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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 1-1150
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
A New York I.R.S. Employer
Corporation Identification No. 04-1664340
125 High Street, Boston, Massachusetts 02110
Telephone Number (617) 743-9800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
See attachment 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
DEBENTURES:
$45,000,000 Principal Amount of 38 Year 4 5/8% Debentures,
Due April 1, 1999
$50,000,000 Principal Amount of 40 Year 4 1/2% Debentures,
Due July 1, 2002
$60,000,000 Principal Amount of 40 Year 4 5/8% Debentures,
Due July 1, 2005
$100,000,000 Principal Amount of 39 Year 6 1/8% Debentures,
Due October 1, 2006
$200,000,000 Principal Amount of 35 Year 7 3/8% Debentures,
Due October 15, 2007
$125,000,000 Principal Amount of 40 Year 6 3/8% Debentures,
Due September 1, 2008
$350,000,000 Principal Amount of 40 Year 7 7/8% Debentures,
Due November 15, 2029
$100,000,000 Principal Amount of 40 Year 9% Debentures,
Due August 1, 2031
$100,000,000 Principal Amount of 30 Year 7 7/8% Debentures,
Due September 1, 2022
$250,000,000 Principal Amount of 30 Year 6 7/8% Debentures,
Due October 1, 2023
NOTES:
$100,000,000 Principal Amount of 10 Year 8 5/8% Notes,
Due August 1, 2001
$100,000,000 Principal Amount of 7 Year 6.15% Notes,
Due September 1, 1999
$175,000,000 Principal Amount of 5 Year 6 1/4% Notes,
Due December 15, 1997
$225,000,000 Principal Amount of 10 Year 6 1/4% Notes,
Due March 15, 2003
$100,000,000 Principal Amount of 7 Year 5 3/4% Notes,
Due May 1, 2000
$100,000,000 Principal Amount of 5 Year 5.05% Notes,
Due October 1, 1998
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 . . . . . . . . . . . . . . . . . . . . 16
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)). . . . . . 17
8. Financial Statements and Supplementary Data:
Report of Management . . . . . . . . . . . . . . . . . . . . 24
Report of Independent Accountants. . . . . . . . . . . . . . 26
Statements:
Statements of Income and Retained Earnings for each of
the Three Years in the Period Ended December 31, 1993 . 27
Balance Sheets as of December 31, 1993 and 1992 . . . . . 28
Statements of Cash Flows for each of the Three Years in
the Period Ended December 31, 1993 . . . . . . . . . . . 30
Notes to Financial Statements . . . . . . . . . . . . . . 31
Supplementary Information:
Quarterly Financial Information (Unaudited). . . . . . . . 46
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . 46
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, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 47
PART I
Item 1. BUSINESS
General
New England Telephone and Telegraph Company (the "Company") was
incorporated in 1883 under the laws of the State of New York, has
its principal executive offices at 125 High Street, Boston, Massachusetts
02110 (telephone number 617-743-9800) and is engaged primarily in providing
telecommunications services in Maine, Massachusetts, New Hampshire, Rhode
Island and Vermont. The Company is a wholly-owned subsidiary of NYNEX
Corporation ("NYNEX").
Telecommunications Services
The Company is engaged primarily in providing two types of
telecommunications services, exchange telecommunications and
exchange access, in Maine, Massachusetts, New Hampshire, Rhode Island and
Vermont.
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
1993, approximately 1% of operating revenues were derived from such
billing and collection services. In 1990, the Company and AT&T signed
a six-year contract 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: Eastern Massachusetts, Western
Massachusetts, Maine, New Hampshire, Rhode Island and Vermont.
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. . . . . . . . 5,906 5,721 5,604 5,544 5,461
Sizeable areas and many localities within the territories served by the
Company are served by nonaffiliated telephone companies that had
approximately 212,000 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.
For the year ending December 31, 1993, approximately 93% of the total
operating revenues of the Company were derived from telecommunications
services. In 1993, one customer, AT&T, accounted for approximately 15%
of such revenues, primarily in network access and other revenues. The
remaining approximate 7% of total operating revenues was from other
sources, primarily 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 York Telephone
Company ("New York Telephone"), also a wholly-owned subsidiary of
NYNEX. In 1990, NYNEX Materiel Enterprises Company was transferred
from NYNEX to the Company and to New York 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 33 1/3% ownership in Telesector Resources
and shares voting rights equally with the other owner, New York 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 agreements 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 right to
produce, publish and distribute alphabetical (White Pages) and classified
(Yellow Pages) directories for the Company.
Business Restructuring
In the fourth quarter of 1993, the Company recorded charges of
approximately $619 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 . . . . . . . . . . . $819
1992 . . . . . . . . . . . $782
1991 . . . . . . . . . . . $751
1990 . . . . . . . . . . . $868
1989 . . . . . . . . . . . $858
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 revenues1/.
The net annual intrastate revenue reduction ordered for the Company,
comprised of both reductions in rates and one-time credits to customers,
was approximately $6.2 million, $9.0 million and $4.4 million for 1993,
1992, and 1991, respectively.
Maine
On May 1, 1992, the Maine Public Utilities Commission ("MPUC") issued a
Notice of Proceeding to commence a comprehensive investigation regarding
the Company's cost of service and rate design. The Company filed its
comprehensive rate design proposal with the MPUC on July 6, 1992.
Although the Company did not seek to increase the overall revenues it
receives, the rate design proposal would affect the rates charged for
various services. The rate design proposal seeks a reduction in rates
for message telecommunications and related toll services, a corresponding
decrease in access rates and an increase in residence basic exchange
service rates.
At a March 11, 1994 deliberative session, the MPUC voted to reject the
Company's rate design proposal. The MPUC found that the Company had not
adequately supported its proposal. Because the Company's proposal was
designed to be revenue neutral, there will be no immediate earnings
impact from the MPUC's decision. The final order is expected to be
released by the end of March.
The MPUC expressed an interest in exploring how the rate realignment
proposed by the Company might be accomplished through an alternative
form of regulation, in lieu of traditional rate of return regulation.
The MPUC announced its intention to commence such an investigation upon
release of its final order.
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.
New Hampshire
On March 16, 1993, the Company, the New Hampshire Public Utilities
Commission ("NHPUC") staff, the NHPUC Office of Consumer Advocate,
various interexchange and local exchange carriers and an association of
business customers filed a stipulation for approval by the NHPUC to resolve
all matters in the current phase of the generic intraLATA competition
docket. On June 10, 1993, the NHPUC issued an order approving in
part and modifying in part the stipulation, subject to the acceptance of
the parties, to provide that (1) the NHPUC will not initiate a show cause
proceeding, for effect prior to October 1, 1995, as to the Company's
earnings or cost of capital; (2) the Company will not initiate, prior
to April 1, 1995, a request for an increase in basic exchange rates, for
effect prior to October 1, 1995, except to reflect changes in exogenous
costs; (3) switched access rates for non-800 access service decreased
from 20 cents to 16 cents in 1993, which resulted in an annual reduction
of approximately $3.1 million effective October 1, 1993, and will decrease
12 cents the following year, 8 cents in the third year, and in the fourth
year would be equal to the interstate rate in effect at that time; (4) the
Company will have pricing flexibility with respect to its long distance
services; and (5) the settlements process between the Company and
independent carriers will be replaced by access arrangements. On
July 29, 1993, the parties resubmitted the stipulation with the NHPUC,
as modified by the NHPUC and the Company. On August 2, 1993, the NHPUC
approved the stipulation as resubmitted.
