SNET News Release
227 Church Street
New Haven, Connecticut 06510
April 24, 1998
For more information contact: Kevin Moore
(203) 771-2136
SNET FIRST QUARTER NORMALIZED NET INCOME OF $56.4 MILLION
UP 12.1% BEFORE ONE-TIME ITEMS
ACCOUNTING CHANGE FOR PUBLISHING UNIT
New Haven, Conn., Southern New England Telecommunications Corporation
(SNET) -- (NYSE: SNG) -- announced today first quarter 1998
normalized net income of $56.4 million vs $50.3 million for first
quarter 1997, a 12.1% increase. Normalized diluted earnings per share
for first quarter 1998 were $0.83 compared to $0.76 for first quarter
1997.
In the first quarter 1998, the company changed the accounting method
for its Publishing unit which resulted in a non-cash, one-time gain of
$15.5 million or $0.23 per diluted share for the cumulative effect of
this change. Reported net income, including the cumulative effect,
was $71.9 million, or $1.06 per diluted share. In first quarter 1997,
the company reported net income of $42.4 million, or $0.64 per diluted
share, which included a charge of $0.06 for debt redemption.
Restating first quarter 1997 for the Publishing accounting change on a
pro forma basis, and excluding the debt redemption, results in
normalized net income of $50.3 million, or $0.76 per diluted share for
first quarter 1997. This is summarized in the following table:
1Q98 1Q97
Net Income Diluted Net Income Diluted
($ millions) EPS ($ millions) EPS
Reported $71.9 $1.06 $42.4 $0.64
Extraordinary charge-debt
redemption -- -- 3.7 0.06
Publishing accounting change:
-restated 1Q '97 -- -- 4.2 0.06
-cumulative effect (15.5) (0.23) -- --
Normalized $56.4 $0.83 $50.3 $0.76
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 the result of the exercise of employee stock options.
-2-
Effective January 1, 1998, the corporation changed its method of
accounting for directory publishing revenues and expenses. The old
method recognized revenues and expenses related to publishing
directories using the "amortization" method in which 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.
Daniel J. Miglio, SNET's chairman and chief executive officer, said,
"We are very pleased with our performance in the quarter. We posted
strong growth, most notably in our wireline business, with robust
access line gains and continued success in long-distance service. Our
results were solid despite the impacts of competition and the
significant incremental costs of regulatory mandates.
"Our planned merger with SBC Communications is advancing according to
plan," he added. "During the first quarter, we received a green light
from our shareholders and the U.S. Department of Justice raised no
objections. We filed applications with the Federal Communications
Commission and the Connecticut Department of Public Utility Control in
February, and the regulatory process is moving forward on schedule.
We expect the merger will close by year end."
REVENUES
Consolidated revenues and sales for the quarter were $527.1 million,
up 9.2%.
Wireline revenues grew to $424.8 million, an increase of 7.3%.
Local service revenues were up 8.6%, the result of continued
strong access line growth of 5.8%, including 29.2% growth in
second lines. Network-access revenues increased 5.5% as a
result of growth in access lines and minutes of use. In-state
toll revenues decreased 4.9%, reflecting the competitive market.
Revenues from the interstate/international long-distance
business increased 35.1%, due primarily to a 25.6% increase in
the customer base.
-3-
Wireless revenues were $58.0 million, up 13.9%, reflecting 16.0%
growth in customers and a 28.0% increase in minutes of use.
Information and Entertainment revenues grew by $15.4 million to
$62.1 million, due primarily to the accounting change in
Publishing which approximated $9 million. Growth in Publishing
and our cable TV business, as well as a doubling of Internet
customers, contributed to the remainder of the increase.
EXPENSES
Consolidated operating expenses for the first quarter increased to
$305.4 million, up 8.5%.
Wireline operating expenses rose $10.3 million, or 4.3%,
reflecting costs associated with expanding our interstate and
international long-distance customer base, services to other
carriers and increased advertising expenses.
Wireless operating expenses increased $5.3 million, or 14.3%, to
support growth in the customer base and for the rollout of
digital service.
