SCHEDULE 14A
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
NYNEX Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s)Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(l), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
1Set forth the amount on which the filing fee is calculated and state how it was
determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
Proxy Statement
1993 Consolidated Financial
Statements
NYNEX (logo)
NYNEX Corporation
1113 Westchester Avenue
White Plains, New York 10604
Notice of Annual Meeting of Share Owners
The 1994 Annual Meeting of Share Owners of NYNEX Corporation ("NYNEX") will
be held at the Westchester County Center, Tarrytown Road, White Plains,
New York, on Wednesday, May 4, 1994 at 10:30 A.M., for the following
purposes:
/ / To elect five Directors;
/ / To ratify the appointment of auditors to audit NYNEX's consolidated
financial statements for the fiscal year 1994;
/ / To approve the NYNEX 1995 Long Term Incentive Program; and
/ / To act upon such other matters, including five Share Owner proposals
regarding the classified Board of Directors, charitable contributions,
number of Director nominees, a Board health care committee and a
facilities closure committee as may properly come before the
Meeting.
Holders of record of shares of Common Stock of NYNEX at the close of business
on Monday, March 7, 1994 will be entitled to vote at the Meeting and any
adjournment thereof.
R. F. Burke
Executive Vice President,
General Counsel and Secretary
March 21, 1994
YOUR VOTE IS IMPORTANT
Whether or not you intend to be present at the Meeting, please sign and date
the enclosed proxy and return it in the enclosed prepaid envelope.
<PAGE>
<TABLE>
Table of Contents
<CAPTION>
Proxy Statement
<S> <C>
Voting of Shares 1
Stock Ownership of Directors and Executive Officers 2
Board of Directors 2
Election of Directors (Item A on Proxy Card) 3
Ratification of Appointment of Auditors
(Item B on Proxy Card) 6
Board of Directors/ Proposal to Approve the 1995
Long Term Incentive Program (Item C on Proxy Card) 6
Share Owners' Proposals: (Items 1-5 0n Proxy Card)
#1 Repeal of Board Classification 8
#2 Charitable Contributions Listing 9
#3 Increase Number of Director Nominees 10
#4 Board Health Care Committee 11
#5 Facilities Closure Committee 11
Other Matters to Come Before the Meeting 12
Submission of Director Nominations, Proposals or
Other Business at Share Owner Meetings 12
Executive Compensation:
Committee on Benefits Report on Executive Compensation 13
Summary Compensation Table/1993 Option Exercises 16
1993 Option Grants/1993 Long Term Awards 17
Pension Table 18
Executive Retention Agreements and
Executive Severance Pay Plan 18
Share Owner Return Performance Graph 19
Other Information 19
1993 Consolidated Financial Statements
Financial Table of Contents 20
</TABLE>
<PAGE>
page 1 Proxy Statement
NYNEX
Proxy Statement
This proxy statement and the accompanying proxy voting instruction card
("proxy card") are being mailed beginning March 21, 1994 to owners of
shares of Common Stock ("Shares") of NYNEX Corporation ("NYNEX") in
connection with the solicitation of proxies by the Board of
Directors for the 1994 Annual Meeting of Share Owners ("Meeting")
in White Plains, New York. This proxy procedure is necessary because many
of NYNEX's Share Owners, who live throughout the United States and in many
foreign countries, will not be able to attend the Meeting. Proxies are
solicited to give all Share Owners an opportunity to vote. Shares can
be voted at the Meeting only if the Share Owner is represented by proxy or
is present in person (see "Voting of Shares" below).
If you plan to attend the Meeting, please mark the ticket request box on the
proxy card and return it promptly so that your ticket can be mailed to you
in advance of the Meeting. Share Owners who do not have admission tickets
will be admitted upon presentation of identification at the door if there
is sufficient room after ticket holders are seated.
Your vote is important. Any proxies or ballots received subsequent to the
adjournment of the Meeting will not be included in the vote tabulation.
Accordingly, whether or not you plan to attend the Meeting, you are urged
to execute and return the accompanying proxy card as soon as possible. If
you do attend, you may vote by ballot at the Meeting, thereby canceling any
proxy vote previously given.
Highlights of the Meeting will be included in the Quarterly Report mailed to
Share Owners in August.
Share Owners who are receiving more than one Summary Annual Report may
discontinue mailing of the duplicate copies by marking the
appropriate box on the proxy card of the selected accounts. This
will help reduce the expense of printing and mailing duplicate materials
but will not affect the mailing of dividend checks, dividend reinvestment
statements, special notices and proxy materials.
VOTING OF SHARES
The holders of a majority of the outstanding Shares entitled to vote, present
in person or represented by proxy, will constitute a quorum for the
transaction of business. Each Share represented is entitled to one
vote on all matters properly brought before the Meeting. Where a quorum is
present, the vote of the holders of a majority of Shares present in person
or by proxy and entitled to vote will decide any question voted upon and
the five nominees for Director receiving the highest number of votes will
be elected as Directors. For purposes of determining whether a proposal has
received a majority vote, abstentions will be included in the vote totals
with the result that an abstention has the same effect as a negative vote.
In instances where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned a proxy
(so-called "broker non-votes"), those Shares will not be included
in the vote totals and, therefore, will have no effect on the vote.
When proxies are returned properly executed, the Shares represented will be
voted by the Proxy Committee of the Board of Directors in accordance with
Share Owners' directions. You are urged to specify your choices by marking
the appropriate boxes on the enclosed proxy card. If the proxy is executed
and returned without specifying choices, the Shares will be voted by the
Proxy Committee as recommended by the Board of Directors. A Share Owner
giving a proxy has the power to revoke it at any time before it is voted
at the Meeting by submitting a written revocation to NYNEX or by attending
the Meeting and voting by ballot at the Meeting.
A Share Owner wishing to give a proxy to someone other than the Proxy
Committee of the Board of Directors should cross out all three names
appearing on the enclosed proxy card and insert the name(s) of another
person or persons (not more than three). In addition, the "Vote
Limitations" box should be marked. The executed proxy must be
returned as indicated or presented at the Meeting by the Share Owner
or the person(s) representing the Share Owner.
For a Share Owner who is a participant in the NYNEX Corporation Dividend
Reinvestment and Stock Purchase Plan, the proxy card represents the
number of full Shares in the participant's dividend reinvestment plan
account as well as Shares registered in the participant's name.
For a Share Owner who is a participant in the NYNEX Corporation Savings Plan
for Salaried Employees or the NYNEX Corporation Savings and Security Plan
(Non-Salaried Employees), the proxy will serve as a voting instruction for
the trustees of those Plans. If proxies representing Shares in the NYNEX
Corporation Savings Plan for Salaried Employees or the NYNEX Corporation
Savings and Security Plan (Non-Salaried Employees) are not executed and
returned, those Shares will be voted by the trustees in the same
proportion as the Shares for which executed proxies are returned by
other participants.
In accordance with NYNEX's Policy on Confidential Voting, proxies, ballots
and voting tabulations are available for examination only by the
independent Inspector(s) of Election and tabulators. The vote of
any Share Owner cannot be disclosed to the Board of Directors or
management of NYNEX except as may be required by law and in other
limited circumstances.
On January 31, 1994, there were 415,461,047 Shares outstanding and, to the
knowledge of NYNEX, no person owned beneficially more than 5% of the
outstanding Shares. Share holdings of NYNEX Directors and Executive
Officers can be found on page 2 of this proxy statement.
A list of Share Owners eligible to vote will be available for examination by
Share Owners for any purpose germane to the Meeting at 1113 Westchester
Avenue, 3rd Floor, White Plains, New York, beginning April 20, 1994
through May 3, 1994, and at the Westchester County Center on the day of
the Meeting, May 4, 1994.
<PAGE>
page 2 Proxy Statement
NYNEX
<TABLE>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth beneficial ownership of Shares of NYNEX Common
Stock by each Director, named Executive Officer, and all Directors and
Executive Officers as a group, as of January 31, 1994. These Shares
represent less than one percent of the outstanding shares of NYNEX Common
Stock.
<CAPTION>
Beneficial Ownership
Shares Subject
Total Number to Options*
of Shares (included in Total)
<S> <C> <C>
John Brademas 600 0
Randolph W. Bromery 795 0
Raymond F. Burke 79,750 (1) 52,248
John J. Creedon 2,306 (2) 0
William C. Ferguson 266,784 (1) 195,996
Stanley P. Goldstein 2,300 0
Helene L. Kaplan 2,300 0
Elizabeth T. Kennan 1,009 0
David J. Mahoney 6,304 0
Edward E. Phillips 1,455 0
Jeffrey S. Rubin 37,263 (1) 25,040
Frederic V. Salerno 111,512 (1) 84,546
Ivan G. Seidenberg 89,950 (1) 70,180
Walter V. Shipley 2,300 0
John R. Stafford 2,000 0
All Executive Officers
and Directors (as a group) 742,442 (1) 518,138
Stock ownership guidelines were instituted in 1993 for all Executive
Officers. These guidelines require ownership of NYNEX stock equal
to three times salary for the Chief Executive Officer; two times salary
for a Vice Chairman and those Executive Officers reporting directly to
the Chief Executive Officer; and one times salary for all other Executive
Officers.
* Shares subject to acquisition through exercise of stock options within
60 days.
<F01>
(1) Includes Shares held in the NYNEX Corporation Savings Plan for Salaried
Employees.
<F02>
(2) Includes 1,700 NYNEX Shares held by a non-profit foundation with respect
to which Mr. Creedon shares voting and investment power and as to which
Mr. Creedon disclaims beneficial ownership.
</TABLE>
BOARD OF DIRECTORS
The Board of Directors is responsible for the overall affairs of NYNEX,
although it is not involved in day-to-day operating details. Members
of the Board of Directors are kept informed of NYNEX's business by various
reports and documents given to them regularly, as well as by operating and
financial reports presented by the Chairman of the Board and other
Officers at meetings of the Board of Directors and committees of the
Board.
Regular meetings of the Board of Directors are held each month, excluding
August, and special meetings are called when required. The Board of
Directors held fourteen meetings in 1993. On average, the Directors
attended approximately 92% of the aggregate number of meetings of the
Board of Directors and committees of the Board; no Director attended
fewer than 75% of such meetings.
The Board of Directors has adopted a tenure policy for Directors which
establishes 70 as the retirement age for non-employee Directors, as
well as for any Director who was the Corporation's Chief Executive
Officer. A Director who reaches retirement age shall retire from the
Board not later than the next Annual Meeting, regardless of any unexpired
term of office. The policy also provides that a non-employee Director who
discontinues his or her principal employment, business or professional
relationship, or continues in less responsible capacity, shall offer
to submit his or her resignation, but may, at the request of the Chairman
of the Board following consultation with the Nominating and Board Affairs
Committee, continue as a Director. A Director who is an Officer of the
Corporation (other than the Chief Executive Officer) shall resign at the
same time as he or she ceases to be an Officer.
COMMITTEES OF THE BOARD
The Board of Directors has established six standing committees: an Executive
Committee, Audit Committee, Committee on Benefits, Nominating and Board
Affairs Committee, Finance Committee and Public Responsibility Committee.
The Executive Committee, composed of one employee Director and four
non-employee Directors, oversees activities in those areas not
assigned to other committees of the Board of Directors and may exercise
the full power and authority of the Board of Directors to the extent
permitted by Delaware law. The Executive Committee held no meetings
in 1993.
The Audit Committee, composed of four non-employee Directors, is responsible
for recommending to the Board of Directors the accounting firm to be
employed by NYNEX as its independent auditors. The Audit Committee's
duties include consulting with NYNEX's independent auditors concerning the
scope of the audit and reviewing the results of their examination. The
Audit Committee also consults with the independent auditors with regard
to the adequacy of internal controls and meets with appropriate corporate
personnel to review internal auditing programs and findings. In 1993, the
Audit Committee held six meetings.
The Committee on Benefits, composed of four non-employee Directors, is
responsible for reviewing and recommending to the Board of Directors
compensation for Officers who are members of the senior management
compensation group ("Senior Managers"), administering the NYNEX
management incentive plans, keeping informed as to the administration
and management of NYNEX's employee benefit plans, and insuring that the
actions of Officers and benefit plan administrators are in the best
interest of the participants in, and beneficiaries of, such benefit
plans. The Committee on Benefits also approves or disapproves the
presentation of proposed new trusteed employee benefit plans and
material changes to such benefit plans to the Board of Directors and,
further, recommends to the Board of Directors new benefit plans and
programs, and amendments thereto, which exclusively benefit Senior
Managers.
<PAGE>
page 3 Proxy Statement
NYNEX
No member of the Committee on Benefits is eligible to receive benefits under
any of such benefit plans. The Committee on Benefits met on five occasions
in 1993.
The Nominating and Board Affairs Committee, composed of four non-employee
Directors, makes recommendations to the Board of Directors concerning
the selection of candidates as nominees for election as Directors and
advises on all directorship practices. In recommending candidates for
the Board of Directors, the Nominating and Board Affairs Committee seeks
individuals who have the experience and expertise which will allow them to
contribute significantly to the Corporation's success. The Nominating and
Board Affairs Committee's goal is to create a Board that is diverse and
balanced in its membership, consistent with NYNEX's equal employment
opportunity policy. NYNEX Directors must have integrity and
independence and be willing to represent all Share Owners rather
than a special interest or constituency. Directors must also be willing to
commit the necessary time and energy to prepare for, attend and
participate in Board and Committee meetings. The Nominating and
Board Affairs Committee held two meetings in 1993. Share Owners who wish
to suggest qualified candidates should write to the Secretary of NYNEX
Corporation at 1113 Westchester Avenue, White Plains, New York 10604,
stating in detail the qualifications of such persons for consideration by
the Nominating and Board Affairs Committee.
Compensation of Directors
Directors who are not employees receive an annual retainer of $25,000 and a
fee of $1,200 for each Board of Directors and committee meeting attended.
Non-employee Directors who serve as chairpersons of the committees of the
Board of Directors receive an additional annual retainer of $3,000.
Non-employee Directors may elect to defer the receipt of all or a part
of their fees and retainers. Amounts so deferred earn interest, compounded
quarterly, at a rate equal to the average interest rate for ten-year
United States Treasury notes for the previous quarter.
Under the NYNEX Stock Plan for Non-Employee Directors ("Non-Employee
Directors Stock Plan") each non-employee Director is granted 100
shares of NYNEX Common Stock on an annual basis. Non-employee Directors
elected by the Board of Directors to fill vacancies and newly created
directorships in the interim between Annual Meetings receive a
pro-rated grant based upon the number of full or partial months
such Director will serve between his or her election and the next Annual
Meeting. A committee of the Board of Directors, consisting of not more than
three Directors who are not eligible to receive grants under the
Non-Employee Directors Stock Plan, was established to administer
and interpret the Non-Employee Directors Stock Plan.
Non-employee Directors are entitled to reimbursement for out-of-pocket
expenses incurred in connection with attendance at Board of Directors
and committee meetings. In addition,
NYNEX provides non-employee Directors with travel accident insurance when on
NYNEX business. The total cost of the travel accident insurance policy for
1993 was approximately $1,900.
Each non-employee Director who serves on the Board of Directors of NYNEX, or
any of its subsidiaries, and retires from the NYNEX Board of Directors with
a minimum of five years' combined service on such Boards as a non-employee
Director qualifies for a yearly pension equal to 50% of the Director's
annual retainer fee (excluding the retainer received for chairing a
committee of the Board of Directors). Pension payments increase by 10%
of the annual retainer fee for each additional year served up to 100% of
such fee. The pension is adjusted to reflect the first subsequent
increase, if any, in the annual retainer for service on the Board
following the Director's retirement. Such pension is payable to a
qualified Director upon (i) retirement from the NYNEX Board of
Directors and (ii) the attainment of age 65.
Directors who are also employees of NYNEX or one of its subsidiaries receive
no remuneration for serving as Directors.
ELECTION OF DIRECTORS
(Item A on Proxy Card)
The Board of Directors presently consists of thirteen members, divided into
three classes, with the terms of each class staggered so that the term of
one class expires at each Annual Meeting of Share Owners. Effective May 4,
1994, Mr. David J. Mahoney, a Director since 1983, will retire in
accordance with the previously described tenure policy and it is
anticipated that the Board of Directors will be reduced to twelve members.
The terms of Directors in one class, consisting of five Directors, expire at
the 1994 Annual Meeting. Unless otherwise instructed on the proxy card, the
Proxy Committee intends to vote for the election of the five nominees listed
on the following pages to three-year terms expiring at the 1997 Annual
Meeting, in each case subject to the tenure policy described on page 2
and until the Director's respective successor has been duly elected and
qualified. These nominees have been selected by the Board of Directors
on the recommendation of the Nominating and Board Affairs Committee. If you
do not wish your Shares to be voted for particular nominees, please so
indicate in the space provided on the proxy card.
If one or more of these nominees becomes unable or unwilling to serve at the
time of the Meeting, the Shares represented by proxy will be voted for the
remaining nominees and for any substitute nominee(s) designated by the
Board of Directors or, if none, the size of the Board of Directors will
be reduced accordingly. The Board of Directors does not anticipate that any
nominee will be unable or unwilling to serve.
The following sets forth information regarding principal occupation, other
major affiliations, NYNEX committee memberships and age, for the five
nominees and each Director continuing in office.
<PAGE>
page 4 Proxy Statement
NYNEX
NOMINEES FOR ELECTION AT THIS MEETING
- ------------------------------------------------------------------------------
CLASS I - To terms expiring at 1997 Annual Meeting
- ------------------------------------------------------------------------------
John Brademas, President Emeritus, New York University since
1992; President (1981-1992). Director of Loews Corporation,
[Photo] Texaco Inc. and Scholastic, Inc. Director of NYNEX since 1991;
member of Audit Committee and Public Responsibility
Committee. Age 67.
William C. Ferguson, Chairman of the Board and Chief Executive
Officer of NYNEX since October 1989; President and Chief
[Photo] Executive Officer (June-September 1989); Vice Chairman of the
Board (1987-1989). Director of General Re Corporation, CPC
International Inc. and Viacom Inc. Director of NYNEX since
1987; Chairperson of Executive Committee. Age 63.
Elizabeth T. Kennan, President of Mount Holyoke College since
1978. Director of Northeast Utilities, Kentucky Home Mutual
Life Insurance Company, Kentucky Home Life Insurance Company,
Putnam
[Photo] Funds, Inc. and Talbots Inc. Director of NYNEX since 1984;
member of Nominating and Board Affairs Committee and
Chairperson of Audit Committee. Age 56.
Frederic V. Salerno, Vice Chairman of the Board-Finance and
Business Development of NYNEX; President of NYNEX
Worldwide Services Group, Inc. (1991-March 1994);
President and Chief
[Photo] Executive Officer of New York Telephone Company (1987-1991).
Director of Avnet Inc., The Bear Stearns Companies Inc. and
Viacom Inc. Director of NYNEX since 1991; member of Finance
Committee. Age 50.
John R. Stafford, Chairman of the Board, President and Chief
Executive Officer of American Home Products Corporation
since 1986; President (1981-1990; 1994-). Director of
AlliedSignal
[Photo] Inc., Chemical Banking Corporation and Metropolitan Life
Insurance Company. Director of NYNEX since 1989; member
of Committee on Benefits and Finance Committee. Age 56.