Rhode Island
Pursuant to an order of the Rhode Island Public Utilities Commission,
the Company, with respect to 1993 earnings, must apply a one-time credit
to customers' bills of 50% of any earnings between 13.25% and 19.25% return
on equity and 100% of any return in excess of 19.25%.
Vermont
The Company filed a petition for a price regulation plan with the
Vermont Public Service Board ("VPSB") on October 5, 1993. This
proposal provides that (1) the Company would be allowed to adjust its
rates annually based on an increase in the Gross Domestic Product Price
Index, adjusted for productivity and exogenous factors; (2) the Company
would enhance its current quality commitments; (3) the Company would retain
the ability to offer new products and services on 15 days' notice, and the
ability to offer customer specific contracts, without prior VPSB approval;
and (4) the Company's earnings would not be restricted. In a related
proceeding, on December 1, 1993, the Vermont Department of Public
Service filed a petition seeking to examine the Company's rates and to
ensure that rates are at appropriate levels prior to the initiation of a
price regulation plan. The petition asserts that the Company may be
over-earning and asks the VPSB to direct that any rate reduction be
returned to the ratepayers of Vermont in the form of a rebate retroactive
to December 1993. A decision in both the incentive regulation and rate
dockets is due from the VPSB by August 24, 1994. On February 18, 1994,
the VPSB opened an investigation into open network architecture ("ONA"),
unbundling and interconnection issues. This is a major competition
docket that is expected to continue into 1995.
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.
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 $135,000 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 $22 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 2, 1993 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 an increase in the Company's annual
interstate access rates of approximately $55 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 $35 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 increase and New York Telephone
experienced an offsetting interstate rate decrease. 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 over-earnings as well
as any need to increase interstate rates due to under-earnings 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 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 similiar to the intrastate
collocation arrangement already in existence in Massachusetts. 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.
The Company filed tariffs for its 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 Telephone 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 for
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 $8.2 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 competion. Alternative service providers
operate in Boston and are expanding into the greater Boston metropolitan
area as well as other markets in the Company's region. Moreover, the
Company has tariffs approved by the MDPU to allow these competitors to
place their transmission equipment in selected central offices under an
arrangement known as collocation. 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 had approximately 22,000 employees at December 31, 1993.
Approximately 14,300 employees are represented by unions. Of those so
represented, approximately 99% are represented by the International
Brotherhood of Electrical Workers ("IBEW") and approximately 1% by the
Communications Workers of America ("CWA"), both of which are affiliated with
the AFL-CIO.
In August 1993, pursuant to labor agreements that expire in August 1995,
employees represented by the CWA and IBEW at the Company 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. A tentative agreement has been
reached with the CWA 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. Talks began
on March 21, 1994 in attempts to reach similar agreements with the locals of
the IBEW.
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
$11.6 billion, consisting principally of telephone plant and
equipment (91%). Other classifications include: land, land
improvements and buildings (7%); furniture and other equipment (1%);
and plant under construction and other (1%).
Substantially all of the Company's central office equipment is located
in buildings owned by the Company 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.
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 3.5% of any judgment or determination of liability.
Litigation
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 Racketeer Influenced and Corrupt Organizations Act 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.
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.
On November 15, 1993, NYNEX and the Company filed suit in the United
States District Court for the District of Maine seeking an order
declaring that section 533(b) of the Cable Communications Policy Act
of 1984 is unconstitutional and permanently enjoining the United States from
enforcing section 533(b) against NYNEX. Section 533(b) prohibits NYNEX from
providing video programming to subscribers in areas where the Telephone
Companies provide service.
PART II
ITEM 6. SELECTED FINANCIAL DATA
Dollars in Millions 1993 1992 1991 1990 1989
Operating revenues. . . . . $4,070 $3,922 $3,806 $3,732 $3,731
Operating expenses. . . . . $3,773 $3,009 $3,177 $2,927 $2,978
Interest expense. . . . . . $ 175 $ 190 $ 191 $ 195 $ 194
Earnings before cumulative
effect of change in
accounting principle. . . $ 106 $ 487 $ 317 $ 429 $ 370
Cumulative effect of change
in accounting for
postemployment benefits,
net of taxes. . . . . . . $ (25) $ - $ - $ - $ -
Net income . . . . . . . . $ 81 $ 487 $ 317 $ 429 $ 370
Telephone plant - net . . . $6,577 $6,532 $6,503 $6,504 $6,393
Total assets. . . . . . . . $8,271 $8,335 $8,239 $8,078 $8,045
Long-term debt. . . . . . . $2,164 $2,211 $2,113 $2,117 $2,150
Share owner's equity. . . . $3,019 $3,351 $3,187 $3,188 $3,032
Capital expenditures+ . . . $ 819 $ 782 $ 751 $ 868 $ 858
Return to equity. . . . . . 2.38% 14.77% 9.70% 13.67% 12.09%
Ratio of earnings to fixed
charges++ . . . . . . . . 1.34 4.39 3.08 3.84 3.60
Network access lines in
service (in thousands). . 5,906 5,721 5,604 5,544 5,461
The results for 1993 reflect the effects of pretax charges of $619 million
($376 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 $193 million ($122 million after-tax) for operational restructuring
related to force reduction programs. The 1989 results reflect the
effects of pretax charges of $130 million ($80 million after-tax)
primarily relating to operational restructuring, asset write-downs, a
work stoppage, benefit plan changes and other 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 $619 million
($376 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 England Telephone and Telegraph Company (the
"Company") to operate in an increasingly competitive environment. The
charges taken in 1993 were not related to the restructure charges
recorded in 1991.
Approximately $395 million of the charges ($240 million after-tax) is for
severance and postretirement medical costs for employees leaving the
Company through 1996; approximately $201 million is for employee
severance payments, and $194 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 6,300
employees by the end of 1996, consisting of 1,300 management
employees and 5,000 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 $83 million of the charges ($51 million after-tax) consists of
costs associated with re-engineering the way service is delivered to
customers, including operating the Company and New York Telephone
Company ("New York 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) $13 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) $14 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) $19 million to develop and
market a single "NYNEX" brand identity associated with the restructured
business operations; (4) $15 million for employee relocations as a result
of work center consolidations; (5) $21 million for training employees on
newly-designed, cross-functional job positions and re-engineered
systems; and (6) $1 million in incremental costs to implement the
various re-engineering initiatives.
Approximately $141 million of restructuring charges ($86 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 $27 million is for severance
payments, $19 million is the medical curtailment loss recognized as a
result of the planned decrease in its work force, and $95 million
consists of Telesector Resources' 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
Massachusetts In June 1990, the Massachusetts Department of Public Utilities
("MDPU") issued an order in Phase III of a proceeding that culminated a
five-year investigation into the Company's rates, costs and revenues.
The order calls for the gradual restructuring of local and long distance
rates within the state, with the objective of moving prices for services
closer to the costs of providing them. This is accomplished through an
annual transitional filing of new rates by the Company. At the time the
rates are established, revenue neutrality is maintained. The Company's
first and second transitional filings became effective on November 15,
1991 and January 15, 1993, respectively (see Operating Revenues below).
On January 13, 1994, the MDPU approved the third transitional filing with
minor modifications to become effective April 14, 1994.
Rhode Island In August 1992, the Rhode Island Public Utilities Commission
approved a Price Regulation Trial ("PRT") that provides the Company with
significantly increased pricing and earnings freedom through 1995 and calls
for specific investment and service-quality commitments by the Company. As
a part of the PRT, the Company makes an annual filing, with overall price
increases capped by a formula indexing Rhode Island prices to the Gross
National Product Price Index, adjusted for productivity and exogenous
factors. The PRT allows the Company to continue moving the prices of
its services closer to the costs of providing them. The Company's most
recent annual filing became effective January 15, 1994. The filing calls
for an overall revenue reduction of approximately $3.2 million for 1994,
resulting from decreases in long distance revenues partially offset by
increases in local service revenues.
