SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1993
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from
Commission File Number 1-9157
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut 06-1157778
(State or other (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)
227 Church Street, New Haven, CT 06510
(Address of principal (Zip Code)
executive offices)
203) 771-5200
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common stock-par value $1 New York and Pacific Stock
per share Exchanges
Rights to purchase common New York and Pacific Stock
stock Exchanges
(Currently traded with
common stock)
Securities registered pursuant to Section 12(g) of the Act: None
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. x
At February 28, 1994, 64,001,753 common shares were outstanding.
At February 28, 1994, the aggregate market value of the voting stock
held by non-affiliates was $2,022,514,890.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Annual Report to Stockholders for
the fiscal year ended December 31, 1993 (Part II)
(2) Portions of the registrant's definitive Proxy Statement dated
March 28, 1994 issued in connection with the 1994 Annual Meeting
of Stockholders (Part III)
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TABLE OF CONTENTS
Item Page
1. Business 3
2. Properties 15
3. Legal Proceedings 16
4. Submission of Matters to a Vote of Security
Holders 16
PART II
5. Market for the Registrant's Common Stock and
Related Shareholder Matters 18
6. Selected Financial Data 18
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
8. Financial Statements and Supplementary Data 18
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial Owners and
Management 18
13. Certain Relationships and Related Transactions 18
14. Exhibits, Financial Statements Schedules, and
Reports on Form 8-K 19
See page 17 for "Executive Officers of the Registrant."
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PART I
Item 1. Business
GENERAL
Southern New England Telecommunications Corporation (the
"Corporation") was incorporated in 1986 under the laws of the
State of Connecticut and has its principal executive offices
at 227 Church Street, New Haven, Connecticut 06510 (telephone
number (203) 771-5200). The Corporation is a holding company
engaged through its subsidiaries in operations principally in
the State of Connecticut: The Southern New England Telephone
Company (providing for the most part regulated
telecommunications services and directory publishing
services); SNET America, Inc. (providing interstate and
international long distance services to Connecticut
customers); SNET Cellular, Inc., SNET MobileCom, Inc. and SNET
Paging, Inc. (providing personal communications services);
SNET Diversified Group, Inc. (primarily engaged in the leasing
of communications equipment to residential and business
customers; and providing other telecommunications services not
subject to regulation); and SNET Real Estate, Inc. (engaging
in leasing commercial real estate). The Corporation furnishes
financial and strategic planning, and stockholder relation
functions on its own behalf and on behalf of its subsidiaries.
THE SOUTHERN NEW ENGLAND TELEPHONE COMPANY
The Southern New England Telephone Company ("Telephone
Company"), a local exchange carrier ("LEC"), was incorporated
in 1882 under the laws of the State of Connecticut and is
engaged in the provision of telecommunications services in the
State of Connecticut, most of which are subject to rate
regulation. These telecommunications services include (i)
local and intrastate toll services, (ii) exchange access
service, which links customers' premises equipment ("CPE") to
the facilities of other carriers, and (iii) other services
such as digital transmission of data and transmission of radio
and television programs, packet switched data network and
private line services. Through its directory publishing
operations, the Telephone Company publishes and distributes
telephone directories throughout Connecticut and certain
adjacent communities.
In 1993, approximately 75% of the Corporation's consolidated
revenues and sales were derived from the Telephone Company's
rate regulated telecommunication services. The remainder were
derived principally from the Corporation's other subsidiaries,
directory publishing operations, and activities associated
with the provision of facilities and non-access services to
interexchange carriers. About 71% of the operating revenues
from rate regulated services were attributable to intrastate
operations, with the remainder attributable to interstate
access services.
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State Regulatory Matters
The Telephone Company, in providing telecommunications
services in the State of Connecticut, is subject to regulation
by the Connecticut Department of Public Utility Control
("DPUC"), which has jurisdiction with respect to intrastate
rates and services, and other matters such as the approval of
accounting procedures, the issuance of securities and the
setting of depreciation rates on telephone plant utilized in
intrastate operations. The DPUC has adopted for intrastate
ratemaking purposes accounting and cost allocation rules,
similar to those adopted by the Federal Communications
Commission ("FCC"), for the separation of costs of regulated
from non-regulated activities.
State Regulation
On May 24, 1993, the DPUC issued a final decision on the
capital recovery portion of the November 1992 rate request
submitted by the Telephone Company ("Rate Request"). The
Telephone Company was granted an increase in the composite
intrastate depreciation rate from 5.7% to approximately 7.3%.
This equated to an increase in Telephone Company revenue
requirement of approximately $40 million annually. The new
depreciation rates were implemented effective July 1, 1993.
On July 7, 1993, the DPUC issued a final decision ("Final
Decision-I") in its three-phase review of the current and
future telecommunications requirements of Connecticut and a
final decision ("Final Decision-II") in the remainder of the
Rate Request docket. The Final Decision-I addressed the
issues of (i) competition [see Item 1., "Competition"]; (ii)
infrastructure modernization; (iii) rate design and pricing
principles; and (iv) regulatory and legislative frameworks.
With respect to "rate design and pricing principles," the DPUC
stated that the pricing of all services must be more in line
with the costs of providing these services. Historically, to
provide universal service, basic residential services have
been subsidized by other tariffed services, primarily message
toll and business services. In regard to the regulatory and
legislative framework, the DPUC endorsed the concept of
incentive-based regulation as a potentially more effective and
efficient regulatory system than the present rate of return
regulation.
The Final Decision-II authorized a rate of return on the
Telephone Company's common equity ("ROE") of 11.65% and an
increase in intrastate revenue of $37.5 million effective July
7, 1993. The Telephone Company was authorized previously to
earn a 12.75% ROE. On August 13, 1993, the DPUC granted the
Telephone Company an additional revenue requirement of $1.9
million to the $37.5 million previously awarded based on a
review of certain areas requested by the Telephone Company.
The total increase in intrastate revenue of $39.4 million is
virtually offset by the approximate $40 million increase in
capital recovery. In addition, the Final Decision-II
addressed areas of infrastructure modernization and incentive
regulation. Under infrastructure modernization, the Final
Decision-II supported, but did not mandate, implementation of
an infrastructure modernization program.
On December 3, 1993, the Telephone Company sought approval
from the DPUC to allow the Telephone Company to develop and
provide electronic information services ("EIS"), including
electronic publishing services. Since 1984, dramatic industry
changes in technology, regulation and competition have
eliminated any need for such a restriction. For the last
three years, AT&T
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and the Regional Bell Operating Companies ("RBOCs")
have been permitted to enter the electronic
publishing and information services markets. For the same
reasons that the U.S. District Court lifted the ban on
information services and electronic publishing services for
AT&T and the RBOCs, the Company believes that the DPUC should
lift the ban on the Telephone Company offering of EIS. A
hearing in this matter is expected in the first half of 1994.
State legislation, signed into law effective July 1, 1993,
authorized the formation of a task force to study
Connecticut's telecommunications infrastructure and policies.
Draft legislation, based on the recommendations the task force
submitted in February 1994, provides a framework to move
forward with a new regulatory model for Connecticut. This
model would move telecommunications toward a fully competitive
marketplace and provide alternative forms of regulation.
Overall, the goals of the draft legislation are to: (i) ensure
high-quality and affordable universal telecommunications
service for Connecticut customers; (ii) promote effective
competition and the development of an advanced infrastructure;
and (iii) enhance the efficiency of government, educational,
and health care facilities through telecommunications.
Intrastate Rates
The Final Decision-II established rates designed to achieve
the increase in intrastate revenue of $39.4 million. The
following major provisions were included in the Final
Decision-II: (i) reductions in intrastate toll rates
including several toll discount plans; (ii) an increase in
basic local exchange rates for residential and business
customers to be phased in over a two-year period; (iii) a
reduction in the pricing ratio gap between business and
residential basic local service over a two-year period: (iv) a
$7.00 per month Lifeline credit for low-income residential
customer; (v) an increase in local calling service areas for
most customers with none being reduced: (vi) an increase in
the local coin telephone rate from $.10 to $.25; (vii) an
increase in the directory assistance charge from $.24 to $.40
and a decrease in the number of "free" directory assistance
calls; and (viii) a late payment charge of 1% monthly
effective January 1, 1994. This rate award was implemented on
July 9, 1993 through a combination of increases for coin
telephone calls, directory assistance calls along with an
approximate 15% interim surcharge on the remaining products
and services with authorized increases including local
exchange. On July 22, 1993, the DPUC issued a supplemental
decision reducing the interim surcharge implemented on July 9,
1993 to approximately 8%. The Telephone Company issued
credits during August of 1993 to customers who were charged at
the higher rate. The 8% surcharge was in effect until October
9, 1993, when the remaining new rates became effective,
including an average increase in residential basic local
exchange rates of $.32 a month and a slight decrease in
average monthly business rates. In addition, residential basic
local exchange rates will increase $.31 a month and business
rates will decrease an average of $.84 a month beginning in
July 1994. At December 31, 1993, the Telephone Company's
intrastate ROE was below the authorized 11.65%.
Federal Regulatory Matters
The Telephone Company is subject to the jurisdiction of the
FCC with respect to interstate rates, services, video dial
tone, access charges and other matters, including the
prescription of a uniform system of accounts and the setting
of depreciation rates on plant utilized in interstate
operations. The FCC also prescribes the principles and
procedures (referred to as "separations procedures") used to
separate investments, revenues, expenses, taxes and reserves
between the interstate and
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intrastate jurisdictions. In addition, the FCC has adopted
accounting and cost allocation rules for the separation of
costs of regulated from non-regulated telecommunications
services for interstate ratemaking purposes.
ratemaking purposes.
Federal Regulation
On July 1, 1993, the FCC, in connection with its normal
triennial review of depreciation, granted the Telephone
Company new depreciation rates retroactive to January 1, 1993.
The new rates increased depreciation expense by approximately
$11 million in 1993. Under current price cap regulation,
however, any changes in depreciation rates cannot be reflected
in interstate access rates (see "Interstate Rates," below).
On January 19, 1994, the Telephone Company filed suit in the
U.S. District Court in New Haven claiming that the Cable
Communications Policy Act of 1984 ("Cable Act") violates the
Telephone Company's First and Fifth Amendment rights. The
Cable Act limits the in-territory provision of cable
programming by LECs such as the Telephone Company. The Cable
Act currently prohibits LECs from owning more than 5% of any
company that provides cable programming in their local service
area.
Since January 1, 1988, the Telephone Company has utilized an
FCC approved, company specific Cost Allocation Manual ("CAM"),
which apportions costs between regulated and non-regulated
activities, and describes transactions between the Telephone
Company and its affiliates. In addition, the FCC requires
larger LECs, including the Telephone Company, to undergo an
annual independent audit to determine whether the LEC is in
compliance with its approved CAM. The Telephone Company has
received audit reports for 1988 through 1992 indicating it is
in compliance with its CAM, and is currently undergoing an
audit for the year 1993.
Interstate Rates
The Telephone Company elected price cap regulation effective
July 1, 1991. Under price cap regulation, which replaces
traditional rate of return regulation, prices are no longer
tied directly to the costs of providing service, but instead
are capped by a formula that includes adjustments for
inflation, assumed productivity increases, and "exogenous"
factors, such as changes in accounting principles, in FCC cost
separation rules, and taxes. The treatment as exogenous of
various factors affecting a company's costs is subject to FCC
interpretation.
By electing price cap regulation, the Telephone Company is
provided the opportunity to earn a higher interstate rate of
return than that allowed under traditional rate of return
regulation. However, price cap regulation presents additional
risks since it establishes limits by which the Telephone
Company is able to increase rates, even if the Telephone
Company's interstate rate of return falls below the authorized
rate of return. The Telephone Company is allowed to annually
elect a productivity offset factor of 3.3% or 4.3%. Since
price cap regulation was elected in July 1991, the Telephone
Company has selected the 3.3% productivity factor and does not
anticipate changing its election for the next tariff period.
Choosing the 3.3% factor, the Telephone Company is allowed to
earn up to a 12.25% interstate rate of return annually.
Earnings between 12.25% and 16.25% would be shared equally
with customers, and earnings over 16.25% would be returned to
customers. Any amounts returned to customers would be in the
form of prospective rate reductions. In addition, the
Telephone Company's ability to achieve or exceed its
interstate rate of
6
return will depend, in part, on its ability to meet or exceed
the assumed productivity increase. As of December 31, 1993,
the Telephone Company's interstate rate of return was below
the 12.25% threshold.
The Telephone Company filed tariffs under price cap regulation
on April 2, 1993 which took effect on July 2, 1993, subject to
the FCC's further investigation. The Telephone Company will
file its 1994 annual interstate access tariff filing on April
1, 1994 to become effective July 1, 1994. The filing will
adjust interstate access rates for an experienced rate of
inflation, the FCC's productivity target, and exogenous cost
changes, if any. In January 1994, the FCC began its scheduled
inquiry into the price cap plan for LECs, to determine whether
to revise the current plan to improve its performance in
meeting the FCC's objectives. Results of this inquiry are
expected in late 1994 or early 1995.
In an order released on January 9, 1990, which did not
directly apply to the Telephone Company, the FCC established a
precedent whereby a customer has a right to recover damages if
they can establish that a LEC exceeded its authorized rate of
return. The FCC, in a March 1993 order responding to a
complaint filed by Sprint Communications Company ("Sprint")
alleging overearnings in switched traffic sensitive access
charges, affirmed the Telephone Company's right to offset
overearnings in one access category with underearnings in
another category, and held that the Telephone Company had no
liability. Sprint has appealed the order to the U.S. Court of
Appeals.
Regulated Operations
The network access lines provided by the Telephone Company to
customers' premises can be interconnected with the access
lines of other telephone companies in the United States and
with telephone systems in most other countries. The following
table sets forth, for the Telephone Company, the number of
network access lines in service at the end of each year and
the number of intrastate toll and intrastate WATS messages
handled for each year:
1993 1992 1991 1990 1989
Network Access Lines
in Service 1,964 1,937 1,922 1,904 1,875
(in thousands)
Intrastate Toll and
WATS Messages 524 526 516 521 523
(in millions
The Telephone Company has been making, and expects to continue
to make, significant capital expenditures to meet the demand
for regulated telecommunications services and to further
improve such services (see discussion of I-SNET in
"Competition"). The total gross investment in telephone plant
increased from approximately $3.4 billion at December 31, 1988
to approximately $4.0 billion at December 31, 1993, after
giving effect to retirements, but before deducting accumulated
depreciation at either date. Since 1989, cash expended for
capital additions was as follows:
7
Dollars in millions 1993 1992 1991 1990 1989
Cash Expended for
Capital Additions $231.6 $269.1 $296.3 $370.0 $338.8
In 1993, the Telephone Company funded its cash expenditures
for capital additions entirely through cash flows from
operations. In 1994, capital additions are expected to be
approximately $230 million. The Telephone Company expects to
fund substantially all of its 1994 capital additions through
cash flows from operations.
The Telephone Company currently accounts for the economic
effects of regulation in accordance with the provisions of
SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation." In the event recoverability of operating costs
through rates becomes unlikely or uncertain, whether resulting
from competitive effects or specific regulatory actions, SFAS
No. 71 would no longer apply. The financial impact of an
accounting change, should the Telephone Company no longer
qualify for the provisions of SFAS No. 71, would be material.
Competition
The Telephone Company's regulated operations are subject to
competition from companies, carriers and competitive access
providers which construct and
operate their own communications systems and networks for the
provision of services to others. At present, regulation
continues to provide for a system of subsidies which prevent
the Telephone Company's prices from moving toward the cost of
providing the service. The Telephone Company's ability to
compete depends to some degree on the action of regulators
regarding the pricing of local, toll and network access
services, and on the Telephone Company's continuing ability to
manage its costs effectively.
In the Final Decision-I, the DPUC concluded that currently
authorized intrastate competition has not adversely affected
either service availability or cost, and that a broadened
scope of intrastate competitive participation was prudent and
warranted. Accordingly, the DPUC found that 10XXX calling and
resale competition were in the public interest and should be
allowed beginning July 7, 1993 in accordance with recently
enacted State legislation. Using 10XXX calling, customers can
use any certified carrier for interexchange calling within
Connecticut by dialing 1, 0, and XXX (a three-digit carrier
code). Terms and conditions associated with the provision of
specialized/ancillary services, including monitoring,
reporting and compensation, would no longer apply.
Since the issuance of Final Decision-I, several interexchange
carriers have filed applications with and received approval
from the DPUC to offer 10XXX intrastate long-distance service.
In addition, a number of resellers have filed for initial
certificates of public convenience and necessity. The
Telephone Company anticipates additional applications will be
filed. The introduction of competition to intrastate long-
distance service and the Telephone Company's reduction in
intrastate toll rates will further erode the Telephone
Company's intrastate toll revenues. Pursuant to Final
Decision-I, the Telephone Company filed on October 1, 1993 its
proposed implementation plan for equal access based on
customer preference for dual primary interexchange carrier
capability (ability to choose one carrier for interstate
calling and either the same or a different carrier for
intrastate long distance calling). The Telephone Company's position
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regarding cost recovery remains that interexchange carriers
should pay for the direct costs of implementing equal access.
Regarding competition for local exchange services, in January
1994, MCI announced plans to construct and operate local
communication networks in large markets throughout the United
States, including parts of Connecticut in which the Telephone
Company operates. These networks would allow MCI to bypass
the Telephone Company's facilities and provide services
directly to customers. Pending DPUC approval, these services
are expected to be available in Connecticut within two to
three years. Also in January 1994, the Telephone Company
announced that it had reached an agreement to lease part of
its existing digital fiber optic ring network in the greater
Hartford metropolitan area to MFS Communications, Inc ("MFS").
This agreement allows MFS to provide services to large
business customers on an intraexchange basis and eliminates
the need for MFS to construct their own facilities. Teleport
Communications Group, another competitive access provider,
recently announced plans to provide local telephone links
for interstate services to businesses and long distance companies
in the Hartford area.
In an order adopted in September 1992, the FCC required
certain LECs, including the Telephone Company, to offer
expanded special access interconnection to all interested
parties, permitting competitors to terminate their own
transmission facilities in LEC central offices. The Telephone
Company filed tariffs which were implemented in June 1993,
subject to investigation, and was granted some additional
pricing flexibility in light of this increased competition.
In August 1993, the FCC adopted rules, which largely mirror
the requirements adopted in September 1992 for special access
interconnection, requiring certain LECs, including the
Telephone Company, to offer expanded interstate switched
access interconnection. The Telephone Company tariffs which
implemented changes associated with switched access
interconnection became effective in February 1994. The
Telephone Company has received applications from competitive
access providers for special access interconnection in
selected central offices of the Telephone Company. The
Telephone Company anticipates additional applications for both
special and switched access interconnection will be filed. A
number of LECs, including the Telephone Company, have appealed
the FCC's orders to offer special and switched access
interconnection. Oral arguments on the appeal of the special
access order were heard in February 1994 with a decision
expected later in 1994. The appeal of the switched access
order has been delayed pending a decision on the special
access appeal.
The Telephone Company, expecting to see continued movement
toward a fully competitive telecommunications marketplace,
both on an interexchange and intraexchange basis, has taken
several steps to effectively position itself. On January 13,
1994, the Telephone Company announced its intention to invest
$4.5 billion over the next 15 years to build a statewide
information superhighway ("I-SNET"). I-SNET will be an
interactive multimedia network capable of delivering voice,
video and a full range of information and interactive
services. The Telephone Company expects I-SNET will reach
approximately 500,000 residences and businesses thru 1997. In
addition, the Telephone Company has reduced its intrastate
toll rates beginning in July 1993 [see Item 1., "Intrastate
Rates"], is committed to reducing its cost structure, remains
focused on providing quality customer service and has
introduced several new services as mentioned below.
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New Services
On March 31, 1993, the Telephone Company together with Sprint
announced the introduction of 800 CustomLink Service (service
mark). This service allows the Telephone Company to offer
it business customers an 800 service enabling
them to receive calls from anywhere in the United States
as well as international locations.
In 1993, the Telephone Company launched the next generation of
CentraLink products, CentraLink (service mark) 3100. CentraLink
3100 is a central-office based product that allows flexibility
to add additional phone lines, locations and features to adapt
to customers' changing telecommunications requirements.
In 1993, the Corporation established SNET America, Inc. ("SNET
America") under the laws of Connecticut. SNET America offers
a complete range of interstate and international long distance
services to Connecticut customers, including calling card and
800 service, along with volume discount plans such as Distance
Plus (service mark). Distance Plus offers graduated discounts
where the discount increases as the usage increases. SNET America
began offering service in the third quarter of 1993. Under
a proposed marketing arrangement between the Telephone Company
and SNET America filed with the DPUC on January 7, 1994, the
Telephone Company anticipates selling SNET America's
interstate and international products, and SNET America will
sell the Telephone Company's intrastate products. This
arrangement will enable the Corporation to satisfy its
customers complete long distance calling needs with a single
point of contact.
On October 21, 1993, the FCC approved the Telephone Company's
application to construct, operate, own, and maintain
facilities to conduct a technology and marketing trial for use
in providing video dial tone service in West Hartford,
Connecticut. With construction of the fiber optic and coaxial
facilities completed, the trial began in early 1994. The
trial, offered to approximately 500 customers, provides
hundreds of choices of videos. On December 15, 1993, the
Telephone Company filed a request with the FCC for an
expansion of this trial. The proposal seeks to provide this
service to an additional 20,000 customers in other areas of
Connecticut.
On December 22, 1993, the Telephone Company filed with the
DPUC its application to conduct a market trial for Digital
Enhancer, an Integrated Services Digital Network offering.
Digital Enhancer provides customers with integrated voice and
data communications capabilities on a single telephone access
line. Digital Enhancer will be offered from specially
equipped digital central offices and will require customer-
provided terminal equipment to access and use the service.
This service will enable customers to reduce their
telecommunications costs by reducing wiring requirements,
increase productivity through increased data transmission
speed, and improve quality of service through reduced data
error rates.
Directory Publishing
The Telephone Company's directory publishing operation remains
sensitive to the Connecticut economy. The continuing decline
in new business formations and the acceleration of business
failures within the State will further suppress advertising
growth potential in the near term.
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The Connecticut advertising marketplace continues to undergo
major structural changes and is becoming increasingly more
fragmented and competitive. Directory publishing faces
potential increased competition from non-traditional services
such as desktop publishing, electronic shopping services and
the expansion of cable television. Furthermore, additional
competition may arise from the regional BOCs' ability to now
offer information services. The Telephone Company's directory
publishing operation will continue to strategically widen its
business focus and respond to emerging market opportunities to
position itself effectively against this potential competition
[see discussion of EIS in Item 1., "State Regulation"].
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PERSONAL COMMUNICATIONS SERVICES
The Corporation provides personal communications services,
which consist of wholesale and retail cellular telephone
communications and paging services, through its subsidiaries
SNET Cellular, Inc. ("Cellular"), SNET MobileCom, Inc.
("MobileCom") and SNET Paging, Inc. ("Paging").
SNET Cellular, Inc.
Cellular was incorporated in 1985 under the laws of the State
of Connecticut. In 1990, Cellular formed the Springwich
Cellular Limited Partnership ("Springwich") with NYNEX Mobile
Communications Company ("NYNEX Mobile"), The Granby Telephone
and Telegraph Company of Massachusetts, Inc., The Woodbury
Telephone Company and a fifth partner (New York SMSA Limited
Partnership, of which NYNEX Mobile is the managing partner).
Springwich is authorized to provide wholesale cellular radio
telecommunications services in the Hartford, New Haven, New
London, and Fairfield, Connecticut New England County
Metropolitan Areas ("NECMAs") and in the Springfield,
Massachusetts NECMA. Springwich also is licensed to provide
cellular wholesale service in three Rural Service Areas
("RSA"), Windham and Litchfield Counties in Connecticut and
Franklin County in Massachusetts. The combined population of
this region is approximately 4 million. Springwich is
currently subject to FCC, DPUC and the Massachusetts
Department of Public Utility jurisdictions.
In January of 1993, Cellular incorporated SNET Springwich,
Inc. ("SSI"), a wholly owned subsidiary of Cellular. Cellular
transferred a 32% general partnership interest in Springwich
to SSI in both 1993 and 1994 and anticipates transferring the
remaining 18.5% partnership interest in Springwich to SSI in
1995.
Springwich has "roamer agreements" with other cellular
carriers which allow customers of Springwich access to
cellular markets throughout the United States and Canada and
allow customers of other carriers to use Springwich's network.
On July 31, 1990, Springwich petitioned the DPUC to initiate a
proceeding to address whether the conditions necessary to
forebear from rate regulation of cellular mobile telephone
service in Connecticut NECMAs were present, as required of the
DPUC under Connecticut legislation enacted in 1985.
