Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 April 30, 1995, 425,752,561 common shares were outstanding.
<PAGE>
Form 10-Q Part I
PART I - FINANCIAL INFORMATION
<TABLE>
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions, except per share amounts) (Unaudited)
<CAPTION>
For the Three Months Ended March 31, 1995 1994
<S> <C> <C>
OPERATING REVENUES
Local service $1,661.2 $1,629.9
Long distance 257.6 281.0
Network access 883.0 864.2
Other 552.4 498.2
Total operating revenues 3,354.2 3,273.3
OPERATING EXPENSES
Maintenance and support 746.9 769.3
Depreciation and amortization 662.4 652.0
Marketing and customer services 328.0 340.2
Taxes other than income 259.5 249.0
Selling, general and administrative 571.9 485.4
Other 212.5 181.9
Total operating expenses 2,781.2 2,677.8
Operating income 573.0 595.5
Other income (expense) - net (17.0) (9.1)
Interest expense 191.6 159.6
Earnings before income taxes 364.4 426.8
Income taxes
Federal 91.6 113.4
State, local and other 22.6 22.8
Total income taxes 114.2 136.2
NET INCOME $ 250.2 $ 290.6
Earnings per share $ .59 $ .70
Weighted average number of shares
outstanding 424.7 416.3
Dividends declared per share $ .59 $ .59
Retained earnings
Beginning of period $2,208.2 $2,388.3
Net income 250.2 290.6
Dividends declared (251.0) (246.3)
Other 24.2 4.8
End of period $2,231.6 $2,437.4
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Form 10-Q Part I NYNEX CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In millions)
<CAPTION>
March 31, December 31,
1995 1994
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 114.1 $ 137.5
Receivables (net of allowance of $228.9
and $226.7, respectively) 2,526.3 2,532.5
Inventories 188.3 173.3
Prepaid expenses 461.0 361.2
Deferred charges and other current assets 512.8 593.5
Total current assets 3,802.5 3,798.0
Property, plant and equipment - at cost 35,975.5 35,467.1
Less: accumulated depreciation (15,319.0) (14,843.7)
20,656.5 20,623.4
Deferred charges and other assets 5,712.7 5,646.6
Total Assets $30,171.7 $30,068.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,453.5 $ 2,668.2
Short-term debt 2,347.4 2,128.8
Other current liabilities 947.1 1,053.5
Total current liabilities 5,748.0 5,850.5
Long-term debt 7,758.0 7,784.5
Deferred income taxes 3,177.4 3,364.7
Unamortized investment tax credits 294.5 304.4
Other long-term liabilities and deferred
credits 4,510.0 4,182.5
Total liabilities 21,487.9 21,486.6
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 441.5 439.7
shares authorized: 750,000,000
shares issued:
at March 31, 1995 - 441,542,547
at December 31, 1994 - 439,669,480
Additional paid-in capital 7,011.5 6,942.0
Retained earnings 2,231.6 2,208.2
Treasury stock (16,053,830 and 16,102,683
shares, respectively, at cost) (642.4) (644.3)
Deferred compensation - LESOP Trust (358.4) (364.2)
Total stockholders' equity 8,683.8 8,581.4
Total Liabilities and Stockholders'
Equity $30,171.7 $30,068.0
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Form 10-Q Part I
<TABLE>
NYNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
<CAPTION>
For the Three Months Ended March 31, 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 250.2 $ 290.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 662.4 652.0
Amortization of unearned lease income-net (20.3) (23.4)
Allowance for funds used during construction-
equity component (5.9) (6.9)
Changes in operating assets and liabilities:
Receivables 6.2 141.6
Inventories (15.0) 2.3
Prepaid expenses (99.8) (93.0)
Deferred charges and other current assets 80.7 159.8
Accounts payable (215.8) (187.8)
Other current liabilities (106.4) (21.9)
Deferred income taxes and Unamortized
investment tax credits (197.1) (95.8)
Other long-term liabilities and deferred
credits 279.3 48.2
Other-net 26.1 (98.4)
Total adjustments 394.4 476.7
Net cash provided by operating activities 644.6 767.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (686.1) (626.5)
Investment in leased assets (16.5) (5.9)
Cash received from leasing activities 37.3 19.8
Other investing activities-net (65.1) 78.7
Net cash used in investing activities (730.4) (533.9)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of commercial paper and
short-term debt 3,238.4 5,679.7
Repayment of commercial paper and
short-term debt (2,986.3) (6,426.7)
Issuance of long-term debt - 593.5
Repayment of long-term debt and capital leases (43.5) (14.9)
Issuance of common stock 28.8 62.1
Dividends paid (223.3) (218.7)
Minority interest 48.3 77.8
Net cash provided by (used in)
financing activities 62.4 (247.2)
Net decrease in Cash and temporary
cash investments (23.4) (13.8)
Cash and temporary cash investments at
beginning of period 137.5 157.8
Cash and temporary cash investments at
end of period $ 114.1 $ 144.0
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) BASIS OF PRESENTATION - The consolidated financial
statements have been prepared by NYNEX Corporation ("NYNEX")
pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC") and, in the opinion of
management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the
financial information for each period shown. Certain information
and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. Management believes
that the disclosures made are adequate to make the information
presented not misleading. Certain information in the
consolidated financial statements for 1994 has been reclassified
to conform to the current year's presentation. The results for
interim periods are not necessarily indicative of the results for
the full year. These consolidated financial statements should be
read in conjunction with the consolidated financial statements
and notes thereto included in the NYNEX 1994 Annual Report on
Form 10-K.