Federal Regulatory Matters
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 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 Company and New York Telephone 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 $4 million during the tariff period
ending June 30, 1992, an increase of approximately $88 million during the
tariff period ending July 1, 1993 and will result in a decrease of
approximately $25 million during the tariff period ending June 30,
1994. As a result of these filings, a net increase in access revenues of
$33 million was recorded in 1993. 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 increase in the Company's access revenues
during those tariff periods was offset by the payment plan, which
provided for transition payments to New York Telephone in the amounts
of $18 million in 1992 and $55 million in 1993 (see Other Income (Expense)
- - Net).
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
Massachusetts. 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
$148.3 million, or 3.8%, over the same period last year. The
increase in total operating revenues is comprised of the following:
Increase (Decrease)
(Dollars in Millions)
Local service. . . . . . . . . . . $ 90.4
Long distance. . . . . . . . . . . (25.0)
Network access . . . . . . . . . . 71.1
Other. . . . . . . . . . . . . . . 11.8
$ 148.3
Local service revenues are earned from the provision of local exchange, local
private line and local public network services. Local service revenues
increased $90.4 million due principally to net increases of
approximately $52 million in local service rates resulting from
the implementation of the second transitional filing of a restructuring of
Massachusetts rates on January 15, 1993 (see State Regulatory Matters
above) and increased customer demand evidenced by growth in access
lines.
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. Long
distance revenues decreased $25.0 million due principally to decreases of
approximately $51 million in long distance rates resulting from the second
transitional filing of a restructuring of Massachusetts rates on
January 15, 1993 (see State Regulatory Matters above) and
decreases in long distance private line revenues and wide area
telecommunications service revenues due primarily to increased
competition and customer shifts to lower priced services offered by
the Company. These decreases were partially offset by increased toll usage.
Network access revenues, which are earned from the provision of exchange
access services primarily to interexchange carriers, increased
$71.1 million due principally to an increase in switched access
revenues. Switched access revenues increased approximately $83 million
due primarily to a $49 million increase resulting from increased network
demand and a net increase of $31 million resulting primarily from
interstate rate changes. Special access revenues decreased
approximately $12 million due primarily to a $9 million decrease
resulting from decreased demand and a net $4 million decrease resulting
from interstate rate reductions. (See Federal Regulatory Matters above.)
Other revenues are earned from the provision of products and services other
than Local service, Long distance and Network access. Other revenues
increased $11.8 million due principally to an increase in rent revenues
from Telesector Resources for space in training centers owned and leased by
the Company (see Operating Expenses below).
Operating Expenses
Operating expenses increased $763.8 million, or 25.4%, over 1992. The
increase in total operating expenses is comprised of the following:
Increase (Decrease)
(Dollars in Millions)
Business restructuring charges
recorded in 1993 . . . . . . . . . . $ 619.3
Employee related costs. . . . . . . . . 72.2
Other operating expenses. . . . . . . . 45.8
Taxes other than income taxes . . . . . 21.7
Depreciation and amortization . . . . . 4.8
$ 763.8
Business restructuring charges recorded in the fourth quarter of 1993
consisted of incremental costs associated with work force
reductions, re-engineering, and costs related to consolidation of
work locations (see Business Restructuring above).
Employee related costs, which consist primarily of wages, payroll taxes and
employee benefits, increased $72.2 million. The increase was principally
due to a $40 million increase in wages and payroll taxes, due principally
to increases in salaries and wage rates, including a 4.25% wage increase
for nonmanagement employees pursuant to the 1991 collective bargaining
agreements, and to additional labor costs in 1993 primarily attributable
to severe winter weather and marketing initiatives. In addition, there was
a $32 million increase in employee benefit costs for active and retired
employees due primarily to increased medical costs and a $10 million
accrual for a supplemental executive retirement plan. These increases
were partially offset by decreases in the Company's work force of 541
management employees due to force reduction plans in 1992 and transfers
of approximately 250 management employees to Telesector Resources in 1993
(see Other operating expenses below).
Other operating expenses, which consist primarily of contracted and
centralized services, rent and other general and administrative
costs, increased $45.8 million. The increase was principally due to: a
$42 million increase in charges from affiliated companies primarily
attributable to the transfer of the training functions previously
performed by the Company to Telesector Resources (see Operating Revenues
and Employee related costs above); an $8 million increase resulting from
increased maintenance, repairs and utilities costs; a $6 million
increase in advertising and sales commission expenses due to
increased promotion of new products; and a $5 million increase due
to the Company's contractual share of a predivestiture American Telephone
and Telegraph Company ("AT&T") liability. These increases were partially
offset by a $17 million decrease in right-to-use fees resulting from a
decrease in software purchases and a $13 million decrease resulting from
capitalization in 1993 of certain 1993 and 1992 engineering charges.
Taxes other than income taxes, which include gross receipts taxes, property
taxes and other non-income based taxes, increased $21.7 million
principally due to a $19 million increase in property taxes
primarily attributable to increased tax rates and municipal
assessments.
Depreciation and amortization increased $4.8 million due principally to: a
$26 million increase associated with increased plant investment; a
$25 million increase due to represcribed interstate depreciation
rates; and a $41 million increase due to revised intrastate
depreciation rates in Massachusetts, Rhode Island and New
Hampshire. These increases were partially offset by: a $62 million
decrease due primarily to completion in 1992 of intrastate amortization of
electro-mechanical switching equipment in Massachusetts; a $4 million
decrease due to recognition in 1992 of expenses that were previously
deferred in accordance with a prior regulatory agreement in New Hampshire;
a $6 million decrease due to completion in 1992 of interstate amortization
of the reserve deficiency; an $11 million decrease in the amortization of
the reserve deficiency for analog electronic switching systems offices in
Rhode Island; and a $3 million decrease due to the completion in 1992 of
amortization of customer premises wiring.
Other Income (Expense) - Net
Other income (expense) - net decreased $59.5 million from the same period
last year principally due to $37 million resulting from higher payments
made during 1993 to New York Telephone pursuant to the transition plan to
phase-in the earnings impact of the unified tariff access rate structure
(see Federal Regulatory Matters above), and $20 million for the interstate
portion of call premiums and other charges associated with the refinancing
of long-term debt in 1993.
Interest Expense
Interest expense decreased $14.7 million from the same period last year
primarily due to a decrease in average interest rates resulting from
long-term debt refinancings in 1993 and a decrease in the average level of
external debt.
Income Taxes
Income taxes decreased $280.0 million from the same period last year
principally due to lower pretax income. The decrease includes
$23 million from a one-time benefit representing adjustments of prior
year estimates of depreciation on capitalized overheads and of the
reversal of excess deferred taxes, using the average rate assumption
method, which had been deferred at a rate higher than the current statutory
rate. These decreases were partially offset by 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.
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 $39.1 million ($25.0 million
after-tax). In subsequent years, the effect of Statement No. 112 is not
expected to result in periodic expense materially different from the
expense recognized under the prior method. The rate recovery of these
costs in the intrastate jurisdictions has not been determined.
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 $425 million of Notes and $250 million of Debentures
and used $666 million of the proceeds from these issuances and short-term
borrowings from NYNEX to redeem $895 million of Debentures.
On October 15, 1993, the Company filed a registration statement with the
Securities and Exchange Commission ("SEC") for the issuance of up to
$450 million in unsecured debt securities, which became effective on
October 22, 1993. The Company has $500 million of unissued, unsecured
debt securities registered with the SEC.
