stock Option Plan, approved by shareholders in
May 1990, that permits the grant of options no later than December 1994 to
purchase up to 4 million shares of common stock; options may not be exercisable
for a period less than one year or greater than ten years from date of grant.
The 1990 Stock Option Plan for key management employees allows for the
granting of stock appreciation rights ("SARs") in tandem with options granted.
Upon exercise of a SAR, the holder may receive shares of common stock and/or
cash equal to the excess of the market price of the common stock at the exercise
date over the option price. SARs may be exercised in lieu of the underlying
option only when those options become exercisable.
In August 1990, NYNEX acquired Stockholder Systems, Inc. ("SSI"). Under the
terms of the SSI Acquisition Agreement, SSI employees were entitled to receive
NYNEX common stock upon exercise of SSI stock options at a conversion rate that
allowed the SSI stock option price to remain unchanged. The SSI option holders
were not entitled to any SARs. As a result of NYNEX's sale of SSI in January
1994, SSI stock options are no longer exercisable for NYNEX common stock.
Effective March 31, 1992, NYNEX established stock option plans for
nonmanagement employees and for management employees other than those who are
eligible to participate in the 1990 Stock Option Plan. Employees were granted
options, with the number of options varying according to employee level, to
purchase a fixed number of shares of NYNEX common stock at the market price of
the stock on the grant date. Fifty percent of the options could be exercised one
year from the grant date, with the remaining fifty percent exercisable two years
from the grant date. These options expire ten years from the grant date.
NYNEX has repurchased and placed in treasury stock approximately one
million shares of its common stock for subsequent reissuance in connection with
the employee stock option plans established in 1992.
<PAGE>
page 63 1993 Consolidated Financial Statements
NYNEX
The following summarizes the activity for those shares under option under
the various stock option plans and the SSI Acquisition Agreement, including the
related SARs:
Price Range
Stock Options Shares Per Share
- ------------------------------------------------------------------------------
Outstanding at December 31, 1990 1,043,680 $ 27.60 to $ 88.13
Granted 609,039 $ 69.13 to $ 72.25
Exercised (72,016) $ 31.35 to $ 69.88
Canceled (88,174) $ 43.82 to $ 88.13
SSI net activity (16,003) $ 27.60 to $ 37.95
- ------------------------------------------------------------------------------
Outstanding at December 31, 1991 1,476,526 $ 27.60 to $ 88.13
Granted 8,316,058 $ 70.63 to $ 88.13
Exercised (200,827) $ 31.35 to $ 75.57
Canceled (103,021) $ 49.38 to $ 88.13
SSI net activity (35,596) $ 27.60 to $ 37.95
- ------------------------------------------------------------------------------
Outstanding at December 31, 1992 9,453,140 $ 27.60 to $ 88.13
Granted prior to stock split 806,891 $ 70.63 to $ 88.88
Exercised prior to stock split (644,196) $ 31.34 to $ 88.13
Canceled prior to stock split (79,473) $ 69.13 to $ 88.13
Stock split (Note I) 9,519,950
Granted after stock split 16,595 $ 42.32 to $ 46.07
Exercised after stock split (281,500) $ 16.50 to $ 44.07
Canceled after stock split (106,605) $ 21.91 to $ 44.07
SSI net activity (16,412) $ 13.80 to $ 18.98
- ------------------------------------------------------------------------------
Outstanding at December 31, 1993 18,668,390 $ 13.80 to $ 46.07
- ------------------------------------------------------------------------------
For the year ended December 31,
Number of shares 1993 1992 1991
- ------------------------------------------------------------------------------
Stock appreciation rights:
Outstanding at beginning of year 29,247 97,343 182,154
Granted - 2,232 -
Exercised (7,551) (19,579) (56,927)
Canceled (23,571) (50,749) (27,884)
Stock split (Note I) 3,739 - -
- ------------------------------------------------------------------------------
Outstanding at end of year 1,864 29,247 97,343
- ------------------------------------------------------------------------------
There were 8,250,014 and 704,241 stock options exercisable at
December 31, 1993 and 1992, respectively.
<PAGE>
page 64 1993 Consolidated Financial Statements
NYNEX
K LEASES
NYNEX leases certain facilities and equipment used in its operations.