(b) CASH AND TEMPORARY CASH INVESTMENTS - NYNEX's cash
management policy is to make funds available in banks when checks
are presented. At March 31, 1995, NYNEX had recorded in Accounts
payable checks outstanding but not yet presented for payment of
$162.8 million.
(c) ADOPTION OF FINANCIAL ACCOUNTING STANDARDS - Effective
January 1, 1995, NYNEX adopted Statement of Financial Accounting
Standards No. 116, "Accounting for Contributions Received and
Contributions Made" ("Statement No. 116"). The effect of
implementing Statement No. 116 on NYNEX's results of operations
and financial position was insignificant.
(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 ($201.8 million), service issues in New
York Telephone's incentive regulation proceeding ($50.0 million)
and other matters ($54.8 million), may possibly require the
refund of a portion of the revenues collected in the current and
prior periods. As of March 31, 1995, the aggregate amount of such
revenues that was estimated to be subject to possible refund was
approximately $306.6 million, plus related interest. The outcome
of each pending matter, as well as the time frame within which
each will be resolved, is not presently determinable.
(e) LITIGATION AND OTHER CONTINGENCIES - It is probable that
local tax claims aggregating approximately $225 million in tax
and $161 million in associated interest will be asserted against
New York Telephone for the period 1984 through the first quarter
of 1995. 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
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(Unaudited)
arguments against those adjustments. While New York Telephone's
counsel cannot give assurance as to the outcome, counsel believes
that New York Telephone has strong legal positions in these
matters.
Various other legal actions and regulatory proceedings are
pending that may affect NYNEX, including matters involving
Racketeer Influenced and Corrupt Organizations Act, antitrust,
tort, contract and tax deficiency claims. While counsel cannot
give assurance as to the outcome of any of these matters, in the
opinion of Management based upon the advice of counsel, the
ultimate resolution of these matters in future periods is not
expected to have a material effect on NYNEX's financial position
but could have a material effect on annual operating results.
(f) SUPPLEMENTAL INFORMATION - The following information is
provided in accordance with Statement of Financial Accounting
Standards No. 95, "Statement of Cash Flows":
<TABLE>
<CAPTION>
For the
Three Months Ended
March 31,
(In millions) 1995 1994
<S> <C> <C>
Income tax payments $ 25.7 $ 35.8
Interest payments $162.0 $126.3
Additions to property, plant and
equipment under capital lease
obligations $ 0.1 $ 9.3
Common Stock issued for Dividend Reinvestment
and Stock Purchase Plan and stock
compensation plans $ 30.6 $ 8.5
</TABLE>
(g) SEGMENT INFORMATION - The following tables set forth summary
financial information by business segment. Total intersegment
sales for the first quarter of 1995 and 1994 were $88.5 and
$97.0 million, respectively, principally in the
telecommunications segment. The financial services segment had
total outstanding debt of $1,427.9 and $602.0 million at
March 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
(In millions)
UNAFFILIATED REVENUES:
For the Three Months Ended
March 31, March 31,
1995 1994
<S> <C> <C>
Telecommunications $2,883.4 $2,869.1
Cellular 189.3 140.3
Publishing 230.5 215.1
Financial services 21.5 27.8
Other diversified operations 29.5 21.0
Total Consolidated Operating Revenues $3,354.2 $3,273.3
</TABLE>
<PAGE>
Form 10-Q Part I
<TABLE>
NYNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(Unaudited)
<CAPTION>
For the Three Months Ended
March 31, March 31,
(In millions) 1995 1994
OPERATING INCOME:
<S> <C> <C>
Telecommunications $600.3 $612.4
Cellular 14.7 10.0
Publishing 12.8 15.3
Financial services 15.6 21.4
Other diversified operations (39.1) (20.2)
Total operating income by segment 604.3 638.9
Adjustments/Eliminations (0.1) (2.5)
Corporate expenses (31.2) (40.9)
Operating Income $573.0 $595.5
</TABLE>
Cellular operating income includes certain amounts that are
subsequently paid out to minority shareholders. Minority
interest expense for the cellular segment for the three months
ended March 31, 1995 and 1994 was $8.9 and $13.5 million,
respectively.