Subsequent to the petition, the DPUC initiated a proceeding
(Docket No. 90-08-03) to address this issue. In 1991, the
DPUC issued a decision denying Springwich's petition for
forbearance citing that the record did not indicate that
forbearance would enhance or expedite the evolution of the
cellular marketplace. On December 16, 1992, the DPUC reopened
Docket No. 90-08-03 to reconsider its 1991 decision. The DPUC
closed this docket on December 15, 1993 without a decision.
Pursuant to a recent federal law, state regulation of
cellular activities is pre-empted unless the FCC approves a
petition by the state regulatory agency to continue its
regulatory scheme. Such a filing, if one is to be made, must
be done by August 10, 1994.,
In February 1993, Cellular announced that it had joined with
other major mobile communications companies to form MobiLink
(service mark) Partners. In July 1993, the MobiLink Partners
set common standards for cellular service nationwide under the
new brand name Mobilink (service mark). Mobilink includes a
number of innovations designed to make cellular service easier
to use and accessible to more cellular phone users across much
of the United States and Canada.
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On October 22, 1993, the FCC issued a report and order
allocating radio spectrum to be licensed for use in providing
personal communications services ("PCS"). These bandwidths of
spectrum could provide new services such as advanced voice
paging, two-way acknowledgment paging, data messaging,
electronic mail and facsimile transmissions. Under the order,
separate bandwidths would be auctioned to potential PCS
providers in each geographic area of the United States. The
FCC is seeking comments on the design of the auction process,
financing alternatives for special interest licenses, and the
classes of licenses and permits that should be included in the
competitive bidding process. The auction of these bandwidths
of spectrum will allow additional competitors to enter the
market place Springwich serves.
In 1992, Bell Atlantic Corporation ("Bell Atlantic") completed
the acquisition of Metro Mobile CTS, Inc., a non-wireline
provider of cellular services that operates in Springwich
markets. Bell Atlantic, which operates under the name Bell
Atlantic Mobile, has substantial capital, technological and
marketing resources. Cellular has made and will continue to
make significant investments in network expansion and
enhancements in order to effectively compete.
SNET MobileCom, Inc.
MobileCom was incorporated in 1985 under the laws of the State
of Connecticut. MobileCom purchases wholesale cellular
communications service from Springwich and resells cellular
communications service to the retail market under the
servicemark LINX in Springwich's serving area.
MobileCom markets its services through its internal sales
force and through agreements with third-party distributors.
MobileCom anticipates continuing competition from local,
regional and national resellers. Over the past few years,
intense competition for new customers has led to increases in
selling and promotional costs. MobileCom anticipates that
this trend will continue into the foreseeable future. In
response to this competition, MobileCom has offered a new
cellular service plan called Linx Omni that provides customers
with a package of cellular services plus a free cellular phone
when the customer signs a 24 month service agreement.
SNET Paging, Inc.
Paging was incorporated in February 1990 under the laws of the
State of Connecticut. Paging launched service on April 1,
1991. Paging provides its customers with tone, numeric and
alphanumeric paging services through its service trademark
Page 2000 (service mark). Customers have a choice of either
selecting local or regional coverage. Paging also serves as a
reseller of SkyTel, a nationwide paging service. Currently
Paging's network is capable of providing services in Connecticut,
most of Massachusetts, southern New Hampshire, Rhode Island,
Metropolitan New York City, and northern New Jersey.
TNI Associates, Inc. ("TNIA"), formerly SNET Paging
Acquisition Corporation, a wholly owned subsidiary of Paging,
also was formed in February 1990 under the laws of the State
of Connecticut. In October 1993, TINA purchased the remaining
50.5% partnership interest in the net assets of TNI Associates
(the "TNI Partnership") from Telecommunications Network, Inc. The
13
TNI Partnership business purchased by TNIA operates a wide
area paging network covering the seaboard area from
Metropolitan New York to southern New Jersey and Philadelphia.
Paging has three primary competitors in the Northeast region
it serves. One is dominant in the Connecticut marketplace and
is perceived as offering competitive pricing and a high
quality network. The second offers multistate and regional
services that focus on large metropolitan markets with less
emphasis on Connecticut. The last is a large national carrier
that offers the lowest price with an apparent strategy of
building market share rapidly.
SNET DIVERSIFIED GROUP, INC.
SNET Diversified Group, Inc. ("Diversified") was incorporated
in 1986 under the laws of the State of Connecticut in order to
identify and develop new, non-regulated business
opportunities. The majority of Diversified's activities are
leasing and selling CPE to residential and small business
customers. Prior to 1988, embedded CPE was leased under
regulation to customers by the Telephone Company. As part of
the 1993 SNET Systems, Inc. ("Systems") reorganization,
Diversified established a new division, Business
Communications, which continues to offer and maintain certain
key products that are complementary to the Telephone Company's
central-office based solutions. SNET Premium Services, which
offers network related activities such as ConnNet (service
mark) and Conference Calling, was transferred from the Telephone
Company to Diversified effective January 1, 1993.
Diversified faces significant competition from numerous
department store, discount store, and business equipment
retailers that carry CPE. Diversified has differentiated its
product line from its competitors by offering a wide array of
quality products coupled with superior customer assistance and
by offering customers leasing options.
SNET REAL ESTATE, INC.
SNET Real Estate, Inc. ("Real Estate") was incorporated in
1983 under the laws of the State of Connecticut. Real Estate
is an owner of commercial property which it leases under
operating leases and is a participant in a partnership that
also leases commercial property. Currently, Real Estate is
managing its existing portfolio and is not actively pursuing
additional real estate investments.
Real Estate faces a risk that real estate markets in which its
properties are located, primarily Connecticut, may further
deteriorate from their current condition. This risk is
minimized by the conservative nature of Real Estate's
portfolio, a majority of which is leased to affiliates.
SNET SYSTEMS, INC.
SNET Systems, Inc. ("Systems") was incorporated in 1986 under
the laws of the State of Connecticut and was subsequently
dissolved in December 1993. Systems marketed a full range of
sophisticated communications systems and services primarily to
large business customers as well as provided consulting,
installation and maintenance services related to
communications systems.
14
On January 15, 1993, the Corporation announced that it would
disband Systems and reassign its functions and employees to
other organizations within the Corporation. This
reorganization of Systems' operations is in line with the
Corporation's strategy to focus on the Telephone Company's
central-office based solutions. As discussed previously, a
new division of Diversified, Business Communications, was
formed as a result of this reorganization and will continue to
offer and maintain certain key products that are complementary
to central-office based solutions.
SNET CREDIT, INC.
SNET Credit, Inc. ("Credit") was incorporated in 1983 under
the laws of the State of Connecticut. Credit provided lease
financing of telecommunications and other equipment for
Systems and third parties under operating, direct-financing
and leveraged leases. In September 1992, the Corporation
announced its intention to withdraw from the finance business
by phasing out the activities of Credit because it no longer
fit into the Corporation's long-term strategic business plan.
During the first and second quarters of 1993, Credit sold
portions of its direct-financing lease portfolio. Certain
existing leveraged leases and direct financing leases have
been retained as investments.
Employee Relations
The Corporation and its subsidiaries employed approximately
9,820 persons at February 28, 1994, of whom approximately 68%
are represented by The Connecticut Union of Telephone Workers,
Inc. ("CUTW"), an unaffiliated union.
In December 1993, the Corporation announced a business
restructuring program designed to reduce costs and will result
in approximately 2,500 employees exiting the business over the
next two to three year period.
Item 2. Properties
The principal properties of the Corporation and its
subsidiaries do not lend themselves to a detailed description
by character and location. The majority of telecommunications
plant, property and equipment of the Corporation and its
subsidiaries is owned by the Telephone Company. Of the
Corporation's investment in telecommunications plant, property
and equipment at December 31, 1993, central office equipment
represented 39%; connecting lines not on customers' premises,
the majority of which are on or under public roads, highways
or streets and the remainder on or under private property,
represented 35%; land and buildings (occupied principally by
central offices) represented 12%; telephone instruments and
related wiring and equipment, including private branch
exchanges, substantially all of which are on the premises of
customers, represented 2%; and other, principally vehicles and
general office equipment, represented 12%.
Substantially all of the central office equipment
installations and administrative offices are located in
Connecticut in buildings owned by the Telephone Company
situated on land which it owns in fee. Many garages, service
centers and some administrative offices are located in rented
quarters.
15
The Corporation has a significant investment in the
properties, facilities and equipment necessary to conduct its
business wherein the overwhelming majority of this investment
relates to telephone operations. Management believes that the
Corporation's facilities and equipment are suitable and adequate
for the business.
As discussed previously, the Telephone Company plans to invest
$4.5 billion over the next 15 years to build I-SNET. The
Telephone Company plans to support this investment primarily
through increased productivity from the new technology
deployed, ongoing cost containment initiatives and customer
demand for the new services offered. The Telephone Company
does not plan to request a rate increase for this investment.
Item 3. Legal Proceedings
The Corporation and certain of its subsidiaries are involved
in various claims and lawsuits that arise in the normal
conduct of their business. In the opinion of management, upon
advice of counsel, these claims will not have a material
adverse effect on the Telephone Company or the Corporation.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders in the
fourth quarter of the fiscal year covered by this report.
16
Executive Officers of the Registrant (1)
(as of January 1, 1994)
Executive
Officer
Name Age(2) Position Since
Daniel J. Miglio 53 Chairman, President and
Chief Executive Officer 1/86
Robert F. Neal 58 Senior Vice President-
Organization Development 1/87
Ronald M. Serrano 38 Senior Vice President-
Corporate Development 1/93
Donald R. Shassian 38 Senior Vice President and
Chief Financial Officer 12/93
Madelyn M. DeMatteo 45 Vice President, General
Counsel and Secretary 5/90
John A. Sadek 60 Vice President and
Comptroller 1/86
(1) Includes executive officers subject to Section 16 of the Securities
Exchange Act of 1934.
(2) As of December 31, 1993.
Mr. Miglio, Mr. Neal, Mr. Sadek and Ms. DeMatteo have held
high level managerial positions with the Corporation or its
subsidiaries for more than the past five years. Mr. Serrano
was a Vice President of Mercer Management Consulting, Inc.,
(formerly Strategic Planning Associates) for more than five
years prior to joining the Corporation. Mr. Shassian was a
partner with Arthur Andersen & Co., independent accountants,
for more than five years prior to joining the Corporation.
17
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
The common stock of the Corporation is listed on the New York
and Pacific stock exchanges and the number of holders of
record, computed on the basis of registered accounts, were
approximately 57,177 as of February 28, 1994. Information
with respect to the quarterly high and low sales price for the
Corporation's common stock and quarterly cash dividends
declared is included in the registrant's Annual Report to
Stockholders on page 48 under the caption "Market and Dividend
Data" and is incorporated herein by reference pursuant to
General Instruction G(2).
Items 6 through 8.
Information required under Items 6 through 8 is included in
the registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1993 on pages 18 through 47 in their
entirety and is incorporated herein by reference pursuant to
General Instruction G(2).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
No changes in or disagreements with accountants on any
accounting or financial disclosure occurred during the period
covered by this report.
PART III
Items 10 through 13.
Information required under Items 10 through 13 is included in
the registrant's Proxy Statement dated March 28, 1994 on pages
1 (commencing under the caption "Proxy Statement") through 17.
Such information is incorporated herein by reference.
Information regarding executive officers of the registrant
required by Item 401(b) and (e) of Regulation S-K is included
in Part I of this Annual Report on Form 10-K following Item 4.
18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Page
Reports on Form 8-K
(a) Documents filed as part of the report:
(1) Report on Consolidated Financial Statements *
Report of Audit Committee *
Report of Independent Accountants *
Consolidated Financial Statements:
Consolidated Statement of (Loss) Income - for
the years ended December 31, 1993, 1992 and
and 1991 *
Consolidated Balance Sheet - as of
December 31, 1993 and 1992 *
Consolidated Statement of Changes in
*
Stockholders' Equity - for the years ended
December 31, 1993, 1992, 1991 *
Consolidated Statement of Cash Flows - for
the years ended December 31, 1993, 1992
and 1991 *
Notes to Consolidated Financial Statements *
(2) Consolidated Financial Statement Schedules for the
year ended December 31, 1993
Report of Independent Accountants 24
V - Telecommunications Plant, Property and 25
Equipment
VI - Accumulated Depreciation 29
VIII - Valuation and Qualifying Accounts 30
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 applicable.
* Incorporated herein by reference to the appropriate
portions of the registrant's Annual Report to Stockholders
for the fiscal year ended December 31, 1993 (see Part II).
19
(3) Exhibits:
Exhibits identified in parentheses below, on file with the
SEC, are incorporated herein by reference as exhibits hereto.
Exhibit
Number
3a Amended and Restated Certificate of Incorporation
of the registrant as filed June 14, 1990
(Exhibit) 3-A to Form SE dated 3/15/91, File No.
1-9157).
3b By-Laws of the registrant as amended and restated
through October 10, 1990 (Exhibit 3 to Form 8-K
dated 10/10/90, File No. 1-9157).
4a Rights Agreement dated February 11, 1987 between
Southern New England Telecommunications
Corporation and The State Street Bank and Trust
Company, as Rights Agent (Exhibit 1 to Form SE
dated 2/13/87-1, File No. 1-9157). Amendment No.
1 dated December 13, 1989 (Exhibit 4 to Form SE
dated 12/28/89, File No. 1-9157). Amendment No. 2
dated October 10, 1990 (Exhibit 4 to Form SE dated
10/12/90, File No. 1-9157).
4b No instrument which defines the rights of holders
of long-term debt of the registrant is filed
herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this regulation,
the registrant hereby agrees to furnish a copy of
any such instrument to the SEC upon request.
10 (iii)(A)1 SNET Short Term Incentive Plan as amended March 1,
1993 (Exhibit 10(iii)(A)1 to 1992 Form 10-K dated
3/23/93, File No. 1-9157).
10 (iii)(A)2 SNET Long Term Incentive Plan as amended March 1,
1993 (Exhibit 10(iii)(A)2 to 1992 Form 10-K dated
3/23/93, File No. 1-9157).
10 (iii)(A)3 SNET Financial Counseling Program as amended
January 1987 (Exhibit 10-D to Form SE dated
3/23/87-1, File No. 1-9157).
10 (iii)(A)4 Group Life Insurance Plan and Accidental Death and
Dismemberment Benefits Plan for Outside Directors
of SNET as amended July 1, 1986 (Exhibit 10-E to
Form SE dated 3/23/87-1, File No. 1-9157).
10 (iii)(A)5 SNET Executive Non-Qualified Pension Plan and
Excess Benefit Plan as amended November 1, 1991
(Exhibit 10-A to Form SE dated 3/20/92, File No.
1-9157). Amendments dated December 8, 1993.
20
(3) Exhibits (continued):
Exhibit
Number
10 (iii)(A)6 SNET Management Pension Plan as amended November
1, 1987 (Exhibit 10-C to Form SE dated 3/21/88-1,
File No. 1-9157). Amendments dated September 1,
1988 and January 1, 1989 (Exhibit 10-C to Form SE
dated 3/21/89, File No. 1-9157). Amendments dated
January 1, 1989 through August 6, 1989 (Exhibit
10-B to Form SE dated 3/20/90, File No. 1-9157).
Amendments dated June 5, 1991 through September
25, 1991 (Exhibit 10-B to Form SE dated 3/20/92,
File No. 1-9157). Amendments dated January 1,
1993 (Exhibit 10(iii)(A)6 to 1992 Form 10-K dated
3/23/93, File No. 1-9157). Amendments dated
September 8, 1993 through December 8, 1993.
10 (iii)(A)7 SNET Incentive Award Deferral Plan as amended
March 1, 1993 (Exhibit 10(iii)(A)7 to 1992 Form
10-K dated 3/23/93, File No. 1-9157).
10 (iii)(A)8 SNET Mid-Career Pension Plan as amended November
1, 1991 (Exhibit 10-D to Form SE dated 3/20/92,
File No. 1-9157). Amendments dated December 8, 1993.
10 (iii)(A)9 SNET Deferred Compensation Plan for Non-Employee
Directors as amended January 1, 1993 (Exhibit
10(iii)(A)9 to 1992 Form 10-K dated 3/23/93, File
No. 1-9157).
10 (iii)(A)10 Change-in-Control Agreements (Exhibit 10-F to Form
SE dated 3/15/91, File No. 1-9157).
10 (iii)(A)11 SNET 1986 Stock Option Plan as amended March 1,
1993 (Exhibit 10(iii)(A)11 to 1992 Form 10-K dated
3/23/93, File No. 1-9157).
10 (iii)(A)12 SNET Retirement and Disability Plan for Non-
Employee Directors as amended April 14, 1993.
10 (iii)(A)13 SNET Non-Employee Director Stock Plan effective
January 1, 1994 (Exhibit 4.4 to Registration No.
33-51055, File No. 1-9157)
10 (iii)A)14 Description of SNET Executive Retirement Savings
Plan.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Pages 18 through 48 of the registrant's Annual
Report to Shareholders for the fiscal year ended
December 31, 1993.
21 Subsidiaries of the Corporation.
23 Consent of Independent Accountants.
21
(3)Exhibits (continued):
Exhibit
Number
24a Powers of Attorney.
24b Board of Directors' Resolution.
99a Annual Report on Form 11-K for the plan year ended
December 31, 1993 for the SNET Management Retirement
Savings Plan will be filed as an amendment prior to
June 30, 1994.
99b Annual Report on Form 11-K for the plan year ended
December 31, 1993 for the SNET Bargaining Unit Retirement
Savings Plan will be filed as an amendment prior to
June 30, 1994.
The Corporation will furnish, without charge, to a stockholder
upon request a copy of the Annual Report to Shareholders and
Proxy Statement, portions of which are incorporated by
reference, and will furnish any other exhibit at cost.
(b) Reports on Form 8-K:
On November 3, 1993, the Corporation and the Telephone Company
filed, separately, reports on Form 8-K, dated November 3,
1993, announcing that effective December 1, 1993, Donald R.
Shassian, will assume the position of Senior Vice President
and Chief Financial Officer of both the Corporation and the
Telephone Company.
On December 8, 1993, the Corporation and the Telephone Company
filed, separately, reports on Form 8-K, dated December 8,
1993, announcing charges against fourth quarter earnings
totaling $4.08 per common share. These charges include a
restructuring charge for workforce and reengineering
reductions, a refinancing charge and a charge for discontinued
operations.
On January 25, 1994, the Corporation and the Telephone
Company filed, separately, reports on Form 8-K, dated January
24, 1994, announcing the Corporation's 1993 financial results.
22
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.
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
By /s/ J. A. Sadek
J. A. Sadek, Vice President and Comptroller, March 23, 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:
D. J. Miglio*
Chairman, President, Chief Executive Officer
and Director
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICERS:
D. R. Shassian*
Senior Vice President and
Chief Financial Officer
J. A. Sadek By /s/ J. A. Sadek
Vice President and Comptroller (J. A. Sadek, as
attorney-in-fact
and on his own
behalf)
DIRECTORS:
F. G. Adams*
William F. Andrews*
Richard H. Ayers*
Zoe Baird*
Barry M. Bloom*
F. J. Connor*
William R. Fenoglio* March 23, 1994
Claire L. Gaudiani*
J. R. Greenfield*
N. L. Greenman*
Worth Loomis*
Burton G. Malkiel*
Frank R. O'Keefe, Jr.* *by power of attorney
23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Southern New England Telecommunications Corporation:
Our report on the consolidated financial statements of
Southern New England Telecommunications Corporation has been
incorporated by reference in this Form 10-K from the 1993
Annual Report to Stockholders of Southern New England
Telecommunications Corporation on page 29 therein. In
connection with our audits of such financial statements, we
have also audited the related financial statement schedules
for each of the three years in the period ended December 31,
1993 listed in Item 14 (a) (2) of this Form 10-K.
In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all
material respects, the information required to be included
therein.
Hartford, Connecticut COOPERS & LYBRAND
January 24, 1994
24
Schedule V - Sheet 1
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
SCHEDULE V--TELECOMMUNICATIONS PLANT, PROPERTY and EQUIPMENT
(Millions of Dollars)
COL. A COL. B COL. C COL. D COL. E COL. F
Balance at Additions Retirements Other Balance
Year 1993 beginning at cost - Note (b) Changes at end
Classification of period - Note(a) - Note (c) of period
Land $ 28.4 $ .7 $ - $ - $29.1
Buildings 437.9 27.8 9.2 .7 457.2
Central Office
Equipment 1,631.5 116.4 94.2 8.6 1,662.3
Station Apparatus 59.5 8.5 .6 (3.8) 63.6
Large Private
Branch Exchange 9.2 - 8.4 - .8
Pole Lines 135.6 5.5 2.4 .2 138.9
Cable 1,083.6 50.8 13.6 .1 1,120.9
Underground Conduit 212.3 9.5 .7 (.9) 220.2
Public Telephone
Equipment 16.9 4.3 (1.7) - 22.9
Other Communica-
tions Equipment 65.8 7.2 1.9 - 71.1
Furniture and
Office Equipment 300.7 44.5 24.0 (.4) 320.8
Vehicles and Other
Work Equipment 108.0 8.6 9.9 - 106.7
Telecommunications
Plant Property and
Equipment Under
Construction 84.0 2.1 - (6.6) 79.5
Other 2.0 1.4 - 1.0 4.4
TOTAL (d) $4,175.4 $287.3 $163.2 $(1.1) $4,298.4
The notes on Sheet 4 are an integral part of this Schedule.
25
Schedule V - Sheet 2
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
SCHEDULE V--TELECOMMUNICATIONS PLANT, PROPERTY and EQUIPMENT
(Millions of Dollars)
COL. A COL. B COL. C COL. D COL. E COL. F
Balance at Additions Retirements Other Balance
Year 1992 beginning at cost - Note (b) Changes at end
Classification of period - Note(a) - Note (c) of period
Land $ 27.4 $ .8 $ - $ .2 $28.4
Buildings 423.3 21.9 4.9 (2.4) 437.9
Central Office
Equipment 1,578.1 136.4 84.0 1.0 1,631.5
Station Apparatus 74.4 9.8 24.8 .1 59.5
Large Private
Branch Exchange 11.5 - 2.3 - 9.2
Pole Lines 131.3 5.9 1.6 - 135.6
Cable 1,029.8 69.2 15.3 (.1) 1,083.6
Underground Conduit 197.4 15.1 .2 - 212.3
Public Telephone
Equipment 19.3 .5 2.9 - 16.9
Other Communica-
tions Equipment 63.6 5.9 3.6 (.1) 65.8
Furniture and
Office Equipment 281.5 30.7 11.0 (.5) 300.7
Vehicles and Other
Work Equipment 99.6 15.5 6.8 (.3) 108.0
Telecommunications
Plant Property and
Equipment Under
Construction 92.7 (7.9) - (.8) 84.0
Other 1.0 1.0 - - 2.0
TOTAL (d) $4,030.9 $304.8 $157.4 $(2.9) $4,175.4
The notes on Sheet 4 are an integral part of this Schedule.
26
Schedule V - Sheet 3
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
SCHEDULE V--TELECOMMUNICATIONS PLANT, PROPERTY and EQUIPMENT
(Millions of Dollars)
COL. A COL. B COL. C COL. D COL. E COL. F
Balance at Additions Retirements Other Balance
Year 1991 beginning at cost - Note (b) Changes at end
Classification of period - Note(a) - Note (c) of period
Land $ 27.3 $ .1 $ - $ - $27.4
Buildings 396.9 27.8 1.4 - 423.3
Central Office
Equipment 1,545.2 135.6 91.2 (11.5) 1,578.1
Station Apparatus 80.0 4.2 9.8 - 74.4
Large Private
Branch Exchange 13.0 - 1.5 - 11.5
Pole Lines 124.6 7.7 1.0 - 131.3
Cable 979.3 65.6 15.1 - 1,029.8
Underground Conduit 188.1 9.5 .2 - 197.4
Public Telephone
Equipment 18.4 1.0 .1 - 19.3
Other Communica-
tions Equipment 59.5 6.3 2.2 - 63.6
Furniture and
Office Equipment 256.9 35.1 24.6 14.1 281.5
Vehicles and Other
Work Equipment 92.3 14.8 4.9 (2.6) 99.6
Telecommunications
Plant Property and
Equipment Under
Construction 82.9 9.8 - - 92.7
Other .1 .9 - - 1.0
TOTAL (d) $3,864.5 $318.4 $152.0 $ - $4,030.9
The notes on Sheet 4 are an integral part of this Schedule.
27
Schedule V - Sheet 4
Notes to Schedule V
(a) For regulated telephone plant, additions shown include
(1) the original cost of reused material, which is
concurrently credited to Material and Supplies, and (2)
an Allowance for Funds Used During Construction.