Rental expense was $337.0, $362.6 and $371.7 million for 1993, 1992 and 1991,
respectively.
At December 31, 1993, the minimum lease commitments under noncancelable
leases for the periods shown were as follows:
In millions
Year Operating Capital
- ------------------------------------------------------------------------------
1994 $125.6 $ 20.1
1995 99.4 17.8
1996 89.2 16.3
1997 72.2 12.3
1998 64.2 11.7
Thereafter 471.9 404.4
- ------------------------------------------------------------------------------
Total minimum lease payments $922.5 482.6
Less: executory costs 15.4
- ------------------------------------------------------------------------------
Net minimum lease payments 467.2
Less: interest 387.4
- ------------------------------------------------------------------------------
Present value of net minimum lease payments $ 79.8
- ------------------------------------------------------------------------------
NYNEX Credit Company ("NCC") is the lessor in leveraged and direct
financing lease agreements under which commercial aircraft, railroad cars,
industrial equipment, power generators, residential real estate,
telecommunications and computer equipment are leased for terms of 5 to 30 years.
Minimum lease payments receivable represent unpaid rentals, less principal and
interest on third-party nonrecourse debt relating to leveraged lease
transactions. Since NCC has no general liability for this debt, the related
principal and interest have been offset against the minimum lease payments
receivable. Minimum lease payments receivable are subordinate to the debt, and
the debt holders have a security interest in the leased equipment.
At December 31, 1993, the net investment in leveraged leases was
$382.0 million and in direct financing leases was $86.4 million. At
December 31, 1992, the net investment in leveraged leases was
$283.1 million and in direct financing leases was $85.6 million. The
components of NCC's net investment in these leases were as follows:
December 31,
In millions 1993 1992
- ------------------------------------------------------------------------------
Minimum lease payments receivable $1,344.9 $914.6
Unguaranteed residual value 908.7 616.4
Initial direct costs .8 -
Less: Unearned income 995.7 592.5
Deferred income taxes 771.9 559.4
Allowance for uncollectibles 18.4 10.4
- ------------------------------------------------------------------------------
Net investment $ 468.4 $368.7
- ------------------------------------------------------------------------------
<PAGE>
page 65 1993 Consolidated Financial Statements
NYNEX
At December 31, 1993, future minimum lease payments receivable, in
millions, in excess of debt service requirements on nonrecourse debt related to
leveraged and direct financing leases, are collectible as follows: $62.9 in
1994; $36.7 in 1995; $29.8 in 1996; $29.4 in 1997; $31.5 in 1998; and
$1,154.6 thereafter.
L FINANCIAL INSTRUMENTS
Off-Balance-Sheet Risk and Concentrations of Credit Risk
NYNEX has entered into transactions in financial instruments with
off-balance-sheet risk, to reduce its exposure to market and interest rate risk
in its short-term and long-term securities. NYNEX entered into various interest
rate, currency, and basis swap transactions, with an aggregate notional amount
of $2.0 billion, to hedge against interest rate and foreign exchange exposures.
Of this amount, there were $679 million of foreign exchange hedges to counter
currency fluctuations associated with foreign investments. These hedges and
swaps mature at various dates from 1994 through 2004.
Risk in these transactions involves both risk of counterparty
nonperformance under the contract terms and risk associated with changes in
market values and interest rates. The counterparties to these contracts consist
of major financial institutions and organized exchanges. NYNEX continually
monitors its positions and the credit ratings of its counterparties and limits
the amount of contracts it enters into with any one party. While NYNEX may be
exposed to credit losses in the event of nonperformance by these counterparties,
it does not anticipate losses, due to the aforementioned control procedures. The
settlement of these transactions is not expected to have a material effect upon
NYNEX's financial position or results of operations.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each type of financial instrument for which estimation was practicable:
Long-term investments - The estimated fair value of investments accounted
for under the cost method is based on quoted market prices for those or similar
investments. The carrying amounts at December 31, 1993 and 1992 were $1.7
billion and $334.3 million, respectively. The estimated fair values at December
31, 1993 and 1992 were $3.2 billion and $318.6 million, respectively.
Long-term debt - The estimated fair value of long-term debt is based on
quoted market prices or discounted future cash flows using the weighted average
coupon rate and current interest rates. The carrying amounts at December 31,
1993 and 1992 were $6.9 and $6.9 billion, respectively. The estimated fair
values at December 31, 1993 and 1992 were $7.1 and $7.1 billion, respectively.
