UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
Commission File Number 1-9157
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut 06-1157778
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
227 Church Street, New Haven, CT 06510
(Address of principal executive offices) (Zip Code)
(203) 771-5200
(Registrant's telephone number,
including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X. No .
At the settlement date of April 30, 1998, 67,993,100 common shares were
outstanding.
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Form 10-Q - Part 1 Southern New England Telecommunications Corporation
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED, CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended
March 31,
Dollars in Millions, Except Per Share
Amounts 1998 1997
REVENUES AND SALES $ 527.1 $ 482.7
COSTS AND EXPENSES
Operating and maintenance 305.4 281.6
Depreciation and amortization 95.0 91.6
Taxes other than income 12.9 13.1
Total Costs and Expenses 413.3 386.3
OPERATING INCOME 113.8 96.4
Interest expense 22.6 22.7
Other income, net (1.0) .1
INCOME BEFORE INCOME TAXES 90.2 73.8
Income taxes 33.8 27.7
INCOME BEFORE EXTRAORDINARY CHARGE AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 56.4 46.1
Extraordinary charge, net of related
taxes of $2.7 - (3.7)
Cumulative effect of accounting change
to January 1, 1998, net of related
taxes of $10.8 15.5 -
NET INCOME $ 71.9 $ 42.4
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (THOUSANDS)
Basic 67,225 65,783
Assuming Dilution 68,022 65,848
BASIC EARNINGS PER SHARE
Income before extraordinary charge and
cumulative effect of accounting change $ .84 $ .70
Extraordinary charge, net of tax - (.06)
Cumulative effect of accounting change
to January 1, 1998, net of tax .23 -
BASIC EARNINGS PER SHARE $ 1.07 $ .64
DILUTED EARNINGS PER SHARE
Income before extraordinary charge and
cumulative effect of accounting change $ .83 $ .70
Extraordinary charge, net of tax - (.06)
Cumulative effect of accounting change
to January 1, 1998, net of tax .23 -
DILUTED EARNINGS PER SHARE $ 1.06 $ .64
DIUIDENDS DECLARED PER SHARE $ .44 $ .44
The accompanying notes are an integral part of these financial statements.
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Form 10-Q - Part I Southern New England Telecommunications Corporation
CONDENSED, CONSOLIDATED BALANCE SHEETS
Dollars in Millions, Except Per Share March 31, 1998 December 31, 1997
Amounts (Unaudited)
ASSETS
Cash and temporary cash investments $ 14.2 $ 12.3
Accounts receivable, net of allowance
for uncollectibles of $45.4 and $32.5,
respectively 363.5 327.9
Materials, supplies and inventories 27.3 29.8
Prepaid publishing 13.3 35.9
Deferred income taxes 34.8 37.7
Prepaid taxes 29.0 1.3
Other current assets 3.8 9.7
Total Current Assets 485.9 454.6
Property, plant and equipment, at cost 4,910.0 4,917.0
Accumulated depreciation (3,168.8) (3,200.2)
Property, plant and equipment, net 1,741.2 1,716.8
Intangible assets, net 389.3 394.7
Deferred income taxes 70.8 89.7
Leases and other assets 128.1 115.1
Total Assets $2,815.3 $2,770.9
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 259.0 $ 266.8
Short-term debt 163.6 186.3
Advance billings and customer deposits 50.4 64.4
Other current liabilities 148.5 140.1
Total Current Liabilities 621.5 657.6
Long-term debt 1,146.4 1,156.9
Accrued postretirement benefit obligation 260.2 267.0
Other liabilities and deferred credits 94.6 92.2
Total Liabilities 2,122.7 2,173.7
Common Stock; $1.00 par value;
300,000,000 shares authorized;
69,918,216 and 68,896,854 issued,
respectively 69.9 68.9
Proceeds in excess of par value 671.5 622.1
Retained earnings 69.0 26.8
Treasury stock; 2,230,586 shares, at cost (84.7) (84.7)
Unearned compensation related to ESOP (33.1) (35.9)
Total Shareholders' Equity 692.6 597.2
Total Liabilities and Shareholders'
Equity $2,815.3 $2,770.9
The accompanying notes are an integral part of these financial statements.