(b) Items of telecommunications plant, property and equipment
when retired, sold or reclassified are deducted from the
property accounts at original cost.
(c) Represents current year transfers between
classifications, and other minor adjustments.
(d) For interstate telephone plant, the FCC has approved the
equal life group ("ELG") depreciation method using a
remaining-life formula on a phased-in basis beginning in
1982. Vintages of interstate plant in service prior to
the phase-in of ELG are being depreciated using a
composite vintage group method. In addition, the FCC
approved the use of straight-line amortization effective
January 1, 1987 to recover an interstate reserve
deficiency over a five-year period ended December 31,
1993. For intrastate plant, the DPUC approved ELG for
1993 vintages and subsequent periods. Vintages of
intrastate plant in service prior to 1993 are being
depreciated using a composite vintage group method. For
the years 1993, 1992 and 1991, depreciation expense on
telecommunications plant expressed as a percentage of
average depreciable plant was 7.0%, 6.2% and 6.6%,
respectively. Property and equipment other than
regulated telephone plant is depreciated primarily using
the straight-line method over the estimated useful lives
of the assets. Assets acquired under capital leases are
generally amortized over the life of the lease using the
straight-line method.
28
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
SCHEDULE VI--ACCUMULATED DEPRECIATION
(Millions of Dollars)
COL. A COL. B COL. C COL. D COL. E COL. F
Balance at Additions Retirements Other Balance
beginning charged - Note (a) Changes at end
Description of period to expense of period
Year 1993 $1,408.0 $286.8 $162.4 $(4.2) $1,528.2
Year 1992 1,318.7 247.6 157.1 (1.2) 1,408.0
Year 1991 1,221.5 251.5 154.7 .4 1,318.7
(a) Includes net salvage.
(b) Columns B and F include accumulated depreciation on the
Corporation's nonregulated telecommunications plant,
property and equipment, which is shown net of such
accumulated depreciation in Note 13 to the consolidated
financial statements.
29
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
(Millions of Dollars)
COL. A COL. B COL. C COL. D COL. E COL. F
Additions
Balance at Additions Charged Balance
beginning charged to to other Deductions at end
Description of period expense accounts - Note B of
-Note (a) period
Allowance for Uncollectible
Accounts Receivable:
Year 1993 $21.8 $ 28.9 $3.6 $27.6 $ 26.7
Year 1992 16.3 33.3 3.9 31.7 21.8
Year 1991 10.3 31.7 3.6 29.3 16.3
Allowance for Uncollectible
Direct-Financing Lease Notes Receivable of Discontinued
Operations:
Year 1993 $ 8.2 $ 15.6 $ - $12.1 $ 11.7
Year 1992 4.6 9.2 - 5.6 8.2
Year 1991 2.7 4.8 - 2.9 4.6
Restructuring Charge:
Year 1993 $ - $355.0 $ - $ - $355.0
(a) Includes amounts previously written off that were
credited directly to this account when
recovered and miscellaneous debits and credits.
(b) Includes amounts written off as uncollectible.
30
Exhibit Index
Exhibits identified in parentheses below, on file with the
SEC, are incorporated herein by reference as exhibits hereto.
Exhibit
Number
3a Amended and Restated Certificate of Incorporation
of the registrant as filed June 14, 1990
(Exhibit) 3-A to Form SE dated 3/15/91, File No.
1-9157).
3b By-Laws of the registrant as amended and restated
through October 10, 1990 (Exhibit 3 to Form 8-K
dated 10/10/90, File No. 1-9157).
4a Rights Agreement dated February 11, 1987 between
Southern New England Telecommunications
Corporation and The State Street Bank and Trust
Company, as Rights Agent (Exhibit 1 to Form SE
dated 2/13/87-1, File No. 1-9157). Amendment No.
1 dated December 13, 1989 (Exhibit 4 to Form SE
dated 12/28/89, File No. 1-9157). Amendment No. 2
dated October 10, 1990 (Exhibit 4 to Form SE dated
10/12/90, File No. 1-9157).
4b No instrument which defines the rights of holders
of long-term debt of the registrant is filed
herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this regulation,
the registrant hereby agrees to furnish a copy of
any such instrument to the SEC upon request.
10 (iii)(A)1 SNET Short Term Incentive Plan as amended March 1,
1993 (Exhibit 10(iii)(A)1 to 1992 Form 10-K dated
3/23/93, File No. 1-9157).
10 (iii)(A)2 SNET Long Term Incentive Plan as amended March 1,
1993 (Exhibit 10(iii)(A)2 to 1992 Form 10-K dated
3/23/93, File No. 1-9157).
10 (iii)(A)3 SNET Financial Counseling Program as amended
January 1987 (Exhibit 10-D to Form SE dated
3/23/87-1, File No. 1-9157).
10 (iii)(A)4 Group Life Insurance Plan and Accidental Death and
Dismemberment Benefits Plan for Outside Directors
of SNET as amended July 1, 1986 (Exhibit 10-E to
Form SE dated 3/23/87-1, File No. 1-9157).
10 (iii)(A)5 SNET Executive Non-Qualified Pension Plan and
Excess Benefit Plan as amended November 1, 1991
(Exhibit 10-A to Form SE dated 3/20/92, File No.
1-9157). Amendments dated December 8, 1993.
10 (iii)(A)6 SNET Management Pension Plan as amended November
1, 1987 (Exhibit 10-C to Form SE dated 3/21/88-1,
File No. 1-9157). Amendments dated September 1,
1988 and January 1, 1989 (Exhibit 10-C to Form SE
dated 3/21/89, File No. 1-9157). Amendments dated
January 1, 1989 through August 6, 1989 (Exhibit
10-B to Form SE dated 3/20/90, File No. 1-9157).
Amendments dated June 5, 1991 through September
25, 1991 (Exhibit 10-B to Form SE dated 3/20/92,
File No. 1-9157). Amendments dated January 1,
1993 (Exhibit 10(iii)(A)6 to 1992 Form 10-K dated
3/23/93, File No. 1-9157). Amendments dated
September 8, 1993 through December 8, 1993.
10 (iii)(A)7 SNET Incentive Award Deferral Plan as amended
March 1, 1993 (Exhibit 10(iii)(A)7 to 1992 Form
10-K dated 3/23/93, File No. 1-9157).
10 (iii)(A)8 SNET Mid-Career Pension Plan as amended November
1, 1991 (Exhibit 10-D to Form SE dated 3/20/92,
File No. 1-9157). Amendments dated December 8, 1993.
10 (iii)(A)9 SNET Deferred Compensation Plan for Non-Employee
Directors as amended January 1, 1993 (Exhibit
10(iii)(A)9 to 1992 Form 10-K dated 3/23/93, File
No. 1-9157).
10 (iii)(A)10 Change-in-Control Agreements (Exhibit 10-F to Form
SE dated 3/15/91, File No. 1-9157).
10 (iii)(A)11 SNET 1986 Stock Option Plan as amended March 1,
1993 (Exhibit 10(iii)(A)11 to 1992 Form 10-K dated
3/23/93, File No. 1-9157).
10 (iii)(A)12 SNET Retirement and Disability Plan for Non-
Employee Directors as amended April 14, 1993.
10 (iii)(A)13 SNET Non-Employee Director Stock Plan effective
January 1, 1994 (Exhibit 4.4 to Registration No.
33-51055, File No. 1-9157)
10 (iii)A)14 Description of SNET Executive Retirement Savings
Plan.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Pages 18 through 48 of the registrant's Annual
Report to Shareholders for the fiscal year ended
December 31, 1993.
21 Subsidiaries of the Corporation.
23 Consent of Independent Accountants.
24a Powers of Attorney.
24b Board of Directors' Resolution.
99a Annual Report on Form 11-K for the plan year ended
December 31, 1993 for the SNET Management Retirement
Savings Plan will be filed as an amendment prior to
June 30, 1994.
99b Annual Report on Form 11-K for the plan year ended
December 31, 1993 for the SNET Bargaining Unit Retirement
Savings Plan will be filed as an amendment prior to
June 30, 1994.
Exhibit 10(iii)(A)5
SNET EXECUTIVE NON-QUALIFIED PENSION PLAN AND EXCESS BENEFIT PLAN
The SNET Executive Non-Qualified Pension Plan and Excess Benefit Plan ("Plan")
was amended at the December 8, 1993 Board of Directors meeting. The purpose
of the amendments was a redesign of the executive pension plans to have the
same pension formula apply for executives and management employees, and
maximize the benefits which may be payable from the Pension Trust Fund. The
redesign also replaces the Mid Career Pension Plan which differentiated based
on age and position at time of hire with an executive pension plan which
provides the appropriate level of income protection for all executives based
on their length of service with the company. The amendments to the Plan are
as follows:
1) Effective December 8, 1993, the election by an executive of the Pension
Deferral Option under the SNETMPP which defers the commencement of the
executive's service pension until no later than age 55 (to reduce or
eliminate the early retirement discount), shall result in the deferral of
the service benefit payable under the ENQPP for the same period.
2) Effective December 8, 1993, the ENQPP adjusted career income formula shall
continue to apply only to those employees who are in executive positions
as of December 8, 1993 until such time as there is a change in the SNETMPP
formula at which time the executive's accrued vested pension benefit
payable under the ENQPP shall be frozen; provided, however, that the
amount payable under the ENQPP formula shall be limited to the amount by
which the ENQPP benefit exceeds the benefit determined by applying the
SNETMPP formula to the executive's Short Term Incentive Award.
3) Effective December 8, 1993, the ENQPP will replace the benefits provided
under the SNET Mid Career Pension Plan (SNETMCPP) with a minimum pension
benefit payable to executives based on the number of years and months of
service completed as of the termination of employment date, and the
average annual base salary for the three years immediately preceding the
termination date. The ENQPP minimum pension benefit will ensure that the
combined pension amounts payable under the SNETMPP, the ENQPP and the
SNETMCPP, as applicable, provide a minimum benefit, for executives who
terminate employment with up to 25 years of service, of 2 percent per year
of service (maximum 40 percent) multiplied by the executives' three year
average base salary; or for executives with more than 25 years of service,
1.6 percent per year of service multiplied by such average pay.
4) Effective January 1, 1994, the following provisions no longer apply to
those employees who become eligible to participate after December 8, 1993
except for benefits available under Section 7 which shall remain available
until replacement coverage is available under the SNET Executive Split
Dollar Life Insurance Plan (SDLIP), and to participants as of December 8,
1993 upon the effective date of replacement coverage under the SDLIP:
1) Section 4, Paragraph 3(e), Automatic Survivor Annuity;
2) Section 6, Death Benefits;
3) Section 7, Post-Retirement Life Insurance Supplement Program;
4) Section 8, Survivor Annuity Options; and
5) Section 9, Paragraph 10, Lump Sum Payments.
To the extent permitted under applicable tax laws, participants as of
December 8, 1993 shall be provided an opportunity to maintain the
Survivor Annuity Option provisions of the ENQPP at the time the SDLIP
becomes effective; provided, however, that in such event the tax
gross-up provisions related to such Survivor Annuity Option provisions
will not be available.
Exhibit 10(iii)(A)6
SNET MANAGEMENT PENSION PLAN
A summary of amendments to the SNET Management Pension Plan ("Plan") is as
follows:
Effective September 8, 1993
Section 4, Paragraph 2(e), Early Retirement Discount: Added the Pension
Deferral Option to provide management employees who are eligible to
receive a Discounted Service Pension with an opportunity to defer
commencement of the pension payments to a later date, no later than age
55, to reduce or eliminate the amount of the early retirement discount
applied to the pension payments. Employees may elect to commence
receipt of pension payments prospectively at any time. Employees
choosing this option will be classified as an SNET retiree, with all
related retiree benefits to the extent that they remain available to
retirees.
Section 4, Paragraph 1(j) Transitional Retirement Status: Amended the
Transitional Retirement Status to provide management employees whose
employment with SNET terminates between September 8, 1993 and December
31, 1995, inclusive, with the ability to become eligible for a Service
Pension if they would otherwise have become eligible by December 31,
1995. Under this provision, a Service Pension becomes payable on the
date such employee would have been eligible to commence receipt of a
Service Pension or a Discounted Service Pension if such employment had
not ended. Employees in this status will be classified as an SNET
retiree commencing upon termination of employment, with all related
retiree benefits to the extent that they remain available to retirees.
Effective December 8, 1993
Section 4, Paragraph 2(b)(iii), Compensation: Changed the definition of
Compensation for employees who retire or terminate employment on or
after December 8, 1993 to include the awards earned under the SNET
Executive Short Term Incentive Plan for services performed after 1988,
consistent with the recognition of eligible performance incentive
compensation awards in the pension formula for all other management
employees.
Section 5, Death Benefits: Effective upon the effective date of
replacement coverage becoming available under the SNET Executive Split
Dollar Life Insurance Program (SDLIP), the Active Employee Death
Benefits and the Retiree Death Benefits provisions shall no longer apply
to active and retired employees who become covered by the SDLIP.
Exhibit 10(iii)(A)8
SNET MID CAREER PENSION PLAN
The SNET Mid Career Pension Plan ("Plan") was amended at the December 8, 1993
Board of Directors meeting. The purpose of the amendments was to reflect the
redesign of the SNET Executive Non-Qualified Pension Plan and Excess Benefit
Plan ("ENQPP"). Effective January 1, 1994, the ENQPP replaced the provisions
of this Plan (which differentiated based on age and position at time of hire)
with an executive pension plan which provides the appropriate level of income
protection for all executives based on their length of service with the
company.
The amendments to this Plan are as follows:
1) For eligible executives on the active payroll as of December 8, 1993, the
accrued and vested Mid Career Pension Plan pension benefits for such
eligible executives shall be calculated as of December 31, 1993, and such
vested pension benefits shall be frozen and continue to be payable under
the Plan to such executives and any terminated executives with vested
pension benefits, subject to offsets determined under the provisions of
the ENQPP.
2) Effective upon the last payment of such vested and frozen pension
benefits, the Plan shall terminate.
RETIREMENT AND DISABILITY PLAN
FOR
NON-EMPLOYEE DIRECTORS
OF
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
Effective January 1, 1989
Amended April 14, 1993
RETIREMENT AND DISABILITY PLAN FOR
NON-EMPLOYEE DIRECTORS OF
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
TABLE OF CONTENTS
SECTION 1. STATEMENT OF PURPOSE.......................................... 1
SECTION 2. DEFINITIONS................................................... 1
SECTION 3. ADMINISTRATION................................................ 1
SECTION 4. NON-EMPLOYEE DIRECTOR BENEFITS................................ 2
1. Participation............................................. 2
2. Eligibility............................................... 2
a. Service Benefit....................................... 2
b. Deferred Benefit...................................... 2
c. Disability Benefit.................................... 3
3. Benefit Amounts........................................... 3
a. Service and Deferred Benefit.......................... 3
b. Disability Benefit.................................... 3
c. Payments.............................................. 3
SECTION 5. GENERAL PROVISIONS............................................ 4
SECTION 6. PLAN MODIFICATION............................................. 8
SECTION 1. STATEMENT OF PURPOSE
The purpose of the Retirement and Disability Plan for Non-Employee Directors
of Southern New England Telecommunications Corporation is to provide pension
payments to such non-employee members of the Board of Directors of Southern
New England Telecommunications Corporation and The Southern New England
Telephone Company, pursuant to the terms and conditions of this Plan.
SECTION 2. DEFINITIONS
1. The words "SNET" or "Corporation" shall mean the Southern New England
Telecommunications Corporation, a Connecticut Corporation.
2. The words "Chairman of the Board," "President" and "Board of Directors"
or "Board" shall mean the Chairman of the Board of Directors, the
President and the Board of Directors, respectively, of the Corporation.
3. The word "Committee" shall mean the Committee on Board Affairs and Public
Policy appointed by the Corporation to administer or arrange for the
administration of this Plan.
4. The terms "Non-Employee Director" or "Participant" shall mean a member of
the Corporation's Board of Directors on or after January 1, 1989, who is
not at time of retirement from service on the Board, nor was ever,
employed by SNET or any subsidiary or affiliate of SNET.
5. The term "Pension Act" shall mean the Employee Retirement Income Security
Act of 1974 (ERISA) as may be amended from time to time.
6. The term "Pension Plan" shall mean the SNET Management Pension Plan.
7. The word "Plan" shall mean this Retirement and Disability Plan for SNET
Non-Employee Directors.
8. The term "Retainer" shall mean the annual amount payable to a
Non-Employee Director as compensation for service on the Board, excluding
any additional compensation earned for service as Committee Chairman and
excluding all meeting fees, whether for Board or Committee meetings.
9. The use in this Plan of personal pronouns of the masculine gender is
intended to include both the masculine and feminine genders.
10. The use in this Plan of singular or plural nouns is intended to have
individual or collective meaning as applicable to the context as used
therein and is in no way to be construed narrowly or such as to limit
this Plan or any of its provisions.
SECTION 3. ADMINISTRATION
1. The Corporation shall be considered the Sponsor of this Plan as that term
is defined in the Pension Act. The Corporation shall appoint the
Committee on Board Affairs and Public Policy to administer this Plan.
The Committee shall have the administrative responsibilities set forth
below.
- 2 -
2. The Committee shall have the specific powers elsewhere herein granted to
it and shall have such other powers as may be necessary in order to
enable it to administer this Plan, except for powers herein specifically
granted or provided to be granted to others.
3. The Committee shall grant or deny claims for benefits under this Plan and
shall authorize disbursements according to this Plan. Adequate notice
shall be provided in writing to any Participant whose claim has been
denied setting forth the specific reasons for such denial.
4. The Committee shall determine conclusively for all parties all questions
arising in the administration of this Plan, and any decision of such
Committee shall not be subject to further review.
5. The expenses of the Committee in administering this Plan shall be borne
by the Corporation.
6. The Corporation and the Committee are each a named fiduciary as that term
is used in the Pension Act with respect to the particular duties and
responsibilities herein provided to be allocated to each of them.
7. The Corporation may delegate responsibilities for the operation and
administration of this Plan consistent with the Plan's terms. The
Corporation and other named fiduciaries may designate in writing other
persons to carry out their respective responsibilities under this Plan
and may employ persons to advise them with regard to any such
responsibilities.
8. Any person or group of persons may serve in more than one fiduciary
capacity with respect to this Plan.
SECTION 4. NON-EMPLOYEE DIRECTOR BENEFITS
1. Participation.
All persons who are Non-Employee Directors, as defined in Section 2, are
deemed Participants in this Plan.
2. Eligibility.
a) Service Benefit. Subject to the provisions set forth elsewhere in
this Plan, a Participant who has served a minimum of five (5) years on
the Board at any time prior or subsequent to the effective date of this
Plan is eligible for a Service or Deferred Benefit pursuant to this
Section 4 and will become fully vested in all benefits under this Plan at
that time.
b) Deferred Benefit. Subject to the provisions set forth elsewhere in
this Plan, all eligible Non-Employee Directors who have served a minimum
of five (5) years on the Board, shall be eligible to receive a Deferred
Benefit upon reaching the age of sixty-five (65) in an amount and
pursuant to the same terms and conditions as are set forth in Section
4.2(a).
- 3 -
c) Disability Benefit. In the event a Non-Employee Director becomes
totally disabled as a result of sickness or of injury and is unable to
perform his duties and responsibility as a Director, as determined by the
Committee, before becoming fully vested in all benefits under this Plan
pursuant to Section 4.2(a), the Board, in its sole discretion, may
authorize the payment of a Disability Benefit pursuant to Section
4.3(b). The Board may require the Participant to furnish from time to
time proof of continued disability.
3. Benefit Amounts.
a) Service and Deferred Benefit. The benefit of each eligible
Non-Employee Director who retires from service on or after January 1,
1989 and after having attained the age of sixty-five (65), shall equal
ten percent (10%) of such Non-Employee Director's annual Retainer in
effect as of retirement from service on the Board multiplied by such
Director's full years of service on the Board up to a maximum of one
hundred percent (100%) of such annual Retainer. Subject to Section 5.10
such annual benefit shall be payable in four (4) equal quarterly
installments following commencement of benefits, as specified in Section
4.3(c).
b) Disability Benefit. At the full discretion of the Board, Disability
Benefit payments for eligible Participants shall be paid in an amount
calculated pursuant to the same terms as are set forth in Section 4.3(a),
or in such other amounts, terms and conditions as determined by the Board.
c) Payments.
(i) Except as may be otherwise determined by the Corporation or as
otherwise required by Section 5.10, Service, Deferred and Disability
Benefits granted under this Section 4 shall commence in the first
month in the calendar quarter next following the date of each
Participant's retirement from service, or at such other time as is
herein provided for payment of a Deferred Benefit or Disability
Benefit, and shall continue to the death, or termination of
Disability, of such Participant, at which time any and all benefit
entitlements under this Plan shall cease, except as provided in
Section 4.3(c)(ii) below.
(ii) In the event that benefit payments pursuant to this Plan have
not commenced or have been made for a number of years less than a
Participant's years of service on the Board at the time of his death,
the aggregate value of those pension payments representing the number
of years the Participant served on the Board less any payments made as
of the date of death shall be paid as a death benefit in a lump sum to
the spouse of the deceased Participant if living with him at the time
of death or to the Participant's estate if there is no eligible
spouse. Upon payment of the death benefit, any and all further
benefit entitlements under this Plan shall cease.
In the event of a Participant's death on or after January 1,
1994, a death benefit shall be payable to the Eligible Beneficiaries,
if any, of those Participants who are either serving on the Board as
of January 1, 1994 or retired from the Board as of January 1, 1994.
The amount to be paid as a death benefit shall be paid in a lump sum,
and shall not exceed the lesser of (i) the amount of the Retainer for
- 4 -
the year in which the eligible Participant retires, or (ii) the amount
of the Retainer in effect on January 1, 1994. Eligible Beneficiaries
shall mean the spouse of the deceased Participant if living with him
at the time of his death, or the unmarried child or children of the
deceased under the age of 23 years (or over that age if physically or
mentally incapable of self-support) who were actually supported in
whole or in part by the deceased Participant at the time of death, or
a dependent parent who lives in the same household with the
Participant or who lives in a separate household in the vicinity which
is provided for the parent by the Participant. Upon payment of such
death benefit or a determination that a Participant had no Eligible
Beneficiaries, any and all further benefit entitlements under this
Plan shall cease.
SECTION 5. GENERAL PROVISIONS
1. Effective Date.
This Plan is effective January 1, 1989.
2. Right to Benefits.
Subject to the provision of Section 5.3, all Participants who have
satisfied the eligibility provision contained in Section 4.2, whether or
not currently receiving benefits under this Plan, shall have
nonforfeitable and noncancellable rights in all benefits provided
pursuant to this Plan.
3. Forfeiture of Benefits.
Notwithstanding eligibility or right to benefits of a Participant under
any provision or paragraph of this Plan (other than Section 5.10), all
benefits for which a Participant would be otherwise eligible hereunder
may be forfeited, at the discretion of the Board, when such Participant
(i) engages in misconduct in connection with the Participant's service on
the Board (as determined by the Board); (ii) without the Corporation's
consent becomes associated with, employed by or renders services to, or
owns an interest in, any business that is competitive with the
Corporation or with any business with which SNET has a substantial
interest (other than as a shareholder with a nonsubstantial interest in
such business) as determined by the Board; or (iii) engages in activity
in conflict with or adverse to the interests of the Corporation.
4. Assignment or Alienation.
Assignment or alienation of any and all benefits under this Plan will not
be permitted or recognized except as otherwise required by law.
5. Determination of Eligibility.
In all questions relating to eligibility for any benefit hereunder the
decision of the Committee based upon the Plan and upon the records of the
Corporation and insofar as permitted by applicable law, shall be final.
- 5 -
6. Method of Payment.
All benefits payable pursuant to this Plan shall be paid from Corporation
operating expenses or through the purchase of annuity contracts from an
insurance company or through such other means or funding arrangements as
is determined by the Corporation from time to time.
7. Amounts Accrued Prior to Death.
Benefit amounts accrued from the prior calendar quarter but not actually
paid at the time of death of a Participant shall be paid within thirty
(30) days of the Participant's death and in accordance with the terms and
provisions of Section 4.
8. Payments to Others.
Benefits payable to a Participant unable to execute a proper receipt may
be paid to other person(s) in accordance with the standards and
procedures set forth in the Pension Plan.
9. Damage Claims or Suits.
Should any Participant in this Plan commence litigation against the
Corporation or any successor thereof regarding the alleged violation by
the Corporation or any successor of the nonforfeitability,
noncancellation and vesting provisions of the Plan, the Corporation or
any successor which is the defendant in any such lawsuit shall pay all
costs and expenses (including attorney fees) of any such Participant
unless (1) the court in which the litigation is filed or any higher court
to which an appeal is taken finds the Corporation or successor to be
without liability on material substantive issues raised in the lawsuit or
(2) the lawsuit is frivolous in nature.
