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 September 30, 1997.
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 1-6654
THE SOUTHERN NEW ENGLAND TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 06-0542646
(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 .
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORPORATION, MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM
WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
- 1 -
Form 10-Q - Part I The Southern New England Telephone Company
PART I - FINANCIAL INFORMATION
The Southern New England Telephone Company ("Telephone Company")
is a wholly-owned telephone operating subsidiary of Southern New
England Telecommunications Corporation ("Corporation") and has
its principal executive offices at 227 Church Street, New Haven,
Connecticut 06510 (telephone number (203) 771-5200).
The condensed financial statements on the following pages 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. The 1996 financial statements have been
reclassified to conform to the current-year presentation.
Certain information and footnote disclosures normally included in
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 financial
statements be read in conjunction with the financial statements
and notes thereto included in the Telephone Company's 1996 Annual
Report on Form 10-K.
- 2 -
Form 10-Q - Part I The Southern New England Telephone Company
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
Dollars in Millions 1997 1996 1997 1996
Revenues
Local service $169.6 $170.5 $ 506.7 $ 503.7
Network access 103.0 94.4 313.0 288.5
Intrastate toll 52.8 62.1 157.8 193.1
Publishing and other 58.2 56.7 172.7 175.2
Total Revenues 383.6 383.7 1,150.2 1,160.5
Costs and Expenses
Operating and maintenance 205.8 211.5 610.5 604.0
Depreciation and
amortization 79.8 75.1 236.5 224.4
Taxes other than income 12.1 12.5 35.5 37.1
Total Costs and Expenses 297.7 299.1 882.5 865.5
Operating Income 85.9 84.6 267.7 295.0
Interest expense 11.3 11.3 33.6 34.4
Other (expense) income, net (.9) .7 (1.2) 2.1
Income Before Income Taxes 73.7 74.0 232.9 262.7
Income taxes 28.7 26.4 90.8 99.3
Income Before Extraordinary
Charge 45.0 47.6 142.1 163.4
Extraordinary charge, net of
tax - - (3.7) -
Net Income $ 45.0 $ 47.6 $ 138.4 $ 163.4
Retained Earnings, Beginning
of Period $108.0 $ 73.0 $ 92.6 $ 31.8
Net income 45.0 47.6 138.4 163.4
Dividends declared to parent (36.0) (40.5) (114.0) (115.1)
Retained Earnings, End of
Period $117.0 $ 80.1 $ 117.0 $ 80.1
The accompanying notes are an integral part of these financial statements.
- 3 -
Form 10-Q - Part I The Southern New England Telephone Company
CONDENSED BALANCE SHEETS
Dollars in Millions September 30, 1997 December 31, 1996
(Unaudited)
Assets
Cash and temporary cash investments $ - $ 56.8
Accounts receivable, net of allowance
for uncollectibles of $14.6 and $18.0,
respectively 270.7 270.8
Accounts receivable from affiliates 33.3 11.1
Materials and supplies 13.5 14.3
Prepaid publishing 33.3 35.2
Deferred income taxes and other current
assets 65.6 47.1
Total Current Assets 416.4 435.3
Total telephone plant, at cost 4,424.4 4,309.1
Accumulated depreciation (3,032.7) (2,964.5)
Net Telephone Plant 1,391.7 1,344.6
Deferred income taxes and other assets 93.5 77.3
Total Assets $ 1,901.6 $ 1,857.2
Liabilities and Shareholder's Equity
Accounts payable and accrued expenses $ 150.0 $ 180.2
Accounts and notes payable to affiliates 129.6 19.5
Advance billings and customer deposits 47.0 42.6
Other current liabilities 126.1 116.8
Total Current Liabilities 452.7 359.1
Long-term debt 666.9 746.9
Other liabilities and deferred credits 133.9 127.5
Total Liabilities 1,253.5 1,233.5
Common Stock; $12.50 par value;
30,428,596 shares issued and
30,385,900 outstanding 380.4 380.4
Proceeds in excess of par value 152.1 152.1
Retained earnings 117.0 92.6
Treasury stock; 42,696 shares, at cost (1.4) (1.4)
Total Shareholder's Equity 648.1 623.7
Total Liabilities and Shareholder's
Equity $ 1,901.6 $ 1,857.2
The accompanying notes are an integral part of these financial statements.