ITEM 8. FINANCIAL STATEMENTS
Report of Management
Management of New England Telephone and Telegraph Company (the "Company") has
the responsibility for preparing the accompanying financial statements and
for their integrity and objectivity. The financial statements were
prepared in accordance with generally accepted accounting principles
and, in management's opinion, are fairly presented. The 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
financial statements.
The 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
share owner'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 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, 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.
Donald B. Reed
President and Chief Executive Officer
Gail Deegan
Vice President and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Share Owner and Board of Directors of
New England Telephone and Telegraph Company:
We have audited the financial statements and financial statement schedules of
New England Telephone and Telegraph Company listed in Item 14(a) (1) and (2)
of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
and 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 financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New England Telephone and
Telegraph Company as of December 31, 1993 and 1992, and the results of its
operations and its 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 financial
statement schedules referred to above, when considered in relation to the
basic 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 D to the financial statements, the Company
changed its methods of accounting for income taxes, postretirement
benefits other than pensions, and postemployment benefits in 1993.
Coopers & Lybrand
Boston, Massachusetts
February 9, 1994
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
Dollars in Millions
For the Year Ended December 31,
1993 1992 1991
OPERATING REVENUES
Local service. . . . . . . . . . . . . . $1,812.3 $1,721.9 $1,642.7
Long distance. . . . . . . . . . . . . . 758.0 783.0 812.3
Network access (Note (I)). . . . . . . . 1,159.2 1,088.1 1,009.0
Other (Notes (I) and (J)). . . . . . . . 340.7 328.9 341.7
Total operating revenues . . . . . . . 4,070.2 3,921.9 3,805.7
OPERATING EXPENSES (Note (O))
Maintenance and support . . . . . . . . 1,202.9 1,053.8 1,204.0
Depreciation and amortization . . . . . 832.7 827.9 775.3
Marketing and customer services. . . . . 664.5 531.8 546.1
Taxes other than income taxes (Note (K)) 127.6 105.9 96.4
Provision for uncollectible revenues . . 49.3 52.0 57.4
Other. . . . . . . . . . . . . . . . . . 896.0 437.8 498.1
Total operating expenses . . . . . . . 3,773.0 3,009.2 3,177.3
Operating income . . . . . . . . . . . . . 297.2 912.7 628.4
Other income (expense) - net . . . . . . . (55.0) 4.5 15.2
Interest expense (Notes (E) and (G)) . . . 175.0 189.7 191.2
Earnings before Income taxes and
cumulative effect of change in
accounting principle . . . . . . . . . . 67.2 727.5 452.4
Income taxes
Federal. . . . . . . . . . . . . . . . . (41.0) 194.4 105.0
State. . . . . . . . . . . . . . . . . . 1.9 46.5 30.9
Total income taxes (Note (C)). . . . . (39.1) 240.9 135.9
Earnings before cumulative effect
of change in accounting principle . . . 106.3 486.6 316.5
Cumulative effect of change in accounting
for postemployment benefits, net of
taxes (Note (D)). . . . . . . . . . . . (25.0) - -
NET INCOME . . . . . . . . . . . . . . . . $ 81.3 $ 486.6 $ 316.5
RETAINED EARNINGS
Beginning of year. . . . . . . . . . . . $1,262.0 $1,121.8 $1,197.9
Net income . . . . . . . . . . . . . . 81.3 486.6 316.5
Dividends declared . . . . . . . . . . (413.4) (346.4) (392.6)
End of year. . . . . . . . . . . . . . . $ 929.9 $1,262.0 $1,121.8
See accompanying notes to financial statements.
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
BALANCE SHEETS
Dollars in Millions
December 31,
1993 1992
ASSETS
Current assets:
Cash .. . . . . . . . . . . . . . . . . . . . . $ 11.2 $ 12.7
Receivables
Affiliates (Notes (B) and (J)). . . . . . . . 14.5 95.2
Trade and other (net of allowance of $51.7
and $40.6, respectively) (Note (I)) . . . . 718.0 722.6
Deferred income taxes (Note (C)) . . . . . . . 120.6 37.3
Deferred charges (Note (C)) . . . . . . . . . . 99.5 105.0
Inventory . . . . . . . . . . . . . . . . . . . 57.6 66.7
Prepaid expenses and other. . . . . . . . . . . 69.6 39.9
Total current assets. . . . . . . . . . . . . 1,091.0 1,079.4
Telephone plant
In service. . . . . . . . . . . . . . . . . . . 11,420.7 11,562.9
Under construction. . . . . . . . . . . . . . . 170.4 167.4
11,591.1 11,730.3
Less: accumulated depreciation. . . . . . . . . 5,013.9 5,198.6
Telephone plant - net . . . . . . . . . . . . . 6,577.2 6,531.7
Deferred charges and other (Notes (C) and (D)). . 602.8 723.5
TOTAL ASSETS. . . . . . . . . . . . . . . . . . $ 8,271.0 $ 8,334.6
See accompanying notes to financial statements.
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
BALANCE SHEETS
Dollars in Millions
December 31,
1993 1992
LIABILITIES AND SHARE OWNER'S EQUITY
Current liabilities:
Accounts payable
AT&T (Note (I)) . . . . . . . . . . . . . . $ 86.7 $ 87.6
Affiliates (Note (J)) . . . . . . . . . . . 404.3 178.9
Compensated absences. . . . . . . . . . . . 78.9 74.6
Trade and other . . . . . . . . . . . . . . 422.1 349.0
Short-term debt (Note (G)). . . . . . . . . . 158.5 174.9
Dividends payable . . . . . . . . . . . . . . 103.4 99.1
Taxes accrued . . . . . . . . . . . . . . . . 26.5 48.4
Advance billing and customers' deposits . . . 18.2 19.1
Interest accrued. . . . . . . . . . . . . . . 37.8 45.4
Total current liabilities . . . . . . . . 1,336.4 1,077.0
Long-term debt (Notes (E) and (F)). . . . . . . 2,164.0 2,210.5
Deferred income taxes (Note (C)). . . . . . . . 841.7 919.7
Unamortized investment tax credits. . . . . . . 115.4 143.8
Other long-term liabilities and deferred
credits (Notes (C) and (D)) . . . . . . . . . 794.5 632.5
Total liabilities . . . . . . . . . . . . 5,252.0 4,983.5
Commitments and contingencies (Notes (H), (M)
and (N))
Share owner's equity:
Common stock - one share,
without par value . . . . . . . . . . . . . 2,089.1 2,089.1
Retained earnings . . . . . . . . . . . . . . 929.9 1,262.0
Total share owner's equity. . . . . . . . 3,019.0 3,351.1
TOTAL LIABILITIES AND SHARE OWNER'S EQUITY. . $8,271.0 $8,334.6
See accompanying notes to financial statements.