10. Change of Control.
Anything in the Plan to the contrary notwithstanding (including, without
limitation, Section 5.3), upon and following the occurrence of a Change
of Control, the Service, Deferred and Disability Benefit of each
Participant shall be fully vested and payable in the amount determined
under Section 4.3 at the time of the Participant's termination of
employment for those individuals currently receiving or eligible to
receive such payments under the Plan and, for those individuals serving
on the Board of Directors upon the Change of Control as if the
Participant had retired at that time. In the event of a Change of
Control, the present value of all amounts to which a Participant is
entitled under this Plan shall be paid in a single lump sum on the last
day of the month following the month in which the Change of Control
occurred. Lump sum payments payable by reason of this Section 5,
Paragraph 10, shall be equal to the present value of such payments using
the interest rate and mortality assumptions as provided under the Pension
Plan (as in effect immediately prior to the Change of Control) for
purposes of calculating the present value of lump sum pension payments
for surviving spouses. For this purpose, a Change of Control shall mean:
- 6 -
(a) an acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the
Corporation (the "Outstanding Corporation Common Stock") or (ii)
the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the
election of directors (the "Outstanding Corporation Voting
Securities"); excluding, however, the following: (i) any
acquisition directly from the Corporation, other than an
acquisition by virtue of the exercise of a conversion privilege
unless the security being so converted was itself acquired
directly from the Corporation, (ii) any acquisition by the
Corporation, (iii) any acquisition by any employee benefit plan
(or related trust) participated in by the Corporation or any
corporation controlled by the Corporation or (iv) any acquisition
by any corporation pursuant to a reorganization, merger,
consolidation or similar corporate transaction (in each case, a
"Corporate Transaction"), if, pursuant to such Corporate
Transaction, the conditions described in clauses (i), (ii) and
(iii) of subsection (C) of this Section 5.10 are satisfied; or
(b) a change in the composition of the Board of Directors of the
Corporation (the "Board") such that the individuals who, as of
January 9, 1991, constitute the Board (the Board as of the above
date shall be herein- after referred to as the "Incumbent Board")
cease for any reason to constitute at least a majority of the
Board; provided, however, for purposes of this Section 5.10, that
any individual who becomes a member of the Board subsequent to
the above date whose election, or nomination for election by the
shareholders of the Corporation, was approved by a vote of at
least a majority of those individuals who are members of the
Board and who were also members of the Incumbent Board (or deemed
to be such pursuant to this proviso) shall be considered as
though such individual were a member of the Incumbent Board; but,
provided further, that any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board shall not be so
considered as a member of the Incumbent Board; or
(c) the approval by the shareholders of the Corporation of a
Corporate Transaction or, if consummation of such Corporate
Transaction is subject, at the time of such approval by
shareholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a Corporate
Transaction pursuant to which (i) all or substantially all of the
individuals and entities who are the beneficial owners,
respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to
- 7 -
such Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding shares
of common stock of the corporation resulting from such Corporate
Transaction and the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally
in the election of directors, in substantially the same
proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Corporation Common Stock
and Outstanding Corporation Voting Securities, as the case may be,
(ii) no Person (other than the Corporation, any employee benefit
plan (or related trust) participated in by the Corporation or such
corporation resulting from such Corporate Transaction and any
Person beneficially owning, immediately prior to such Corporate
Transaction, directly or indirectly, 20% or more of the
Outstanding Corporation Common Stock or Outstanding Voting
Securities, as the case may be) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding shares
of common stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors and (iii) individuals who were
members of the Incumbent Board will constitute at least a majority
of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(d) the approval by the shareholders of the Corporation of (i) a
complete liquidation or dissolution of the Corporation or (ii) the
sale or other disposition of all or substantially all of the
assets of the Corporation; excluding, however, such a sale or
other disposition to a corporation, with respect to which
following such sale or other disposition, (1) more than 60% of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors will be then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to
such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or
other disposition, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may be, (2)
no Person (other than the Corporation and any employee benefit
plan (or related trust) participated in by the Corporation or such
corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 20% or
more of the Outstanding Corporation Common Stock or Outstanding
Corporation Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors and (3) individuals who were members
of the Incumbent Board will constitute at least a majority of the
members of the board of directors of such corporation.
- 8 -
SECTION 6. PLAN MODIFICATION.
The Board may from time to time make changes in the Plan and the Board may
terminate the Plan as it deems appropriate, without notice to Participants. In
addition, the Vice President-Human Resources of the Southern New England
Telephone Company with the concurrence of the Vice President and General
Counsel of SNET shall be authorized to make minor or administrative amendments
to the Plan, as well as amendments required by applicable federal or state law
(or authorized or made desirable by such statutes). Such amendments or
termination shall not affect the rights of any Participant to any benefit
under this Plan to which such Participant may have previously become entitled.
Exhibit 10(iii)(A)14
SNET EXECUTIVE RETIREMENT SAVINGS PLAN
The SNET Executive Retirement Savings Plan ("Plan") was adopted at the
February 9, 1994 Board of Directors meeting to be effective for the 1994 Plan
Year. The primary purpose of the Plan is to keep executives whole beginning
January 1, 1994 with respect to the SNET Management Retirement Savings Plan
(SNETMRSP) provisions regarding the company's matching contributions.
This Plan's eligibility, vesting and level of matching contribution provisions
are the same as the SNETMRSP as amended from time to time. Contributions
under this Plan will be credited with annual earnings based on the applicable
federal rate. Distributions will not be available until the executive
terminates employment, retires or dies; provided, however, that there will be
hardship distribution provisions for severe financial hardship situations,
consistent with the hardship distributions allowed pursuant to the SNET
incentive award deferral procedures.
The Plan provides for the following credits beginning with the 1994 Plan Year:
1) The crediting of company matching contributions of 80 percent of up to six
percent of the executive's annual base salary limited to the amount that
cannot be contributed to the SNETMRSP due to limitations on eligible
compensation and contributions which are imposed on qualified retirement
plans by the Internal Revenue Code, provided that the executive's
contributions to the SNETMRSP and deferrals of the Short Term Incentive
Awards are sufficient to support the company matching contributions to the
Plan. In the event the SNETMRSP's level of matching contribution for an
employee's base salary changes, the level of matching contributions under
this Plan shall change to the same level.
2) The crediting of company matching contributions equal to 66 2/3 percent of
up to the first six percent of an executive's Short Term Incentive Award
payable for the 1994 and later Plan Years which the executive elects to
defer receipt. In the event the SNETMRSP's level of non-ESOP matching
contribution changes, the level of matching contributions under this Plan
shall change to the same level.
The matching contributions will be credited each affected year, with the first
credit beginning for Plan Year 1994, and will receive annual interest credits
at the applicable federal rate.
EXHIBIT 12
1993 Form 10-K
Southern New England Telecommunications Corporation
Computation of
Ratio of Earnings to Fixed Charges
(dollars in millions)
Income from continuing operations before income taxes,
extraordinary charge and accounting changes $(87.8)
Add:
Interest on indebtedness 88.9
Portion of rents representative of
the interest factor 11.8
Earnings before fixed charges, income taxes
and extraordinary charge (1) $ 12.9
Fixed charges
Interest on indebtedness $ 88.9
Potion of rents representative of
the interest factor 11.8
Fixed charges $100.7
Ratio of earnings to fixed charges [(1) divided by (2)] .13
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FINANCIAL COMMENTARY
RESULTS OF OPERATIONS
REVENUES AND SALES
Total revenues and sales were $1,653.6 million in 1993 as compared with
$1,614.4 million in 1992 and $1,608.4 million in 1991. Local service revenues,
derived from the provision of local exchange, public telephone and local private
line services, increased $43.7 million, or 8.4%, in 1993 and $13.9 million, or
2.7%, in 1992. The increase in 1993 was due primarily to new rates for basic
local service implemented in accordance with The Southern New England Telephone
Company's ("Telephone Company") 1993 general rate award [see Regulatory
Matters]. A portion of the new rates was implemented on July 9, 1993 with the
remainder of the new rates implemented in the form of a temporary surcharge
which amounted to approximately $9 million. The temporary surcharge was in
effect until October 9, 1993, when the remaining new rates became effective.
Revenue from directory assistance and coin telephone increased primarily as a
result of the July 9th increase in rates. Also contributing to the increase in
local service revenues was an increase in access lines in service and an
expansion of the local-calling service area in several exchanges during
September of 1993, which resulted in a shift of intrastate toll revenue to local
service revenue. Access lines in service grew 1.4% to 1,963,972 at December 31,
1993 from 1,936,577 at December 31, 1992. In addition, growth experienced in
subscriptions to premium services, such as a 9.4% increase in TotalphoneSM, also
contributed to the increase in local service revenues.
The increase in 1992 local service revenues was due primarily to new rates
implemented in accordance with the 1991 general rate increase which were
effective March 21, 1991 in the form of a temporary surcharge on local service
rates pending approval of final local and intrastate toll rates. Effective July
21, 1991, final rates were implemented that replaced the surcharge and resulted
in the shift of a portion of the increase awarded from local service revenues to
intrastate toll revenues. Also contributing to the increase in 1992 was growth
experienced in premium services and an increase in access lines in service.
Access lines in service grew a modest 0.8% from 1,921,799 at December 31, 1991,
reflecting the weak Connecticut economy.
In 1993, intrastate toll revenues, which include revenues from toll and
WATS services, decreased $20.1 million, or 5.6%, as compared with an increase of
$3.2 million, or 0.9%,
1,875 1,904 1,922 1,937 1,964
1989 1990 1991 1992 1993
Network Access Lines in Service
(in thousands of lines)
in 1992. Of the total decrease in 1993, $12.6 million was due primarily to
reductions in intrastate toll rates, including several toll discount plans,
implemented in accordance with the 1993 general rate award [see Regulatory
Matters]. Toll message volumes grew approximately 2%, but were impacted
negatively by the expansion of the local-calling service area in several
exchanges as discussed with local service revenues. In addition, WATS revenues
(which includes "800" services) decreased $7.4 million due primarily to: lower
WATS message volumes; customer migration to lower priced services offered by the
Telephone Company in response to competition; and the continued impact of
competitive providers on this market.
The increase in 1992 was due primarily to an increase in operator
surcharge rates implemented effective July 21, 1991 in accordance with the
approved final rates of the 1991 general rate award. In addition, toll message
volumes increased 3.3%. WATS revenues decreased $5.6 million due primarily to:
lower WATS message volumes; a decrease in rates effective July 21, 1991 also
implemented in accordance with the approved final rates of the 1991 general rate
award; the migration of customers to lower priced services offered by the
Telephone Company and the impact competitive providers have had on this market.
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Network access charges are assessed on interexchange carriers and end
users as a means for the Telephone Company to recover its costs and earn a
return on its investment in facilities that provide access to the local exchange
network. In 1993, network access revenues increased $14.3 million or 4.4%, as
compared with an increase of $11.9 million or 3.8%, in 1992. The increase in
1993 was due primarily to an increase in interstate minutes of use of
approximately 5%. Partially offsetting the impact of the increase in minutes of
use was a decrease in tariff rates implemented on July 2, 1993, in accordance
with the Telephone Company's 1993 annual Federal Communications Commission
("FCC") filing under price cap regulation [see Regulatory Matters].
The $11.9 million increase in 1992 network access revenues was due
primarily to a 4.1% increase in interstate minutes of use and an increase in
tariff rates implemented on July 1, 1992, in accordance with the Telephone
Company's 1992 annual FCC filing under price cap regulation. Partially
offsetting the impact of these increases was a reduction in Carrier Common Line
("CCL") rates effective July 1, 1991. CCL rates are the method of recovering
non-traffic sensitive interstate costs from interstate carriers. CCL rates were
reduced to reflect certain FCC mandated changes in cost separation methodology
that shifted costs to the intrastate jurisdiction.
Sales of the Corporation's telecommunications products and services from
its non-telephone businesses decreased $13.4 million, or 6.1%, in 1993 as
compared with an increase of $6.3 million, or 3.0%, in 1992. On a combined
basis, sales of SNET Systems, Inc. ("Systems") and Business Communications, the
new division that resulted from the reorganization of Systems, decreased $36.3
million, or 39.0%. The decline in sales reflects the planned phase out of the
large PBX system business in favor of focusing on the Telephone Company's
central-office based solutions and a contract to sell interstate network
services for AT&T not being renewed for 1993. Sales of the Corporation's
cellular operations, which consist of wholesale, SNET Cellular, Inc.
("Cellular") and retail, SNET MobileCom, Inc. ("MobileCom"), increased $13.2
million, or 23.2%, net of intercompany amounts, due mainly to an increase in the
number of customers. As in 1992, average revenues per customer continued to
decline in 1993, in line with a nationwide trend, as lower volume users make up
a larger portion of the customer base. Sales for SNET Paging, Inc. ("Paging")
increased $3.6 million due primarily to the impact of the purchase and
consolidation, in October 1993, of the remaining 50.5% interest in a paging
partnership [see
523 521 516 526 524
1989 1990 1991 1992 1993
Intrastate Message Volume
(in millions of messages)
/ / WATS Messages
/ / Toll Messages
Note 2 to the Consolidated Financial Statements]. SNET Diversified Group, Inc.'s
("Diversified Group") revenues related to leasing and selling telephone sets to
residential and small business customers increased $1.4 million, or 3.0%. This
increase is attributable primarily to an increase in monthly lease rates
effective on August 1, 1992. The increase in lease rates was offset partially by
a trend of declining number of sets rented as customers continue to purchase
their own equipment. Management expects this trend to continue into 1994.
In 1992, sales of the Corporation's cellular operations increased $6.3
million, or 12.5%, net of intercompany amounts. The increase in sales was due
mainly to an increase in the customer base and an increase in retail rates
charged for the basic cellular package effective September 1991. However,
average usage revenues per customer continued to decline in 1992 as compared
with 1991 due to lower volume users making up a larger portion of the customer
base and the weak economic conditions in the area served by cellular operations.
Sales of Paging increased $2.5 million as a result of a continued increase in
the customer base since beginning operations in April 1991. Sales for Systems
decreased slightly by $2.1 million, or 2.2%. The decline in Systems' sales
reflects the weak Connecticut econ-
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<PAGE>
omy, reductions in revenues derived from rental programs and a focus in 1992 on
sales of higher margin products that resulted in lower sales volume. Diversified
Group revenues from leasing and selling telephone sets to residential and small
business customers decreased $0.4 million, or 0.9%. This decrease reflects a
trend of a declining number of sets rented. The decline in rental revenue was
offset partially by an increase in monthly lease rates effective August 1, 1992
discussed previously.
Publishing and other revenues (which includes revenues from (i) directory
publishing, (ii) marketing, billing and collection, and other non-access
services rendered on behalf of interexchange carriers, (iii) provision for the
Telephone Company's uncollectible accounts receivable, and (iv) net investment
income) increased $14.7 million, or 8.0%, in 1993 as compared with a decrease of
$29.3 million, or 13.7%, in 1992. The provision for uncollectible accounts
receivable for the Telephone Company's residence, business and directory
customers decreased $4.6 million in 1993. This decrease is due primarily to
lower directory publishing uncollectible activity. In 1993, revenues from leases
retained by the Corporation on an investment basis after the discontinuance of
SNET Credit, Inc. ("Credit") in September of 1992 increased $2.5 million.
Revenue from billing and collection services increased $3.6 million. Partially
offsetting the impact of these items was a decrease in publishing revenues of
$7.1 million, or 3.8%. Publishing revenues, a significant portion of which
reflect directory contracts entered into during the prior year, have decreased,
as anticipated, due primarily to economic conditions in 1992 having deteriorated
from 1991. Management expects that revenues from directory publishing for 1994
as compared with 1993 will continue to decline due primarily to the economic
conditions in Connecticut.
Publishing and other revenues decreased in 1992 due primarily to a
decrease of $9.5 million, or 4.8%, in publishing revenues. Publishing revenues
decreased due primarily to economic conditions in 1991 deteriorating from 1990.
Also contributing to the decrease in directory publishing and other revenues in
1992 was an increase in the Telephone Company's provision for uncollectible
accounts of $5.7 million. The increase in the provision for uncollectible
accounts in 1992 was the result of the continued recessionary economic
conditions in Connecticut.
COSTS AND EXPENSES
Total costs and expenses, excluding depreciation, amortization and
interest, were $1,358.9 million in 1993 as compared with $997.8 million in 1992
and $1,044.2 million in
1991. Total costs and expenses in 1993 include a $355.0 million before-tax
charge relating to business restructuring [see Note 5]. Total costs and expenses
in 1991 include a $38.0 million before-tax charge relating to the cost of two
voluntary separation offers, one for bargaining-unit employees and one for
management employees [see Note 3]. Excluding the effect of these items as well
as depreciation, amortization and interest, total costs and expenses would have
been $1,003.9 million in 1993 and $1,006.2 million in 1991.
The restructuring charge recorded in 1993 includes costs that will be
incurred for work force reductions involving approximately 2,500 employees over
the next two to three year period including those that began in January 1994.
The charge also includes the incremental costs of analyzing and implementing
reengineering solutions; designing and developing new processes and tools to
continue the Corporation's provision of excellent service; and the training of
employees to help them keep pace with the changes the Corporation is
implementing to streamline its business and meet customers' changing demands.
Operating and maintenance expenses of $943.3 million increased $4.8
million, or 0.5%, in 1993 compared with a decrease of $9.1 million, or 1.0%, in
1992. The Telephone Company's operating and maintenance expenses were
approximately 80% of total operating and maintenance expenses in 1993, 1992 and
1991. These costs are composed primarily of wages and salaries, and pension and
other employee-benefit costs. The remainder of these expenses relates to the
Corporation's non-telephone businesses and is composed primarily of the cost of
goods sold and general and administrative expenses.
In August of 1992, a new three-year labor contract was ratified by members
of The Connecticut Union of Telephone Workers ("CUTW"). CUTW members received an
initial 2.0% wage increase in September 1992, 3.0% in October 1993 and will
receive an additional increase of 5.0% in October 1994. As part of the new
bargaining-unit contract, approximately 570 bargaining-unit employees accepted
an early retirement incentive offer, Special Pension Option ("SPO"), with most
leaving the Corporation by March 19, 1993 and the remainder by September 17,
1993 [see Note 3]. The Corporation recorded a before-tax pension gain of $6.5
million in 1993 as a result of the SPO.
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$1,066 $1,041 $1,044 $998 $1,359(1)
1989 1990 1991 1992 1993
Consolidated Costs and Expenses
Excluding Depreciation, Amortization
and Interest (in millions)
(1)Includes $355 million
for restructuring charge.
Wage and salary costs of the Telephone Company increased approximately $3
million, or 1% in 1993 as compared with a decrease of approximately $8 million,
or 2%, in 1992. The increase in wage and salary costs in 1993 was
primarily a result of wage increases for bargaining-unit employees mentioned
previously. In addition, management employees received an average 3.5% salary
increase effective April 1992. Partially offsetting these wage increases was a
decrease in the Telephone Company's average work force of 2.4%. The average work
force was reduced primarily through the SPO offset partially by an increase in
employees resulting from the reorganization of Systems. Cost savings are
anticipated to be realized beginning in 1994 as the Corporation has begun to
implement the first phase of the work force reduction portion of its
restructuring plan.
The $8 million decrease in wage and salary costs in 1992 was mainly a
result of a 4.8% reduction in the Telephone Company's average work force. The
Telephone Company's average work force was reduced primarily through two
voluntary separation offers made in 1991, as discussed in Note 3, which resulted
in approximately 1,000 employees leaving the Telephone Company during the last
half of 1991. Partially offsetting the effect of the decrease in the average
work force was a 4.5% and 2.0% increase in wage rates for bargaining-unit
employees effective December 1991 and September 1992, respectively. In addition,
management employees received an average 3.5% salary increase effective April
1992.
Pension and other employee benefit costs of the Corporation increased $5.0
million, or 3.0%, in 1993 as compared with an increase of $12.6 million, or
8.2%, in 1992, exclusive of costs related to the voluntary separation offers.
The Telephone Company's portion of these costs was approximately 90% in 1993,
1992 and 1991.
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" [see Note 3]. With the adoption of SFAS No. 106, the
Corporation elected to record immediately the accumulated postretirement benefit
obligation in excess of the fair value of plan assets ("transition obligation")
as a change in accounting principle. The cumulative effect of this non-cash
accounting change reduced 1993 net income and earnings per common share reported
in the consolidated statement of income by $215.9 million and $3.39,
respectively. SFAS No. 112 requires employers to accrue benefits provided to
former or inactive employees after employment but before retirement. For the
Corporation, these benefits include workers' compensation and disability
benefits. The cumulative effect of this accounting change reduced 1993 net
income and earnings per common share reported in the consolidated statement of
income by $7.1 million and $0.11, respectively.
Health care benefit costs remained relatively unchanged in 1993 as a
result of cost-containment efforts by the Corporation. As discussed in Note 3,
the Corporation has reserved the right to require, beginning on July 1, 1996,
all employees who retire after a specified date to share premium costs of health
care benefits if these costs exceed certain limits. Beginning in 1994, employees
began to share a larger portion of health care benefit costs. Management
continues to seek additional means to manage effectively its provision for
health care benefits for both active and retired employees consistent with its
need to offer employees a competitive benefits package.
Effective April 1, 1991, the Corporation began to provide for the cost of
postretirement health care benefits for employees who are active or who retired
after January 1, 1991. The cost of these benefits was $12.7 million in 1992 as
compared with $6.7 million in 1991. The increase was due primarily to a full
year of costs being recognized in 1992 and a higher number of retirees, as a
result of the two voluntary separation offers made in 1991. These costs have
been contributed to Voluntary Employees' Beneficiary Association ("VEBA")
trusts. In addition, health care benefits increased
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<PAGE>
$5.0 million, or 7.1%, in 1992 reflecting primarily the rising medical costs
nationwide.
Operating and maintenance expenses of the Corporation's non-telephone
businesses decreased $1.1 million, or 0.6%, in 1993. On a combined basis,
Systems' and Business Communications' cost of goods sold decreased $13.0 million
primarily reflecting the reduction in its sales. General and administrative
expenses of the non-telephone businesses increased $10.1 million due primarily
to an increase of $9.4 million associated with cellular operations which have
experienced general growth in the customer base. Partially offsetting this
increase was a decrease of approximately $6 million in lower employee-related
costs as a result of a decrease in the non-telephone businesses' combined work
force. Collectively, the non-telephone businesses experienced a 22.5% reduction
in their average work force in 1993 due primarily to the reorganization of
Systems offset partially by growth in cellular operations.
In 1992, operating and maintenance expenses of these businesses decreased
$12.1 million, or 6.5%. Systems' cost of goods sold decreased $4.1 million
primarily reflecting the reduction in its sales. Systems' general and
administrative expenses decreased $10.9 million due primarily to lower
employee-related costs as a result of a decrease in Systems' work force.
Partially offsetting these decreases was an increase of $1.4 million in the
operating costs of Paging, which began operations in April 1991. Also, costs
associated with cellular operations increased $1.3 million, due primarily to an
increase in their provision for uncollectible accounts and general growth in the
customer base. Collectively, the non-telephone businesses experienced an 11.7%
reduction in its average work force in 1992 due primarily to the voluntary
separation offers made in 1991.
DEPRECIATION AND AMORTIZATION
In 1993, depreciation and amortization expense increased $41.4 million, or
16.6% as compared with a decrease of $3.7 million, or 1.5%, in 1992. The
increase in depreciation and amortization was attributable primarily to revised
depreciation rate schedules for both intrastate and interstate plant of the
Telephone Company, as approved by the Connecticut Department of Public Utility
Control ("DPUC") and FCC, respectively [see Regulatory Matters]. Depreciation
expense related to intrastate plant increased approximately $20 million while
depreciation expense on interstate plant increased approximately $11 million. An
increase in the average depreciable telecommunications plant, property and
equipment also contributed to the increase in depreci-
ation and amortization expense.
The $3.7 million decrease in 1992 depreciation and amortization expense
was attributable primarily to the absence in 1992 of the amortization of the
interstate portion of a depreciation reserve deficiency, which was completed in
December 1991. The amortization, which totaled $8.0 million in 1991, was ordered
by the FCC for a five-year period beginning in 1987. Partially offsetting this
decrease was the impact of the Telephone Company's increase in depreciation
rates for intrastate plant that became effective on March 21, 1991, coincident
with the 1991 general rate award.
INTEREST EXPENSE
Interest expense decreased $6.1 million, or 6.3%, in 1993 and $4.5
million, or 4.4%, in 1992. These decreases are due primarily to lower interest
rates charged on short-term debt, interest savings from debt refinancings and
decreases in average debt outstanding of approximately $67 million and $6
million, respectively. The debt refinancings completed
in December 1993 [see Note 8] are anticipated to save
the Corporation approximately $8 million in interest
expense annually.
