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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark one)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3435
NEW YORK TELEPHONE COMPANY
A New York I.R.S. Employer
Corporation Identification No. 13-5275510
1095 Avenue of the Americas, New York, New York 10036
Telephone Number (212) 395-2121
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
See attached New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF NYNEX CORPORATION, MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF FORM 10-K AND
IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO
GENERAL INSTRUCTION J(2).
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ..X... No ......
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]*
*Not applicable
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Attachment
Title of each class
REFUNDING MORTGAGE BONDS:
$ 55,000,000 3 3/8% Refunding Mortgage Bonds Series I
Due April 1, 1996
$ 60,000,000 4 5/8% Refunding Mortgage Bonds Series L
Due October 1, 1997
$ 60,000,000 4 5/8% Refunding Mortgage Bonds Series M
Due January 1, 2002
$ 70,000,000 4 1/4% Refunding Mortgage Bonds Series N
Due January 1, 2000
$130,000,000 4 5/8% Refunding Mortgage Bonds Series O
Due January 1, 2004
$100,000,000 4 7/8% Refunding Mortgage Bonds Series P
Due January 1, 2006
$ 75,000,000 6% Refunding Mortgage Bonds Series Q
Due September 1, 2007
$150,000,000 7 1/2% Refunding Mortgage Bonds Series R
Due March 1, 2009
$200,000,000 7 3/4% Refunding Mortgage Bonds Series T
Due December 15, 2006
$200,000,000 7 3/8% Refunding Mortgage Bonds Series V
Due December 15, 2011
DEBENTURES:
$200,000,000 Principal Amount of 40 Year 7 7/8% Debentures,
Due June 15, 2017
$150,000,000 Principal Amount of 21 Year 8 5/8% Debentures,
Due November 15, 2010
$200,000,000 Principal Amount of 40 Year 9 3/8% Debentures,
Due July 15, 2031
$100,000,000 Principal Amount of 30 Year 7 5/8% Debentures,
Due Feb. 1, 2023
$200,000,000 Principal Amount of 12 Year 6 1/2% Debentures,
Due March 1, 2005
$100,000,000 Principal Amount of 20 Year 7% Debentures,
Due May 1, 2013
$100,000,000 Principal Amount of 20 Year 7% Debentures,
Due June 15, 2013
$250,000,000 Principal Amount of 32 Year 7% Debentures,
Due August 15, 2025
$250,000,000 Principal Amount of 30 Year 6.70% Debentures,
Due November 1, 2023
$200,000,000 Principal Amount of 40 Year 7% Debentures,
Due December 1, 2033
$450,000,000 Principal Amount of 30 Year 7 1/4% Debentures,
Due February 15, 2024
NOTES:
$100,000,000 Principal Amount of 5 Year 5 1/4% Notes,
Due September 1, 1998
$200,000,000 Principal Amount of 10 Year 5 7/8% Notes,
Due September 1, 2003
$150,000,000 Principal Amount of 10 Year 5 5/8% Notes,
Due November 1, 2003
$150,000,000 Principal Amount of 10 Year 6 1/4% Notes,
Due February 15, 2004
TABLE OF CONTENTS
PART I
Item Page
1. Business (Abbreviated Pursuant to General Instruction J(2))....... 4
2. Properties ....................................................... 14
3. Legal Proceedings ................................................ 14
4. Submission of Matters to a Vote of Security Holders
(Omitted pursuant to General Instruction J(2))
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters (Inapplicable)
6. Selected Financial Data .......................................... 17
7. Management's Discussion and Analysis of Results of Operations
(Management's Narrative Analysis of Results of Operations is
provided pursuant to General Instruction J(2)) .................. 18
8. Consolidated Financial Statements and Supplementary Data:
Report of Management .......................................... 24
Report of Independent Accountants ............................. 26
Statements:
Consolidated Statements of Income and Retained
Earnings for each of the Three Years in the Period
Ended December 31, 1993.................................... 27
Consolidated Balance Sheets as of December 31, 1993
and 1992................................................... 28
Consolidated Statements of Cash Flows for each of the Three
Years in the Period Ended December 31, 1993 ............... 30
Notes to Consolidated Financial Statements .................. 31
Supplementary Information:
Quarterly Financial Information (Unaudited) ................. 44
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................. 44
PART III
(Omitted pursuant to General Instruction J(2))
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Consolidated Financial Statement Schedules and
Reports on Form 8-K .............................................. 45
PART I
Item 1. BUSINESS
General
New York Telephone Company (the "Company"), which was incorporated in
1896 under the laws of the State of New York, has its principal
executive offices at 1095 Avenue of the Americas, New York, New
York 10036 (telephone number 212-395-2121) and is engaged primarily in
providing telecommunications services in a large portion of New York State
and a small portion of Connecticut (Greenwich and Byram only). The Company
is a wholly-owned subsidiary of NYNEX Corporation ("NYNEX").
Empire City Subway Company (Limited) ("Empire"), a wholly-owned
subsidiary of the Company, is primarily in the business of leasing
underground conduit in Manhattan and the Bronx, primarily to companies in
the telecommunications business. Approximately 94% of Empire's 1993
revenues were derived from the Company.
Telecommunications Services
The Company is engaged primarily in providing two types of
telecommunications services, exchange telecommunications and
exchange access, in New York State and a small portion of Connecticut.
Exchange telecommunications service is the transmission of
telecommunications among customers located within
geographical areas (local access and transport areas or
"LATAs"). These LATAs are generally centered on a city or other
identifiable community of interest and, subject to certain exceptions,
each LATA marks an area within which a former Bell System local exchange
company ("LEC") operating within such territory may provide
telecommunications services (See "Operations Under the
Modification of Final Judgment" below). Exchange telecommunications
service may include long distance service as well as local service within
LATAs. Examples of exchange telecommunications services include switched
local residential and business services, long distance service, private
line voice and data services, Wide Area Telecommunications Service
("WATS") and Centrex services.
Exchange access service refers to the link provided by LECs between a
customer's premises and the transmission facilities of other
telecommunications carriers, generally interLATA carriers.
Examples of exchange access services include switched access and
special access services.
Certain billing and collection services are performed by the Company for
other carriers, primarily American Telephone and Telegraph Company
("AT&T"), and certain information providers that elect to subscribe
to these services rather than perform such services themselves. Effective
January 1, 1987, such billing and collection services were detariffed on
an interstate basis and are offered to interexchange carriers under
contract. In addition, many components of intrastate billing and
collection services have been
detariffed pursuant to orders of the New York State Public Service Commission
("NYSPSC"). The NYSPSC has determined that other components of intrastate
billing and collection services shall remain under tariff. In 1993,
approximately 1% of operating revenues were derived from billing and
collection services. The Company is currently providing billing and
collection services to AT&T pursuant to a six-year contract signed in
1990, extending the Company's role as an AT&T long distance billing and
collection agent. The agreement allows AT&T the flexibility of
gradually assuming certain administrative and billing functions
performed by the Company. The contract expires on December 31, 1995.
There are six LATAs that comprise the area served by the Company and they
are referred to as follows: the New York City Metropolitan Area (which
includes Westchester, Rockland, Putnam, Nassau and Suffolk Counties in
New York and Greenwich and Byram in Connecticut), Poughkeepsie,
Albany-Glens Falls, Syracuse-Utica, Buffalo and
Binghamton-Elmira. Although the Company is generally
prohibited by the Modification of Final Judgment from providing
interLATA service, it is permitted to and does provide interLATA
service in certain areas, including service between New York City and
northern New Jersey (see "Operations Under the Modification of Final
Judgment" below).
The following table sets forth for the Company the approximate number of
network access lines in service at the end of each year:
In Thousands
1993 1992 1991 1990 1989
Network Access Lines
in Service . . . . . 10,224 9,978 9,807 9,723 9,438
Sizeable areas and many localities within New York State are served by
nonaffiliated telephone companies that had approximately 1,157,000 network
access lines in service in those territories on December 31, 1993. The
Company does not furnish local service in the areas and localities
served by such companies. Rochester, Jamestown, Middletown, Webster
and Henrietta, New York are the only cities with a population of more
than 25,000 within New York State that are served by such nonaffiliated
companies.
For the year ending December 31, 1993, approximately 94% of the total
operating revenues of the Company were derived from telecommunications
services. In 1993, one customer, AT&T, accounted for approximately 19%
of such revenues, primarily in network access and other revenues. The
remaining approximate 6% of total operating revenues was from other
sources, primarily inside wire related charges and licensing fees for
telephone directories.
Telesector Resources Group, Inc
Telesector Resources Group, Inc. ("Telesector Resources") is a
wholly-owned subsidiary of the Company and New England Telephone
and Telegraph Company ("New England Telephone"), also a wholly-owned
subsidiary of NYNEX. In 1990, NYNEX Materiel Enterprises Company was
transferred from NYNEX to the Company and to New England Telephone
(collectively, the "Telephone Companies") and then merged into
another jointly owned subsidiary, NYNEX Service Company, which was
renamed Telesector Resources. The Company has a 66 2/3% ownership in
Telesector Resources and shares voting rights equally with the other owner,
New England Telephone.
The Telephone Companies have consolidated all or part of many regional
service and support functions into Telesector Resources. Regional
service functions are interstate access services, operator services,
public communications, sales, market area services, corporate services,
information services, labor relations, engineering/construction and
business planning. Support functions are quality and process
re-engineering, marketing, technology and planning, public
relations, legal and human resources. In addition, Telesector
Resources provides various procurement, procurement support and
materials management services to the Telephone Companies, on a
nonexclusive basis. These services include product evaluation,
contracting, purchasing, materials management and disposition,
warehousing, transportation, and equipment repair management. Under
a reciprocal services agreement, the Company provides certain administrative
and other services for Telesector Resources.
Each of the seven regional holding companies ("RHCs") formed in
connection with the AT&T divestiture owns an equal interest in
Bell Communications Research, Inc. ("Bellcore") (see "Operations Under
the Modification of Final Judgment" below). Bellcore furnishes to the
LECs, including the Company, and certain of their subsidiaries,
technical and support services (that include research and
development) relating to exchange telecommunications and exchange
access services that can be provided more efficiently on a centralized
basis. Bellcore serves as a central point of contact for coordinating
the efforts of NYNEX and the other RHCs in meeting the national security
and emergency preparedness requirements of the federal government.
Certain Affiliated Business Operations
NYNEX Information Resources Company
The Company has an agreement with NYNEX Information Resources Company
("Information Resources"), a wholly-owned subsidiary of NYNEX, pursuant
to which Information Resources pays a fee to the Company for the use of the
Company's name in soliciting directory advertising and in publishing and
distributing directories. On April 8, 1986, the NYSPSC issued an order
which disapproved the directory publishing agreement between the Company
and Information Resources. The Company appealed this order and on
October 25, 1988, the New York State Court of Appeals ruled that the
NYSPSC had the authority to disapprove the directory publishing agreement.
The Company subsequently submitted a proposal to the NYSPSC for
compliance with its decision. Beginning in January 1991,
Information Resources has made payments to the Company under an
arrangement that in effect remits to the Company its earnings related to
publishing directories in New York in excess of a regulated return. On
April 1, 1992, the NYSPSC instituted a proceeding to investigate the
directory publishing operations of the Company and its NYNEX affiliates.
On December 9, 1993, an Administrative Law Judge of the NYSPSC issued a
Recommended Decision urging that the Company's proposal not be accepted
and that the Company, instead, assume the directory publishing function
itself and/or negotiate a modified agreement with Information
Resources. On January 27, 1994, the parties to the proceeding
submitted their final briefs to the NYSPSC, which will review the
Administrative Law Judge's recommendation and issue a final order.
Business Restructuring
In the fourth quarter of 1993, the Company recorded charges of
approximately $992 million for business restructuring. These
charges resulted from a comprehensive analysis of operations and work
processes resulting in a strategy to redesign them to improve efficiency
and customer service, to implement work force reductions, and to produce
cost savings necessary for the Company to operate in an increasingly
competitive environment.
Capital Expenditures
The Company meets the expanding needs for telecommunications services by
making capital expenditures to upgrade and extend the existing
telecommunications network, including new construction, optical
fiber and modernization. Capital expenditures (excluding the equity
component of allowance for funds used during construction and
additions under capital leases) for 1989 through 1993 are set forth
below:
In Millions
1993. . . . . . . . $1,342
1992. . . . . . . . $1,221
1991. . . . . . . . $1,354
1990. . . . . . . . $1,251
1989. . . . . . . . $1,211
Operations Under the Modification of Final Judgment
The operations of NYNEX and its subsidiaries in all industry segments are
subject to the requirements of a consent decree known as the "Modification
of Final Judgment" ("MFJ"). The MFJ arose out of an antitrust action
brought by the United States Department of Justice ("DOJ") against
AT&T. On August 24, 1982, the United States District Court for the
District of Columbia (the "MFJ Court") approved the MFJ as in the public
interest. On February 28, 1983, the United States Supreme Court affirmed
the MFJ Court's action. Pursuant to the MFJ, AT&T divested its 22
wholly-owned LECs, including the Telephone Companies, distributed
them to the RHCs, and distributed the stock of the RHCs to AT&T's
stockholders on January 1, 1984.
As initially approved, the MFJ restricted the RHCs, including NYNEX and
its subsidiaries, including the Company, to the provision of exchange
telecommunications service, exchange access and information access
services, the provision (but not manufacture) of customer premises
equipment ("CPE") and the publishing of printed directory advertising.
Although some restrictions placed on RHC operations have been removed or
modified since entry of the MFJ, the RHCs are still required to seek MFJ
Court approval in order to provide interLATA telecommunications services, to
manufacture or provide telecommunications products and to manufacture CPE.
