Form 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8608
NYNEX Corporation
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 13-3180909
1095 Avenue of the Americas, New York, New York 10036
Telephone Number (212) 395-2121
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At July 31, 1994, 420,546,657 common shares were outstanding.
AMENDMENT NO.1
The registrant hereby amends the Form 10-Q for the quarterly period
ended June 30, 1994, to correct an error by the outside actuary of the
of the registrant in calculating the cost of pension enhancements,
as set forth in "Part 1 - Financial Information" attached hereto.
The effect of the correction on net income for the second quarter
was a decrease of $73.5 million, or $.18 per share, net of income
tax of $40.5 million.
<PAGE>
Form 10-Q/A Part I PART I - FINANCIAL INFORMATION
<TABLE>
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions, except per share amounts) (Unaudited)
<CAPTION>
Three Months Six Months
For the Period Ended June 30, 1994 # 1993 1994 # 1993
<S> <C> <C> <C> <C>
OPERATING REVENUES
Local service $1,658.5 $1,618.0 $3,288.4 $3,202.3
Long distance 269.7 281.3 550.7 560.6
Network access 844.8 846.0 1,709.0 1,698.0
Other 538.6 619.0 1,036.8 1,223.6
Total operating revenues 3,311.6 3,364.3 6,584.9 6,684.5
OPERATING EXPENSES
Maintenance and support 744.8 743.5 1,514.1 1,463.3
Depreciation and amortization 663.9 624.5 1,315.9 1,239.7
Marketing and customer services 359.2 345.4 699.4 663.6
Taxes other than income 255.9 258.8 504.9 530.2
Selling,general and administrative 953.1 533.3 1,438.5 1,061.2
Other 205.5 190.7 387.4 389.5
Total operating expenses 3,182.4 2,696.2 5,860.2 5,347.5
Operating income 129.2 668.1 724.7 1,337.0
Other income (expense) - net 7.5 (4.6) (1.6) (11.4)
Interest expense 162.1 164.0 321.7 333.4
Earnings before income taxes and
cumulative effect of change in
accounting principle (25.4) 499.5 401.4 992.2
Income taxes
Federal (53.1) 137.4 60.3 272.8
State, local and other 26.5 21.9 49.3 48.1
Total income taxes (26.6) 159.3 109.6 320.9
Earnings before cumulative effect
of change in accounting principle 1.2 340.2 291.8 671.3
Cumulative effect of change in
accounting for postemployment
benefits, net of taxes - - - (123.5)*
NET INCOME $ 1.2 $ 340.2 $ 291.8 $ 547.8 *
Earnings per share before cumulative
effect of change in accounting
principle $ .00 $ .82 $ .70 $ 1.62
Cumulative effect per share of change
in accounting principle - - - (.30)*
Earnings per share $ .00 $ .82 $ .70 $1.32
Weighted average number of shares
outstanding 418.9 412.4 417.2 412.6
Dividends declared per share $ .59 $ .59 $ 1.18 $ 1.18
Retained earnings
Beginning of period $2,437.4 $3,925.6* $2,388.3 $3,958.7
Net income 1.2 340.2 291.8 547.8 *
Dividends declared (247.9) (243.4) (494.2) (486.4)
Other 9.8 1.8 14.6 4.1
End of period $2,200.5 $4,024.2* $2,200.5 $4,024.2 *
</TABLE>
#Second quarter 1994 amounts have been restated to correct an
error by the outside actuary of the registrant in calculating
the cost of pension enhancements.
*Restated to reflect the adoption of Statement of Financial
Accounting Standards No. 112 in the fourth quarter of 1993
retroactive to January 1, 1993.
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
Form 10-Q/A Part I NYNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions)
June 30, December 31,
1994 # 1993
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 133.4 $ 157.8
Receivables (net of allowance of $213.1
and $210.2, respectively) 2,441.8 2,439.1
Inventories 150.4 169.2
Prepaid expenses 378.5 306.2
Deferred charges and other current assets 642.0 849.4
Total current assets 3,746.1 3,921.7
Property, plant and equipment - at cost 34,933.8 33,969.4
Less: accumulated depreciation (14,577.4) (13,719.4)
20,356.4 20,250.0
Deferred charges and other assets 5,325.3 5,286.7
Total Assets $29,427.8 $29,458.4
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,385.5 $ 2,853.3
Short-term debt 3,036.6 3,190.1
Other current liabilities 739.0 763.3
Total current liabilities 6,161.1 6,806.7
Long-term debt 6,995.7 6,937.8
Deferred income taxes 3,277.5 3,545.0
Unamortized investment tax credits 333.0 360.3
Other long-term liabilities and
deferred credits 4,220.6 3,393.1
Total liabilities 20,987.9 21,042.9
Commitments and contingencies [Notes (d) and (e)]
Stockholders' equity:
Preferred stock - $1 par value - -
shares authorized: 70,000,000
shares issued: None
Preferred stock-Series A Junior Participating - -
- $1 par value
shares authorized: 5,000,000
shares issued: None
Common stock - $1 par value 436.5 431.1
shares authorized: 750,000,000
shares issued:
at June 30, 1994 - 436,450,858
at December 31, 1993 - 431,080,155
Additional paid-in capital 6,821.1 6,624.5
Retained earnings 2,200.5 2,388.3
Treasury stock (16,173,699 and 16,215,353
shares, respectively, at cost) (646.4) (648.1)
Deferred compensation - LESOP Trust (371.8) (380.3)
Total stockholders' equity 8,439.9 8,415.5
Total Liabilities and Stockholders'
Equity $29,427.8 $29,458.4
</TABLE>
<PAGE>
#Second quarter 1994 amounts have been restated to correct an
error by the outside actuary of the registrant in calculating
the cost of pension enhancements.
See accompanying notes to consolidated financial statements.