<TABLE>
<CAPTION>
March 31, March 31,
(In millions) 1995 1994
IDENTIFIABLE ASSETS:
<S> <C> <C>
Telecommunications $24,754.9 $24,768.5
Cellular 997.1 738.0
Publishing 549.9 536.6
Financial services 1,601.1 1,493.7
Other diversified operations 2,347.6 1,706.8
Total identifiable assets by segment 30,250.6 29,243.6
Adjustments/Eliminations (1,578.7) (1,415.0)
Investment in unconsolidated subsidiary 28.5 29.5
Corporate assets 1,471.3 1,410.6
Total Assets $30,171.7 $29,268.7
</TABLE>
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended March 31, 1995, net income was
$250.2 million, or $0.59 per share, on 424.7 million average
common shares outstanding. Net income for the first quarter of
1994 was $290.6 million, or $0.70 per share, on 416.3 million
average common shares outstanding.
Results for the first quarter of 1995 included an after-tax
charge of $53.8 million, or $0.13 per share, for pension
enhancements, primarily in the telecommunications segment, for
approximately 500 management and 400 nonmanagement employees who
elected during the quarter to leave NYNEX under retirement
incentives. NYNEX previously reported an estimated additional
$1.3 billion in after-tax charges are to be recorded as employees
leave through the end of 1996 under the retirement incentives
rather than under the 1993 force reduction plan. 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. Results for the first quarter of
1994 did not include charges for retirement incentives.
Operating revenues increased $80.9 million, or 2.5%, over the
first quarter of 1994. NYNEX experienced a 59% increase in
cellular customers, a 3.3% growth in access lines and a 5.9%
increase in access usage over the first quarter of last year.
Telecommunications revenues increased 0.5%, to $2.9 billion;
increases from customer demand were partially offset by
interstate and intrastate rate reductions.
Operating expenses, excluding pretax pension enhancement charges
of $83.8 million, increased 0.7%. The components of the pretax
charges are $71.6 million ($45.9 million after-tax) for pension
enhancements, and $12.2 million ($7.9 million after-tax) for
associated postretirement medical costs. Telecommunications
operating expenses, excluding pension enhancement charges,
decreased 2.0% from the first quarter of 1994 as force reductions
and process re-engineering continued, offsetting most of the
expense increases from the growth in domestic and international
nontelephone businesses.
Operating income, excluding pension enhancement charges,
increased $61.3 million, or 10.3%, a 1.4% improvement in
operating margin over the first quarter of 1994. This
improvement resulted from the slower growth in operating expenses
of 0.7% as compared to the increase in operating revenues of
2.5%. The increase in net income of 4.6% excluding pension
enhancement charges was less than the percentage improvement in
operating income principally because of a $32 million increase in
interest expense.
<PAGE>
Form 10-Q Part I
<TABLE>
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating revenues
Operating revenues for the quarter ended March 31, 1995 increased
$80.9 million, or 2.5%, over the same period last year. The
change in revenues consists of the following:
<CAPTION>
(In millions)
For the Three Months Ended
March 31, March 31,
1995 1994
<S> <C> <C>
Local service $1,661.2 $1,629.9
Long distance 257.6 281.0
Network access 883.0 864.2
Other 552.4 498.2
Total Consolidated Operating Revenues $3,354.2 $3,273.3
</TABLE>
Local service revenues increased $31.3 million, or 1.9%,
primarily due to a net $29 million increase in demand driven by a
3.3% increase in access lines and sales of calling features and
to a $7 million increase in local service rates due to a
restructuring of Massachusetts rates.