INCOME TAXES
The combined federal and state effective tax rate in 1993 was a benefit of
50.3% as compared with expense of 40.9% and 41.1% in 1992 and 1991,
respectively. The unusually high effective tax rate in 1993 reflects the benefit
of the operating loss coupled with the amortization of investment tax credits
and the turn around of temporary deferred income taxes. A reconciliation of
these effective tax rates to the statutory tax rates is disclosed in Note 4.
Effective January 1, 1993, the Corporation adopted SFAS No. 109,
"Accounting for Income Taxes" [see Note 4]. SFAS No. 109 resulted in recording
tax benefits, associated primarily with the effects of lower federal and state
tax rates, applicable to the Corporation's non-telephone businesses. The
cumulative effect of this accounting change increased 1993 net income and
earnings per common share reported in the consolidated statement of income by
$2.8 million and $.04, respectively.
REGULATORY MATTERS
On May 24, 1993, the DPUC issued a final decision on the capital recovery
portion of the November 1992 rate request submitted by the Telephone Company
("Rate Request"). The Telephone Company was granted an increase
in the composite intrastate depreciation rate from 5.7% to approximately 7.3%.
This equated to an increase in the Telephone Company revenue requirement of
approximately
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<PAGE>
$40 million annually. The new depreciation rates were implemented
effective July 1, 1993.
On July 7, 1993, the DPUC issued a final decision ("Final Decision-I") in
its three-phase review of the current and future telecommunications requirements
of Connecticut ("Telecommunications Policy") and a final decision ("Final
Decision-II") in the remainder of the Rate Request docket. The Final Decision-I
addressed the issues of: (i) competition [see Competition]; (ii) infrastructure
modernization; (iii) rate design and pricing principles; and (iv) regulatory and
legislative frameworks. With respect to "rate design and pricing principles,"
the DPUC stated that the pricing of all services must be more in line with the
costs of providing these services. Historically, to provide universal service,
basic residential services have been subsidized by other tariffed services,
primarily message toll and business services. In regard to the regulatory and
legislative framework, the DPUC endorsed the concept of price cap regulation as
a potentially more effective and efficient regulatory system than the present
rate of return regulation.
The Final Decision-II authorized a rate of return on the Telephone
Company's common equity ("ROE") of 11.65% and an increase in intrastate revenue
of $37.5 million effective July 7, 1993. The Telephone Company was authorized
previously to earn a 12.75% ROE. The following major provisions were included in
the Final Decision-II: (i) reductions in intrastate toll rates including several
toll discount plans; (ii) an increase in basic local exchange rates of
residential customers that will be phased in over a two-year period; (iii) a
reduction in the pricing ratio gap between business and residential basic local
service over a two-year period; (iv) a $7.00 per month Lifeline credit for
low-income residential customers; (v) an increase in local calling service areas
for most customers with none being reduced; (vi) an increase in the coin
telephone rate from $.10 to $.25; (vii) an increase in directory assistance
charges from $.24 to $.40 and a decrease in the number of "free" directory
assistance calls; and (viii) a late payment charge of 1% monthly effective
January 1, 1994. This rate award was implemented on July 9, 1993 through a
combination of increases for coin telephone calls, directory assistance calls
along with an approximate 15% interim surcharge on the remaining products and
services with authorized increases including local exchange. The DPUC neither
continued the current incentive plan nor adopted a new plan. On July 22, 1993,
the DPUC issued a supplemental decision ("Supplemental Decision") reducing the
interim surcharge implemented on July 9, 1993 to approximately 8%. The Telephone
Company issued credits during August of 1993 to customers who were charged at
the higher rate. The 8% surcharge was in effect until October 9, 1993, when the
remaining new rates became effective, including an increase in residential basic
local exchange rates averaging $.55 a month over a two-year period. On August
13, 1993, the DPUC granted the Telephone Company an additional revenue
requirement of $1.9 million to the $37.5 million previously awarded based on a
review of certain areas requested by the Telephone Company. The total increase
in intrastate revenue of $39.4 million is more than offset by the approximate
$40 million increase in capital recovery granted on May 24, 1993. In addition,
the Final Decision-II addressed areas of infrastructure modernization and
incentive regulation. Under infrastructure modernization, the Final Decision-II
supported, but did not mandate, implementation of an infrastructure
modernization program for completion by July 1, 1997.
State legislation authorized the formation of a task force to study
Connecticut's telecommunications infrastructure and policies. Draft legislation,
based on the recommendations the task force submitted in February 1994, provides
a framework with opportunities to move forward with a new regulatory model for
Connecticut. Overall, the goals of the draft legislation are to: (i) ensure
high-quality and affordable universal telecommunications service for Connecticut
customers; (ii) promote effective competition and the development of an advanced
infrastructure; and (iii) enhance the efficiency of government, educational, and
health care facilities through telecommunications.
On March 20, 1991, the DPUC issued a final decision in the first phase of
a general rate increase authorizing an increase in Telephone Company revenue
requirements of $47.7 million to be implemented through a temporary surcharge on
local service rates until the second phase was complete. On June 28, 1991, the
DPUC issued a decision in the second phase establishing rates designed to
achieve the $47.7 million rate award. The new rates were effective July 21, 1991
and replaced the temporary surcharge in effect since March 21, 1991. The
decision, while raising rates overall, did authorize a decrease in WATS and
"800" service rates and provided the Telephone Company the flexibility to offer
special promotions of these services. Message toll service rates, which the
Telephone Company had sought to reduce, were not changed. In addition, the June
1991 decision included an incentive regulation structure that provided
for sharing earnings with ratepayers, provided certain benchmarks were met,
based on a schedule of certain levels of return on the intrastate rate base
("ROR").
On April 2, 1993, the Telephone Company filed with the FCC its 1993 annual
interstate access tariff under price cap regulation for effect on July 1, 1993.
The Telephone Company maintained its selection of the 3.3% productivity factor
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and will be allowed to earn up to a 12.25% interstate rate of return annually
before any sharing mechanism is invoked. The Telephone Company's 1993 filing
included a reversal of the Lower Factor Adjustment Mark ("LFAM"), which was
awarded as part of the 1992 annual tariff filing. The LFAM is an adjustment
allowed in the price cap rules to bring interstate earnings up to the minimum
interstate rate of return level of 10.25%. On June 24, 1993, the FCC released an
order suspending rates and designating issues for investigation for all local
exchange carriers' ("LECs"), including the Telephone Company's, 1993 annual
interstate access tariff filings. The FCC allowed the Telephone Company's and
other LECs' filings to take effect on July 2, 1993, subject to investigation.
This filing is anticipated to decrease interstate network access revenues
approximately $12 million for the period July 1, 1993 to June 30, 1994. As of
December 31, 1993, the Telephone Company's interstate rate of return was below
the 12.25% threshold.
On April 2, 1992, the Telephone Company filed with the FCC its 1992 annual
interstate access tariff filing under price cap regulation for effect on July 1,
1992. The Telephone Company was allowed to earn up to a 12.25% interstate rate
of return annually based on a 3.3% productivity factor. The Telephone Company's
1992 filing included a LFAM. On June 29, 1992, the Telephone Company filed a
revised 1992 annual interstate access tariff filing. The revised filing was
approved on July 1, 1992. The Telephone Company's interstate rate of return was
below the 12.25% threshold as of December 31, 1992.
On July 1, 1993, the FCC granted the Telephone Company, on an interim
basis, increased interstate depreciation rates in connection with its normal
triennial review of depreciation. The new depreciation rates were effective
beginning on June 1, 1993, retroactive to January 1, 1993. The new rates
increased depreciation expense by approximately $11 million. Under current price
cap regulation applicable to the Telephone Company, however, any changes in
depreciation rates cannot be reflected in interstate access rates.
The Telephone Company currently accounts for the economic effects of
regulation in accordance with the provisions of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation." In the event recoverability of
operating costs through rates becomes unlikely or uncertain, whether resulting
from competitive effects or specific regulatory actions, SFAS No. 71 would no
longer apply. The financial impact of an accounting change, should the Telephone
Company no longer qualify for the provisions of SFAS No. 71, would be material.
COMPETITION AND NEW SERVICES
COMPETITION
In the Final Decision-I, the DPUC concluded that currently authorized
intrastate competition has not adversely affected either service availability or
cost, and that a broadened scope of intrastate competitive participation was
prudent and warranted. Accordingly, the DPUC found that 10XXX calling and resale
competition were in the public interest and should be allowed beginning July 7,
1993 in accordance with recently enacted state legislation. Using 10XXX calling,
customers can use any certified carrier for interexchange calling within
Connecticut by dialing 1, 0, and a three-digit carrier code. Terms and
conditions associated with the provision of specialized/ancillary services,
including monitoring, reporting and compensation, would no
longer apply.
Since the issuance of Final Decision-I, several interexchange carriers
have filed applications with and received approval from the DPUC to offer 10XXX
intrastate long-distance service. In addition, a number of resellers have filed
for initial certificates of public convenience and necessity. The Telephone
Company anticipates that additional applications will be filed. The introduction
of competition to intrastate long-distance service and the Telephone Company's
reduction in intrastate toll rates will further erode the Telephone Company's
intrastate toll revenues. Pursuant to Final Decision-I, the Telephone Company
filed on October 1, 1993 a detailed study on the implementation of 1+ intrastate
interexchange equal access, including cost, availability of technology, possible
date of implementation, and a proposed deployment process. The DPUC is expected
to review 1+ intrastate interexchange equal access beginning in the second
quarter of 1994.
Regarding competition for local exchange services, in January 1994, MCI
announced plans to construct and operate local communication networks in large
markets throughout the United States, including parts of Connecticut in which
the Telephone Company operates. These networks would allow MCI to bypass the
Telephone Company's
facilities and provide services directly to customers. Pending DPUC approval,
these services are expected to be available in Connecticut in two to three
years. Also in January 1994, the Telephone Company announced that it had reached
an agreement to lease part of its existing digital fiber optic ring network in
the greater Hartford metropolitan area to MFS Communications Company, Inc. This
agreement will allow MFS Communications Company, Inc. to provide services to
large business customers on an
<PAGE>
<PAGE>
intraexchange basis.
In an order adopted in September 1992, the FCC required certain LECs,
including the Telephone Company, to offer expanded special access
interconnection to all interested parties, permitting competitors to terminate
their own transmission facilities in LEC central offices. The Telephone Company
filed tariffs that were implemented on June 16, 1993, subject to investigation,
and was granted some additional pricing flexibility in light of this increased
competition.
On August 3, 1993, the FCC adopted rules, which largely mirror the
requirements adopted in September 1992 for special access interconnection,
requiring certain LECs, including the Telephone Company, to offer expanded
interstate switched access interconnection. The Telephone Company filed tariffs
in the fourth quarter of 1993 to become effective in the first quarter of 1994.
The Telephone Company, expecting to see continued movement toward a fully
competitive telecommunications marketplace, both on an interexchange and
intraexchange basis, has taken several steps to position itself effectively. On
January 13, 1994, the Telephone Company announced its intention to invest $4.5
billion over the next 15 years to build a statewide information superhighway
("I-SNET"). I-SNET will be an interactive multimedia network capable of
delivering voice, video and a full range of information and interactive
services. The Telephone Company expects I-SNET will reach approximately 500,000
residences and businesses by 1997. In addition, the Telephone Company has
reduced its intrastate toll rates beginning in July 1993 [see Regulatory
Matters], has remained focused on providing quality customer service and has
introduced several new services as mentioned below.
NEW SERVICES
On March 31, 1993, the Telephone Company together with Sprint announced
the introduction of 800 CustomLink ServiceSM. This service allows the Telephone
Company to offer its business customers an 800 service that enables them
to receive calls from anywhere in the United States as well as international
locations.
On June 3, 1993, the Corporation announced the formation of a new
subsidiary, SNET America, Inc., ("America") which offers a complete range of
interstate and international long distance services to Connecticut customers,
including calling card and 800 service, along with volume discount plans such as
Distance PlusSM. Distance Plus offers graduated discounts where the discount
increases as the usage increases. America began offering service in the third
quarter of 1993.
On October 21, 1993, the FCC approved the Telephone Company's application
to construct, operate, own, and maintain facilities to conduct a technology and
marketing trial for use in providing video dial tone service in West Hartford,
Connecticut. With construction of the fiber optic and coaxial facilities
completed, the trial began in early 1994. The trial, offered to approximately
500 customers, provides broadcast channels, extensive pay-per-view channels and
on-demand service which will provide hundreds of choices of videos. On December
15, 1993, the Telephone Company filed a request with the FCC for an expansion of
this trial. The proposal seeks to provide this service to an additional 20,000
customers in other areas of Connecticut.
On January 19, 1994, the Telephone Company filed suit in the U.S. District
Court in New Haven claiming that the Cable Communications Policy Act of 1984
("Cable Act") violates the Telephone Company's First and Fifth Amendment rights.
The Cable Act limits the in-territory provision of cable programming by LECs
such as the Telephone Company. The Cable Act currently prohibits LECs from
owning more than 5% of any company that provides cable programming in their
local service area.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation generated cash flows from operations of $478.7 million
during 1993 as compared with $504.2 million during 1992 and $426.5 million
during 1991. Cash flows from operations decreased in 1993 compared with 1992 due
primarily to the funding of postretirement benefits other than pensions.
The primary use of capital resources continued to be capital expenditures.
Cash expended for capital additions was $267.3 million, $289.8 million and
$320.7 million in 1993, 1992 and 1991, respectively. Capital additions for all
years were funded entirely from cash flows from operations. The majority of
these additions was for construction of the
Telephone Company's regulated telephone plant. Managment anticipates that
capital expenditures for consolidated telecommunications plant will approximate
$280 million in 1994, of which approximately $230 million will be used primarily
for expenditures relating to the Telephone Company's network. These additions
are expected to be funded through cash flows from operations. As discussed
previously in the Competition and New Services section, on January 13, 1994 the
Telephone Company announced a plan to invest $4.5 billion over the next 15 years
to build I-SNET. The
<PAGE>
<PAGE>
Telephone Company plans to support this investment
primarily through increased productivity from the new technology deployed,
ongoing cost containment initiatives and customer demand for the new services
offered. The Telephone Company does not plan to request a rate increase for this
investment.
Management anticipates that expenditures, net of tax, for the
restructuring charge [see Note 5] will approximate $60 million in 1994, $80
million in 1995 and $55 million in 1996. These expenditures are expected to be
funded from cash flows from operations.
Over the past few years the Telephone Company has taken advantage of the
general decline in interest rates by refinancing a number of debt instruments
[see Note 8].
In September 1993, the Telephone Company called $45.0 million of 5.750%
debentures. The costs associated with this redemption did not result in a
significant charge to the 1993 consolidated statement of income.
In December 1993, the Telephone Company refinanced: (i) $120.0 million of
9.625% medium-term notes; (ii) $100.0 million of 9.600% medium-term notes; and
(iii) $200.0 million of 8.625% debentures. These refinancings were accomplished
through the issuance of unsecured notes totaling $445.0 million. The unsecured
notes were issued pursuant to a $540.0 million shelf registration statement
filed with the Securities and Exchange Commission ("SEC") in December 1993.
These refinancings are expected to save the Corporation approximately $8 million
in interest expense annually.
In September 1992, the Telephone Company refinanced a total of $175.0
million in debentures with interest rates ranging from 7.750% to 8.125%. The
Telephone Company issued $180.0 million of unsecured medium-term notes to
complete this refinancing. Also, in December 1991, the Telephone Company
refinanced $80.0 million of 9.625% debentures with the issuance of $80.0 million
of unsecured notes.
The Corporation continues to reevaluate potential savings from refinancing
outstanding debt. The remaining
balance of the shelf registration statement filed in December 1993 would be used
if further refinancings do take place and additional extraordinary charges would
likely result.
The Corporation filed a shelf registration statement with the SEC on June
20, 1991 for the sale of up to $165.0 million in debt securities with maturities
of up to 15 years. Standard & Poor's has rated this issue AA and Moody's has
assigned an A1 rating. Pursuant to the shelf registration, $110.0 million of
medium-term, unsecured notes were sold during the second half of 1991 with
principal amounts and
43.4% 51.6% 51.2% 47.4% 59.9%
1989 1990 1991 1992 1993
Debt Ratio
/ / Effect of Leveraged ESOP
interest rates ranging from $10.0 million to $30.0 million
and 7.200% to 8.000%, respectively. The proceeds were used to refinance the
majority of $130.0 million of medium-term notes that matured during 1991. The
remaining debt securities may be sold in one or more issues from time to time as
market conditions warrant.
On March 22, 1993 and April 2, 1993, $5.0 million of 8.590% and $10.0
million of 8.760% of the Corporation's medium-term notes matured, respectively.
These medium-term notes were satisfied through the issuance of short-term debt.
A medium-term note of $30.0 million will mature in September 1994 and is
expected to be satisfied through the issuance of short-term debt.
The Corporation has a bank credit facility to support its
commercial paper program. As part of this credit facility, the Corporation has
obtained a contractual commitment to a $100.0 million line of credit provided by
a syndicate of banks. The annual commitment fee is currently 0.15% of the total
line of credit. As of December 31, 1993, the entire $100.0 million was
available. The establishment of the line of credit will facilitate the
Corporation's ability to issue commercial paper.
In connection with the establishment of the Employee Stock Ownership Plan
("ESOP") in 1990, the Corporation
<PAGE>
<PAGE>
loaned the ESOP $10.0 million and guaranteed a
$110.0 million loan to the ESOP by a third party. The Corporation has committed
to make cash contributions to the ESOP that, together with dividends received on
shares held by the ESOP, will enable the ESOP to make its principal and interest
payments on both loans. Both loans mature in the year 2000. In 1993, the
Corporation made cash payments to the ESOP for debt service of about $13 million
and anticipates making cash payments of approximately $13 million during 1994.
Due primarily to the impact that the cumulative effect of accounting
changes and the restructuring charge had on common shareholders' equity, the
Corporation's ratio of debt to total capitalization at year-end 1993 was 59.9%
compared with 47.4% at year-end 1992 and 51.2% at year-end 1991. The formation
of the ESOP increased the debt ratio at December 31, 1993 and 1992 by 3.9% and
in 1991 by 4.3%. The book value per share at year-end 1993 was $13.38 compared
with $19.79 at year-end 1992 and $18.78 at year-end 1991. The decrease in book
value per share in 1993 was also attributable to the items that negatively
impacted the ratio of debt to total capitalization discussed above. The
quarterly dividend rate of $.44 per share has remained unchanged since the
fourth quarter of 1989.
<PAGE>
<PAGE>
Southern New England Telecommunications Corporation
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
The Corporation's consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and, where applicable,
conform with accounting prescribed by the Federal Communications Commission and
the Connecticut Department of Public Utility Control for telephone companies.
The Corporation is responsible for the preparation and reliability of the data
in these consolidated financial statements, including estimates and judgments
relating to matters not concluded by year end. To this end, the Corporation
maintains a highly developed system of internal controls and supports an
extensive program of internal auditing to monitor compliance with the system.
Management believes that this system provides reasonable, but not absolute,
assurance at a reasonable cost that the transactions of the Corporation are
executed in accordance with management's authorizations and are recorded
properly. This system requires that the recorded assets be compared with
existing assets at reasonable intervals and it provides reasonable assurance
that access to assets is permitted only in accordance with management's
authorization. The Corporation further seeks to assure the reliability of these
financial statements by the careful selection of its managers, by organizational
arrangements that provide appropriate division of responsibility and by
communication and inspection programs aimed at assuring understanding of and
compliance with its policies, standards and managerial authorities.
These consolidated financial statements have been audited by Coopers &
Lybrand, Independent Accountants. Their report, which appears on the following
page, expresses an informed judgment that the Corporation's consolidated
financial statements, considered in their entirety, present fairly, in
conformity with the applicable generally accepted accounting principles, the
Corporation's con-
solidated financial position and operating results.
John A. Sadek
Vice President and Comptroller
January 24, 1994
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors reviews and reports to the
full Board on the appropriateness of the Corporation's accounting policies, the
adequacy of its internal controls and the reliability of the financial
information reported to the public. The Committee, which consists of five
non-employee directors, meets regularly with the Corporation's financial
management, internal auditors and external auditors (Coopers & Lybrand,
Independent Accountants) to review their work and the relationships between them
in whatever depth considered necessary to fulfill the Committee's
responsibilities.
The Committee assesses the Corporation's relationship with the external
auditors and recommends the appointment of the external auditors to the Board
for ratification by the stockholders at the Annual Meeting. The internal
auditors report directly to the Committee and, along with the external auditors,
meet privately with and have unrestricted access to the Committee to discuss any
matter that they believe should be brought to their attention.
During the year, the Committee met with the Chairman, President and Chief
Executive Officer, the Vice President and Comptroller, the Vice President and
General Counsel, the General Internal Auditor and partners of Coopers & Lybrand
to review and discuss the following: the Corporation's consolidated financial
statements; the Coopers & Lybrand Management Letter and Management's Response;
the scope and results of audits performed by Coopers & Lybrand and by Internal
Auditing; the adequacy of the Corporation's system of internal controls; the
status of pending litigation against the Corporation; Security's efforts in the
preceding year; the Standards of Conduct for employees; and developments within
the auditing, accounting and financial reporting fields, as well as the impact
of these developments on the Corporation's accounting policies, practices and
financial reporting.
On the basis of these reviews, the Committee reported with confidence to
the full Board that in its opinion, the Corporation's accounting policies,
reported financial information and system of internal controls are appropriate
to provide the assurances as to the integrity and reliability of financial
reporting required by the Board.
Barry M. Bloom
Chairman, Audit Committee
January 24, 1994
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Southern New England
Telecommunications Corporation:
We have audited the consolidated balance sheet of Southern New England
Telecommunications Corporation as of December 31, 1993 and 1992, and the related
consolidated statements of (loss) income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial position of Southern New
England Telecommunications Corporation as of December 31, 1993 and 1992, and the
consolidated 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.
As discussed in Note 1 to the consolidated financial statements, the
Corporation has changed its method of accounting for postretirement benefits
other than pensions, postemployment benefits and income taxes.