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Form 10-Q - Part I Southern New England Telecommunications Corporation
CONDENSED, CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended
March 31,
Dollars in Millions 1998 1997
COMMON STOCK, PAR VALUE
Balance at Beginning of Period $ 68.9 $ 68.4
Common shares issued, at market:
Dividend reinvestment plan .1 .1
Savings and incentive plans .9 .1
Balance at End of Period $ 69.9 $ 68.6
PROCEEDS IN EXCESS OF PAR VALUE
Balance at Beginning of Period $ 622.1 $ 602.8
Dividends declared - -
Common shares issued, at market:
Dividend reinvestment plan 3.0 3.4
Savings and incentive plans 35.6 2.0
Tax benefit on stock options 10.8 -
Balance at End of Period $ 671.5 $ 608.2
RETAINED EARNINGS (DEFICIT)
Balance at Beginning of Period $ 26.8 $ (55.7)
Net income 71.9 42.4
Dividends declared (29.7) (29.0)
Tax benefit of dividends declared on
unallocated shares held in ESOP - .2
Balance at End of Period $ 69.0 $ (42.1)
TREASURY STOCK
Balance at Beginning and End of Period $ (84.7) $(104.7)
UNEARNED COMPENSATION RELATED TO
EMPLOYEE STOCK OWNERSHIP PLAN
Balance at Beginning of Period $ (35.9) $ (47.8)
Reduction of ESOP debt 8.8 8.1
ESOP earned compensation accrual (6.0) (4.7)
Balance at End of Period $ (33.1) $ (44.4)
Total Shareholders' Equity $ 692.6 $ 485.6
The accompanying notes are an integral part of these financial statements.
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Form 10-Q - Part I Southern New England Telecommunications Corporation
CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
Dollars in Millions 1998 1997
OPERATING ACTIVITIES
Net income $ 71.9 $ 42.4
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 95.0 91.6
Extraordinary charge, net of tax - 3.7
Cumulative effect of accounting change,
net of tax (15.5) -
Deferred income taxes 21.8 4.3
Change in operating assets and
liabilities, net (49.1) (23.8)
Other, net 2.1 5.0
Net Cash Provided by Operating Activities 126.2 123.2
INVESTING ACTIVITIES
Cash expended for capital additions (109.6) (89.9)
Other, net 3.1 2.7
Net Cash Used by Investing Activities (106.5) (87.2)
FINANCING ACTIVITIES
Proceeds from long-term debt - 100.0
Repayments of long-term debt (1.7) (82.0)
Net payments of short-term debt (25.0) (26.7)
Stock purchases under employee stock
option plan 35.3 .7
Cash dividends paid (26.3) (25.4)
Other, net (.1) (6.5)
Net Cash Used by Financing Activities (17.8) (39.9)
Increase (decrease) in Cash and Temporary
Cash Investments 1.9 (3.9)
Cash and Temporary Cash Investments at
beginning of period 12.3 9.0
Cash and Temporary Cash Investments at
End of Period $ 14.2 $ 5.1
Income Taxes Paid $ 3.5 $ 5.5
Interest Paid, net of amounts capitalized $ 24.7 $ 24.6
The accompanying notes are an integral part of these financial statements.
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Form 10-Q - Part I Southern New England Telecommunications Corporation
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Amounts)
(Unaudited)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The condensed, consolidated financial statements of the Southern
New England Telecommunications Corporation ("Corporation") have
been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of
management, include all adjustments, which are normal and
recurring in nature, necessary for fair presentation for each
period shown. Certain information and footnote disclosures
normally included in consolidated financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such SEC rules and
regulations. Management believes that the disclosures made are
adequate to make the information presented not misleading.