Also, the Company is still required to offer to all interexchange carriers
and information service providers exchange access and information access,
at certain locations, which are equal in quality, type and price to that
provided to AT&T and its affiliates ("Equal Access"). Included in capital
expenditures for the period 1989 through 1993 are costs in connection with
the requirement to provide Equal Access (see "Capital Expenditures" above).
MFJ Court approval to engage in any of the prohibited activities is
normally predicated upon a showing to the MFJ Court that there is no
substantial possibility that an RHC could use its monopoly power to impede
competition in the market it seeks to enter. The MFJ Court has established
procedures for dealing with requests by an RHC to enter new businesses.
Such requests must first be submitted to the DOJ for its review. After
DOJ review, the RHC seeks approval directly from the MFJ Court. The MFJ
Court will consider the recommendation of the DOJ in deciding whether a
specific request should be granted.
On July 25, 1991, the MFJ Court lifted the MFJ restriction on the
provision of the content of information services by the RHCs and
LECs, including NYNEX and the Telephone Companies. On May 28, 1993, the
United States Court of Appeals for the District of Columbia affirmed that
decision. The Court of Appeals decision allows the RHCs and LECs,
including NYNEX and the Telephone Companies, to create and own the
content of the information they transmit over the telephone lines and to
provide data processing services to customers. On November 15, 1993, the
United States Supreme Court declined to review the Court of Appeals
decision.
Regulated Services
Intrastate communications services offered by the Company are under the
jurisdiction of state public utility commissions (see "State Regulatory
Matters" below). Interstate communications services offered by the
Company are regulated by the Federal Communications Commission ("FCC")
(see "Federal Regulatory Matters" below). In addition, state and federal
regulators review various transactions between the Company and the other
subsidiaries of NYNEX.
State Regulatory Matters
Set forth below is a description of certain intrastate regulatory
proceedings with respect to changes in rates and revenues.1/
New York
As an outgrowth of the Company's 1990 general rate case (the "1990 rate
case"), in November 1990, the NYSPSC commenced a proceeding to review the
financial effects on ratepayers of the transactions in the years 1984
through 1990 between the Company and other NYNEX affiliates. The
NYSPSC selected an independent consulting firm to perform an audit of
such transactions. The consultant commenced the audit in November 1991
and is expected to complete the audit and submit a report detailing its
findings and recommendations in 1994. The NYSPSC may hold hearings on the
consultant's audit report.
On July 13, 1993, the NYSPSC issued an Opinion and Order, subject to
comments and a final decision, which would require the Company 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. Currently, absent special dialing arrangements,
such calls are carried by the Company. The NYSPSC is considering various
options for the recovery by the Company of out-of-pocket costs and lost
revenues resulting from ILP. At its February 2, 1994 Public Session,
the NYSPSC suggested that certain issues relating to ILP would be made
the subject of negotiations and a "collaborative effort" between the
parties to the incentive regulatory proceeding.
The Company's tariffs to provide for switched interconnection by
competitors, as required by the NYSPSC in May 1992, became
effective on January 1, 1993. The Company had previously filed
tariffs to permit private line collocation arrangements, whereby
competitors place their transmission equipment in the Company's
central offices.
See also discussion of State Regulatory Matters in Part II, Management's
Discussion and Analysis of Results of Operations, which is incorporated
herein by reference.
1/ The term "rates" is synonymous with prices. When changes in rates are
referred to in the aggregate, the reference is to the aggregate
effect of individual price changes multiplied by the volumes of
services, assuming no change in volume as a result of the price
changes. The term "revenues", on the other hand, refers to the
aggregate effect of prices multiplied by volumes of service, with
effect given to the change in volume as a result of any price
changes.
Federal Regulatory Matters
Interstate Access Charges
Interstate access charges are tariff charges filed with the FCC that
compensate LECs, including the Company, for services that allow
carriers and other customers to originate and terminate interstate
telecommunications traffic on the LECs' local distribution networks. Such
charges recover the LECs' access-related costs allocated to the interstate
jurisdiction ("Interstate Costs") under the FCC's jurisdictional cost
allocation rules.
With respect to the provision of access to the switched network, separate
charges are applied to end users ("End User Common Line Charges") and to
interexchange carriers ("switched access"). End User Common Line
Charges recover, through a fixed charge, a portion of the Interstate
Costs of the line connecting an end user's premises with the LEC's central
office. The LECs recover their remaining Interstate Costs through mileage
and usage sensitive charges to the interexchange carriers.
Special access refers to the provision of nonswitched access for private
line services. Between January 1, 1984 and April 1985, the Company charged
AT&T for special access pursuant to contracts and charged other
interexchange carriers pursuant to pre-existing tariffs. In
November 1984, pursuant to permission granted by the FCC, the Company
increased by approximately 20 percent the special access rates to the
other interexchange carriers. In April 1985, special access tariffs
applicable to all interexchange carriers, including AT&T, became
effective. Upon review, the United States Court of Appeals for the
District of Columbia Circuit found that the rate increases permitted prior
to June 3, 1985 were instituted without the requisite period of notice and,
therefore, remanded the case to the FCC for a determination of the
appropriate refunds. On July 12, 1993, the FCC issued an order
requiring the Company to calculate refunds for certain interexchange
carriers. Pursuant to that order, which is subject to a pending
petition for reconsideration by one of the interexchange carriers,
the Company provided a refund totalling approximately $14,000 on
November 29, 1993.
Effective January 1, 1991, the FCC adopted a new system for regulating
the interstate rates of the LECs, including the Company, and established
so called "price caps" that set maximum limits on the prices the Company
can charge. The limits will be adjusted each year to reflect inflation,
a productivity factor and certain other cost changes.
Price cap regulation does not guarantee that any LEC will earn its
authorized rate of return. If the Company's earnings in any year
fall below 10.25%, the Company is permitted to increase its rates in the
following year to reflect the difference between its earnings and what
earnings would have been at a 10.25% rate of return. On November 1,
1990, the Company filed tariffs to comply with the FCC's new price cap
rate regulation policy. Effective January 1, 1991, the FCC lowered the
interstate access authorized rate of return from 12% to 11.25%. The
tariffs, which became effective on January 1, 1991, were based upon
the authorized rate of return on overall investment of 11.25%.
Under the FCC price cap regulations, each LEC may earn a rate of return
above the authorized rate of return, up to 12.25%, which equates to a
return on equity of slightly over 15.0% for the Company. Above that
level, earnings are divided equally between the LEC and customers, until
they reach an effective cap on interstate return on equity of approximately
18.7%. Also, if the Company chooses to set its tariffs in any one year
based on a more stringent (4.3% as opposed to 3.3%) productivity
standard, the Company may earn in that year a rate of return on
overall investment of up to 13.25% before earnings are shared with
customers, which equates to a correspondingly higher return on equity.
On April 2, 1991, the Company filed its first annual access tariff
revisions under the new price cap rules. These revisions
incorporated a 3.3% productivity factor, as well as inflation
factor adjustments and other cost changes. The revised tariffs became
effective on July 1, 1991 and reduced annual interstate access rates
approximately $10 million.
In addition, on January 13, 1992, the FCC permitted the Telephone
Companies to implement the first step of a transition plan to unify
their interstate access rates. The Telephone Companies implemented the
second step transition rates on July 1, 1992 and the third and final
step on November 24, 1992.
On July 1, 1992, the Company implemented the second annual update to the
price cap rates. These tariff changes, which included the second step
transition rates, resulted in a reduction in the Company's annual
interstate access rates of approximately $80 million during the tariff
period from July 1, 1992 to July 1, 1993.
On July 2, 1993, the Company implemented the third annual update to the
price cap rates. These tariffs will result in a net reduction in the
Company's annual interstate access rates of approximately $55 million
during the tariff period from July 2, 1993 to June 30, 1994.
While the unified rate structure is designed to have no impact on the
Telephone Companies' aggregate interstate revenues, the Company
experienced an interstate rate decrease and New England Telephone
experienced an offsetting interstate rate increase. In order to avoid
sudden changes in each of the Telephone Company's earnings, the
Telephone Companies implemented a transition plan to phase-in the
earnings effect of the unified rate structure on each Telephone Company.
With unification of interstate rates, the Telephone Companies report one
unified interstate rate of return to the FCC, which will be the basis for
determining any possible refund obligations due to overearnings as well as
any need to increase interstate rates due to underearnings under the price
cap plan. Previously, each individual Telephone Company's rate of return
was used for such purposes.
Other Federal Matters
On January 27, 1993, NYNEX, together with two other RHCs, requested that
the FCC initiate an immediate investigation of the competitive impact on
the public interest of the proposed acquisition by AT&T of a 33 percent
interest in McCaw Cellular Communications Inc. ("McCaw"), and in
particular, on the FCC's policies governing competition in
wireless services. The petition
urged that the FCC require AT&T and McCaw to disclose fully the terms of
their agreement so that the FCC can determine whether control of McCaw
is passing to AT&T and whether the proposed transaction is in the public
interest. The FCC requested and received comments from interested
parties. Subsequently, after AT&T announced its intent to acquire
all of McCaw immediately, the FCC commenced a proceeding to examine the
proposed transaction. NYNEX and a number of other parties filed petitions
in that proceeding on November 1, 1993. NYNEX asked that the FCC impose
conditions on any approval of the transaction it might grant, in order
to preserve and promote competition in the cellular marketplace. This
matter is still pending.
In September 1992, the FCC adopted rules requiring certain LECs,
including the Company, to offer physical collocation to
interexchange carriers for the provision of special access
services under terms and conditions similar to the intrastate
collocation arrangement already in existence in New York. The
Company filed Special Access Expanded Interconnection tariffs on
February 16, 1993. The FCC issued an order on September 2, 1993
requiring certain LECs, including the Company, to file Switched
Transport Expanded Interconnection tariffs. The Company filed its
tariff on November 18, 1993. Although the FCC rejected requests by the
LECs to impose contribution charges, the FCC granted the LECs additional
pricing flexibility to be effective after expanded interconnection
arrangements become available.
In August 1992, the FCC determined that the LECs may provide video
dialtone service, a common carrier platform for transporting and
switching video programming from programmers to subscribers, and that
neither the LEC providing video dialtone nor its programmer-customers
require a local cable franchise. On October 30, 1992, the Company
asked the FCC for permission to conduct a trial of video dialtone
service in New York City. On June 29, 1993, the FCC granted that
request. The trial commenced in January of 1994.
The Company filed tariffs for its Open Network Architecture ("ONA")
services with the FCC on November 1, 1991. The Company requested a
waiver of the filing requirement for nine enhanced telecommunications
services. On January 1, 1992, the FCC issued orders allowing the
tariffs to take effect on February 2, 1992, subject to an
investigation of the costs and rates, and granting the requested
waivers as to seven services. On December 15, 1993, the FCC issued an order
requiring certain revisions in the Company's ONA tariffs. The required
revisions became effective March 12, 1994.
On December 5, 1993, the Telephone Companies filed a petition with the
FCC for a waiver to implement the Universal Service Preservation Plan
("USPP") in order to compete more effectively with alternative providers
of local telephone service. The USPP would reduce the Switched Access rate
for multiline business users in zones of high traffic density by
approximately 40 percent, and would shift most of the revenues
lost from this rate reduction to flat, per-line charges applicable to all
access lines. Overall annual access revenues of the Telephone Companies
would be reduced by $25 million.
See also discussion of Federal Regulatory Matters in Part II,
Management's Discussion and Analysis of Results of Operations,
which is incorporated herein by reference.
The outcome of all refund matters, including those described above under
"Regulated Services", as well as the time frame within which each will be
resolved, is not presently determinable. As of December 31, 1993, the
aggregate amount of revenues that was estimated to be subject to
possible refund from all regulatory proceedings was approximately
$164.7 million, plus related interest.
Competition
Advances in technology, as well as regulatory and court decisions, have
expanded the types of communications products and services available in
the market, as well as the number of alternatives to the
telecommunications services provided by the Company.
Various business alliances and other undertakings were announced in
the telecommunications industry in 1993 that indicate an intensifying
level of competition. A number of alternative service providers operate
in New York, and a substantial number of large telecommunications users have
constructed their own telecommunications networks. Moreover, the Company
has tariffs approved by the NYSPSC to provide for expanded
interconnection arrangements to competitors offering private
line services. These arrangements allow those competitors to place their
transmission equipment in the Company's central offices, and are known as
collocation. Furthermore, the Company has filed tariffs with the NYSPSC to
expand further the available collocation arrangements. The Company also
faces increasing competition in Centrex services, long distance, WATS,
billing and collection services, pay telephones and various other services.
The ultimate impact of competition on the provision of telecommunications
services and equipment will depend, to a considerable degree, on future
government policy on telecommunications. The Congress is considering
proposals regarding various restrictions imposed on the RHCs, including
cable television restrictions and MFJ restrictions (see "Operations Under
the Modification of Final Judgment" above). The Company cannot predict
whether these proposals will be adopted, or the effect of competition
on future revenues, expenses, rates of return, profit or growth.
Employee Relations
The Company and its subsidiary had approximately 40,500 employees at
December 31, 1993. Approximately 33,200 employees are represented by
unions. Of those so represented, approximately 97% are represented by the
Communications Workers of America ("CWA") and approximately 3% by the
International Brotherhood of Electrical Workers ("IBEW"), both of
which are affiliated with the AFL-CIO.
In August 1993, pursuant to labor agreements that were to expire in
August 1995, employees represented by the CWA and IBEW at the Company
and its subsidiary received wage increases of up to 4.25%. In August 1994,
these employees will receive an additional wage increase of up to 4.0%.
There may also be a cost-of-living adjustment in August 1994.
The Company, the CWA and Local 2213 of the IBEW in New York have reached
a tentative agreement on a new contract extending the existing contract to
August 1998. The tentative agreement is subject to the completion of local
bargaining and ratification by the union membership.
Item 2. PROPERTIES
The properties of the Company do not lend themselves to simple
description by character and location of principal units.