Incumbent Members of Board of Directors
- -------------------------------------------------------------------------------
CLASS II - Terms expiring at 1995 Annual Meeting
- -------------------------------------------------------------------------------
Stanley P. Goldstein, Chairman of the Board and Chief Executive
Officer of Melville Corporation since 1987; President
[Photo] (1985-1993). Director of NYNEX since 1990; member of Audit
Committee and Finance Committee. Age 59.
<PAGE>
page 5 Proxy Statement
NYNEX
Edward E. Phillips, Retired Chairman of the Board of New
England Mutual Life Insurance Company (1978-July 1993);
Chief Executive Officer (1978-1991). Director of New England
Investment
[Photo] Companies. Director of NYNEX since 1983; member of Executive
Committee, Finance Committee and Chairperson of Nominating
and Board Affairs Committee. Age 66.
Walter V. Shipley, Chairman of the Board and Chief Executive
Officer of Chemical Banking Corporation since January 1,
1994; President (1992-1993); Chairman of the Board and
Chief Executive
[Photo] Officer (1983-1991). Director of Champion International
Corporation and The Reader's Digest Association, Inc.
Director of NYNEX since 1983; member of Executive Committee,
Nominating and Board Affairs Committee and Chairperson of
Finance Committee. Age 58.
- -------------------------------------------------------------------------------
CLASS III - Terms expiring at 1996 Annual Meeting
- -------------------------------------------------------------------------------
Randolph W. Bromery, President, Springfield College since 1992.
Commonwealth Professor Emeritus, University of
Massachusetts-Amherst; Commonwealth Professor
of Geophysics (1979-1992). President of Geoscience
Engineering Corporation
[Photo] since 1983. Chancellor, Massachusetts Board of Regents of
Higher Education (1990-1991). Interim President,
Westfield State College (1988-1990). Director of Exxon
Corporation, John Hancock Mutual Life Insurance Company and
Chemical Banking Corporation. Director of NYNEX since 1986;
member of Audit Committee and Public Responsibility Committee.
Age 68.
John J. Creedon, Consultant. Retired President and Chief
Executive Officer of Metropolitan Life Insurance
Company (1983-1989); Chairman of the Executive
Committee (1989-1991). Director of Melville
Corporation, Metropolitan Life Insurance
[Photo] Company, Praxair, Inc., Rockwell International Corporation,
Sonat Inc. and Union Carbide Corporation. Director of
NYNEX since 1983; member of Executive Committee,
Committee on Benefits and Chairperson of Public
Responsibility Committee. Age 69.
Helene L. Kaplan, Of Counsel to the firm of Skadden, Arps,
Slate, Meagher & Flom since 1990. Counsel to the firm of
Webster & Sheffield (1986-1990). Director of The May
Department Stores
[Photo] Company, Chemical Banking Corporation, Metropolitan Life
Insurance Company and Mobil Corporation. Director of
NYNEX since 1990; member of Committee on Benefits and
Public Responsibility Committee. Age 60.
Ivan G. Seidenberg, President and Chief Operating Officer of
NYNEX since March 1, 1994, Vice Chairman since 1991;
Executive Vice President and President of NYNEX
Worldwide Information and
[Photo] Cellular Services Group (1990-1991); Senior Vice President
(1988-1990); Vice President (1986-1988). Director of
Melville Corporation and Scholastic, Inc. Director of
NYNEX since 1991; member of Public Responsibility
Committee. Age 47.
<PAGE>
page 6 Proxy Statement
NYNEX
RATIFICATION OF APPOINTMENT OF AUDITORS
(Item B on Proxy Card)
Subject to Share Owner ratification, the Board of Directors, upon
recommendation of the Audit Committee, has reappointed the firm
of Coopers & Lybrand, Certified Public Accountants, as independent auditors
to audit the consolidated financial statements of NYNEX for the fiscal year
1994. Coopers & Lybrand has audited NYNEX's financial statements since
NYNEX's incorporation in 1983.
One or more representatives of Coopers & Lybrand are expected to be present
at the Meeting. They will have the opportunity to make a statement if they
so desire and will be available to respond to appropriate questions.
If Share Owners do not ratify the appointment of Coopers & Lybrand, other
certified public accountants will be considered by the Board of
Directors upon recommendation of the Audit Committee.
Your Board of Directors recommends a vote FOR ratification.
DIRECTORS PROPOSAL TO APPROVE THE NYNEX 1995 LONG TERM INCENTIVE PROGRAM
(Item C on Proxy Card)
Your Board of Directors recommends approval of the NYNEX 1995 Long Term
Incentive Program (the "Incentive Program").
The purpose of the Incentive Program is to promote the long term financial
interest of NYNEX by attracting, motivating and retaining individuals
possessing outstanding ability and furthering the identity of interests
of participating employees with those of the Share Owners. These
individuals are the ones who are charged with the future success
and prosperity of NYNEX and enhancing the value of NYNEX for the benefit of
all Share Owners. NYNEX Share Owners have previously approved the NYNEX 1990
Long Term Incentive Program; the Incentive Program is a continuation of such
program and includes, but is not limited to, the NYNEX Senior Management
Long Term Incentive Plan, NYNEX Long Term Incentive Plan, NYNEX 1995
Stock Option Plan and the NYNEX 1987 Restricted Stock Award Plan. Awards
currently outstanding under existing plans would not be affected.
The Incentive Program will be administered and interpreted by the Committee
on Benefits ("Committee"), which is composed of not less than two
Directors, all of whom are "disinterested persons" within the
meaning of the Securities Exchange Act of 1934. The Committee will
designate the Officers and other management employees who will be the
participants ("Participants") in the Incentive Program. Continued
participation in the Incentive Program is subject to forfeiture in
the event a Participant's employment with NYNEX is terminated. The
Committee will have the power to rescind all rights to payments of
any kind under the Incentive Program, exclusive of amounts voluntarily
deferred, to those
Participants summarily dismissed for actions of a deliberate and detrimental
nature to NYNEX.
The Committee will designate the amounts, if any, to be awarded ("Awards") to
Participants and any conditions, limitations or restrictions it deems
appropriate. Awards may include stock options ("Options"), Stock
Appreciation Rights ("SARs") (but only if granted in conjunction with
Options), restricted shares of Common Stock ("Restricted Stock"),
incentive compensation expressed in the form of shares of Common
Stock ("Performance Units") or other amounts that are valued, in whole or
in part, by reference to shares of Common Stock ("Shares"). The Committee
may make any Award in conjunction with any other award or compensation,
including Awards previously made under the Incentive Program or any other
plan.
The number of Shares subject to Awards shall not exceed one-half of one
percent (0.5%) of the outstanding Shares as of the first day of each
calendar year for which the Incentive Program is in effect, nor may the
total number of Shares for which Options may be issued exceed 8,000,000,
subject to adjustment as set forth in the Incentive Program. Shares
delivered under the Incentive Program shall be authorized and
unissued shares or treasury shares. All Shares available in any year
which are not awarded under the Incentive Program shall be available for
award in subsequent years. Any Shares subject to any Award which
terminates by expiration, cancellation, forfeiture, surrender or
otherwise without the issuance of such Shares or without payment therefor
shall be available for future Awards under the Incentive Program.
The NYNEX 1995 Stock Option Plan (the "Plan") replaces the predecessor NYNEX
1990 Stock Option Plan, which will expire on December 31, 1994. The Plan
limits the maximum number of Options that may be granted in any one year
(a) to the Chief Executive Officer of NYNEX and (b) to each of the other
Executive Officers required to be named in NYNEX's proxy statement with
respect to the preceding year, pursuant to the proxy rules promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act"), to 10%
of the total number of Options granted under the Plan in such year.
Options may be granted under the Incentive Program, in accordance
with the NYNEX 1995 Stock Option Plan, either as Incentive Stock Options
("ISOs") which comply with the requirements of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"), or any successor provision,
or Options which do not meet such requirements ("Nonstatutory Options"), or
a combination of both. The purchase or option price per Share, as determined
by the Committee, shall not be less than the fair market value of the Share
on the date of the grant of the Option. The fair market value for this
purpose is the mean of the high and low sales prices of the Common
Stock as quoted on the New York Stock Exchange Composite Transaction
Listing for the date as of which value is to be determined.
<PAGE>
page 7 Proxy Statement
NYNEX
Except as described below, no Option shall be exercisable prior to the first
anniversary of the date the Option is granted nor may an ISO be exercised
later than the tenth anniversary of the date of its grant. The aggregate
fair market value (determined as of the date the Option is granted) of the
Shares for which any Participant may first exercise ISOs granted under the
Incentive Program and all other stock option plans of NYNEX and/or its
subsidiaries, in any calendar year, shall not exceed $100,000 or such
other amounts or limitations as may be provided from time to time by the
Code and any other regulations promulgated thereunder.
In instances where Shares have been surrendered in full or partial payment of
an exercise, a new grant of Nonstatutory Options may be made concurrently,
with the number of Options granted equal to the number of Shares
surrendered. A grant made under these circumstances will be
exercisable after six months, have an Option price equal to the fair
market value of Common Stock on the date of the new grant and have the same
expiration date as a Nonstatutory Option.
As noted earlier, SARs may be granted to Participants but only in conjunction
with Options. An Option or portion thereof may be exercised through election
of a SAR only if such Option or portion thereof has been designated as
exercisable in this alternative manner, such Option or portion thereof
is otherwise exercisable and the fair market value of a share of Common
Stock on the date of exercise exceeds the option price. Upon exercise
of a SAR, a Participant will receive an amount in cash or Shares equal in
value to the excess of the fair market value of the Common Stock on the
date of exercise over the fair market value on the date of grant,
multiplied by the number of Shares as to which the SAR is exercised.
Restricted Stock Awards may be granted under the Incentive Program in the
form of shares of Common Stock and are contingent upon the future
performance of the recipient or upon such other conditions as the
Committee may deem appropriate. The Committee may change performance
objectives from time to time to reflect significant unforeseen events or
changes as the Committee, in its sole discretion, deems appropriate. The
recipient of a Restricted Stock Award shall be entitled to receive
dividends during the specified restriction period and shall have the
right to vote the Shares as the Share Owner of record. Shares subject to
restrictions established by the Committee may not be sold, exchanged,
transferred, pledged or otherwise disposed of at any time prior to the
lapse of such restrictions. Any attempt to dispose of the Shares in
contravention of these terms shall be ineffective.
Performance Units may be granted under the Incentive Program expressed in
terms of Shares. Incentive compensation is based on the achievement,
within a specified performance period, of the financial and other
performance objectives set by the Board of Directors. The portion of
the units, if any, distributed at the end of the performance period will be
determined by the degree to which specified financial goals and
other objectives are met. Payment of Performance Units may be made in cash,
shares of Common Stock or a combination of both.
In the event of a change in control of NYNEX, as defined below, the Incentive
Program generally provides for the acceleration of applicable exercise dates
and vesting periods for the various Options and other Awards granted to
Participants under the Incentive Program. This is done so as to
maintain the rights of the Participants. Thus, for example,
outstanding Options and SARs would become immediately exercisable
and restriction periods with respect to Restricted Stock would end. A
change of control would occur if any person or group of persons becomes
an owner of at least 15% of the NYNEX voting stock, any person or group of
persons acquires at least 15% of the total voting power of NYNEX stock as
a result of a tender offer not approved by the NYNEX Board of Directors, or
during any period of 24 consecutive months members of the Board of Directors
at the beginning of such period, together with new Directors nominated or
appointed during that period by a vote of at least two-thirds of existing
Directors, cease to comprise a majority of the Board of Directors.
Effective January 1, 1994, Section 162(m) of the Code generally denies a tax
deduction to any publicly-held corporation for compensation that exceeds
$1 million paid to any proxy-named executive in a taxable year, subject
to an exception for "performance-based compensation" as defined in the
Code. Options granted under the Plan should qualify for the exemption as
"performance-based compensation."
NYNEX believes that under current federal tax laws, the grant of Options,
SARs, Restricted Stock and Performance Units will not result in any tax
liability for NYNEX. NYNEX will be entitled to subsequent deductions to the
extent, and only to the extent, that participants recognize ordinary income
upon exercise of Options or SARs or distribution of Restricted Stock or
Performance Units. A Participant must generally recognize ordinary
income (i) equal to the difference between the exercise price and the
fair market value of a Share on the date of exercise of a Nonstatutory
Option or SAR, (ii) equal to the fair market value of Restricted Stock
at the time the restrictions expire and (iii) equal to the cash received or
the fair market value of stock received pursuant to the award of a
Performance Unit or dividend equivalent payment at the time of
such receipt. A Participant will generally have no taxable income upon
exercising an ISO. If the Participant does not dispose of Shares acquired
pursuant to the exercise of an ISO within two years of the grant or one
year of the exercise, any gain or loss realized on their subsequent
disposition will be capital gain or loss. If such holding period
requirements are not satisfied, the Participant will generally
realize ordinary income at the time of disposition in an amount equal
to the excess of the fair market value of the Shares on the date of exercise
(or if less, the amount realized upon disposition)
<PAGE>
page 8 Proxy Statement
NYNEX
over the option price. Any remaining gain is taxed as long or short term
capital gain. Any payment, or acceleration of the payment, of Awards
under the Incentive Program because of a change in control may cause part
or all of the amount paid to be treated as an "excess parachute payment"
under the Code which would not be deductible by NYNEX and would subject
the employee to a 20% excise tax. Special tax rules and elections apply
under certain circumstances which may affect the timing and the
measurement of income recognized in connection with Awards under
the Incentive Program, particularly in the case of Officers subject to
Section 16(b) of the Exchange Act, and which may affect the calculation
of an employee's alternative minimum tax.
The Board of Directors may amend, suspend or terminate the Incentive Program
or any portion thereof at any time. The Committee may amend the Incentive
Program to the extent necessary for the efficient administration of the
Incentive Program, to make it practically workable or to conform to the
provisions of any federal or state law or regulation. No Award can be made
under the Incentive Program after December 31, 1999. The Committee may amend
the terms of any outstanding Award in any manner not inconsistent with the
terms of the Incentive Program. In no event may any amendment, suspension
or termination of the Incentive Program or any amendment of the terms of
any Award impair the rights of any Participant without his or her
consent, except that if the Participant, while otherwise eligible
for payment or accrual of a benefit under the Incentive Program: (a) has,
without the consent of the Company or any subsidiary, become associated
with, is employed by, renders services to, or owns a substantial
interest in any business that is competitive with the Company or its
subsidiaries, or (b) has divulged or appropriated to his or her own use or
to the use of others any secret or confidential information or knowledge
pertaining to the business of the Company or its subsidiaries obtained by
the Participant while employed by any of them, then his or her participation
in the Incentive Program shall immediately cease and all undistributed
Awards previously made to him or her under the Incentive Program and
all rights to payments of any kind under the Incentive Program, exclusive
of any amount voluntarily deferred, shall be immediately forfeited.
The foregoing description of the Incentive Program is qualified in its
entirety by reference to the text of the NYNEX 1995 Long Term
Incentive Program, a copy of which has been filed with the
Securities and Exchange Commission.
The Incentive Program was adopted by the Board of Directors, effective
January 1, 1995, subject to the approval of the Share Owners.
Approval of the Incentive Program requires the affirmative vote of
the holders of a majority of the Shares present, in person or by proxy,
and entitled to vote at the Meeting.
Your Board of Directors recommends a vote FOR this
proposal.
SHARE OWNERS' PROPOSALS
Proponents have stated they intend to have the following proposals presented
at the Meeting. The Proposals and supporting statements are quoted below.
Approval of a Share Owner Proposal serves only as a recommendation to the
Board of Directors to take the necessary steps to initiate such action as
called for. The Board of Directors has concluded it cannot support these
proposals for the reasons given.
Share Owner Proposal 1:
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.W.,
Suite 215, Washington, D.C. 20037, record owner of 120 shares of NYNEX
Common Stock, has stated that she intends to have the following
proposal presented at the Meeting.
"Resolved: 'That the shareholders of NYNEX recommend that the Board of
Directors take the necessary steps to reinstate the election of
directors annually, instead of the stagger system which was recently
adopted.'"
The supporting statement by the proponent is:
"Reasons: 'Until recently, directors of NYNEX were elected annually by all
shareholders.
'The great majority of New York Stock Exchange listed corporations elect all
their directors each year.
'This insures that all directors will be more accountable to ALL shareholders
each year and to a certain extent prevents the self-perpetuation of the
Board.
'Last year the owners of 46,826,981 shares, representing approximately 29.1%
of shares voting, voted FOR this proposal.
'If you AGREE, please mark your proxy FOR this resolution.'"
Your Board of Directors recommends a vote AGAINST
this proposal.
The Board of Directors notes that the proponent has submitted an identical
proposal yearly, commencing with the 1988 Annual Meeting. The Board of
Directors continues to believe, for reasons stated below, that a
classified board is in the best interests of NYNEX and its Share
Owners.
Currently, under NYNEX's Classified Board Provision, the number of Directors
in each class is as nearly equal in number as possible, with each Director
serving for three years and with one class being elected each year. This
provision is similar to those which have been adopted by the stockholders
of many major corporations. In the opinion of the NYNEX Directors, a
classified Board of Directors facilitates continuity and stability
of leadership and policy by assuring that experienced personnel familiar
with NYNEX and its business will be on the Board of Directors at all
times. The classified Board of Directors is also intended to prevent
precipitous changes in the composition of the NYNEX Board and, thereby,
<PAGE>
page 9 Proxy Statement
NYNEX
serves to moderate those changes in NYNEX policies, business strategies and
operations which the Board of Directors does not deem to be in the best
interests of NYNEX and its Share Owners. Board classification is intended
to encourage any person seeking to acquire control of the Corporation to
initiate such an action through arm's-length negotiations with
management and the Board of Directors, who are in a position to
negotiate a transaction which is fair to all NYNEX Share Owners.
If approved, the proposal would serve as a recommendation to the Board of
Directors to take the necessary steps to reinstate the annual election
of all Directors. Such steps would include the repeal of the Classified
Board Provision in the NYNEX Restated Certificate of Incorporation, which
requires the affirmative vote of fully 75% of the outstanding Shares
entitled to vote at a subsequent meeting of Share Owners.
Your Board of Directors urges that Share Owners vote AGAINST this proposal.
Share Owner Proposal 2:
Mr. Hans R. Reinisch, 155 West 68th Street, New York, New York 10023, record
owner of 800 shares of NYNEX Common Stock, has submitted the following
proposal:
"Resolved: 'That the NYNEX Corporation specifically list in its annual report
all donations and contributions made to charitable and not-for-profit
organizations by NYNEX and its various subsidiaries such as New
England Telephone and New York Telephone, and that the total amount
contributed during the course of the year be stated as a separate item in
the financial tables of the annual report.'"
"Supporting Statement: 'At recent annual meetings a number of fellow
shareholders strongly supported my contention that a list of
charitable contributions could easily be printed on one page of the
annual report, except for smaller matching contributions from employees.
In annual reports of the corporation and its various subsidiaries several
dozen pages of photography and art work are printed at great cost,
providing no particular useful information to shareholders or
potential investors, yet the Board and management continue to claim
that it would be too "costly" and "burdensome" to provide only a one page
listing of contributions.