Operating results for any interim periods, or comparisons between
interim periods, are not necessarily indicative of the results
that may be expected for full fiscal years. It is suggested that
these condensed, consolidated financial statements be read in
conjunction with the consolidated financial statements and notes
thereto included in the Corporation's 1997 Annual Report on Form
10-K.
Accounting Principle Change
Effective January 1, 1998, the Corporation changed its method of
accounting for directory publishing revenues and expenses. The
old accounting method recognized revenues and expenses related to
publishing directories using the "amortization" method. Under
this method, revenues and expenses were recognized over the lives
of the directories, generally one year. Under the new "point-of-
publication" or "as issued basis" method, revenues and expenses
are recognized when the directories are published. The change
was made because it is the preferable method generally followed
in the publishing industry and better reflects the current
operating activity of the business.
The cumulative after-tax effect of applying this accounting
change to prior years was recognized as of January 1, 1998 as a
one-time, non-cash gain of $15.5, or $.23 per share (both basic
and diluted). The gain is net of applicable income taxes of
$10.8. The application of the new accounting method during the
first quarter of 1998 increased net income by approximately $4,
or $.06 per share (both basic and diluted).
On an annual basis, the financial impact of applying the new
accounting method to 1997 was not material. Pro forma first
quarter 1997 results, assuming the new accounting method had been
applied retroactively during the prior period, are as follows:
For the Three Months Ended March 31, 1997 Pro Forma As Reported
Income before extraordinary item $50.3 $46.1
Earnings per share - basic $ .76 $ .70
Earnings per share - diluted $ .76 $ .70
Net income $46.6 $42.4
Earnings per share - basic $ .70 $ .64
Earnings per share - diluted $ .70 $ .64
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Form 10-Q - Part I Southern New England Telecommunications Corporation
New Accounting Standard
In February 1998, the Financial Accounting Standards Board issued
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 revises
certain disclosures employers make about pension and other
postretirement benefit plans and will not impact the
Corporation's results of operations. The Corporation will adopt
SFAS No. 132 at year-end 1998.
Note 2: Planned Merger
On January 4, 1998, the Corporation and SBC Communications Inc.
("SBC") approved a definitive merger agreement whereby the
Corporation will become a wholly-owned subsidiary of SBC. On
February 20, 1998, the Corporation and SBC filed a Joint
Application for Approval of a Change of Control with the
Department of Public Utility Control ("DPUC"). In addition, on
the same day, the Corporation and SBC filed with the Federal
Communications Commission ("FCC") Transfer of Control
Applications for various FCC licenses held by the Corporation.
Approval by both the DPUC and FCC are expected by year-end 1998.
On March 27, 1998, a special meeting of the Corporation's
shareholders was held to vote on the proposed merger. The merger
was approved by the shareholders.
Note 3: Supplemental Financial Information
Operating Cash Flow(1) - The following unaudited financial data on
the Corporation's product groups is not required by generally
accepted accounting principles and is provided for informational
purposes only:
For the Three Months Ended March 31, 1998 1997
Wireline $162.1 $143.9
Wireless 14.8 13.0
Information and Entertainment(2) 28.3 25.3
Other(3) 3.6 5.8
Total $208.8 $188.0
(1) Represents operating income before depreciation and amortization.
Operating cash flow is not a generally accepted accounting principle
measurement.
(2) Reflects the change in accounting for Publishing which increased
operating cash flow by approximately $6.
(3) Includes SNET Real Estate, Inc. and holding company operations.
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Form 10-Q - Part I Southern New England Telecommunications Corporation
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Millions, Except Per Share Amounts)
Southern New England Telecommunications Corporation has business
units in the following telecommunications product groups:
wireline; wireless; and information and entertainment. Wireline
includes telephone related services, premium services and
equipment sales; wireless consists of cellular and paging
services and cellular equipment sales; and information and
entertainment includes publishing, internet and cable television
services. Other activities, such as real estate and holding
company operations, are included with eliminations and other
sales.