Interest rate swaps/Foreign exchange hedges - The estimated fair value is
based on amounts NYNEX would receive or pay to terminate such agreements taking
into account current market rates. The estimated fair value at December 31, 1993
and 1992 was a net payable position of $18.1 and $7.4 million, respectively.
<PAGE>
page 66 1993 Consolidated Financial Statements
NYNEX
M ADDITIONAL FINANCIAL INFORMATION
In millions 1993 1992 1991
- -------------------------------------------------------------------------------
Taxes other than income:
Property $ 399.6 $432.8 $515.4
Gross receipts 500.1 492.0 476.0
Payroll-related 65.1 53.9 57.4
Other 74.1 75.9 73.8
- -------------------------------------------------------------------------------
Total $1,038.9 $1,054.6 $1,122.6
- -------------------------------------------------------------------------------
December 31,
In millions 1993 1992
- -------------------------------------------------------------------------------
Accounts payable:
Trade $1,089.0 $ 979.5
Taxes 146.7 165.2
Compensated absences 291.2 271.0
Dividends 244.8 240.0
Payroll 155.7 193.3
Interest 113.4 136.9
Other 812.5 578.2
- -------------------------------------------------------------------------------
Total $2,853.3 $2,564.1
- -------------------------------------------------------------------------------
Other current liabilities:
Advance billings and customers' deposits $ 279.0 $ 291.6
Deferred income taxes 4.1 101.3
Other 480.2 418.1
- -------------------------------------------------------------------------------
Total $ 763.3 $ 811.0
- -------------------------------------------------------------------------------
Total research and development costs charged to expense for 1993, 1992 and
1991 were $162.8, $131.7 and $108.4 million, respectively.
In 1993, 1992 and 1991, American Telephone and Telegraph Company ("AT&T")
provided approximately 16%, 17% and 17%, respectively, of NYNEX's total
operating revenues, primarily Network access revenues and Other revenues from
billing and collection services performed by the telephone subsidiaries for
AT&T.
Telesector Resources Group, Inc., a NYNEX subsidiary, owns a one-seventh
interest in Bell Communications Research, Inc. ("Bellcore"). Bellcore furnishes
technical and support services to NYNEX relating to exchange telecommunications
and exchange access services. For 1993, 1992 and 1991, NYNEX recorded charges of
$128.5, $142.1 and $137.9 million, respectively, in connection with these
services.
<PAGE>
page 67 1993 Consolidated Financial Statements
NYNEX
N SUPPLEMENTAL CASH FLOW INFORMATION
The following information is provided in accordance with Statement of Financial
Accounting Standards No. 95, "Statement of Cash Flows":
December 31,
In millions 1993 1992 1991
- ------------------------------------------------------------------------------
Income tax payments $591.8 $533.5 $443.9
- ------------------------------------------------------------------------------
Interest payments $611.7 $659.2 $653.3
- ------------------------------------------------------------------------------
Additions to property, plant and
equipment under capital lease
obligations $ - $ 2.7 $ 4.5
- ------------------------------------------------------------------------------
Noncash items excluded from
the Statement of Cash Flows:
Common Stock issued for
dividend reinvestment and
stock compensation plans $ 29.6 $102.0 $ 97.5
Short-term debt classified as
Long-term debt (see Note F) $588.6 $ 97.7 $ -
- ------------------------------------------------------------------------------
O REVENUES SUBJECT TO POSSIBLE REFUND
Several state and federal regulatory matters, including affiliate
transaction issues in New York Telephone's 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 December 31, 1993, the aggregate amount of such revenues that was
estimated to be subject to possible refund was approximately $172.9 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.
P 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 New York
Telephone for the period 1984 through 1993. The claims relate to the taxability
of New York Telephone'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 New York Telephone is presenting its
arguments against those adjustments. 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.
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.