-3-
<TABLE>
<CAPTION>
Form 10-Q/A Part I NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
For the Six Months Ended June 30, 1994 # 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 291.8 $ 547.8 *
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,315.9 1,239.7
Amortization of unearned lease income-net (43.6) (40.3)
Allowance for funds used during construction-
equity component (14.0) (15.6)
Changes in operating assets and liabilities:
Receivables (2.7) 22.1
Inventories 18.7 (19.6)
Prepaid expenses (72.3) (34.1)
Deferred charges and other current assets 207.4 (97.6)
Accounts payable (471.0) (216.3)*
Other current liabilities (24.3) (168.4)
Deferred income taxes and Unamortized
investment tax credits (294.8) 109.3 *
Other long-term liabilities and
deferred credits 700.6 185.4 *
Other-net (62.4) 74.6
Total adjustments 1,257.5 1,039.2
Net cash provided by operating activities 1,549.3 1,587.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,376.3) (1,091.6)
Investment in leased assets (14.4) (144.9)
Cash received from leasing activities 34.9 33.9
Other investing activities-net 63.0 (78.2)
Net cash used in investing activities (1,292.8) (1,280.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of commercial paper
and short-term debt 10,421.7 5,340.4
Repayment of commercial paper
and short-term debt (11,166.6) (5,016.7)
Issuance of long-term debt 718.0 893.6
Repayment of long-term debt and capital leases (80.2) (115.2)
Debt refinancings and call premiums - (859.5)
Issuance of common stock 142.4 27.1
Purchase of treasury stock - (92.3)
Dividends paid (438.6) (483.0)
Minority interest 122.4 -
Net cash used in financing activities (280.9) (305.6)
Net (decrease) increase in Cash and temporary
cash investments (24.4) 0.6
Cash and temporary cash investments at
beginning of period 157.8 88.9
Cash and temporary cash investments at
end of period $ 133.4 $ 89.5
</TABLE>
#Second quarter 1994 amounts have been restated to correct an error
by the outside actuary of the registrant in calculating the cost
of pension enhancements.
*Restated to reflect the adoption of Statement of Financial
Accounting Standards No. 112 in the fourth quarter of 1993
retroactive to January 1, 1993.
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) BASIS OF PRESENTATION - The consolidated financial
statements have been prepared by NYNEX Corporation ("NYNEX")
pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC") and, in the opinion of
Management, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair
presentation of the financial information for each period
shown. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such SEC rules and
regulations. Management believes that the disclosures made
are adequate to make the information presented not
misleading. Certain information in the consolidated
financial statements for 1993 has been reclassified to
conform to the current year's presentation. The results for
interim periods are not necessarily indicative of the results
for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto incorporated by reference in the
NYNEX 1993 Annual Report on Form 10-K and the current year's
previously issued Quarterly Report on Form 10-Q.
(b) CASH AND TEMPORARY CASH INVESTMENTS - NYNEX's cash
management policy is to make funds available in banks when
checks are presented. At June 30, 1994, NYNEX had recorded in
Accounts payable checks outstanding but not yet presented for
payment of $174.6 million.
(c) ADOPTION OF FINANCIAL ACCOUNTING STANDARDS - Effective
January 1, 1994, NYNEX adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("Statement
No. 115"). The effect of implementing Statement No. 115 on
NYNEX's results of operations and financial position was not
significant.
(d) REVENUES SUBJECT TO POSSIBLE REFUND - Several state and
federal regulatory matters, including affiliate transaction
issues in New York Telephone Company's ("New York Telephone")
1990 intrastate rate case and overearnings complaints by
interstate access customers, may possibly require the refund
of a portion of the revenues collected in the current and
prior periods. As of June 30, 1994, the aggregate amount of
such revenues that was estimated to be subject to possible
refund was approximately $203 million, plus related interest.
The outcome of each pending matter, as well as the time frame
within which each will be resolved, is not presently
determinable.
(e) LITIGATION AND OTHER CONTINGENCIES - It is probable that
various local tax claims aggregating approximately
$210 million in tax and $137 million in associated interest
will be asserted against New York Telephone for the period
1983 through the second quarter of 1994. The claims relate
to the taxability of New York Telephone's interstate and
intrastate network access revenues. The current status is
that these matters have been identified as possible audit
adjustments by the taxing authority, and New York Telephone
is presenting its arguments against those adjustments. While
New York Telephone's counsel cannot give assurance as to the
outcome, counsel believes that New York Telephone has strong
legal positions in these matters.
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(Unaudited)
(e) LITIGATION AND OTHER CONTINGENCIES (CONT'D)
Various other legal actions and regulatory proceedings are
pending that may affect NYNEX, including matters involving
Racketeer Influenced and Corrupt Organizations Act,
antitrust, tort, contract and tax deficiency claims. While
counsel cannot give assurance as to the outcome of any of
these matters, in the opinion of Management based upon the
advice of counsel, the ultimate resolution of these matters
in future periods is not expected to have a material effect
on NYNEX's financial position or annual operating results but
could have a material effect on quarterly operating results.
<TABLE>
<CAPTION>
(f) SUPPLEMENTAL INFORMATION - The following information is
provided in accordance with Statement of Financial Accounting
Standards No. 95, "Statement of Cash Flows":
For the Six Months Ended
June 30,
(In millions) 1994 1993
<S> <C> <C>
Income tax payments $260.8 $326.5
Interest payments $281.8 $361.3
Additions to property, plant and
equipment under capital lease obligations $ 10.3 $ -
Common Stock issued for Dividend Reinvestment
and Stock Purchase Plan and stock
compensation plans $ 61.1 $ 3.6
</TABLE>
(g) SEGMENT INFORMATION - The following table sets forth
summary financial information by business segment.