Planned Merger
On January 4, 1998, the Corporation and SBC Communications Inc.
("SBC") approved a definitive merger agreement whereby the
Corporation will become a wholly-owned subsidiary of SBC. On
February 20, 1998, the Corporation and SBC filed a Joint
Application for Approval of a Change of Control with the
Department of Public Utility Control ("DPUC"). In addition, on
the same day, the Corporation and SBC filed with the Federal
Communications Commission ("FCC") Transfer of Control
Applications for various FCC licenses held by the Corporation.
Approval by both the DPUC and FCC are expected by year-end 1998.
On March 27, 1998, a special meeting of the Corporation's
shareholders was held to vote on the proposed merger. The merger
was approved by the shareholders.
Comparison of three months ended March 31, 1998 vs. three months
ended March 31, 1997
Operating Results
Income before extraordinary charge and cumulative effect of
accounting change was $56.4 in 1998 compared with $46.1 in 1997.
The corresponding basic earnings per share were $.84 and $.70
while the corresponding diluted earnings per share were $.83 and
$.70.
Revenues and Sales
For the Three Months Ended March 31, 1998 1997
Wireline:
Local service $ 183.9 $ 169.4
Network access 108.2 102.6
Intrastate toll 50.8 53.4
Interstate and international toll 41.2 30.5
Premium services and equipment sales 27.7 27.7
Other revenues 13.0 12.4
Total Wireline 424.8 396.0
Wireless:
Cellular service 54.1 47.0
Cellular equipment sales 2.3 2.2
Paging 1.6 1.7
Total Wireless 58.0 50.9
Information and Entertainment 62.1 46.7
Eliminations and Other Sales (17.8) (10.9)
Total Revenues and Sales $ 527.1 $ 482.7
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Form 10-Q - Part I Southern New England Telecommunications Corporation
Wireline - Local service revenues, derived from providing local
exchange, advanced calling features and local private line
services, increased $14.5, or 8.6%, in 1998. The increase was
due primarily to continued strong growth of 5.8% in access lines
in service to approximately 2,317,000 lines as of March 31,
1998. Excluding the purchase of the Woodbury Telephone Company
("Woodbury") in the third quarter of 1997, access lines would
have increased 4.8%. This increase included significant growth
in Centrex business lines and second residential lines. In
addition, local service revenues increased due to compensation
received as part of the pay telephone reclassification and
compensation provisions of the Federal Telecommunications Act of
1996. Additionally, local service revenues increased as a result
of increased directory assistance revenue resulting from
increased rates, elimination of free calls and increased volume.
Management expects competition to impact local service revenues
as other telecommunications providers continue to expand their
offerings of local service [see Competition].
Network access revenues, generated primarily from interstate and
intrastate services, increased $5.6, or 5.5%. Interstate access
revenues increased $2.9 as a result of growth in access lines
and minutes of use, the absence in 1998 of 1997 proposed tariff
changes and discount plans, and the inclusion of Woodbury. Also
contributing to the growth in revenues is the recovery of
amounts used to fund Universal Service, in accordance with FCC
regulation. Partially offsetting the impact of these items was
a decrease in tariff rates in accordance with the Corporation's
January 1998 FCC filing under price cap regulation. Intrastate
access revenues increased $2.7 due to an increase in intrastate
minutes of use by competitive providers of intrastate long-
distance service and the inclusion of Woodbury.
Intrastate toll revenues, which include primarily revenues from
toll and WATS services, decreased $2.6, or 4.9%. The decrease
was due primarily to a 6.2% reduction in toll message volume, as
well as reduced intrastate toll rates. Lower toll volume was
due primarily to the increasingly competitive toll market. The
decline in rates was attributable to customer migration to
several of the Corporation's discount calling plans that provide
competitive options to business and residential customers.