'The claim of "cost" is an outright misrepresentation of the facts and is a
blatant attempt to try and hide from as many shareholders as possible many
of the questionable donations that are being made.
'For example, it is highly inappropriate for a $100,000 donation to have been
made to a newly created charity, with no proven track record, whose founder
was a just retired treasurer of the NYNEX Foundation and corporate
secretary.
'Also, on one hand NYNEX officials refuse to contribute to Planned Parenthood
because its policies are too controversial
yet on the other hand are perfectly willing to support equally controversial
institutions which are strongly opposed to a woman's right to choose.
'No, it is not our intention to question each and every contribution and
decision made by the NYNEX Foundation. However, under a veil of secrecy
lasting many years, a clear pattern of favoritism and questionable donations
has emerged. Full disclosure in the annual report may induce the Foundation
to be more even-handed and equitable in the distribution of funds, which
after all belong to the shareholders. At the very least, the total amount
distributed annually should be listed as a separate item in the annual
report. Surely that cannot be considered too expensive from a printing
point of view.
'The estimated $16 million distributed annually to charities in behalf of
NYNEX shareholders should be done more wisely and equitably and the
amounts made readily available in the annual report.'"
Your Board of Directors recommends a vote AGAINST this proposal.
The Board has long recognized that contributions information should be
available to NYNEX Share Owners; however, the Summary Annual Report
to Share Owners is intended to be a synopsis of business activity in a
given year rather than a detailed accounting. Therefore, we have
consistently highlighted and described NYNEX's philanthropic
programs and contributions in the last three Annual Reports to Share
Owners, with more information and complete lists available upon request. In
1993, the NYNEX family of companies made charitable grants totaling
approximately $19 million, reflecting NYNEX's strong commitment to
corporate social responsibility.
This year, as in 1993, the contributions are highlighted in the Summary
Annual Report to Share Owners and are reported in more detail in a
separate Corporate Responsibility Report describing the grant programs
and the contribution guidelines pursuant to which these programs are
selected. This report, which is available to all Share Owners,
reflects the philanthropic practices of the NYNEX family of
companies as well as those of NYNEX Foundation. Included in this
report are lists of the charitable contributions made and financial
details on our philanthropic programs. Specific listings of corporate
contributions are also provided as required to federal and state regulatory
agencies and are available to the public on request.
In light of the above, your Board of Directors urges that Share Owners vote
AGAINST this proposal.
<PAGE>
page 10 Proxy Statement
NYNEX
Share Owner Proposal 3:
Mr. Richard A. Dee, 115 East 89th Street, New York, New York 10128, record
owner of 128 shares of NYNEX Common Stock, has submitted the following
proposal:
"Stockholders of publicly-owned corporations do not 'elect' directors.
Directors are selected by incumbent directors and managements, and
stockholders merely 'ratify' or approve those selections--in much the
same way that they ratify selections of auditors.
"Approval of this proposal would provide the owners of NYNEX Corporation, its
stockholders, a real opportunity each year to vote for and to elect, from a
group of nominees, those director candidates whose qualifications and
stated intentions they favor.
"The term 'Election of Directors' has been misused for many years in proxy
materials to refer to the process by which directors are empowered. The
term is not only inappropriate, it is misleading. When there is no choice
of candidates, there is no election.
"Incumbent directors and managements anxiously protect their absolute power
over corporate activities and corporate governance. The base of that power
is control of board composition. By ignoring the 'elective process rights of
stockholders' they preserve that absolute power--aided, unintentionally, by
those stockholders who, lacking concern and/or knowledge, forgo their
rights as corporate owners.
"Public officials are elected--and held accountable by constituents.
Corporate directors take office unopposed--and answer only to
fellow directors, most of whom are friendly top management folk
moonlighting, very profitably, on one another's boards. Perhaps
'directors for hire' would be on fewer boards, and would devote more
time to and serve more effectively their primary employers, if directors'
fees went to those employers instead of to directors.
"As long as incumbents select only the number of so-called candidates as
there are directorships to be filled, and as long as it is virtually
impossible for stockholders to utilize successfully what is purported to
be their right to nominate and elect directors, no practical means exists
for stockholders to bring about director turnover.
"It is hereby proposed that the Board of Directors, at its next regular
meeting, adopt a resolution requiring the Nominating and Board Affairs
Committee to nominate twice as many candidates as there are board positions
to be filled at each annual meeting of stockholders. In addition to
customary Proxy Statement background information regarding nominees,
a statement by each, indicating why he or she ought to be elected, shall be
included."
"Although all nominees would continue to be selected by incumbents, approval
of this proposal would enable stockholders to replace from one director to
the entire board if
they become dissatisfied with corporate activities, policies or performance.
That's not a happy prospect even for those able to nominate all of their
possible successors!
"NYNEX is incorporated in Delaware, a.k.a. 'Corporate Heaven'--which boasts a
long and profitable history of 'stockholder abuse' based on its continual
pandering to those who control corporations instead of those who own
them. Delaware law, in many cases, places directors above stockholders,
and enables them to deprive stockholders of their rights as corporate
owners--forcing stockholders to beg to regain rights to which, by
common law and by common sense, they are entitled."
"Please vote FOR this proposal."
Your Board of Directors recommends a vote AGAINST this proposal.
NYNEX believes that the appropriate role of the Directors is to provide the
NYNEX Share Owners with a slate of Director candidates whom the Directors
believe, in their best judgment, to be the most qualified and who are
ready, willing and able to manage the affairs of NYNEX. It is not the
role of the Directors to create a political environment, such as this
proposal would foster, in which nominees compete with each other for
the available directorships.
The Board of Directors views the present nominating process to be the most
practical means of ensuring that individuals with appropriate
qualifications continue to serve on the NYNEX Board of
Directors. The Nominating and Board Affairs Committee of the Board
serves a critical function for NYNEX and its Share Owners by selecting only
those nominees possessing the quality and skills necessary and appropriate
for service on the NYNEX Board. In this manner, the composition of the
Board will remain diverse and balanced in experience and expertise.
To the extent that the NYNEX Share Owners wish to suggest qualified
candidates, there are appropriate procedures in place, as set
forth on page 3 of this proxy statement. Also, in this regard,
liberalized proxy rules permit virtually unfettered discussion
among Share Owners and a slate of Directors proposed by one or more
Share Owners which could include nominees selected by the Directors as
well as those selected by such Share Owners.
The present system of nominating a slate of Director candidates limited to
the number of Directors to be elected is in keeping with the Board's
fiduciary responsibility of advising Share Owners on matters upon which
they are asked to vote. This proposal, if enacted, would preclude the Board
from fulfilling its duty. The Board of Directors believes that the present
nominating process should be preserved.
Your Board of Directors urges that Share Owners vote AGAINST this proposal.
<PAGE>
page 11 Proxy Statement
NYNEX
Share Owner Proposal 4:
Mr. Peter Maher, 203 North Wyoming Avenue, No. Massapequa, New York 11758,
owner of 240 shares of NYNEX Common Stock, has submitted the following
proposal:
"Whereas the crisis in U.S. health care costs has led to a national policy
debate and to legislative proposals, including the American Health
Security Act (S. 491 and H.R. 1200) and the proposal of the Clinton
Administration, which may significantly alter the regulatory environment
with which the Company must deal; and
"Whereas it appears that health care reforms, if implemented, could result in
significant cost savings which could assist the Company in improving
profits, maintaining competitiveness, improving labor-management
relations, and enhancing shareholder value;
"Therefore be it resolved: That the shareholders of the Corporation
('Company') request that the Board of Directors establish a
Committee composed of four members of the Board, in order to evaluate
the impact of various health care proposals on the Company, including the
American Health Security Act and the proposal of the Clinton
Administration and to prepare a report of its findings, for the
purpose of:
(1) providing advice and information to the Board concerning strategic
decisions, or other major policy decisions, that may be necessary to
achieve significant cost savings in a reformed regulatory environment; and
(2) providing information to shareholders, who may request copies of the
report, so that they may evaluate the potential impact of health care
reform on the Company in making decisions to buy, sell or hold the
Company's securities."
"Statement of support: The Company faces a unique opportunity to accrue
significant cost savings, maintain competitiveness, improve
labor-management relations, and enhance shareholder value.
"For example, in the Clinton Administration's materials concerning the
economic effects of health care reform, which were reprinted by BNA's
Health Care Policy Report on October 11, 1993, it is declared:
"'the rising cost of health care is a hidden tax on employers--hurting
business, depressing wages, limiting job creation and threatening our
competitiveness. The bottom line is this: health care reform will
lower business costs, raise wages and increase opportunities for
workers.'"
"According to the Administration's materials reprinted by BNA, 'Businesses
that currently provide insurance pay more than true cost since providers
overcharge them to make up for care to the uninsured.' The materials also
state that savings would be achieved by eliminating the cost of an
estimated 20 million 'free riders' who 'are insured through a
spouse's policy.' In addition, the Washington Post has reported
(September 25, 1993) that companies could save an estimated $4.5 to $5
billion a year under the Clinton health plan because it calls for
government, rather than corporations, to pay the health care
costs of those who retire before the age of 65.
"Under these circumstances, the Company will benefit from a thorough review
of the health care reform options in order to insure that it avails itself
of every opportunity to achieve cost savings that could improve the
Company's profits, maintain competitiveness, improve
labor-management relations, and enhance shareholder value."
"For the reasons stated above, we urge you to vote YES on this proposal."
Your Board of Directors recommends a vote AGAINST this proposal.
The cost of health care and the current national debate are of great concern
to NYNEX and are matters that are continuously scrutinized. The Board of
Directors believes that NYNEX has in place the processes and committees
required to evaluate the impact of changes in national health care policy,
the costs associated therewith and the ways in which such costs may be
minimized. Accordingly, the Board of Directors does not feel that a
special committee of the Board is necessary for this purpose. The
Committee on Benefits already exists to deal with such matters and
advise the Board. In addition, Officers of NYNEX are providing the
Directors with insights on national health care discussions in which
NYNEX is participating.
NYNEX has participated, and continues to participate, in national health care
discussions through, among other things, membership in the Employee Benefit
Research Institute, which is exploring national health care issues, and the
Washington Business Group on Health, which conducts surveys and produces
reports on a wide variety of health care issues. In addition, Mr.
Ferguson, NYNEX's Chairman of the Board and Chief Executive Officer,
is a member of the Business Roundtable's Staff Committee on Health, Welfare
& Retirement Income, which has made health care a top priority.
National health care policy is currently in a formative phase, with many
divergent ideas and proposals being espoused. The Board of Directors is
continuing to monitor national health care developments but does not believe
another Board committee is appropriate or necessary.
Your Board of Directors urges that Share Owners vote AGAINST this proposal.
Share Owner Proposal 5:
Mrs. Susanne E. Riordan, 141 Columbia Heights, Apt 5c, Brooklyn, New York
11201, record owner of 281 shares of NYNEX Common Stock has submitted
the following proposal:
"Be it resolved: That the shareholders request that the Board of Directors of
the NYNEX Corporation (1) establish a Facilities Closure and Relocation of
Work Committee composed of four outside Board members, two representatives
of employees and two representatives of communities that have been affected
by closures of facilities or relocations of work; (2) choose the non-Board
members of that committee from a list of nominees to be submitted by the
collective bargaining
<PAGE>
page 12 Proxy Statement
NYNEX
representatives of the employees; and (3) give the Committee the task of
weighing decisions on the closure of facilities and the movement of
work, including decisions that will be made in the future, for the
purpose of providing advice and information to the Board with respect
to the impact of such decisions on the morale of the workforce, the
communities in which the facilities of the Corporation are located,
and the good will or loyalty of customers, so that the Board may evaluate
management's performance in anticipating and minimizing such impacts."
"Statement of support: Corporate decisions concerning the closure of
facilities and the relocation of work may adversely affect employee
morale, the communities in which facilities are located and the good will or
loyalty of customers. To the extent that such consequences may occur they
represent intangible costs, which should be anticipated and minimized by
management.
"On numerous occasions in the past several years, employees of the
Corporation have been affected when their work sites have been
closed and their work has been moved to other locations or ceased to
exist. The morale of the affected employees, and other of the
Corporation's employees, suffer as they must grapple with the
prospect of moving from their homes and communities if they are offered
work in the new locations, or attempt to transfer to other employment within
the Corporation. For a company primarily engaged in providing a service to
the public, where the employee is the interface between the public and the
company, the repercussions of a demoralized workforce may be severe.
"The communities in which the facilities of the Corporation are located are
homes to the Corporation's customers. These communities are peopled by
individuals who have been loyal customers of the Corporation's services.
Truly, these communities that house the Corporation's facilities are
populated by stakeholders of the Corporation.
"The business and personal disruptions associated with facilities closure and
work relocation are likely to intensify at the Corporation in the next few
years. Like most providers of local telephone service across the country,
NYNEX has embarked on a major program of workforce reduction and work
consolidation which will ultimately affect tens of thousands of its
employees, with important consequences to customers and the communities
in which company facilities are now located.
"The Corporation would benefit from the input of a Committee structured to
weigh objectively the impact on the Corporation of the movement of work
or the closure of a facility. Such a committee, composed of employees and
outside directors, would conduct its deliberations apart from immediate and
short-run operating concerns and would focus on the larger concerns of the
Corporation and its major constituents and stakeholders."
Your Board of Directors recommends a vote AGAINST this proposal.
In the opinion of the Board of Directors, the concerns expressed by the
proponent are already being fully addressed. Furthermore, the Board is
mindful of its obligation to represent all NYNEX stakeholders-customers,
employees and Share Owners alike-and fails to see how a Committee,
comprised of "affected" parties as proposed, could add objectivity to
its deliberations.
The telecommunications industry has entered an era of intense competition
spurred on by new technology and regulatory changes. As the proponent
suggests, many telecommunications providers, NYNEX included, have
embarked on programs of workforce reduction and job consolidation as
a result of these technological advances and competitive forces. It is only
after careful analysis by management and then with great reluctance that
programs implementing workforce reduction or facility closure are
enacted. These programs and their potential impact are reviewed with
the Board.
NYNEX tries to administer these programs as compassionately as possible,
working with the communities and employees alike to minimize the impact
to the affected parties. Joint union/management committees such as the Joint
Workforce Profile Committee and Technology Change Committee already exist to
address these very issues which have been and remain major subjects of
discussion during labor contract negotiations.
Your Board of Directors urges that Share Owners vote AGAINST this proposal.
OTHER MATTERS TO COME BEFORE THE MEETING
An address by the Chairman is planned, followed by a general discussion
period during which Share Owners will have an opportunity to ask
questions about the business of NYNEX.
If any matter not described herein should come before the Meeting, the Proxy
Committee of the Board of Directors will vote the Shares represented by it
in accordance with its best judgment. At the time this proxy statement went
to press, NYNEX knew of no other matters which might be presented for Share
Owner action at the Meeting, with the exception of matters omitted from
this proxy statement pursuant to the rules and regulations of the SEC.
SUBMISSION OF DIRECTOR NOMINATIONS, PROPOSALS
OR OTHER BUSINESS AT SHARE OWNER MEETINGS
Proposals intended for inclusion in next year's proxy statement should be
sent to the Secretary of NYNEX Corporation, 1113 Westchester Avenue,
White Plains, New York 10604, and must be received by November 21, 1994.
Share Owners who do not submit proposals for inclusion in the proxy statement
but who intend to present a proposal, nomination for Director, or other
business for consideration at any meeting of Share Owners are required
to notify the Secretary of NYNEX of their intentions and provide certain
other information in advance of such meeting, in accordance with the
procedures detailed in the NYNEX By-Laws. Share Owners interested in
making any nomination or proposal should request a copy of the By-Laws
from the Secretary of NYNEX.
<PAGE>
page 13 Proxy Statement
NYNEX
EXECUTIVE COMPENSATION:
COMMITTEE ON BENEFITS REPORT ON
EXECUTIVE COMPENSATION
To our Share Owners:
A primary role of the Committee on Benefits ("Committee") is to determine and
oversee the administration of compensation for NYNEX's Executive Officers.
In this capacity, the Committee is dedicated to ensuring that NYNEX's
compensation policies and practices are used effectively to support the
achievement of NYNEX's short and long term business objectives. In carrying
out its responsibilities, the Committee reviews the recommendations of
compensation consulting firms engaged by NYNEX. There are several
principles that guide the Committee in its decision-making capacity.
The Committee:
/ / Maintains a total compensation perspective on executive pay in judging
the appropriateness of rewards for NYNEX's Executive Officers.
/ / Emphasizes a pay-for-performance philosophy, ensuring that overall
compensation paid to Executive Officers reflects the fulfillment of
NYNEX's key goals.
/ / Supports the use of multiple compensation plans to optimize the role of
the executive compensation program in balancing NYNEX's short and long term
interests.
/ / Targets executive compensation levels at rates that are consistent with
levels at comparable companies ("Comparable Companies"), consisting of the
six other Regional Holding Companies, as well as 166 large industrial
companies with revenues in excess of $1 billion and 25 industrial
companies with sales of approximately $15 billion, selected by
compensation consulting firms advising the Committee.
/ / Encourages NYNEX stock ownership by Executive Officers with the
objective of strengthening the common interests of management and
Share Owners, thereby promoting the maximization of Share Owner value.
NYNEX's Executive Officer compensation program is described below. The
Committee believes that this program is structured to recognize the
performance and contribution of individual Executive Officers, as well as
to attract, retain and motivate top quality management talent and to
support effectively NYNEX's business goals and human resources
strategies.
DESCRIPTION OF EXECUTIVE COMPENSATION POLICIES
It is NYNEX's policy to target executive compensation to reflect compensation
practices of Comparable Companies. This policy is implemented through a
comprehensive compensation program consisting of elements to recognize
individual merit, encourage NYNEX stock ownership and provide incentives to
achieve corporate performance goals. These elements exist in the context of
a reward system that includes salary, short term incentive compensation and
long term incentive compensation opportunities.
Based upon survey data from compensation consulting firms, NYNEX's Executive
Officer compensation for 1992 was
compared to median 1992 executive compensation at Comparable Companies. This
data indicated that NYNEX Executive Officers' salaries paid in 1992 were
approximately 2% below, short term awards paid in 1992 were 16% above,
long term grants made in 1992 were 45% below, and 1992 total compensation
was 15% below that paid by Comparable Companies. The Committee used this
comparison to assist it in setting 1993 salary levels, short term and
long term award target levels and stock option grants.
Effective January 1, 1994, Section 162(m) of the Internal Revenue Code of
1986 (the "Code") generally denies a tax deduction to any publicly-held
corporation for compensation that exceeds $1 million paid to any
proxy-named executive in a taxable year, subject to an exception
for "performance-based compensation" as defined in the Code and subject to
certain transition provisions. Compensation paid to such executives for
1993 will continue to be tax deductible. Gains on the exercise of
non-qualified stock options granted through December 31, 1994 will
also be deductible under the transition rules, and future stock option
grants should qualify for the "performance-based compensation" exemption.
The Committee is committed to ensuring that incentive awards are commensurate
with performance. This year is clearly one of transition in which we will
evaluate the impact of the code provisions upon NYNEX. As a result of the
transition rules, we believe the impact will not be significant in 1994. The
Committee will, of course, continue to examine the effects of the new code
provisions and will consider appropriate changes in NYNEX's executive
compensation policies.
Salary. The Committee reviews the salary of each Executive Officer annually.
