Form 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
- ---
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
- ---
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8608
NYNEX CORPORATION
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 13-3180909
1113 Westchester Avenue, White Plains, New York 10604
Telephone Number (914) 644-6400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
At April 30, 1994, 417,882,505 common shares were outstanding.
AMENDMENT NO. 2
The registrant hereby amends the following items of its Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1994, as set forth in the
pages attached hereto:
Part I - Item 1 "Financial Statements"
Part I - Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations"
<PAGE>
Form 10-Q/A Part I PART I - FINANCIAL INFORMATION
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions, except per share amounts) (Unaudited)
For the Three Months Ended March 31, 1994 1993
OPERATING REVENUES
Local service $1,629.9 $1,584.3
Long distance 281.0 279.3
Network access 864.2 852.0
Other 498.2 604.6
------- -------
Total operating revenues 3,273.3 3,320.2
------- -------
OPERATING EXPENSES
Maintenance and support 769.3 719.8
Depreciation and amortization 652.0 615.2
Marketing and customer services 340.2 318.2
Taxes other than income 249.0 271.4
Selling, general and administrative 485.4 527.9
Other 181.9 198.8
------- -------
Total operating expenses 2,677.8 2,651.3
------- -------
Operating income 595.5 668.9
Other income (expense) - net (9.1) (6.8)
Interest expense 159.6 169.4
------ ------
Earnings before income taxes and cumulative
effect of change in accounting principle 426.8 492.7
Income taxes
Federal 113.4 135.4
State, local and other 22.8 26.2
------- -------
Total income taxes 136.2 161.6
------- -------
Earnings before cumulative effect of change
in accounting principle 290.6 331.1
Cumulative effect of change in accounting for
postemployment benefits, net of taxes - (123.5)*
-------- -------
NET INCOME $ 290.6 $ 207.6 *
======= =======
Earnings per share before cumulative
effect of change in accounting principle $ .70 $ .80**
Cumulative effect per share of change in
accounting principle - (.30)*
-------- --------
Earnings per share $ .70 $ .50
-------- --------
Weighted average number of shares outstanding 416.3 412.9**
-------- --------
Dividends declared per share $ .59 $ .59**
-------- --------
Retained earnings
Beginning of period $2,388.3 $3,958.7
Net income 290.6 207.6*
Dividends declared (246.3) (243.0)
Other 4.8 2.3
-------- --------
End of period $2,437.4 $3,925.6
======== ========
* Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 112 in the fourth quarter of 1993 retroactive to January 1,
1993.
** Restated to reflect a two-for-one common stock split in the form of a 100
percent stock dividend declared on July 15, 1993.
See accompanying notes to consolidated financial statements.
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions)
March 31, December 31,
1994 1993
ASSETS (Unaudited)
Current assets:
Cash and temporary cash investments $ 144.0 $ 157.8
Receivables (net of allowance of $210.8
and $210.2, respectively) 2,297.5 2,439.1
Inventories 166.9 169.2
Prepaid expenses 399.2 306.2
Deferred charges and other current assets 689.6 849.4
--------- ---------
Total current assets 3,697.2 3,921.7
--------- ---------
Property, plant and equipment - at cost 34,446.7 33,969.4
Less: accumulated depreciation (14,184.5) (13,719.4)
--------- ---------
20,262.2 20,250.0
--------- ---------
Deferred charges and other assets 5,309.3 5,286.7
-------- ---------
Total Assets $29,268.7 $29,458.4
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,667.0 $ 2,853.3
Short-term debt 3,031.3 3,190.1
Other current liabilities 741.4 763.3
-------- --------
Total current liabilities 6,439.7 6,806.7
-------- --------
Long-term debt 6,934.7 6,937.8
Deferred income taxes 3,462.7 3,545.0
Unamortized investment tax credits 346.8 360.3
Other long-term liabilities and deferred credits 3,519.1 3,393.1
-------- --------
Total liabilities 20,703.0 21,042.9
-------- --------
Commitments and contingencies [Notes (d) and (e)]
Stockholders' equity:
Preferred stock - $1 par value - -
shares authorized: 70,000,000
shares issued: None
Preferred stock - Series A Junior Participating - -
- $1 par value
shares authorized: 5,000,000
shares issued: None
Common stock - $1 par value 433.6 431.1
shares authorized: 750,000,000
shares issued:
at March 31, 1994 - 433,568,087
at December 31, 1993 - 431,080,155
Additional paid-in capital 6,718.2 6,624.5
Retained earnings 2,437.4 2,388.3
Treasury stock (16,200,269 and 16,215,353
shares, respectively, at cost) (647.5) (648.1)
Deferred compensation - LESOP Trust (376.0) (380.3)
--------- ---------
Total stockholders' equity 8,565.7 8,415.5
--------- ---------
Total Liabilities and Stockholders' Equity $29,268.7 $29,458.4
========= =========
See accompanying notes to consolidated financial statements.