Increasing competition and the offering of competitive discount
calling plans will continue to place downward pressure on
intrastate toll revenues.
Interstate and international toll revenues increased $10.7 due
primarily to a 25.6% increase in the customer base and a 24.4%
increase in billed minutes of use. The growth is primarily a
result of customer migration to the SNET All Distance[R] product
line which allows Connecticut customers to package their entire
long-distance calling into one competitively priced calling
plan.
Wireless - Cellular service revenues increased $7.1, or 15.1%,
due primarily to growth of 16.0% in the subscriber base.
Information and Entertainment - Information and entertainment
revenues increased $15.4 due primarily to the accounting change
in publishing of approximately $9. In addition, growth in
internet sales due primarily to an increase in the customer
base, from approximately 48,000 at March 31, 1997 to
approximately 95,000 at March 31, 1998, the offering of cable
television service, which began in March 1997 and growth in
directory publishing, also contributed to the increase in
revenues.
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Form 10-Q - Part I Southern New England Telecommunications Corporation
Costs and Expenses
For the Three Months Ended March 31, 1998 1997
Operating costs $305.4 $281.6
Depreciation and amortization 95.0 91.6
Taxes other than income 12.9 13.1
Total Costs and Expenses $413.3 $386.3
Operating costs - Operating costs consist primarily of employee-
related expenses, including wages and benefits. Cost of goods
sold and general and administrative expenses, including
marketing, represent the remaining portion of these expenses.
Total operating costs increased $23.8, or 8.5%.
Wireline - Wireline operating costs increased $10.3, or 4.3%, due
primarily to an increase in the direct costs of providing
interstate and international toll services and higher costs
resulting from providing services (Gateway and Teleservices) to
other carriers. Also contributing to the increase were costs
incurred in connection with local number portability, payment of
amounts to fund Universal Service, in accordance with FCC
regulation, increased advertising costs and expenditures made
for Year 2000 compliance. In addition, current year costs
include $1.6 for Woodbury, which was not acquired until the
third quarter of 1997. Partially offsetting these increases was
a decrease in network software license fees.
Wireless - Wireless operating costs increased $5.3, or 14.3%, due
primarily to increased computer software costs for the roll out
of digital service and increased cost of sales. Additionally,
distributor payments increased as a result of increased customer
activations.
Information and Entertainment - Information and Entertainment
operating costs increased $12.8, or 60.1%, due primarily to the
deployment of cable television service, growth in internet
services and costs associated with the corporate restructure of
directory publishing operations. Approximately $3 of the
increase was attributable to the accounting change in
publishing. Management expects information and entertainment
operating costs to increase as the Corporation continues to
deploy cable television services and continues to offer internet
services to an expanding customer base.
Depreciation and Amortization
For the Three Months Ended March 31, 1998 1997
Depreciation and amortization $95.0 $91.6
The increase is due primarily to an increase in the average
depreciable telecommunications property, plant and equipment and
the inclusion of Woodbury.
Other Income, net
For the Three Months Ended March 31, 1998 1997
Other income, net ($1.0) $.1
The decrease in other income, net was due primarily to contract
cancellation fees.
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Form 10-Q - Part I Southern New England Telecommunications Corporation
Income Taxes
For the Three Months Ended March 31, 1998 1997
Income taxes $33.8 $27.7
The increase in income taxes was due to a corresponding increase
in income before income taxes.
Liquidity and Capital Resources
The Corporation generated cash flows from operations of $126.2
during the three months ended March 31, 1998 as compared with
$123.2 during the three months ended March 31, 1997.
The weighted average number of common shares outstanding for the
first quarter 1998 increased for both basic EPS and diluted EPS
by 2.2% and 3.3%, respectively, primarily as a result of the exercise
of employee stock options. Employees exercised approximately 967,000
stock options in the first quarter of 1998, contributing $35.3 to
cash flows from financing activities. In addition, tax benefits of
$10.8 were accrued by the Corporation, on the ordinary income
recognized by the employees.