- 4 -
Form 10-Q - Part I The Southern New England Telephone Company
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
Dollars in Millions 1997 1996
Operating Activities
Net income $ 138.4 $ 163.4
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 236.5 224.4
Extraordinary charge, net of tax 3.7 -
Restructuring payments (12.4) (56.5)
Change in operating assets and liabilities,
net (29.2) (9.2)
Other, net 18.3 13.3
Net Cash Provided by Operating Activities 355.3 335.4
Investing Activities
Cash expended for capital additions (292.2) (202.6)
Other, net (.8) 2.4
Net Cash Used by Investing Activities (293.0) (200.2)
Financing Activities
Net proceeds of short-term debt from affiliate 77.7 -
Repayment of long-term debt (80.0) -
Cash dividends paid (111.0) (97.6)
Other, net (5.8) -
Net Cash Used by Financing Activities (119.1) (97.6)
(Decrease) increase in Cash and Temporary Cash
Investments (56.8) 37.6
Cash and temporary cash investments at beginning
of period 56.8 70.5
Cash and Temporary Cash Investments at End of
Period $ - $ 108.1
Income Taxes Paid $ 100.2 $ 83.1
Interest Paid, net of amounts capitalized $ 31.5 $ 31.5
The accompanying notes are an integral part of these financial statements.
- 5 -
Form 10-Q - Part I The Southern New England Telephone Company
NOTES TO FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Amounts)
(Unaudited)
Note 1: Extraordinary Charge
On February 18, 1997, the Telephone Company redeemed $80.0 of
8.70% medium-term notes due 2031, which were satisfied with cash
and short-term borrowings from the Corporation. The early
extinguishment of debt resulted in an extraordinary charge of
$3.7, net of tax benefits of $2.7.
Note 2: Litigation
On July 31, 1997, the Second Circuit Court of Appeals issued a
decision upholding an August 28, 1995 judgment from the U.S.
District Court finding that the Corporation and the Telephone
Company had violated certain sections of the Fair Labor Standards
Act and were liable for $9.7 in back pay and liquidated damages
plus interest of approximately 5.9% from the date of the District
Court judgment. In the second quarter of 1995, the Telephone
Company recorded a liability of $11.0, which is adequate to cover
the anticipated cost of total damages for this matter.
- 6 -
Form 10-Q - Part I The Southern New England Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Millions)
Separation of Wholesale and Retail Organizations
The Corporation is establishing separate wholesale and retail
affiliates, having received approval from the Department of
Public Utility Control ("DPUC") [see Regulatory Matters]. As a
result, the Telephone Company will become an incumbent local
exchange carrier ("ILEC"), providing network services and
functionality to retail providers under the wholesale provisions
of the Federal Telecommunications Act of 1996 ("Act"). The
telecommunications network plant and property will remain with
the Telephone Company to support operations. The Telephone
Company will be treated as a public service company, and will
continue to be subject to regulation.
The separation of wholesale and retail organizations should have
no material effect on the consolidated financial results of the
Corporation. Due to the functional change in the Telephone
Company, however, local service revenues, intrastate toll and
other categories of revenue, along with related expenses, will
be significantly different in the future. Additionally, the
establishment of a separate publishing subsidiary will remove
most publishing revenues and their related expenses from the
Telephone Company.
The following discussion and analysis are meant to give
understanding to the financial condition and results of
operations of the Telephone Company as it is currently
structured. As such, all results and trends discussed are
relevant only until such time as the wholesale, retail and
publishing operations are completely separated.
Comparison of nine months ended September 30, 1997 vs. nine
months ended September 30, 1996
Operating Results
Income before extraordinary charge was $142.1 in 1997 compared
with $163.4 in 1996. The reduced results were primarily due to
network access and local service revenue increases being more
than offset by the combination of revenue decreases in
intrastate toll as a result of competition and higher
depreciation expense due to increased investment in physical
plant.