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
For the Three Months Ended March 31, 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 290.6 $ 207.6*
------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 652.0 615.2
Amortization of unearned lease income-net (23.4) (18.6)
Allowance for funds used during construction-
equity component (6.9) (7.9)
Changes in operating assets and liabilities:
Receivables 141.6 27.2
Inventories 2.3 (7.4)
Prepaid expenses (93.0) (68.9)
Deferred charges and other current assets 159.8 (133.3)
Accounts payable (187.8) (97.4)*
Other current liabilities (21.9) (152.0)
Deferred income taxes and Unamortized
investment tax credits (95.8) 88.8*
Other long-term liabilities and deferred credits 48.2 237.9*
Other-net (85.2) 19.1
------- -------
Total adjustments 489.9 502.7
------- -------
Net cash provided by operating activities 780.5 710.3
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (639.7) (493.7)
Investment in leased assets (5.9) (51.1)
Cash received from leasing activities 19.8 19.1
Other investing activities-net 78.7 (53.4)
------- -------
Net cash used in investing activities (547.1) (579.1)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of commercial paper and short-term debt 5,679.7 2,215.3
Repayment of commercial paper and short-term debt (6,426.7) (2,183.3)
Issuance of long-term debt 593.5 556.6
Repayment of long-term debt and capital leases (14.9) (14.8)
Debt refinancings and call premiums - (380.5)
Issuance of common stock 62.1 10.9
Purchase of treasury stock - (92.3)
Dividends paid (218.7) (239.9)
Minority interest 77.8 -
------ -----
Net cash used in financing activities (247.2) (128.0)
------ ------
Net (decrease) increase in Cash and temporary
cash investments (13.8) 3.2
Cash and temporary cash investments at
beginning of year 157.8 88.9
------ ------
Cash and temporary cash investments at
end of year $ 144.0 $ 92.1
======= ======
* Restated to reflect the adoption of Statement of Financial Accounting
Standards No. 112 in the fourth quarter of 1993 retroactive to January 1,
1993.
See accompanying notes to consolidated financial statements.
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) BASIS OF PRESENTATION - The consolidated financial statements have been
prepared by NYNEX Corporation ("NYNEX") pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC") and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial information
for each period shown. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. Management believes that the
disclosures made are adequate to make the information presented not
misleading. Certain information in the consolidated financial statements for
1993 has been reclassified to conform to the current year's presentation. The
results for interim periods are not necessarily indicative of the results for
the full year. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the NYNEX 1993 Annual Report on Form 10-K/A, Amendment No. 2.
(b) CASH AND TEMPORARY CASH INVESTMENTS - NYNEX's cash management policy is to
make funds available in banks when checks are presented. At March 31, 1994,
NYNEX had recorded in Accounts payable checks outstanding but not yet
presented for payment of $204.0 million.
(c) ADOPTION OF FINANCIAL ACCOUNTING STANDARDS - Effective January 1,
1994, NYNEX adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
("Statement No. 115"). The effect of implementing Statement No. 115 on
NYNEX's results of operations and financial position was not significant.