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
STATEMENTS OF CASH FLOWS
Dollars in Millions
For the Year Ended December 31,
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . $ 81.3 $ 486.6 $ 316.5
Adjustments to reconcile Net Income to net
cash provided by operating activities:
Depreciation and amortization . . . . 832.7 827.9 775.3
Allowance for funds used during
construction - equity component . (7.7) (6.1) (7.0)
Changes in operating assets and
liabilities:
Receivables . . . . . . . . . . . . 3.3 19.7 (7.2)
Inventory . . . . . . . . . . . . . 9.1 (3.1) 22.1
Deferred income taxes . . . . . . . (83.3) (37.3) -
Deferred charges. . . . . . . . . . 5.5 34.2 (27.9)
Prepaid expenses and other. . . . . (29.7) (1.0) (30.7)
Accounts payable. . . . . . . . . . 301.9 (18.1) 40.1
Taxes accrued . . . . . . . . . . . (21.9) (18.4) 1.2
Advance billing and
customers' deposits . . . . . . . (0.9) 2.3 3.4
Interest accrued. . . . . . . . . . (7.6) (1.3) 8.1
Deferred income taxes and Unamortized
investment tax credits. . . . . . (106.4) 102.2 (103.7)
Other long-term liabilities and
deferred credits. . . . . . . . . 162.0 (113.9) 201.0
Other-net . . . . . . . . . . . . . . 94.4 ( 45.0) (137.2)
Total adjustments . . . . . . . . . . . . 1,151.4 742.1 737.5
Net cash provided by operating
activities. . . . . . . . . . . . 1,232.7 1,228.7 l,054.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . (819.0) (781.5) (751.1)
Advances to NYNEX . . . . . . . . . . 82.0 (82.0) -
Net cash used in investing activities . . (737.0) (863.5) (751.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from NYNEX . . . . . . . . . 159.4 (95.0) (156.1)
Dividends paid to NYNEX . . . . . . . (409.2) (345.4) (387.5)
Issuance of long-term debt. . . . . . 669.5 372.4 196.9
Repayment of long-term debt and
capital leases . . . . . . . . . (1.1) (246.5) (33.7)
Debt refinancings and call
premiums. . . . . . . . . . . . . (915.8) (57.1) -
Equity infusion from NYNEX . . . . . - - 75.0
Net cash used in financing activities . . (497.2) (371.6) (305.4)
Net decrease in Cash. . . . . . . . . . . (1.5) (6.4) (2.5)
Cash at beginning of year . . . . . . . . 12.7 19.1 21.6
Cash at end of year . . . . . . . . . . . $ 11.2 $ 12.7 $ 19.1
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(A) Accounting Policies
Basis of Presentation
New England Telephone and Telegraph Company (the "Company") is a wholly-owned
subsidiary of NYNEX Corporation ("NYNEX") and primarily provides exchange
telecommunications and exchange access services. The financial
statements for 1992 and 1991 have been reclassified to conform
to the current year's format.
The 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 rules prescribed by the Federal Communications
Commission ("FCC"), except for certain intrastate items accorded a
different accounting treatment by state regulatory commissions.
The Company has a 33 1/3% ownership interest in Telesector Resources Group,
Inc. ("Telesector Resources") and shares voting rights equally with the
other owner, New York Telephone Company ("New York Telephone"). The
Company uses the equity method of accounting for its investment in
Telesector Resources.
Cash
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 $49.7 and $100.5 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 are prescribed by the FCC for interstate operations and by
the respective state commissions for intrastate operations. All rates are
calculated on a straight-line basis using the concept of "remaining life."
In 1993, revised interstate depreciation rates were approved by the FCC.
Revised intrastate depreciation rates were effective November 1, 1992 for
Rhode Island, January 1, 1993 for New Hampshire and July 1, 1993 for
Massachusetts. The application of the interstate and intrastate
rates resulted in average effective composite rates of 7.3%, 7.4% and
7.2% for 1993, 1992 and 1991, respectively.
Regulatory authorities in Maine, Massachusetts, New Hampshire and
Rhode Island allow the Company to capitalize interest, including
an allowance on share owner's equity, as a cost of constructing certain
telephone plant and as income, included in Other income (expense) -
net. Such income will be realized over the service life of the plant as
the resulting higher depreciation expense is recovered through the
rate-making process. In Vermont, telephone plant under
construction is included in the rate base, thereby eliminating
the need for any interest accrual mechanism. The FCC requires the same
method as Vermont for short-term telephone plant under construction, while
long-term plant under construction accrues interest under FCC procedures.
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 state
commissions and the FCC, respectively. The deferred amounts are
amortized over periods stipulated by the state commissions. Prior to
January 1, 1988, these charges were deferred and amortized for both
intrastate and interstate purposes. The deferred amounts included
in the accompanying balance sheets are $78.0 and $14.7 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.
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 federal tax rates prior to
1993 is subject to federal income tax and regulatory rules.
Deferred income tax provisions of the Company are based on amounts recognized
for rate-making purposes. The Company recognizes a deferred tax liability
and establishes a corresponding regulatory asset for tax benefits on
temporary differences 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%
from 34%, 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) Receivables - Affiliates
At December 31, 1992, the Company had advances to NYNEX of $82.0 million
included in Receivables-Affiliates which was principally due to the
investment by NYNEX of a portion of the proceeds from the long-term debt
issued by the Company on December 9, 1992. On January 19, 1993, these
proceeds were used for the redemption of $175 million of the Company's
Thirty-Nine Year 8 5/8% Debentures, due September 1, 2009 (see Note (G)).
(C) Income Taxes
The components of income tax (benefit) expense are as follows:
Dollars in Millions 1993* 1992 1991
Federal:
Current. . . . . . . . . . . . . . $206.5 $230.6 $211.1
Deferred - net . . . . . . . . . . (219.0) (8.6) (75.5)
Deferred tax credits - net . . . . (28.5) (27.6) (30.6)
(41.0) 194.4 105.0
State:
Current. . . . . . . . . . . . . . 38.2 45.4 38.1
Deferred - net . . . . . . . . . . (36.3) 1.1 (7.2)
1.9 46.5 30.9
Total. . . . . . . . . . . . . . $(39.1) $240.9 $135.9
* Does not include the deferred tax benefit of $14.1 million associated with
the Cumulative effect of change in accounting for postemployment benefits.
In 1993, the total tax benefit includes $23.1 million representing a one-time
benefit from adjustments of prior year estimates of depreciation on
capitalized overheads and of the reversal of excess deferred taxes.
The total deferred tax benefit includes $187.7 million due to the Company's
restructuring. Additional 1993 decreases resulted from the adoption of a
new accounting standard related to postretirement benefits (see Note D).
The increase in 1992 deferred tax expense was due principally to the partial
reversal of temporary differences associated with the Company's 1991
restructuring.
A reconciliation between federal income tax expense computed at the statutory
rate and the Company's effective tax (benefit) expense is as follows:
Dollars in Millions 1993* 1992 1991
Federal income tax expense
computed at statutory rate. . . . . . . . $ 23.5 $247.4 $153.8
a. Amortization of excess
deferred federal income
taxes due to the change
in the tax rates . . . . . . . . . . (39.0) (20.7) (25.4)
Dollars in Millions 1993* 1992 1991
b. Amortization of investment
tax credits over the life
of the assets which gave
rise to the credits. . . . . . . . . (28.5) (27.8) (31.8)
c. Depreciation of certain taxes and
payroll-related construction costs
capitalized for financial statement
purposes, but deducted for income
tax purposes in prior years. . . . . 5.9 14.2 14.4
d. Allowance for funds used during
construction, which is excluded
from taxable income, net of
applicable depreciation. . . . . . . (0.7) (1.1) 0.2
e. State income taxes,
net of federal tax benefit . . . . . 1.2 30.7 20.4
f. Other differences. . . . . . . . . . (1.5) (1.8) 4.3
Income tax (benefit) expense. . . . . . . $(39.1) $240.9 $135.9
* Does not include the deferred tax benefit of $14.1 million associated with
the Cumulative effect of change in accounting for postemployment benefits.