Coopers & Lybrand
Hartford, Connecticut
January 24, 1994
<PAGE>
<PAGE>
Southern New England Telecommunications Corporation
CONSOLIDATED STATEMENT OF (LOSS) INCOME
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
REVENUES AND SALES
Local service $ 566.7 $ 523.0 $ 509.1
Intrastate toll 339.8 359.9 356.7
Network access 342.8 328.5 316.6
Sales 205.2 218.6 212.3
Publishing and other 199.1 184.4 213.7
- ---------------------------------------------------------------------------------------------------------------------------
Total Revenues and Sales 1,653.6 1,614.4 1,608.4
- ---------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Operating 629.8 630.1 631.9
Maintenance 313.5 308.4 315.7
Provision for business restructuring 355.0 -- --
Provision for employee separation benefits -- -- 38.0
Depreciation and amortization 291.1 249.7 253.4
Property and other taxes 60.6 59.3 58.6
Interest 91.4 97.5 102.0
- ---------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 1,741.4 1,345.0 1,399.6
- ---------------------------------------------------------------------------------------------------------------------------
(Loss) Income from Continuing Operations Before Income Taxes,
Extraordinary Charge and Accounting Changes (87.8) 269.4 208.8
Income taxes (44.2) 110.2 85.9
- ---------------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY CHARGE AND ACCOUNTING CHANGES (43.6) 159.2 122.9
- ---------------------------------------------------------------------------------------------------------------------------
Discontinued Operations, net of related taxes
(Loss) income from discontinued operations -- (1.1) 3.0
Loss on disposal of discontinued operations (10.3) (4.0) --
- ---------------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE EXTRAORDINARY CHARGE AND ACCOUNTING CHANGES (53.9) 154.1 125.9
- ---------------------------------------------------------------------------------------------------------------------------
Extraordinary charge from early extinguishment of debt, net of related
taxes of $38.0, $2.0 and $1.7, respectively (44.0) (2.7) (2.2)
Accounting changes cumulative effect to January 1, 1993 (220.2) -- --
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED NET (LOSS) INCOME $ (318.1) $ 151.4 $ 123.7
- ---------------------------------------------------------------------------------------------------------------------------
--------------------------------------------
Tax benefit of dividends declared on shares held in Employee Stock
Ownership Plan ("ESOP") $ -- $ 2.3 $ 2.3
- ---------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings for Per Share Calculation $ (318.1) $ 153.7 $ 126.0
- ---------------------------------------------------------------------------------------------------------------------------
--------------------------------------------
Weighted Average Common Shares Outstanding (in thousands) 63,692 63,073 62,392
- ---------------------------------------------------------------------------------------------------------------------------
--------------------------------------------
(LOSS) EARNINGS PER COMMON SHARE (IN DOLLARS)
(Loss) income from continuing operations before extraordinary charge and
accounting changes $ (.68) $ 2.56 $2.01
Discontinued operations (.16) (.08) .05
- ---------------------------------------------------------------------------------------------------------------------------
(Loss) Income Before Extraordinary Charge and Accounting Changes (.84) 2.48 2.06
Extraordinary charge (.69) (.04) (.04)
Cumulative effect of accounting changes (3.46) -- --
- ---------------------------------------------------------------------------------------------------------------------------
(LOSS) EARNINGS PER COMMON SHARE $ (4.99) $ 2.44 $ 2.02
- ---------------------------------------------------------------------------------------------------------------------------
--------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
Southern New England Telecommunications Corporation
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, AT DECEMBER 31, 1993 1992
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and temporary cash investments $ 224.8 $ 7.2
Accounts receivable, net of allowance for uncollectibles
of $26.7 and $21.8, respectively 266.8 274.5
Materials and supplies 8.0 10.4
Inventories 13.6 12.0
Prepaid publishing 40.5 43.5
Deferred income taxes, prepaid taxes and other 93.8 28.2
- --------------------------------------------------------------------------------------------------------------------------
Total Current Assets 647.5 375.8
Telecommunications plant, property and equipment, net 2,770.1 2,767.4
Net assets of discontinued operations -- 60.9
Deferred charges, leases and other assets 343.9 280.5
- --------------------------------------------------------------------------------------------------------------------------
Total Assets $3,761.5 $3,484.6
- --------------------------------------------------------------------------------------------------------------------------
--------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Obligations maturing within one year $ 290.0 $ 82.8
Accounts payable and accrued expenses 208.1 187.7
Restructuring charge current 113.0 --
Advance billings and customer deposits 54.0 60.1
Accrued compensated absences 37.3 37.7
Other current liabilities 90.4 78.8
- --------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 792.8 447.1
Long-term obligations 984.3 1,048.3
Deferred income taxes 321.0 590.7
Postretirement benefits other than pensions 328.9 --
Restructuring charge long-term 242.0 --
Unamortized investment tax credits 50.8 61.3
Other liabilities and deferred credits 187.1 83.4
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,906.9 2,230.8
- --------------------------------------------------------------------------------------------------------------------------
Common stock; $1.00 par value; 300,000,000 shares authorized;
66,608,360 and 66,117,339 issued, respectively 66.6 66.1
Proceeds in excess of par value 656.7 639.6
Retained earnings 315.7 744.2
Less: Treasury stock; 2,758,512 shares, at cost (104.7) (104.7)
Unearned compensation related to ESOP (79.7) (91.4)
- --------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 854.6 1,253.8
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $3,761.5 $3,484.6
- --------------------------------------------------------------------------------------------------------------------------
--------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
Southern New England Telecommunications Corporation
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
COMMON COMPEN- TOTAL
STOCK ISSUED PROCEEDS IN SATION STOCK-
DOLLARS IN MILLIONS, ------------------------ EXCESS OF RETAINED TREASURY RELATED HOLDERS'
EXCEPT PER SHARE AMOUNTS NUMBER PAR VALUE PAR VALUE EARNINGS STOCK TO ESOP EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1991 64,798,298 $64.8 $598.5 $ 685.4 $(104.7) $(115.7) $1,128.3
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated net income 123.7 123.7
Common stock issued, at market 592,190 .6 18.4 19.0
Dividends declared ($1.76 per
share) (109.8) (109.8)
Reduction of ESOP debt 7.7 7.7
Tax benefit of dividends declared
on total shares held in ESOP 2.3 2.3
Excess of recorded ESOP expense
over cash contributions to
ESOP 4.9 4.9
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1991 65,390,488 65.4 616.9 701.6 (104.7) (103.1) 1,176.1
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated net income 151.4 151.4
Common stock issued, at market 726,851 .7 22.7 23.4
Dividends declared ($1.76 per
share) (111.1) (111.1)
Reduction of ESOP debt 8.4 8.4
Tax benefit of dividends declared
on total shares held in ESOP 2.3 2.3
Excess of recorded ESOP expense
over cash contributions to
ESOP 3.3 3.3
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 66,117,339 66.1 639.6 744.2 (104.7) (91.4) 1,253.8
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated net loss (318.1) (318.1)
Common stock issued, at market 491,021 .5 17.1 17.6
Dividends declared ($1.76 per
share) (112.1) (112.1)
Reduction of ESOP debt 9.2 9.2
Tax benefit of dividends declared
on unallocated shares held
in ESOP 1.7 1.7
Excess of recorded ESOP expense
over cash contributions to
ESOP 2.5 2.5
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 66,608,360 $66.6 $656.7 $ 315.7 $(104.7) $ (79.7) $ 854.6
- ---------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
Southern New England Telecommunications Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net (loss) income $(318.1) $ 151.4 $ 123.7
Tax benefit of dividends on shares held in ESOP 1.7 2.3 2.3
Adjustments to reconcile consolidated net (loss) income to
cash provided by operating activities:
Depreciation and amortization 291.1 249.7 253.4
Provision for business restructuring, before tax 355.0 -- --
Cumulative effect of accounting changes, net of tax 220.2 -- --
Extraordinary charge from early extinguishment of debt,
before tax 82.0 4.7 3.9
Provision for uncollectible accounts 32.1 32.6 25.9
Loss on disposal of discontinued operations, before tax 17.0 5.4 --
Provision for employee separation benefits, before tax -- -- 38.0
(Decrease) increase in deferred income taxes (138.0) 23.5 (1.1)
Decrease in investment tax credits (10.5) (7.3) (7.1)
Discontinued operations -- 9.1 7.4
Change in operating assets and liabilities, net (45.3) 4.8 (51.1)
Other, net (8.5) 28.0 31.2
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 478.7 504.2 426.5
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash expended for capital additions (267.3) (289.8) (320.7)
Increase in investments (10.4) (10.4) (5.0)
Disposal of assets and investments (5.6) (9.3) (10.9)
Cash from sale of leased assets 80.7 -- --
Repayment of loan made to ESOP .8 .7 .6
Discontinued operations -- 5.7 (37.1)
Other, net 8.4 28.6 21.0
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (193.4) (274.5) (352.1)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 420.1 173.8 199.5
Repayments of long-term borrowings (270.3) (295.8) (188.3)
Cash dividends (96.7) (95.4) (95.2)
Amounts placed in trust for debt refinancing (62.1) -- --
Net (payments) proceeds of short-term borrowings (58.5) 1.9 (.6)
Discontinued operations -- (23.3) 15.0
Other, net (.2) (.6) (1.3)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (67.7) (239.4) (70.9)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Temporary Cash Investments 217.6 (9.7) 3.5
Cash and temporary cash investments at beginning of year 7.2 16.9 13.4
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Temporary Cash Investments at End of Year $ 224.8 $ 7.2 $ 16.9
- ---------------------------------------------------------------------------------------------------------------------------
-----------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
Southern New England Telecommunications Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements of the Southern
New England Telecommunications Corporation (the "Corporation") are in conformity
with generally accepted accounting principles and, for its telephone operating
subsidiary, The Southern New England Telephone Company (the "Telephone Company")
with accounting prescribed for telephone operating companies by the Federal
Communications Commission ("FCC") and the Connecticut Department of Public
Utility Control ("DPUC"). Substantially all of the Corporation's operations and
customer base are located in the state of Connecticut.
The consolidated financial statements include the accounts of the
Corporation, all wholly owned subsidiaries and partnerships in which the
Corporation effectively has control. Material investments in which the
Corporation holds a 50% or less interest and in which the Corporation can
exercise influence are reported on an equity basis. All other investments are
reported at cost, which approximates market value.
In accordance with industry practice and Statement of Financial Accounting
Standards ("SFAS") No. 71 "Accounting for the Effects of Certain Types of
Regulation," revenues of the Corporation's non-telephone businesses attributable
to transactions with the Telephone Company's regulated operations have not been
eliminated in the accompanying consolidated financial statements. Revenues of
the Telephone Company earned from providing tariffed telephone services to its
non-telephone businesses also have not been eliminated. All other significant
intercompany transactions and accounts have been eliminated.
ACCOUNTING CHANGES The Corporation implemented SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions," SFAS No. 112
"Employers' Accounting for Postemployment Benefits" and SFAS No. 109 "Accounting
for Income Taxes" effective January 1, 1993. The cumulative effect of these
accounting changes as of January 1, 1993 resulted in a one-time, non-cash charge
that reduced 1993 net income and earnings per common share reported in the
consolidated statement of income by $220.2 million and $3.46, respectively.
REVENUE RECOGNITION Revenues are recognized when earned regardless of the
period in which billed. Revenues for directory advertising are recognized over
the life of the related directory, normally one year.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION Regulatory authorities require
the Telephone Company to provide for a return on capital invested in certain new
telephone plant while under construction by including an allowance for funds
used during construction ("AFUDC"), which includes both an interest and equity
return component, as an item of income during the construction period and as an
addition to the cost of the plant constructed. Such income is not realized in
cash currently but will be realized over the service life of the related plant
as the resulting higher depreciation expense is recovered in the form of
increased revenues.
DEPRECIATION AND AMORTIZATION The provision for depreciation for interstate
telephone plant is based on the FCC approved equal life group ("ELG")
straight-line depreciation method using a remaining-life formula on a phased-in
basis which began in 1982. Vintages of interstate plant in service prior to the
phase in of ELG are being depreciated using a composite vintage group method.
For intrastate plant, the DPUC approved ELG for 1993 vintages and subsequent
periods. Vintages of intrastate plant in service prior to 1993 are being
depreciated using a composite vintage group method.
Property and equipment other than telephone plant are depreciated
primarily using the straight-line method over the estimated useful lives of the
assets. Assets acquired under capital leases are generally amortized over the
life of the lease using the straight-line method.
INCOME TAXES The Corporation files a consolidated federal income tax return
and, where allowable, combined state income tax returns. Effective January 1,
1993, the Corporation changed the method of computing income taxes from the
deferred method under Accounting Principles Board ("APB") Opinion No. 11 to the
liability method with the adoption of SFAS No. 109. Under the liability method,
deferred tax assets and liabilities are determined based on all temporary
differences between the financial statement and tax bases of assets and
liabilities using the currently enacted rates. Additionally, under SFAS No. 109,
the Corporation may recognize deferred tax assets if it is more likely than not
that the benefit will be realized.
<PAGE>
<PAGE>
Depreciation for income tax purposes is generally based upon accelerated
methods and shorter lives causing such depreciation to be greater during the
early years of telecommunications plant, property and equipment life than the
depreciation charges for such assets reflected in these financial statements.
The accumulated net tax effects of these and other temporary differences are
recorded as deferred income taxes in the accompanying consolidated balance
sheet.
Investment tax credits realized in prior years by the Telephone Company
are being amortized as a reduction to income taxes over the life of the related
plant that gave rise to the credits.
(LOSS) EARNINGS PER COMMON SHARE (Loss) earnings per common share are
computed by dividing consolidated net (loss) income applicable to common stock
by the weighted average number of common shares outstanding during the period.
Effective in 1993, in accordance with the adoption of SFAS No. 109, the
Corporation no longer adds the tax benefit of dividends declared on shares held
by the Corporation's Employee Stock Ownership Plan ("ESOP") back to consolidated
net (loss) income to compute (loss) earnings per common share. However, under
SFAS No. 109, the tax benefit relating to dividends declared on allocated shares
held by the ESOP is recorded as a reduction to income taxes and therefore is
included in the calculation of (loss) earnings per common share.
CASH AND TEMPORARY CASH INVESTMENTS Cash and temporary cash investments are
stated at cost, which approximates market value, and include amounts that are
readily convertible into cash and are not subject to significant risk from
changes in interest rates. Temporary cash investments that have a maturity of 90
days or less are considered cash equivalents for purposes of the consolidated
statement of cash flows. The Corporation records payments made by draft as
accounts payable until the banks honoring the drafts have presented them for
payment.
MATERIALS, SUPPLIES AND INVENTORIES Materials and supplies, which are carried
at original cost, are primarily for the construction and maintenance of
telephone plant. Inventories, principally telephone systems and telephone sets,
are carried at the lower of weighted average cost or market value.
TELECOMMUNICATIONS PLANT, PROPERTY AND EQUIPMENT Telecommunications plant,
property and equipment is stated at original cost less accumulated depreciation
and includes certain employee-benefit costs and payroll taxes applicable to
self-constructed assets. The cost of depreciable telephone plant retired, net of
removal costs and salvage, is charged to accumulated depreciation. When
depreciable property and equipment other than telephone plant are sold or
retired, the resulting gain or loss is recognized currently as an element of
income. Replacements, renewals and betterments of telecommunications plant,
property and equipment that materially increase an asset's usefulness or
remaining life are capitalized. Minor replacements and all repairs and
maintenance are charged to expense.
DEFERRED CHARGES Regulatory authorities require or permit the exclusion of
certain costs of the Telephone Company from entering into ratemaking when they
are incurred. When such costs will be recovered through future rates, the
Telephone Company records these costs as deferred charges. In accordance with
this practice, deferred charges include the Telephone Company's 1990 final gross
earnings tax payment, which is being amortized over ten years through 1999 and
accrued but unexpensed compensated absences at December 31, 1987, which are
being amortized over ten years through December 31, 1997. Amortization of these
costs is on a straight-line basis.
LEASE NOTES RECEIVABLE Direct-financing and leveraged lease contracts as
defined by SFAS No. 13, "Accounting for Leases," as amended, are accounted for
by recording on the consolidated balance sheet the total minimum lease payments
receivable, plus the estimated residual value, less the unearned lease income
and, for leveraged leases, less the associated aggregate non-recourse debt
obligation. The unearned lease income for direct-financing leases represents the
excess of total minimum lease payments, plus estimated residual value expected
to be realized, over the cost of the related equipment. For leveraged leases,
the unearned income reflects the net positive cash flow to be generated from the
lease.
EMPLOYEE STOCK OWNERSHIP PLAN In accordance with accounting practices
applicable to leveraged employee stock ownership plans, debt of the ESOP that
has been guaranteed by the Corporation is recorded on the consolidated balance
sheet as long-term debt and as a reduction of stockholders' equity. As the ESOP
repays the debt, a corresponding reduction in long-term debt and an increase in
stockholders' equity is recorded.
<PAGE>
<PAGE>
NOTE 2: FINANCIAL DATA ON SUBSIDIARIES
The Corporation derives substantially all of its revenues from the
telecommunications service industry by providing network services,
communications systems, information management services, long-distance,
directory publishing, advertising, cellular mobile phone, and paging services.
During 1993, 1992 and 1991, revenues earned from providing services to American
Telephone and Telegraph Company ("AT&T") accounted for approximately 12.3%,
12.1% and 12.9%, respectively, of telephone operating revenues and 10.8%, 11.1%
and 11.6%, respectively, of consolidated revenues and sales.
A summary of the Telephone Company's operations, prepared from financial
statements included in its Annual Report on Form 10-K, is presented as follows:
CONDENSED STATEMENT OF (LOSS) INCOME
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED
DECEMBER 31, 1993 1992 1991
- -----------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $1,442.4 $1,402.6 $1,393.6
Operating expenses(1) 1,448.5 1,062.6 1,097.1
- -----------------------------------------------------------------
Operating (Loss) Income (6.1) 340.0 296.5
Interest expense 68.0 72.4 75.2
Other (expense) income, net (.8) 1.5 2.4
Income taxes (43.9) 108.6 92.8
- -----------------------------------------------------------------
(Loss) Income Before
Extraordinary Charge and
Accounting Change (31.0) 160.5 130.9
Extraordinary charge from early
extinguishment of debt,
net of related taxes of
$38.0, $2.0 and $1.7,
respectively 44.0 2.7 2.2
Accounting change cumulative
effect to January 1,
1993 (6.5) -- --
- -----------------------------------------------------------------
Net (Loss) Income(1) $ (81.5) $ 157.8 $ 128.7
- -----------------------------------------------------------------
</TABLE>
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, AT DECEMBER 31, 1993 1992
- ---------------------------------------------------------------
<S> <C> <C>
Current assets $ 594.2 $ 354.4
Telephone plant, net 2,610.6 2,620.9
Deferred charges and other assets 265.7 148.9
- ---------------------------------------------------------------
Total Assets $3,470.5 $3,124.2
- ---------------------------------------------------------------
Current liabilities(2) $ 681.0 $ 402.9
Long-term obligations 746.1 760.5
Other liabilities and deferred
credits(2) 940.1 666.0
Stockholder's equity 1,103.3 1,294.8
- ---------------------------------------------------------------
Total Liabilities and Stockholder's
Equity $3,470.5 $3,124.2
- ---------------------------------------------------------------
<FN>
(1) Includes a $335.0 million before-tax charge for restructuring that reduced
net income by $192.7 million.
(2) Includes the liability for restructuring of which the current portion is
$103.0 million and the long-term portion is $232.0 million.
</TABLE>
Information on the Corporation's operations, exclusive of discontinued
operations and the Telephone Company's regulated operations, is summarized as
follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
SALES
Cellular operations(1) $ 70.1 $ 56.9 $ 50.6
Business Communications(2) 56.9 93.2 95.3
SNET Diversified Group, Inc. 58.4 47.1 47.7
SNET Real Estate, Inc. 13.6 13.9 13.1
All others(3) 7.8 16.0 14.4
Intercompany eliminations (1.6) (8.5) (8.8)
- ----------------------------------------------------------------
Total Sales $205.2 $218.6 $212.3
- ----------------------------------------------------------------
NET INCOME (LOSS)
Cellular operations(1) $ 4.0 $ 4.0 $ 2.2
Business Communications(2) (4.5) (1.2) (7.3)
SNET Diversified Group, Inc. 7.9 11.5 9.4
SNET Real Estate, Inc. (.5) (.5) (1.0)
All others(3) (30.0) (18.5) (10.7)
- ----------------------------------------------------------------
Combined Net Loss $(23.1) $ (4.7) $ (7.4)
- ----------------------------------------------------------------
DOLLARS IN MILLIONS, AT DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------
Combined Assets $282.4 $254.2 $241.0
- ----------------------------------------------------------------
<FN>
(1) Cellular operations consist of the Corporation's wholesale and retail
cellular businesses, SNET Cellular, Inc. ("Cellular") and SNET MobileCom,
Inc. ("MobileCom"), net of intercompany amounts.
(2) For comparative purposes, 1991, 1992 and the first quarter of 1993 results
of SNET Systems, Inc. ("Systems") are shown with Business Communications.
(3) For 1991 and 1992, all others include SNET Premium Services, SNET Paging,
Inc. ("Paging"), SNET America, Inc. and Parent Company operations. For 1993,
SNET Premium Services is included with SNET Diversified Group, Inc.
("Diversified Group").
</TABLE>
In April 1993, Systems and AT&T entered into an agreement whereby AT&T
assumed product support and maintenance for Systems' customers who own or rent
their Private Branch Exchange ("PBX") equipment. This agreement is part of the
implementation of the reorganization of Systems' operations announced in January
1993 and is in line with the Corporation's strategy to focus on the Telephone
Company's central-office based solutions. The Corporation, through its new
division, Business Communications, a part of Diversified Group, will continue to
offer and maintain certain key products that are complementary to central-office
based solutions.
On October 20, 1993, TNI Associates, Inc. ("TNIA"), formerly SNET Paging
Acquisition Corporation, a wholly owned subsidiary of Paging, purchased the
remaining 50.5% partnership interest in the net assets of TNI Associates (the
"TNI Partnership") from Telecommunications Network, Inc.
<PAGE>
<PAGE>
The TNI Partnership business purchased by TNIA operates a wide-area paging
network covering the seaboard area from metropolitan New York to southern New
Jersey and Philadelphia. The purchase price totaling $21.9 million consists of
$3.7 million of cash, the assignment of $.9 million of promissory notes and
other assets, and the assumption of $17.3 million of the TNI Partnership's debt.
TNIA has recorded $7.2 million of goodwill, which is being amortized over 15
years. TNIA's share of the partnership income is shown on the equity method
prior to purchase and was fully consolidated beginning on the October 20, 1993
purchase date. If the purchase had occurred on January 1, 1993, 1993
consolidated revenues, loss from continuing operations before income taxes,
extraordinary charge and accounting changes and consolidated net loss would have
been $1,663.9 million, $(87.3) million and $(317.8) million, respectively. If
the purchase had occurred on January 1, 1992, 1992 consolidated revenues, income
from continuing operations before income taxes and extraordinary charge and net
income would have been $1,624.2 million, $260.4 million and $149.2 million,
respectively.
SNET Real Estate, Inc. ("Real Estate") revenues include amounts
attributable to leasing transactions with affiliates. These revenues totaled
$10.3 million, $11.2 million and $9.4 million for 1993, 1992 and 1991,
respectively.
Real Estate's total assets were $71.5 million and $84.8 million at
December 31, 1993 and 1992, respectively. Total assets were comprised primarily
of land, buildings and equipment that were $65.2 million and $70.5 million at
December 31, 1993 and 1992, respectively. Total liabilities were $68.7 million
and $82.0 million at December 31, 1993 and 1992, respectively. Included in total
liabilities was long-term debt of $43.2 million and $65.1 million at December
31, 1993 and 1992, respectively.
Real Estate is a lessor of real property under operating leases. Future
minimum receipts under third-party operating leases for Real Estate at December
31, 1993 are as follows (in millions):
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
- --------------------------------------------------------------------
<S> <C>
1994 $2.3
1995 2.2
1996 1.5
1997 1.4
1998 .6
Thereafter --
- --------------------------------------------------------------------
Total $8.0
- --------------------------------------------------------------------
</TABLE>
NOTE 3: EMPLOYEE BENEFITS
SEPARATION OFFERS As part of the bargaining-unit contract negotiated in
August 1992, pension benefits for bargaining-unit employees were enhanced. Also,
as part of the contract, employees electing to retire or terminate their
employment between December 15, 1992 and February 16, 1993 were offered an early
retirement incentive offer, Special Pension Option ("SPO"). Most employees
electing to retire or terminate left the Corporation by March 19, 1993, with the
remainder having left by September 17, 1993. Approximately 570 employees
accepted the early retirement offer. The Corporation recorded a before-tax $6.5
million pension gain in 1993 as a result of this SPO.
In May 1991, the Corporation announced the 1991 Voluntary Separation
Option Plan ("VSOP") for substantially all bargaining-unit employees. Of the
total number of bargaining-unit employees approximately 7% accepted the VSOP and
left the Corporation by September 1991. In July 1991, the Corporation announced
a separation offer, the Voluntary Management Offer ("VMO"), for substantially
all management employees with at least one year of service. Of the total number
of management employees approximately 14% accepted the VMO and left the
Corporation by December 31, 1991. As a result of these offers, the Corporation
recorded a before-tax charge of $38.0 million in 1991 consisting of $19.6
million in severance costs and $18.4 million in pension costs. On an after-tax
basis, the charge reduced 1991 consolidated net income and earnings per common
share by $21.6 million and $.35, respectively.
PENSION PLANS The Corporation sponsors several non-contributory, defined
benefit pension plans: one for management employees and one for bargaining-unit
employees; and two supplementary non-qualified, unfunded plans, one for
executives and one for non-employee directors. Benefits for management employees
are based on an adjusted career average pay plan. Benefits for bargaining-unit
employees are based on years of service and pay during 1987 to 1991 as well as a
cash balance component. Benefits for the supplementary plans are based on years
of service and average eligible pay for executives and final annual retainer for
non-employee directors.
Funding of the management and bargaining-unit plans is achieved through
irrevocable contributions made to a trust fund. Plan assets consist primarily of
listed stocks, corporate and governmental debt, and real estate. The
Corporation's policy is to fund pension cost for these plans in conformity with
the Employee Retirement Income Security Act of 1974 using the aggregate cost
method. For purposes
<PAGE>
<PAGE>
of determining contributions, the assumed investment earnings rate on plan
assets was 8.5% in 1993 and declines to 6.0% by 1998.
Pension (income) cost for all plans, computed using the projected unit
credit actuarial method, for 1993, 1992 and 1991 includes the following
components:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
- -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 28.5 $ 25.9 $ 26.5
Interest cost on projected
benefit obligation 103.0 100.3 96.0
Amortizations and deferrals, net 131.4 (44.4) 177.1
Positive return on plan assets (262.5) (83.1) (298.3)
Settlement gain (20.0) -- --
Costs relating to special
termination benefits 13.5 -- 18.4
- -----------------------------------------------------------------
Net Pension (Income) Cost $ (6.1) $ (1.3) $ 19.7
- -----------------------------------------------------------------
</TABLE>
The increase in pension income for 1993 is due primarily to the net effect
of a settlement gain and charges for special termination benefits associated
with the SPO that resulted in a one-time net gain of $6.5 million in 1993.