Revenues and Sales
For the Nine Months Ended September 30, 1997 1996
Local service $ 506.7 $ 503.7
Network access 313.0 288.5
Intrastate toll 157.8 193.1
Publishing and other 172.7 175.2
Total Revenues $1,150.2 $1,160.5
Local service revenues, derived from providing local exchange,
advanced calling features and local private line services,
increased $3.0, or .6%, in 1997. The increase was due primarily
to continued strong growth of 4.2% in access lines in service to
approximately 2,236,000 lines as of September 30, 1997. This
increase included significant growth in Centrex business lines
and second residential lines. Local service revenues also
increased due to growth in vertical services, primarily
SmartLink[R] advanced calling features, including Caller ID, missed
call dialing, call blocking and call tracing. The
- 7 -
Form 10-Q - Part I The Southern New England Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Millions)
Comparison of nine months ended September 30, 1997 vs. nine
months ended September 30, 1996
increase was significantly offset by a decrease in public
telephone revenues, as a significant portion of payphone
operations were transferred to a non-regulated affiliate in
conjunction with the pay telephone reclassification and
compensation provisions of the Federal Telecommunications Act of
1996 ("Act") [see Regulatory Matters]. Additionally, there was
a decrease in revenues recognized from wireless carriers, due to
a decrease in the generic wireless tariff in accordance with the
Act. Management expects increased competition to negatively
impact local service revenues as other telecommunications
providers offer local service and as the DPUC mandated balloting
process commences in 1998 [see Competition].
Network access revenues, generated primarily from interstate and
intrastate services, increased $24.5, or 8.5%. Intrastate access
revenues increased $12.8, or 64.3%, due primarily to an increase
in intrastate minutes of use by competitive providers of
intrastate long-distance service. Interstate access revenues
increased $11.8, or 4.4%, due primarily to growth in interstate
minutes of use of 4.9% and the effects of the reversal of
proposed tariff changes. Partially offsetting the impact of the
increase in minutes of use was a decrease in tariff rates in
accordance with the Telephone Company's July 1997 Federal
Communications Commission ("FCC") filing under price cap
regulation.
Intrastate toll revenues, which include primarily revenues from
toll and WATS services, decreased $35.3, or 18.3%. The decrease
was due primarily to a 13.7% reduction in toll message volume,
as well as reduced intrastate toll rates. Lower toll volume was
due primarily to the highly competitive toll market as a result
of full intrastate equal access. The decline in rates was
attributable to customer migration to several discount calling
plans that provide competitive options to business and residence
customers. Increasing competition and the offering of
competitive discount calling plans will continue to place
downward pressure on intrastate toll revenues.
The $2.5 decrease in publishing and other revenues was due
primarily to the discontinuance of the provision of billing
services for a major long-distance carrier. Publishing revenues
remained steady.
Costs and Expenses
For the Nine Months Ended September 30, 1997 1996
Operating costs $610.5 $604.0
Depreciation and amortization 236.5 224.4
Taxes other than income 35.5 37.1
Total Costs and Expenses $882.5 $865.5
Operating costs - Operating costs consist primarily of employee-
related expenses, including wages and benefits. Cost of services
and general and administrative expenses, including marketing,
represent the remaining portion of these expenses. Total
operating costs increased $6.5, or 1.1%, including approximately
$9 of reprogramming costs associated with the recognition of the
year 2000. Additionally, employee-related expenses increased,
mainly as a result of continuing higher service demands.
- 8 -
Form 10-Q - Part I The Southern New England Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Millions)
Comparison of nine months ended September 30, 1997 vs. nine
months ended September 30, 1996
These increases were offset partially by a decrease in expenses
related to the provision of public telephone service, as a
significant portion of payphone operations was transferred to a
non-regulated affiliate in conjunction with the pay telephone
reclassification and compensation provisions of the Act [see
Regulatory Matters].
Depreciation and amortization - Depreciation and amortization
expense increased $12.1, or 5.4%, due primarily to an increase
in the average depreciable telecommunications property, plant
and equipment.
Taxes other than income - The 4.3% decrease in taxes other than
income was due primarily to savings in property taxes as a
result of the continuing reduction of overall corporate space.
Interest Expense and Other (Expense) Income, net
For the Nine Months Ended September 30, 1997 1996
Interest expense $33.6 $34.4
Other (expense) income, net $(1.2) $ 2.1
Interest expense decreased $.8, or 2.3%, due primarily to
savings from the February 18, 1997 redemption of $80.0 of medium-
term notes with an interest rate of 8.70%, offset partially by a
decrease in the amount of interest which was capitalized. The
change in other (expense) income, net was due primarily to a
decrease in interest income from the Corporation, as the
Telephone Company's cash balance was used to satisfy the
previously mentioned redemption.