Information regarding operating revenues by business segment
is presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 11-13
and 16-18. Total intersegment sales for the second quarter
of 1994 and 1993 were $98.7 and $85.3 million, respectively,
and for the six months ended June 30, 1994 and 1993 were
$195.7 and $168.0 million, respectively, principally in the
telecommunications segment. The financial services segment
had total outstanding debt of $679.7 and $603.8 million at
June 30, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
(In millions) 1994 1993 1994 1993
OPERATING INCOME:
<S> <C> <C> <C> <C>
Telecommunications $145.3 $704.4 $757.7 $1,397.7
Cellular 13.1 18.7 23.1 31.4
Publishing 25.7 15.3 41.0 34.9
Financial services 17.5 18.6 38.9 35.0
Other diversified operations (32.8) (16.8) (53.0) (33.0)
Total operating income by segment 168.8 740.2 807.7 1,466.0
Adjustments/Eliminations 0.4 4.5 (2.1) 4.7
Corporate expenses (40.0) (76.6) (80.9) (133.7)
Operating Income $129.2 $668.1 $724.7 $1,337.0
</TABLE>
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(Unaudited)
<TABLE>
<CAPTION>
(g) SEGMENT INFORMATION (CONT'D)
Cellular operating income includes certain amounts that are
subsequently paid out to minority shareholders. Minority
interest expense for the cellular segment for the second
quarter of 1994 and 1993 was $12.5 and $12.0 million,
respectively, and for the six months ended June 30, 1994
and 1993 was $26.1 and $21.2 million, respectively.
June 30, June 30,
(In millions) 1994 1993
IDENTIFIABLE ASSETS:
<S> <C> <C>
Telecommunications $24,750.5 $24,316.1
Cellular 751.0 562.8
Publishing 550.0 522.5
Financial services 1,505.8 1,368.3
Other diversified operations 1,868.8 1,833.2
Total identifiable assets by segment 29,426.1 28,602.9
Adjustments/Eliminations (1,429.4) (918.1)
Investment in unconsolidated subsidiary 29.5 29.7
Corporate assets 1,401.6 207.2
Total Assets $29,427.8 $27,921.7
</TABLE>
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATE REGULATORY MATTERS
As previously reported (see NYNEX's Annual Report on Form 10-
K for the year ended December 31, 1993), on February 4, 1993,
the New York State Public Service Commission ("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%, depending on its
attainment of specified service quality criteria, with
earnings above 12.7% return on equity to be held for the
ratepayers' benefit. New York Telephone has submitted a
report to the NYSPSC showing 1993 earnings below 11.7%. The
NYSPSC staff is currently reviewing New York Telephone's
submission.
As previously reported (see NYNEX's Annual Report on Form 10-
K for the year ended December 31, 1993), in the first phase
of the incentive regulation proceeding, the NYSPSC issued
Orders on December 24, 1993 and January 28, 1994 for a
reduction in New York Telephone's rates of $170 million
annually, effective January 1, 1994, and required that an
additional $153 million of current revenues be made available
"for the ultimate benefit of customers and the Company's
competitive position through earnings incentives for short-
term service improvements and a longer term plan for
performance-based earning incentives and network
improvements." That incentive regulatory plan is currently
being pursued in a second phase of the proceeding. The
$170 million rate reduction was intended to reduce intrastate
revenues by approximately $141 million annually. As ordered
by the NYSPSC, $31 million of the $153 million has been
designated by New York Telephone as an incentive to improve
overall service quality in the Brooklyn-Queens-Bronx service
area.
As previously reported (see NYNEX's Annual Report on Form 10-
K for the year ended December 31, 1993), the NYSPSC has
issued an Opinion and Order which would require New York
Telephone to provide IntraLATA Presubscription ("ILP") within
18 months of a bona fide request from a carrier. ILP would
give a customer the option of designating, in advance, a
carrier that would carry the customer's intraLATA toll calls.
On April 4, 1994, the NYSPSC issued an opinion which
confirmed the 18 month requirement, provided that
Interexchange Carriers should pay the cost of ILP
implementation, and ruled that New York Telephone should be
compensated for contribution losses resulting from ILP. In
its decision, the NYSPSC suggested that certain issues
relating to ILP, including scheduling, would be made the
subject of negotiations and a "collaborative effort" between
the parties to the incentive regulation proceeding.
On April 14, 1994, New England Telephone and Telegraph
Company ("New England Telephone") filed comprehensive tariff
provisions with the Massachusetts Department of Public
Utilities ("MDPU") as part of an Alternative Regulatory Plan
("Plan") to govern New England Telephone's Massachusetts
intrastate operations. The Plan proposes the following:
(1) regulation of New England Telephone for a period of ten
years from the date of MDPU approval under a price framework;
(2) pricing rules that limit New England Telephone's ability
to increase both overall average prices and specific rate
elements, including
-8-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATE REGULATORY MATTERS (CONT'D)
a ceiling on the weighted average price of all tariffed
services based on a formula of inflation minus a productivity
factor plus or minus exogenous changes; (3) no earnings
restriction; (4) a cap on the monthly rates for residence
services until August 2001; (5) an increase of $2.50 monthly
in the credit on exchange services for Lifeline customers;
(6) investment commitments for the public telecommunications
network, including commencing the deployment of a broadband
network in Massachusetts; (7) quality of service commitments;
(8) rate reductions for switched access services; and (9) a
new streamlined standard of regulation governing the review
of tariff filings. On May 24, 1994, the MDPU ruled that New
England Telephone's filing would be treated as a petition for
alternative regulation and, consequently, the MDPU's review
is not subject to the statutory suspension period. Hearings
concerning New England Telephone's filing commenced on July 11, 1994.
As previously reported (see NYNEX's Annual Report on Form 10-
K for the year ended December 31, 1993), New England
Telephone filed a petition for a price regulation plan with
the Vermont Public Service Board ("VPSB") on October 5, 1993.
In a related proceeding, on December 1, 1993, the Vermont
Department of Public Service ("VDPS") filed a petition
seeking to examine New England Telephone's rates and to
ensure that rates are at appropriate levels prior to the
initiation of a price regulation plan. On May 27, 1994, New
England Telephone and the VDPS submitted to the VPSB a
proposed agreement to resolve the major issues in New England
Telephone's Price Regulation Plan proceeding. The agreement
would afford New England Telephone pricing and marketing
flexibility and would not restrict New England Telephone's
earnings. In connection with the proposed agreement, the
VDPS has reduced its allegation of New England Telephone
overearnings from $27.5 million to $17.1 million on an annual
basis. Hearings before the VPSB concluded on July 21, 1994,
and a decision with respect to the agreement is expected in
October.