Pension expense decreased in 1992 compared with 1991 due primarily to the
absence of the $18.4 million one-time charge for special termination benefits
relating to the VMO in 1991 and an increase in the discount rate from 7.25% in
1990 to 7.50% in 1991.
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, AT DECEMBER 31, 1993 1992
- --------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
accumulated benefit
obligation, including vested
benefits of $1,240.3 and
$1,190.6, respectively $1,337.9 $1,297.7
- --------------------------------------------------------------
Plan assets at fair value $1,894.1 $1,758.6
Less: Actuarial present value of
projected benefit obligation 1,543.7 1,426.6
- --------------------------------------------------------------
Assets in excess of projected benefit
obligation 350.4 332.0
Add: Unrecognized prior service costs 176.5 191.3
Less: Unrecognized transition asset 193.2 220.2
Unrecognized net
gain since date of
initial application 329.9 306.2
Adjustment required
to recognize minimum
liability 4.1 3.3
- --------------------------------------------------------------
Accrued Pension Cost $ (.3) $ (6.4)
- --------------------------------------------------------------
</TABLE>
The following assumptions were used to calculate the plans' funded status:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993 1992 1991
- -------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for projected
benefit obligation 7.00% 7.50% 7.50%
Expected rate of increase in
future management
compensation levels 4.50% 4.50% 4.50%
Expected long-term rate of
return on plan assets 8.00% 8.00% 8.00%
- -------------------------------------------------------------
</TABLE>
When it is economically feasible to do so, the Corporation amends
periodically the benefit formulas under its pension plans. Accordingly, pension
cost has been determined in such a manner as to anticipate that modifications to
the pension plans would continue in the future.
POSTRETIREMENT HEALTH CARE BENEFITS The Corporation provides health care
benefits for retired employees. Substantially all of the Corporation's employees
may become eligible for these benefits if they retire with a service pension. In
addition, an employee's spouse and eligible dependents may be eligible for
health care benefits. Effective July 1, 1996, all bargaining-unit employees who
retire after December 31, 1989 and all management employees who retire after
December 31, 1991 may have to share with the Corporation the premium costs of
postretirement health care benefits if these costs exceed certain limits.
Prior to January 1, 1993, these benefits were recognized as an expense
only when paid (referred to as the "pay-as-you-go" method). In 1991, in
accordance with a DPUC decision in a rate proceeding for the Telephone Company,
the Corporation began to fund the postretirement health care benefits. These
costs have been contributed to Voluntary Employee Beneficiary Association
("VEBA") trusts. The Corporation's funding policy with regard to health care
costs has been to contribute an amount equal to the service and interest cost of
active employees, subject to tax deductible limits, in order to contain the
growth of the unfunded postretirement health care liability. Based on the DPUC's
July 7, 1993 general rate award decision, the Corporation contributed additional
amounts to the VEBAs in the fourth quarter of 1993. The additional amounts began
to fund the accumulated liability.
Effective January 1, 1993, the Corporation adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS
No. 106 requires that employers accrue, during the years an employee renders
service, the expected cost, based on actuarial valuations, of health care and
other non-pension benefits provided to retirees and their eligible dependents.
With the adoption of SFAS
<PAGE>
<PAGE>
No. 106, the Corporation elected to record immediately the accumulated
postretirement benefit obligation in excess of the fair value of plan assets
("transition obligation") as a change in accounting principle. The cumulative
effect of this accounting change decreased 1993 net income and earnings per
common share reported in the consolidated statement of income by $215.9 million
and $3.39, respectively.
The Corporation's postretirement benefit cost for 1993 includes the
following components:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEAR ENDED DECEMBER 31, 1993
- -------------------------------------------------------------
<S> <C>
Service cost $ 5.3
Interest cost of accumulated benefit obligation 32.0
Positive return on plan assets (13.1)
Amortizations and deferrals, net 6.5
- -------------------------------------------------------------
Net Postretirement Benefit Cost $ 30.7
- -------------------------------------------------------------
</TABLE>
The expected long-term rate of return on plan assets for 1993 is 8.0% for
bargaining-unit health and 7.5% for management health
trusts. The assumed health care cost trend rate used to measure the expected
cost of these benefits in 1993 is 10.9% and declines to 6.8% by 2001. A one
percentage point increase in the assumed health care cost trend rate would have
increased the 1993 net postretirement benefit cost by approximately $2 million
and would have increased the accumulated postretirement benefit obligation as of
December 31, 1993 by approximately $26 million. In 1992 and 1991, the
pay-as-you-go expense combined with the VEBA contributions amounted to $32.4
million and $25.2 million, respectively.
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, AT DECEMBER 31, 1993
- -------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ 364.6
Fully eligible active plan participants 27.4
Other active plan participants 96.2
- -------------------------------------------------------------
Total Accumulated Postretirement Benefit Obligation 488.2
Plan assets at fair value (107.1)
- -------------------------------------------------------------
Accumulated Postretirement Benefit Obligation in
Excess of Plan Assets 381.1
Unrecognized net gain 31.8
- -------------------------------------------------------------
Accrued Postretirement Benefit Obligation $ 349.3
- -------------------------------------------------------------
</TABLE>
The following assumptions were used to calculate the plans' funded status:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993
- ------------------------------------------------------------
<S> <C>
Discount rate for projected benefit obligation 7.00%
Expected rate of increase in future compensation
levels 4.50%
- ------------------------------------------------------------
</TABLE>
POSTEMPLOYMENT BENEFITS Effective January 1, 1993, the Corporation adopted
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This
statement requires employers to accrue benefits provided to former or inactive
employees after employment but before retirement. These benefits include
workers' compensation, disability benefits and health care continuation coverage
for a limited period of time after employment. The standard generally requires
that these benefits be accrued as earned where the right to the benefits
accumulates or vests. The cumulative effect of this accounting change reduced
1993 net income and earnings per common share reported in the consolidated
statement of income by $7.1 million and $.11, respectively. Health care
continuation costs, which do not vest, continue to be paid from company funds
and are expensed when paid.
EMPLOYEE STOCK OWNERSHIP PLAN The Corporation has established a leveraged
ESOP for substantially all employees as part of its existing savings plans.
Under the ESOP, the Corporation's matching contributions are invested entirely
in common stock of the Corporation and are held by the ESOP.
In January 1990, the Corporation loaned the ESOP $10.0 million and in
February 1990, the ESOP borrowed an additional $110.0 million, which the
Corporation guaranteed, through a third party. The proceeds of the $10.0 million
loan were used to acquire common stock of the Corporation through open market
purchases. The proceeds of the $110.0 million loan were used to purchase both
unissued common stock and treasury stock from the Corporation. The Corporation
periodically makes cash payments to the ESOP that, together with dividends
received on shares held by the ESOP, are used to make interest and principal
payments on both loans.
ESOP expense and ESOP trust activity are as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
Compensation expense $16.5 $17.0 $17.6
Interest expense incurred 9.0 9.8 10.6
Dividends declared on ESOP shares (5.4) (5.4) (5.4)
Interest income earned (.8) (.8) (.9)
- ----------------------------------------------------------------
Total Expense $19.3 $20.6 $21.9
- ----------------------------------------------------------------
Dividends Used for Debt Service $ 5.4 $ 5.4 $ 5.4
- ----------------------------------------------------------------
Cash Contributions Used for Debt
Service $13.2 $13.1 $13.1
- ----------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
NOTE 4: INCOME TAXES
Effective January 1, 1993, the Corporation adopted SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 resulted in recording tax benefits,
primarily associated with the effects of lower federal and state tax rates,
applicable to the Corporation's non-telephone businesses. The cumulative effect
of this accounting change increased consolidated net income by $2.8 million or
$.04 per common share.
As required under SFAS No. 109, and in accordance with SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation," the Telephone
Company has a regulatory asset of $71.0 million (recorded in Deferred charges,
leases and other assets) related to the cumulative amount of income taxes on
temporary differences previously flowed through to ratepayers. These amounts
related principally to capitalization of certain general overhead, taxes and
payroll-related construction costs for financial statement purposes. In
addition, the Telephone Company has a regulatory liability of $98.9 million
(recorded in Other liabilities and deferred credits) relating to future tax
benefits to be flowed back to ratepayers associated with unamortized investment
tax credits and decreases in both federal and state statutory tax rates. Both
the regulatory asset and liability are recognized over the regulatory lives of
the related taxable bases concurrent with the realization in rates, except for
the liability related to intrastate excess state tax rates, which in accordance
with the DPUC final decision issued on July 7, 1993, will be returned to
ratepayers over three years. This method is a more accelerated turnaround than
the normal recognition period.
Income tax (benefit) expense includes the following components:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL
Current $ 57.1 $ 66.0 $67.8
Deferred (87.7) 13.0 (8.6)
Investment tax credits, net (10.5) (7.3) (7.2)
- ----------------------------------------------------------------
Total Federal (41.1) 71.7 52.0
- ----------------------------------------------------------------
STATE
Current 27.0 30.5 29.1
Deferred (30.1) 8.0 4.8
- ----------------------------------------------------------------
Total State (3.1) 38.5 33.9
- ----------------------------------------------------------------
Total Income Taxes $(44.2) $110.2 $85.9
- ----------------------------------------------------------------
</TABLE>
Deferred income tax (benefit) expense results primarily from temporary
differences involving accelerated tax depreciation and shorter tax lives for
income tax purposes offset by the 1993 accrual for the restructuring charge,
which was deductible for financial statement purposes but not for tax. In August
1993, the federal corporate income tax rate increased from 34.0% to 35.0%,
retroactive to January 1, 1993. In addition, the enacted state corporate income
tax rate will be gradually reduced from the current 11.5% to 10.0% by January 1,
1998. The net impact of these changes in the enacted tax rates was not material
to total income taxes or to net deferred tax liabilities.
The Corporation had unused alternative minimum tax credits of $3.6 million
as of December 31, 1993. The credits were the result of the Corporation being
subject to the alternative minimum tax in 1991 and 1990. For financial statement
purposes, unused alternative minimum tax credits have been applied as a
reduction to deferred income taxes. For income tax purposes, a credit of $11.6
million was applied as a reduction to regular income tax in 1993, and remaining
unused credit carry-overs are available to offset regular income tax in future
years.
The effective federal income tax rates varied from the statutory federal
rates for the reasons set forth below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal rate (35.0)% 34.0% 34.0%
a. State income taxes, net of
federal income tax effect. (2.3) 9.4 10.7
b. Temporary differences associated
with depreciation on certain
general overhead, taxes and
payroll-related construction
costs and AFUDC. 7.2 1.6 2.3
c. Amounts currently included in
taxable income for which
deferred taxes were provided in
prior years at tax rates greater
than the statutory tax rate
(Telephone Company only). (12.8) (2.1) (2.9)
d. Amortization of investment tax
credits over the life of the
plant that gave rise to the
credits. Such amortization
reduced income tax expense for
the years 1991 through 1993 by
the amounts shown in Note 13. (11.9) (2.7) (3.4)
e. Prior years' tax adjustments. 2.2 .6 .7
f. Other differences, net. 2.3 .1 (.3)
- ---------------------------------------------------------------------
Effective Rate (50.3)% 40.9% 41.1%
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Consolidated deferred income tax liabilities (assets) are composed of the
following at December 31, 1993 (in millions):
<TABLE>
<CAPTION>
TAX EFFECT OF TEMPORARY DIFFERENCES FOR:
- -------------------------------------------------------------
<S> <C>
Depreciation $ 491.0
Items previously flowed through to ratepayers 71.0
Leveraged leases 32.2
Deferred gross earnings tax 19.1
Postretirement benefits other than pensions (145.5)
Restructuring charge (102.8)
Unamortized investment tax credits (37.0)
Other (8.9)
Asset valuation allowances 1.9
- -------------------------------------------------------------
Net Deferred Income Tax Liabilities Long -Term $ 321.0
- -------------------------------------------------------------
</TABLE>
The asset valuation allowance of $1.9 million applies to state and local
net operating loss carryforwards that may expire before the Corporation can
utilize them. There was no net change in the valuation allowance during 1993.
The allowance will continue to be evaluated based on evidence of the realization
of all deferred tax assets.
NOTE 5: RESTRUCTURING CHARGE
In December 1993, the Corporation announced a business restructuring
program designed to reduce costs. The program includes costs that will be
incurred for work force reductions involving approximately 2,500 employees over
the next two to three year period including those that began in January 1994.
The charge also includes the incremental costs of analyzing and implementing
reengineering solutions; designing and developing new processes and tools to
continue the Corporation's provision of excellent service; and the training of
employees to help them keep pace with the changes the Corporation is
implementing to streamline its business and meet the changing demands of
customers. The estimated costs of this restructuring program of $355.0 million
are shown as a separate line item in the consolidated statement of income and
resulted in an after-tax charge of $204.2 million, or $3.21 per common share, to
continuing operations.
NOTE 6: OBLIGATIONS MATURING WITHIN ONE YEAR
Obligations maturing within one year, which include notes payable used to
meet temporary cash needs, consist of the following:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
Current portion of long-term debt $290.0 $25.6 $109.7
Commercial paper -- 56.9 50.8
Current portion of capital lease
obligations -- .3 .5
- ----------------------------------------------------------------
Total Obligations Maturing Within One
Year $290.0 $82.8 $161.0
- ----------------------------------------------------------------
</TABLE>
Additional information regarding commercial paper outstanding during the
year is as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
Average amount outstanding during
the year (based on daily
amounts) $ 49.0 $104.2 $122.4
- ----------------------------------------------------------------
Weighted average interest rate
during the year (based on
daily amounts) 3.20% 4.04% 6.08%
- ----------------------------------------------------------------
Maximum amount outstanding at any
month's end during the year $120.4 $135.4 $196.4
- ----------------------------------------------------------------
Weighted average interest rate at
year end -- 3.29% 4.92%
- ----------------------------------------------------------------
</TABLE>
NOTE 7: LEASE OBLIGATIONS
The Corporation has entered into both capital and operating leases for
facilities and equipment used in its operations. Rental expense under operating
leases was $35.2 million, $39.8 million and $37.8 million for 1993, 1992 and
1991, respectively. Aggregate future minimum rental commitments under
third-party, noncancelable operating leases at December 31, 1993, were as
follows (in millions):
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
- ---------------------------------------------------------------
<S> <C>
1994 $13.5
1995 12.8
1996 11.5
1997 10.1
1998 9.5
Thereafter 35.1
- ---------------------------------------------------------------
Total Minimum Lease Payments $92.5
- ---------------------------------------------------------------
</TABLE>
Future minimum lease payments under capital leases as of December 31, 1993
were $.1 million through 1998 and $.3 million thereafter. Included in the total
$.4 million minimum
lease payments is $.3 million, which represents future interest.
<PAGE>
<PAGE>
NOTE 8: LONG-TERM OBLIGATIONS
The components of long-term obligations at
December 31 are as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS INTEREST RATES 1993 1992
- ---------------------------------------------------------------
<S> <C> <C> <C>
Debentures 4.38% to 5.75% $ 45.0 $ 90.0
8.63% 200.0 200.0
- ---------------------------------------------------------------
Total Debentures 245.0 290.0
- ---------------------------------------------------------------
Unsecured notes 6.13% to 8.00% 715.0 290.0
8.59% to 9.63% 140.0 315.0
- ---------------------------------------------------------------
Total Unsecured Notes 855.0 605.0
- ---------------------------------------------------------------
Guaranteed Debt of
ESOP 9.35% 86.8 95.3
- ---------------------------------------------------------------
Mortgage Notes 9.14% to 10.25% 53.4 66.9
- ---------------------------------------------------------------
Bank Notes 8.50% to 10.50% 38.0 26.1
- ---------------------------------------------------------------
Total Long -Term Debt 1,278.2 1,083.3
Unamortized discount
and premium,
net (4.0) (9.6)
Capital lease
obligations .1 .5
Current portion of
long-term
obligations (290.0) (25.9)
- ---------------------------------------------------------------
Total Long -Term
Obligations $ 984.3 $1,048.3
- ---------------------------------------------------------------
</TABLE>
Maturities of long-term debt outstanding at
December 31, 1993 by type of obligation are as follows
(in millions):
<TABLE>
<CAPTION>
UNSECURED GUARANTEED MORTGAGE BANK
MATURITIES DEBENTURES NOTES DEBT OF ESOP NOTES NOTES TOTAL
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 $200.0 $ 70.0 $ 9.2 $10.2 $ .6 $ 290.0
1995 -- 20.0 10.1 1.7 .5 32.3
1996 -- 20.0 11.1 2.0 .5 33.6
1997 -- -- 12.2 2.2 .5 14.9
1998 -- -- 13.3 2.3 .4 16.0
1999-2008 45.0 420.0 30.9 35.0 31.9 562.8
2009-2018 -- -- -- -- 3.6 3.6
Thereafter -- 325.0 -- -- -- 325.0
- --------------------------------------------------------------------------------------------
Total $245.0 $855.0 $86.8 $53.4 $38.0 $1,278.2
- --------------------------------------------------------------------------------------------
</TABLE>
On September 15, 1993, the Telephone Company called $45.0 million of
5.750% debentures due November 1, 1996. The debentures were redeemed on November
1, 1993. The unamortized costs associated with this redemption did not result in
a significant charge to the 1993 consolidated statement of income.
On December 8, 1993, the Telephone Company filed a shelf registration
statement with the Securities and Exchange Commission ("SEC") to sell up to
$540.0 million in medium-term notes. On December 14, 1993, the Telephone Company
announced that it would repurchase any and all of its $120.0 million of 9.625%
and $100.0 million of 9.600% medium-term notes. The Telephone Company
repurchased $166.5 million of these notes and on December 30, 1993, executed an
"in-substance defeasance" for the remainder of the medium-term notes not
repurchased. Sufficient U.S. Government securities were deposited in an
irrevocable trust to cover the outstanding principal, interest and call premium
payable February 15, 1995. Pursuant to this registration statement, the
Telephone Company sold, on December 21, 1993, with DPUC approval: (i) $200.0
million of 6.125% notes due December 15, 2003 at 99.160 to yield 6.239%; and
(ii) $245.0 million of 7.250% notes due December 15, 2033 at 99.300 to yield
7.304%. The proceeds of the $245.0 million issue were used to repurchase the
debt issues discussed previously and purchase securities placed in the
irrevocable trust established for the "in-substance defeasance." On January 14,
1994, the proceeds of the $200.0 million issue were used to redeem $200.0
million of 8.625% debentures called irrevocably on December 14, 1993. The call
premium, unamortized costs, defeasance premiums, and tender costs associated
with these redemptions have been classified as an extraordinary charge in the
1993 consolidated statement of income. The extraordinary charge totaled $44.0
million, net of applicable tax benefits of $38.0 million, or $.69 per common
share.
On April 2, 1992, the Telephone Company filed a shelf registration
statement with the SEC to sell up to $180.0 million in medium-term notes.
Pursuant to this registration statement, the Telephone Company sold, on August
5, 1992, with DPUC approval, $110.0 million of 7.125% notes due August 1, 2007
at 99.317 to yield 7.200%, and $70.0 million of 7.000% notes due August 1, 2004
at face value. On September 8, 1992, the proceeds from the sale of these
medium-term notes were used to redeem $65.0 million of 7.750% debentures due
June 1, 2004 and $110.0 million of 8.125% debentures due May 1, 2008, both of
which were called on August 6, 1992. The call premium, unamortized debt issuance
costs and unamortized premium associated with the redeemed debentures have been
classified as an extraordinary charge in the 1992 consolidated income statement.
This charge totaled $2.7 million, net of applicable tax benefits of $2.0
million, or $.04 per common share.
On June 20, 1991, the Corporation filed a shelf registration statement
with the SEC for the sale of up to $165.0 million in debt securities with
maturities ranging from three to 15 years. Pursuant to the shelf registration,
the Corporation sold during the third and fourth quarters of 1991, $110.0
million of unsecured notes with interest rates ranging from 7.200% to 8.000%.
These notes mature at various times through November 2001. Additional notes may
be sold in one or more issues from time to time as market conditions
<PAGE>
<PAGE>
warrant. The Corporation used the proceeds to refinance medium-term notes that
matured during 1991.
The Corporation established a bank credit facility to support its
commercial paper program. Under this credit facility, the Corporation has
obtained a contractual commitment to a $100.0 million line of credit provided by
a syndicate of banks. At December 31, 1993, the entire $100.0 million remained
available. The annual commitment fee is currently .15% of the total line of
credit. Under the most restrictive terms of the credit facility, the Corporation
must maintain a consolidated net worth, as defined, of at least $780 million. At
December 31, 1993, consolidated net worth exceeded this amount by $74.6 million.
The establishment of the line of credit will facilitate the Corporation's
ability to issue commercial paper.
Pursuant to a shelf registration filed in December 1989 with the SEC to
register $300.0 million of debt securities, the Telephone Company sold, with
DPUC approval, $80.0 million, the remainder of the shelf registration, of 8.700%
unsecured notes in December 1991 which matures on August 15, 2031. The proceeds
of the $80.0 million issue were used to redeem $80.0 million of 9.625%
debentures called irrevocably on December 20, 1991. Related to this redemption,
the call premium and unamortized costs associated with the called debentures
have been classified as an extraordinary charge in the 1991 consolidated
statement of income. The extraordinary charge totaled $2.2 million, net of
applicable tax benefits of $1.7 million or $.04 per com-
mon share.
Real Estate has issued mortgage notes that are collat-
eralized by the mortgaged properties. Real Estate is a 50% general partner in a
real estate partnership and is contingently liable to the extent recourse
liabilities exceed unrestricted assets of the partnership. At December 31, 1993,
such contingent liability was approximately $4.5 million.
TNIA has a bank note of $12.0 million. The note was assumed as part of the
purchase of the remaining interest in the TNI Partnership [see Note 2]. This
note is guaranteed by Paging.
NOTE 9: DISCONTINUED OPERATIONS
On September 9, 1992, the Corporation's Board of Directors approved a plan
to withdraw from the finance business by phasing out the activities of SNET
Credit, Inc. ("Credit"). As a result of this decision, previously reported
financial statements have been restated to reflect the discontinuance of Credit.
In connection with this plan, the Corporation recorded an estimate of the loss
on the disposal of $4.0 million, net of applicable tax benefits of $1.4 million
in 1992.
During the first and second quarters of 1993, Credit sold portions of its
direct-financing lease portfolio for a total of approximately $81 million in
cash. The proceeds were used to pay all of its third-party debt outstanding. Due
primarily to the net loss on the sales and a reevaluation of the additional
direct-financing leases that will be retained, the Corporation increased the
estimated loss on the disposal by $10.3 million, net of applicable tax benefits
of $6.7 million, during the fourth quarter of 1993.
Operating results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1992 1991
<S> <C> <C>
- -------------------------------------------------------------
Revenues $17.8 $ 24.4
Costs and expenses 18.9 19.1
- -------------------------------------------------------------
(Loss) Income Before Income Taxes (1.1) 5.3
Income taxes -- 2.3
- -------------------------------------------------------------
(Loss) Income from Discontinued Operations $(1.1) $ 3.0
- -------------------------------------------------------------
</TABLE>
No tax benefit was recorded on the loss for 1992 due to the uncertainty of
realization of current and prior year tax losses for state tax purposes.
Net assets of the discontinued business, excluding leases to be retained
as investments, at December 31, 1992 are as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS 1992
<S> <C>
- ------------------------------------------------------------
Lease notes receivable, net $117.1
Other current and noncurrent assets 9.4
Long-term debt (54.2)
Other current and noncurrent liabilities (11.4)
- ------------------------------------------------------------
Net Assets of Discontinued Operations $ 60.9
- ------------------------------------------------------------
</TABLE>
The Corporation retained on an investment basis the portfolio of leveraged
leases and a group of direct-financing leases. The gross investment in these
leases has been recorded on the consolidated balance sheet in Deferred charges,
leases and other assets. The investment in direct-financing leases are in a
commercial aircraft and other equipment. Investments in leveraged leases are in
a coal-fired, electric generating facility and other equipment.