At December 31, 1993, the gross book value of telephone plant was
$19.7 billion, consisting principally of telephone plant and
equipment (87%). Other classifications include: land, land
improvements and buildings (9%); furniture and other equipment
(1%); and plant under construction and other (3%).
Substantially all of the Company's central office equipment is located in
buildings owned by the Company and situated on land that it owns. Many
administrative offices, garages and business offices are in rented
quarters.
Included in the Company's 1993 restructuring associated with
re-engineering the way service is delivered to customers (see
"Business Restructuring" above), the Company intends to consolidate work
centers by the end of 1996 to build larger work teams in fewer locations.
Substantially all of the Company's assets are subject to lien under the
Company's Refunding Mortgage indenture. At December 31, 1993, the
principal amount of Refunding Mortgage bonds outstanding was
$1.1 billion.
Item 3. LEGAL PROCEEDINGS
Contingent Liabilities Agreement
The Plan of Reorganization, which was approved by the MFJ Court in
August 1983 in connection with the AT&T divestiture, provides for the
recognition and payment of liabilities that are attributable to
predivestiture events (including transactions to implement
divestiture), but that do not become certain until after divestiture.
These contingent liabilities relate principally to predivestiture
litigation and other claims against AT&T, its affiliates and the
LECs with respect to the environment, rates, taxes, contracts and torts
(including business torts, such as alleged violations of the antitrust
laws).
With respect to such liabilities, AT&T and the LECs will share the costs
of any judgment or other determination of liability entered by a court or
administrative agency against any of them, whether or not a given entity
is a party to the proceeding and regardless of whether an entity is
dismissed from the proceeding by virtue of settlement or otherwise.
Other costs to be shared would include the costs of defending the claim
(including attorneys' fees and court costs) and the cost of interest or
penalties with respect to any such judgment or determination. With certain
exceptions, responsibility for such contingent liabilities will generally be
divided among AT&T and the LECs on the basis of their relative net
investment as of the effective date of divestiture. Under this
general rule of allocation, the Company pays approximately 7.4% of any
judgment or determination of liability.
Antitrust Actions
On May 25, 1990, Discon Incorporated filed an action in the United States
District Court for the Western District of New York alleging, among other
things, violations of the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal antitrust laws. The defendants
include NYNEX, the Company, NYNEX Materiel Enterprises Company and others.
Plaintiff's allegations relate to, among other things, the removal of
equipment from the Company's central offices. On June 25, 1992, the
District Court dismissed the original complaint in this case. Discon
then filed an amended complaint. A motion to dismiss is pending before
the District Court.
On October 29, 1990, North American Industries Inc. filed a third party
complaint against the Company alleging, among other things, violations of
the federal antitrust laws relating to the provision of facilities for pay
telephone services. The case is pending in the United States District
Court for the Southern District of New York. In 1992, three similar
suits were filed in the same court.
Other Litigation
In an October 1, 1990 decision in the Fifth Stage of the Company's 1984
general rate case, the NYSPSC confirmed the Company's right to retain
$152 million in cost savings. In September 1991, two suits were filed
in the New York State Supreme Court, challenging the NYSPSC's decision. In
anticipation of such challenges, the Company also filed suit in September
1991, asserting that the retention of the revenues was required by the
terms of the Moratorium Extension. The NYSPSC's motion to dismiss the
Company's suit was granted in May 1992. The Company appealed and on
November 10, 1993, the Appellate Division of the New York Supreme Court
issued an order affirming the NYSPSC's October 1, 1990 order.
On January 25, 1990, Wegoland Ltd. and Howard Weiner filed an action in
the United States District Court for the Southern District of New York on
behalf of the telephone ratepayers of the Telephone Companies alleging
violations of the RICO and various state laws. A substantially
identical case was filed by Donna Roazen on March 12, 1990. The
defendants in these cases are NYNEX, certain of its subsidiaries,
including the Company, and certain present and former officers of
those companies. Plaintiffs allege that the Telephone Companies have
been charged inflated prices in transactions with their affiliates and
that those prices are unlawfully reflected in the Telephone Companies'
regulated rates. On November 13, 1992, the District Court granted
defendants' motions to dismiss these actions with prejudice.
Plaintiffs' appeal is pending before the United States Court of
Appeals for the Second Circuit.
On April 24, 1990, Scott J. Rafferty filed a lawsuit against the Company
and others. The lawsuit, filed in the United States District Court for the
Southern District of New York, alleged violations of the RICO and state
common law relating to, among other things, the termination of
Mr. Rafferty's employment with Telco Research Corporation, then a
subsidiary of NYNEX Information Solutions Group, Inc. On July 16, 1991,
the Court issued an order dismissing some of the plaintiff's claims and
staying the remainder pending dismissal. On November 12, 1993, the Court
dismissed the remainder of Mr. Rafferty's claims and issued a final judgment
in favor of the defendants.
Fifty-four actions, of which approximately 15 remain, were brought in New
York State Supreme Court, New York County, against the Company, Empire and
others arising out of a power failure in a predominantly commercial
section of New York City in August 1983. The actions are predicated
on broad and general claims of negligence in excavating and/or installing
underground equipment. Several of these cases involve multiple plaintiffs.
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 the Company's financial position or annual
operating results but could have a material effect on quarterly
operating results.
PART II
Item 6. SELECTED FINANCIAL DATA
Dollars in Millions 1993 1992 1991 1990 1989
Operating revenues . . . . . $ 7,847 $ 7,746 $ 7,697 $ 7,486 $ 7,448
Operating expenses . . . . . $ 7,505 $ 6,259 $ 6,651 $ 6,151 $ 6,510
Interest expense . . . . . . $ 349 $ 363 $ 375 $ 357 $ 374
Earnings before cumulative
effect of change in
accounting principle . . . $ 82 $ 856 $ 536 $ 738 $ 497
Cumulative effect of change
in accounting for
postemployment benefits,
net of taxes . . . . . . . $ (89) $ - $ - $ - $ -
Net income (loss). . . . . . $ (8) $ 856 $ 536 $ 738 $ 497
Telephone plant - net. . . . $12,116 $12,134 $12,232 $12,126 $12,123
Total assets . . . . . . . . $15,435 $15,603 $15,864 $15,329 $15,287
Long-term debt . . . . . . . $ 3,972 $ 3,984 $ 3,956 $ 4,059 $ 4,133
Share owner's equity . . . . $ 5,185 $ 5,916 $ 5,659 $ 5,727 $ 5,511
Capital expenditures*. . . . $ 1,342 $ 1,221 $ 1,354 $ 1,251 $ 1,211
Return to equity . . . . . . (0.13)% 14.66% 9.17% 12.99% 8.62%
Ratio of earnings
to fixed charges + . . . . 1.04 3.98 2.68 3.52 2.45
Network access lines
in service (in thousands) 10,224 9,978 9,807 9,723 9,438
The results for 1993 reflect the effects of pretax charges of $992 million
($645 million after-tax) for business restructuring, primarily related to
efforts to redesign operations and incremental costs associated with work force
reductions (see Management's Discussion and Analysis of Results of Operations).
The results for 1991 reflect the effects of pretax charges of $317 million
($209 million after-tax) for operational restructuring related to force
reduction programs. The 1989 results reflect the effects of pretax charges of
$296 million ($195 million after-tax) primarily relating to operational
restructuring, asset write-downs, a work stoppage, benefit plan
changes, and regulatory items.
* Excludes additions under capital lease obligations and the equity component
of allowance for funds used during construction.
+ For the purpose of this ratio: (i) earnings have been calculated by adding
Interest expense and the estimated interest portion of rentals to Earnings
before Income taxes and cumulative effect of change in accounting principle;
and (ii) fixed charges are comprised of Interest expense and the estimated
interest portion of rentals.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The following Management's Narrative Analysis of Results of Operations is
provided pursuant to General Instruction J(2) to Form 10-K.
BUSINESS RESTRUCTURING
The 1993 results include pretax charges of approximately $992 million
($645 million after-tax) for business restructuring. These charges
resulted from a comprehensive analysis of operations and work processes,
resulting in a strategy to redesign them to improve efficiency and
customer service, to implement work force reductions, and to produce
cost savings necessary for New York Telephone Company (the "Company") to
operate in an increasingly competitive environment. The charges taken
in 1993 were not related to the restructuring charges recorded in 1991.
Approximately $557 million of the charges ($362 million after-tax) is for
severance and postretirement medical costs for employees leaving the
Company through 1996; approximately $287 million is for employee
severance payments, and $270 million is the medical curtailment loss
recognized as a result of the planned decrease in the work force. The
Company expects to reduce its work force by approximately 9,000
employees by the end of 1996, consisting of 1,500 management
employees and 7,500 employees covered under existing union
agreements. A pension enhancement to the NYNEX management pension
plan was announced in February 1994 in order to accomplish a portion of the
management work force reduction. Any additional costs related to the
pension enhancement will be recorded as employees choose to leave
under the plan through 1996.
Approximately $208 million of the charges ($135 million after-tax) consists
of costs associated with re-engineering the way service is delivered to
customers, including operating the Company and New England Telephone and
Telegraph Company ("New England Telephone") (collectively, the "Telephone
Companies") as a single enterprise under the "NYNEX" brand. The Telephone
Companies will decentralize the provision of residence and business
customer service throughout the region, create regional businesses
to focus on unique markets, and centralize numerous operations and support
functions. Included in this amount are: (1) $22 million of systems
re-engineering costs for redesign of systems, processes and
procedures to realize operational efficiencies and enable the
Company to reduce work force levels; (2) $92 million primarily for
consolidation of work centers by the end of 1996, lease terminations, and
other incremental costs required to build larger work teams in fewer
locations in order to take advantage of lower force levels and
system efficiencies; (3) $28 million to develop and market a single
"NYNEX" brand identity associated with the restructured business
operations; and (4) $25 million for employee relocations as a
result of work center consolidations; (5) $39 million for training
employees on newly designed cross functional job positions and
re-engineered systems; and (6) $2 million in incremental costs to
implement the various re-engineering initiatives.
Approximately $227 million of the restructuring charges ($148 million
after-tax) was allocated to the Company from Telesector Resources
Group, Inc. ("Telesector Resources"), primarily related to its force
reduction and re-engineering programs; approximately $43 million is for
severance
payments, $31 million is the medical curtailment loss recognized as a result
of the planned decrease in its work force, and $153 million consists of
costs associated with re-engineering the way service is delivered to
customers.
COLLECTIVE BARGAINING AGREEMENTS
In October 1991, the Communications Workers of America and the International
Brotherhood of Electrical Workers ratified agreements with the Company to
extend until August 5, 1995 the collective bargaining agreements that were
to have expired on August 8, 1992.
STATE REGULATORY MATTERS
The New York State Public Service Commission ("NYSPSC") authorized a
$250 million increase in the Company's rates, effective January 1,
1991, of which $47.5 million annually remains subject to refund pending
resolution of certain affiliate transactions issues.
In September 1992, the NYSPSC issued an order in the Second and Third Stages
(the "Second and Third Stages") of the 1990 general rate case that
approximately $27 million of revenues attributable to the reduction
in ad valorem taxes on central office equipment (see OPERATING REVENUES and
OPERATING EXPENSES below) would be retained to reduce the balance of
regulatory assets on the Company's books, and the remaining revenues
($15 million in 1992 and $62 million in 1993) would offset rate increases
that would otherwise have been required to offset revenue decreases in
long distance, carrier access and other revenues. In October 1992, the
Company filed a response to the NYSPSC's order in which it updated the
Regulatory Asset Recovery Plan. In the updated plan, the Company
outlined how certain regulatory assets currently accounted for as
deferred charges could be recovered over six years, starting in 1993,
by utilizing ad valorem tax savings and other revenues currently being
provided in rates. On January 28, 1994, the NYSPSC approved the
Company's Regulatory Asset Recovery Plan.
On February 4, 1993, the NYSPSC issued an order with respect to the Second
and Third Stages, permitting the Company to retain 1993 earnings above a
return on equity of 11.7% and up to 12.7% if it met specified
service-quality criteria, with earnings above 12.7% return on
equity to be held for the ratepayers' benefit. On February 25, 1994, the
NYSPSC preliminarily concluded that there would be no financial penalty
based on the Company's 1993 service-quality results.
In July 1992, the NYSPSC initiated a proceeding to investigate
performance-based incentive regulatory plans for the Company
for 1994 and beyond. The NYSPSC noted that incentive regulatory agreements
provide incentives to increase efficiency and provide greater consumer
benefits by permitting the Company to keep some of its performance
gains, i.e., earn a higher rate of return than authorized under
traditional rate of return regulation, and by penalizing
unsatisfactory performance. In the first phase of the
proceeding, the NYSPSC issued Orders on December 24, 1993 and
January 28, 1994 for a reduction in the Company's rates of $170 million
annually, effective January 1, 1994. An additional $153.3 million of
current revenues is to be made available "for the ultimate benefit of
customers and the Company's competitive position through earnings incentives
for short-term service improvements and a longer term plan for
performance-based earning incentives and network improvements."
That incentive regulatory plan will be pursued in a second phase of the
proceeding during 1994. The Orders required the Company to record a
$75 million charge in 1993, representing a reversal of a portion of a
regulatory asset related to deferred pension costs that the Company
expected to recover through the regulatory process and recorded under
the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (see
OPERATING EXPENSES below).
The NYSPSC did not make a final finding on return on equity for 1994.
Subject to the Company's achieving net productivity gains, according
to the Orders, the Company would have an opportunity to earn above a 10.8%
return on equity, with equal sharing with ratepayers of any earnings above
a 12% return on equity.