Long distance revenues decreased $23.4 million, or 8.3%,
primarily due to decreases in demand for message toll service,
private line and wide area telecommunications services as a
result of increased competition and customer shifts to lower
priced services offered by New York Telephone and New England
Telephone and Telegraph Company ("New England Telephone")
(collectively, the "telephone subsidiaries") and a $10 million
decrease in long distance rates primarily attributable to the
Massachusetts rates restructuring.
Network access revenues increased $18.8 million, or 2.2%. There
were increases in demand for both switched and special access,
partially offset by a reduction in interstate rates.
Other revenues increased $54.2 million, or 10.9%, primarily due
to a $49 million increase in revenues in the cellular segment, as
the customer base for mobile telecommunications continued to
expand. Revenues for the publishing segment increased
$15.4 million, or 7.2%, primarily due to increased Yellow Pages
advertising revenues, driven by increased prices and volume
growth, and increased revenues from the publication of
international directories. These increases were partially offset
by a $12.5 million decrease in billing and collection revenues at
the telephone subsidiaries, pursuant to the contract with AT&T
Corp. ("AT&T").
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating expenses
Operating expenses were $2.8 billion, an increase of
$103.4 million, or 3.9%, over the first quarter of 1994.
Excluding the $83.8 million pretax charge for pension
enhancements, operating expenses increased 0.7%.
At the telephone subsidiaries and Telesector Resources Group,
Inc. (collectively, the "telecommunications group"), excluding
pension enhancement charges, operating expenses were
$2.3 billion, a decrease of $46.1 million, or 2.0%, reflecting
continued force reductions and process re-engineering. Employee
costs, consisting primarily of wages, payroll taxes, and employee
benefits, decreased $32.2 million due principally to a reduction
in the work force, partially offset by salary rate increases.
All other operating expenses decreased $13.9 million due
principally to a $23.0 million decrease in non-employee costs,
partially offset by a $9.3 million increase in taxes other than
income primarily due to New England Telephone property taxes.
Depreciation and amortization was flat as a result of revised
federal and state depreciation rates offset by increased
depreciable plant investment.
At NYNEX's subsidiaries other than the telecommunications group,
excluding pension enhancement charges, operating expenses
increased $65.7 million, or 20.0%. This increase was due
primarily to a $43.1 million increase in cellular expenses as a
result of continued growth in the customer base, an increase in
bad debt and fraud costs, and increased depreciation and
amortization due to the expansion of cellular operations. In
addition, there were increases in expenses due to the expansion
of the international cable television and telecommunications
operations and increased business development costs related to
the entertainment and information services business.
Other Income (Expense) - Net
Other income (expense) - net for the first quarter of 1995 had a
negative impact of $7.9 million from the first quarter of 1994,
principally due to start-up costs from investments in
entertainment and information services ventures and to increased
minority interest expense.
Interest Expense
Interest expense for the first quarter of 1995 increased
$32.0 million, or 20.1%, from the first quarter of 1994. Average
interest rates increased primarily as a result of an increase
from 3.4% to 6.1% in average commercial paper rates. There was
essentially no change in total debt since variable rate
commercial paper was repaid through the issuance of long-term
debt in 1994. Average long-term debt levels increased from $6.6
to $7.8 billion, and average commercial paper levels decreased
from $3.6 to $2.3 billion.
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Income Taxes
Income taxes for the first quarter of 1995 decreased
$22.0 million, or 16.2%, from the same period last year. The
effective tax rate for the first quarter of 1995 was the same as
for the first quarter of 1994. Income taxes in 1995 were reduced
by tax credits of $19 million. Income taxes in 1994 included a
$12 million reduction in the deferred tax valuation allowance as
a result of the implementation of a tax planning strategy to
utilize capital losses generated from the exit from the
information products and services business.