<PAGE>
page 68 1993 Consolidated Financial Statements
NYNEX
Q BUSINESS RESTRUCTURING
In the fourth quarter of 1993, $2.1 billion of pretax business
restructuring charges were recorded, primarily related to efforts to redesign
operations and work force reductions. These charges include: $1.1 billion for
severance and postretirement medical costs for employees leaving NYNEX through
1996; $626 million for re-engineering service delivery; $283 million for sale or
discontinuance of information product and services businesses; and $106 million
for restructuring at other nontelephone subsidiaries. The restructuring charges
were included in the Consolidated Statements of Income as follows: Maintenance
and support -- $192 million; Marketing and customer services -- $53 million;
Selling, general and administrative -- $1.8 billion; and Other income
(expense)-net -- $31 million.
In the fourth quarter of 1991, $841 million of pretax organizational
restructuring charges were recorded, including $563 million for force reduction
programs and $278 million for restructuring in the real estate and Other
Diversified Operations businesses. The charges were included in the Consolidated
Statements of Income as follows: Other revenues -- $21 million; Maintenance and
support -- $95 million; Depreciation and amortization -- $42 million; Marketing
and customer services -- $19 million; Selling, general and administrative --
$593 million; and Other income (expense)-net -- $71 million.
<PAGE>
page 69 1993 Consolidated Financial Statements
NYNEX
R SEGMENT INFORMATION
A description of NYNEX's key business segments and Management's Discussion
and Analysis of operating revenues and operating income by segment are presented
on pages 28-31 and 34-35, respectively.
Identifiable assets, depreciation expense and capital expenditures by
business segment are as follows:
In millions 1993 1992 1991
- ------------------------------------------------------------------------------
Identifiable Assets:
Telecommunications $24,857.2 $24,343.3 $24,658.5
Cellular 676.4 523.4 419.8
Publishing 529.3 492.4 501.1
Financial Services 1,491.3 1,244.8 1,080.4
Other Diversified Operations 1,856.9 1,675.1 1,600.4
- ------------------------------------------------------------------------------
Total identifiable assets $29,411.1 $28,279.0 $28,260.2
- ------------------------------------------------------------------------------
Depreciation and Amortization
Expense:
Telecommunications $ 2,392.9 $ 2,374.8 $ 2,215.5
Cellular 66.1 67.3 46.2
Publishing 14.0 12.3 16.3
Financial Services .8 .5 8.3
Other Diversified Operations 60.2 63.1 111.2
- ------------------------------------------------------------------------------
Total depreciation and
amortization expense $ 2,534.0 $ 2,518.0 $ 2,397.5
- ------------------------------------------------------------------------------
Capital Expenditures:
Telecommunications $ 2,327.8 $ 2,119.7 $ 2,255.9
Cellular 164.8 164.5 156.5
Publishing 13.1 17.5 7.1
Financial Services 1.1 16.7 24.5
Other Diversified Operations 210.4 131.2 55.3
- ------------------------------------------------------------------------------
Total capital expenditures $ 2,717.2 $ 2,449.6 $ 2,499.3
- ------------------------------------------------------------------------------
Total intersegment sales in 1993, 1992 and 1991 were $343.0, $358.1 and
$416.1 million, respectively, principally in the Telecommunications segment. The
Financial Services segment had total outstanding debt of $637.0, $565.2 and
$499.9 million at December 31, 1993, 1992 and 1991, respectively.
A reconciliation of total segment identifiable assets to consolidated
assets is as follows:
In millions 1993 1992 1991
- ------------------------------------------------------------------------------
Segment identifiable assets $29,411.1 $28,279.0 $28,260.2
Adjustments and eliminations (1,445.0) (872.6) (1,043.3)
Corporate assets 1,462.7 295.7 256.3
Investment in unconsolidated
subsidiary (Note M) 29.6 29.6 29.4
- ------------------------------------------------------------------------------
Consolidated assets $29,458.4 $27,731.7 $27,502.6
- ------------------------------------------------------------------------------
<PAGE>
page 70 1993 Consolidated Financial Statements
NYNEX
Supplementary Information
Quarterly Financial Data (Unaudited)
All adjustments (consisting only of normal recurring accruals) necessary for a
fair statement of income for each period have been included in the following
table.
