SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 22, 1996
THE SOUTHERN NEW ENGLAND TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 1-6654 06-0542646
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
227 Church Street, New Haven, Connecticut 06510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 771-5200
Not Applicable
(Former name or former address, if changed since last report)
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Item 5. Other events.
Southern New England Telecommunications Corporation ("SNET"), parent of
the registrant, announced its fourth quarter earnings today including the
fact that it discontinued use of Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation."
The change in accounting is effective January 1, 1996. Consequently, for
1995 SNET is taking a non-cash, extraordinary before-tax charge of
approximately $1,203 million or $687 million after taxes or $10.59 per share.
This results in a net loss for the fourth quarter and the year.
SFAS 71 specifies accounting standards required for public utilities and
certain other regulated companies. SNET is discontinuing the use of these
standards and adopting an accounting methodology for financial reporting
purposes that is more appropriate for a competitive environment. SNET is
currently facing a significant increase in telecommunications competition
in Connecticut brought about by legislative and regulatory policy changes.
The main purpose of the non-cash, extraordinary charge is to recognize
depreciation reserve deficiencies.
Consolidated earnings from continuing operations for the fourth quarter
before the extraordinary charge were $41 million or $0.62 per share. With
the extraordinary charge, the net loss for the quarter was $(646) million or
$(9.92) per share. This compares with fourth-quarter 1994 net income of $42
million or $.65 per share. The current quarter's figures also reflect
expected dilution of $0.14 per share from the cellular acquisitions completed
in July. Consolidated revenues and sales for the fourth quarter were up
8 percent to $471 million.
For 1995, SNET's earnings from continuing operations, before the
extraordinary charge and with the exclusion of one-time items announced
previously in the second quarter, were $2.72 per share compared with $2.77
per share for 1994. With the extraordinary charge and the one-time items,
SNET recorded a net loss for 1995 of $(518) million or $(7.99) per share.
The 1995 figures also reflect dilution of $0.29 per share from the cellular
acquisitions. Net income for 1994 was $178 million.
Consolidated revenues and sales for 1995 were up 7 percent to $1,839
million. Wireline revenues were up 4.5 percent. Interstate and
international toll revenues grew four-fold from $10 million to $42 million
for 1995, and access lines increased about 3 percent. Wireless revenues,
at $170 million, were up 45 percent, reflecting strong customer growth and
the cellular acquisitions. In-state toll revenues decreased because of
price reductions and competition. Information and Entertainment revenues
were flat at $181 million.
The news release providing the announcement is filed as an exhibit
hereto and is incorporated herein by reference.
Item 7. Financial Statements, Pro forma Financial
Information and Exhibits.
Exhibit 20. News release issued January 22, 1996.
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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.
THE SOUTHERN NEW ENGLAND
TELEPHONE COMPANY
Dated: January 22, 1996 By: /s/Madelyn M. DeMatteo
Madelyn M. DeMatteo
Secretary
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THE SOUTHERN NEW ENGLAND TELEPHONE COMPANY
FORM 8-K
EXHIBIT INDEX
Exhibit
Number
20 News release issued January 22, 1996.
SNET News Release
227 Church Street
New Haven, Connecticut 06510
January 22, 1996
FOR FURTHER INFORMATION CONTACT: Jim Magrone
203-771-4662
INCREASING COMPETITION RESULTS IN ACCOUNTING-METHOD CHANGE
OPERATING EARNINGS $0.62 FOR 4TH QUARTER AND $2.72 FOR 1995.
Southern New England Telecommunications Corporation
(SNET) -- (NYSE: SNG) announced today its fourth quarter
earnings including the fact that it discontinued using
Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation."
The change in accounting is effective January 1, 1996.
Consequently, for 1995 SNET is taking a non-cash,
extraordinary before-tax charge of approximately $1,203
million or $687 million after taxes -- $10.59 per share.
This results in a net loss for the fourth quarter and the
year. Similar actions have been taken by other
telecommunications companies over the past several years.
SFAS 71
SFAS 71 specifies accounting standards required for
public utilities and certain other regulated companies.
SNET is discontinuing the use of these standards and
adopting an accounting methodology for financial reporting
purposes that is more appropriate for a competitive
environment.
-more-
"We are discontinuing the use of SFAS 71 primarily because
of the significant increase in telecommunications competition
in Connecticut brought about by legislative and regulatory
policy changes," said Donald R. Shassian, SNET's senior vice
president and chief financial officer.