<PAGE>
<PAGE>
The components of the lease notes receivable retained are as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
AT DECEMBER 31, 1993 1992
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
<CAPTION>
DIRECT- DIRECT-
FINANCING LEVERAGED FINANCING LEVERAGED
LEASES LEASES LEASES LEASES
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Minimum rentals
receivable $ 95.4 $ 26.9 $ 72.3 $ 27.6
Unearned income (39.2) (18.2) (37.0) (21.3)
Estimated,
unguaranteed
residual
value of
leased
assets 10.6 34.6 10.3 35.5
Initial direct costs .3 -- .3 --
- -----------------------------------------------------------------------
Lease Notes
Receivable $ 67.1 43.3 $ 45.9 41.8
--------- ---------
Deferred taxes
arising from
leveraged
leases (32.2) (28.6)
- -----------------------------------------------------------------------
Net Investment in
Leveraged
Leases $ 11.1 $ 13.2
- -----------------------------------------------------------------------
</TABLE>
Future minimum receipts under the third-party direct-financing leases at
December 31, 1993 are as follows (in millions):
DIRECT-
FINANCING
YEAR LEASES
- --------------------------------------------------------------------------------
1994 $ 15.4
1995 9.7
1996 7.4
1997 5.5
1998 3.7
Thereafter 53.7
- --------------------------------------------------------------------------------
Total $ 95.4
- --------------------------------------------------------------------------------
NOTE 10: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires certain disclosures about the fair value of all financial instruments,
including both assets and liabilities. The following methods and assumptions
were used to estimate the fair value of each class of financial instrument for
which it is practicable to estimate that value:
CASH AND TEMPORARY CASH INVESTMENTS The carrying amount approximates fair
value because of the short maturity of those instruments.
LONG -TERM INVESTMENTS The fair value of certain investments is estimated
based on quoted market prices for those or similar investments.
SHORT-TERM DEBT The carrying amount of commercial paper approximates fair
value because of the short maturity of those instruments. The fair value of
long-term debt called in 1993 and redeemed in 1994 is estimated based on the
call price for those issues.
LONG -TERM DEBT The fair value of the Corporation's long-term debt is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered
to the Corporation for debt of the same remaining maturities.
INTEREST RATE SWAP AGREEMENTS The fair value of interest rate swaps (used for
hedging purposes) is the estimated amount that the Corporation would receive or
(pay) to terminate the swap agreements at the reporting date, taking into
account current interest rates and the current creditworthiness of the swap
counterparties.
The estimated fair values of the Corporation's financial instruments are
as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
AT DECEMBER 31, 1993 1992
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------
Cash and temporary
cash
investments $ 224.8 $ 224.8 $ 7.2 $ 7.2
Long-term investments 4.9 10.7 5.5 9.8
Short-term debt (290.0) (304.6) (82.5) (82.5)
Long-term debt from
operations:
Continuing (984.2) (1,024.2) (1,048.1) (1,104.2)
Discontinued -- -- (54.2) (55.2)
Interest rate swaps -- (1.6) -- (2.5)
- --------------------------------------------------------------------
</TABLE>
NOTE 11: COMMON, PREFERRED AND PREFERENCE SHARES
The Corporation is authorized to issue up to 300,000,000 shares of common
stock at a par value of $1.00 per share ("Common Stock") as well as 2,000,000
preferred shares at a par value of $50.00 per share and 50,000,000 preference
shares at a par value of $1.00 per share. No preferred or preference shares have
been issued pursuant to these authorizations.
<PAGE>
<PAGE>
Under a 1987 shareholders' rights plan ("Rights Plan"), as amended in
1990, each share of Common Stock has a purchase right that entitles the holder
to purchase one additional share of Common Stock at an exercise price of $80.00.
The rights are not exercisable or transferable apart from the Common Stock until
a person or group has acquired, or has made an offer for, 20% or more of the
outstanding Common Stock. In the event that a person or group acquires 20% or
more of the outstanding Common Stock, each outstand-
ing right, other than those held by the 20% acquirer, is entitled to purchase,
at the exercise price of the rights, a number of shares of Common Stock having a
market value of two times the exercise price
of the right. The Rights Plan may
be amended by the Board of Directors to reduce the threshold at which the rights
are triggered to not less than 10% of the then outstanding Common Stock.
Additionally, if the person or group acquires the Corporation in a merger or
other business combination transaction, each right will entitle the owner to
purchase common stock of the acquirer having a market value of two times the
exercise price of the right. The rights are redeemable at one cent each prior to
public announcement that a person or group has acquired beneficial ownership of
20% or more of the outstanding Common Stock. The rights expire on February 11,
1997.
Compensation paid in the form of Common Stock for consideration other than
cash, or in lieu of cash dividends, is as follows:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
<S> <C> <C> <C>
- --------------------------------------------------------------
Common shares issued under the
Corporation's savings and
incentive plans $ 2.4 $ 8.1 $ 4.7
Dividends reinvested 15.2 15.3 14.4
- --------------------------------------------------------------
Total $17.6 $23.4 $19.1
- --------------------------------------------------------------
</TABLE>
NOTE 12: STOCK OPTION PLAN
The SNET 1986 Stock Option Plan is a plan providing stock options and
stock appreciation rights ("SARs") to certain executives at the discretion of a
committee of the Board of Directors (the "Committee"). The exercise price of
each option may not be less than 100% of the fair market value of the shares on
the date of grant. Options are exercisable at least one year after the date of
grant and have a maximum life of ten years. SARs, which may be granted in tandem
with the related stock option, permit the optionee to receive in cash or shares
(at the Committee's discretion) the amount by which the fair market value on the
exercise date exceeds the related option price. Exercise of an option cancels
the related SAR, and exercise of a SAR cancels the related option.
Information with respect to plan activity during 1993, 1992 and 1991 is as
follows:
<TABLE>
<CAPTION>
OPTIONS SHARES
AVAILABLE UNDER AVERAGE
FOR GRANT OPTION SARS PRICE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------
Balance at 1/1/91 1,498,400 192,500 145,400 $ 30.53
Granted (52,550) 52,550 35,300 $ 34.34
SARs exercised -- (6,250) (6,250) $ 25.82
Cancelled 15,500 (15,500) (13,900) $ 35.07
- -----------------------------------------------------
Balance at 12/31/91 1,461,350 223,300 160,550 $ 31.24
- -----------------------------------------------------
Granted (55,600) 55,600 41,000 $ 30.25
SARs exercised -- (8,450) (8,450) $ 26.08
Options exercised -- (3,700) -- $ 26.09
Cancelled 5,200 (5,200) (1,400) $ 31.18
- -----------------------------------------------------
Balance at 12/31/92 1,410,950 261,550 191,700 $ 31.27
- -----------------------------------------------------
Granted (312,000) 312,000 -- $ 36.24
SARs exercised -- (11,275) (11,275) $ 26.58
Options exercised -- (5,000) -- $ 29.24
Cancelled 13,250 (13,250) (7,825) $ 32.58
- -----------------------------------------------------
Balance at 12/31/93 1,112,200 544,025 172,600 $ 34.20
- ----------------------------------------------------------------
</TABLE>
At December 31, 1993, 159,925 SARs and 218,250 shares under option were
exercisable. In addition, certain executives may be awarded shares based upon
the attainment of performance goals over a three-year period under the SNET Long
Term Incentive Plan. At the discretion of the employee, receipt of the stock may
be deferred. Shares awarded under this plan and those for which receipt was
deferred as of December 31, 1991 were 12,938 and 7,909, respectively. There were
no shares awarded or deferred in 1992 or 1993.
NOTE 13: SUPPLEMENTAL FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
<S> <C> <C> <C>
- ---------------------------------------------------------------
Amortization of investment
tax credits $ 10.5 $ 7.3 $ 6.8
- ---------------------------------------------------------------
Property and other taxes
Property $ 47.6 $ 46.0 $ 48.7
Other 13.0 13.3 9.9
- ---------------------------------------------------------------
Total Property and Other Taxes $ 60.6 $ 59.3 $ 58.6
- ---------------------------------------------------------------
Advertising expense $ 17.0 $ 14.0 $ 15.5
- ---------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
NOTE 13: Supplemental Financial Information (continued)
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
- ---------------------------------------------------------------
<S> <C> <C> <C>
Interest expense
Long-term obligations $ 85.9 $ 90.3 $ 91.4
Short-term obligations 1.6 4.3 7.5
Other 3.9 2.9 3.1
- ---------------------------------------------------------------
Total Interest Expense $ 91.4 $ 97.5 $102.0
- ---------------------------------------------------------------
Interest paid, net of amounts
capitalized $ 97.0 $ 93.3 $101.8
- ---------------------------------------------------------------
Income taxes paid $ 73.9 $ 91.8 $ 83.4
- ---------------------------------------------------------------
Cash change in operating assets
and liabilities:
Increase in
accounts receivable $(15.9) $(21.1) $(28.8)
Decrease in
inventory,
materials and
supplies .5 2.9 .6
Increase
(decrease) in
accounts payable
and compensated
absences 2.7 5.1 (33.9)
Change in other
assets and
liabilities, net (32.6) 17.9 11.0
- ---------------------------------------------------------------
Net Cash Change in Operating
Assets and Liabilities $(45.3) $ 4.8 $(51.1)
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, AT
DECEMBER 31, 1993 1992
<S> <C> <C>
- --------------------------------------------------------------
Telecommunications plant, property and
equipment, net
Telephone plant, at cost
In service $3,965.8 $3,851.9
Under construction 74.0 70.3
- --------------------------------------------------------------
Total Telephone Plant, at cost 4,039.8 3,922.2
Less: Accumulated depreciation 1,429.2 1,301.3
- --------------------------------------------------------------
Total Telephone Plant, net 2,610.6 2,620.9
Property and equipment, net 159.5 146.5
- --------------------------------------------------------------
Telecommunications Plant, Property and
Equipment, net $2,770.1 $2,767.4
- --------------------------------------------------------------
Deferred charges, leases and other
assets
Deferred charges $ 61.0 $ 108.8
Leases 110.4 87.7
Other assets 172.5 84.0
- --------------------------------------------------------------
Total Deferred Charges, Leases and
Other Assets $ 343.9 $ 280.5
- --------------------------------------------------------------
Other current liabilities
Dividends payable $ 28.1 $ 27.9
Postretirement benefits accrued 20.4 --
Interest accrued 19.8 25.4
Other current liabilities 22.1 25.5
- --------------------------------------------------------------
Total Other Current Liabilities $ 90.4 $ 78.8
- --------------------------------------------------------------
</TABLE>
NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
- ---------------------------------------------------------------------------------------------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------------------------------------------------------------------------------------------------
1993 1992 1993 1992 1993 1992 1993 1992
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES AND SALES $ 402.3 $398.4(1) $410.7 $404.9(1) $414.1 $405.2 $ 426.5 $405.9
- ---------------------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME:
Continuing Operations $ 36.5 $ 39.1 $ 40.9 $ 40.8 $ 48.7 $ 39.3 $(169.7)(2) $ 40.0
Discontinued
Operations -- 1.0 -- .9 -- (7.0) (10.3) --
Extraordinary Charge -- -- -- -- -- (2.7) (44.0) --
Cumulative Effect of
Accounting Changes (220.2) -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated $(183.7) $ 40.1 $ 40.9 $ 41.7 $ 48.7 $ 29.6 $(224.0) $ 40.0
- ---------------------------------------------------------------------------------------------------------------------------------
(LOSS) EARNINGS PER COMMON
SHARE:
Continuing
Operations(3) $ .58 $ .63 $ .64 $ .66 $ .77 $ .63 $ (2.66)(2) $ .64
Discontinued
Operations -- .02 -- .01 -- (.11) (.16) --
Extraordinary Charge -- -- -- -- -- (.04) (.69) --
Cumulative Effect of
Accounting
Changes(3) (3.47) -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated $ (2.89) $ .65 $ .64 $ .67 $ .77 $ .48 $ (3.51) $ .64
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Quarterly revenues and sales have been restated to reflect the
discontinuance of Credit in the third quarter of 1992. In 1992, Credit's
sales were $6.3 million and $6.6 million during the first and second
quarters, respectively.
(2) Includes a before-tax charge of $355.0 million for restructuring that
reduced net income and earnings per common share by $204.2 million or $3.21,
respectively.
(3) Per common share is computed independently for each quarter and, for 1993,
the sum of the quarters does not equal the annual amount.
</TABLE>
<PAGE>
<PAGE>
Southern New England Telecommunications Corporation
FINANCIAL AND STATISTICAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL DATA
Revenues and sales $ 1,654 $ 1,614 $ 1,608 $ 1,599 $ 1,656
Costs and expenses (excluding
depreciation, amortization and
interest)(1) $ 1,359 $ 998 $ 1,044 $ 1,041 $ 1,066
Interest expense $ 91 $ 97 $ 102 $ 95 $ 70
Income taxes $ (44) $ 110 $ 86 $ 83 $ 142
Net (Loss) Income:
From continuing
operations(1) $ (44) $ 159 $ 123 $ 129 $ 186
Before extraordinary
charge and accounting changes(1) $ (54) $ 154 $ 126 $ 132 $ 189
Net (loss) income(1) $ (318) $ 151 $ 124 $ 127 $ 189
(Loss) earnings applicable to
common shares(1) $ (318) $ 154 $ 126 $ 129 $ 189
(Loss) earnings per common
share:
From continuing
operations(1) $ (.68) $ 2.56 $ 2.01 $ 2.12 $ 2.99
Before extraordinary
charge and accounting changes(1) $ (.84) $ 2.48 $ 2.06 $ 2.17 $ 3.04
Net (loss) income(1) $ (4.99) $ 2.44 $ 2.02 $ 2.08 $ 3.04
Dividends declared per common
share $ 1.76 $ 1.76 $ 1.76 $ 1.76 $ 1.64
Cash flows provided by
operations, net $ 479 $ 504 $ 427 $ 377 $ 422
Telephone plant capital
additions, excluding AFUDC $ 255 $ 277 $ 295 $ 342 $ 354
Depreciation expense on
telephone plant $ 265 $ 229 $ 232 $ 232 $ 214
Telephone plant, net $ 2,611 $ 2,621 $ 2,566 $ 2,500 $ 2,378
Total assets $ 3,762 $ 3,485 $ 3,451 $ 3,361 $ 3,127
Common stockholders' equity $ 855 $ 1,254 $ 1,176 $ 1,128 $ 1,203
Long-term obligations $ 984 $ 1,048 $ 1,072 $ 991 $ 859
- ---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
STATISTICAL DATA
Network access lines in
service (thousands) 1,964 1,937 1,922 1,904 1,875
Annual growth 1.4% .8% .9% 1.6% 2.0%
Intrastate toll and WATS
messages (millions) 524 526 516 521 523
Annual growth (.4)% 1.9% (1.0)% (.4)% .8%
Return of average total
capital (10.3)% 10.3% 9.6% 9.7% 12.0%
Return on average common
equity (28.2)% 12.5% 10.8% 11.2% 15.8%
Debt ratio 59.9% 47.4% 51.2% 51.6% 43.4%
Pre-tax interest coverage
(times) .1 3.8 3.0 3.2 5.7
Average total debt cost 7.7% 7.8% 8.1% 8.4% 7.8%
Current ratio (times) .82 .84 .81 .69 .89
Average dividend yield 4.9% 5.4% 5.5% 5.2% 4.3%
Payout ratio -- (2) 72.1% 87.1% 84.6% 53.9%
Market price per common share:
High $38.375 $38.000 $35.875 $45.875 $46.500
Low $33.625 $28.250 $29.000 $26.000 $26.750
Average market price per
common share $ 35.70 $ 32.70 $ 32.23 $ 34.15 $ 37.71
Average book value per common
share $ 17.69 $ 19.49 $ 18.68 $ 18.49 $ 19.31
Average price/earnings ratio
(times) -- (2) 13 16 16 12
Weighted average common shares
(thousands) 63,692 63,073 62,392 62,113 62,144
Number of common stockholders 57,352 59,089 60,619 61,862 60,242
Depreciation expense as a
percentage of average depreciable
telephone plant 6.8% 6.1% 6.4% 6.4% 6.3%
Telephone plant depreciated 35.9% 34.0% 32.9% 31.8% 35.7%
Telephone operations employees
(excluding Directory Publishing) 9,087 9,532 9,557 10,430 10,809
Total employees 10,476 11,216 11,224 12,269 12,647
- ---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
<FN>
Certain amounts have been restated to reflect the discontinuance of Credit.
(1) 1993 includes a before-tax charge of $355.0 million, $204.2 million or $3.21
per common share after tax, for a restructuring charge. 1991 includes a
before-tax charge of $38.0 million, $21.6 million or $.35 per common share
after tax, for the cost of employee separation plans. 1990 includes a
before-tax charge of $33.8 million, $19.2 million or $.31 per common share
after tax, from a reduction in the realizable value of accounts receivable.
(2) Not calculated for 1993 based upon a loss per common share. A payout ratio
of 69.6% and an average price/earnings ratio of 14 were calculated excluding
the loss per common share impact of the restructuring charge of $3.21,
discontinued operations of $.16, extraordinary charge of $.69 and cumulative
effect of accounting changes of $3.46.
</TABLE>
<PAGE>
<PAGE>
Southern New England Telecommunications Corporation
INVESTOR INFORMATION
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Executive Office:
SNET
227 Church Street
New Haven, Connecticut 06510
203-771-5200
Stock Exchange Listings:
New York Stock Exchange
Pacific Stock Exchange
Symbol: SNG
Auditors:
Coopers & Lybrand
Independent Accountants
100 Pearl Street
Hartford, Connecticut 06103
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
Annual Meeting of Shareholders
May 11, 1994, 10:00 a.m.
SNET's General Office Building
300 George Street
New Haven, Connecticut
Shareholder Services Center
300 George Street
New Haven, Connecticut 06511
New Haven area: 771-6542
From anywhere in the continental U.S.:
1-800-243-1110
The Form 10-K or quarterly
reports may be obtained
by contacting our Shareholder
Services Center.
SECURITY ANALYSTS AND
PORTFOLIO MANAGERS
- ---------------------------------------
Direct inquiries to:
Mr. James A. Magrone,
DirectorInvestor Relations
227 Church Street
New Haven, Connecticut 06510
203-771-4662.
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN
- --------------------------------------------------------------------------------
All owners of common stock are eligible for the plan, which allows participants
to apply dividends and/or optional cash payments toward increased investment in
the corporation.
Shareholders do not pay any brokerage or administrative fees when purchasing
additional shares through the plan. You can obtain a prospectus and enrollment
forms by contacting our Shareholder Services Center.
MARKET AND DIVIDEND DATA
- --------------------------------------------------------------------------------
Market information was obtained from the composite tape, which encompasses
trading on the principal U.S. stock exchanges as well as offboard trading.
<TABLE>
<CAPTION>
Dividends
Market Price Declared
- -------------------------------------------- ---------------
Calendar 1993 1992 1993 1992
Quarter High Low High Low
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------- ---------------
1st $37 $33 3/4 $33 7/8 $29 5/8 $.44 $.44
2nd 38 3/8 33 5/8 33 3/8 28 1/4 .44 .44
3rd 37 1/8 34 34 7/8 31 1/2 .44 .44
4th 38 1/8 33 7/8 38 31 3/8 .44 .44
</TABLE>
REPRESENTATIVE TRADEMARKS
- --------------------------------------------------------------------------------
CentraLink[SM], CentraLink 2100[SM], CentraLink 3100[SM], and Totalphone[SM] are
servicemarks of The Southern New England Telephone Company.
Distance Plus[SM] is a servicemark of
SNET America, Inc. MobiLink[SM] is a registered servicemark of B-Side Carriers
Limited Partnership. I-SNET[SM], SNET[Registered], We Go Beyond the
Call [Registered], and SNET 800 CustomLink[SM] are registered trademarks
and servicemarks of the Southern New England Telecommunications Corporation.
Advantis[TM] is a trademark of Advantis.
[RECYCLE LOGO]
This Annual Report is Printed on Recycled Paper.
Copyright SNET 1994
Design: Strata Design, Photography: David Arky
Southern New England Telecommunications Corporation
Subsidiaries of the Registrant
Name State of Incorporation
The Southern New England
Telephone Company Connecticut
SNET America, Inc. Connecticut
SNET Cellular, Inc. Connecticut
SNET MobileCom, Inc. Connecticut
SNET Paging, Inc. Connecticut
SNET Diversified Group, Inc. Connecticut
SNET Real Estate, Inc. Connecticut
SNET Credit, Inc. Connecticut
Coopers Certified Public Accountants
& Lybrand
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our reports dated January
24, 1994 on our audits of consolidated financial statements and financial
statement schedules of Southern New England Telecommunications
Corporation as of December 31, 1993 and 1992 and for each of the three
years in the period ended December 31, 1993, included or incorporated by
reference in this Annual Report on Form 10-K, in the following documents filed
by Southern New England Telecommunications Corporation:
. Registration Statement No. 33-6320 on Form S-3 relating to the
Shareholder Dividend Reinvestment and Stock Purchase Plan.
. Post-Effective Amendment No. 3 to Registration Statement No.
33-6326 on Form S-8 relating to the SNET Bargaining Unit
Retirement Savings Plan.
. Post-Effective Amendment No. 2 to Registration Statement No.
33-6325 on Form S-8 relating to the SNET Management Retirement
Savings Plan.
. Registration Statement No. 33-19058 on Form S-8 relating to the
SNET 1986 Stock Option Plan.
. Registration Statement No. 33-41237 on Form S-3 relating to the
registration of $165 million of Debt Securities.
. Registration Statement No. 33-51055 on Form S-8 relating to the
SNET Non-Employee Director Stock Plan.
COOPERS & LYBRAND
Hartford, Connnecticut
March 23, 1994
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Southern New England Telecommunications Corporation, a
Connecticut corporation (hereinafter referred to as the "Corporation"),
proposes to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended,
an annual report on Form 10-K; and
WHEREAS, each of the undersigned is an officer or director, or both,
of the Corporation, and holds the office, or offices, in the Corporation
herein below indicated under his or her name;
NOW, THEREFORE, the undersigned, and each of them, hereby constitutes
and appoints J. A. Sadek their attorney-in-fact for them and in their
name, place and stead, and in each of their offices and capacities with
the Corporation, to execute and file such annual report, and thereafter
to execute and file any amendment or amendments thereto, hereby giving
and granting to said attorney full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as
the undersigned might or could do, if personally present at the doing
thereof, hereby ratifying and confirming all that said attorney may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF each of the undersigned has executed this Power of
Attorney this 9th day of March 1994.
Principal Executive Officers: Directors:
/s/ D. J. Miglio /s/ F. G. Adams
D. J. Miglio F. G. Adams, Director
Chairman, President and
Chief Executive Officer
/s/ William F. Andrews
William F. Andrews, Director
/s/ Donald R. Shassian
Donald R. Shassian
Senior Vice President and
Chief Financial Officer /s/ Zoe Baird
Zoe Baird, Director
/s/ Barry M. Bloom
Barry M. Bloom, Director
/s/ F. J. Connor
F. J. Connor, Director
/s/ William R. Fenoglio
William R. Fenoglio, Director
/s/ Claire L. Gaudiani
Claire L. Gaudiani, Director
/s/ J. R. Greenfield
J. R. Greenfield, Director
/s/ N. L. Greenman
N. L. Greenman, Director
/s/ Worth Loomis
Worth Loomis, Director
/s/ Burton G. Malkiel
Burton G. Malkiel, Director
/s/ Frank R. O'Keefe, Jr.
Frank R. O'Keefe, Jr., Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Southern New England Telecommunications Corporation, a
Connecticut corporation (hereinafter referred to as the "Corporation"),
proposes to file shortly with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended,
an annual report on Form 10-K; and
WHEREAS, the undersigned is director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints J. A.
Sadek his attorney-in-fact for him and in his name, place and stead, and
in his capacity as director of the Corporation, to execute and file such
annual report, and thereafter to execute and file any amendment or
amendments thereto, hereby giving and granting to said attorney full
power and authority to do and perform each and every act and thing
whatsoever requisite and necessary to be done in and about the premises,
as fully, to all intents and purposes, as the undersigned might or could
do, if personally present at the doing thereof, hereby ratifying and
confirming all that said attorney may or shall lawfully do, or cause to
be done, by virtue hereof.
IN WITNESS WHEREOF the undersigned has executed this Power of
Attorney this 4th day of March 1994.
/s/ Richard H. Ayers
Richard H. Ayers, Director
C E R T I F I C A T E
This is to certify that at a regular meeting of the Board of
Directors of Southern New England Telecommunications Corporation held on
March 9, 1994, the following vote was adopted and, as of the date of this
Certificate, has not been amended, modified or rescinded and is in full
force and effect:
"VOTED: That the Chief Executive Officer, the Chief Financial
Officer and the Comptroller are, or either one of them is, authorized to
execute, personally or by attorney, in the name and on behalf of the
Company, and to cause to be filed with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, the
Company's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1993, in substantially the form submitted to this meeting,
but with such changes, additions and revisions as the officer executing
the same shall approve, such approval to be conclusively evidenced by
such execution and thereafter to execute personally, and to cause to be
filed, any amendments or supplements to such report, and to do any and
all other acts and things, and to execute and deliver any and all other
documents necessary or advisable in connection with the foregoing."
Attest:
/s/ Valita H. Luckett
Valita H. Luckett
Assistant Secretary
New Haven, Connecticut
March 18, 1994