<TABLE>
<CAPTION>
For the quarter ended
In millions, except per share amounts March 31, June 30, September 30, December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1993
<S> <C> <C> <C> <C>
Operating revenues $3,320.2 $3,364.3 $3,330.4 $ 3,392.9
Operating income $ 668.9 $ 668.1 $ 645.5 $(1,649.2)
Earnings (loss) before cumulative effect
of change in accounting principle $ 331.1 $ 340.2 $ 298.3 $(1,242.0)
Cumulative effect of change in accounting for
postemployment benefits, net of taxes (123.5) - 1.8 -
Net income (loss)@ $ 207.6 $ 340.2 $ 300.1 $(1,242.0)
Earnings (loss) per share before cumulative effect
of change in accounting principle # $ .80 $ .82 $ .72 $ (3.00)
Cumulative effect per share of change in accounting
principle (.30) - .01 -
Earnings (loss) per share @# $ .50 $ .82 $ .73 $ (3.00)
Dividends per share # $ .59 $ .59 $ .59 $ .59
Market price:*#
High $ 46.250 $ 46.125 $ 48.875 $ 46.500
Low $ 41.000 $ 40.313 $ 43.500 $ 40.125
- ------------------------------------------------------------------------------------------------------------------------------------
1992
Operating revenues $ ,245.0 $3,290.8 $3,331.5 $3,315.2
Operating income $ 629.4 $ 657.1 $ 625.1 $ 615.9
Net income $ 336.2 $ 331.1 $ 319.7 $ 324.2
Per share:#
Earnings $ .82 $ .81 $ .78 $ .79
Dividends $ .58 $ .58 $ .58 $ .58
Market price:*#
High $ 41.188 $ 39.875 $ 42.813 $ 44.250
Low $ 35.063 $ 34.563 $ 39.125 $ 39.500
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
@ The quarters ended March 31, 1993 and September 30, 1993 have been
restated as a result of the adoption of Statement No. 112 effective January 1,
1993 and the increase in the tax rate on this item.
# Amounts for 1992 and the quarters ended March 31, 1993 and June 30, 1993
have been restated to reflect a two-for-one common stock split in the form of a
100 percent stock dividend declared on July 15, 1993.
* Market price obtained from the New York Stock Exchange-Composite
Transactions Index.
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 charges for business restructuring, including re-engineering
operations and force reductions. The total pretax effect of these charges was
distributed as follows: $2.1 billion was reflected in operating expenses and $31
million was reflected in Other income (expense)-net. The after-tax effect of
these charges was a reduction in net income of approximately $1.4 billion. See
the section entitled "Business Restructuring" included in Management's
Discussion and Analysis of Financial Condition and Results of Operations for
further discussion of these charges.
<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 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 Changes in Stockholders'
Equity for each of the Three Years in the Period
Ended December 31, 1993
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 Data (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. 1-8608):
V - Property, Plant and Equipment (as amended by the
Registrant's Form 10-K/A, Amendment No. 1, dated
March 31, 1994)
VI - Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment
VIII - Valuation and Qualifying Accounts
X - Supplementary Income Statement Information
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 (the "SEC"), as identified in parentheses below,
are incorporated herein by reference as exhibits hereto.
Exhibit
Number
(3)a Restated Certificate of Incorporation of NYNEX
Corporation dated May 6, 1987 (Exhibit No.(3)a to the
Registrant's filing on Form SE dated March 24, 1988, File
No. 1-8608).
(3)b By-Laws of NYNEX Corporation dated October 12, 1983, as
amended October 17, 1991 (Exhibit No. (3)b to the
Registrant's filing on Form 10-Q dated October 31, 1991,
File No. 1-8608).
(4) No instrument which defines the rights of holders of
long-term debt of NYNEX and its subsidiaries is filed
herewith pursuant to Regulation S-K, Item 601(b) (4)
(iii) (A). Pursuant to this regulation, NYNEX 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 the Registrant's 1983 Annual Report on Form
10-K, File No. 1-8608).
(10)(i)2 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 the
Registrant's 1983 Annual Report on Form 10-K, File No.
1-8608).
(10)(i)3 Divestiture Interchange Agreement between American
Telephone and Telegraph Company, NYNEX Corporation, other
Regional Holding Companies, Central Services
Organization, Advanced Mobile Phone Service, Inc.,
Cincinnati Bell Inc. and The Southern New England
Telephone Company dated as of November 1, 1983 (Exhibit
No. (10)(i)13 to the Registrant's 1983 Annual Report on
Form 10-K, File No. 1-8608).