In assessing whether salary increases are warranted, the Committee
considers any or all of the following factors: performance on the
job, internal compensation equity, external pay practices for Comparable
Companies and the Executive Officer's level of responsibility, experience
and expertise.
NYNEX's executive compensation policy is to target Executive Officer salaries
at levels that reflect salaries paid by Comparable Companies. In determining
salary levels paid by Comparable Companies, NYNEX reviews a number of
executive compensation surveys conducted by various consulting firms
which include the companies shown in the Share Owner Return Performance
Graph. Generally, target level salaries for individuals new to a
position are attained over time and reflect individual performance
and merit.
Short Term Incentive Plan. NYNEX adheres to a pay-for-performance philosophy
through the operation of its Senior Management Short Term Incentive Plan.
Plan participants have the opportunity to earn incentive compensation each
year based on two factors:
/ / Corporate achievement of established annual performance goals.
/ / Individual contribution and performance.
Corporate Performance. Each year, the Committee reviews management's
suggestions and then recommends for Board
<PAGE>
page 14 Proxy Statement
NYNEX
of Directors' ("Board") approval performance goals, the achievement of which
will define NYNEX's success for the upcoming fiscal year. The Committee
also reviews and recommends to the Board threshold, target and maximum
levels of performance for determining the ultimate payment of awards. For
this purpose, threshold means the level of performance below which no
incentive awards will be paid; target means the level of performance
at which the standard incentive awards will be paid; maximum means the
level of performance above which no incremental incentive awards will be
paid.
In 1993, 60% of the standard short term incentive award payment was a
function of corporate results as measured by net income. The balance
of the award payment, or 40%, reflected the Committee's assessment of
identifiable progress with respect to matters of strategic importance
to the success of NYNEX, each accorded approximately equal weight: customer
service and quality, cost competitiveness, regulatory and legislative
relationships, containment of increases in health care costs,
identification and exploitation of profitable growth opportunities,
provision of developmental opportunities for employees and development of a
NYNEX strategic business plan. There are no other factors the Committee
considered in determining short term incentive compensation except
individual performance, as discussed in the following paragraph.
Achievement of these corporate performance goals results in the
payment of a standard award which is equal to one-half of the maximum
short term incentive award payable. When performance results exceed the
target level, the short term incentive award payment will be greater
than the standard award up to a maximum of 75% of the total short term
award payable. Conversely, when performance results are below the target
level, the payment will be less than the standard incentive award. When
performance falls short of the threshold level, no incentive award would
be paid on the basis of corporate performance.
Individual Performance. Plan participants may receive up to 25% of the
maximum short term incentive award in recognition of outstanding
individual contribution to corporate performance. However, the sum
total of a participant's incentive award payments in recognition of
corporate performance plus awards paid as a result of individual
performance may not exceed 100% of the total short term award
payable.
The short term incentive awards for the proxy-named executives are reflected
in the "Bonus" column of the Summary Compensation Table contained in this
proxy statement. For the 1993 performance year, the Committee determined
that the net income target objective level had not been achieved and
awarded 27% of the maximum short term incentive award available for this
component. The Committee also determined that significant actions were
taken during 1993 regarding the strategic objectives, but that the target
objective level had not been achieved, and therefore awarded 18% of the
maximum short term incentive award available for this component, for a
total payout of 45% of the maximum award payable to Executive Officers.
Long Term Incentive Plans. Each year, the Committee recommends to the Board
for approval grants of long term incen-
tive awards to Executive Officers. The Committee establishes a target award
based on an assessment of the average long term award levels at Comparable
Companies. Long term incentive opportunities reinforce NYNEX's policy of
requiring stock ownership by Executive Officers in support of building
Share Owner value. In this regard, the Senior Management Long Term
Incentive Plan, the 1990 Stock Option Plan and the Restricted Stock
Award Plan provide awards that reflect NYNEX's return to its Share Owners.
Senior Management Long Term Incentive Plan. Plan participants have the
opportunity to earn incentive compensation over a four-year
performance period based on two factors, each accorded equal
weight:
/ / Return to Share Owners.
/ / Corporate achievement of Strategic Objectives.
Return to Share Owners. Payment of one-half of the target award is determined
by reference to NYNEX's total return to Share Owners (stock price growth and
dividends paid over a four-year period) as compared with the returns
generated by the six other Regional Holding Companies. A top
relative ranking of NYNEX yields awards equal in size to one-half of
the maximum long term incentive awards payable under this plan. Lower
rankings of NYNEX generate proportionally smaller awards.
Strategic Objectives. Payment of the remaining one-half of the target award
reflects the Committee's assessment of management's effectiveness during
the four-year period in positioning NYNEX for future success. In
conducting its assessment, the Committee considered the identical
strategic factors, each accorded approximately equal weight, as in the case
of the short term incentive award, as described above. The Committee can
recommend to the Board for its approval payment of up to one-half of the
maximum long term incentive award payable under this plan for strategic
accomplishments.
Awards are paid at the completion of each performance period in a combination
of cash and shares of NYNEX stock. Participants may elect the extent to
which they are paid in stock. However, to encourage stock ownership
among Executive Officers, a minimum of one-half of the value of the
award must be paid in NYNEX stock.
For the 1990-1993 performance period, the Committee determined that NYNEX's
total return to Share Owners over the period relative to the other six
Regional Holding Companies was below the threshold level, and therefore,
there would be no award attributable to this factor. The Committee
determined that there was significant progress in implementing
NYNEX's strategic objectives under adverse economic conditions, that the
target objective level had been achieved, and therefore awarded to Executive
Officers a payout of 50% of the maximum long term award payable for this
component.
Stock Option Plan. Stock options provide Executive Officers with the
opportunity to acquire an equity interest in NYNEX and to
participate in the creation of Share Owner value as reflected in
growth in the price of NYNEX Common Stock. Under the terms of the plan,
option exercise prices are equal
<PAGE>
page 15 Proxy Statement
NYNEX
to 100% of the fair market value of NYNEX Common Stock on the date of option
grant, thereby ensuring that plan participants will derive benefits only as
Share Owners realize corresponding gains. To ensure a long term perspective,
options have a ten-year term and become exercisable at the cumulative rate
of one-third per year for the first three years. The number of options the
Committee may grant in a plan year to the Chief Executive Officer and other
proxy-named Executive Officers is limited by the plan, in each case, to 10%
of the total options granted in that year. The actual number of options
granted is based upon competitive compensation practices, as reflected
in the surveys of the compensation consulting firms, and the individual
Executive Officer's performance compared to the performance of the other
Executive Officers.
Restricted Stock Award Plan. The Committee also administers the Restricted
Stock Award Plan and determines the key employees to whom Restricted
Stock Awards will be granted, the number of Shares with respect to
which Restricted Stock Awards will be made, the applicable restriction
periods and any other terms and conditions of each award. The purpose of
the Plan is to attract and retain selected individuals of exceptional
skill. The grant criteria reflect the Committee's assessment of the
requirements for hiring and retaining the particular individual. The
Committee notes that Restricted Stock Awards were granted in January 1994
to all of NYNEX's Executive Officers, with the exception of Mr. Ferguson, in
conjunction with the Executive Retention Agreements described in this proxy
statement.
RATIONALE FOR CHIEF EXECUTIVE OFFICER ("CEO") COMPENSATION IN LAST FISCAL YEAR
Salary. The CEO's salary is based solely upon competitive compensation
practices. Mr.Ferguson was named CEO of NYNEX in June 1989. During
the subsequent three and one-half year period, Mr. Ferguson's salary was
in progression toward his target salary rate. At the end of 1992, the
Committee recommended to the Board a 7.4% salary increase, with the
result that Mr. Ferguson's salary reached the target salary rate for his
position. Additionally, this rate, as in the case of each NYNEX Executive
Officer's target salary rate, was increased three percent to maintain
competitive parity and to remain near the median for Comparable
Companies during 1993.
Short Term Incentive Compensation. Mr. Ferguson's available short term award
is a function of salary and is based upon similar compensation of CEOs of
Comparable Companies. For 1993 performance, the Committee recommended to
the Board a short term incentive payment to Mr. Ferguson of 52% of the
available short term award, which included a 7% increment attributable
to individual performance. The Committee's recommendation recognized that
significant actions were taken in 1993 designed to position NYNEX for the
future. These included implementation of a comprehensive strategy to
improve efficiency and customer service by re-engineering the service
delivery processes and to exit non-strategic businesses. The costs of these
actions were recognized in year-end 1993 charges to earnings. The Committee
also recognized the progress that has been made in dealing with public
policy and regulatory issues, in meeting customer service and quality
expectations, in establishing new busi-
nesses in several high-growth international markets, in taking steps to
contain health care cost increases, and in launching a major
initiative to change NYNEX's culture.
Long Term Incentive Compensation. Mr. Ferguson's available long term
incentive awards are also a function of salary and are based on
compensation practices for similar jobs in the marketplace. As discussed
above under the heading Senior Management Long Term Incentive Plan, return
to Share Owners and strategic objectives are each accorded equal weight in
determining long term incentive compensation. In 1994, the Committee
recommended to the Board a long term award for the 1990-1993
performance period under the Senior Management Long Term Incentive
Plan. As noted in the preceding paragraph, it was the Committee's
assessment that there was significant progress in implementing
NYNEX's strategic objectives under adverse economic conditions. The
Committee believes that such strategic accomplishment should serve as a
platform for future business success and resultant appreciation of Share
Owner's investment over the long term. The Committee also weighed the
financial performance of the Company (total return to Share Owners) over
the period relative to the other six Regional Holding Companies, and
therefore determined that there would be no award attributable to
this factor. In carrying out its compensation philosophy of shared Share
Owner management risk and reward opportunities, a new award opportunity for
the four-year performance period beginning in 1994 and ending in 1997 was
also granted to Mr. Ferguson and other Executive Officers.
In January 1993, the Committee awarded Mr. Ferguson options to purchase
84,180 shares of NYNEX Common Stock at a price of $42.66 per share, as
adjusted to reflect the September 15, 1993 stock split. The number of
options granted reflected the Committee's assessment of competitive
compensation practices and Mr. Ferguson's individual contribution toward
the achievement of NYNEX's stategic objectives, as set forth above under
the Short Term and Long Term Incentive Plans.
SUMMARY
The Committee is responsible for reviewing, monitoring and recommending to
the non-employee Directors of the Board for their approval all
compensation decisions affecting NYNEX Executive Officers. The
Committee endeavors to have the entire remuneration paid to Executive
Officers be consistent with NYNEX's interest in providing market
competitive compensation opportunities, reflective of its
pay-for-performance philosophy, and supportive of its short term
and long term business mission. We will continue to actively monitor the
effectiveness of NYNEX executive compensation plans and assess the
appropriateness of executive pay levels to assure prudent use of
NYNEX resources.
David J. Mahoney, John J. Creedon
Chairperson
Helene L. Kaplan John R. Stafford
<PAGE>
page 16 Proxy Statement
NYNEX
<TABLE>
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ending December 31, 1991, 1992, and 1993, the cash compensation, as well as certain
other compensation, paid or accrued to the named Executive Officers by NYNEX and its subsidiaries.
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------- ----------------------
Awards Payouts
---------- ---------
Securities Long Term All Other
Name and Underlying Incentive Compen-
Principal Position Year Salary($) Bonus($) Other($)(1) Options(#)(2) Payouts($) sation ($)(3)
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
William C. Ferguson 1993 773,000 562,000 103,446 84,180 120,605 31,671
Chairman of the Board and 1992 700,000 700,000 86,253 77,216 332,626 28,728
Chief Executive Officer 1991 637,000 577,500 * 78,790 116,964 *
Ivan G. Seidenberg 1993 474,000 222,000 46,267 38,892 37,170 20,052
President and Chief Operating Officer 1992 411,000 384,500 35,120 33,896 87,507 17,168
and Vice Chairman of the Board 1991 357,500 240,000 * 19,260 51,177 *
Frederic V. Salerno 1993 474,000 313,500 47,459 38,892 57,326 20,661
Vice Chairman of the Board- 1992 460,000 326,000 40,091 33,896 150,983 19,128
Finance and Business Development 1991 429,300 280,000 * 31,080 88,892 *
Raymond F. Burke 1993 350,000 175,000 31,852 23,940 37,404 14,750
Executive Vice President, 1992 340,000 234,000 27,494 20,196 103,143 14,328
General Counsel and Secretary 1991 323,000 168,300 * 19,260 65,889 *
Jeffrey S. Rubin 1993 306,000 117,000 23,835 19,092 26,897 19,595
Executive Vice President 1992 276,333 160,800 15,416 13,560 0 11,781
and Chief Financial Officer 1991 266,000 124,300 * 13,636 0 *
- -----------------------------------------------------------------------------------------------------------------------------------
* Pursuant to Securities and Exchange Commission ("SEC") transition provisions, this information is not included.
<F01>
(1) This amount includes dividend equivalents paid pursuant to the Senior Management Long Term Incentive Plan and amounts
reimbursed for the payment of taxes in connection with certain personal benefits ($2,769 for Mr. Ferguson, $885 for
Mr. Salerno and $3,337 each for Messrs. Seidenberg, Burke and Rubin).
<F02>
(2) Options reported reflect adjustments in number and exercise price resulting from the September 15, 1993 two-for-one stock
split effected in the form of a 100% stock dividend.
<F03>
(3) Company contributions to tax-qualified and non-qualified savings plans, plus the value of premiums paid by NYNEX for
split-dollar life insurance coverage. The Company contributions to the tax-qualified savings plan for Messrs.
Ferguson, Seidenberg, Salerno, Burke and Rubin were $10,183, $10,183, $10,183, $10,183, and $9,978, respectively. The
company contributions to the non-qualified savings plan for Messrs. Ferguson, Seidenberg, Salerno, Burke and Rubin were
$21,488, $9,527, $9,527, $4,567 and $2,807, respectively. The amount of the dollar benefit for 1993 projected on an
actuarial basis ($342 for Mr. Seidenberg, $951 for Mr. Salerno and $6,810 for Mr. Rubin) represents the excess of the
amount needed to fund the death benefit under the split-dollar life insurance policy.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1993 AND 1993 FY-END OPTION VALUES
The following table shows information with respect to the named Executive Officers concerning the exercise of options to purchase
shares of NYNEX Common Stock during 1993 and unexercised stock options held as of the end of 1993. All shares reflect the
September 15, 1993 two-for-one stock split effected in the form of a 100% stock dividend.
<CAPTION>
Number of Unexercised Value of Unexercised
Underlying Unexercised In-the-Money
Options at 1993 Options at 1993
Fiscal Year-End Fiscal Year-End ($)(3)
--------------------------- ---------------------------
Shares Acquired Value
Name of Individual on Exercise Realized ($) (1,2) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William C. Ferguson 35,928 308,176 115,936 161,918 454,999 432,486
Ivan G. Seidenberg 5,300 64,634 39,498 67,908 174,056 158,890
Frederic V. Salerno 11,190 137,197 49,924 71,848 185,566 182,767
Raymond F. Burke 13,878 152,248 31,116 43,824 113,557 110,399
Jeffrey S. Rubin 14,000 140,175 9,612 32.676 0 75,539
- -----------------------------------------------------------------------------------------------------------------------------------
<F01>
(1) No Stock Appreciation Rights ("SARs") were exercised in 1993.
<F02>
(2) Aggregate market value of the Shares acquired or covered by the option less the aggregate exercise price.
<F03>
(3) Amounts reflect potential gains on outstanding options based upon the December 31, 1993 average stock price of $40.63.
</TABLE>
<PAGE>
page 17 Proxy Statement
NYNEX
<TABLE>
OPTION GRANTS IN FISCAL YEAR 1993
The following table contains information concerning the grant of options under the NYNEX 1990 Stock Option Plan to the named
Executive Officers during 1993.
<CAPTION>
Number of
Securities % of Total
Underlying Options
Options Granted to Exercise or Grant Date
Granted Employees Base Price Expiration Present
Name of Individual (#)(1) in 1993 ($/Share)(2) Date (3) Value ($)(4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William C. Ferguson 84,180 5.361 42.66 1/16/03 500,871
Ivan G. Seidenberg 38,892 2.477 42.66 1/16/03 231,407
Frederic V. Salerno 38,892 2.477 42.66 1/16/03 231,407
Raymond F. Burke 23,940 1.525 42.66 1/16/03 142,443
Jeffrey S. Rubin 19,092 1.216 42.66 1/16/03 113,597
- ---------------------------------------------------------------------------------------------------------------------------------
<F01>
(1) The date of grant for options subject to this footnote is January 15, 1993. The number and exercise price of options reported
in this table reflect adjustments resulting from the September 15, 1993 two-for-one stock split effected in the form of a
100% stock dividend.
<F02>
(2) The exercise price of the option is equal to the fair market value of NYNEX Shares on the date of grant of the options. The
exercise price may be paid in cash, or by tendering already owned NYNEX Shares with a fair market value on the date of
exercise equal to the exercise price. For exercises where NYNEX Shares have been tendered in payment of the exercise
price, a new grant of options will be made equal to the number of Shares tendered. A grant made under these
circumstances will have an exercise price equal to the fair market value on the date of such exercise and grant.
<F03>
(3) Options expire ten-years from date of grant. Options become one-third exercisable one year after the date of grant, two-thirds
exercisable two years after the date of grant, and fully exercisable three years after the date of grant. To the extent not
already exercisable, the options become fully exercisable in the event of a "change in control" as defined in the NYNEX
1990 Stock Option Plan.
<F04>
(4) As permitted by SEC rules, the Black-Scholes method of option valuation has been used to determine grant date present value.
The assumptions used in the Black-Scholes option valuation calculation are: estimated future annual stock price volatility
of 0.167; risk free rate of return 6.68%; and estimated future dividend yield of 5.44%. NYNEX does not advocate or
necessarily agree that the Black-Scholes method, or any other method permitted by the SEC, can properly determine
the value of an option. However, no gain to the optionees is possible without an increase in the stock price, which will
benefit all Share Owners. Thus, a zero increase or decrease in stock price, compared to the exercise price, will not
produce any gain for the optionee.
</TABLE>
<TABLE>
LONG TERM INCENTIVE PLAN AWARDS IN FISCAL YEAR 1993
The following table provides information concerning awards made to the named Executive Officers during 1993 under the NYNEX Senior
Management Long Term Incentive Plan. The units reported below reflect adjustments resulting from the September 15, 1993
two-for-one stock split effected in the form of a 100% stock dividend. Each performance share awarded represents the
right to receive an amount of cash and NYNEX Shares based upon the degree of achievement of financial and strategic objectives
as established by the Board of Directors for the performance period 1993-1996.
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price-Based Plans (1)
-------------------------------------
Number of Performance or
Shares, Units Other Period
or Other Until Maturation Threshold Target Maximum
Name of Individual Rights or Payout (#) (#) (#)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William C. Ferguson 14,030 4 Years 7,015 14,030 21,045
Ivan G. Seidenberg 6,482 4 Years 3,241 6,482 9,723
Frederic V. Salerno 6,482 4 Years 3,241 6,482 9,723
Raymond F. Burke 3,990 4 Years 1,995 3,990 5,985
Jeffrey S. Rubin 3,182 4 Years 1,591 3,182 4,773
- -----------------------------------------------------------------------------------------------------------------------------
<F01>
(1) Payouts of awards are tied to achieving relative levels of return to Share Owners (stock price growth and dividends paid over
the four-year period 1993-1996, as compared to a peer group of the six Regional Holding Companies) and achievement of
specified strategic objectives. The target amount will be earned if 100% of the objectives are achieved; the threshold
amount if 50% of the objectives are achieved; and the maximum amount if the objectives are exceeded by 50%.