On June 30, 1994, the New Hampshire Public Utilities
Commission ("NHPUC") approved New England Telephone's
proposed toll rate reduction targeted at small and medium
volume usage customers, effective August 5, 1994. The annual
revenue effect of the toll rate reduction is estimated to be
approximately $7.1 million. The NHPUC previously approved,
effective January 31, 1994, a New England Telephone-requested
toll rate reduction targeted at high and medium volume usage
customers, with an annual revenue effect of $3.5 million.
FEDERAL REGULATORY MATTERS
On July 1, 1994, New York Telephone and New England Telephone
(collectively, the "telephone subsidiaries") implemented the
fourth annual update to the price cap rates. These tariffs
will result in a net reduction in the telephone subsidiaries'
annual interstate access rates of approximately $9.4 million
during the tariff period from July 1, 1994 to June 30, 1995.
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS RESTRUCTURING
Second quarter 1994 results include approximately $449
million of pretax charges ($291 million after-tax) for
pension enhancements, primarily in the telecommunications
segment, for approximately 2,100 management and 1,900
nonmanagement employees who elected during the quarter to
leave NYNEX under retirement incentives. A portion of the
year-end 1993 accrual for severance was utilized on a per
employee basis, and the incremental costs of the pension
enhancements were recorded. The retirement incentives are
intended to provide a voluntary means to implement a portion
of the planned work force reductions of approximately 16,800
by the end of 1996. The components of the $449 million
pretax charges are: $286 million ($186 million after-tax) for
pension enhancements, and $163 million ($105 million after-
tax) for associated postretirement medical benefits.
As previously reported (see NYNEX's Annual Report on Form 10-
K for the year ended December 31, 1993), NYNEX recorded
pretax charges of approximately $2.1 billion ($1.4 billion
after-tax) in the fourth quarter of 1993 for business
restructuring, of which approximately $586 million was for
employee severance payments and $520 million was for the
medical curtailment loss recognized as a result of the
planned decrease in the work force. The second quarter
charges are the first step in an anticipated additional
$2.0 billion in pretax charges ($1.3 billion after-tax) for
pension enhancements to be recorded as employees leave NYNEX
through December 31, 1996 under the retirement incentives;
the amount to be recorded in each year is not presently
determinable because the charges are dependent on the number
of employees accepting the incentives. The retirement
incentives credit employees with an additional six years
toward both their age and their length of service for the
purpose of determining pension eligibility and benefits.
Much of the cost of the incentives will be funded by NYNEX's
pension plans. These incentives also resulted in more
individuals qualifying for lifetime medical coverage than
under the severance plan. The pension enhancement to the
NYNEX management pension plan was announced in February 1994
and will be offered at different times through 1996 according
to local force requirements. NYNEX's agreements with the
Communications Workers of America and with the International
Brotherhood of Electrical Workers ("IBEW") in New York, which
extend the existing labor agreements to August 1998, provide
a retirement incentive. On August 5, 1994, a similar
agreement with the IBEW in New England was tentatively
reached subject to ratification by the union membership (see
OTHER MATTERS).
The restructuring reserve balance for the 1993 business
restructuring charges at June 30, 1994 was approximately
$1.2 billion, excluding the liability recorded at year-end
for postretirement medical benefits associated with employees
leaving NYNEX under the business restructuring. In December
1993, NYNEX utilized $181 million of the restructuring
reserves primarily relating to the sale or discontinuance of
its information products and services businesses. In the
first six months of 1994, NYNEX reduced 1993 restructuring
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<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS RESTRUCTURING (CONT'D)
reserves by $255 million as follows: $130 million of reserves
established for severance were transferred to the pension
liability on a per employee basis as a result of employees'
leaving under the pension enhancements as opposed to
severance provisions as previously accrued for; $15 million
was utilized for other retiree costs; $40 million was
utilized for the exit from the information products and
services business; $18 million was utilized for developing a
single "NYNEX" brand identity; $29 million was utilized for
systems re-engineering; $12 million was utilized for other
costs related to various re-engineering initiatives in the
telecommunications segment; $5 million was reversed due to
the actual loss on disposal of United Publishers Corporation
("UPC") being less than the estimated amount accrued in the
publishing segment in December 1993 under the assumption that
UPC would be shut down; and $6 million was utilized for
nontelephone restructuring. Additionally, $40 million of
reserves established in 1991 for severance costs were
transferred to the pension liability as a result of the
pension enhancements.
There were no significant cost savings as a result of
business restructuring in the first six months of 1994.
Since most of the employees that left NYNEX under the terms
of the enhanced pension offering left in late June, the
expense savings associated with this force reduction have not
yet been realized. NYNEX expects to reduce its work force by
a total of approximately 6,000 employees by the end of 1994
as re-engineering initiatives are implemented and as
retirement incentives are offered to eligible employees.
<TABLE>
<CAPTION>
SECOND QUARTER OF 1994 AS COMPARED TO SECOND QUARTER OF 1993
OPERATING REVENUES
Operating revenues for the quarter ended June 30, 1994
decreased $52.7 million, or 1.6%, from the same period last
year. A summary of revenues by segment is as follows:
UNAFFILIATED REVENUES BY SEGMENT:
(In millions)
For the Three Months Ended
June 30, June 30,
1994 1993
<S> <C> <C>
Telecommunications $2,859.4 $2,880.7
Cellular 177.8 105.9
Publishing 229.5 216.4
Financial services 22.8 24.8
Other diversified operations 22.1 136.5
Total Consolidated Operating Revenues $3,311.6 $3,364.3
</TABLE>
-11-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER OF 1994 AS COMPARED TO SECOND QUARTER OF 1993
(CONT'D)
OPERATING REVENUES (CONT'D)
Telecommunications
Telecommunications revenues for the second quarter of 1994
decreased $21.3 million from the second quarter of 1993.