(d) REVENUES SUBJECT TO POSSIBLE REFUND - Several state and federal regulatory
matters, including affiliate transaction issues in New York Telephone
Company's ("New York Telephone") 1990 intrastate rate case and overearnings
complaints by interstate access customers, may possibly require the refund of
a portion of the revenues collected in the current and prior periods. As of
March 31, 1994, the aggregate amount of such revenues that was estimated to be
subject to possible refund was approximately $189 million, plus related
interest. The outcome of each pending matter, as well as the time frame within
which each will be resolved, is not presently determinable.
(e) LITIGATION AND OTHER CONTINGENCIES - It is probable that local tax claims
aggregating approximately $200 million in tax and $105 million in associated
interest will be asserted against New York Telephone for the period 1984
through the first quarter of 1994. 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.
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(Unaudited)
(e) LITIGATION AND OTHER CONTINGENCIES (CONT'D)
Various other legal actions and regulatory proceedings are pending that may
affect NYNEX, including matters involving Racketeer Influenced and Corrupt
Organizations Act, antitrust, tort, contract and tax deficiency claims. While
counsel cannot give assurance as to the outcome of any of these matters, in
the opinion of Management based upon the advice of counsel, the ultimate
resolution of these matters in future periods is not expected to have a
material effect on NYNEX's financial position or annual operating results but
could have a material effect on quarterly operating results.
(f) SUPPLEMENTAL INFORMATION - The following information is provided in
accordance with Statement of Financial Accounting Standards No. 95, "Statement
of Cash Flows":
For the
Three Months Ended
March 31,
(In millions) 1994 1993
Income tax payments $ 35.8 $ 81.4
Interest payments $118.8 $133.2
Additions to property, plant and equipment under
capital lease obligations $ 9.3 $ -
Common Stock issued for Dividend Reinvestment and
Stock Purchase Plan and stock compensation plans $ 8.5 $ 3.5
(g) SEGMENT INFORMATION - The following table sets forth summary financial
information by business segment. Information regarding operating revenues by
business segment is presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 11 - 13. Total
intersegment sales for the first quarter of 1994 and 1993 were $97.0 and $82.7
million, respectively, principally in the telecommunications segment. The
financial services segment had total outstanding debt of $602.0 and $600.0
million at March 31, 1994 and 1993, respectively.
For the
Three Months Ended
March 31, March 31,
(In millions) 1994 1993
OPERATING INCOME:
Telecommunications $612.4 $693.3
Cellular 10.0 12.7
Publishing 15.3 19.6
Financial services 21.4 16.4
Other diversified operations (20.2) (16.2)
------ ------
Total operating income by segment 638.9 725.8
Adjustments/Eliminations (2.5) .2
Corporate expenses (40.9) (57.1)
------ ------
Operating Income $595.5 $668.9
====== ======
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(Unaudited)
(g) SEGMENT INFORMATION (CONT'D)
Cellular operating income includes certain amounts that are subsequently paid
out to minority shareholders. Minority interest expense for the cellular
segment for the three months ended March 31, 1994 and 1993 was $13.5 and $9.2
million, respectively.
March 31, March 31,
(In millions) 1994 1993
IDENTIFIABLE ASSETS:
Telecommunications $24,768.5 $24,426.0
Cellular 738.0 540.7
Publishing 536.6 507.0
Financial services 1,493.7 1,304.1
Other diversified operations 1,706.8 1,753.9
-------- --------
Total identifiable assets by segment 29,243.6 28,531.7
Adjustments/Eliminations (1,415.0) (878.3)
Investment in unconsolidated subsidiary 29.5 29.6
Corporate assets 1,410.6 215.5
--------- ---------
Total Assets $29,268.7 $27,898.5
========= =========
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATE REGULATORY MATTERS
As previously reported (see NYNEX's Annual Report on Form 10-K for the year
ended December 31, 1993), the New York State Public Service Commission
("NYSPSC") has issued an Opinion and Order which would require New York
Telephone to provide IntraLATA Presubscription ("ILP") within 18 months of a
bona fide request from a carrier. On April 4, 1994, the NYSPSC issued an
opinion which confirmed the 18 month requirement, provided that Interexchange
Carriers should pay the cost of ILP implementation, and ruled that New York
Telephone should be compensated for contribution losses resulting from ILP. In
its decision, the NYSPSC suggested that certain issues relating to ILP would
be made the subject of negotiations and a "collaborative effort" between the
parties to the incentive regulation proceeding.