CURRENT STATUS OF BUSINESS RESTRUCTURING
<TABLE>
Reserve Utilization in 1995
<CAPTION>
The restructuring reserve balance at March 31, 1995, which does
not include the liability recorded at year-end for postretirement
medical benefits associated with employees' leaving NYNEX under
the business restructuring, was approximately $700 million. In
the first quarter of 1995, NYNEX utilized 1993 restructuring
reserves of $99 million in the following categories:
<S> <C> <C> <C>
Severance:
Management $30
Nonmanagement 3
Total severance $33
Process Re-engineering:
Systems redesign:
Customer contact 12
Customer provisioning 9
Customer operations 5
Customer support 10
Total systems redesign $36
Work center consolidation 2
Branding 1
Relocation -
Training 1
Re-engineering implementation 14
Total process re-engineering 54
Sale/discontinuance of information products
and services businesses 12
Nontelephone subsidiaries' restructuring -
Total $ 99
</TABLE>
Cost Savings
During the first quarter of 1995, NYNEX experienced a reduction
in wages of approximately $82 million as a result of employees'
leaving under retirement incentives.
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Force Reduction Plans
When business restructuring charges were recorded in 1993, NYNEX
anticipated that 16,800 positions (4,200 management and 12,600
nonmanagement) would be eliminated through process re-engineering
initiatives. In the first quarter of 1994, NYNEX announced the
offering of pension enhancements and anticipated that the planned
work force reductions as a result of re-engineering could be
achieved through the offering of the pension enhancements. At
the present time, NYNEX still expects to achieve the targeted
reduction of 16,800 positions through process re-engineering;
however, it appears that the management reductions will be higher
than originally planned due to single enterprise management staff
reduction efforts and nonmanagement reductions will be less due
to volume of business growth. NYNEX also expects to meet the
target of 16,800 employees electing to take the pension
enhancements, but expects that the number of management employees
electing will be higher and nonmanagement will be lower than
originally anticipated. Based on employee acceptance of pension
enhancements to date, NYNEX is reassessing the actuarial
assumptions used in calculating the estimated additional charges
to be recorded.
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOWS
Operating activities: Net cash provided by operating activities
was $644.6 and $737.3 million at March 31, 1995 and 1994,
respectively, a decrease of $122.7 million from the first quarter
of 1994.
This decrease was primarily due to lower net income and greater
cash outlays for re-engineering activities in the first quarter
of 1995. Costs associated with re-engineering activities
reserved for in the fourth quarter of 1993 were planned to result
in cash outlays in the years 1994 through 1996; approximately $34
and $16 million were expended in the first quarter of 1995 and
1994, respectively. Pension enhancement charges in the first
quarter of 1995 did not materially affect operating cash flows
because increased cash outflows due to the pension enhancement
charges will be incurred primarily by the NYNEX Pension Plans in
the future.
Investing activities: Net cash used in investing activities was
$730.4 and $533.9 million at March 31, 1995 and 1994,
respectively, an increase of $196.5 million over the first
quarter of 1994, primarily due to increases in capital
expenditures and other investing activities.
Capital expenditures increased $59.6 million, or 9.5%. During
the first quarter of 1995, NYNEX upgraded the existing
telecommunications network, including new construction, optical
fiber and modernization at the telephone subsidiaries.
Telecommunications capital expenditures were funded primarily
through cash generated from operations. Capital expenditures in
the first quarter of 1995 also included the addition of mobile
cell sites and the
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
continued construction of the cable television/telecommunications
network in the United Kingdom. Cash used in other investing
activities increased $143.8 million over the first quarter of
1994 primarily due to NYNEX's $42 million investment in PCS
Primeco (see LIQUIDITY below), and the receipt of cash in 1994
from the exit from the information products and services
business.
Financing activities: Net cash provided by (used in) financing
activities was $62.4 and ($247.2) million at March 31, 1995 and
1994, respectively, an increase of $309.6 million over the first
quarter of 1994.
This increase was primarily due to issuances of commercial paper
in the first quarter of 1995 in connection with the funding of
new ventures. Equity increased approximately $59.4 million in
the first quarter of 1995 as NYNEX issued new shares of common
stock for employee savings plans, the Dividend Reinvestment and
Stock Purchase Plan ("DRISPP"), and stock compensation plans.
Financing cash flows in the first three months of 1995 included
net funds of $48.3 million primarily provided by a minority
interest in the financing structures formed in December 1993 and
1994 for the network construction program in the United Kingdom.
LIQUIDITY
NYNEX CableComms Group PLC and NYNEX CableComms Group Inc.,
indirect wholly-owned subsidiaries of NYNEX, filed a registration
statement with the SEC for an initial public offering. The
Ordinary Shares of NYNEX CableComms Group PLC and the shares of
Common Stock of NYNEX CableComms Group Inc. would be traded
together as Units. Following the offering, NYNEX would continue
to be the controlling shareholder of the outstanding Units.