The main purpose of the non-cash, extraordinary charge is
to recognize depreciation reserve deficiencies.
Fourth Quarter Results
SNET's consolidated earnings from continuing operations
for the fourth quarter before the extraordinary charge were
$41 million or $0.62 per share. With the extraordinary
charge, the net loss for the quarter was $(646) million or
$(9.92) per share. This compares with fourth-quarter 1994
net income of $42 million or $0.65 per share. The current
quarter's figures also reflect expected dilution of $0.14
per share from the cellular acquisitions completed in July.
"We are accomplishing what we set out to do, said
Daniel J. Miglio, SNET chairman and chief executive officer.
"We are increasing revenues and earnings even as we invest
heavily in growth businesses that will make SNET
increasingly strong in the years to come. The accounting
change and dilution from the cellular acquisitions mask our
very strong underlying performance, with eight consecutive
quarters of growth. As we continue to strengthen customer
relationships and capitalize on our broad product line, we
are building value for shareholders, positioning SNET as a
premier provider of information, communications, and
entertainment services," he added.
-more-
Consolidated revenues and sales for the fourth quarter
were up 8 percent to $471 million. Wireline revenues were
up 3.6 percent on strong growth in interstate and
international toll services and an increase in access lines.
Wireless revenues jumped from $33 million to $51 million,
reflecting continued robust customer growth of 51 percent in
SNET's preacquisition business and 95 percent overall with
the new cellular territories.
Consolidated operating expenses were up 10 percent for
the quarter. Wireline expenses declined 3 percent, largely
because of employees opting to take an early retirement
offer. Wireless and Information and Entertainment expenses
rose 37 percent to support these high-growth areas.
Fourth quarter depreciation and amortization expense
increased 7 percent, principally because of the acquired
cellular properties. Interest expense increased $7 million,
due mainly to financing for the cellular acquisitions.
Annual Results for 1995
SNET's earnings from continuing operations, before the
extraordinary charge and with the exclusion of one-time
items announced previously in the second quarter, were $2.72
per share for 1995 compared with $2.77 per share for 1994.
With the extraordinary charge and the one-time items, SNET
recorded a net loss for 1995 of $(518) million or $(7.99)
per share. The 1995 figures also reflect dilution of $0.29
per share from the cellular acquisitions. Net income for
1994 was $178 million.
-more-
The after-tax charges included in the net loss are:
1995 1994
In millions per share In millions per share
Net (Loss) Income $(518) $(7.99) $178 $2.77
Extraordinary charge (687) (10.59) - -
Litigation charge (6) (0.10) - -
State tax adjustments (4) (0.06) - -
Gain on sale of real estate 2 0.04 - -
Earnings before
extraordinary and one-time
charges (normalized) $177 $2.72 $178 $2.77
Effect of cellular acquisition
dilution (0.29) -
Consolidated revenues and sales for 1995 were up 7
percent to $1,839 million. Wireline revenues were up 4.5
percent. Interstate and international toll revenues grew
four-fold from $10 million to $42 million for 1995, and
access lines increased about 3 percent. Wireless revenues,
at $170 million, were up 45 percent, reflecting strong
customer growth and the cellular acquisitions. In-state
toll revenues decreased because of price reductions and
competition. Information and Entertainment revenues were
flat at $181 million.
Consolidated operating expenses were up 12 percent for
1995. Wireline expenses increased only 2 percent with
growth expenditures virtually offset by cost-reduction
initiatives. Expenses for the Wireless and Information and
Entertainment businesses rose 57 percent in support of
present and future growth.
-more-
Depreciation and amortization expense increased 5
percent, due mainly to the cellular acquisitions. Interest
expense was up $11 million, due primarily to the financing
for those cellular acquisitions.
SNET is a Connecticut-based company reaching beyond its
traditional borders to offer wireline, wireless and
information and entertainment services, including local,
national, and international calling; mobile communications;
and publishing, information and advertising. The company is
building I-SNET, a statewide, information superhighway that
brings to customers a full array of information,
communications, and entertainment services.