</TABLE>
<PAGE>
page 18 Proxy Statement
NYNEX
<TABLE>
PENSION TABLE
The following table shows the estimated annual benefits payable upon retirement for the named Executive Officers in the
compensation and years of service classifications indicated under NYNEX's pension plans. Pensions are computed on a
straight-life annuity basis and are not reduced for Social Security or other offset amounts. Participants receive a pension
based upon average compensation multiplied by the number of years service, times 1.6%. Average compensation is determined by
adding the average of the five highest Short Term Incentive Plan awards received during the last ten years of employment, plus
the total of the last 60 full months of salary divided by 5. Pensions may not exceed 60% of the average compensation used in the
pension formula.
<CAPTION>
Years of Service
----------------------------------------------------------------------
Average
Compensation 15 20 25 30 35 Maximum
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000 $96,000 $128,000 $160,000 $192,000 $224,000 $240,000
500,000 120,000 160,000 200,000 240,000 280,000 300,000
600,000 144,000 192,000 240,000 288,000 336,000 360,000
700,000 168,000 224,000 280,000 336,000 392,000 420,000
800,000 192,000 256,000 320,000 384,000 448,000 480,000
900,000 216,000 288,000 360,000 432,000 504,000 540,000
1,000,000 240,000 320,000 400,000 480,000 560,000 600,000
1,100,000 264,000 352,000 440,000 528,000 616,000 660,000
1,200,000 288,000 384,000 480,000 576,000 672,000 720,000
1,300,000 312,000 416,000 520,000 624,000 728,000 780,000
1,400,000 336,000 448,000 560,000 672,000 784,000 840,000
- -----------------------------------------------------------------------------------------------------------
Current Average Credited Years
Name of Individual Compensation* of Service*
- -----------------------------------------------------------------------------------------------------------
William C. Ferguson $1,147,600 41
Ivan G. Seidenberg** 554,120 27
Frederic V. Salerno 675,067 28
Raymond F. Burke 494,440 28
Jeffrey S. Rubin** 405,681 3
- -----------------------------------------------------------------------------------------------------------
* as of 12/31/93
** Although not currently service pension eligible under the age and/or service requirements of the NYNEX pension plans, the
amounts shown for Messrs. Seidenberg and Rubin are as if they were pension eligible. In addition, pensions are subject
to a reduction for retirement prior to age 59. Mr. Rubin is also covered by a supplemental benefit plan for certain
employees hired at age 35 or over. Such plan provides additional pension credits equal to the difference between 35
and the maximum possible years of service attainable at age 65 (but not to exceed the actual term of employment) at
one-half the rate in the pension plans.
Note: The Internal Revenue Code of 1986, as amended, limits the benefits which may be paid from a tax-qualified retirement
plan. As permitted by the Employee Retirement Income Security Act of 1974, NYNEX has a non-qualified pension plan to
provide for the full payment of the above pensions when they exceed tax-qualified limits. The pension amounts that
exceed tax-qualified limits will be accounted for by NYNEX as an operating expense.
</TABLE>
EXECUTIVE RETENTION AGREEMENTS AND EXECUTIVE
SEVERANCE PAY PLAN
On December 16, 1993, the Board of Directors approved the NYNEX Executive
Severance Pay Plan (the "Severance Plan") and the Executive Retention
Agreement (the "Agreement") to be entered into with each of NYNEX's
Executive Officers as well as certain other Officers of NYNEX
companies. The purpose of the Severance Plan and the Agreement is
to enable NYNEX and its subsidiaries to remain competitive in attracting
and retaining the very best executive talent. The Agreement provides the
Executive Officer with certain benefits, pursuant to the Severance Plan,
upon termination of employment under specified conditions.
Each NYNEX Executive Officer, including Messrs. Seidenberg, Salerno, Burke
and Rubin but excluding Mr. Ferguson, has entered into an Agreement with
NYNEX, effective January 3, 1994, for a term of employment at the pleasure
of the Chairman of the Board and Chief Executive Officer. A retention award
consisting of a grant of restricted stock was made to each NYNEX Executive
Officer at the time of signing the Agreement. The value of the retention
award equals 50% of the sum of the Executive Officer's 1994 annual salary
and the standard award granted under the NYNEX Senior Management Short Term
Incentive Plan for 1994 performance.
During the term of the Agreement, dividends on the restricted stock will be
reinvested in additional NYNEX restricted stock. The retention award
restrictions on the restricted stock shall lapse at the time of
termination of employment only if the Executive Officer voluntarily
separates from employment with the consent of the Chairman and Chief
Executive Officer of NYNEX, dies, or is terminated by NYNEX without
cause during the term of the Agreement. In the case of all other
terminations, the restricted stock will be forfeited by the
Executive Officer.
<PAGE>
page 19 Proxy Statement
NYNEX
An Executive Officer who separates from active service with the consent of
the Chairman of the Board and Chief Executive Officer or is separated
from active service pursuant to the terms of the NYNEX Force Management
Plan, and in either case signs a separation agreement and release, or dies
during the term of the Agreement, shall be entitled to a severance payment.
The severance payment will be the value of the restricted stock, including
reinvested dividends, which is designated as the retention award in the
Executive Officer's Agreement. An Executive Officer will not receive
benefits or payment under the Severance Plan if he or she is separated
from active service for cause; is separated from active service with an
Employing Company that is sold and the Employing Company hires or offers
employment within 60 days of the Executive Officer's separation from the
Employing Company; or if the Executive Officer has an employment
agreement other than the Agreement with the Employing Company.
<TABLE>
SHARE OWNER RETURN PERFORMANCE GRAPH
The following line graph compares the yearly percent change in the cumulative total Share Owner return of NYNEX Common Stock
against the cumulative total return of the Standard & Poor's 500 Stock Index and the Regional Holding Company peer group
stock index for the period of five fiscal years (1989-1993).
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
dollars COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
- ----------------------------------------------------------------------------------------------------------------------------------
250
200
150
100
50
- ----------------------------------------------------------------------------------------------------------------------------------
Dec 31, 1988 1989 1990 1991 1992 1993
- ----------------------------------------------------------------------------------------------------------------------------------
* Assumes $100 invested on December 31, 1988 in NYNEX Common Stock, Standard & Poor's 500 Index and Peer Group Index, with all
dividends reinvested.
<S> <C> <C> <C> <C> <C> <C>
NYNEX $100 146 121 146 161 162
S&P 500 INDEX $100 159 156 164 186 217
PEER GROUP INDEX** $100 132 127 166 179 197
- ----------------------------------------------------------------------------------------------------------------------------------
** Composite of 6 Regional Ameritech Corporation BellSouth Corporation Southwestern Bell Corporation
Holding Companies: Bell Atlantic Corporation Pacific Telesis Group U S WEST, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OTHER INFORMATION
As required by SEC rules, it is noted that, due to an administrative error, a
January 1993 transaction in shares of NYNEX Common Stock by a NYNEX
Executive Officer, Donald J. Sacco, was not timely reported.
Solicitation of proxies is being made by management through the mail, in
person and by telephone and telegraph. NYNEX will be responsible for
costs associated with this solicitation. NYNEX has retained Kissel-Blake
Inc. to aid in the solicitation of proxies at a cost of approximately
$21,000 plus reimbursement of reasonable out-of-pocket expenses.
By order of the Board of Directors,
s/R. F. Burke
R. F. Burke
Executive Vice President,
General Counsel and Secretary
Dated: March 21, 1994
<PAGE>
<TABLE>
Table of Contents
<CAPTION>
1993 Consolidated Financial Statements
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Selected Financial and Operating Data 32
Report of Independent Accountants 32
Report of Management 33
Consolidated Statements of Income 34
Consolidated Balance Sheets 35
Consolidated Statements of Changes in Stockholders' Equity 36
Consolidated Statements of Cash Flows 37
Notes to Consolidated Financial Statements 38
Supplementary Information 49
</TABLE>
<PAGE>
page 21 1993 Consolidated Financial Statements
NYNEX
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 24 to 26 and 28 to 29,
respectively.
Business Restructuring
The 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 implement work force reductions, and to produce
cost savings necessary for NYNEX to operate in an increasingly competitive
environment. 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; approximately $586 million is for employee severance
payments, and $520 million is the medical curtailment loss
recognized as a result of the planned decrease in the work force.
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. 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.
Approximately $626 million of the charges ($395 million after-tax) consists
of costs associated with re-engineering the way service is delivered to
customers. NYNEX intends to decentralize the provision of residence and
business customer service throughout its region, create regional
businesses to focus on unique markets, and centralize numerous
operations and support functions. Included in this amount are: (1) $248
million of systems re-engineering costs for redesign of systems, processes
and procedures to realize operational efficiencies and enable NYNEX to
reduce work force levels; (2) $161 million primarily for consolidation
of work centers from 300 to approximately 50 by the end of 1996, lease
terminations, and other incremental costs required to build larger work
teams in fewer locations in order to take advantage of lower force levels
and system efficiencies; (3) $47 million to develop and market a single
"NYNEX" brand identity associated with the restructured business
operations; (4) $43 million for employee relocations as a result
of work center consolidations; (5) $60 million for training employees on
newly-designed, cross-functional job positions and re-engineered systems;
and (6) $67 million in incremental costs to implement the various
re-engineering initiatives.
Approximately $283 million of the 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 expected to be incurred during the three-year period from 1994
through 1996. 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
<PAGE>
page 22 1993 Consolidated Financial Statements
NYNEX
operating expenses of approximately $1.7 billion beginning in 1997. These
savings include reduced wage and benefit expenses due to lower work
force levels, and 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.
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 Standards
No. 71, "Accounting for the Effects of Certain Types of Regulation"
("Statement No. 71") (see Operating Expenses).
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
<PAGE>
page 23 1993 Consolidated Financial Statements
NYNEX
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 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.
<PAGE>
page 24 1993 Consolidated Financial Statements
NYNEX
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.
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.
<TABLE>
<CAPTION>
Analysis of Segment Revenues
(In millions) For the years ended December 31,
Unaffiliated Revenues 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------
</TABLE>
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
<PAGE>
page 25 1993 Consolidated Financial Statements
NYNEX
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.
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.
<PAGE>
page 26 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.
<TABLE>
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.
<CAPTION>
Operating expenses excluding Depreciation and amortization and Taxes other
than income taxes (in millions)
<S> <C>
93............................$9,501.6
92............................$7,082.4
91............................$8,144.4
</TABLE>
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.
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
<PAGE>
page 27 1993 Consolidated Financial Statements
NYNEX
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.
<TABLE>
<CAPTION>
Taxes other than income taxes (in millions)
<S> <C>
93............................$1,038.9
92............................$1,054.6
91............................$1,122.6
</TABLE>
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.
<TABLE>
<CAPTION>
Depreciation and amortization (in millions)
<S> <C>
93............................$2,534.0
92............................$2,518.0
91............................$2,397.5
</TABLE>
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.
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
<PAGE>
page 28 1993 Consolidated Financial Statements
NYNEX
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.
<TABLE>
Analysis of Segment Operating Income
<CAPTION>
(In millions) For the years ended December 31,
Operating Income 1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ----------------------------------------------------------------------------
</TABLE>
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 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,
<PAGE>
page 29 1993 Consolidated Financial Statements
NYNEX
partially offset by losses from the professional services and software
businesses and start-up and business development costs in
international operations.
<TABLE>
Other income (expense)-net
<CAPTION>
(In/millions) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C>
$(118.9) $38.7 $(71.3)
- ------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
Interest expense
<CAPTION>
(In/millions) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C>
$659.5 $684.6 $726.0
- ------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
Income taxes
<CAPTION>
(In/millions) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C>
$(172.7) $570.4 $192.1
- ------------------------------------------------------------------------------
</TABLE>
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 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 opera-
<PAGE>
page 30 1993 Consolidated Financial Statements
NYNEX
tions, 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. In order to hedge against
interest rate exposures and foreign exchange exposures relating to
overseas investments, NYNEX has entered into various interest rate,
currency, and basis swap transactions.
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 31 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.
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, and the
impact of such a change would be material.
<PAGE>
page 32 1993 Consolidated Financial Statements
NYNEX
<TABLE>
Selected Financial and Operating Data
<CAPTION>
(In millions, except per share amounts) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $13,408 $13,183 $13,255 $13,608 $13,220
Operating expenses $13,075 $10,655 $11,665 $11,593 $11,464
Interest expense $ 660 $ 685 $ 726 $ 700 $ 691
Earnings (loss) before cumulative effect of change
in accounting principle $ (272) $ 1,311 $ 601 $ 949 $ 808
Cumulative effect of change in accounting for
postemployment benefits, net of taxes (122) - - - -
Net income (loss) $ (394) $ 1,311 $ 601 $ 949 $ 808
Earnings (loss) per share before cumulative
effect of change in accounting principle* $ (.66) $ 3.20 $ 1.49 $ 2.39 $ 2.05
Cumulative effect per share of change in
accounting principle (.29) - - - -
Earnings (loss) per share* $ (.95) $ 3.20 $ 1.49 $ 2.39 $ 2.05
Dividends per share* $ 2.36 $ 2.32 $ 2.28 $ 2.28 $ 2.18
Property, plant and equipment-net $20,250 $19,973 $19,915 $19,729 $19,465
Total assets $29,458 $27,732 $27,503 $26,651 $25,909
Long-term debt $ 6,938 $ 7,018 $ 6,833 $ 6,945 $ 6,465
Stockholders' equity $ 8,416 $ 9,724 $ 9,120 $ 9,149 $ 9,369
Book value per share* $ 20.28 $ 23.51 $ 22.38 $ 22.86 $ 23.78
Capital expenditures! $ 2,717 $ 2,450 $ 2,499 $ 2,493 $ 2,421
Ratio of earnings to fixed charges?# .42 3.34 1.93 2.60 2.33
Network access lines in service 16.1 15.7 15.4 15.3 14.9
- --------------------------------------------------------------------------------------------------------------------------
See Management's Discussion and Analysis of Financial Condition and Results of Operations for the effect of restructuring charges
and 1991 results of operations. Results of operations for 1990 include $305 million of pretax ($211 million after-tax) restructuri
charges, and results of operations for 1989 include $510 million of pretax ($325 million after-tax) restructuring charges.
* Amounts for 1989-1992 have been restated to reflect a two-for-one common stock split in the form of a 100 percent stock dividend d
on July 15, 1993.
! Excludes additions under capital lease obligations and the equity component of allowance for funds used during construction.
? For the purpose of this ratio: (i) earnings have been calculated by adding Interest expense and the estimated interest portion of
to Earnings (loss) before income taxes and cumulative effect of change in accounting principle; and (ii) /xed charges are comprise
Interest expense and the estimated interest portion of rentals.
# Earnings were inadequate to cover fixed charges by $445.1 million for the year ended December 31, 1993 as a result of $1.4 billion
fourth quarter 1993 after-tax business restructuring charges.
</TABLE>
Report of Independent Accountants
To the Stockholders and Board of Directors of NYNEX Corporation:
We have audited the accompanying consolidated balance sheets of NYNEX
Corporation and its subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1993. These consolidated
financial statements are the responsibility of NYNEX Corporation's
management. Our responsibility is to express an opinion on these
consolidated financial statements 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 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.
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.
s/Coopers & Lybrand
Coopers & Lybrand
New York, New York
February 9, 1994
<PAGE>
page 33 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.
s/William C. Ferguson
William C. Ferguson
Chairman of the Board and Chief Executive Officer
s/Peter M. Ciccone
Peter M. Ciccone
Vice President and Comptroller
<PAGE>
page 34 1993 Consolidated Financial Statements
NYNEX
<TABLE>
Consolidated Statements of Income
<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
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
operating expenses 13,074.5 10,655.0 11,664.5
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
(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
- ------------------------------------------------------------------------------------------------------------------------------------
(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) - -
- ------------------------------------------------------------------------------------------------------------------------------------
income (loss) $ (394.1) $ 1,311.2 $ 600.8
- ------------------------------------------------------------------------------------------------------------------------------------
(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) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(loss) per share* $ (.95) $ 3.20 $ 1.49
- ------------------------------------------------------------------------------------------------------------------------------------
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.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
page 35 1993 Consolidated Financial Statements
NYNEX
<TABLE>
Consolidated Balance Sheets
<CAPTION>
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
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
page 36 1993 Consolidated Financial Statements
NYNEX
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
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
- ------------------------------------------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 431.1 $431.1 $6,624.5 $2,388.3 $(648.1) $(380.3) $8,415.5
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 1993 there were 972,151 stockholders of record of common shares.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
page 37 1993 Consolidated Financial Statements
NYNEX
<TABLE>
Consolidated Statements of Cash Flows
<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
- ------------------------------------------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------------------
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 38 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 conformity with
generally accepted accounting principles including certain accounting
practices prescribed 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").
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.
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 for interstate operations and by the various state public service
commissions for intrastate operations. All rates are calculated on a
straight-line basis using the concept of "remaining life." 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.
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. The deferred amounts
included in the consolidated balance sheets are $286.5 and $162.1 million at
December 31, 1993 and 1992, respectively.
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 of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" ("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.
<PAGE>
page 39 1993 Consolidated Financial Statements
NYNEX
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 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.
<TABLE>
B INCOME TAXES
The components of income tax (benefit) expense are as follows:
<CAPTION>
In millions 1993* 1992 1991
- ------------------------------------------------------------------------------Federal:
<S> <C> <C> <C>
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.
</TABLE>
<TABLE>
A reconciliation between the federal income tax (benefit) expense computed at
the statutory rate and NYNEX/s effective tax (benefit) expense is as follows:
<CAPTION>
1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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 bene/t 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
- ------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
The components of current and long-term deferred tax assets and liabilities
at December 31, 1993 are as follows:
<CAPTION>
In millions Assets Liabilities
- ------------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
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 /owed 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 40 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:
<TABLE>
<CAPTION>
In millions 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
</TABLE>
<TABLE>
The following table sets forth the Plans' funded status and amounts
recognized in the consolidated balance sheets:
<CAPTION>
December 31,
In millions 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
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)
- ------------------------------------------------------------------------------
</TABLE>
The assumptions used to determine the projected benefit obligation at December
31, 1993 and 1992 include a discount rate of 7.5% and 8.5%, respectively,
and an increase in future compensation levels of 4.5% in both years for
management employees and 4.0% in both years for nonmanagement employees.
The expected long-term rate of return on pension plan assets used to
calculate pension expense was 8.9% in 1993 and 1992 and 8.5% in 1991.
Periodically, the Plans have been amended to increase the level of plan
benefits. The actuarial projections included herein anticipate plan
improvements in the future.
In 1992, NYNEX amended its management pension plan to provide early
retirement incentives, which increased the projected benefit
obligation by $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.