As previously reported (see NYNEX's Annual Report on Form 10-K for the year
ended December 31, 1993), in the first phase of the incentive regulation
proceeding, the NYSPSC issued Orders on December 24, 1993 and January 28, 1994
for a reduction in New York Telephone's rates of $170 million annually,
effective January 1, 1994, and required that an additional $153 million of
current revenues be made available "for the ultimate benefit of customers and
the Company's competitive position through earnings incentives for short-term
service improvements and a longer term plan for performance-based earning
incentives and network improvements." That incentive regulatory plan will be
pursued in a second phase of the proceeding during 1994. New York Telephone
has set aside $31 million of the $153 million as ordered by the NYSPSC, as an
incentive to improve overall service quality in the Brooklyn-Queens-Bronx
service area.
On April 14, 1994, New England Telephone and Telegraph Company ("New England
Telephone") filed comprehensive tariff provisions with the Massachusetts
Department of Public Utilities ("MDPU") as part of an Alternative Regulatory
Plan ("Plan") to govern New England Telephone's Massachusetts intrastate
operations. The Plan proposes the following: (1) regulation of New England
Telephone for a period of ten years from the date of MDPU approval under a
price framework; (2) pricing rules that limit New England Telephone's ability
to increase both overall average prices and specific rate elements, including
a ceiling on the weighted average price of all tariffed services based on a
formula of inflation minus a productivity factor plus or minus exogenous
changes; (3) no earnings restriction; (4) a cap on the monthly rates for
residence services until August 2001; (5) an increase of $2.50 monthly in the
credit on exchange services for Lifeline customers; (6) investment commitments
for the public telecommunications network, including commencing the deployment
of a broadband network in Massachusetts; (7) quality of service commitments;
(8) rate reductions for switched access services; and (9) a new streamlined
standard of regulation governing the review of tariff filings. On April 20,
1994, in accordance with its statutory authority, the MDPU suspended the
effective date of the proposed tariffs until November 14, 1994, in order to
investigate the filing.
As previously reported (see NYNEX's Annual Report on Form 10-K for the year
ended December 31, 1993), New England Telephone filed a petition for a price
regulation plan with the Vermont Public Service Board ("VPSB") on October 5,
1993. In a related proceeding, on December 1, 1993, the Vermont Department of
Public Service ("VDPS") filed a petition seeking to examine New England
Telephone's rates and to ensure that rates are at appropriate levels prior to
the initiation of a price regulation plan. On April 11, 1994, the VDPS filed
testimony alleging that New England Telephone is over earning in Vermont by
$27.5 million on an annual basis and asking the VPSB to direct that any rate
-8-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATE REGULATORY MATTERS (CONT'D)
reduction be returned to the ratepayers of Vermont in the form of a rebate
retroactive to December 1993. A decision in both the incentive regulation and
rate dockets is due from the VPSB by October 5, 1994.
Pursuant to the Rhode Island price regulation trial, on March 1, 1994, New
England Telephone filed information with the Rhode Island Public Utilities
Commission ("RIPUC") proposing a 1993 shared earnings credit of $0.4 million.
The RIPUC has scheduled a hearing in May regarding the filing.
FEDERAL REGULATORY MATTERS
On April 1, 1994, New York Telephone and New England Telephone (collectively,
the "telephone subsidiaries") filed tariffs to implement the fourth annual
update to the price cap rates. These tariffs, as amended, will result in a net
reduction in the telephone subsidiaries' annual interstate access rates of
approximately $10.4 million during the tariff period from July 1, 1994 to June
30, 1995.