The Corporation's ratio of debt to total capitalization decreased
to 65.4% at March 31, 1998 compared with 69.2% at year-end 1997.
For the first quarter of 1998, the Corporation's Board of
Directors declared a dividend of $.44 per share.
Management believes that the Corporation has sufficient internal
and external resources to finance the anticipated requirements of
business development. Capital additions and dividends are
expected to be funded primarily with cash from operations during
the remainder of 1998. The Corporation also has access to
external resources including lines of credit and long-term shelf
registration commitments.
Competition
The Corporation continues to experience an increasingly
competitive environment with respect to telecommunications
services in Connecticut. Competitors include companies that
construct and operate their own communications systems and
networks and/or companies that resell the telecommunications
systems and networks of underlying carriers.
Local service competition grew in 1997 and continued growth is
expected particularly upon commencement of the DPUC-mandated
balloting process which is scheduled to begin in January 1999.
However, the financial impact cannot be predicted at this time.
Based on existing state and federal regulations, the Corporation
expects that many competitors will resell the network of its
wholly-owned subsidiary The Southern New England Telephone
Company ("Telephone Company") and that increased network access
revenues will offset a significant portion of local service
revenues lost to competition.
Regulatory Matters
Effective April 1, 1996, the DPUC replaced traditional rate of
return regulation with alternative (price-based) regulation,
during the transition to full competition. Alternative regulation
includes a five-year monitoring period on financial results and a
price cap formula based on certain services categorized as non-
competitive. The DPUC has reopened the alternative regulation
docket to review the application of
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Form 10-Q - Part I Southern New England Telecommunications Corporation
the price cap formula to local residential and wholesale
services. A decision is expected in the third quarter of 1998.
In February and March 1998, the Telephone Company filed
applications with the DPUC for approval to reclassify Custom
Calling Services, Private Line Services, Direct Inward Dialing
and Hunting Services from the non-competitive to the emerging-
competitive category. The DPUC has opened dockets to review
these applications. Decisions are expected in 1998. The impact
of alternative regulation on the Telephone Company's operating
results will depend on the timing of classifying the various
products and services into categories (non-competitive, emerging-
competitive and competitive) for pricing changes.
As part of its June 25, 1997 decision allowing the Corporation to
restructure and establish separate retail (i.e., competitive
local exchange carrier or "CLEC") and wholesale (i.e., incumbent
local exchange carrier or "ILEC") organizations, the DPUC
mandated that Connecticut customers choose their local exchange
carrier via a balloting process. In order for the balloting
process to commence, the ILEC must demonstrate that the systems
offered to CLECs provide full technical and operational support
The DPUC will examine and critically evaluate the respective
Operations Support System ("OSS") platforms offered to the CLECs.
The DPUC's evaluation will determine the suitability of the ILEC's
OSS to support a competitive local exchange market and will determine
if the interfaces proposed by the ILEC offer the comparability required
under the provisions of the Federal Telecommunications Act of 1996.
On February 25, 1998, the DPUC issued a Draft Decision in the OSS
docket and concluded that by providing access to the same system
that the Corporation's CLEC would use, the ILEC has provided a
comparable interface. On April 1, 1998, the DPUC announced that the
hearings originally scheduled for mid-April in this proceeding would
be postponed until after the Corporation has completed implementing
its OSS plan currently scheduled for July 1. The DPUC will call
hearings no later than 28 days after being notified by the Corporation
that it has completed implementing its OSS plan. Coincident with this
announcement, the DPUC also reopened three dockets to review and address
the terms and conditions under which competitive local exchange service
may be offered in Connecticut in order to facilitate the balloting process.