FEDERAL REGULATORY MATTERS
Effective January 1, 1991, the Federal Communications Commission ("FCC")
adopted incentive regulation in the form of price caps with respect to
interstate services provided by the Company. Price caps focus on local
exchange carriers' ("LECs") prices rather than costs and set maximum
limits on prices LECs can charge for their services. These limits are
subject to adjustment each year to reflect inflation, a productivity
factor and certain other cost changes. Under FCC price cap
regulation, the Company may earn a return on equity of up to
approximately 15%. Above that level, earnings are subject to equal
sharing with ratepayers until they reach an effective cap on interstate
return on equity of approximately 18.7%.
In 1992, the Telephone Companies implemented a three-step transition plan to
unify their interstate access rates, with tariffs that became effective in
January, July, and November 1992. These tariffs, including the effect of
the Company's annual price cap tariff filings, resulted in a decrease in
the Company's interstate access revenues of approximately $10 million
during the tariff period ending June 30, 1992, a decrease of
approximately $80 million during the tariff period ending July 1,
1993 and will result in a decrease of approximately $55 million during the
tariff period ending June 30, 1994. The Telephone Companies implemented a
phase-in payment plan in order to avoid sudden changes in each of the
Telephone Company's earnings resulting from the unified rate
structure. A substantial portion of the decrease in the Company's
access revenues during those tariff periods was offset by the payment plan,
which provided for transition payments from New England Telephone in the
amounts of $18 million in 1992 and $55 million in 1993.
In September 1992, the FCC adopted rules requiring certain LECs, including
the Company, to offer physical collocation to interexchange carriers for
the provision of special access services under terms and conditions similar
to the intrastate collocation arrangement already in existence in New York.
The Company filed Special Access Expanded Interconnection tariffs on
February 16, 1993. The FCC issued an order on September 2, 1993,
requiring certain LECs, including the Company, to file Switched Transport
Expanded Interconnection tariffs. The Company filed its tariff on
November 18, 1993. Although the FCC rejected requests by the LECs
to impose contribution charges, the FCC granted the LECs additional pricing
flexibility to be effective after expanded interconnection arrangements
become available.
OPERATING REVENUES
Operating revenues for the year ended December 31, 1993 increased
$100.6 million, or 1.3%, over the same period last year. This
increase in total operating revenues is comprised of the following:
Increase (Decrease)
(Dollars in Millions)
Local service. . . . . . . . . . . $ 77.0
Long distance. . . . . . . . . . . 45.4
Network access . . . . . . . . . . (39.9)
Other. . . . . . . . . . . . . . . 18.1
$100.6
Local service revenues are earned from the provision of local exchange, local
private line and local public network services. The increase in Local
service revenues was primarily due to a $127 million increase
attributable to increased demand as evidenced by growth in access
lines, growth in sales of advanced calling features such as call waiting,
remote call forwarding and touch-tone services, higher usage associated
with the severe winter storms and the World Trade Center bombing in 1993
(see OPERATING EXPENSES below) and increased rates to cover higher gross
receipts taxes. These increases were partially offset by a $55 million
rate reduction and a $5 million reduction in revenues associated with the
reversal of a 1990 deferral of private line revenues.
Long distance revenues are earned from the provision of services beyond the
local service area, but within the local access and transport area
("LATA"), and include public and private network switching. The
increase in Long distance revenues was primarily due to $55 million of
revenues attributable to regulatory accounting adjustments relating to
intraLATA toll calling in upstate New York (see OPERATING EXPENSES
below). This increase was partially offset by a $17 million decrease
primarily due to decreased demand for toll private line services, as a
result of increased competition and customer shifts to lower priced
Company services.
Network access revenues are earned from the provision of exchange access
services primarily to interexchange carriers. Switched access revenues
are charges to telecommunications carriers for access to the Company's local
exchange facilities. Switched access revenues decreased a net $25 million
due principally to a reduction in rates, including the effect of the
unification of interstate access rates (see OTHER INCOME - NET below)
and a decrease in interstate rates to reflect lower gross receipts taxes,
and to the phase-out of the equal access cost recovery charge. These
decreases were partially offset by increased usage. Special access
revenues are charges for dedicated lines that connect terminal locations
of interexchange carriers and end users. Special access revenues decreased
$15 million primarily due to a reduction in interstate rates, increased
competition and customer shifts to lower priced Company services.
Other revenues are earned from the provision of products and services other
than Local service, Long distance and Network access. The increase in
Other revenues was due principally to a $24 million reversal of
previously recorded reductions in revenues in connection with the
phase-out of
ad valorem taxes on central office equipment (see STATE REGULATORY MATTERS
above) and to a $22 million imputed reduction of these revenues in 1992.
In addition, wire installation revenues increased $9 million and late
payment charges increased $6 million due to an increase in rates.
These increases were partially offset by a $26 million decrease in
billing and collection revenues primarily attributable to a contract
provision with American Telephone and Telegraph Company ("AT&T"), a
$10 million reduction associated with the reversal of a 1992
deferral of revenues for concession service and a $10 million
reduction due to the 1992 imputation of these revenues.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 1993 increased
$1.2 billion, or 19.9%, over the same period last year. This
increase in total operating expenses is comprised of the following:
Increase (Decrease)
(Dollars in Millions)
Depreciation and amortization...... $ 27.8
Taxes other than income taxes...... (51.4)
All other:
Business Restructuring charges
recorded in 1993............... 991.8
Employee related................. 165.8
Other............................ 111.9
$1,245.9
Depreciation and amortization increased principally due to a $51 million
increase attributable to an increase in plant investment. This
increase was partially offset by a $15 million decrease due to the
interstate amortization of the reserve deficiency, which was completed in
1992.
Taxes other than income taxes decreased from the same period last year due
principally to a $22 million decrease in property taxes resulting from
lower assessments of property value in 1993, and a $29 million decrease
in ad valorem taxes, primarily attributable to the phase-out of the tax on
central office equipment (see STATE REGULATORY MATTERS above).
Business restructuring charges recorded in the fourth quarter of 1993
consisted of costs related to consolidation of work locations,
re-engineering, and incremental costs associated with work force
reductions (see BUSINESS RESTRUCTURING above).
Employee related costs consist primarily of wages, payroll taxes, and
employee benefits. Benefit expenses increased $154 million
primarily due to higher costs of providing medical coverage for
active and retired employees, a $75 million increase due to the reversal
of deferred pension costs ordered by the NYSPSC (see STATE REGULATORY
MATTERS above) and an $18 million increase due to an accrual for a
supplemental executive retirement plan. Wages and payroll taxes
increased $12 million principally due to increases in salary and
wage rates, including a 4.25% wage increase for nonmanagement employees
pursuant to the 1991 collective bargaining agreements, additional labor
costs due to severe winter storms and the bombing of New York City's
World Trade Center in 1993, and initiatives to improve service quality,
partially offset by decreases resulting from a reduction in the Company's
work force due to force reduction plans and transfers to Telesector Resources
(see Other operating expenses below). In 1993, the Company reduced its
management force by approximately 900 employees.
Other operating expenses consist primarily of contracted and centralized
services, rent and other general and administrative costs. The
increase in other operating expenses was due principally to a
$64 million increase in intrastate access expense due to regulatory
accounting adjustments relating to intraLATA toll calling in upstate New
York (see OPERATING REVENUES above), a net $19 million increase in
contracted and centralized services, which includes a $17 million
increase attributable to increased training costs resulting from the
transfer of the training function previously performed by the Company
to Telesector Resources (see Employee related costs above), a $16 million
increase in right-to-use fees due to increased purchases of software to
enhance existing equipment, a $9 million increase primarily attributable
to the reversal of deferred inside wire expense recorded in 1991 and 1992
and a $9 million increase due to the Company's contractual share of a
predivestiture AT&T liability. Partially offsetting these increases was
a $19 million decrease in bad debt expense recognized pursuant to provisions
of the billing and collection contract with AT&T.
OTHER INCOME - NET
Other income - net for the year ended December 31, 1993 decreased
$54.4 million from the same period last year. This decrease was
due principally to $64 million of interstate expense related to the
refinancing of long-term debt and $20 million of interest received
in 1992 as a result of the settlement of an Internal Revenue Service 1987
summary assessment. These decreases were offset by a $37 million increase
in payments received from New England Telephone pursuant to the transition
plan to phase-in the earnings impact of the unified tariff access rate
structure (see FEDERAL REGULATORY MATTERS above).
INTEREST EXPENSE
Interest expense for the year ended December 31, 1993 decreased $14.3 million
from the same period last year. This decrease was due primarily to a
decrease in the average level of external debt, and lower average
interest rates resulting from long-term debt refinancings during 1993.
INCOME TAXES
Income taxes for the year ended December 31, 1993 decreased $410.6 million
from the same period last year, principally due to a decrease in taxable
income. This decrease was partially offset by an increase in tax expense
associated with the enactment of the Revenue Reconciliation Act of 1993,
which increased the statutory corporate federal income tax rate from 34
percent to 35 percent, retroactive to January 1, 1993. The Company
deferred the intrastate portion of the effect of the tax rate
increase.
ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 112, "EMPLOYERS'
ACCOUNTING FOR POSTEMPLOYMENT BENEFITS"
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("Statement
No. 112"), in the fourth quarter of 1993, retroactive to January 1,
1993. Statement No. 112 applies to postemployment benefits, including
workers' compensation, disability plans and disability pensions,
provided to former or inactive employees, their beneficiaries, and
covered dependents after employment but before retirement. Statement
No. 112 changed the Company's method of accounting from recognizing
costs as benefits are paid to accruing the expected costs of providing
these benefits. The initial effect of adopting Statement No. 112 was
reported as a cumulative effect of a change in accounting principle
and resulted in a one-time, non-cash charge of $137.4 million
($89.3 million after-tax). In subsequent years, the effect of
Statement No. 112 is not expected to result in periodic expense materially
different from the expense recognized under the prior method.
FINANCING
In 1993, the Company took advantage of favorable interest rates and
refinanced a substantial amount of long-term debt. During 1993,
the Company issued $1.2 billion of Debentures and $450 million of Notes
and used $1.55 billion of the proceeds from these issuances and
short-term borrowings from NYNEX to redeem $2.15 billion of
Debentures and Refunding Mortgage Bonds.
On June 21, 1993, the Company filed a registration statement with the
Securities and Exchange Commission ("SEC") for the issuance of up to
$1.2 billion in unsecured debt securities. On October 15, 1993, the Company
filed a registration statement with the SEC for the issuance of up to
$800 million in unsecured debt securities, which became effective on
October 22, 1993. At December 31, 1993, the Company had $850 million of
unissued, unsecured debt securities registered with the SEC.
On February 28, 1994, the Company issued $450 million of its Thirty Year
7 1/4% Debentures, due February 15, 2024, and $150 million of its Ten
Year 6 1/4% Notes, due February 15, 2004. The net proceeds were used to
repay short-term advances from NYNEX. This reduces the remaining
unissued, unsecured debt securities registered with the SEC to
$250 million.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS
Report of Management
Management of New York Telephone Company and its subsidiary (the "Company")
has the responsibility for preparing the accompanying consolidated
financial statements and for their integrity and objectivity. The
consolidated financial statements were prepared in accordance with
generally accepted accounting principles and, in Management's
opinion, are fairly presented. The consolidated financial statements
include amounts that are based on Management's best estimates and judgments.
Management also prepared the other information in this report and is
responsible for its accuracy and consistency with the consolidated
financial statements.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Report of Management (Continued)
The consolidated financial statements have been audited by Coopers & Lybrand,
independent accountants, whose appointment was approved by the Company's
Board of Directors. Management has made available to Coopers & Lybrand
all of the Company's financial records and related data, as well as the
minutes of the shareowner's and directors' meetings. Furthermore,
Management believes that all representations made to Coopers & Lybrand
during its audit were valid and appropriate.
Management of the Company has established and maintains an internal control
structure that is designed to provide reasonable assurance as to the
integrity and reliability of the consolidated financial statements,
the protection of assets from unauthorized use or disposition, and the
prevention and detection of fraudulent financial reporting. The concept
of reasonable assurance recognizes that the cost of the internal control
structure should not exceed the benefits to be derived. The internal
control structure provides for appropriate division of responsibility
and is documented by written policies and procedures that are
communicated to employees with significant roles in the
financial reporting process. Management monitors the internal
control structure for compliance, considers recommendations for
improvement from both the internal auditors and Coopers & Lybrand
and updates such policies and procedures as necessary. Monitoring
includes an internal auditing function to independently assess the
effectiveness of the internal controls and recommend possible
improvements thereto. Management believes that the internal
control structure of the Company is adequate to accomplish the
objectives discussed herein.
The Audit Committee of the Board of Directors, which is comprised of
directors who are not employees, meets periodically with
Management, the internal auditors and Coopers & Lybrand to review
the manner in which they are performing their responsibilities and to
discuss matters relating to auditing, internal controls and financial
reporting. Both the internal auditors and Coopers & Lybrand periodically
meet privately with the Audit Committee and have access to the Audit
Committee at any time.
Management also recognizes its responsibility for conducting Company
activities under the highest standards of personal and corporate
conduct. This responsibility is accomplished by fostering a strong
ethical climate as characterized in the NYNEX Code of Business Conduct
of the Company, which is publicized throughout the Company. The Code of
Conduct addresses, among other things, standards of personal conduct,
potential conflicts of interest, compliance with all domestic and foreign
laws, accountability for Company property and the confidentiality of
proprietary information.
R. A. Jalkut
President and Chief Executive Officer
Mel Meskin
Vice President - Finance & Treasurer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Share Owner and Board of Directors of
New York Telephone Company:
We have audited the consolidated financial statements and the consolidated
financial statement schedules of New York Telephone Company and
Subsidiary listed in Item 14(a)(1) and (2) of this Form 10-K.
These consolidated financial statements and consolidated financial
statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and consolidated financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of New York Telephone Company and Subsidiary as of December 31,
1993 and 1992, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1993, in conformity with generally accepted accounting principles. In
addition, in our opinion, the consolidated financial statement schedules
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Notes A and C to the consolidated financial statements, the
Company changed its methods of accounting for income taxes, postretirement
benefits other than pensions, and postemployment benefits in 1993.