Local service revenues increased $40.5 million, or 2.5%,
primarily due to: (1) a net $64 million increase resulting
from increased demand as evidenced by growth in access lines
and growth in sales of calling features, (2) a $6 million
increase in local service rates at New England Telephone
primarily attributable to the implementation of the third
transitional filing of a restructuring of Massachusetts rates
effective April 14, 1994 and (3) a $3 million increase in
local directory assistance revenues at New England Telephone
resulting from the reversal of previously deferred revenues
pursuant to a regulatory agreement with the State of
Massachusetts to offset expenses to enhance E911 systems.
These increases were partially offset by a $34 million
revenue reduction at New York Telephone pursuant to an NYSPSC
order (see STATE REGULATORY MATTERS above).
Long distance revenues decreased $11.6 million, or 4.1%,
primarily due to decreased demand for private line services
and wide area telecommunications services as a result of
increased competition and customer shifts to lower priced
services offered by the telephone subsidiaries, and a $4
million revenue reduction at New York Telephone pursuant to
an NYSPSC order (see STATE REGULATORY MATTERS above). In
addition, there was an $8 million decrease in long distance
rates at New England Telephone primarily attributable to the
implementation of the third transitional filing of a
restructuring of Massachusetts rates effective April 14,
1994. These decreases were partially offset by increased
demand for message toll services, and a $2 million increase
in long distance directory assistance revenues at New England
Telephone resulting from the reversal of previously deferred
revenues pursuant to a regulatory agreement with the State of
Massachusetts to offset expenses to enhance E911 systems.
Network access revenues decreased $1.2 million. Special
access revenues decreased $9 million primarily due to a
reduction in rates, increased competition and customer shifts
to lower priced services offered by the telephone
subsidiaries. Switched access revenues increased $9 million
as a result of increased usage, partially offset by a
reduction in interstate rates, which included the phase-out
of the equal access cost recovery charge, and by a $3 million
revenue reduction at New York Telephone pursuant to an NYSPSC
order (see STATE REGULATORY MATTERS above).
Other revenues decreased $49.0 million primarily due to the
following at New York Telephone: (1) a $38 million reduction
in revenues as ordered by the NYSPSC representing the second
quarter deferral of the $153 million (see STATE REGULATORY
MATTERS above), and (2) a $7 million decrease due to the 1994
cessation of imputed revenues for procurement costs.
-12-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER OF 1994 AS COMPARED TO SECOND QUARTER OF 1993 (CONT'D)
OPERATING REVENUES (CONT'D)
Cellular
Cellular revenues for the second quarter of 1994 increased
$71.9 million, or 67.9%, over the second quarter of 1993.
The segment's customer base for mobile telecommunications
services continued to expand, increasing 65% as compared to
the second quarter of 1993, including customers associated
with the acquisition of a cellular property. This growth was
spread across all cellular markets; however, customer growth
was partially offset by a decline in average minutes of use
per customer. Second quarter revenues include $11.1 million
as a result of the restructuring of the New York partnership.
Publishing
Publishing revenues for the second quarter of 1994 increased
$13.1 million, or 6.1%, over the second quarter of 1993
primarily due to the publication of directories in the Czech
Republic. In addition, Yellow Pages advertising revenues in
the New England market increased as a result of higher
prices. These increases were partially offset by decreased
revenues due to the sale of UPC in April 1994 as part of the
1993 business restructuring.
Financial Services
Financial services revenues for the second quarter of 1994
decreased $2.0 million, or 8.1%, from the second quarter of
1993 principally due to a temporary lag in the growth of new
investments in the leased asset portfolio.
Other Diversified Operations
Other diversified operations revenues for the second quarter
of 1994 decreased $114.4 million, or 83.8%, from the second
quarter of 1993 primarily attributable to NYNEX's exit from
the information products and services business. The BIS
Group Limited ("BIS") and AGS Computers, Inc. ("AGS") were
sold in July 1993 and January 1994, respectively, and had
contributed $123.5 million in revenues in the second quarter
of 1993. These decreases were partially offset by growth in
the customer base for international cable television and
telephone operations.
-13-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER OF 1994 AS COMPARED TO SECOND QUARTER OF 1993
(CONT'D)
OPERATING EXPENSES
Operating expenses for the second quarter of 1994 were
$3.2 billion, an increase of $486.2 million, or 18.0%, over
the second quarter of 1993. Operating expenses excluding
Depreciation and amortization and Taxes other than income
increased $518.1 million at the telephone subsidiaries and
Telesector Resources Group, Inc. (collectively, the
"telecommunications group"), principally due to a $449.1
million pretax charge for pension enhancements and associated
postretirement medical benefits. Operating expenses
excluding Depreciation and amortization and Taxes other than
income decreased $68.4 million at NYNEX's subsidiaries other
than the telecommunications group principally due to the sale
of BIS and AGS, which had operating expenses of $127.4
million in the second quarter of 1993, and the transfer of
Corporate employees into the telecommunications group as part
of the single enterprise reorganization. The decrease was
partially offset by increased costs associated with the
continued expansion of the customer base for mobile
telecommunications services, increased expenses related to
the growth in the customer base for international cable
television and telephone operations, and business development
costs in other international operations.
At the telecommunications group, employee costs, consisting
primarily of wages, payroll taxes, and employee benefits,
increased $24.6 million. Wages and payroll taxes increased
$20 million due to increases in salary and wage rates,
additional labor costs due to ongoing service quality
improvement initiatives, and a $5 million increase resulting
from the transfer of Corporate employees into the
telecommunications group as part of the single enterprise
reorganization, partially offset by a reduction in the work
force as a result of force reduction plans. In addition,
benefit expenses increased $5 million due primarily to
increased medical costs.
At the telecommunications group, all other operating
expenses, which consist primarily of contracted and
centralized services, rent and other general and
administrative costs, increased $44.4 million. The increase
was due primarily to a $29 million increase in contracted and
centralized services, which included a $13 million increase
resulting from the transfer of Corporate employees into the
telecommunications group as part of the single enterprise
reorganization, a $14 million increase in bad debt expense
recognized pursuant to provisions of the billing and
collection contract primarily with AT&T, and a $9 million
increase in the provision for uncollectible revenues,
partially offset by a $9 million decrease due to the
completion of equal access amortization in 1993.