BUSINESS RESTRUCTURING
As previously reported (see NYNEX's Annual Report on Form 10-K for the year
ended December 31, 1993), NYNEX recorded pretax charges of approximately $2.1
billion ($1.4 billion after-tax) in the fourth quarter of 1993 for business
restructuring, of which approximately $586 million was for employee severance
payments and approximately $520 million was for postretirement medical costs
recognized as a result of the planned decrease in the work force. A pension
enhancement to the NYNEX management pension plan was announced in February
1994 for eligible management employees who retire through December 31, 1996.
This enhancement will be offered at different times through 1996 according to
local force requirements. NYNEX has reached an agreement with the
Communications Workers of America and with the International Brotherhood of
Electrical Workers ("IBEW") in New York which extends the existing labor
agreements to August 1998 and provides a retirement incentive. Negotiations to
reach similar agreements with the IBEW in New England continue. The management
and nonmanagement retirement incentives are intended to provide a voluntary
means to implement a portion of the planned work force reductions of
approximately 16,800 employees by the end of 1996. NYNEX anticipates recording
additional pretax charges of approximately $2.0 billion ($1.3 billion
after-tax) for pension enhancements as employees leave NYNEX through 1996
under the retirement incentives; the actual amount to be recorded in each year
is not presently determinable because it is dependent on employees' accepting
the incentives. Much of the cost of the enhancements will be funded by NYNEX's
pension plans.
The reserves established for severance will be transferred to the pension
liability on a per employee basis as a result of employees' leaving under the
pension enhancements as opposed to severance provisions, and the incremental
cost of the pension enhancements will be charged to expense as employees
leave. The retirement incentives credit employees with an additional six years
toward both their age and their length of service for the purpose of
determining pension eligibility and benefits. Postretirement medical costs
will be increased on a per employee basis, because these incentives resulted
in more individuals qualifying for lifetime medical coverage than under the
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS RESTRUCTURING (CONT'D)
severance plan, and will be charged to expense as employees leave. Under the
assumption that nonmanagement employees will leave under the retirement
incentive, the expected utilization of nonmanagement severance reserves and
the application of the postretirement medical liability per year have been
revised from the expected utilization as previously reported (see NYNEX's
Annual Report on Form 10-K/A, Amendment No. 2 for the year ended December 31,
1993) as follows:
(In millions)
Severance 1994 1995 1996 Total
--------- ---- ---- ---- -----
Management $160 $ 91 $ 78 $ 329
Nonmanagement 33 97 127 257
---- ---- ---- -----
Subtotal 193 188 205 586
Remaining 1991 reserve 45 - - 45
---- ---- ---- -----
Total $238 $188 $205 $ 631
==== ==== ==== =====
Medical 1994 1995 1996 Total
------- ---- ---- ---- -----
Management $ 85 $ 35 $ 29 $ 149
Nonmanagement 57 139 175 371
---- ---- ---- -----
Total $142 $174 $204 $ 520
==== ==== ==== =====
The expected additional costs for the pension incentives and related
postretirement medical costs by year are as follows:
(In millions) 1994 1995 1996 Total
---- ---- ---- ------
Management $173 $ 71 $ 58 $ 302
Nonmanagement 647 547 454 1,648
---- ---- ---- ------
Total $820 $618 $512 $1,950
==== ==== ==== ======
The restructuring reserve balance at March 31, 1994, which does not include
the liability recorded at year-end for postretirement medical benefits
associated with employees' leaving NYNEX under the business restructuring, was
approximately $1.4 billion. In December 1993, NYNEX utilized $181 million of
the restructuring reserves primarily relating to the sale or discontinuance of
its information products and services businesses. In the first quarter of
1994, NYNEX reduced 1993 restructuring reserves by $57 million in the
following categories:
Severance $ -
Systems redesign:
Customer contact $9
Customer provisioning -
Customer operations -
Customer support -
--
Total systems redesign 9
Work center consolidation -
Branding 12
Relocation -
Training -
Re-engineering implementation 4
Sale/discontinuance of information products
and services businesses 30
Nontelephone subsidiaries' restructuring 2
----
Total $ 57
====
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS RESTRUCTURING (CONT'D)
There were no significant cost savings as a result of business restructuring
in the first quarter of 1994. Force reductions will begin in the second
quarter of 1994 as re-engineering initiatives are implemented and as
retirement incentives are offered to eligible employees. NYNEX expects to
reduce its work force by approximately 6,000 employees by the end of 1994.