Coopers & Lybrand
New York, New York
February 9, 1994
NEW YORK TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Dollars in Millions
For the Year Ended December 31,
1993 1992 1991
OPERATING REVENUES
Local service. . . . . . . . . . . . . . $4,695.9 $4,618.9 $4,491.6
Long distance. . . . . . . . . . . . . . 379.8 334.4 364.7
Network access (Note (G)). . . . . . . . 2,230.1 2,270.0 2,288.5
Other (Notes (G) and (H)). . . . . . . . 541.2 523.1 552.0
Total operating revenues . . . . . . 7,847.0 7,746.4 7,696.8
OPERATING EXPENSES (Note (N))
Maintenance and support. . . . . . . . . 2,527.6 2,184.8 2,347.3
Depreciation and amortization. . . . . . 1,438.8 1,411.0 1,324.7
Marketing and customer services. . . . . 1,140.7 930.3 907.6
Taxes other than income taxes
(Note (I)). . . . . . . . . . . . . . 818.5 869.9 941.1
Provision for uncollectibles . . . . . . 77.8 75.8 71.1
Other expenses . . . . . . . . . . . . . 1,501.2 786.9 1,059.5
Total operating expenses . . . . . . 7,504.6 6,258.7 6,651.3
Operating income . . . . . . . . . . . . 342.4 1,487.7 1,045.5
Other income - net . . . . . . . . . . . 20.0 74.4 22.7
Interest expense (Notes (D) and (E)) . . 348.6 362.9 375.1
Earnings before Income taxes and
cumulative effect of change in
accounting principle . . . . . . . . 13.8 1,199.2 693.1
Income taxes (Note (B)). . . . . . . . . (67.8) 342.8 157.2
Earnings before cumulative effect of
change in accounting principle . . . 81.6 856.4 535.9
Cumulative effect of change in
accounting for postemployment
benefits, net of taxes (Note (C)). . (89.3) - -
NET INCOME (LOSS). . . . . . . . . . . . $ (7.7) $ 856.4 $ 535.9
RETAINED EARNINGS
Beginning of year. . . . . . . . . . . . $1,813.6 $1,556.7 $1,625.1
Net income (loss). . . . . . . . . . (7.7) 856.4 535.9
Dividends. . . . . . . . . . . . . . (723.9) (599.5) (604.3)
End of year. . . . . . . . . . . . . . . $1,082.0 $1,813.6 $1,556.7
See accompanying notes to consolidated financial statements.
NEW YORK TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS
Dollars in Millions
December 31,
1993 1992
ASSETS
Current assets:
Cash and temporary cash investments . . . . . . $ 7.5 $ 24.7
Receivables
Customers (net of allowance of $134.8 and
$128.3, respectively) (Note (G)). . . . . . 1,368.4 1,369.3
Affiliates (Note (H)) . . . . . . . . . . . . 30.9 26.8
Other . . . . . . . . . . . . . . . . . . . . 28.2 19.0
Deferred charges (Notes (B) and (C)). . . . . . 55.5 121.9
Deferred income taxes (Note (B)). . . . . . . . 99.4 -
Inventory . . . . . . . . . . . . . . . . . . . 72.4 82.6
Prepaid expenses and other. . . . . . . . . . . 102.9 66.1
Total current assets . . . . . . . . . . . . 1,765.2 1,710.4
Telephone plant:
In service. . . . . . . . . . . . . . . . . . . 19,171.1 18,552.5
Under construction. . . . . . . . . . . . . . . 525.4 481.9
19,696.5 19,034.4
Less: accumulated depreciation . . . . . . . . 7,580.5 6,900.1
Telephone plant - net. . . . . . . . . . . . 12,116.0 12,134.3
Deferred charges and other (Notes (B) and (C)). . 1,554.2 1,758.0
Total Assets . . . . . . . . . . . . . . . . $15,435.4 $15,602.7
See accompanying notes to consolidated financial statements.
NEW YORK TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS
Dollars in Millions
December 31,
1993 1992
LIABILITIES AND SHARE OWNER'S EQUITY
Current liabilities:
Accounts payable
AT&T (Note (G)) . . . . . . . . . . . . . . . $ 216.8 $ 230.0
Affiliates (Note (H)) . . . . . . . . . . . . 662.5 321.0
Compensated absences. . . . . . . . . . . . . 154.4 144.3
Payroll . . . . . . . . . . . . . . . . . . . 50.2 64.0
Trade and other (Note (N)). . . . . . . . . . 660.8 641.0
Short-term debt (Note (E)). . . . . . . . . . . 255.7 261.5
Dividends payable . . . . . . . . . . . . . . . 181.0 174.9
Taxes accrued . . . . . . . . . . . . . . . . . 48.3 170.3
Advance billing and customers' deposits . . . . 187.2 179.4
Interest accrued. . . . . . . . . . . . . . . . 58.2 70.5
Deferred income taxes (Note (B)). . . . . . . . - 94.5
Total current liabilities. . . . . . . . . 2,475.1 2,351.4
Long-term debt (Notes (D) and (M)). . . . . . . . 3,972.1 3,984.2
Deferred income taxes (Note (B)). . . . . . . . . 1,826.9 1,846.2
Unamortized investment tax credits. . . . . . . . 244.9 282.3
Other long-term liabilities and deferred credits
(Notes (B), (C) and (N)). . . . . . . . . . . 1,731.2 1,223.1
Total long-term liabilities . . . . . . . . 7,775.1 7,335.8
Total Liabilities. . . . . . . . . . . . . 10,250.2 9,687.2
Commitments and contingencies (Notes (F), (G), (J)
and (K))
Share owner's equity:
Common stock - one share,
without par value . . . . . . . . . . . . . . 4,103.2 4,101.9
Retained earnings . . . . . . . . . . . . . . . 1,082.0 1,813.6
Total Share Owner's Equity . . . . . . . . 5,185.2 5,915.5
Total Liabilities and Share Owner's Equity. . . $15,435.4 $15,602.7
See accompanying notes to consolidated financial statements.
NEW YORK TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
For the Year Ended December 31,
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . $ (7.7) $ 856.4 $ 535.9
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization. . . . . 1,438.8 1,411.0 1,324.7
Allowance for funds used during
construction - equity component. . . (23.1) (24.6) (21.5)
Changes in operating assets
and liabilities:
Receivables. . . . . . . . . . . . . (12.4) 52.8 (44.4)
Current Deferred charges, Inventory
and Prepaid expenses and other . . 39.8 78.1 15.5
Deferred income taxes. . . . . . . . (193.9) (40.0) (95.1)
Accounts payable, Taxes accrued,
Advance billing and customers'
deposits and Interest accrued. . . 217.9 (258.1) 155.8
Deferred income taxes and Unamortized
investment tax credits . . . . . . . (56.7) 4.0 35.8
Other long-term liabilities and
deferred credits . . . . . . . . . . 508.1 (118.3) 391.1
Other - net. . . . . . . . . . . . . . 235.0 (28.7) (461.8)
Total adjustments. . . . . . . . . . . 2,153.5 1,076.2 1,300.1
Net cash provided by operating activities 2,145.8 1,932.6 1,836.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . (1,342.4) (1,220.6) (1,354.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from NYNEX. . . . . . . . . . 485.0 263.7 (18.9)
Dividends paid to NYNEX. . . . . . . . (717.9) (600.8) (595.7)
Issuance of long-term debt . . . . . . 1,622.1 - 197.8
Repayment of long-term debt and
capital leases . . . . . . . . . . . (5.3) (304.8) (5.1)
Debt refinancings and call premiums. . (2,204.5) (66.1) (70.8)
Net cash used in financing activities. . (820.6) (708.0) (492.7)
Net (decrease) increase in Cash and
temporary cash investments . . . . . . (17.2) 4.0 (10.8)
Cash and temporary cash investments at
beginning of year. . . . . . . . . . . 24.7 20.7 31.5
Cash and temporary cash investments at
end of year. . . . . . . . . . . . . . $ 7.5 $ 24.7 $ 20.7
See accompanying notes to consolidated financial statements.
NEW YORK TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) Accounting Policies
Basis Of Presentation
The consolidated financial statements include the accounts of New York
Telephone Company and its wholly-owned subsidiary, Empire City Subway
Company (Limited) (jointly referred to as the "Company"). For financial
statement purposes all significant intercompany transactions have been
eliminated. The Company is a wholly-owned subsidiary of NYNEX Corporation
("NYNEX") and primarily provides exchange telecommunications and exchange
access services. The 1992 and 1991 consolidated financial statements
have been reclassified to conform to the current year's format.
The Company has a 66 2/3% ownership interest in Telesector Resources Group,
Inc. ("Telesector Resources") and shares voting rights equally with the
other owner, New England Telephone and Telegraph Company ("New England
Telephone"). The Company uses the equity method of accounting for its
investment in Telesector Resources.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles applicable to regulated entities.
Such accounting principles are consistent in all material respects with
accounting prescribed by the Federal Communications Commission (the
"FCC"), except for certain intrastate items accorded a different
accounting treatment by the New York State Public Service Commission
("NYSPSC").
Cash and Temporary Cash Investments
The Company's cash management policy is to make funds available in banks when
checks are presented. At December 31, 1993 and 1992, the Company had
recorded in Accounts payable checks outstanding but not yet presented
for payment of $95.4 and $102.6 million, respectively.
Inventory
Inventory, consisting of materials and supplies, is carried principally at
average cost.
Telephone Plant
Telephone plant is stated at its original cost.
When depreciable plant is disposed of, the carrying amount, salvage, and the
cost to remove such plant are charged to accumulated depreciation.
Depreciation rates used for interstate operations are prescribed by the FCC.
In 1992, the FCC prescribed new depreciation rates for interstate
operations, and in 1991, the NYSPSC adopted new depreciation
rates for intrastate operations. All rates are calculated on a
straight-line basis using the concept of "remaining life". The
application of the interstate and intrastate rates resulted in average
effective composite rates of 7.6%, 7.8% and 7.5% for 1993, 1992 and 1991,
respectively.
The NYSPSC allows the Company to capitalize interest, including an allowance
on share owner's equity, as a cost of constructing certain telephone plant,
which is included in Telephone Plant Under Construction, and as income,
included in Other income - net. Such income will be realized over the
service life of the plant as the resulting higher depreciation expense is
recovered through the rate-making process. The FCC requires the same
treatment as the NYSPSC for long-term plant under construction, while
short-term plant under construction is included in the rate base, thereby
eliminating the need for any interest accrual mechanism.
Compensated Absences
Effective January 1, 1988, the Uniform System of Accounts Rewrite ("USOAR")
required the Company to change its accounting for compensated absences to
record expenses in the year in which the liability is incurred.
Previously, the Company recorded the current year's liability for
compensated absences with a corresponding deferred charge and recorded the
expense when paid. As a result of implementation of the USOAR, the
deferred charge as of December 31, 1987 is being recovered over a
ten-year period for interstate purposes. In its order in the first
phase of the incentive regulatory proceeding, the NYSPSC adopted
recognition of compensated absences. Management believes these costs
will be recovered through the rate-making process.
Refinancing Charges
The Company defers the intrastate portion of call premiums and other charges
associated with the redemption of long-term debt and expenses the
interstate portion of these charges, as required by the NYSPSC and
the FCC, respectively. The deferred amounts are amortized over periods
stipulated by the NYSPSC. Prior to January 1, 1988, these charges were
deferred and amortized for both intrastate and interstate purposes. The
deferred amounts included in the consolidated balance sheets are $208.5
and $147.4 million at December 31, 1993 and 1992, respectively.
Income Taxes
NYNEX and its subsidiaries, including the Company, file a consolidated
Federal income tax return. The Company's provision for federal
income taxes currently payable is allocated in accordance with its
contribution to the consolidated group's taxable income and tax credits.
Deferred income taxes are provided to reflect the effect of temporary
differences in the recognition of revenue and expenses for financial
reporting and income tax purposes.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement No. 109"), which superseded Statement of Financial
Accounting Standards No. 96, "Accounting for Income Taxes." The effect
of implementing Statement No. 109 on the Company's financial position and
results of operations was not significant. Statement No. 109 requires
that deferred tax assets and liabilities be measured based on the enacted
tax rates that will be in effect in the years in which temporary differences
are expected to reverse. However, for the Company, the treatment of excess
deferred taxes resulting from the reduction of tax rates prior to 1993 is
subject to federal income tax and regulatory rules.
Deferred income tax provisions of the Company are based upon amounts
recognized for rate-making purposes. The Company recognizes a
deferred tax liability and establishes a corresponding regulatory asset
for tax benefits previously flowed through to ratepayers. The major
temporary difference that gave rise to the net deferred tax
liability is depreciation, which for income tax purposes is
determined based on accelerated methods and shorter lives.
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation," requires the Company to
reflect the additional deferred income taxes as regulatory assets to
the extent that they will be recovered in the rate-making process. In
accordance with the normalization provisions under federal tax law, the
Company reverses excess deferred taxes relating to depreciation of
regulated assets over the regulatory lives of those assets. For
other excess deferred taxes, the regulatory agencies generally allow
amortization of excess deferred taxes over the reversal period of the
temporary difference giving rise to the deferred taxes.
On August 10, 1993, the Revenue Reconciliation Act of 1993 was signed into
law, and the statutory corporate federal income tax rate increased to 35
percent from 34 percent, retroactive to January 1, 1993. In accordance
with Statement No. 109, the Company adjusted its current and deferred
income tax balances to reflect the tax rate change. The Company
reflected the additional deferred income taxes arising from the tax
rate increase primarily as increases to the regulatory asset and decreases
to the regulatory liability.