<PAGE>
(10)(i)4 Unfunded Post-Retirement Benefits Cost-Sharing Agreement
between American Telephone and Telegraph Company, NYNEX
Corporation, other Regional Holding Companies, Central
Services Organization and Advanced Mobile Phone Service,
Inc. dated as of November 1, 1983 (Exhibit No. (10)(i)15
to the Registrant's 1983 Annual Report on Form 10-K,
File No. 1-8608).
(10)(i)5 Actuarial Services Agreement between American Telephone
and Telegraph Company, NYNEX Corporation, other Regional
Holding Companies, Central Services Organization and
Advanced Mobile Phone Service, Inc. dated as of
November 1, 1983 (Exhibit No. (10)(i)16 to the
Registrant's 1983 Annual Report on Form 10-K, File
No. 1-8608).
(10)(i)6 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 the
Registrant's 1983 Annual Report on Form 10-K,
File No. 1-8608).
(10)(i)7 Shared Network Facilities Agreement among American
Telephone and Telegraph Company, AT&T Communications of
New England, Inc. and New England Telephone and
Telegraph Company dated as of November 1, 1983
(Exhibit No. (10)(i)21 to the Registrant's 1983 Annual
Report on Form 10-K, File No. 1-8608).
(10)(i)8 Agreement Concerning the Sharing of Contingent
Liabilities dated as of January 28, 1985
(Exhibit No. (19)(i)2 to the Registrant's
1984 Annual Report on Form 10-K, File No. 1-8608).
(10)(ii)1 Shareholder Services Agreement between The First
National Bank of Boston and NYNEX Corporation dated as
of September 8, 1992 (Exhibit No. (10)(ii)1 to the
Registrant's 1993 Annual Report on Form 10-K, dated
March 25, 1994, File No. 1-8608).
(10)(ii)2 Preferred Stock Purchase Agreement between NYNEX
Corporation and Viacom Inc., dated October 4, 1993, and
amendment thereto dated November 19, 1993
(Exhibit No. (10)(ii)2 to the Registrant's 1993 Annual
Report on Form 10-K, dated March 25, 1994, File
No. 1-8608).
(10)(iii)(A)1 NYNEX Senior Management Short Term Incentive Plan
(Exhibit No. 10-aa to Registration Statement
No. 2-87850).
<PAGE>
(10)(iii)(A)2 NYNEX Senior Management Long Term Disability and Survivor
Protection Plan (Exhibit No. 10-dd to Registration
Statement No. 2-87850).
(10)(iii)(A)3 NYNEX Senior Management Transfer Program (Exhibit
No. 10-ee to Registration Statement No. 2-87850).
(10)(iii)(A)4 Description of NYNEX Financial Counseling Service
for Senior Managers (Exhibit No. 10-ff to Registration
Statement No. 2-87850).
(10)(iii)(A)5 NYNEX Corporation Deferred Compensation Plan for
Non-Employee Directors (Exhibit No. 10-gg to Registration
Statement No. 2-87850).
(10)(iii)(A)6 Description of NYNEX Insurance Plan for Directors
(Exhibit No. 10-hh to Registration Statement
No. 2-87850).
(10)(iii)(A)7 Description of NYNEX Plan for Non-Employee Directors'
Travel Accident Insurance (Exhibit No. 10-ii to
Registration Statement No. 2-87850).
(10)(iii)(A)8 NYNEX Senior Management Incentive Award Deferral Plan
(Exhibit No. 10-kk to Registration Statement No.
2-87850).
(10)(iii)(A)9 Description of NYNEX Mid-Career Hire Program (Exhibit No.
10-ll to Registration Statement No. 2-87850).
(10)(iii)(A)10 NYNEX Mid-Career Pension Program (Exhibit No. 10-mm to
Registration Statement No. 2-87850).
(10)(iii)(A)11 NYNEX Estate Planning Legal Services Program (Exhibit No.
10-nn to Registration Statement No. 2-87850).
(10)(iii)(A)12 NYNEX 1984 Stock Option Plan, as amended and restated
(Post-Effective Amendment No. 1 to Registration No.
2-97813, dated September 21, 1987).
(10)(iii)(A)13 NYNEX Senior Management Long Term Incentive Plan (Exhibit
No. (19)(ii)1 to the Registrant's 1984 Annual Report on
Form 10-K, File No. 1-8608).