Proceeds of the offering would be used to repay outstanding
revolving loans under credit facilities, to fund a portion of the
cost of construction of CableComms' network, for operating cash
flow and interest.
At March 31, 1995, NYNEX had $950 million of unissued, unsecured
debt and equity securities registered with the SEC. The proceeds
from the sale of securities would be used to provide funds for
NYNEX and/or NYNEX's nontelephone subsidiaries for their general
corporate purposes.
At March 31, 1995, NYNEX Capital Funding Company had $637 million
of unissued medium-term debt securities registered with the SEC.
When issued
these securities will be guaranteed by NYNEX. The proceeds from
the sale of these securities would be used to provide financing
for NYNEX and/or NYNEX's nontelephone subsidiaries.
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
At March 31, 1995, New England Telephone and New York Telephone
had $500 and $250 million, respectively, of 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 the
proposed issuance. As a result of the 1993 and 1994 business
restructuring charges, New York Telephone did not meet the
earnings coverage requirement in March 1994. At March 31, 1995,
New York Telephone meets the requirement.
On October 20, 1994, NYNEX, Bell Atlantic Corporation, AirTouch
Communications Inc. and U S WEST Inc. announced definitive
agreements to form a venture to provide national wireless
communications services. The venture is comprised of two
partnerships, one of which, PCS Primeco, participated in the
Federal Communications Commission ("FCC") auction of personal
communications services ("PCS") licenses and will deploy PCS
services. On March 13, 1995, the FCC completed its auction of
99 broadband PCS licenses for 51 major markets. PCS Primeco,
which bid a total of approximately $1.1 billion for licenses in
eleven cities, announced that it expects to begin offering PCS
services within 18 months and to complete a nationwide network
in two years. Through March 1995, PCS Primeco submitted a
deposit of approximately $220 million in accordance with FCC
auction rules, of which NYNEX's portion was approximately
$55 million. The balance of the bid of approximately
$880 million, of which NYNEX's portion is approximately
$220 million, is due upon grant of the licenses following final
review of bidder qualifications by the FCC, which is expected to
be in May 1995. NYNEX's portion is anticipated to be funded
initially through the issuance of debt and equity securities.
REGULATORY AND OTHER MATTERS
STATE REGULATORY
New York: As previously reported (see NYNEX's Annual Report on
Form 10-K for the year ended December 31, 1994), on September 26,
1994, New York Telephone, the New York State Department of Public
Service Staff and 15 other parties filed a proposed Regulatory
Plan (the "Plan") for approval by the New York State Public
Service Commission ("NYSPSC"). The Plan would modify the manner
in which New York Telephone is regulated by the NYSPSC over the
next five to seven years. The Plan was developed by the parties
in the third phase of the incentive regulation proceeding that
the NYSPSC instituted in 1992. In the first phase of the
proceeding, the NYSPSC ordered New York Telephone's rates to be
reduced by $170 million annually, effective January 1, 1994, and
required that an additional $153 million of revenues annually be
set aside for short-term service incentive plans and a longer
term plan for performance-based earning incentives and network
improvements to be determined in the proceeding. The NYSPSC's
decision on the Plan is expected in the second quarter of 1995.
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
New York Telephone and the NYSPSC agreed to a service quality
plan for 1994 ("the Service Plan"). In the Service Plan, New
York Telephone committed to achieve certain measurable levels of
customer service, or, failing to achieve those levels, accept a
penalty, the amount of which would be determined by the achieved
service performance levels. Based on service performance results
through December 31, 1994, it is probable that New York Telephone
will incur a penalty obligation. The precise amount of the
penalty obligation cannot be determined pending further NYSPSC
action regarding the waiver of certain service results for the
period in question, but it is estimated that the obligation will
be in the range of $40 to $50 million. The Service Plan is
silent as to how New York Telephone must satisfy any obligation.
The ultimate resolution as to the disposition of the Service Plan
obligation through an additional capital investment to improve
infrastructure, a refund to ratepayers, or other means, will be
made by the NYSPSC in the future. The NYSPSC may allow all
interested parties the opportunity to state their positions.