The Tax Reform Act of 1986 repealed the investment tax credit ("ITC"),
effective January 1, 1986. As required by tax law, ITC for the
Company was deferred and is amortized as a reduction to tax expense
over the estimated service lives of the related assets giving rise to the
credits.
(B) Income Taxes
The components of Income tax expense are as follows:
Dollars in Millions 1993* 1992 1991
Federal:
Current . . . . . . . . . . . $ 352.5 $ 478.2 $ 335.1
Deferred - net. . . . . . . . (388.3) (97.3) (137.4)
Deferred tax credits - net. . (37.4) (42.3) (43.5)
State and local. . . . . . . . 5.4 4.2 3.0
Total . . . . . . . . . . . $ (67.8) $ 342.8 $ 157.2
* Does not include the deferred tax benefit of $48.1 million associated with
the Cumulative effect of change in accounting for postemployment benefits.
A reconciliation between federal income tax expense computed at the statutory
rate and the Company's effective tax (benefit) expense is as follows:
1993* 1992 1991
Federal income tax expense
computed at statutory rate . . . . . . . $ 4.8 $407.7 $235.7
a. Amortization of excess deferred
federal income taxes due to
change in the tax rates . . . . . . (38.7) (42.2) (55.5)
b. Amortization of investment tax
credits over the life of the assets
which gave rise to the credits. . . (37.4) (42.3) (43.5)
c. Depreciation of certain taxes and
payroll-related construction costs
capitalized for financial statement
purposes, but deducted for income
tax purposes in prior years . . . . 14.8 22.2 17.3
d. Federal income tax return
adjustment for the difference
between the accrued and actual
tax expense . . . . . . . . . . . . (5.7) (.5) 6.2
e. Allowance for funds used during
construction, which is excluded
from taxable income, net of
applicable depreciation . . . . . . 6.6 2.0 2.8
f. Other items-net . . . . . . . . . . (12.2) (4.1) (5.8)
Income tax (benefit) expense . . . . . . $(67.8) $342.8 $157.2
* Does not include the deferred tax benefit of $48.1 million associated
with the Cumulative effect of change in accounting for
postemployment benefits.
Instead of a state income tax, the Company is subject to a gross receipts
tax that is not included above. Temporary differences for which
deferred income taxes have not been provided by the Company are
represented principally by "c" above. Only taxes currently payable on
these temporary differences are recognized in the rate-making process.
The components of current and long-term deferred tax assets and liabilities
at December 31, 1993 are as follows:
Dollars in millions Assets Liabilities
Deferred tax due to:
Depreciation and amortization $ - $2,152.8
Restructuring charges 179.6 -
Benefits 362.6 -
Unamortized investment tax credits 132.7 -
Other 131.4 381.0
Total deferred taxes $806.3 2,533.8
806.3
Net deferred tax liabilities $1,727.5
At December 31, 1993 and 1992, the Company recorded approximately
$450.3 and $372.7 million, respectively, in deferred taxes
representing the cumulative amount of income taxes on temporary
differences that were previously flowed through to ratepayers. The
Company recorded a corresponding regulatory asset in deferred charges
for these items, representing amounts that will be recovered through
the rate-making process. These deferrals have been increased for the
tax effect of future revenue requirements and will be amortized over the
lives of the related depreciable assets concurrently with their recovery
in rates.
The Company has recorded a regulatory liability at December 31, 1993 and
1992 of approximately $383.6 and $516.1 million, respectively, in Other
long-term liabilities and deferred credits and in Accounts payable - Trade
and other. A substantial portion of the regulatory liability relates to
the reduction in the statutory federal income tax rate in 1986 and
unamortized ITC (see Note A). These liabilities have been increased
for the tax effect of future revenue requirements.
(C) Employee Benefits
Pensions
Substantially all of the Company's employees are covered by one of two
NYNEX noncontributory defined benefit pension plans (the "Plans").
Benefits for management employees are based on a modified career average
pay plan while benefits for nonmanagement employees are based on a
nonpay-related plan. Contributions are made, to the extent
deductible under the provisions of the Internal Revenue Code, to an
irrevocable trust for the sole benefit of pension plan participants.
Total Company pension (benefit)/cost for 1993, 1992 and 1991 was
$(99.0), $1.8 and $(9.0) million, respectively, of which $(6.6)
and $1.2 million were deferred in 1992 and 1991, respectively, as a result
of state regulatory decisions that required pension expense to be
equivalent to amounts contributed to the Plans. Deferral of
pension cost was discontinued in 1993, and the Company has
implemented a plan to recover deferred pension costs through
the rate-making process (see Postretirement Benefits Other Than
Pensions below). At December 31, 1993 and 1992, the Company
recorded approximately $696.1 and $794.9 million, respectively, in
Other long-term liabilities and deferred credits representing the
Company's pension liability.
The assumptions used to determine the projected benefit obligation at
December 31, 1993 and 1992 include a discount rate of 7.5% and 8.5%,
respectively, and an increase in future compensation levels of 4.5% in both
years for management employees and 4.0% in both years for nonmanagement
employees. The expected long-term rate of return on pension plan
assets used to calculate pension expense was 8.9% in 1993 and 1992 and
8.5% in 1991. Periodically, the Plans have been amended to increase the
level of plan benefits. The actuarial projections included herein
anticipate plan improvements in the future.
In 1992, NYNEX amended its management pension plan to provide early
retirement incentives, which increased the projected benefit
obligation by $6.6 million, of which $1.7 million was expensed and
$4.9 million was deferred. In addition, management employees who left
the Company in 1992 and 1993 under the Force Management Plan could elect
to receive their pension benefit in a lump sum distribution, or as a
monthly annuity beginning when they left the Company. The 1992
reduction in the number of management employees and the lump sum
option were accounted for as a curtailment and a settlement,
respectively, and reduced pension costs by $31.3 million in 1992,
of which $8.1 million was recognized as a reduction to expense and $23.2
million was deferred. The impact of the reduction in employees and the
lump sum option in 1993 was not significant.
In October 1991, NYNEX amended its nonmanagement pension plan to provide an
early retirement incentive, which increased the projected benefit
obligation in 1991 by $361 million, of which $99 million was
expensed and $262 million was deferred. The expense associated with
the nonmanagement early retirement incentive was included in the charges
for force reduction programs in the fourth quarter of 1991.
Postretirement Benefits Other Than Pensions
The Company provides certain health care and life insurance benefits for
retired employees and their families. Substantially all of the
Company's
employees may become eligible for these benefits if they reach pension
eligibility while working for the Company.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("Statement No.
106"). Statement No. 106 changed the practice of accounting for
postretirement benefits from
recognizing costs as benefits are paid to accruing the expected cost of
providing these benefits during an employee's working life. The
Company is recognizing the transition obligation for retired employees
and the earned portion for active employees over a 20-year period. The cost
of health care benefits and group life insurance was determined using the
unit credit cost actuarial method. The net postretirement benefit cost
for 1993 for the Company was $278 million. As a result of planned work
force reductions, the Company recorded an additional $270.5 million of
postretirement benefit cost in 1993 accounted for as a curtailment.
Total costs of providing benefits for retired employees and their
families were $119.6 and $91.6 million in 1992 and 1991, respectively.
The Company participates in the NYNEX benefit plans, and the structure of the
plans is such that certain disclosures required by Statement No. 106 cannot
be presented for the Company on an individual basis. A comparison of the
actuarial present value of the accumulated postretirement benefit
obligation with the fair value of plan assets, the components of
the net postretirement benefit cost, and the reconciliation of the funded
status of the plans with the amount recorded on the balance sheet are
provided on a consolidated basis in the Proxy Statement and
Consolidated Financial Statements for the year ended December 31,
1993 filed by NYNEX.
The actuarial assumptions used to determine the 1993 obligation for
postretirement benefit plans under Statement No. 106 include the
following: discount rate of 7.5%; weighted average expected long-term rate
of return on plan assets of 8.4%; weighted average salary growth rate of
4.2%; medical cost trend rate of 14.3% grading down to 4.5% in 2008; and
dental cost trend rate of 5.0% grading down to 3.0% in 2002.
With respect to interstate treatment, the FCC released an order in January
1993 stating that costs recognized under Statement No. 106 are not
exogenous costs and, therefore, did not warrant an upward rate
adjustment under price caps at that time. In the April 2, 1993
filing of interstate access tariffs under the FCC's price cap rules,
the Company and New England Telephone (collectively, the "Telephone
Companies") sought an exogenous cost increase of $12 million to
reflect the transition obligation for current retirees under Statement
No. 106. On June 23, 1993, the FCC's Common Carrier Bureau (the "Bureau")
issued an order allowing the proposed rates to go into effect July 2,
1993, subject to an investigation and an accounting order. In its
order, the Bureau designated several issues for investigation,
including the accounting treatment of postretirement health care
costs. Commencing July 2, 1993, the Company began collecting these
revenues, subject to possible refund pending resolution of the
Bureau's investigation.
With respect to intrastate treatment, in January 1994 the NYSPSC approved the
Company's plan for regulatory accounting and rate-making treatment allowing
the adoption of both Statement No. 106 and Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions"
("Statement No. 87"), on a revenue requirement neutral basis, providing for
the amortization of existing deferred pension costs within a ten-year
period, except that the NYSPSC required the Company to write-off
$75 million of previously deferred pension costs in 1993, and
eliminating the need for additional deferrals of Statement No. 106
and Statement No. 87 costs.
In 1991, NYNEX established two separate Voluntary Employees' Beneficiary
Association Trusts ("VEBA Trusts"), one for management and the other
for nonmanagement, to begin prefunding postretirement health care
benefits. In 1991 and 1992, NYNEX transferred a portion of excess
pension assets, totalling $486 million, to health care benefit accounts
within the pension plans and then contributed those assets to the VEBA
Trusts. The assets in the VEBA Trusts consist primarily of equity
securities and fixed income securities. Additional contributions to
the VEBA Trusts are evaluated and determined by NYNEX management.
Postemployment Benefits
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("Statement
No. 112"), in the fourth quarter of 1993, retroactive to January 1,
1993. Statement No. 112 applies to postemployment benefits, including
workers' compensation, disability plans and disability pensions,
provided to former or inactive employees, their beneficiaries, and
covered dependents after employment but before retirement. Statement
No. 112 changed the Company's method of accounting from recognizing
costs as benefits are paid to accruing the expected costs of providing
these benefits. The initial effect of adopting Statement No. 112 was
reported as a cumulative effect of a change in accounting principle
and resulted in a one-time, non-cash charge of $137.4 million
($89.3 million after-tax). In subsequent years, the effect of
Statement No. 112 is not expected to result in periodic expense materially
different from the expense recognized under the prior method.
(D) Long-term Debt
Interest rates and maturities on long-term debt outstanding at December 31,
1993 and 1992 are as follows:
Interest December 31,
Dollars in Millions Rates Maturities 1993 1992
Refunding Mortgage Bonds . 3 3/8% - 7 3/4% 1996-2006 $ 675.0 $ 675.0
6% - 9% 2007-2014 425.0 1,075.0
Debentures . . . . . . . . 6 1/2% - 8 7/8% 2005-2018 750.0 950.0
6 7/10% - 9 3/8% 2023-2033 1,000.0 1,100.0
Notes. . . . . . . . . . . 5 1/4% - 8 1/5% 1998-2008 492.0 42.0
Other. . . . . . . . . . . 588.6 97.7
Unamortized discount - net (26.0) (28.8)
3,904.6 3,910.9
Long-term capital lease 67.5 73.3
obligations . . . . . .
Total Long-term debt . . . $3,972.1 $3,984.2
In 1996 and 1997, $55.0 and $60.0 million, respectively, of the Refunding
Mortgage bonds will mature. In 1998, $100 million of the Notes will
mature.
The Company's Refunding Mortgage bonds are callable upon thirty days' notice,
at the option of the Company, five years after the issue date. The
Company's Forty-Year 9 3/8% Debentures due July 15, 2031, Thirty
Year 7 5/8% Debentures due February 1, 2023 and Thirty-Two Year 7 %
Debentures due August 15, 2025 are callable upon thirty days' notice,
at the option of the Company, ten years after the issue date. The
Company's Thirty Year 6.7% Debentures due November 1, 2023 and
Forty Year 7% Debentures due December 1, 2033 are callable upon thirty
days' notice, at the option of the Company, twenty years after the issue
date. The Company's Twelve Year 6 1/2% Debentures due March 1, 2005,
Twenty Year 7% Debentures due May 1, 2013 and Twenty Year 7% Debentures
due June 15, 2013 are not callable.
Substantially all of the Company's assets are subject to lien under the
Company's Refunding Mortgage indenture.
On February 10, 1993, the Company issued $100 million of its Thirty Year
7 5/8% Debentures due February 1, 2023 and callable on and after
February 1, 2003. The net proceeds were used to repay short-term
advances from NYNEX and, accordingly, $97.7 million of Short-term debt
was classified as Long-term debt at December 31, 1992 and is presented in
"Other" in the table above (see Note E).
At December 31, 1993, the Company had $850 million of unissued, unsecured
debt securities registered with the Securities and Exchange Commission
("SEC"). On February 28, 1994, the Company issued $450 million of its
Thirty Year 7 1/4% Debentures, due February 15, 2024, and $150 million
of its Ten Year 6 1/4% Notes, due February 15, 2004. The net proceeds
were used to repay short-term advances from NYNEX and, accordingly,
$588.6 million of Short-term debt has been classified as Long-term debt
at December 31, 1993 and is presented in "Other" in the table above (see
Note E). This reduces the remaining unissued, unsecured debt securities
registered with the SEC to $250 million.
Pursuant to the indentures for certain of its debentures, the Company has
covenanted that it will not issue additional funded debt securities
ranking equally with or prior to such debentures unless it has
maintained an earnings coverage of 1.75 for interest charges for a
period of any 12 consecutive months out of the 15 month period prior to the
date of the proposed issuance. As a result of the 1993 business
restructuring charges (see Note N), the Company does not
currently meet the earnings coverage requirement.