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993
OPERATING REVENUES
Operating revenues for the quarter ended March 31, 1994 decreased $46.9
million, or 1.4%, from the same period last year. A summary of revenues by
segment is as follows:
UNAFFILIATED REVENUES BY SEGMENT:
(In millions)
For the Three Months Ended
March 31, March 31,
1994 1993
Telecommunications $2,869.1 $2,859.9
Cellular 140.3 90.6
Publishing 215.1 214.7
Financial services 27.8 21.7
Other diversified operations 21.0 133.3
----- ------
Total Consolidated Operating Revenues $3,273.3 $3,320.2
======== ========
Telecommunications
Telecommunications revenues for the first quarter of 1994 increased $9.2
million, or 0.3%, over the first quarter of 1993.
Local service revenues increased $45.6 million, or 2.9%, primarily due to a
net $69 million increase resulting from increased demand as evidenced by
growth in access lines, growth in sales of calling features, and higher usage
associated with the severe winter storms. In addition, there was a $5 million
increase due to a 1993 reduction in revenues associated with the reversal of a
1990 deferral of private line revenues at New York Telephone and a reversal of
$5 million of revenues deferred in 1993, which were in excess of the required
one-time credit to customers' bills pursuant to the Rhode Island price
regulation trial for 1993, at New England Telephone. These increases were
partially offset by a $33 million revenue reduction at New York Telephone
pursuant to an NYSPSC order (see STATE REGULATORY MATTERS above).
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING REVENUES (CONT'D)
Long distance revenues increased $1.7 million, or 0.6%, primarily due to
increased demand for message toll services, partially offset by decreases in
demand for private line and wide area telecommunications services as a result
of increased competition and customer shifts to lower priced services offered
by the telephone subsidiaries, and a $3 million revenue reduction at New York
Telephone pursuant to an NYSPSC order (see STATE REGULATORY MATTERS above).
Network access revenues increased $12.2 million, or 1.4%. Switched access
revenues increased $22 million as a result of increased usage partially offset
by a reduction in interstate rates and a $3 million revenue reduction at New
York Telephone pursuant to an NYSPSC order (see STATE REGULATORY MATTERS
above). This increase was partially offset by a $10 million decline in special
access revenues primarily due to a reduction in rates, increased competition
and customer shifts to lower priced services offered by the telephone
subsidiaries.
Other revenues decreased $50.3 million primarily due to the following at New
York Telephone: (1) a $38 million reduction in revenues representing the first
quarter deferral of the $153 million to be set aside as ordered by the NYSPSC
(see STATE REGULATORY MATTERS above), (2) a $24 million decrease attributable
to the 1993 reversal of previously recorded reductions in revenues in
connection with the phase out of ad valorem taxes on central office equipment,
and (3) a $10 million increase associated with the 1993 reversal of a 1992
deferral of revenues for concession service.
Cellular
Cellular revenues for the first quarter of 1994 increased $49.7 million, or
54.9%, over the first quarter of 1993. The segment's customer base for mobile
telecommunications services continued to expand, increasing 57% as compared to
the first quarter of 1993. This growth was spread across all cellular markets;
however, customer growth was partially offset by a decline in average minutes
of use per customer.
Publishing
Publishing revenues for the first quarter of 1994 increased $0.4 million over
the first quarter of 1993 primarily due to the publication of directories in
the Czech Republic. In addition, Yellow Pages advertising revenues in the New
England market increased as a result of higher prices. These increases were
partially offset by decreased revenues due to the planned disposal of United
Publishers Corporation ("UPC") as part of the 1993 business restructuring. UPC
was sold in April 1994. Publishing revenue growth continues to be adversely
affected by decreasing sales volume attributed primarily to the recessionary
impact on many companies' advertising expenditures.