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SNET - SFAS No. 71 Adjustment
Telephone Group Plant Asset Balances
At December 31, 1995
(Dollars in Millions)
Network Post
Plant in Accum. Net Reserve Change
ASSET CATEGORY Service Reserve Plant Adjust Net
Digital Switching $ 558.0 $ 134.3 $ 423.7 $208.9 $ 214.8
Analog Switching 321.0 208.9 112.1 19.1 93.0
Circuit Equipment 761.3 354.2 407.1 113.0 294.1
Aerial Cable 599.7 257.1 342.6 300.4 42.2
Underground Cable 346.9 148.9 198.0 139.8 58.2
Buried Cable 145.4 54.6 90.8 74.4 16.4
All Other Accounts 1,264.5 488.8 775.7 322.4 453.3
Total Telco Group $3,996.8 $1,646.8 $2,350.0 $1,178.0 $1,172.0
Composite
Regulated Economic
ASSET CATEGORY Asset Lives Asset Lives
Digital Elec. Switch 17.0 10.5
Digital Circuit 11.5 8.2
Conduit 55.0 55.0
Copper Cable 22.0 - 26.0 10.5 - 16.0
Fiber Cable 32.0 - 40.0 30.0
BALANCE SHEET IMPACT
Pre-Charge Post-Charge
Debt Ratio 57.63% 80.03%
Book Value Per Share $15.97 $ 5.42
SNET
Preliminary Summary of Consolidated Results
For the Three Months Ended December 31, 1995
(in Millions Except Per Share Amounts)
(Unaudited)
For the 3 Months Ended Percent
December 31, Change
1995 1994
INCOME STATEMENT
Revenues and Sales $ 470.9 $ 436.4 8%
Costs and Expenses:
Operating and maintenance 274.7 248.9
Depreciation and amortization 90.7 85.0
Taxes other than income 14.0 13.7
Total Costs and Expenses 379.4 347.6 9%
Operating Income 91.5 88.8 3%
Interest 24.6 17.7 39%
Income Before Income Taxes 66.9 71.1 (6)%
Income taxes 26.2 29.5 (11)%
Income Before Extraordinary Charge 40.7 41.6 (2)%
Extraordinary Charge, Net of Tax (687.1) -
Net (Loss) Income $(646.4) $ 41.6
Weighted Average Common Shares
Outstanding (in thousands) 65,150 64,444 1%
EARNINGS (LOSS) PER SHARE
Income Before Extraordinary Charge $ 0.62 $ 0.65 (5)%
Extraordinary Charge, Net of Tax (10.54)* -
Net (Loss) Income $ (9.92) $ 0.65
STATISTICS
Access Lines in Service (in thousands) 2,074 2,009 3%
Interstate Minutes of Use (in millions) 1,878 1,760 7%
* Per common share is computed independently for the quarter based on
weighted average common shares outstanding for the quarter. The
independent calculations resulted in a difference of $0.05 between
loss per share for the quarter and for the year.
SNET
Preliminary Summary of Consolidated Results
For the Twelve Months Ended December 31, 1995
(in Millions Except Per Share Amounts)
For the 12 Months Ended Percent
December 31, Change
1995 1994
INCOME STATEMENT
Revenues and Sales $1,838.5 $1,717.0 7%
Costs and Expenses:
Operating and maintenance 1,071.7 957.8
Depreciation and amortization 346.0 328.6
Taxes other than income 56.5 56.2
Total Costs and Expenses 1,474.2 1,342.6 10%
Operating Income 364.3 374.4 (3)%
Interest 85.9 74.9 15%
Income Before Income Taxes 278.4 299.5 (7)%
Income taxes 109.6 121.9 (10)%
Income Before Extraordinary Charge 168.8 177.6 (5)%
Extraordinary Charge, Net of Tax (687.1) -
Net (Loss) Income $ (518.3) $ 177.6
Weighted Average Common Shares
Outstanding (in thousands) 64,888 64,209 1%
EARNINGS (LOSS) PER SHARE
Income Before Extraordinary Charge $ 2.60 $ 2.77 (6)%
Extraordinary Charge, Net of Tax (10.59)** -
Net (Loss) Income $ (7.99) $ 2.77
STATISTICS
Access Lines in Service (in thousands) 2,074 2,009 3%
Interstate Minutes of Use (in millions) 7,298 6,917 6%
** Per common share is computed independently for the year based on weighted
average common shares outstanding for the year. The independent
calculations resulted in a difference of $0.05 between loss per share for
the quarter and for the year.