(E) Short-term Debt
Short-term debt and related weighted average interest rates were as follows:
Dollars in Millions Weighted Average Interest Rates
December 31, December 31,
1993 1992 1991 1993 1992 1991
Advances from NYNEX . . $251.0 $257.0 $ 90.9 3.86% 4.17% 5.92%
Current maturity of
Long-term debt . . . - - 300.0 9.63%
Other . . . . . . . . . 4.7 4.5 3.8
Total Short-term debt . $255.7 $261.5 $394.7
On February 10, 1993, the Company issued $100 million of its Thirty Year
7 5/8% Debentures due February 1, 2023 and callable on and after
February 1, 2003. The net proceeds were used to repay short-term
advances from NYNEX and, accordingly, $97.7 million of Short-term debt
was classified as Long-term debt at December 31, 1992 (see Note D).
On February 28, 1994, the Company issued $450 million of its Thirty Year
7 1/4% Debentures, due February 15, 2024, and $150 million of its Ten
Year 6 1/4% Notes, due February 15, 2004. The net proceeds were used to
repay short-term advances from NYNEX and, accordingly, $588.6 million of
Short-term debt was classified as Long-term debt at December 31, 1993 (see
Note D).
Dollars in Millions 1993 1992 1991 1993+ 1992+ 1991+
Average amount of
advances from NYNEX
outstanding during
the year . . . . . . $164.6# $ 80.7# $260.9# 3.16% 3.69% 6.12%
Maximum amount of
advances from
NYNEX payable at
any month end
during the year. . . $839.6 $354.7 $451.8
+ Computed by dividing the aggregate related interest expense by the
average daily face amount of advances.
# Computed by dividing the sum of the aggregate principal amounts
outstanding each day during the year by the total number of
calendar days in the year.
Interest expense on advances from NYNEX was $6.4, $3.4 and $16.0 million for
1993, 1992 and 1991, respectively.
(F) Lease Commitments
The Company leases certain facilities and equipment used in its operations.
Rent expense was $108.8, $116.6 and $113.7 million for 1993, 1992 and 1991,
respectively. At December 31, 1993, the minimum lease commitments under
noncancelable operating and capital leases for the periods shown were as
follows:
Dollars in Millions
Year Operating Capital
1994 . . . . . . . . . . . . . . . . $ 32.7 $ 16.4
1995 . . . . . . . . . . . . . . . . 27.6 16.4
1996 . . . . . . . . . . . . . . . . 24.5 15.1
1997 . . . . . . . . . . . . . . . . 21.7 11.3
1998 . . . . . . . . . . . . . . . . 19.6 10.8
Thereafter . . . . . . . . . . . . . 68.0 403.1
Total minimum lease payments . . . . $194.1 473.1
Less: executory costs. . . . . . 13.6
Net minimum lease payments . . . . . 459.5
Less: interest . . . . . . . . . 386.0
Present value of net minimum lease payments $ 73.5
In addition, the Company has agreed to guarantee up to $9.4 million of lease
commitments on behalf of Telesector Resources through 1995. From
December 31, 1993 through 1995 the Company is guaranteeing
Telesector Resources' lease commitments of approximately $0.9
million.
(G) Transactions with American Telephone and Telegraph Company
For the years 1993, 1992 and 1991, American Telephone and Telegraph Company
("AT&T") provided approximately 19%, 20% and 21%, respectively, of the
Company's total operating revenues, primarily Network access revenues
and Other revenues from billing and collection services performed under
contract by the Company for AT&T. In connection with such services, the
Company purchases the related receivables with recourse, up to a
contractual limit.
(H) Transactions with Affiliates
The Company receives corporate governance and ownership services such as
securities administration, investor relations, certain tax support and
human resources planning services from NYNEX. For 1993, 1992 and 1991, the
Company recorded charges of $138.9, $92.4, and $122.9 million, respectively,
in connection with these services.
Telesector Resources performs data processing and related services and
materials management services on a centralized basis on behalf of the
Company and New England Telephone. In 1993, 1992 and 1991, the Company
recorded charges from Telesector Resources of $802.9 million, $969.2
million and $1.1 billion, respectively, for data processing services and
material related charges, including both materials management services
(such as procurement support, warehousing and transportation costs) and
the Company's purchase of materials (including items charged to plant
accounts). The total materials related charges to the Company in
1993, 1992 and 1991 were approximately $352.2, $367.5 and $423.8
million, respectively. Effective in July 1991, arrangements were
made for Telesector Resources to act as a purchasing agent for the
Company for directly shipped materials and supplies. During 1993,
1992 and 1991, total agency purchases by Telesector Resources amounted to
$148.9, $133.6 and $93.4 million, respectively. In addition, in 1993,
approximately $227.3 million of restructuring charges ($147.7 million
after-tax) was allocated to the Company from Telesector Resources,
primarily related to its force reduction and re-engineering
programs.
Telesector Resources owns a one-seventh interest in Bell Communications
Research, Inc. ("Bellcore"). Bellcore furnishes technical and support
services relating to exchange telecommunications and exchange access
services, a portion of which is research and development. For 1993,
1992 and 1991, the Company recorded charges of $77.3, $88.0 and
$87.0 million, respectively, for services provided by Bellcore.
In 1992, the FCC permitted the Telephone Companies to unify their interstate
access rates. As a result of the unified rate structure, the Company
experienced an interstate rate decrease and New England Telephone
experienced an offsetting interstate rate increase. The Telephone
Companies implemented a phase-in payment plan in order to avoid sudden
changes in each of the Telephone Company's earnings resulting from the
unified rate structure. In 1993 and 1992, the Company received
transition payments of $55 million and $18 million, respectively,
from New England Telephone.
The Company has an agreement with NYNEX Information Resources Company
pursuant to which NYNEX Information Resources Company pays a fee to
the Company for the use of the Company's name in soliciting directory
advertising and in publishing and distributing directories. For the
years ended December 31, 1993, 1992 and 1991, licensing fees, included in
Other
revenues, amounted to $129.4, $134.7 and $119.8 million, respectively. In
April 1986, the NYSPSC issued an order which disapproved the directory
publishing agreement between the Company and NYNEX Information Resources
Company. The Company has submitted a proposal to the NYSPSC for compliance
with its decision. Beginning in January 1991, NYNEX Information Resources
Company has made payments to the Company of all of its earnings related to
publishing directories in New York in excess of a regulated return. In
April 1992, the NYSPSC instituted a proceeding to investigate the
directory publishing operations of the Company and its NYNEX
affiliates. On December 9, 1993, an Administrative Law Judge of
the NYSPSC issued a Recommended Decision urging that the Company's
proposal not be accepted and that the Company, instead, assume the
directory publishing function itself and/or negotiate a modified agreement
with NYNEX Information Resources Company. On January 27, 1994, the parties
to the proceeding submitted their final briefs to the NYSPSC, which will
review the Administrative Law Judge's recommendation and issue a final
order.
(I) Taxes Other Than Income Taxes
Taxes other than income taxes consist of:
Dollars in Millions 1993 1992 1991
Gross receipts . . . . . . . . . . . . . $ 461.5 $ 457.4 $ 441.5
Property . . . . . . . . . . . . . . . . 299.0 355.4 435.0
Other. . . . . . . . . . . . . . . . . . 58.0 57.1 64.6
Total . . . . . . . . . . . . . . . $ 818.5 $ 869.9 $ 941.1
(J) Revenues Subject to Possible Refund
Several state and federal regulatory matters may possibly require the
refund of a portion of the revenues collected in the current and
prior periods, including affiliate transactions issues in the
Company's 1990 intrastate rate case and overearnings complaints
by interstate access customers. As of December 31, 1993, the aggregate
amount of such revenues that was estimated to be subject to possible
refund was approximately $164.7 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.
(K) Litigation and Other Contingencies
It is probable that various state and local tax claims aggregating
approximately $300 million in tax and associated interest will be
asserted against the Company for the period 1983 through 1993. While the
Company's counsel cannot give assurance as to the outcome, counsel
believes that the Company has strong legal positions in these
matters.
Various other legal actions and regulatory proceedings are pending that may
affect the Company, 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 on the advice of
counsel, the ultimate resolution of these matters in future periods
is not expected to have a material effect on the Company's financial
position or annual operating results but could have a material
effect on quarterly operating results.
(L) Supplemental Cash Flow Information
The following information is provided in accordance with Statement of
Financial Accounting Standards No. 95, "Statement of Cash Flows":
For the Years Ended
December 31,
1993 1992 1991
(in millions)
Income tax payments . . . . . . . . . . . . $507.7 $408.4 $333.3
Interest payments . . . . . . . . . . . . . $303.9 $348.8 $343.3
Short-term debt classified as
Long-term debt (see Note D) . . . . . . . $588.6 $ 97.7 $ -
(M) Fair Value of Financial Instruments
The estimated fair value of Long-term debt is based on quoted market prices or
discounted future cash flows. Estimated fair values of financial
instruments, where different than the carrying amounts, are as
follows:
Dollars in Millions At December 31,
1993 1992
Long-term debt
Carrying amount. . . . . . . . . . . . . . $3,904.6 $3,910.9
Fair value . . . . . . . . . . . . . . . . $3,968.1 $3,950.6
(N) Business Restructuring
In the fourth quarter of 1993, approximately $992 million of pretax business
restructuring charges were recorded, primarily related to efforts to
redesign operations and work force reductions. These charges included:
$557 million for severance and postretirement medical costs for employees
leaving the Company through 1996; $208 million for re-engineering service
delivery; and $227 million of restructuring charges allocated to the Company
from Telesector Resources. The restructuring charges were included in the
Consolidated Statements of Income as follows: Maintenance and support -
$198 million; Marketing and customer services - $129 million; and Other
expenses - $664 million.
In the fourth quarter of 1991, approximately $317 million of pretax
organizational restructuring charges was recorded primarily
related to force reduction programs. The restructuring charges were
included in the Consolidated Statements of Income as follows: Other
revenues - $7 million;
Other expenses - $300 million; and Other income - net - $10 million.
SUPPLEMENTARY INFORMATION
Quarterly Financial Information (Unaudited)
All adjustments (consisting only of normal recurring accruals) necessary for a
fair consolidated statement of income for each period have been included in
the following table.
For the quarter ended
In millions March 31, June 30, September 30, December 31,
1993
Operating revenues $1,945.9 $1,962.2 $1,950.0 $1,988.9
Operating income $ 355.2 $ 384.3 $ 351.0 $ (748.1)
Earnings (loss)
before cumulative
effect of change in
accounting principle $ 205.3 $ 224.4 $ 186.2 $ (534.3)
Cumulative effect of
change in accounting
for postemployment
benefits, net of
taxes $ (90.8) $ - $ 1.5 $ -
Net income (loss) $ 114.5 $ 224.4 $ 187.7 $ (534.3)
1992
Operating revenues $1,921.4 $1,943.0 $1,944.6 $1,937.4
Operating income $ 354.6 $ 396.6 $ 344.7 $ 391.8
Net income $ 211.7 $ 222.7 $ 194.1 $ 227.9
Results for the first quarter of 1993 include the adoption of Statement
No. 112 (see Note C, "Employee Benefits", for further discussion).
Results for the third quarter of 1993 reflect the effect of the increase
in the statutory corporate federal income tax rate (see Note A, "Accounting
Policies - Income Taxes", for further discussion). Results for the fourth
quarter of 1993 reflect the effect of $992 million of pretax charges for
business restructuring, including re-engineering operations and force
reductions, which were reflected in operating expenses. The after-tax
effect of these charges was a reduction in net income of approximately
$645 million. (See the section entitled "Business Restructuring"
included in Management's Discussion and Analysis of Results of
Operations for further discussion of these charges.)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During 1993 and 1992, the Company did not change its auditors, and there was
no disagreement on any matter of accounting principles or practices or
financial statement disclosure which would have required the filing of a
Current Report on Form 8-K.
PART IV
Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Documents filed as part of this Annual Report on Form 10-K.
Page(s) in this
Annual Report
on Form 10-K
(1) Consolidated Financial Statements filed as
part of this report are listed in the Table
of Contents on page 2 and contained in Item 8
herein.
(2) Consolidated Financial Statement Schedules.
The following consolidated financial statement
schedules of the Registrant are included herein
in response to Item 14:
V - Telephone Plant ......................... 49-52
VI - Accumulated Depreciation, Depletion and
Amortization of Telephone Plant ......... 53-56
VIII - Valuation and Qualifying Accounts ....... 57
Consolidated financial statement schedules
other than those listed above have been
omitted because the required information is
contained in the consolidated financial statements
and notes thereto or because such schedules are
not required or applicable.
(3) Exhibits. Exhibits on file with the Securities
and Exchange Commission ("SEC"), identified in parentheses
below, are incorporated herein by reference as
exhibits hereto.
Exhibit
Number
(3)a Certificate of Incorporation of the Company
as amended and restated December 2, 1987
(Exhibit No. (3)a to the Registrant's filing on
Form SE dated March 24, 1988, File No. 1-3435).
(3)b By-laws of the Company as amended April 22, 1987
(Exhibit No. (3)b to the Registrant's filing on
Form SE dated March 24, 1988, File No. 1-3435).
Exhibit
Number
(4) No instrument which defines the rights of holders of
long-term debt of the Company and its subsidiary is
filed herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this
regulation, the Company hereby agrees to
furnish a copy of any such instrument to the SEC
upon request.
(10)(i)1 Reorganization and Divestiture Agreement among
American Telephone and Telegraph Company,
NYNEX Corporation and Affiliates dated as of
November 1, 1983 (Exhibit No. (10)(i)1 to
Form 10-K of NYNEX Corporation for 1983, File
No. 1-8608).