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 . . . . . . . $ - $ 1,014.9
Benefits. . . . . . . . . . . . . . . . . . 221.4 57.1
1993 restructuring charges. . . . . . . . . 112.1 -
Unamortized investment tax credits . . . . 64.4 -
Other . . . . . . . . . . . . . . . . . . . 32.3 79.3
Total deferred taxes. . . . . . . . . . . . $ 430.2 1,151.3
430.2
Net deferred tax liabilities. . . . . . . . $ 721.1
At December 31, 1993 and 1992 the Company recorded approximately $223.4 and
$223.7 million, respectively, in deferred taxes primarily 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 recorded a regulatory liability at December 31, 1993 and 1992 of
approximately $246.3 and $354.8 million, respectively, primarily
representing previously recorded excess deferred federal income
taxes resulting from the reduction of the statutory federal income tax
rate and unamortized ITC, which is recorded in Other long-term
liabilities and deferred credits and Accounts payable - Trade and
other (see Note A). These liabilities have been increased for the tax
effect of future revenue requirements.
(D) 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 $(51.0),
$2.2 and $(3.9) million, respectively, of which $1.5 and $(2.7) 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 had recorded $276.7 and $327.6 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 and 1993, management employees who left the Company 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 $13.0 million in
1992, of which $3.8 million was recognized as a reduction to expense and
$9.2 million was deferred. There was no reduction in the number of
management employees under the Force Management Plan in 1993.
In October 1991, NYNEX amended its nonmanagement pension plan to provide an
early retirement incentive, which increased the projected benefit
obligation by $113.4 million, of which $34.2 million was expensed
and $79.2 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 $143.0 million. As a result of planned work force
reductions, the Company recorded an additional $193.9 million of
postretirement benefit cost in 1993 accounted for as a curtailment. Total
costs of providing benefits for retired employees and their families were
$63.7 and $50.8 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 York 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, the Company implemented an accounting
plan as previously discussed with the regulatory commissions in each of
the states in which it operates for regulatory accounting and rate-making
treatment. The plan provided for: (1) immediate 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, (2) amortization of existing deferred pension costs
within a ten-year period and (3) discontinuance of additional deferrals
of Statement No. 106 and Statement No. 87 costs. Approval of the plan is
still pending in the State of Rhode Island.
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. The assets in the VEBA Trusts consist primarily of equity
securities and fixed income securities. In 1991 and 1992, NYNEX transferred
a portion of excess pensions assets, totalling $486 million, to health care
benefit accounts, within the pension plans and then contributed those
assets to to the VEBA Trusts. 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 $39.1 million ($25.0 million
after-tax). In subsequent years, the effect of Statement No. 112 is
not expected to result in periodic expense materially different from the
expense recognized under the prior method. The rate recovery of these
costs in the intrastate jurisdictions has not been determined.
(E) 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
Debentures . . . . . . . . 4 1/2% - 8 1/5% 1999-2005 $ 155.0 $ 525.0
6 1/8% - 7 7/8% 2006-2022 525.0 525.0
7 7/8% - 9% 2023-2031 700.0 800.0
Notes. . . . . . . . . . . 5 1/20% - 8 5/8% 1997-2003 800.0 375.0
Unamortized discount - net (18.8) (18.4)
2,161.2 2,206.6
Long-term capital lease
obligations. . . . . . . 2.8 3.9
Total long-term debt . . . $2,164.0 $2,210.5
In 1997 and 1998, $175 and $100 million, respectively, of the Notes will
mature.
The Company's Debentures, except for its Forty Year 7 7/8% Debentures, due
November 15, 2029, and its Forty Year 9% Debentures, due August 1, 2031,
are callable five years after the issue date, upon thirty days' notice, at
the option of the Company. The Company's Forty Year 7 7/8% Debentures, due
November 15, 2029, are repayable on November 15, 1996, in whole or in part,
at the option of the holder, and its Forty Year 9% Debentures, due August 1,
2031, are callable ten years after issue date upon thirty days' notice by
the Company.
At December 3l, l993, the Company had $500.0 million of unissued, unsecured
debt securities registered with the Securities and Exchange Commission.
(F) Fair Value of Financial Instruments
The estimated fair value of Long-term debt is based on quoted market prices.
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. . . . . . . . . . . . . . $2,161.2 $2,206.6
Fair value . . . . . . . . . . . . . . . . $2,252.7 $2,235.1
(G) Short-term Debt
Short-term debt and related weighted average interest rates are as follows:
Dollars in Millions Weighted average interest rates
December 31, December 31,
1993 1992 1991 1993 1992 1991
Advances from NYNEX. $159.4 $ - $ 94.9 3.37% 3.49% 4.77%
Current maturity of
Long-term debt . . - 175.0 200.0 - 8.63% 9.50%
Other. . . . . . . . (0.9) (0.1) 0.4 10.21% 11.05% 10.67%
Total short-term
debt . . . . . . . $158.5 $174.9 $295.3
On December 9, 1992, the Company issued $175 million of its Five Year
6 1/4% Notes, due December 15, 1997. On January 19, 1993, the net
proceeds of this issue were used for the redemption of the Company's
Thirty-Nine Year 8 5/8% Debentures, due September 1, 2009, outstanding
in the principal amount of $175 million, and classified as Short-term debt
at December 31, 1992.
Dollars in Millions 1993 1992 1991 1993# 1992# 1991#
Average amount of
advances from
NYNEX outstanding
during the year. . $127.7+ $ 21.8+ $183.3+ 3.26% 4.00% 6.27%
Maximum amount of
advances from
NYNEX payable at
any month end
during the year. . $311.7 $105.4 $351.1
# 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 $4.2, $0.9 and $11.5 million
in 1993, 1992 and 1991, respectively.
(H) Lease Commitments
The Company leases certain facilities and equipment used in its operations.
Rental expense was $68.5, $74.5 and $80.2 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 are as
follows:
Dollars in Millions
Year Operating Capital
1994 . . . . . . . . . . . . . . . . $ 56.6 $1.5
1995 . . . . . . . . . . . . . . . . 35.7 1.0
1996 . . . . . . . . . . . . . . . . 31.0 0.9
1997 . . . . . . . . . . . . . . . . 30.0 0.9
1998 . . . . . . . . . . . . . . . . 29.2 0.9
Thereafter . . . . . . . . . . . . . 307.8 1.4
Total minimum lease payments . . . . $490.3 6.6
Less: executory costs . . . . . . . 1.8
Net minimum lease payments . . . . . 4.8
Less: interest. . . . . . . . . . . 1.1
Present value of net minimum lease payments $3.7
(I) Transactions with American Telephone and Telegraph Company
In 1993, 1992 and 1991, American Telephone and Telegraph Company ("AT&T")
provided approximately 15%, 15% and 14%, 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.
(J) 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 $51.9, $48.5 and $63.2 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
Telephone Companies. In 1993, 1992 and 1991, the Company recorded charges
from Telesector Resources of $670.3, $590.3 and $619.9 million,
respectively, for data processing services and materials 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 $255.4, $240.3 and $221.1 million, respectively. In
addition, in 1993, approximately $140.8 million of restructuring
charges ($85.5 million after-tax) was allocated to the Company from
Telesector Resources, primarily related to its force reduction and
re-engineering programs. 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 $123.6, $120.6 and $32.4 million, respectively.
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 $42.1, $42.7 and
$41.8 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 increase and New York Telephone
experienced an offsetting interstate rate decrease. 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 made transition
payments of $55 million and $18 million, respectively, to New York
Telephone.
The Company has an agreement with NYNEX Information Resources Company
("Information Resources") 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. For
the years ended December 31, 1993, 1992 and 1991, licensing fees, included
in Other revenues, amounted to $156.7, $159.0 and $165.5 million,
respectively.