<TABLE>
Net postretirement benefit cost for 1993 includes the following components:
<CAPTION>
(In millions)
- ------------------------------------------------------------------------------
<S> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
page 41 1993 Consolidated Financial Statements
NYNEX
<TABLE>
The following table sets forth the funded status and amounts recognized, as
of December 31, 1993, for postretirement benefit plans:
<CAPTION>
(In millions)
- ------------------------------------------------------------------------------
<S> <C>
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)
- ------------------------------------------------------------------------------
</TABLE>
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.
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, totalling $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 42 1993 Consolidated Financial Statements
NYNEX
<TABLE>
D PROPERTY, PLANT AND EQUIPMENT-NET
The components of property, plant and equipment-net are as follows:
<CAPTION>
December 31,
In millions 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
F LONG-TERM DEBT
Interest rates and maturities on long-term debt outstanding are as follows:
<CAPTION>
Interest December 31,
In millions Rates Maturities 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Refunding Mortgage
Bonds: 33/8%/73/4% 1996/2006 $ 675.0 $ 675.0
6%/9% 2007/2014 425.0 1,075.0
Debentures: 4%/81/5% 1996/2006 655.0 625.0
63/8%/93/5% 2007/2018 1,262.6 1,680.2
67/8%/93/8% 2022/2033 1,800.0 2,000.0
Notes 31/3%/141/2% 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.
</TABLE>
<PAGE>
page 43 1993 Consolidated Financial Statements
NYNEX
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.
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.
<TABLE>
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:
<CAPTION>
Weighted average interest rates
December 31, December 31,
In millions 1993 1992 1991 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------------------
!! 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.
</TABLE>
<PAGE>
page 44 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. 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. If the construction program does not meet certain tests and
these shortfalls are not cured within a specified time period, the
completion agreement will necessitate payments to be made directly
to 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 indemnities relating to events prior to the creation of SC. In
addition, NYNEX will maintain certain financial and operating
standards and, under certain conditions, may elect to purchase the
general partner's interest in Chartwell's interest.
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
<PAGE>
page 45 1993 Consolidated Financial Statements
NYNEX
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.
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.
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:
<TABLE>
<CAPTION>
Price Range
Stock Options Shares Per Share
- ------------------------------------------------------------------------------
<S> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31,
Number of shares 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
</TABLE>
<PAGE>
page 46 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:
<TABLE>
<CAPTION>
In millions
Year Operating Capital
- ------------------------------------------------------------------------------
<S> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
December 31,
In millions 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
page 47 1993 Consolidated Financial Statements
NYNEX
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.
<TABLE>
M ADDITIONAL FINANCIAL INFORMATION
<CAPTION>
In millions 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
In millions 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
N SUPPLEMENTAL CASH FLOW INFORMATION
The following information is provided in accordance with Statement of
Financial Accounting Standards No. 95, "Statement of Cash Flows":
<CAPTION>
December 31,
In millions 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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 $ -
- ------------------------------------------------------------------------------
</TABLE>
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 various state and local tax claims aggregating
approximately $300 million in tax and associated interest will be
asserted against New York Telephone for the period 1983 through 1993. 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 48 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.
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 24-26 and 28-29, respectively.
Identifiable assets, depreciation expense and capital expenditures by
business segment are as follows:
<TABLE>
<CAPTION>
In millions 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
In millions 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
page 49 1993 Consolidated Financial Statements
NYNEX
<TABLE>
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.
<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 $ 3,245.0 $ 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
- -----------------------------------------------------------------------------------------------------------------------------/
<F01>
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 for the effect of 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.
</TABLE>
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>
<TABLE>
<CAPTION>
NYNEX Corporate Officers
<S> <C> <C> <C>
William C. Ferguson Frederic V. Salerno Peter M. Ciccone Donald J. Sacco
Chairman of the Board and Vice Chairman - Vice President and Comptroller Vice President
Chief Executive Officer Finance and Business Human Resources
Development Saul Fisher
Ivan G. Seidenberg Vice President Thomas J. Tauke
President and Chief Raymond F. Burke Law Vice President
Operating Officer Executive Vice President, Government Affairs
Vice Chairman - General Counsel and Secretary Patrick F. X. Mulhearn
Telecommunications Group Vice President Colson P. Turner
Jeffrey S. Rubin Public Relations Vice President and Treasurer
Executive Vice President and
Chief Financial Officer
</TABLE>
<TABLE>
<CAPTION>
Officers of Principal Operating Groups
<S> <C> <C>
NYNEX Telecommunications Group NYNEX Worldwide Services NYNEX Mobile Communications Company
Richard A. Jalkut Group, Inc. Alfred F. Boschulte
President and Chief Executive Richard W. Blackburn President
Officer - New York Senior Vice President and
Chief Operating Officer Michael A. Marino
Donald B. Reed Executive Vice President and
President and Chief Executive NYNEX CableComms Limited Chief Operating Officer
Officer - New England Eugene P. Connell
President and NYNEX Network Systems Company
Arnold J. Eckelman Chief Executive Officer Joseph C. Farina
Executive Vice President and President
Chief Operating Officer - NYNEX Information Resources Company
New York Matthew J. Stover NYNEX Credit Company
President and Richard E. Lucey
Robert J. Thrasher Chief Executive Officer President
Executive Vice President and
Chief Quality Officer NYNEX Trade Finance Company
Richard W. Frankenheimer
NYNEX Science & Technology, Inc. President
Casimir S. Skrzypczak
President
</TABLE>
<TABLE>
<CAPTION>
Share Owner Information
Corporate Headquarters:
NYNEX Corporation
1113 Westchester Avenue
White Plains, NY 10604
(914) 644-7600
Share Owner Services:
<S> <C> <C> <C>
Inquiries on stock-related From outside the continental Investor Relations: Independent Accountants:
matters including dividend United States, call collect Institutional investors, Coopers & Lybrand
payments, stock transfers on (617) 575-2407. financial analysts and 1301 Avenue of the Americas
and the NYNEX Share Owner Hearing-impaired share owners portfolio managers should New York, NY 10019
Dividend Reinvestment and with access to a direct questions to: Stock Exchange Listings:
Stock Purchase Plan, as Telecommunications Device for Allen F. Pattee Boston Stock Exchange
well as requests for the Deaf (TDD) may dial Chicago Stock Exchange
Form 10-K reports for NYNEX 1 (800) 368-0328 toll free for Corporate Director New York Stock Exchange
and its telephone account information. Pacific Stock Exchange
subsidiaries, should be Investor Relations Philadelphia Stock Exchange
directed to NYNEX's transfer General Information: Amsterdam Stock Exchange
agent and registrar, The If you have questions or NYNEX Corporation Basel Stock Exchange
First National Bank comments regarding NYNEX, Geneva Stock Exchange
of Boston ("Bank of Boston"): or would like to receive the 335 Madison Ave. The International Stock
NYNEX Corporation NYNEX "1993 Profile and Exchange, London
Statistics," additional copies New York, NY 10017 Zurich Stock Exchange
c/o Bank of Boston of the Summary Annual Report Ticker Symbol: NYN
or the Summary Annual Report (212) 370-7777
P.O. Box 9175 on audio cassette, direct
your requests to: Governmental Relations:
Boston, MA 02205-9175
NYNEX Corporation NYNEX Government Affairs
1 (800) 358-1133
Share Owner Communications 1300 I Street, N.W.
1095 Avenue of the Americas 4th Floor West
29th floor Washington, DC 20005
New York, NY 10036 (202) 336-7900
</TABLE>
March 21, 1994 NYNEX [logo]
Dear Share Owner:
On behalf of your Board of Directors, it is my pleasure to invite you to
NYNEX's 1994 Annual Meeting of Share Owners to be held on Wednesday,
May 4, 1994, 10:30 a.m., at the Westchester County Center, White Plains,
New York.
Information concerning the matters to be acted upon at the meeting is described
in the accompanying Proxy Statement. In addition, I will be reporting on the
business operations of the Company and, following my report, responding to any
questions or comments you may have.
Whether or not you plan to attend the meeting, it is important that you sign and
return your proxy as soon as possible in the envelope provided. If you do wish
to attend the meeting please mark the ticket request box on the proxy so that a
ticket can be mailed to you.
I look forward to seeing you at the meeting.
Sincerely,
s/William C. Ferguson
William C. Ferguson
Chairman of the Board and
Chief Executive Officer
<TABLE>
Detach Proxy Card Here
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
NYNEX (logo) PROXY/VOTING INSTRUCTION CARD
NYNEX Corporation
1113 Westchester Avenue, White Plains, New York 10604
<S> <C>
P
This proxy is solicited on behalf of the Board of Directors for the Annual Meeting of
Share Owners on May 4, 1994.
R
The undersigned hereby appoints W.C. Ferguson, E.T. Kennan and E.E. Phillips, and each
of them, proxies, with the powers the undersigned would possess if personally
present, and with full power of substitution, to vote all Shares of the
undersigned in NYNEX Corporation at the Annual Meeting of Share
O Owners to be held at the Westchester County Center, White Plains, New York, on May 4,
1994, and at any adjournment thereof, upon all subjects that may properly come
before the meeting including the matters described in the proxy statement
furnished herewith, subject to any directions indicated on the reverse
X side of this card. If no directions are given, the proxies will vote as follows: (1)
for the election of all listed nominees; (2) in accordance with the Directors'
recommendations on the other subjects listed on the reverse side of this card;
and (3) at their discretion on any other matter that may
Y properly come before the meeting. (If you have indicated any changes or voting
limitations in this paragraph, please mark the "Vote Limitations" box on the
reverse side of this card in order to expedite processing.)
Your vote for the election of Directors may be indicated on the reverse side of this
card. Five Directors are to be elected at the meeting. Nominees are J. Brademas,
W.C. Ferguson, E.T. Kennan, F.V. Salerno and J.R. Stafford.
Please sign on reverse side and return promptly in the enclosed envelope to P.O. Box
9020, Boston, Massachusetts 02205-8651. If you do not sign and return a proxy, or
do not attend the meeting and vote by ballot, your shares cannot be voted.
This proxy also provides voting instructions for Shares held in the dividend
reinvestment plan and, if registrations are identical, Shares held in the
various emeployee stock purchase and savings plans described in the proxy statement.
(If you have written on this side of the card, please mark the "Vote Limitations" box
on the reverse side.)
</TABLE>
<PAGE>
NYNEX [logo] Annual Meeting of Share Owners
May 4, 1994 at 10:30 am
Westchester County Center
Bronx River Parkway
and Central Avenue
White Plains, New York
Doors open at 9:30 am
MAPS OF AREA
MAP MAP
[sign] - Interstate [sign] - Westchester County Center [sign] - Route
[sign] - Traffic Light
By Train: NYC to White Plains via Harlem Division - Metro-North. Westchester
County Center is within 10 minutes walking distance,
or you may take the # 1, 3, 5 or 6 Bee-Line Bus for one stop.
<TABLE>
/ /Please mark
/ X /votes as in
this example.
/ Directors recommend a vote "Against" /
To vote your Shares for all Director nominees, mark the "For" box
in Item A. To / the Share Owner proposals regarding /
withhold voting for all nominees, mark the "Withheld" box. If you not
do not wish your Shares voted "For" a particular nominee, mark the
"Exceptions" box and enter the name(s) of the person(s) you do not wish
to vote for in the space provided.
<CAPTION>
/ FOR AGAINST ABSTAIN/
/ / / / /
/ /
/1. Repeal of Board / / / / / / /
/ Classification
/
/ Director's recommend a vote "For" // 2. Charitable / / /
/ FOR WITHHELD FOR AGAINST ABSTAIN /
/ Contributions / / / / / / /
<S> <C>
/ A. Election of / / / / B. Ratificiation of / / / / / / /
/ Listing /
/ Directors / / / / Auditors / / / / / / /
/ /
/ /
/ /
/ EXCEPTIONS C. Long Term /
/ 3. Increase Number / / / / / / /
/ / / Incentive / / / / / / /
/ of Director / / / / / / /
/ / / Program / / / / / / /
/ Nominees /
/ For all nominees except as noted above /
/ /
/ /
/ /
/ Summary Annual Report / / Send Admission / / Vote Limitations / / /
/ 4. Board Health / / / / / / /
/ Discontinue Mailing / / Ticket for / / on Other Side / / /
/ Care Committee/ / / / / / /
/ (Other Account at this Address) Annual Meeting of Card /
/ /
/ /
/ /
/ 5. Facilities / / / / / / /
/ Closure / / / / / / /
/ Committee /
You must return this card promptly to have your Shares voted. If you
do attend the meeting and decide to vote by ballot, such vote will
supersede this proxy. If signing for a corporation or partnership or
as agent, attorney or fiduciary, indicate the capacity in which you
are signing.
Signature: Date
Signature: Date
</TABLE>
<PAGE>
<TABLE>
NYNEX (logo) PROXY/VOTING INSTRUCTION CARD
<CAPTION>
NYNEX Corporation
1113 Westchester Avenue, White Plains, New York 10604
<S><C>
P
This proxy is solicited on behalf of the Board of Directors for the Annual Meeting of
Share Owners on May 4, 1994.
R
The undersigned hereby appoints W.C. Ferguson, E.T. Kennan and E.E. Phillips, and each
of them, proxies, with the powers the undersigned would possess if personally
present, and with full power of substitution, to vote all Shares of the
undersigned in NYNEX Corporation at the Annual Meeting of Share
O Owners to be held at the Westchester County Center, White Plains, New York, on May 4,
1994, 1993, and at any adjournment thereof, upon all subjects that may properly
come before the meeting including the matters described in the proxy statement
furnished herewith, subject to any directions indicated on the
X reverse side of this card. If no directions are given, the proxies will vote as
follows: (1) for the election of all listed nominees; (2) in accordance with
the Directors' recommendations on the other subjects listed on the reverse side of
this card; and (3) at their discretion on any other matter that
Y may properly come before the meeting. (If you have indicated any changes or voting
limitations in this paragraph, please mark the "Vote Limitations" box on the
reverse side of this card in order to expedite processing.)
Your vote for the election of Directors may be indicated on the reverse side of this
card. Five Directors are to be elected at the meeting. Nominees are J. Brademas,
W.C. Ferguson, E.T. Kennan, F.V. Salerno and J.R. Stafford.
PLEASE COMPLETE, DATE AND SIGN THE REVERSE SIDE.
</TABLE>
<PAGE>
<TABLE>
/ /Please mark
/ X /votes as in
this example.
/ Directors recommend a vote "Against" /
To vote your Shares for all Director nominees, mark the "For" box in Item A. To
/ the Share Owner proposals regarding /
withhold voting for all nominees, mark the "Withheld" box. If you not wish your
/ FOR AGAINST ABSTAIN/
Shares voted "For" a particular nominee, mark the "Exceptions" box and enter / / / / / / / /
name(s) of the person(s) you do not wish to vote for in the space provided. /1.Repeal of Board/ / / / / / /
/ Classification /
/ /
<CAPTION>
Director's recommend a vote "For" //2.Charitable / / / / / / /
/ FOR WITHHELD FOR AGAINST ABSTAIN // Contributions / / / / / / /
<S> <C>
/ A.Election of / / / / B.Ratification of / / / / / / / / Listing
/ Directors / / / / Auditors / / / / / / /
/ /
/ /
/ /
/ EXCEPTIONS C.Long Term //3.Increase Number/ / / / / / /
/ / / Incentive / / / / / / / / of Director / / / / / / /
/ / / Program / / / / / / / / Nominees /
/ For all nominees except as noted above /
/ /
/4.Board Health / / / / / / /
/ Care Committee / / / / / / /
/ /
/ /
/5.Facilities / / / / / / /
/ Closure / / / / / / /
Committee
/ /
You must return this card promptly to have your Shares voted.
If you do attend the meeting and decide to vote by ballot, such
vote will supersede this proxy. If signing for a corporation or
partnership or as agent, attorney or fiduciary, indicate the capacity
in which you are signing.
Signature: Date
Signature: Date
</TABLE>
NYNEX 1995 LONG TERM INCENTIVE PROGRAM
I. General
1. Effective Date of the Program. This 1995 Long Term
Incentive Program (the "Incentive Program") has been
established by NYNEX Corporation, a Delaware
corporation (the "Company"), effective as of
January 1, 1995, subject to approval by the
affirmative vote of a majority of the shares
present or represented by proxy at the Company's 1994
Annual Meeting of Stockholders.
2. Purpose. The purpose of the Incentive Program is to
promote the long term financial interests of the Company by
attracting, motivating and retaining individuals possessing
outstanding ability and furthering the identity of
interests of participating employees with those of
the Company's stockholders.
3. Awards. Awards under the Incentive Program may
include Options, Stock Appreciation Rights (but only
if granted in conjunction with Options), Restricted Stock,
Performance Units, and Other Stock Units.
4. Administration. The Incentive Program shall be
administered and interpreted by the Committee on Benefits
of the Board of Directors of the Company (the "Committee")
which is composed of not less than two Directors; provided,
however, that any action required or permitted to be taken
by the Committee may be taken by the Board of Directors of
the Company. No member of the Committee shall be eligible,
or within one year prior to such membership shall have been
eligible, for an award under the Incentive Program. The
Committee may subject any Award or exercise under the
Incentive Program or any stock awarded under the
Incentive Program to such conditions, limitations
or restrictions as the Committee determines to be
appropriate for any reason.
5. Participation. The Committee shall designate the
officers and other management employees of the Company and
its subsidiaries who shall be participants
("Participants") in the Incentive Program.
<PAGE>
The Committee may make any Award to a Participant under the
Incentive Program in conjunction with any other Award
(including Awards previously made under this or any other
incentive plan). Notwithstanding any other provision of the
Incentive Program, if a Participant, while otherwise eligible
for payment or accrual of a benefit under the Incentive Program:
(a) has, without the consent of the Company or any
subsidiary, become associated with, is employed by,
renders services to, or owns a substantial interest in any
business that is competitive with the Company or its
subsidiaries, or
(b) has divulged or appropriated to his or her own use or
to the use of others any secret or confidential information
or knowledge, pertaining to the business of the Company or
its subsidiaries obtained by the Participant while he or
she was employed by any of them, then, his or her
participation in the Incentive Program shall
immediately cease and all undistributed Awards
previously made to him or her under the Incentive
Program and all rights to payments of any kind under
the Incentive Program, exclusive of any amount
voluntarily deferred, shall be immediately
forfeited.
6. Stock Subject to the Incentive Program. Shares of stock
subject to the Incentive Program shall be shares of the
Company's common stock, par value $1.00 per share
("Common Stock"). The number of shares of Common Stock
which may be subject to Options or delivered in payment of
Stock Appreciation Rights or Restricted Stock or
Performance Units or Other Stock Units under the
Incentive Program shall not exceed one-half of one percent
(0.5%) of the outstanding shares of Common Stock as of the
first day of each calendar year for which the Incentive
Program is in effect in each such year, subject to
adjustment in accordance with paragraph I.8 of the
Incentive Program.
<PAGE>
All shares of Common stock available in any year which are
not awarded under the Incentive Program shall be available
for award in subsequent years. Any shares of Common Stock
subject to any Award which terminates by expiration,
cancellation, forfeiture, surrender or otherwise
without the issuance of such shares or without payment
therefore shall again be available for future Awards under
the Incentive Program. Either authorized and unissued
shares or treasury shares may be delivered under the
Incentive Program.