Income Taxes
For the Nine Months Ended September 30, 1997 1996
Income taxes $90.8 $99.3
The combined federal and state effective tax rate for the nine
months ended September 30, 1997 was 39.0% compared with 37.8%
for the same period in 1996. The decrease in income taxes was
primarily due to a corresponding decrease in income before
income taxes. The lower 1996 effective rate was due primarily
to the settlement of tax matters.
Extraordinary Charge
For the Nine Months Ended September 30, 1997 1996
Extraordinary charge, net of tax $(3.7) -
On February 18, 1997, the Telephone Company redeemed $80.0 of
8.70% medium-term notes due 2031. The early extinguishment of
debt resulted in an extraordinary charge of $3.7 after-tax.
- 9 -
Form 10-Q - Part I The Southern New England Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Millions)
Comparison of balances as of September 30, 1997 vs. December 31,
1996
The previously discussed redemption of debt led to a decrease of
$80.0 in long-term debt, and was the primary factor in the $56.8
decrease in cash and temporary cash investments.
Accounts receivable from affiliates increased primarily due to
the previously discussed transfer of payphone operations to an
affiliate. The affiliate owes the Telephone Company for the
assets transferred.
Deferred income taxes and other current assets increased
primarily due to an increase in prepaid taxes based on the
timing of payments.
Accounts and notes payable to affiliates increased $110.1 due to
the redemption of debt noted above and additional borrowings
from the Corporation to fund capital expenditures.
Liquidity and Capital Resources
The Telephone Company generated cash flows from operations of
$355.3 during the nine months ended September 30, 1997 as
compared with $335.4 during the nine months ended September 30,
1996. The increase was due primarily to lower restructuring
payments made during 1997 offset partially by lower net income.
Capital expenditures were the primary use of Telephone Company
funds.
On February 18, 1997, the Telephone Company redeemed $80.0 of
8.70% medium-term notes as discussed previously.
Competition
The Telephone Company faces a fully competitive environment with
respect to telecommunications services in Connecticut. Wireline
competitors include interexchange carriers, competitive access
providers and competitive local exchange carriers ("CLECs"). In
the long distance market, competition has intensified since the
full implementation of intrastate equal access.
Local service competition is expected to grow significantly,
particularly upon commencement of the DPUC mandated balloting
process [see State Regulatory Initiatives]. Although the
financial impact cannot be predicted at this time, based on
existing state and federal regulations, the Telephone Company
expects that many competitors will resell the Telephone Company's
network and that increased network access revenues will offset a
significant portion of local service revenues lost to
competition.
- 10 -
Form 10-Q - Part I The Southern New England Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Millions)
Regulatory Matters
Federal Regulatory Initiatives
On October 14, 1997 the Eighth Circuit Court of Appeals vacated a
portion of the FCC's rules which prohibited Incumbent Local
Exchange Carriers ("ILECs") from separating the network elements
it provides to itself unless requested by a CLEC. The Court
indicated that the Act requires ILECs to provide access to
unbundled network elements, not access to platforms used by ILECs
in which network elements are combined.
On August 18, 1997, the FCC released its Third Report and Order
on Reconsideration. This Order requires that ILECs must provide
shared transport to new entrants as an unbundled network element
at cost-based prices. This Order could have a material financial
impact on the Telephone Company, but management is currently unable
to quantify the impact. Several companies have filed Petitions for
Review, which will be heard by the Eighth Circuit Court of
Appeals. A decision in this matter is not expected until 1998.
On July 18, 1997, the Eighth Circuit Court of Appeals issued a
decision on the appeal of the FCC's First Report and Order. The
decision was consistent with the stay issued in October 1996,
which delayed the effectiveness of the pricing provisions and the
rule allowing competitors to "pick and choose" isolated terms out
of negotiated interconnection agreements. The decision struck
down key provisions of the Order by vacating the Order's pricing
and "pick and choose" rules and certain terms under which
potential competitors can lease portions of the Telephone
Company's network. Other provisions, such as the requirement to
unbundle operating support systems, operator services and
vertical switching features, were upheld by the Court. The
Court's decision overall reflects Congress' intention that the
states, not the FCC, play a primary role in implementing local
telecommunications competition. The decision should allow the
Telephone Company to implement local competition on the course
mapped by the DPUC and the state legislature.