Depreciation and amortization increased $39.4 million, or
6.3%, principally at the telecommunications group. There was
a $21 million increase due to increased plant investment and
a $16 million increase due to revised intrastate depreciation
rates in Massachusetts effective July 1993.
-14-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER OF 1994 AS COMPARED TO SECOND QUARTER OF 1993 (CONT'D)
OPERATING EXPENSES (CONT'D)
Taxes other than income decreased $2.9 million, or 1.1%,
principally due to a $4 million decrease in property taxes at
New York Telephone resulting primarily from lower assessments
of property value.
OTHER INCOME (EXPENSE) - NET
Other income (expense) - net for the second quarter of 1994
increased $12.1 million over the second quarter of 1993. The
increase was principally due to dividends received from
Viacom Inc., a one-time payment to NYNEX Mobile
Communications Company ("NYNEX Mobile") from its New York
partners related to restructure of the New York partnership,
and higher expenses in the second quarter of 1993 for the
interstate portion of call premiums and other charges
associated with the refinancings of long-term debt. These
increases were partially offset by increased minority
interest expense and partnership losses in connection with
investments in international ventures.
INTEREST EXPENSE
Interest expense for the second quarter of 1994 decreased
$1.9 million, or 1.2%, from the second quarter of 1993. This
decrease was principally due to a decline in average interest
rates resulting from long-term debt refinancings in 1993 and
increased average debt levels and higher expenses in the
second quarter of 1993 for interest on customer overbillings.
INCOME TAXES
Income taxes for the second quarter of 1994 decreased
$185.9 million from the same period last year. The decrease
was principally due to a decrease in pretax income and a
$21 million reduction in the deferred tax valuation allowance
as a result of expected future capital gains arising from the
planned disposition of certain cellular partnership interests
as a result of the planned joint venture between NYNEX and
Bell Atlantic Corporation ("Bell Atlantic") which would
permit NYNEX to utilize capital losses generated by the exit
from the information products and services business (see
OTHER MATTERS below).
-15-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993
OPERATING REVENUES
Operating revenues for the six months ended June 30, 1994
decreased $99.6 million, or 1.5%, from the same period last
year. A summary of revenues by segment is as follows:
UNAFFILIATED REVENUES BY SEGMENT:
(In millions) For the Six Months Ended
June 30, June 30,
1994 1993
<S> <C> <C>
Telecommunications $5,728.5 $5,740.6
Cellular 318.1 196.5
Publishing 444.6 431.1
Financial services 50.6 46.5
Other diversified operations 43.1 269.8
Total Consolidated Operating Revenues $6,584.9 $6,684.5
</TABLE>
Telecommunications
Telecommunications revenues for the first six months of 1994
decreased $12.1 million from the first six months of 1993.
Local service revenues increased $86.1 million, or 2.7%,
primarily due to (1) a net $128 million increase resulting
from increased demand as evidenced by growth in access lines,
growth in sales of calling features and higher usage
associated with the severe winter storms, (2) an $8 million
increase in local service rates at New England Telephone
primarily attributable to the implementation of the third
transitional filing of a restructuring of Massachusetts rates
effective April 14, 1994, (3) a $5 million increase due to a
1993 reduction in revenues associated with the reversal of a
1990 deferral of private line revenues at New York Telephone,
(4) a $6 million increase primarily attributable to the 1994
reversal of revenues deferred in 1993 that were in excess of
amounts required to be refunded to Rhode Island customers for
1993 overearnings pursuant to the Rhode Island price
regulation trial at New England Telephone, and (5) a
$5 million increase in local directory assistance revenues at
New England Telephone resulting from the reversal of
previously deferred revenues pursuant to a regulatory
agreement with the State of Massachusetts to offset expenses
to enhance E911 systems. These increases were partially
offset by a $67 million revenue reduction at New York
Telephone pursuant to an NYSPSC order (see STATE REGULATORY
MATTERS above).
Long distance revenues decreased $9.9 million, or 1.8%,
primarily due to decreased demand for private line services
and wide area telecommunications services as a result of
increased competition and customer shifts to lower priced
services offered by the telephone subsidiaries, a $7 million
revenue reduction at New York Telephone pursuant to an NYSPSC
order (see STATE
-16-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993
OPERATING REVENUES (CONT'D)
REGULATORY MATTERS above), and a $12 million decrease in long
distance rates at New England Telephone primarily
attributable to the implementation of the third transitional
filing of a restructuring of Massachusetts rates effective
April 14, 1994. These decreases were partially offset by
increased demand for message toll services, and a $5 million
increase in long distance directory assistance revenues at
New England Telephone resulting from the reversal of
previously deferred revenues pursuant to a regulatory
agreement with the State of Massachusetts to offset expenses
to enhance E911 systems.
Network access revenues increased $11.0 million principally
due to a $33 million increase in switched access revenues as
a result of increased usage, partially offset by a reduction
in interstate rates, which included the phase-out of the
equal access cost recovery charge, and by a $6 million
revenue reduction at New York Telephone pursuant to an NYSPSC
order (see STATE REGULATORY MATTERS above). Special access
revenues declined $18 million primarily due to a reduction in
rates, increased competition and customer shifts to lower
priced services offered by the telephone subsidiaries.
Other revenues decreased $99.3 million, primarily due to the
following at New York Telephone: (1) a $77 million
reduction in revenues as ordered by the NYSPSC representing
the first and second quarter deferrals of the $153 million
(see STATE REGULATORY MATTERS above), (2) a $24 million
decrease attributable to the 1993 reversal of previously
recorded reductions in revenues in connection with the phase
out of ad valorem taxes on central office equipment, (3) a
$7 million decrease due to the 1994 cessation of imputed
revenues for procurement costs, and (4) a $10 million
increase associated with the 1993 reversal of a 1992 deferral
of revenues for concession service.