7. Fair Market Value. For all purposes of the Incentive
Program, the "Fair Market Value" of a share of Common Stock
shall be deemed to be the mean between the high and low sales
prices (rounded up to the nearest whole cent) of the Common
Stock as quoted on the New York Stock Exchange-Composite
Transactions listing for the date as of which value is to
be determined, or if there is no such quote for that date,
then on the last preceding date on which such quote was
reported.
8. Changes in Capitalization. In the event of any change in
the outstanding shares of Common Stock by reason of any stock
dividend or split, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate
change, the number of shares of Common Stock subject to the
Incentive Program and the terms of all outstanding Awards
shall be equitably adjusted by the Committee. Such
determination of the Committee shall be conclusive;
provided that in no event shall the Committee adjust the
option price to a price less than the par value of the
Common Stock on the date of the adjustment. Furthermore,
if there is an adjustment in the number of shares, cash in
lieu of a fraction of a share shall be delivered in regard
to any Award under the Incentive Program; and, if an
adjustment of the option price shall result in a
fraction of one cent, the next higher full cent shall be
included in such price in lieu of such fraction.
<PAGE>
9. Change in Control.
(a) In the event of a Change in Control of the Company,
as hereinafter defined:
(i) all Options and Stock Appreciation Rights
previously granted to Participants under Part II of the
Incentive Program shall become fully exercisable as of the date
of the Change in Control, whether or not exercisable and vested
as of that date;
(ii) each Participant whose employment by the
Company and its subsidiaries is involuntarily terminated
without cause (as defined below) during the portion of the
calendar year which remains following a Change in Control or
the two immediately following calendar years may exercise any
Option or Stock Appreciation Right previously granted to him
or her under Part II of the Incentive Program at any time
during the five years next following the date of his or her
termination of employment (or, if less, the period remaining on
the original term of the Option or Stock Appreciation Right);
(iii) each Participant who is deemed by the Committee
to be a statutory officer or insider subject to Section 16 of
the Securities Exchange Act of 1934 may, at any time during
the ninety business days next following the Change in
Control, in lieu of exercising his or her Options,
elect to receive a cash payment equal to the positive
difference between (x) the aggregate purchase price of the
shares for which such election is made, and (y) the highest
aggregate Fair Market Value of the Common Stock with
respect to such shares which occurs during the period
beginning thirty days prior to the Change in Control and
ending thirty days after the Change in Control, or in the
case of Incentive Stock Options the maximum permissible
without disqualifying such Options. In the event of an
offer or exchange in which fewer than all of the shares which
have been validly tendered or exchanged are accepted, then the
Committee may limit the number
<PAGE>
of shares subject to cash payment in lieu of purchase to that
portion of the shares that results from multiplying the
option shares by a fraction, the numerator of which is the
number of shares of Common Stock acquired pursuant to the offer
or exchange and the denominator of which is the number of
shares tendered in response to such offer;
(iv) any restricted period in effect as of the
date of the Change in Control shall end with respect to
shares of Restricted Stock previously awarded in
accordance with Part III of the Incentive Program
and, as soon as practicable, such shares shall be
distributed to Participants free of restrictions;
(v) the value of each Participant's Performance Units
(awarded under Part IV of the Incentive Program) for any
performance period in effect as of the date of the
Change in Control shall be the greater of the amount
determined under the terms of the Incentive Program
without regard to this paragraph I.9(a) or an amount
determined on the basis of (x) the percentage of the
applicable corporate performance goal (based upon which
Performance Units are to be determined) achieved as of the
date of the Change in Control; (y) the highest Fair Market
Value of Common Stock on any date occurring during the period
beginning thirty days prior to the Change in Control and
ending thirty days after the Change in Control; and (z)
dividends credited at a rate not less than the rate in effect
immediately prior to the Change in Control. In the event that
a Participant's employment is involuntarily terminated without
cause during any performance (period in effect on the date of
the Change in Control, an immediate cash distribution of the
value of his or her Performance Units (as determined in this
paragraph I.9(a)) shall be made to the Participant; and
(vi) the value of each Participant's Other Stock
units (awarded under Part V of the Incentive Program) which
have not otherwise been distributed to the Participant shall
immediately become payable in cash to the Participant, and as
soon as practicable, such cash payment shall be made to each
Participant.
<PAGE>
(b) A "Change in Control" shall be deemed to have
occurred if there is a change in the beneficial
ownership of the Company's voting stock or a change in
the composition of the Company's Board of Directors which
occurs as follows:
(i) any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
other than (x) a trustee or other fiduciary of securities
held under an employee benefit plan of the Company, or (y)
the Participant or any person acting in concert with the
Participant becomes a beneficial owner, directly or
indirectly, of stock of the Company representing fifteen
percent or more of the total voting power of the Company's
then outstanding stock:
(ii) a tender offer is made for the stock of the
Company, which has not been approved by the Board of Directors
of the Company, and the person making the offer owns or has
accepted for payment stock of the Company representing
fifteen percent or more of the total voting power of the
Company's stock; or
(iii) during any period of twenty-four consecutive
months there shall cease to be a majority of the Board of
Directors comprised as follows: individuals who at the
beginning of such period constitute the Board of Directors
and any new Director(s) whose election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds
(2/3) of the Directors then still in office who either were
Directors at the beginning of the period or whose election or
nomination for election was previously so approved.
The occurrence of a Change in Control shall not, of itself,
result in a termination of the Incentive Program or affect
any provision of the Incentive Program, except as specifically
provided in this paragraph I.9.
<PAGE>
(c) For purposes of this paragraph I.9, the term "cause"
means a Participant's willfully engaging in conduct materially
injurious to the Company or any subsidiary or the willful and
continual failure by a Participant to substantially perform
the duties assigned to him or her (other than any failure
resulting from his or her incapacity due to physical injury
or illness or mental illness), which failure has not been
corrected by him or her within thirty days after receipt
of a written notice from the Chief Executive Officer or Board
of Directors of his or her employer specifying the manner in
which he or she has failed to perform such duties. No act,
or failure to act, by a Participant shall be deemed "willful"
unless done, or omitted to be done, not in good faith and
without reasonable belief that such action or omission
was in the best interest of the Company and its subsidiaries.
10. Withholding. Any payment of cash or issuance of Common
Stock pursuant to any provision of the Incentive Program
shall be subject to the withholding of income, employment
and other taxes to the extent the Company or a subsidiary is
required to make such withholding. In the case of the
issuance of shares of Common Stock, the Participant may
either pay the withholding related to such shares directly or
request that the Company retain, rather than issue to the
Participant, the number of shares having a Fair Market
Value equal to the amount to be withheld.
11. Transferability. Each Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit and Other Stock Unit,
by its terms, may not be transferred by a Participant other
than by will or the laws of descent and distribution and
during the lifetime of a Participant any rights with respect
thereto shall be exercisable only by the Participant.
12. Amendment or Termination. The Board of Directors may
amend, suspend or terminate the Incentive Program or any
portion thereof at any time. The Committee may amend the
Incentive Program to the extent necessary for the efficient
administration of the Incentive Program, or to make it
<PAGE>
practically workable or to conform to the provisions of any
federal or state law or regulation. No award shall be
made under the Incentive Program after December 31, 1999.
The Committee may amend the terms of any outstanding Award in
any manner not inconsistent with the terms of the Incentive
Program. In no event may any amendment, suspension or
termination of the Incentive Program or any amendment of
the terms of any Award impair the rights of any Participant,
without his or her consent, except as provided in paragraph
I.5.
13. Other Compensation and Benefits. Nothing contained
herein shall be construed to limit in any way the
authority of the Company, the Board of Directors of the
Company and the Committee to provide for compensation and
benefits of employees of the Company and its subsidiaries
in accordance with applicable law.
II. Stock Options and Stock Appreciation Rights
1. Stock Options ("Options") may be granted to Participants
in accordance with the terms and conditions of the NYNEX 1995
Stock Option Plan (the "Plan") either alone or in addition to
other Awards granted under the Incentive Program. The total
number of shares of Common Stock for which Options may be
issued shall not exceed 8,000,000, subject to adjustment in
accordance with Article VIII of the Plan. The Plan limits the
maximum number of Options that may be granted in any one year
(i) to the Chief Executive Officer of NYNEX and (ii) to each
of the other Executive Officers required to be named in
NYNEX's proxy statement with respect to the preceding
year, pursuant to the proxy rules promulgated under the
Securities Exchange Act of 1934, to
10% of the total number of Options granted under the Plan in
such year. Any Option granted under the Incentive Program
shall be evidenced by an Option Agreement in such form as
the Committee may from time to time approve.
<PAGE>
The Committee may grant Incentive Stock Options, as described in
Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor provision, or Options which do
not meet such requirements ("Nonstatutory Stock Options"), or a
combination of both. Any such Option shall be subject to the
following terms and conditions and to such additional terms
and conditions, not inconsistent with the provisions of the
Incentive Program, as the Committee shall deem desirable:
(a) Option Price. The purchase or option price per share
purchasable under an Option shall be determined by the
Committee in its sole discretion; provided that such
purchase or option price shall not be less than the Fair
Market Value of the share on the date of the grant of the
Option.
(b) Option Period. The term of each Option shall be
fixed by the Committee in its sole discretion; provided
that no Incentive Stock Option shall be exercisable after
the expiration of ten years from the date the Option is
granted.
(c) Exercisability. Options shall be exercisable at such
time or times as determined by the Committee at or subsequent
to grant. Unless otherwise determined by the Committee at or
subsequent to grant, no Incentive Stock Option shall be
exercisable during the year ending on the day before
the first anniversary date of the granting of the Incentive
Stock Option.
(d) Method of Exercise. Subject to the other provisions
of the Incentive Program and any applicable Option Agreement,
any Option may be exercised by the Participant in whole or in
part at such time or times, and the Participant may make
payment of the option price in such form or forms,
including, without limitation, payment by delivery of
cash, shares of Common Stock or any combination thereof, as
the Committee may specify in the applicable Option Agreement.
<PAGE>
In instances where Shares have been surrendered in
full or partial payment of an exercise, a new grant of
Nonstatutory Options may be made concurrently, with the
number of Options granted equal to the number of Shares
surrendered. A grant made under these circumstances will
be exercisable after six months, have an Option price equal to
the Fair Market Value of Common Stock on the date of the new
grant and have the same expiration date as a Nonstatutory
Option.
(e) Incentive Stock Options. In accordance with rules
and procedures established by the Committee, the aggregate
Fair Market Value (determined as of the time of grant) of the
shares of Common Stock with respect to which Incentive Stock
Options held by any Participant which are exercisable for
the first time by such Participant during any calendar year
under the Incentive Program (and under any other benefit plans
of the Company or any parent or subsidiary corporation of the
Company) shall not exceed $100,000 or, if different, the
maximum limitation in effect at the time of grant under
Section 422A of the Code, or any successor provision, and
any regulations promulgated thereunder. The terms of any
Incentive Stock Option granted hereunder shall comply in all
respects with the provisions of Section 422A of the Code, or
any successor provision, and any regulations promulgated
thereunder.
2. Stock Appreciation Rights may be granted to Participants,
but only in conjunction with Options, in accordance with the
terms and provisions of the NYNEX 1995 Stock Option Plan.
III. Restricted Stock
The Committee may grant Restricted Stock to
Participants; provided, however, that all such grants
comply with the provisions of the NYNEX 1987 Restricted Stock
Award Plan.
<PAGE>
IV. Performance Units
The Committee may grant Performance Units, expressed in
terms of shares of Common Stock, to Participants provided,
however, that all such grants comply with the NYNEX Senior
Management Long Term Incentive Plan or the NYNEX Long Term
Incentive Plan, as the case may be.
V. Other Stock Units
1. Grant. Other Awards of shares of Common Stock and
other Awards that are valued in whole or in part by
reference to, or are otherwise based on, shares of
Common Stock ("Other Stock Units") may be granted hereunder
to Participants. Other Stock Units may be paid in shares of
Common Stock, cash or any other form of property as the
Committee shall determine.
2. Conditions. Shares of Common Stock granted
under this Section V may be issued for no cash consideration
or for such minimum consideration as may be required by
applicable law. Shares of Common Stock purchased
pursuant to a purchase right awarded under this Section
V shall be purchased for such consideration as the Committee
shall in its sole discretion determine, which shall not be
less than the Fair Market Value of such shares as of the date
such purchase right is awarded.
NYNEX 1995 STOCK OPTION PLAN
Date: March, 1994
<PAGE>
Table of Contents
NYNEX 1990 Stock Option Plan..............................1
Article I Purpose......................................1
Article II Definition..................................1
Article III Shares Subject to the Plan.................1
Article IV Administration..............................1
Article V Eligibility..................................2
Article VI Terms of Options............................2
Article VII Limitations on Grants and Exercise of ISOs.6
Article VIII Adjustments...............................6
Article IX Change in Control...........................7
Article X Amendment and Termination of Plan............8
Article XI Government and Other Regulations............9
Article XII Miscellaneous Provisions...................9
Article XIII Stockholder Approval and Effective Dates.10
<PAGE>
NYNEX 1995 Stock Option Plan
Set forth below is the NYNEX 1995 Stock Option Plan:
Article I
Purpose
1.1 The purpose of NYNEX 1995 Stock Option Plan (the "Plan") is
to provide opportunities for selected key employees of
NYNEX Corporation (the "Company") and its subsidiaries
to purchase shares of common stock of the Company and to
benefit from the appreciation thereof. The Plan is
intended to provide an increased incentive for these
employees to contribute to the future success and
prosperity of the Company, thus enhancing the
value of the stock for the benefit of the Company's
stockholders. In addition, the Plan is intended to
increase the ability of the Company to attract and
retain individuals of exceptional skill upon whom, in
large measure, its sustained progress, growth and
profitability depend. The Plan replaces the
predecessor NYNEX 1990 Stock Option Plans which
expired on December 31, 1994.
Article II
Definition
2.1 As used in the Plan, the term "subsidiary" shall have the
meaning assigned to such term in Section 424 of the
Internal Revenue Code of 1986, as amended (the
"Code"), or any successor provision, and shall
include any corporation which becomes a subsidiary
after the date of adoption of the Plan.
Article III
Shares Subject to the Plan
3.1 The total number of shares of common stock of the Company
("Common Stock") which may e issued under the Plan shall
not exceed 8,000,000, subject to adjustment in accordance
with Article VIII of the Plan. These shares may be
authorized and unissued shares or Treasury shares,
as the Board of Directors of the Company (the "Board")
may from time to time determine. If an option granted
under the Plan ("Option") or portion thereof shall
expire or terminate for any reason without having
been exercised in full, the unpurchased shares covered
by such Option shall be available for future grants of
Options. For purposes of this Section 3.1. Options paid
for through the delivery of shares pursuant to Section
6.7(b) of the Plan shall be treated as having expired
or terminated without having been exercised in full. An
Option, or portion thereof, exercised through the
election of a Stock Appreciation Right pursuant to
Section 6.8 of the Plan shall be treated, for the
purposes of this Article, as though the Option, or
portion thereof, had been exercised through the purchase
of Common Stock, with the result that the shares of
Common Stock subject to the Option, or portion
thereof, that was so exercised shall not be
available for future grants of Options.
Article IV
Administration
4.1 The Plan shall be administered by the Committee on Benefits
of the Board (the "Committee"). The Committee shall be
composed of not less than two directors, all of whom
are "disinterested persons" within the meaning of Rule
16b-3 as promulgated under the Securities Exchange Act of
1934, as amended.
<PAGE>
4.2 The Committee shall administer, construe and interpret the
Plan, establish and amend rules and regulations for
administration of the Plan, and perform all other
acts relating to the Plan, including the delegation of
administrative responsibilities, which it believes
reasonable and proper.
4.3 The Committee shall have full power to grant Options subject
to the provisions of the Plan, and shall, in its
discretion, determine which employees of the
Company and its subsidiaries shall be granted Options,
the number of shares of Common Stock subject to any such
Options, the dates after which Options may be exercised,
in whole or in part, and the terms and conditions of the
Options (including whether Stock Appreciation Rights
described in Section 6.8 of the Plan and/or Dividend
Equivalent Rights described in Section 6.9 of the Plan
shall be provided with respect to an Option). No
employee of the Company or its subsidiaries shall
have any claim or right to be granted an Option, and
there shall be no obligation on the part of the
Committee, in granting Options, to treat eligible
employees uniformly.
4.4 The Plan limits the maximum number of Options that may be
granted in any one year *(a) to the Chief Executive
Officer of NYNEX and (b) to each of the other
Executive Officers required to be named in NYNEX's
proxy statement with respect to the preceding year,
pursuant to the proxy rules promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), to
10% of the total number of Options granted under the Plan
in such year.
4.5 Any claim under the Plan by an employee to whom as Option
was granted ("Optionee") shall be presented to the
Committee. The Committee shall determine conclusively
all questions arising out of or in connection with the
interpretation and administration of the Plan, and the
Committee's decision shall be final and binding on all
parties.
Article V
Eligibility
5.1 Options may be granted to key employees of the Company and
its subsidiaries. Key employees will comprise, in
general, those who contribute to the management,
direction and overall success of the Company and its
subsidiaries, including those who are members of the
Board. Members of the Board who are not employees of the
Company or a subsidiary shall not be eligible for Option
grants.
Article VI
Terms Of Options
6.1 Incentive and Nonstatutory Stock Options: In the discretion
of the Committee, Options may be granted as either (a)
options that comply with the requirements for an
incentive stock option ("ISO") set forth in Section
422A of the Code, or (b) options that do not comply with
such requirements ("NSO"). Options which qualify as ISOs
shall be designated as ISOs and other options shall be
designated as NSOs.
6.2 Option Agreement: All Options shall be evidenced by written
agreements executed by the Company and the Optionee (the
"Option Agreements"). Option Agreements shall be subject
to the applicable provisions of the Plan, and shall
contain such provisions as are required by the Plan
and any other provisions the Committee may prescribe which
are not inconsistent with the Plan. All Option Agreements
shall include the nontransferability provisions of
Section 6.11 of the Plan and shall specify the total
number of shares of Common Stock subject
<PAGE>
to each grant, the purchase price of a share of Common Stock
under an Option (the "Option Price"), the expiration date
for the Option fixed by the Committee ("Expiration
Date"), and whether the Option is an ISO or an NSO.
6.3 Option Price: The Option Price shall not be less than the
Fair Market Value of a share of Common Stock on the Date
the Option is granted. The "Fair Market Value" shall be
deemed, for all purposes under this Plan, to be the
mean between the high and low sale prices (rounded up
to the nearest whole cent) of the Common Stock as quoted
by the New York Stock Exchange--Composite Transactions
listing for the date as of which value is to be
determined, or if there is no such quote for that
date, then on the last preceding date on which such quote
was reported. In no event shall the Option Price be less
than the par value of a share of Common Stock.
6.4 Period of Exercise: The Committee shall determine the dates
after which Options may be exercised in whole or in part.
If Options are exercisable in installments, installments
or portions thereof that are exercisable and not
exercised shall accumulate and remain exercisable.
The Committee may also amend an Option to accelerate the
dates after which Options may be exercised in whole or
in part. However, except as set forth in Article VIII and IX, no
Option or portion thereof shall be exercisable prior to the
first anniversary of the date the Option is granted or
after the Expiration Date.
6.5 Expiration Date of ISO: The Expiration Date of an ISO may be
be later than the day preceding the tenth anniversary of
the date on which the ISO was granted.