Information and Entertainment operating expenses rose by $12.8
million, due primarily to growth in cable TV and Internet
services and costs associated with the restructure of
Publishing. Approximately $3 million was attributable to the
accounting change in Publishing.
Depreciation and amortization expenses were up $3.4 million, or 3.7%,
due to higher levels of property, plant and equipment. Interest
expense was essentially flat. Income taxes increased $6.1 million, or
22.0%, the result of higher pre-tax income.
-4-
SNET is a leading information, communication and entertainment company
in Connecticut, offering a full range of wireline products including
SNET All Distance[R] service as well as wireless voice and data
services, Internet access and cable TV. The company is building I-SNET[R],
a statewide broadband information superhighway. In the latest
J.D. Power national customer satisfaction survey, SNET was ranked the
number one, long-distance company in America among mainstream users.
SNET
Preliminary Summary of Consolidated Results
For the Three Months Ended March 31, 1998
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the 3 Months Ended Percent
March 31, Change
1998 1997
INCOME STATEMENT
Revenues and Sales $527.1 $482.7 9.2%
Costs and Expenses:
Operating and maintenance 305.4 281.6 8.5%
Depreciation
and amortization 95.0 91.6 3.7%
Taxes other than income 12.9 13.1 (1.5%)
Total Costs and Expenses 413.3 386.3 7.0%
Operating Income 113.8 96.4 18.0%
Interest expense 22.6 22.7 (.4%)
Other income, net (1.0) .1
Income Before Income Taxes 90.2 73.8 22.2%
Income taxes 33.8 27.7 22.0%
Income Before Extraordinary
Charge and Accounting Change 56.4 46.1 22.3%
Extraordinary Charge,
Net of Tax - (3.7)
Accounting Change, Net of Tax 15.5 -
Net Income $71.9 $42.4 69.6%
Weighted Average Basic Common Shares
Outstanding (thousands)* 67,225 65,783 2.2%
Weighted Average Diluted Common Shares
Outstanding (thousands)* 68,022 65,848 3.3%
* Effective December 31, 1997, SNET adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." Under SFAS No. 128, basic earnings per common share is
computed by dividing income by the weighted average number of
common shares outstanding during the period. In order to
compute diluted earnings per share, the weighted average
number of common shares is increased by the effect of all
potential common shares outstanding during the period.
As required by SFAS No.128, all periods presented have been
restated to conform to the provisions of the new standard.
SNET
Preliminary Summary of Consolidated Results
For the Three Months Ended March 31, 1998
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the 3 Months Ended Percent
March 31, Change
1998 1997
BASIC EARNINGS PER COMMON SHARE*
Income Before
Extraordinary Charge and
Accounting Change** $.84 $.70 20.0%
Extraordinary Charge,
Net of Tax - (0.06)
Accounting Change, Net of Tax .23 -
Net Income $1.07 $0.64 67.2%
DILUTED EARNINGS PER COMMON SHARE*
Income Before
Extraordinary Charge and
Accounting Change** $.83 $.70 18.6%
Extraordinary Charge,
Net of Tax - (0.06)
Accounting Change, Net of Tax .23 -
Net Income $1.06 $0.64 65.6%
STATISTICS
Access Lines in Service
(thousands) 2,317 2,190 5.8%
Interstate Minutes of Use
(millions) 2,173 2,048 6.1%
* Effective December 31, 1997, SNET adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." Under SFAS No. 128, basic earnings per common share is
computed by dividing income by the weighted average number of
common shares outstanding during the period. In order to
compute diluted earnings per share, the weighted average
number of common shares is increased by the effect of all
potential common shares outstanding during the period.
As required by SFAS No.128, all periods presented have been
restated to conform to the provisions of the new standard.
** 1997 amount does not include the accounting change. If the
accounting change had been applied to 1997, Basic and Diluted
Earnings Per Share Before Extraordinary Charge and Accounting
Change for the period would have been $.76. The Basic and
Diluted Earnings Per Share percent change for the period would
have been 10.5% and 9.2%, respectively.