Cellular
Cellular revenues for the first six months of 1994 increased
$121.6 million, or 61.9%, over the first six months of 1993.
The segment's customer base for mobile telecommunications
services continued to expand, increasing 65% as compared to
the first six months of 1993, including customers associated
with the acquisition of a cellular property. This growth was
spread across all cellular markets; however, customer growth
was partially offset by a decline in average minutes of use
per customer. Revenues for the first six months of 1994
include $11.1 million as a result of the restructuring of the
New York partnership.
Publishing
Publishing revenues for the first six months of 1994
increased $13.5 million, or 3.1%, over the first six months
of 1993 primarily due to the publication of directories in
the Czech Republic. In addition, Yellow Pages advertising
revenues in the New England market increased as a result of
higher prices. These increases were partially offset by
decreased revenues due to the sale of UPC in April 1994 as
part of the 1993 business restructuring.
-17-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993 (CONT'D)
OPERATING REVENUES (CONT'D)
Financial Services
Financial services revenues for the first six months of 1994
increased $4.1 million, or 8.8%, over the first six months of
1993, principally due to continued growth in the leased asset
portfolio.
Other Diversified Operations
Other diversified operations revenues for the first six
months of 1994 decreased $226.7 million, or 84.0%, from the
first six months of 1993, primarily attributable to NYNEX's
exit from the information products and services business.
BIS and AGS were sold in July 1993 and January 1994,
respectively, and had contributed $240.5 million in revenues
in the first six months of 1993. These decreases were
partially offset by growth in the customer base for
international cable television and telephone operations.
OPERATING EXPENSES
Operating expenses for the first six months of 1994 were
$5.9 billion, an increase of $512.7 million, or 9.6%, over
the first six months of 1993.
Operating expenses excluding Depreciation and amortization
and Taxes other than income increased $610.5 million at the
telecommunications group, principally due to a $449.1 million
pretax charge for pension enhancements and associated
postretirement medical benefits. Operating expenses
excluding Depreciation and amortization and Taxes other than
income decreased $148.7 million at NYNEX's subsidiaries other
than the telecommunications group principally due to the sale
of BIS and AGS, which had operating expenses of $249.7
million in the first six months of 1993, and the transfer of
Corporate employees into the telecommunications group as part
of the single enterprise reorganization. The decrease was
partially offset by increased costs associated with the
continued expansion of the customer base for mobile
telecommunications services, increased expenses related to
the growth in the customer base for international cable
television and telephone operations, and business development
costs in other international operations.
At the telecommunications group, employee costs, consisting
primarily of wages, payroll taxes, and employee benefits,
increased $85.4 million. Wages and payroll taxes increased
$67 million due to increases in salary and wage rates,
additional labor costs due to ongoing service quality
improvement initiatives, and an $11 million increase
resulting from the transfer of Corporate employees into the
telecommunications group as part of the single enterprise
reorganization, partially offset by a reduction in the work
force as a result of force reduction plans. In addition,
benefit expenses increased $18 million due primarily to
increased medical costs.
-18-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993 (CONT'D)
OPERATING EXPENSES (CONT'D)
At the telecommunications group, all other operating
expenses, which consist primarily of contracted and
centralized services, rent and other general and
administrative costs, increased $76.1 million. The increase
was due primarily to a $48 million increase in contracted and
centralized services, which included a $23 million increase
resulting from the transfer of Corporate employees into the
telecommunications group as part of the single enterprise
reorganization, a $23 million increase in bad debt expense
recognized pursuant to provisions of the billing and
collection contract primarily with AT&T, a $15 million
increase in the provision for uncollectible revenues, a $10
million increase in material and supply expenses, and a $7
million increase at New England Telephone resulting from
capitalization in 1993 of certain 1992 engineering charges.
Partially offsetting these increases was an $18 million
decrease due to the completion of equal access amortization
in 1993 and a $9 million decrease attributable to the
reversal in 1993 of deferred inside wire expense recorded in
1991 and 1992 at New York Telephone.
Depreciation and amortization increased $76.2 million, or
6.1%, principally at the telecommunications group where there
was a $38 million increase due to increased plant investment
and a $33 million increase due to revised intrastate
depreciation rates in Massachusetts effective July 1993.
Taxes other than income decreased $25.3 million, or 4.8%,
principally due to a $28 million decrease in property taxes
at New York Telephone resulting primarily from lower
assessments of property value and an $8 million decrease in
property taxes at New England Telephone primarily
attributable to a reversal of a 1993 accrual as a result of
unasserted municipal assessments. Partially offsetting these
decreases were a $2 million increase in Massachusetts
property taxes and a $2 million increase in New York State
capital stock tax.
OTHER INCOME (EXPENSE) - NET
Other income (expense) - net for the first six months of 1994
increased $9.8 million over the first six months of 1993.
This increase was principally due to dividends received from
Viacom Inc., a one-time payment to NYNEX Mobile from its New
York partners related to restructure of the New York
partnership, and higher expenses in the first six months of
1993 for the interstate portion of call premiums and other
charges associated with the refinancings of long-term debt.
These increases were partially offset by increased minority
interest expense and partnership losses in connection with
investments in international ventures.
-19-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF
1993 (CONT'D)
INTEREST EXPENSE
Interest expense for the first six months of 1994 decreased
$11.7 million, or 3.5%, from the first six months of 1993.
This decrease was principally due to a decline in average
interest rates resulting from long-term debt refinancings in
1993 and increased average debt levels and higher expenses in
the first six months of 1993 for interest on customer
overbillings.
INCOME TAXES
Income taxes for the first six months of 1994 decreased
$211.3 million, or 65.8%, from the same period last year.
The decrease was principally due to a decrease in pretax
income and a $33 million reduction in the deferred tax
valuation allowance as a result of the development of tax
planning strategies to utilize capital losses generated by
the exit from the information products and services business,
including expected future capital gains arising from the
planned disposition of certain cellular partnership interests
as a result of the planned joint venture between NYNEX and
Bell Atlantic (see OTHER MATTERS below). These increases
were partially offset by the enactment of the Revenue
Reconciliation Act of 1993 on August 10, 1993, which
increased the statutory corporate federal income tax rate
from 34 percent to 35 percent retroactive to January 1, 1993.