In February 1998, the DPUC opened two new dockets to examine the
provision of: (i) combinations of unbundled network elements and
(ii) shared transport to CLECs. Decisions in both dockets are
expected in the third quarter of 1998 and may affect existing
interconnection agreements between the ILEC and CLECs operating
in Connecticut.
Also in February 1998, the DPUC held hearings to investigate the
intrastate access rates which carriers pay to access the public
switched telecommunications network. The Telephone Company has
proposed that intrastate access rates continue to be in parity
with the FCC's interstate access rates. A decision is expected
in June 1998.
New Accounting Standard
In February 1998, the Financial Accounting Standards Board issued
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 revises
certain disclosures employers make about pension and other
postretirement benefit plans and will not impact the
Corporation's results of operations. The Corporation will adopt
SFAS No. 132 at year-end 1998.
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Form 10-Q - Part II Southern New England Telecommunications Corporation
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no material developments in the first quarter of 1998.
Item 4. Submission of Matters to a Vote of Security Holders
On March 27, 1998, a special meeting of the Corporation's
shareholders was held to vote on a proposal to approve an
Agreement and Plan of Merger among the Corporation, SBC
Communications Inc., and SBC (CT), Inc., dated January 4, 1998.
The Agreement and Plan of Merger was approved as follows:
Broker
For Against Abstentions Non-votes
53,052,065 661,660 457,937 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number
18 Letter re: changes in accounting principle
(b) Reports on Form 8-K
On January 5, 1998 and January 6, 1998, the
Corporation and the Telephone Company,
respectively, separately filed reports on Form 8-K,
dated January 5, 1998, announcing the execution of
an agreement with SBC Communications Inc., whereby
the Corporation will become a wholly-owned
subsidiary of SBC.
On January 27, 1998, the Corporation and the
Telephone Company separately filed reports on Form
8-K, dated January 27, 1998, announcing the
Corporation's 1997 financial results.
On March 30, 1998, the Corporation filed a report
on Form 8-K, dated March 27, 1998, announcing that
the Corporation's shareholders have voted to
approve the pending merger with SBC Communications
Inc.
On April 24, 1998, the Corporation and the
Telephone Company separately filed reports on Form
8-K, dated April 24, 1998, announcing the
Corporation's financial results for the first
quarter of 1998.
- 13 -
Form 10-Q - Part II Southern New England Telecommunications Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Southern New England Telecommunications Corporation
May 7, 1998
/s/ Donald R. Shassian
Donald R. Shassian
Senior Vice President and Chief Financial Officer
- 14 -
/ COOPERS / Coopers & Lybrand L.L.P.
/ &LYBRAND /
/ a professional services firm
May 6, 1998
Southern New England
Telecommunications Corporation
227 Church Street
New Haven, CT 06510
We are providing this letter to you for inclusion as an exhibit
to your Form 10-Q filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in
accounting of directory publishing income from the "amortization"
method to the "point of publication" method contained in the
Corporation's Form 10-Q for the quarter ended March 31, 1998.
Based on our reading of the data and discussions with the
Corporation's officials of the business judgment and business
planning factors relating to the change, we believe management's
justification to be reasonable. Accordingly, we concur that the
newly adopted accounting principle described above is preferable
in the Corporation's circumstances to the method previously
applied.
We have not audited any financial statements of Southern New
England Telecommunications Corporation as of any date or for any
period subsequent to December 31, 1997, nor have we audited the
application of the change in accounting principle disclosed in
Form 10-Q of Southern New England Telecommunications Corporation
for the three months ended March 31, 1998; accordingly, our
comments are subject to revision on completion of an audit of the
financial statements that include the accounting change.
/s/ Coopers & Lybrand L. L. P.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
1ST QUARTER 1998 FORM 10-Q OF SOUTHERN NEW ENGLAND TELECOMMUNICATIONS
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,200
<SECURITIES> 0
<RECEIVABLES> 408,900
<ALLOWANCES> 45,400
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0
0
<COMMON> 69,900
<OTHER-SE> 622,700
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