Maine: As previously reported (see NYNEX's Annual Report on Form
10-K for the year ended December 31, 1994), on May 10, 1994, the
Maine Public Utilities Commission ("MPUC") commenced a proceeding
to explore alternatives to traditional rate of return regulation
and an earnings investigation commenced in response to a
ratepayer complaint for New England Telephone. On May 3, 1995,
the MPUC indicated its intent to reduce New England Telephone's
annual revenues by $14.3 million, to order a one-time customer
credit of $2.8 million and to adopt a form of price cap
regulation that would impose quality of service standards and a
productivity factor more stringent than those recommended by
New England Telephone. The MPUC is expected to issue an order by
May 15, 1995.
Massachusetts: As previously reported (see NYNEX's Annual Report
on Form 10-K for the year ended December 31, 1994), on April 14,
1994, New England Telephone filed tariff provisions with the
Massachusetts Department of Public Utilities ("MDPU") as part of
an Alternative Regulatory Plan to govern New England Telephone's
Massachusetts intrastate operations. The MDPU's decision is
pending.
Vermont: As previously reported (see NYNEX's Annual Report
on Form 10-K for the year ended December 31, 1994), on
February 6, 1995, the Vermont Public Service Board ("VPSB")
amended its earlier order in New England Telephone's Price
Regulation Plan proceeding. On March 8, 1995, New England
Telephone notified the VPSB of its rejection of the VPSB's
proposed changes and that, accordingly, New England
Telephone would continue under rate of return regulation.
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Also as previously reported, in the related proceeding to
examine New England Telephone's level of earnings, on
February 6, 1995, the VPSB issued an order, recalculating
certain aspects of the required annual revenue reduction,
the net effect of which remained approximately $15 million,
retroactive to December 29, 1993, the date the VPSB opened
the proceeding. In the first quarter, New England Telephone
reduced local operating revenues by approximately $3 million
for subsequent refunds to Vermont customers for the period
from January 1, 1995 through March 31, 1995. A date for
refunds to customers will be set once the VPSB completes
supplemental hearings on rate reduction design issues. On
March 6, 1995, New England Telephone filed an appeal of
certain portions of the VPSB's February 6 order with the
Vermont Supreme Court.
FEDERAL REGULATORY
Price caps
On March 30, 1995, the FCC announced interim changes in the price
cap rules for local exchange carriers ("LECs") pending a further
notice of proposed rulemaking that the FCC hopes to complete by
early 1996. The FCC price cap formula adjusts the limits on
access price levels ("price cap index" or "PCI") upward for
inflation, downward for productivity improvement and up or down
for exogenous costs. Under the interim rules each LEC will
choose one of three productivity factor offsets to be used in
setting its price cap index. LECs adopting the highest
productivity factor will retain all interstate earnings. The two
other options entail sharing of earnings and will allow an LEC to
achieve a maximum interstate rate of return of either 14.25% or
12.75%.
The FCC also determined that the original 3.3% productivity
factor adopted in 1991 and used since then by most LECs was
understated. Accordingly, the FCC's order requires those LECs,
including the telephone subsidiaries, to make up front reductions
to "reinitialize" their respective PCIs. The FCC also revised
the criteria for including exogenous cost changes in the
calculation of the PCI. As a result, the LECs will be required
to recalculate their PCIs on a prospective basis to exclude cost
increases due to changes in the accounting treatment of Other
Postemployment Benefit expenses.
The telephone subsidiaries are scheduled to file tariffs in May
1995 to implement the fifth annual update to the price cap rates,
including the adjustments ordered by the FCC. The tariffs, which
are to become effective August 1, 1995, will reduce the telephone
subsidiaries' interstate access rates by approximately
$79 million for the tariff period ending June 30, 1996.
The FCC gave the LECs additional pricing flexibility in certain
service categories and announced its intention to examine
broader questions of regulatory reform, including the
elimination of earnings sharing and a transition to a
streamlined regulatory structure, in the further notice of
proposed rulemaking.
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Other
Tariff revisions filed by the telephone subsidiaries with the FCC
became effective on April 29, 1995, to recover an additional
$2.3 million of exogenous costs resulting from the
implementation of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". Collection of these revenues is subject
to possible refund pending resolution of the FCC's Common
Carrier Bureau investigation (see NYNEX's Annual Report on Form
10-K for the year ended December 31, 1994).