CAPITAL RESOURCES AND LIQUIDITY
Capital expenditures increased $284.7 million, or 26.1%, over
the first six months of 1993. During the first six months of
1994, NYNEX continued its capital expenditure program
designed to meet the expanding needs for telecommunications
services by upgrading the existing telecommunications
network, including new construction, optical fiber and
modernization at the telephone subsidiaries. The telephone
subsidiaries funded their capital expenditures of
$1.1 billion primarily through cash generated from
operations, and it is expected that they will continue to do
so. Capital expenditures in the first six months of 1994
also included the construction of cable television and
telephone networks in the United Kingdom and the addition of
65 mobile cell sites.
The pace of new investments in leased assets in the first six
months of 1994 as compared to the first six months of 1993
declined at NYNEX Credit Company due to the timing of market
opportunities in leveraged leases. Other investing
activities for the first six months of 1994 included the
receipt of proceeds from the exit from the information
products and services business, the purchase of cellular
properties, and continued investment in international
ventures.
-20-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993 (CONT'D)
CAPITAL RESOURCES AND LIQUIDITY (CONT'D)
During the first six months of 1994, the net decrease in cash
flows from issuances and repayments of commercial paper and
short-term debt was due primarily to the issuance of long-
term debt at New York Telephone. New York Telephone had cash
flows from debt issuances of $593.5 million, primarily due to
refinancings to obtain lower interest rates.
NYNEX Capital Funding Company had cash flows from the
issuance of medium term notes of $124.5 million. The
proceeds will be used to provide financing for NYNEX and the
nontelephone subsidiaries. Repayment of long-term debt and
capital leases includes $55.5 million at NYNEX Credit Company
for debt repayment, $17.6 million at NYNEX for the debt
related to the leveraged employee stock ownership plan, and
$5.4 million at other NYNEX subsidiaries for capital lease
payments. At June 30, 1994, New England Telephone and New
York Telephone had $500 million and $250 million,
respectively, of unissued, unsecured debt securities
registered with the SEC.
NYNEX issued new shares of common stock and reissued treasury
stock for employee savings plans, the Dividend Reinvestment
and Stock Purchase Plan, stock option plans, and stock
compensation plans, which increased equity by approximately
$204 million and provided cash flows of $142 million in the
first six months of 1994. NYNEX expects to continue issuing
new shares and treasury shares for these plans as required.
Financing cash flows in 1994 included net funds of $122.4
million provided by a minority partner in the partnership
formed in December 1993 for the network construction program
in the United Kingdom. NYNEX expects to continue seeking
funds for this network construction program through the
formation of partnerships.
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 and the 1994 pension
enhancements, New York Telephone does not currently meet the
earnings coverage requirement.
NYNEX has filed a registration statement with the SEC for the
issuance of up to $900 million of debt and equity securities.
The proceeds from the sale of securities would be used to
provide funds to NYNEX and/or NYNEX's subsidiaries other than
the telecommunications group for their respective general
corporate purposes.
-21-
<PAGE>
Form 10-Q/A Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1994 AS COMPARED TO FIRST SIX MONTHS OF 1993 (CONT'D)
OTHER MATTERS
On June 30, 1994, NYNEX and Bell Atlantic announced the
formation of a joint venture that will combine NYNEX's and
Bell Atlantic's domestic cellular services properties and
will bid in the Federal Communications Commission's auction
of licenses for personal communications services ("PCS").
Initially, Bell Atlantic will own 62.35 percent of the joint
venture and NYNEX will own 37.65 percent. NYNEX has the
right to increase its share to 40 percent by contributing an
additional $500 million to the joint venture. The
transaction is expected to close in the second quarter of
1995. The joint venture will be controlled equally by both
companies.
On March 24, 1994, NYNEX reached agreements with the
Communications Workers of America and Local 2213 of the IBEW
in New York to extend through August 8, 1998 the collective
bargaining agreements that were to expire on August 5, 1995.
The agreements were ratified in May 1994. On August 5, 1994,
NYNEX tentatively reached a similar agreement with Locals of
the IBEW in New England, subject to ratification by the union
membership. Under the terms of the new agreements, there
will be basic wage increases of 10.5% during the life of the
agreements. Wages will increase 4.0% on August 6, 1995, 3.5%
on August 4, 1996 and 3.0% on August 3, 1997. In 1997 there
mry also be a cost-of-living adjustment. The agreements also
provide for retirement incentives, a commitment to no layoffs
or loss of wages as a result of company-initiated "process
change", an enhanced educational program and incentives to
improve service quality.
The telephone subsidiaries currently account for the economic
effects of regulation in accordance with the provisions of
Statement of Financial Accounting Standards No. 71
("Statement No. 71"). Statement No. 71 would no longer apply
in the event that the recoverability of operating costs
through rates becomes unlikely or uncertain, whether
resulting from competitive effects or specific regulatory
actions. NYNEX continuously assesses its position and the
recoverability of its telecommunications assets with respect
to Statement No. 71 and believes that Statement No. 71 still
applies. However, it is possible that events in the industry
and the markets in which NYNEX operates could change NYNEX's
position in the near future. The impact of such a change
would result in a material non-cash charge and would be
reported as an extraordinary item. This charge would
include: (1) the write-off of previously established
regulatory assets and liabilities and (2) an adjustment to
the carrying value of telephone plant if it is determined,
using a projected cash flow approach, that impairment exists.
It is not practicable
to estimate the charge at this time due to the effect of
possible regulatory
settlements that would affect the recovery of asset balances
should subsequent events require discontinuance of Statement No. 71.
-22-
<PAGE>
Form 10-Q/A
NYNEX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
NYNEX CORPORATION
P.M. Ciccone
P. M. Ciccone
Vice President and Comptroller
(Principal Accounting Officer)
October 31, 1994