(a) Description of certain amendments to the NYNEX Senior
Management Long Term Incentive Plan (Exhibit No.
(19)(ii)4 to the Registrant's Filing on Form SE dated
March 27, 1987, File No. 1-8608).
<PAGE>
(10)(iii)(A)14 NYNEX Senior Management Non-Qualified Pension Plan
(Exhibit No. (19)(ii)2 to the Registrant's 1984 Annual
Report on Form 10-K, File No. 1-8608).
(a) Description of certain amendments to the NYNEX Senior
Management Non-Qualified Pension Plan (Exhibit No.
(19)(ii)6 to the Registrant's Filing on Form SE dated
March 27, 1987, File No. 1-8608).
(b) Description of certain amendments to the NYNEX
Non-Qualified Pension Plan (Exhibit No. (19)(ii)7 to the
Registrant's Filing on Form SE dated March 27, 1987, File
No. 1-8608).
(c) Description of certain amendments to the NYNEX Senior
Management Non-Qualified Pension Plan (Exhibit No.
(19)(ii)1 to the Registrant's 1987 Annual Report on Form
10-K, File No. 1-8608).
(d) Description of certain amendments to the NYNEX Senior
Management Non-Qualified Pension Plan (Exhibit No.
(19)(ii)l to the Registrant's 1991 Annual Report on Form
10-K, File No. 1-8608).
(10)(iii)(A)15 Description of NYNEX Corporation Non-Employee Director
Pension Plan (Exhibit No. (28)(i)1 to Amendment No. 1 to
the Registrant's 1987 Annual Report on Form 10-K, File
No. 1-8608).
(10)(iii)(A)16 NYNEX Senior Management Non-Qualified Supplemental
Savings Plan (Exhibit No. (10)(iii)(A)(18) to the
Registrant's 1988 Annual Report on Form 10-K, File No.
1-8608).
(10)(iii)(A)17 NYNEX 1987 Restricted Stock Award Plan (Exhibit No.
(28)(i)1 to the Registrant's Filing on Form SE dated
March 23, 1988, File No. 1-8608).
(10)(iii)(A)18 NYNEX 1990 Long Term Incentive Program (Exhibit No. 1 to
the Registrant's Proxy Statement dated March 26, 1990).
(10)(iii)(A)19 NYNEX 1990 Stock Option Plan (Exhibit No. 2 to the
Registrant's Proxy Statement dated March 26, 1990).
(10)(iii)(A)20 NYNEX Stock Plan for Non-Employee Directors (Exhibit No.
(10)(iii)(A)22 to the Registrant's 1990 Annual Report on
Form 10-K, File No. 1-8608).
<PAGE>
(10)(iii)(A)21 Description of the NYNEX Supplemental Life Insurance Plan
(Exhibit No. (19)(i)2 to the Registrant's filing on Form
SE, dated March 23, 1993, File No. 1-8608).
(10)(iii)(A)22 Description of certain amendments to the NYNEX Senior
Management Long Term Incentive Plan (Exhibit No. (19)
(ii)1 to the Registrant's filing on Form SE, dated March
23, 1993, File No. 1-8608).
(10)(iii)(A)23 Description of certain amendments to the NYNEX Senior
Management Non-Qualified Pension Plan (Exhibit No.
(19)(ii)2 to the Registrant's filing on Form SE, dated
March 23, 1993, File No. 1-8608).
(10)(iii)(A)24 NYNEX Executive Retention Agreement (Exhibit No.
(10)(iii)(A)24 to the Registrant's 1993 Annual Report on
Form 10-K, dated March 25, 1994, File No. 1-8608).
(10)(iii)(A)25 NYNEX Executive Severance Pay Plan (Exhibit No.
(10)(iii)(A)25 to the Registrant's 1993 Annual Report on
Form 10-K, dated March 25, 1994, File No. 1-8608).
(11) Computation of Earnings Per Share (Exhibit No. (11) to
the Registrant's 1993 Annual Report on Form 10-K, dated
March 25, 1994, File No. 1-8608).
(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. 1-8608).
(21) Subsidiaries of NYNEX (Exhibit No. (21) to the
Registrant's 1993 Annual Report on Form 10-K, dated March
25, 1994, File No. 1-8608).
(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. 1-8608).