On May 2, 1995, the telephone subsidiaries filed their response
to the FCC's March 3, 1995 Order to Show Cause in connection
with an audit of costs reported by the LECs to the National
Exchange Carrier Association(see NYNEX's Annual Report on Form
10-K for the year ended December 31, 1994). In that response
the telephone subsidiaries argued that no forfeitures or price
cap reductions should be imposed, and that their internal
processes are in compliance with the FCC's rules.
On May 4, 1995, the FCC approved, with modifications, the
Universal Service Preservation Plan ("USPP") filed by the
telephone subsidiaries in December 1993 (see NYNEX's Annual
Report on Form 10-K for the year ended December 31, 1994). As
approved, the USPP applies only in the New York City
metropolitan area. The FCC's action will allow New York
Telephone to reduce switched access rates and to shift some of
the revenues lost from this rate reduction to flat, per-line
charges applicable to access lines in this area and to other
rate elements. These actions should improve the ability of
New York Telephone to compete more effectively with alternative
providers of local telephone service. It is anticipated that
the initial rate changes made pursuant to the USPP will not
reduce overall access revenues.
EFFECTS OF REGULATORY ACCOUNTING
NYNEX currently accounts for the operations of the telephone
subsidiaries in accordance with the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" ("Statement No. 71").
The provisions of Statement No. 71 are followed when the
regulation of an enterprise's rates is intended to permit
recovery of the enterprise's costs and such rates are likely to
be collected from customers. This process can create assets or
liabilities solely by the action of the regulatory authorities.
Under Statement No. 71, companies generally depreciate plant and
equipment over lives approved by regulators. Statement No. 71
also requires deferral of certain costs and obligations based on
approvals received from regulators. In the event that the
recoverability of costs through rates becomes unlikely or
uncertain, whether resulting from competitive effects or specific
regulatory actions, Statement No. 71 would no longer apply. 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
<PAGE>
Form 10-Q Part I
NYNEX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
the industry, the markets in which NYNEX operates, and the
possible effects
of regulatory and legislative initiatives could change NYNEX's
position in the near future. In that event, implementation of
Statement of Financial Accounting Standards No. 101, "Regulated
Enterprises - Accounting for the Discontinuation of Application
of FASB Statement No. 71" ("Statement No. 101"), would require
the write-off of previously established regulatory assets and
liabilities, including the adjustment of certain plant balances
to reflect the difference between recorded depreciation and the
amount of depreciation that would have been recorded had the
telephone subsidiaries not been subject to rate regulation. The
impact of such a change would result in a material non-cash
charge and would be reported as an extraordinary item. This
charge could also include an adjustment to the carrying value of
telephone plant if it is determined, using a projected cash flow
approach, that impairment exists. While the effect of
implementing Statement No. 101 cannot be precisely estimated at
this time, Management believes that the total non-cash effect of
the accounting change on net income would be between $3.0 and
$4.0 billion.
<PAGE>
Form 10-Q Part II
NYNEX CORPORATION
PART II - OTHER INFORMATION
ITEM 5.Other Information
Operations Under the Modification of Final Judgment ("MFJ")
On April 28, 1995, the United States District Court for the
District of Columbia ("MFJ Court") issued a decision
granting the regional holding companies' ("RHCs")
joint motion for a waiver of the MFJ permitting the
RHCs to provide interLATA wireless telecommunications
services. The MFJ Court attached a number of
restrictions and conditions that limit the extent and
manner in which the RHCs may provide such services.
NYNEX Corporation ("NYNEX") is proceeding to comply
with the requirements of the decision in order that
it may begin to provide the services authorized,
while at the same time it has appealed the decision
to the United States Court of Appeals for the
District of Columbia Circuit.
Other
On April 13, 1995, it was announced that the seven RHCs,
including NYNEX, have decided to pursue the
disposition of Bell Communications Research, Inc.
("Bellcore"). Each of the RHCs owns an equal
interest in Bellcore. A final decision regarding the
disposition of their interests and the structure of
such a transaction will be subject to obtaining
satisfactory financial and other terms and necessary
approvals.
ITEM 6.Exhibits and Reports on Form 8-K
(a)Exhibits.
Exhibit
Number
(27) Financial Data Schedule
(b)Reports on Form 8-K.
No Report on Form 8-K was filed by the registrant
during the
quarter for which this report is filed.
<PAGE>
Form 10-Q
NYNEX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NYNEX CORPORATION
P. M. Ciccone
P. M. Ciccone
Vice President and Comptroller
(Principal Accounting Officer)
May 9, 1995
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