Financial Services
Financial services revenues for the first quarter of 1994 increased $6.1
million, or 28.1%, over the first quarter of 1993 principally due to continued
growth in the leased asset portfolio.
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993 (CONT'D)
OPERATING REVENUES (CONT'D)
Other Diversified Operations
Other diversified operations revenues for the first quarter of 1994 decreased
$112.3 million, or 84.2%, from the first quarter of 1993 primarily
attributable to NYNEX's exit from the information products and services
business. The BIS Group Limited ("BIS") and AGS Computers, Inc. ("AGS") were
sold in July 1993 and January 1994, respectively, and had contributed $117.0
million in revenues in the first quarter of 1993. These decreases were
partially offset by growth in the customer base for international cable
television and telephone operations.
OPERATING EXPENSES
Operating expenses for the first quarter of 1994 were $2.7 billion, an
increase of $26.5 million, or 1.0%, over the first quarter of 1993.
Operating expenses excluding Depreciation and amortization and Taxes other
than income increased $12.1 million, or 0.7%, over the first quarter of 1993
due to: (1) a $92.4 million increase at the telephone subsidiaries and
Telesector Resources Group, Inc. (collectively, the "telecommunications
group") and (2) an $80.3 million decrease at NYNEX's subsidiaries other than
the telecommunications group.
At the telecommunications group, employee costs, consisting primarily of
wages, payroll taxes, and employee benefits, increased $60.8 million. Wages
and payroll taxes increased $47.6 million due principally to increases in
salary and wage rates and additional labor costs due to initiatives to improve
service quality, partially offset by a reduction in the work force due to
force reduction plans. In addition, benefit expenses increased $13.2 million
due primarily to higher medical costs for active and retired employees.
At the telecommunications group, all other operating expenses, which consist
primarily of contracted and centralized services, rent and other general and
administrative costs, increased $31.6 million. The increase in other operating
expenses was due principally to an $8 million increase in material and supply
expenses, an $8 million increase in bad debt expense pursuant to provisions of
the billing and collection contract with AT&T, a $7 million increase at New
England Telephone resulting from capitalization in 1993 of certain 1992
engineering charges, a $6 million increase in the provision for uncollectible
revenues, and a $6 million increase in right to use fees. Partially offsetting
these increases was a $9 million decrease attributable to the 1993 reversal of
deferred inside wire expense at New York Telephone.
At NYNEX's subsidiaries other than the telecommunications group, the decrease
was due primarily to the sale of BIS and AGS. The decrease was partially
offset by increased commissions and data processing costs associated with the
continued expansion of the customer base for mobile telecommunications
services, increased expenses related to the growth in the customer base for
international cable television and telephone operations, and business
development costs in other international operations.
Taxes other than income decreased $22.4 million, or 8.3%, principally due to a
$23 million decrease in property taxes at New York Telephone resulting
primarily from lower assessments of property value and an $8 million decrease
in property taxes at New England Telephone primarily attributable to a
reversal of a 1993 accrual as a result of unasserted municipal assessments.
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993 (CONT'D)
OPERATING EXPENSES (CONT'D)
Depreciation and amortization increased $36.8 million, or 6.0%, principally at
the telecommunications group. There was a $17 million increase due to revised
intrastate depreciation rates in Massachusetts effective July 1993 and a $17
million increase due to increased plant investment.
OTHER INCOME (EXPENSE) - NET
Other income (expense) - net for the first quarter of 1994 decreased $2.3
million, or 33.8%, from the first quarter of 1993. The decrease was
principally due to increased minority interest expense and a decrease in the
allowance for funds used during construction. These decreases were partially
offset by dividends received from Viacom Inc. and higher expenses in the first
quarter of 1993 for the interstate portion of call premiums and other charges
associated with the refinancings of long-term debt.