(b) Reports on Form 8-K.
The Company's Current Report on Form 8-K, date of report
October 4, 1993 and filed October 7, 1993, reporting on
Item 5.
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 19, 1993 and filed November 24, 1993, reporting
on Item 5.
<PAGE>
NYNEX CORPORATION
SIGNATURES
Pursuant to the requirements of Sections 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.
NYNEX CORPORATION
By P. M. Ciccone
------------------------
P. M. Ciccone
Vice President and Comptroller
(Principal Accounting Officer)
December 13, 1994
<PAGE>
Exhibit 23
CONSENT of INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements of NYNEX Corporation of our reports dated February 9, 1994 on our
audits of the consolidated financial statements and financial statement
schedules of NYNEX Corporation and its subsidiaries as of December 31, 1993 and
1992, and for each of the three years in the period ended December 31, 1993,
which reports are included or incorporated by reference in this Annual Report on
Form 10-K/A, Amendment No. 2:
- Registration Statements No. 2-94110, 33-16570 and 33-27802 on Form S-8
relating to the NYNEX Corporation Savings and Security Plan;
- Registration Statements No. 2-95141 and 33-23156 on Form S-3
relating to the NYNEX Corporation Share Owner Dividend
Reinvestment and Stock Purchase Plan;
- Registration Statements No. 2-95634, 2-95780 and 33-21635 on
Form S-8 relating to the NYNEX Corporation Savings Plan for Salaried
Employees;
- Registration Statement No. 2-97813 on Form S-8 relating to the
NYNEX 1984 Stock Option Plan;
- Registration Statement No. 33-23447 on Form S-8 relating to
the NYNEX Corporation UK Savings-Related Share Option Scheme;
- Registration Statement No. 33-33592 on Form S-3 relating
to $500,000,000 of NYNEX Corporation Debt Securities;
- Registration Statement Nos. 33-34401 and 33-34401-01 on Form S-3 (as
coregistrant and guarantor) relating to $300,000,000 of NYNEX Capital
Funding Company Debt Securities, unconditionally guaranteed by NYNEX
Corporation;
- Registration Statement No. 33-35212 on Form S-3 relating to the
resale of shares of NYNEX Common Stock in connection with the
acquisition of Lamarian Systems, Inc.;
- Registration Statement No. 33-35919 on Form S-8 relating to the
NYNEX 1990 Stock Option Plan;
- Registration Statement No. 33-36342 on Form S-4 relating to the
acquisition of Stockholder Systems, Inc.;
<PAGE>
- Registration Statement No. 33-48647 on Form S-8 relating to the
NYNEX 1992 Non-Management Stock Option Plan;
- Registration Statement No. 33-48648 on Form S-8 relating to the
NYNEX 1992 Management Stock Option Plan;
- Registration Statement No. 33-49105 on Form S-3 relating to the
NYNEX Corporation Share Owner Dividend Reinvestment and Stock
Purchase Plan;
- Post-Effective Amendment Nos. 1 and 2 to Registration Statement
No. 33-49105 on Form S-3 relating to the NYNEX Corporation Share Owner
Dividend Reinvestment and Stock Purchase Plan;
- Registration Statement Nos. 33-51147 and 33-51147-01 on Form S-3, (as
coregistrant and guarantor) which also constitutes Post-Effective
Amendment No. 1 to Registration Statememt Nos. 33-34401 and
33-34401-01, relating to $1,331,000,000 of NYNEX Capital Funding
Debt Securities, unconditionally guaranteed by NYNEX Corporation;
- Registration Statement No. 33-51897 on Form S-8 relating to the NYNEX
Corporation Savings and Security Plan (Non-Salaried Employees);
- Registration Statement No. 33-51993 on Form S-8 relating to the Upstate
Partners Employees' Retirement Savings Plan; and
- Post-Effective Amendment No. 1 to Registration Statement Nos. 33-51147
and 33-51147-01 on Form S-3, which also constitutes Post-Effective
Amendment No. 2 to Registration Statement Nos. 33-34401 and
33-34401-01, relating to $1,331,000,000 of NYNEX Capital
Funding Company Debt Securities, unconditionally guaranteed by
NYNEX Corporation.
COOPERS & LYBRAND L.L.P.
New York, New York
December 13, 1994