(K) Taxes Other Than Income Taxes
Taxes other than income taxes consist of:
Dollars in Millions 1993 1992 1991
Property . . . . . . . . . . . . . . . . $ 98.6 $ 78.9 $ 69.7
Gross receipts . . . . . . . . . . . . . 24.8 23.4 22.7
Other. . . . . . . . . . . . . . . . . . 4.2 3.6 4.0
Total . . . . . . . . . . . . . . . $127.6 $105.9 $ 96.4
(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,
Dollars in Millions 1993 1992 1991
Income tax payments. . . . . . . . . . . . . $329.2 $283.9 $262.3
Interest payments. . . . . . . . . . . . . . $179.0 $187.0 $179.8
Noncash item excluded from the Statement
of Cash Flows related to the transfer of
ownership of real estate from NYNEX to
the Company. . . . . . . . . . . . . . . . $ - $ 24.2 $ -
(M) 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. As of
December 31, 1993, the aggregate amount of such revenues that was
estimated to be subject to possible refund was approximately
$8.2 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.
(N) Litigation and Other Contingencies
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 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.
(O) Business Restructuring
In the fourth quarter of 1993, approximately $619 million of pretax business
restructuring charges was recorded, primarily related to efforts to
redesign operations and work force reductions. These charges
included: $395 million for severance and postretirement medical
costs for employees leaving the Company through 1996; $83 million for
re-engineering service delivery; and $141 million of restructuring charges
allocated to the Company from Telesector Resources. The restructuring
charges were included in the Income Statements as follows:
Maintenance and support - $78 million; Marketing and customer
services - $77 million; and Other expense - $464 million.
In the fourth quarter of 1991, approximately $193 million of pretax
organizational restructuring charges was recorded related to force
reduction programs. The restructuring charges were included in the Income
Statements as follows: Other revenues - $4 million; Maintenance and
support - $94 million; Marketing and customer services - $19 million;
Other expense - $75 million; and Other income (expense)-net - $1 million.
SUPPLEMENTARY INFORMATION
Quarterly Financial Information (Unaudited)
All adjustments (consisting only of normal recurring accruals) necessary for a
fair statement of income for each period have been included in the following
table.
Dollars in Millions
For the quarter ended,
March 31, June 30, September 30, December 31,
1993
Operating revenues . . . . $1,010.1 $1,016.5 $1,027.0 $1,016.6
Operating income . . . . . $ 275.9 $ 250.8 $ 240.5 $ (470.0)
Earnings before cumulative
effect of change in
accounting principle . . $ 140.2 $ 131.9 $ 114.7 $ (280.5)
Cumulative effect of change
in accounting for post
employment benefits, net
of taxes . . . . . . . . $ (25.3) $ - $ 0.3 $ -
Net income . . . . . . . . $ 114.9 $ 131.9 $ 115.0 $ (280.5)
1992
Operating revenues . . . . $ 957.2 $ 969.8 $1,001.2 $ 993.7
Operating income . . . . . $ 218.5 $ 226.6 $ 237.5 $ 230.1
Net income . . . . . . . . $ 122.7 $ 115.4 $ 121.8 $ 126.7
Results for the first quarter of 1993 include the adoption of Statement No. 112
(see Note (D) "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 effects of $619 million of pretax charges for business
restructuring, including re-engineering operations and force reductions,
which were recorded in operating expenses. The after-tax effect of these
charges was a reduction in net income of approximately $376 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 that would have required the filing of a
Current Report on Form 8-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Annual Report on Form 10-K.
Pages in This
Annual Report On
Form 10-K
(1) 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) Financial Statement Schedules. The following
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
VIII - Valuation and Qualifying Accounts.......... 54
Financial statement schedules other than those listed above have been
omitted because the required information is contained in the
financial statements and notes thereto or because such schedules
are not required or applicable.
(3) Exhibits. Exhibits identified in parentheses below, on file with
the Securities and Exchange Commission ("SEC"), are incorporated
herein by reference as exhibits hereto.
Exhibit
Number
(3)a Restated Certificate of Incorporation of the Company dated
August 19, 1988 (Exhibit No. (19)ii to the Registrant's filing
on Form SE dated May 2, 1989, File No. 1-1150).
(3)b By-Laws of the Company as amended April 18, 1989 (Exhibit
No. (3)b to the Registrant's filing on Form SE, dated May 2,
1989, File No. 1-1150).
(4) No instrument which defines the rights of holders of long-term
debt of the Company 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 England, Inc.
and New England Telephone and Telegraph Company dated as of
November 1, 1983 (Exhibit No. (10)(i)21 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 England Telephone and Telegraph Company dated as of
January 1, 1984 (Exhibit No. (10)(i)39 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)1 to Form 10-K
of NYNEX Corporation for 1984, File No. 1-8608).
(10)(ii)(B)1 Directory License Agreement between New England Telephone
and Telegraph Company and NYNEX Information Resources Company
dated as of January 1, 1991 (Exhibit No. (10)(ii)(B)4
to the Registrant's filing on Form SE, dated March 26, 1991,
File No. 1-1150).
10)(ii)(B)2 Service Agreement concerning provision by Telesector Resources
Group, Inc. to New England Telephone and Telegraph 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. 1-1150.
(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
November 15, 1993 and filed November 19, 1993, 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 England Telephone and Telegraph Company
By Gail Deegan
Gail Deegan, Vice President
and Chief Financial Officer
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:
Donald B. Reed* President and Chief Executive Officer
Principal Financial and
Accounting Officer:
Gail Deegan Vice President and Chief Financial Officer
A Majority of Directors:
Kenneth M. Curtis*
Gerhard M. Freche*
Thomas F. Gilbane, Jr.*
L. F. Hackett*
Ronald A. Homer*
Anna Faith Jones*
Jane E. Newman* *By Gail Deegan
Paul C. O'Brien* (Gail Deegan, as attorney-in-fact,
Donald B. Reed* and on her own behalf as Principal
Ivan Seidenberg* Financial and Accounting Officer)
Ira Stepanian*
Kimon S. Zachos* March 25, 1994
Schedule V - Page 1 of 4
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE V - TELEPHONE PLANT
(Dollars in Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance Other Balance
at Additions Retirements Changes at
12/31/92 (Note a) (Note b) (Note c) 12/31/93
Land and Land Improvements. . . . . . . . 36.2 .2 - (.1) 36.3
Buildings . . . . . . . . . . . . . . . . 749.5 24.4 2.9 - 771.0
Furniture and Other Equipment . . . . . . 72.4 6.7 14.5 - 64.6
Telephone Plant and Equipment
Central office Equipment. . . . . . . . 4,598.6 397.6(f) 252.8 4.7 4,748.1
Cable and Wiring. . . . . . . . . . . . 3,548.6 242.8(g) 41.1 .1 3,750.4
Conduit and Poles . . . . . . . . . . . 1,239.9 72.1 6.4 - 1,305.6
Station and Terminal Equipment. . . . . 1,019.8 36.6 623.0 4.3 437.7
Other . . . . . . . . . . . . . . . . . 282.8 43.4 32.2 .1 294.1
Plant Under Construction. . . . . . . . . 167.4 581.3 575.4(d) (2.9) 170.4
Other . . . . . . . . . . . . . . . . . . 15.1 - 2.2 - 12.9
TOTAL PLANT . . . . . . . . . . . . . . . 11,730.3 1,405.1(e) 1,550.5 6.2 11,591.1
See page 4 of 4 for description of Notes.