INTEREST EXPENSE
Interest expense for the first quarter of 1994 decreased $9.8 million, or
5.8%, from the first quarter of 1993, principally due to a decline in average
interest rates resulting from long-term debt refinancings in 1993, partially
offset by increased average debt levels.
INCOME TAXES
Income taxes for the first quarter of 1994 decreased $25.4 million, or 15.7%,
from the same period last year. The decrease was principally due to a decrease
in pretax income partially offset by the enactment of the Revenue
Reconciliation Act of 1993 on August 10, 1993, which increased the statutory
corporate federal income tax rate from 34 percent to 35 percent retroactive to
January 1, 1993. In addition, there was a $12 million reduction in the
deferred tax valuation allowance as a result of the implementation of a tax
planning strategy to utilize capital losses generated from the exit from the
information products and services business.
CAPITAL RESOURCES AND LIQUIDITY
Capital expenditures increased $146.0 million, or 29.6%, over the first
quarter of 1993. During the first quarter of 1994, NYNEX continued its capital
expenditure program designed to meet the expanding needs for
telecommunications services by upgrading the existing telecommunications
network, including new construction, optical fiber and modernization at the
telephone subsidiaries. Telecommunications capital expenditures were funded
primarily through cash generated from operations. Capital expenditures in the
first quarter of 1994 also included the addition of 30 mobile cell sites and
the construction of cable television and telephone networks in the United
Kingdom.
Other investing activities for the first quarter of 1994 included the receipt
of proceeds from the exit from the information products and services business
and the use of funds for the purchase of cellular properties.
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1994 AS COMPARED TO FIRST QUARTER OF 1993 (CONT'D)
CAPITAL RESOURCES AND LIQUIDITY (CONT'D)
NYNEX issued new shares of common stock for employee savings plans and the
Dividend Reinvestment and Stock Purchase Plan, which increased equity by
approximately $85 million in the first quarter of 1994.
During the first quarter of 1994, the net decrease in cash flows from
issuances and repayments of commercial paper was due primarily to the issuance
of long-term debt at New York Telephone. The net increase in cash flows from
issuances and repayments of long-term debt and capital leases resulted
principally from proceeds from debt issuances of $594 million at New York
Telephone. The activity at New York Telephone was primarily due to
refinancings to obtain lower interest rates. There was a net cash outflow at
NYNEX Credit Company of $10 million, resulting from medium-term note payments.
Financing activities in 1994 included funds provided through a partnership
formed in December 1993 for the network construction program in the United
Kingdom.
Pursuant to the indentures for certain of its debentures, New York Telephone
has covenanted that it will not issue additional funded debt securities
ranking equally with or prior to such debentures unless it has maintained an
earnings coverage of 1.75 for interest charges for a period of any 12
consecutive months out of the 15 month period prior to the date of the
proposed issuance. As a result of the 1993 business restructuring charges, New
York Telephone does not currently meet the earnings coverage requirement.
NYNEX expects to file a registration statement with the SEC for the issuance
of $900 million of debt and equity securities in the second quarter of 1994.
The proceeds from the sale of securities would be used to provide funds for
NYNEX and/or NYNEX's subsidiaries other than the telecommunications group.
OTHER MATTERS
The telephone subsidiaries currently account for the economic effects of
regulation in accordance with the provisions of Statement of Financial
Accounting Standards No. 71 ("Statement No. 71"). Statement No. 71 would no
longer apply in the event that the recoverability of operating costs through
rates becomes unlikely or uncertain, whether resulting from competitive
effects or specific regulatory actions. NYNEX continuously assesses its
position and the recoverability of its telecommunications assets with respect
to Statement No. 71 and believes that Statement No. 71 still applies. However,
it is possible that events in the industry and the markets in which NYNEX
operates could change NYNEX's position in the near future. 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) 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.
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<PAGE>
Form 10-Q/A
NYNEX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NYNEX CORPORATION
P. M. Ciccone
P. M. Ciccone
Vice President and Comptroller
(Principal Accounting Officer)
December 13, 1994