In May 1997, the FCC issued three major orders. The FCC released
its Report and Order on Universal Service on May 8, 1997. The
Order revised the current universal service programs which ensure
availability of local exchange service to low income customers
and high cost areas. It also establishes new federal support for
telecommunications services provided to schools, libraries, and
rural healthcare facilities. The federal universal service
mechanisms are to be funded, beginning January 1, 1998, by an
assessment on the end user revenues of all telecommunications
service providers. Funding for the revised programs supporting
high cost and low income areas will be from interstate end user
revenues, while funding for the new federal support services
provided to schools, libraries, and rural healthcare facilities
will come from both interstate and intrastate end user revenues.
The Order is currently on appeal in the Fifth Circuit Court of
Appeals. The Telephone Company has intervened in the appeal.
On May 16, 1997, the FCC released its First Report and Order
regarding access charge reform. This Order mandates changes to
the way the Telephone Company recovers interstate access charges
from interstate toll providers, including SNET America, Inc.
Specifically, the Order establishes flat-rated per line access
charges and reduces usage based charges. This Order establishes
a prescriptive mechanism to ensure that interstate access charges
will be driven toward the levels that competition would be
expected to produce. Management expects this order to pressure
earnings but is currently unable to quantify the impact. The
Order is currently on appeal in the Eighth Circuit Court of
Appeals. The Telephone
- 11 -
Form 10-Q - Part I The Southern New England Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Millions)
Company has intervened in the appeal. The FCC is also expected
to release a Pricing Flexibility Order early in 1998,
establishing a market-based approach to pricing.
On May 21, 1997, the FCC released its Price Cap Order revising
its price cap plan for regulating ILECs. This Order establishes
a single productivity factor of 6.5% and eliminates the sharing
requirements of the prior rules. The Telephone Company filed its
1997 annual interstate access price cap revisions in April 1997
and filed its proposed rate changes on June 16, 1997 for effect
July 1, 1997. These filings adjusted interstate access rates for
an experienced rate of inflation, the FCC's new productivity
target and exogenous cost changes. The FCC also required all
price cap ILECs, including the Telephone Company, to adjust their
Price Cap Indices, effective July 1, 1997, to reflect the 6.5%
productivity factor retroactively for the 1996-1997 tariff year.
The filings are anticipated to decrease interstate network access
revenues by approximately $28 for the period July 1, 1997 to June
30, 1998. The Company expects that this decrease will be
partially offset by increased demand. The Order is currently on
appeal in the District of Columbia Circuit Court of Appeals.
Additionally, on August 13, 1997, the Telephone Company filed
a Petition for Waiver from the 6.5% productivity factor, requesting
that the FCC establish a productivity factor of 5.3% for the
Telephone Company.
In accordance with the Act, the FCC requires ILECs, including the
Telephone Company, to implement a long term solution for
portability of local telephone numbers. The Telephone Company is
required to construct and operate a system that will permit end
user customers to retain their telephone numbers when they elect
a different carrier for local service. The system is to be
operational in mid-1998 for a large percentage of the Telephone
Company's access lines. The FCC, however, has not yet decided on
a method to recover the investment and operating costs relating
to the number portability system. Until such decision on
recovery is made, management is not able to estimate the
financial impact on the Telephone Company.
The FCC has released Reports and Orders on the Implementation of
the Pay Telephone Reclassification and Compensation Provisions of
the Telecommunication Act of 1996. The orders, among other
things, have eliminated existing regulatory constraints which
inhibited payphone competition, eliminated all subsidies in
interstate access rates and removed pay telephone investment from
the ILECs' interstate ratebase. Additionally, the orders have
established mechanisms for the full and fair compensation to
payphone providers, including per call compensation for
subscriber 800 and access code calls from payphones. Under the
orders, all ILECs, including the Telephone Company, were required
to unbundle payphone instruments, file tariffs on payphone
service lines and make them available on a non-discriminatory
basis to Payphone Service Providers. The Telephone Company has
filed with the FCC the necessary revisions to its interstate access
charges and has filed with the DPUC new retail and wholesale Pay
Telephone Access Line Service offerings in accordance with the FCC's
order.
- 12 -
Form 10-Q - Part I The Southern New England Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in Millions)
State Regulatory Initiatives
On June 25, 1997, the DPUC issued a final decision allowing the
Corporation to establish separate wholesale and retail
affiliates. Under the decision, the new retail organization, a
CLEC, will compete under the same regulations as all other retail
telecommunications providers in the state. The wholesale
organization, an ILEC, will provide network services and
functionality to retail providers, including the Corporation's
new CLEC, on neutral terms. The ILEC will be treated as a public
service company, and will continue to be subject to regulation.