6.6 Special Rules Regarding ISOs Granted to Certain Employees:
Notwithstanding any contrary provisions of Section 6.3
and 6.4 of the Plan, no ISO shall be granted to any
employee who, at the time the Option is granted, owns
(directly, or within the meaning of Section 424(d) of the
Code) more than ten percent of the total combined voting
power of all classes of stock of the Company or of any
subsidiary, unless (a) the Option Price under such
Option is at least 110 percent of the Fair Market
Value of a share of Common Stock on the date the Option
is granted and (b) the Expiration Date of such Option is a
date not later than the day preceding the fifth
anniversary of the date on which the Option is
granted.
6.7 Manner of Exercise and Payment: An Option, or portion
thereof, shall be exercised by delivery of a written
notice of exercise to the Company (on a form to be provided
by the Company), and payment of the full price of shares
being purchased pursuant to the Option. An Optionee may
exercise an Option with respect to less than the full
number of shares of which the Option may then be
exercised, but an Optionee must exercise the Option
in full shares of Common Stock. The Price of Common Stock
purchased pursuant to an Option, or portion thereof, may be
paid:
a. in United States dollars in cash or by check, bank draft
or money order payable to the order of the Company;
b. through the delivery of shares of Common Stock with an
aggregate Fair Market Value on the date of exercise
equal to the Option Price;
c. by any combination of the above methods of payment;
provided, however, that the Committee shall
determine acceptable methods for tendering Common
Stock as payment upon exercise of an Option and may, in
its discretion, limit or prohibit the use of Common
Stock to pay the Option Price.
<PAGE>
d. In instances where Shares have been surrendered in full
or partial payment of an exercise, a new grant of
Nonstatutory Options may be made concurrently, with
the number of Options granted equal to the number of
Shares surrendered. A grant made under these
circumstances will be exercisable after six
months, have an Option price equal to the fair
market value of Common Stock on the date of the new
grant and have the same expiration date as the
Options being exercised.
6.8 Stock Appreciation Rights: The Committee may, in its
discretion, provide an Optionee with an alternate
means of exercising an Option, or a designated portion
thereof, by granting the Optionee a Stock Appreciation
Right. With respect to an ISO, a Stock Appreciation Right
may be provided only at the time the Option is granted;
with respect to an NSO, a Stock Appreciation Right may
be provided at or after the grant of the Option. A Stock
Appreciation Right is a right to receive, upon exercise
of an Option or any portion thereof and inlieu of the
Optionee's right to purchase shares of Common Stock
upon such exercise, an amount equal to the excess of
the Fair Market Value of a share of Common Stock on the
date of exercise over the Option Price, multiplied by the
number of shares of Common Stock that the Optionee would
have received had the Option or portion thereof been
exercised through the purchases of shares of Common
stock at the Option Price. An Option or portion thereof
may be exercised through election of a Stock Appreciation
Right only if such Option or portion thereof has been
designated as exercisable in this alternative manner,
such Option or portion thereof is otherwise exercisable,
and the Fair Market Value of a share of Common Stock on
the date of exercise exceeds the Option Price. Payment of
a Stock Appreciation Right shall, in the Committee's sole
discretion, be made:
a. in United States dollars in cash or by check, bank draft
or money order payable to the order of the Optionee;
b. through the delivery of shares of Common Stock with and
aggregate Fair Market Value on the date of exercise
equal to the amount payable with respect to the Stock
Appreciation Right;
c. by any combination of the above methods of payment.
6.9 Dividend Equivalent Rights: At the time an Option is
granted, the Committee may, in its discretion,
grant Dividend Equivalent Rights with respect to the
Option. When such Dividend Equivalent Rights are granted,
the Company shall establish an account in the name of the
Optionee (the "Account") to which Dividend Equivalent
amounts shall be credited to the extent provided
hereinafter. If an Option with Dividend Equivalent
Rights is unexercised in whole or in part on any dividend
record date for Common Stock which occurs during the five
year period following the grant of the Option, the
Account shall be credited on the dividend record
date with an amount equal to the dividend declared on
the number of shares of Common Stock equal to the number
of shares subject to such unexercised Option or the
unexercised portion thereof (regardless of whether
such Option or portion thereof is currently exercisable).
Amounts credited to the Account shall accrue without
interest or other earnings thereon and shall be paid
proportionately to the Optionee in cash at the time, and
only in the event that, the Option , or a portion
thereof, is exercised either through the purchase of
Common Stock pursuant to Section 6.7 of the Plan or the
election of a Stock Appreciation Right pursuant to
Section 6.8 of the Plan. Any balance in the Account
shall be forfeited if and when the related Option
expires unexercised or terminates for any reason
provided for in the Plan.
<PAGE>
6.10 Withholding of Taxes: The Committee may, in its
discretion, require an Optionee to pay to the
Company at the time of exercise, or at such later date
as the Committee shall specify, such amount as the
Committee deems necessary to satisfy the obligation
of the Company or a subsidiary to withhold Federal,
State or local income or other taxes incurred by
reason of the exercise, the transfer of shares
thereupon, or a subsequent disposition of the
shares acquired by exercise.
6.11 Nontransferability of Options: Each Option shall, during
the Optionee's lifetime, be exercisable only by the
Optionee, and neither it nor any right hereunder,
including any Stock Appreciation Right provided under
Section 6.8 of the Plan, shall be transferable otherwise
than by will or the laws of descent and distribution or
be subject to attachment, execution or other similar
process. In the event of any attempt by the Optionee
to alienate, assign, pledge, hypothecate or otherwise
dispose of an Option or of any right hereunder, except
as provided for herein, or in the event of any levy or
any attachment, execution or similar process upon the
rights or interest hereby conferred, the Company may
terminate the Option by notice to the Optionee and
the Option shall thereupon become null and void.
6.12 Cessation of Employment of Optionee:
a. Cessation of Employment other than by Reason of
Retirement, Disability, Death or Certain
Transfers: If an Optionee shall cease to be
employed by the Company or a subsidiary otherwise
than by reason of Retirement, Disability, death, or
transfer to Bell Communications Research, Inc.
("BCR"), each Option held by the Optionee, together
with all rights hereunder, shall terminate on the date
of cessation of employment, to the extent not
previously exercised. For purposes of the Plan:
(i) the term "Retirement" shall mean retirement with a
Service Pension as defined in the NYNEX
Management Pension Plan, or, in the case
of an Optionee who subsequently becomes employed
by BCR, retirement with a Service Pensions as
defined in the Bell Communications Research
Management Pension Plan;
(ii) the term "Disability" shall mean permanent and total
disability as defined in Section 22(e)(3) of the
Code; and
(iii) the transfer of an optionee from the Company to a
subsidiary, from a subsidiary to the Company, or
from one subsidiary to another shall not be
treated as a cessation of employment and
shall not affect Options previously granted
under the Plan.
b. Cessation of Employment by Reason of Transfer to BCR: If
an Optionee shall cease to be employed by the Company
or a subsidiary by reason of a transfer to BCR:
(i) such transfer shall not affect outstanding Options
as long as the Optionee remains employed by BCR;
(ii) if the Optionee shall cease to be employed by BCR by
reason of a transfer to the Company or any of its
subsidiaries, outstanding Options shall not be
affected; and
(iii) if the Optionee shall cease to be employed by BCR
for any reason other than Retirement,
Disability, death, or transfer to the
Company or a subsidiary, each Option held by the
Optionee, together with all rights hereunder,
shall terminate on the date of cessation of
employment, to the extent not previously
exercised.
c. Cessation of Employment by Reason of Retirement or
Disability: If an Optionee shall cease to be
employed by the Company, a subsidiary, or BCR by
reason of Retirement or Disability, each Option held
by the Optionee shall be exercisable according to its
terms until the later of: (i) the third anniversary of
the date of the cessation of the Optionee's employment,
or (ii) the third anniversary of the date of the
Optionee's death if death should occur within
three years after cessation of employment, provided,
however, that
<PAGE>
in no event shall an Option be exercisable after its
Expiration Date. After the periods specified above,
all such Options shall terminate together with all
rights hereunder, to the extent not previously
exercised. Notwithstanding the foregoing, if an
Optionee shall cease to be employed by the Company,
a subsidiary, or BCR by reason of Disability or
Retirement, each Option held by the Optionee,
together with all rights hereunder, shall immediately
terminate in the event that such Optionee, without the
advance consent of the Committee, should become
associated with, employed by, render services to
or acquire an interest (other than an insubstantial
interest as an investor) in any business that is
competitive with (i) the Company, an subsidiary, or
BCR, or (ii) a business in which the Company, an
subsidiary, or BCR has a substantial direct or
indirect interest.
d. Cessation of Employment by reason of Death: In the event
of the death of the Optionee while employed by the
Company, a subsidiary, or BCR, an Option may be
exercised at any time or from time to time prior to
the earlier of the Expiration Date, or the third
anniversary of the date of the Optionee's death.
e. Successors of Optionees: Any person or persons to whom an
Optionee's rights under an Option have passed by will or
by the applicable laws of descent and distribution shall
be subject to all terms and conditions of the Plan and
the Option applicable to the Optionee.
6.13 Notification of Sales of Common Stock: Any Optionee who
disposes of shares of Common Stock acquired upon the
exercise of an ISO either (a) within two years after
the date of the grant of the ISO under which the stock
was acquired or (b) within one year after the transfer
of such shares to the Optionee, shall notify the
Company of such disposition and of the amount
realized upon such disposition.
Article VII
Limitation on Grants and Exercise of ISOs
7.1 The aggregate Fair Market Value (determined as of the date
the Option is granted) of the shares of Common Stock for
which any employee may first exercise ISOs granted under
this Plan and all other stock option plans of the Company
and/or its subsidiaries, in any calendar year, shall not
exceed $100,000 or such other amounts or limitation as
may be provided from time to time by the Code or any
regulations promulgated thereunder.
Article VIII
Adjustments
8.1 If (a) the Company shall at any time be involved in a
transaction to which Section 425(a) of the Code or
any successor provision is applicable; (b) the Company
shall declare a dividend payable in, or shall subdivide
or combine, its Common Stock; or (c) any other event shall
occur which in the judgment of the Committee necessitates
action by way of adjusting the terms of the outstanding
Options, the Committee shall forthwith take any such
action as in its judgment shall be necessary or desirable
(i) to increase the number of shares which may be issued
under the Plan and (ii) to
preserve the Optionee's rights substantially
proportionate to the rights existing prior to such
event and to the extent that such action shall include an
increase or decrease in the number of shares of Common
Stock subject to outstanding Options, the number of
shares available under Article III above shall be
increased or decreased, as the case may be,
proportionately. Anything contained herein to the
contrary notwithstanding, upon the dissolution or
liquidation of the Company, or upon any merger or
consolidation in which the Company is not the surviving
corporation or in which the Company survives only as a
wholly owned subsidiary of any corporation, each Option
and related Stock Appreciation Right
<PAGE>
granted under the Plan shall terminate; but, irrespective of
whether or not the Option has been outstanding for the one
year period required under the provisions of Section 6.4
of the Plan, the Optionee shall have the right,
immediately prior to such dissolution,
liquidation, merger or consolidation, to
exercise his or her option or related Stock
Appreciation Right in whole or in part to the
extent it shall not have been exercised, without
regard to any installment provisions.
8.2 The foregoing adjustments and the manner of application of
the foregoing provisions shall be determined by the
Committee in its sole discretion. The judgment of the
Committee with respect to any matter referred to in this
Article shall be conclusive and binding upon each
Optionee, and outstanding Option Agreements shall be
deemed modified to the extent necessary to reflect any such
judgment. Any such adjustment may provide for the
elimination of any fractional share which might
otherwise become subject to an Option.
Article IX
Change in Control
9.1 If a "Change in Control" occurs, then:
a. all Options and Stock Appreciation Rights previously
granted to Optionees under the Plan shall become
fully exercisable as of the date of the Change in
Control, whether or not otherwise exercisable and
vested as of that date;
b. each Optionee whose employment by the Company and
subsidiaries is involuntarily terminated without
cause (as defined below) during the portion of the
calendar year which remains following a Change in
Control or the two immediately following calendar years
may exercise any Option or Stock Appreciation Right
previously granted to him or her under the Plan at
any time during the five years next following the date
of his or her termination of employment (or, if less,
the period remaining on the original term of the
Option or Stock Appreciation Right); and
c. each Optionee who is deemed by the Committee to be a
statutory officer or insider subject to Section 16
of the Securities Exchange Act of 1934 may, at any time
during the ninety business days next following the
Change in Control, in lieu of exercising his or
her Options, elect to receive a cash payment equal to
the positive difference between (x) the aggregate
purchase price of the shares for which such
election is made, and (y) the highest aggregate
Fair Market Value of the Common Stock with respect to
such shares which occurs during the period beginning
thirty days prior to the Change in Control and
ending thirty days after the Change in Control,
or in the case of Incentive Stock Options the maximum
permissible without disqualifying such Options. In the
event of an offer or exchange in which fewer than all
the shares which have been validly tendered or
exchanged are accepted, then the Committee may
limit the number of shares subject to cash payment in
lieu of purchase to that portion of the shares that
results from multiplying the number of shares
subject to options by a fraction, the numerator
of which is the number of shares of Common Stock
acquired pursuant to the offer or exchange and the
denominator of which is the number of shares tendered in
response to such offer.
9.2 For purposes of this Article IX, the term "cause" means an
Optionee's willfully engaging in conduct materially
injurious to the Company or any subsidiary or the
willful and continual failure by an Optionee to
substantially perform the duties assigned to him or
her (other than any failure resulting from the Optionee's
incapacity due to physical injury or illness or mental
illness), which failure has not been corrected by the
Optionee within thirty days after receipt of a written
notice from the Chief Executive Officer or Board of
Directors of his or her
<PAGE>
employer specifying the manner in which the Optionee has
failed to perform such duties. No act, or failure to
act, by an Optionee shall be deemed "willful" unless
done, or omitted to be done, not in good faith and
without reasonable belief that such action or omission
was in the best interest of the Company and its
subsidiaries.
9.3 For purposes of determining the rights of any Optionee under
the Plan, the term "Change in Control" means a change in
the beneficial ownership of the Company's voting stock
or a change in the composition of the Company's Board of
Directors which occurs as follows:
a. any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other
than
(i) a trustee or other fiduciary of securities held
under an employee benefit plan of the Company,
or
(ii) the Optionee or any person acting in concert with
the Optionee becomes a beneficial owner,
directly or indirectly, of stock of the
Company representing fifteen percent or more of
the total voting power of the Company's then
outstanding stock;
b. a tender offer is made for the stock of the Company,
which has not been approved by the Board of
Directors of the Company, and the person making
the offer owns or has accepted for payment stock of
the Company representing fifteen percent or more of
the total voting power of the Company's stock; or
c. during any period of twenty-four consecutive months there
shall cease to be a majority of the Board of Directors
comprised as follows: individuals who at the beginning
of such period constitute the Board of Directors and any
new Director(s) whose selection by the Board of
Directors or nomination for election by the
Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the Directors then still in
office who either were Directors at the Beginning of
the period or whose election or nomination for
election was previously so approved.
The occurrence of a Change in Control shall not, of itself,
result in a termination of the Plan or affect any
provisions of the Plan except as specifically
provided in this Article IX.
Article X
Amendment and Termination of Plan
10.1 The Board may at any time, or from time to time, suspend
or terminate the Plan in whole or in part of amend it
in such respects as the Board may deem appropriate,
provided, however, that no such amendment shall be
made which would, without approval of the
stockholders:
a. materially modify the eligibility requirements for
receiving Options;
b. increase the total number of shares of Common Stock which
may be issued pursuant to Options, except as is provided
for in accordance with Article VIII of the Plan;
c. reduce the minimum Option Price;
d. extend the period of granting Options; or
e. materially increase in any other way the benefits
accruing to Optionees.
10.2 No amendment, suspension or termination of the Plan
shall, without the Optionee's consent, alter or
impair any of the rights or obligations under any
Option theretofore granted to an Optionee under the
Plan, except as provided in Section 6.12(c) of the
Plan, and further, if the Optionee has divulged or
appropriated to his or her own use or to the use of
others any secret or confidential information or
knowledge, pertaining to the business of the
Company, a subsidiary, or BCR obtained by the
Optionee while he or she was employed by any of them,
then each Option held by the Optionee, together with all
rights hereunder, shall immediately terminate.
<PAGE>
10.3 The Committee may amend the Plan, subject to the
limitations cited above, in such manner as it
deems necessary to permit the granting of Options
meeting the requirements of future amendments or
issued regulations, if any, to the Code.
Article XI
Government and Other Regulations
11.1 The obligation of the Company to issue or transfer and
deliver shares for Options exercised under the Plan
shall be subject to all applicable laws, regulations,
rules, orders and approvals which shall then be in
effect and required by governmental entities and
the stock exchanges on which Common Stock is traded.
Any such issuance, transfer or delivery of shares may
be delayed until the above requirements are satisfied,
and any shares distributed under the Plan shall be
subject to such restrictions and conditions on
disposition as the Committee, on the advice of
counsel for the Company, shall determine to be
desirable or necessary under applicable law.
Article XII
Miscellaneous Provisions
12.1 Plan Does Not Confer Employment or Stockholder Rights:
The right of the Company and its subsidiaries to
terminate (whether by dismissal, discharge,
retirement or otherwise) the Optionee's
employment at any time at subsidiary and the
Optionee, is specifically reserved. Nether the
Optionee nor any person entitled to exercise the
Optionee's rights in the event of the Optionee's death
shall have any rights of a stockholder with respect to
the shares subject to each Option, except to the extent
that, and until, such shares shall have been issued upon
the exercise of each Option.
12.2 Use of Exercise Proceeds: Payments received from
Optionees upon the exercise of Options shall be
used for the general corporate purposes of the Company,
except that any stock received in payment may be
retired, or retained in the Company's Treasury
and reissued.
12.3 Indemnification: In addition to such other rights of
indemnification as they may have as members of the
Board or the Committee, the members of the Committee
and the Board shall be indemnified by the Company
against all costs and expenses reasonably incurred
by them in connection with any action, suit or
proceeding to which they or any of them may be
party by reason of any action taken or failure to act
under or in connection with the Plan or any Option
granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except a
judgment based upon a finding of bad faith;
provided that upon the institution of any such
action, suit or proceeding a Committee or Board
member shall, in writing, give the Company notice
thereof and an opportunity, at its own expense, to
handle and defend the same before such Committee or
Board member undertakes to handle and defend it on such
member's own behalf.
12.4 Applicable Law: The Plan shall be governed by Federal law
and the laws of the State of New York applicable to
contracts made and to be performed in New York.
<PAGE>
Article XIII
Stockholder Approval and Effective Dates
13.1 This Plan has been adopted by the Board effective as of
January 1, 1995. However, if the NYNEX 1995 Long Term
Incentive Program is not approved within one year after
the date of its adoption by the Board by the vote at a
meeting of the stockholders of the Company of the
holders of a majority of the outstanding shares of
the Common Stock entitled to vote, this Plan and all
Options shall terminate at the time of that meeting
of stockholders, or, if no such meeting is held, after
the passage of one year from the date the NYNEX 1995
Long Term Incentive Program was adopted by the Board.
Options may not be granted under the Plan after
December 31, 1999.