(10)(i)2 Shared Network Facilities Agreement among American
Telephone and Telegraph Company, AT&T
Communications of New York, Inc. and New
York Telephone Company dated as of November 1, 1983
(Exhibit No. (10)(i)20 to Form 10-K of NYNEX
Corporation for 1983, File No. 1-8608).
(10)(i)3 Agreement Concerning Contingent Liabilities, Tax
Matters and Termination of Certain Agreements
among American Telephone and Telegraph Company,
Bell System Operating Companies, Regional Holding
Companies and Affiliates dated as of November 1, 1983
(Exhibit No. (10)(i)8 to Form 10-K of NYNEX
Corporation for 1983, File No. 1-8608).
(10)(i)4 Post-Divestiture Shared Services Force Transfer
Agreement between American Telephone and
Telegraph Company and New York Telephone
Company dated as of January 1, 1984
(Exhibit No. (10)(i)38 to Form 10-K of
NYNEX Corporation for 1983, File No. 1-8608).
(10)(i)5 Agreement Concerning the Sharing of Contingent
Liabilities dated as of January 28, 1985
(Exhibit No. (19)(i)2 to Form 10-K of NYNEX
Corporation for 1984, File No. 1-8608)
(10)(ii)B Service Agreement concerning provision by Telesector
Resources Group, Inc. to New York Telephone Company
of numerous services, including (i) purchasing,
materials handling, inspection, distribution,
storage and similar services and (ii) technical,
regulatory, government relations, marketing
operational support and similar services,
dated March 31, 1992. (Exhibit No. (19)(i)1 to
the Registrant's filing on Form SE, dated March 23,
1993, File No. 1-3435).
Exhibit
Number
(12) Computation of Ratio of Earnings to Fixed Charges.
(23) Consent of Independent Accountants.
(24) Powers of attorney.
(b) Reports on Form 8-K.
The Company's Current Report on Form 8-K, date of report October 25,
1993 and filed October 25, 1993, reporting on Item 5.
The Company's Current Report on Form 8-K, date of report October 26,
1993 and filed November 3, 1993, reporting on Item 7.
The Company's Current Report on Form 8-K, date of report
November 10, 1993 and filed November 19, 1993,
reporting on Item 5.
The Company's Current Report on Form 8-K, date of report
November 16, 1993 and filed November 19, 1993,
reporting on Item 7.
The Company's Current Report on Form 8-K, date of report
December 24, 1993 and filed January 13, 1994, reporting
on Item 5.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEW YORK TELEPHONE COMPANY
By
Mel Meskin
Mel Meskin
Vice President - Finance
and Treasurer
March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Principal Executive Officer:
R. A. Jalkut* President and Chief Executive Officer
Principal Financial
and Accounting Officer:
Mel Meskin Vice President - Finance and Treasurer
Directors:
Lilyan H. Affinito*
Joseph A. Califano, Jr.*
A.J. Eckelman*
Alice Stone Ilchman*
John E. Jacob*
R. A. Jalkut*
John F. X. Mannion*
Victor J. Riley, Jr.*
Gerald Schoenfeld*
Ivan Seidenberg* *By
Paul L. Snyder* Mel Meskin
Frank J. Tasco* (Mel Meskin, as attorney-in-fact,
and on his own behalf as Principal
Financial and Accounting Officer)
March 25, 1994
NEW YORK TELEPHONE COMPANY AND SUBSIDIARY SCHEDULE V - Page 1 of 4
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE V - TELEPHONE PLANT
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance Additions Other Balance
at at Cost Retirements Changes at
12/31/92 Note (a)* Note (b)* Note (c)* 12/31/93
Land & Land Improvements . . . . . . 69.6 1.4 - - 71.0
Buildings. . . . . . . . . . . . . . 1,545.1 90.2 13.8 0.6 1,622.1
Furniture and Other Equipment. . . . 113.4 9.1 0.7 - 121.8
Telephone Plant and Equipment
Central Office Equipment . . . . . 8,136.3 638.3 510.1 (3.5) 8,261.0
Cable and Wiring . . . . . . . . . 5,626.0 369.7 102.2 0.3 5,893.8
Conduit and Poles. . . . . . . . . 1,549.3 74.7 9.8 3.2 1,617.4
Station and Terminal Equipment . . 709.2 66.6 23.9 2.4 754.3
Other. . . . . . . . . . . . . . . 683.3 67.6 40.2 (0.3) 710.4
Plant Under Construction . . . . . . 481.9 1,103.6 1,056.2 (3.9) 525.4
Other. . . . . . . . . . . . . . . . 120.3 - 1.0 - 119.3
Total Plant. . . . . . . . . . . . . 19,034.4 2,421.2(d) 1,757.9 (1.2) 19,696.5
*See page 4 of 4 for descriptions of Notes.
NEW YORK TELEPHONE COMPANY AND SUBSIDIARY SCHEDULE V - Page 2 of 4
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE V - TELEPHONE PLANT
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance Additions Other Balance
at at Cost Retirements Changes at
12/31/91 Note (a)* Note (b)* Note (c)* 12/31/92
Land & Land Improvements . . . . . . 69.7 - - (0.1) 69.6
Buildings. . . . . . . . . . . . . . 1,494.6 60.5 8.4 (1.6) 1,545.1
Furniture and Other Equipment. . . . 113.6 3.8 4.3 0.3 113.4
Telephone Plant and Equipment
Central Office Equipment . . . . . 7,876.5 703.3 422.2 (21.3) 8,136.3
Cable and Wiring . . . . . . . . . 5,331.3 408.1 112.6 (0.8) 5,626.0
Conduit and Poles. . . . . . . . . 1,464.7 84.3 4.5 4.8 1,549.3
Station and Terminal Equipment . . 655.5 72.7 23.9 4.9 709.2
Other. . . . . . . . . . . . . . . 676.4 78.4 72.4 0.9 683.3
Plant Under Construction . . . . . . 619.5 987.3 1,152.2 27.3 481.9
Other. . . . . . . . . . . . . . . . 121.1 - 0.8 - 120.3
Total Plant. . . . . . . . . . . . . 18,422.9 2,398.4(d) 1,801.3 14.4 19,034.4
*See page 4 of 4 for descriptions of Notes.
NEW YORK TELEPHONE COMPANY AND SUBSIDIARY SCHEDULE V - Page 3 of 4
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE V - TELEPHONE PLANT
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance Additions Other Balance
at at Cost Retirements Changes at
12/31/90 Note (a)* Note (b)* Note (c)* 12/31/91
Land & Land Improvements . . . . . . 68.3 1.4 - - 69.7
Buildings. . . . . . . . . . . . . . 1,435.3 64.3 5.1 0.1 1,494.6
Furniture and Other Equipment. . . . 109.2 4.9 1.1 0.6 113.6
Telephone Plant and Equipment
Central Office Equipment . . . . . 7,936.6 536.0 602.9 6.8 7,876.5
Cable and Wiring . . . . . . . . . 5,011.8 438.4 116.1 (2.8) 5,331.3
Conduit and Poles. . . . . . . . . 1,362.8 89.1 5.1 17.9 1,464.7
Station and Terminal Equipment . . 616.7 59.4 26.6 6.0 655.5
Other. . . . . . . . . . . . . . . 715.6 54.5 84.3 (9.4) 676.4
Plant Under Construction . . . . . . 500.1 1,103.2 981.9 (1.9) 619.5
Other. . . . . . . . . . . . . . . . 123.0 1.0 2.9 - 121.1
Total Plant. . . . . . . . . . . . . 17,879.4 2,352.2(d) 1,826.0 17.3 18,422.9
*See page 4 of 4 for descriptions of Notes.
NEW YORK TELEPHONE COMPANY AND SUBSIDIARY SCHEDULE V - Page 4 of 4
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE V - TELEPHONE PLANT
FOOTNOTES
(a) These additions, other than additions to Land and Buildings, include material purchased from affiliated companies.
Additions shown also include (1) allowance for funds used during construction and (2) transfers, principally
Central Office Equipment completed, from Telephone Plant Under Construction to the applicable classifications
of Telephone Plant in Service. Additions were due principally to the upgrade of switching and circuit equipment.
(b) Items of telephone plant when retired or sold, are deducted from the property accounts at the amounts at which
they are included therein (estimated if not known).
(c) Includes (1) the original cost (estimated if not known) of reused material, which is concurrently credited to
Inventories and (2) reclassifications between the Telephone Plant in Service classifications listed.
(d) Additions on this Schedule V do not equal Capital expenditures on the Company's Consolidated Statements of Cash
Flows due primarily to the exclusion of additions under capital lease obligations, the equity component of
allowance for funds used during construction and construction transfers.
NEW YORK TELEPHONE COMPANY AND SUBSIDIARY SCHEDULE VI - Page 1 of 4
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF TELEPHONE PLANT
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance Other Balance
at Retirements Changes at
12/31/92 Additions Note (a)* Note (b)* 12/31/93
Buildings. . . . . . . . . . . . . . 317.8 32.7 19.8 (0.4) 330.3
Furniture and Other Equipment. . . . 6.5 4.3 0.4 - 10.4
Telephone Plant and Equipment
Central Office Equipment . . . . . 3,104.0 830.4 533.5 2.8 3,403.7
Cable and Wiring . . . . . . . . . 1,984.5 407.2 130.5 (0.1) 2,261.1
Conduit and Poles. . . . . . . . . 548.2 54.1 14.5 0.2 588.0
Station and Terminal Equipment . . 521.9 61.1 19.0 (2.6) 561.4
Other. . . . . . . . . . . . . . . 376.5 45.1 39.5 - 382.1
Other. . . . . . . . . . . . . . . . 40.7 3.9 1.0 (0.1) 43.5
Total Accumulated Depreciation . . . 6,900.1 1,438.8 758.2 (0.2) 7,580.5
*See page 4 of 4 for description of Notes.
NEW YORK TELEPHONE COMPANY AND SUBSIDIARY SCHEDULE VI - Page 2 of 4
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF TELEPHONE PLANT
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance Other Balance
at Retirements Changes at
12/31/91 Additions Note (a)* Note (b)* 12/31/92
Buildings. . . . . . . . . . . . . . 300.4 31.6 14.1 (0.1) 317.8
Furniture and Other Equipment. . . . 10.1 3.3 4.3 (2.6) 6.5
Telephone Plant and Equipment
Central Office Equipment . . . . . 2,510.7 799.5 432.6 226.4 3,104.0
Cable and Wiring . . . . . . . . . 1,722.5 396.9 134.5 (0.4) 1,984.5
Conduit and Poles. . . . . . . . . 503.1 51.5 8.9 2.5 548.2
Station and Terminal Equipment . . 487.5 56.6 20.1 (2.1) 521.9
Other. . . . . . . . . . . . . . . 368.1 67.7 70.6 11.3 376.5
Reserve Deficiency . . . . . . . . . 250.7 - - (250.7) -
Other. . . . . . . . . . . . . . . . 37.4 3.9 0.8 0.2 40.7
Total Accumulated Depreciation . . . 6,190.5 1,411.0 685.9 (15.5) 6,900.1
*See page 4 of 4 for descriptions of Notes.
NEW YORK TELEPHONE COMPANY AND SUBSIDIARY SCHEDULE VI - Page 3 of 4
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF TELEPHONE PLANT
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance Other Balance
at Retirements Changes at
12/31/90 Additions Note (a)* Note (b)* 12/31/91
Buildings. . . . . . . . . . . . . . 224.3 29.1 11.4 58.4 300.4
Furniture and Other Equipment. . . . 11.6 2.5 1.1 (2.9) 10.1
Telephone Plant and Equipment
Central Office Equipment . . . . . 2,858.0 798.9 626.9 (519.3) 2,510.7
Cable and Wiring . . . . . . . . . 2,091.7 258.5 140.4 (487.3) 1,722.5
Conduit and Poles. . . . . . . . . 508.5 49.3 11.1 (43.6) 503.1
Station and Terminal Equipment . . 440.9 64.4 23.5 5.7 487.5
Other. . . . . . . . . . . . . . . 384.1 59.3 82.4 7.1 368.1
Reserve Deficiency . . . . . . . . . (801.2) 58.2 - 993.7 250.7
Other. . . . . . . . . . . . . . . . 35.8 4.5 2.8 (0.1) 37.4
Total Accumulated Depreciation . . . 5,753.7 1,324.7 899.6 11.7 6,190.5
*See Page 4 of 4 for description of Notes.
NEW YORK TELEPHONE COMPANY AND SUBSIDIARY SCHEDULE VI - Page 4 of 4
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF TELEPHONE PLANT
FOOTNOTES
(a) Retirements on this Schedule VI do not equal retirements per the related Schedule V due to the effects of
accounting for cost of removal and salvage as prescribed by the NYSPSC and the FCC.
(b) Principally includes billing adjustments.
SCHEDULE VIII
NEW YORK TELEPHONE COMPANY AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Balance at ADDITIONS Balance at
Description Beginning of Charged to Costs Charged to Deductions End of
Period and Expenses Other Accounts Period
Allowance for Uncollectibles
Year 1993 . . . . . . . . . . . 128.3 77.8 78.1 (a) 149.4 (b) 134.8
Year 1992 . . . . . . . . . . . 117.9 75.8 101.6 (a) 167.0 (b) 128.3
Year 1991 . . . . . . . . . . . 126.5 71.1 73.6 (a) 153.3 (b) 117.9
Organizational Restructuring
Year 1993 . . . . . . . . . . . 32.9 721.3 - 32.9 721.3
Year 1992 . . . . . . . . . . . 219.6 - - 186.7 32.9
Year 1991 . . . . . . . . . . . - 202.0 17.6 (c) - 219.6
(a) Includes amounts to establish a reserve for purchased accounts receivable.
(b) Amounts written-off as uncollectible. Amounts previously written-off are credited
directly to this account when recovered.
(c) Amounts charged to revenues and other income.