The directory publishing operations will also be structured as
a separate subsidiary of the Corporation. As part of the decision,
however, the DPUC mandated that Connecticut customers must choose
their local exchange provider via a balloting process. Customers
who do not choose a carrier will be assigned a CLEC based on the
proportion of votes in a local service area. The specific details
of the balloting process will be addressed in further technical
discussions among the participants and the DPUC. The balloting
process, as well as the changes associated with the restructure,
were originally scheduled to occur between March and July of 1998.
On October 24, 1997, however, the DPUC reopened the docket for the
purpose of rescheduling the process. The revised schedule is not
known at this time.
In order for the balloting process to commence, the Telephone
Company must demonstrate that the systems offered to CLECs
provide full technical and operational support as required by the
Act. The DPUC will examine and critically evaluate the
respective Operations Support System ("OSS") platforms offered to
the CLECs by the Telephone Company. The first phase of the
DPUC's evaluation will establish a set of tests and standards
that can be used to determine the suitability of the Telephone
Company's OSS to support a competitive local exchange market. A
decision regarding this phase is due on January 28, 1998. The
second phase will determine if the interfaces proposed by the
Telephone Company offer the comparability required under the
provisions of the Act. A final decision is due on June 24, 1998.
In compliance with the Federal Telecommunications Act of 1996,
the Telephone Company has filed with the DPUC numerous cost
studies supporting its proposed wholesale (i.e., resale) and
unbundled rates for interconnection services. On March 24, 1997,
the DPUC issued a final decision setting a uniform 17.8% discount
rate off the Telephone Company's retail prices for
telecommunications services sold to CLECs. On April 23, 1997,
the DPUC issued a final decision addressing the proposal for
allocation of HFC costs to video and telephony and the Telephone
Company's costs and rates associated with unbundled loops, ports,
multiplexing, and inter-wire center transport. In this decision,
the DPUC agreed to the Telephone Company's proposed 50/50
allocation for video and telephony. In addition, the DPUC
approved the cost studies based on Total Service Long Run
Incremental Cost ("TSLRIC"). Subsequently, the DPUC opened a new
docket to determine appropriate TSLRIC based rates for the
remaining unbundled elements (non-loop) defined by the FCC's
First Report and Order. A final decision is expected in February
1998.
- 13 -
Form 10-Q - Part II The Southern New England Telephone Company
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no material developments in the third quarter of 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
(27) Financial Data Schedule
(b) Reports on Form 8-K
On July 24, 1997, the Telephone Company filed a report on Form 8-K,
dated July 24, 1997, announcing the Corporation's financial
results for the second quarter of 1997.
On October 23, 1997, the Telephone Company filed a report on Form 8-K,
dated October 23, 1997, announcing the Corporation's financial
results for the third quarter of 1997.
- 14 -
Form 10-Q - Part II The Southern New England Telephone Company
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
November 6, 1997
/s/ Donald R. Shassian
Donald R. Shassian
Senior Vice President and Chief Financial Officer
- 15 -
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
3RD QUARTER 1997 FORM 10-Q OF THE SOUTHERN NEW ENGLAND TELEPHONE COMPANY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 285,300
<ALLOWANCES> 14,600
<INVENTORY> 13,500
<CURRENT-ASSETS> 416,400
<PP&E> 4,424,400
<DEPRECIATION> 3,032,700
<TOTAL-ASSETS> 1,901,600
<CURRENT-LIABILITIES> 452,700
<BONDS> 666,900
0
0
<COMMON> 380,400
<OTHER-SE> 267,700
<TOTAL-LIABILITY-AND-EQUITY> 1,901,600
<SALES> 0
<TOTAL-REVENUES> 1,150,200
<CGS> 0
<TOTAL-COSTS> 882,500
<OTHER-EXPENSES> 1,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,600
<INCOME-PRETAX> 232,900
<INCOME-TAX> 90,800
<INCOME-CONTINUING> 142,100
<DISCONTINUED> 0
<EXTRAORDINARY> (3,700)
<CHANGES> 0
<NET-INCOME> 138,400
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