Schedule V - Page 2 of 4
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE V - TELEPHONE PLANT
(Dollars in Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance Other Balance
at Additions Retirements Changes at
12/31/91 (Note a) (Note b) (Note c) 12/31/92
Land and Land Improvements. . . . . . . . 33.1 3.1 - - 36.2
Buildings . . . . . . . . . . . . . . . . 689.0 65.4 4.9 - 749.5
Furniture and Other Equipment . . . . . . 70.8 6.7 4.4 (.7) 72.4
Telephone Plant and Equipment
Central Office Equipment. . . . . . . . 4,409.5 373.3(f) 183.5 (.7) 4,598.6
Cable and Wiring. . . . . . . . . . . . 3,380.9 219.8(g) 51.9 (.2) 3,548.6
Conduit and Poles . . . . . . . . . . . 1,191.1 58.4 9.6 - 1,239.9
Station and Terminal Equipment. . . . . 999.4 28.3 12.7 4.8 1,019.8
Other . . . . . . . . . . . . . . . . . 283.9 42.2 34.0 (9.3) 282.8
Plant Under Construction. . . . . . . . . 133.9 576.3 558.9(d) 16.1 167.4
Other . . . . . . . . . . . . . . . . . . 20.5 - 5.4 - 15.1
TOTAL PLANT . . . . . . . . . . . . . . . 11,212.1 1,373.5(e) 865.3 10.0 11,730.3
See page 4 of 4 for description of Notes.
Schedule V - Page 3 of 4
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE V - TELEPHONE PLANT
(Dollars in Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance Other Balance
at Additions Retirements Changes at
12/31/90 (Note a) (Note b) (Note c) 12/31/91
Land and Land Improvements. . . . . . . . 32.1 1.0 - - 33.1
Buildings . . . . . . . . . . . . . . . . 644.2 47.0 2.2 - 689.0
Furniture and Other Equipment . . . . . . 64.3 9.8 3.6 .3 70.8
Telephone Plant and Equipment
Central Office Equipment. . . . . . . . 4,235.9 377.6(f) 209.5 5.5 4,409.5
Cable and Wiring. . . . . . . . . . . . 3,207.4 230.8(g) 57.3 - 3,380.9
Conduit and Poles . . . . . . . . . . . 1,138.1 65.1 12.1 - 1,191.1
Station and Terminal Equipment. . . . . 982.1 27.9 13.2 2.6 999.4
Other . . . . . . . . . . . . . . . . . 314.7 21.6 52.4 - 283.9
Plant Under Construction. . . . . . . . . 157.3 540.4 563.8(d) - 133.9
Other . . . . . . . . . . . . . . . . . . 42.4 - 21.9 - 20.5
TOTAL PLANT . . . . . . . . . . . . . . . 10,818.5 1,321.2 (e) 936.0 8.4 11,212.1
See page 4 of 4 for description of Notes.
Page 4 of 4
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE V - TELEPHONE PLANT
FOOTNOTES
(a) These additions, other than additions to Land and Buildings, include material purchased from NYNEX
affiliates. Additions shown also include allowance for funds used during construction.
(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 material and supplies; (2) reclassifications between the Telephone Plant classifications listed and
(3) prior period billing adjustments.
(d) Principally Central Office Equipment completed and transferred to plant in service accounts as
"Additions" in Column C.
(e) Capital Leases and the equity component of allowance for funds used during construction are excluded from
capital expenditures in the Statements of Cash Flows.
(f) Plant additions are principally the result of the Company's upgrading of Central Office Equipment.
(g) Primarily due to upgrading of outside plant to meet customer demand.
Schedule VI - Page 1 of 4
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIACCUMULATED 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 Additions Retirements Changes at
12/31/92 (Note a) (Note b) 12/31/93
Buildings . . . . . . . . . . . . . . . . 214.2 20.1 9.1 - 225.2
Furniture and Other Equipment . . . . . . 25.9 5.6 15.8 - 15.7
Telephone Plant and Equipment
Central Office Equipment. . . . . . . . 1,952.3 423.4 266.3 - 2,109.4
Cable and Wiring. . . . . . . . . . . . 1,522.2 284.8 54.3 - 1,752.7
Conduit and Poles . . . . . . . . . . . 409.3 50.4 14.7 - 445.0
Station and Terminal Equipment. . . . . 872.5 29.1 623.3 - 278.3
Other . . . . . . . . . . . . . . . . . 191.3 18.4 31.5 - 178.2
Other . . . . . . . . . . . . . . . . . . 10.9 .9 2.0 (0.4) 9.4
TOTAL ACCUMULATED DEPRECIATION. . . . . . 5,198.6 832.7 1,017.0 (0.4) 5,013.9
See page 4 of 4 for description of Notes.
Schedule VI - Page 2 of 4
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIACCUMULATED 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 Additions Retirements Changes at
12/31/91 (Note a) (Note b) 12/31/92
Buildings . . . . . . . . . . . . . . . . 204.4 18.1 8.8 .5 214.2
Furniture and Other Equipment . . . . . . 22.1 6.1 2.3 - 25.9
Telephone Plant and Equipment
Central Office Equipment. . . . . . . . 1,680.1 465.0 192.8 - 1,952.3
Cable and Wiring. . . . . . . . . . . . 1,350.3 231.7 59.8 - 1,522.2
Conduit and Poles . . . . . . . . . . . 377.6 47.7 16.0 - 409.3
Station and Terminal Equipment. . . . . 851.4 38.2 10.7 (6.4) 872.5
Other . . . . . . . . . . . . . . . . . 207.9 19.8 31.9 (4.5) 191.3
Other . . . . . . . . . . . . . . . . . . 15.1 1.3 5.4 (.1) 10.9
TOTAL ACCUMULATED DEPRECIATION. . . . . . 4,708.9 827.9 327.7 (10.5) 5,198.6
See page 4 of 4 for description of Notes.
Schedule VI - Page 3 of 4
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIACCUMULATED 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 Additions Retirements Changes at
12/31/90 (Note a) (Note b) 12/31/91
Buildings . . . . . . . . . . . . . . . . 195.3 17.6 8.5 - 204.4
Furniture and Other Equipment . . . . . . 18.6 5.8 2.3 - 22.1
Telephone Plant and Equipment
Central Office Equipment. . . . . . . . 1,477.6 415.7 213.3 0.1 1,680.1
Cable and Wiring. . . . . . . . . . . . 1,181.2 237.8 68.7 - 1,350.3
Conduit and Poles . . . . . . . . . . . 348.0 48.0 18.4 - 377.6
Station and Terminal Equipment. . . . . 822.1 29.7 6.8 6.4 851.4
Other . . . . . . . . . . . . . . . . . 240.9 16.4 49.4 - 207.9
Other . . . . . . . . . . . . . . . . . . 31.2 4.3 20.4 - 15.1
TOTAL ACCUMULATED DEPRECIATION. . . . . . 4,314.9 775.3 387.8 6.5 4,708.9
See page 4 of 4 for description of Notes.
Page 4 of 4
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIACCUMULATED 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 FCC.
(b) For 1992 and 1991, Other Changes include adjustments related to inside wire and reserve deficiency
amortization. In addition, 1992 includes an adjustment related to the recognition of
depreciation expense previously deferred in accordance with a prior regulatory agreement
with the State of New Hampshire.
Schedule VIII
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY
FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
Balance at Charged to Costs Charged to Balance at
Beginning of and Expenses Other Accounts Deductions End of
Description Period Period
Allowance for Uncollectibles
Year 1993 . . . . . . . . . . . 40.6 51.3 54.4 (a) 94.6 (b) 51.7
Year 1992 . . . . . . . . . . . 24.4 52.0 63.3 (a) 99.1 (b) 40.6
Year 1991 . . . . . . . . . . . 19.0 57.4 60.5 (a) 112.5 (b) 24.4
Restructuring
Year 1993 . . . . . . . . . . . 33.2 425.5 - 31.0 427.7
Year 1992 . . . . . . . . . . . 106.7 - - 73.5 33.2
Year 1991 . . . . . . . . . . . 12.6 153.6 4.4 (c) 63.9 106.7
(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.