UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended December 31, 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 1-9157
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)
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 the settlement date of February 27, 1998, 67,292,621 common
shares were outstanding.
At the settlement date of February 27, 1998, the aggregate market
value of the voting stock held by non-affiliates was $4,244,461,433.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's combined 1997 Annual Report to Shareholders
and Proxy Statement dated March 26, 1998 issued in connection with the
1998 Annual Meeting of Shareholders [Part II and Part III]
1
TABLE OF CONTENTS
Item Page
PART I
1. Business...........................................................3
2. Properties........................................................13
3. Legal Proceedings.................................................14
4. Submission of Matters to a Vote of Security Holders...............14
PART II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters.............................................14
6. Selected Financial Data...........................................15
7. Management's Discussion and Analysis of Financial Condition
and Operating Results...........................................15
8. Financial Statements and Supplementary Data.......................15
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................15
PART III
10. Directors and Executive Officers of the Registrant................15
11. Executive Compensation............................................15
12. Security Ownership of Certain Beneficial Owners and
Management.......................................................15
13. Certain Relationships and Related Transactions....................15
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K...17
See page 16 for "Executive Officers of the Registrant"
2
PART I
Item 1. Business
GENERAL
Southern New England Telecommunications Corporation
("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 wholly-owned subsidiaries in telecommunications
services principally in Connecticut with expanded cellular
services in Rhode Island and portions of Massachusetts. The
Corporation has business units in the following
telecommunications product groups: wireline; wireless; and
information and entertainment. Wireline includes The Southern
New England Telephone Company ("Telephone Company") and Woodbury
Telephone Company ("Woodbury"), acquired in 1997, providing
telecommunications services in Connecticut; SNET America, Inc.
("SAI"), providing national and international long-distance
services to Connecticut customers; and SNET Diversified Group,
Inc., providing premium telecommunications services and the
selling and leasing of communications equipment to residential
and business customers. Wireless includes SNET Cellular, Inc.
and SNET Mobility, Inc., providing retail and wholesale cellular
services, personal communications, equipment sales and paging
resale services. Information and entertainment includes SNET
Information Services, Inc. (providing publishing and internet
services) and SNET Personal Vision, Inc. (providing cable
television service). Other business activities include SNET Real
Estate, Inc. (engaging in leasing commercial real estate
primarily to affiliates) and the holding company (engaging in
financial and strategic planning for the Corporation and its
subsidiaries).
In 1997, approximately 67% of the Corporation's consolidated
revenues and sales were derived from the Telephone Company's
telecommunications services and approximately 11% were derived
from wireless sales. The remainder was derived principally from
directory publishing operations, national and international long-
distance services, the activities of the Corporation's other
subsidiaries, and activities associated with the provision of
facilities and non-access services to interexchange carriers.
Approximately 68% of the operating revenues from the Telephone
Company's telecommunications services were attributable to
intrastate operations, with the remainder attributable to
interstate access services.
The number of access lines in service grew to 2,286,000 at
December 31, 1997 (including approximately 21,000 lines acquired
in the Woodbury purchase) from 2,163,000 at December 31, 1996, an
increase of 5.7%. The increase excluding the Woodbury purchase
was 4.7%. The increase included significant growth in Centrex
business lines and second residential lines. The network access
lines provided by the Telephone Company and Woodbury 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 the number of network access lines in service at the
end of each year:
Network Access Lines in
Service (thousands): 1997 1996 1995 1994 1993
Residence 1,513 1,444 1,415 1,379 1,355
Business 773 719 658 630 609
Total 2,286 2,163 2,073 2,009 1,964
3
Planned Merger
On January 4, 1998, the Corporation's Board of Directors approved
a definitive merger agreement ("Agreement") with SBC
Communications Inc. ("SBC") whereby the Corporation will become a
wholly-owned subsidiary of SBC. The Board's deliberations
focused on the complementary strengths and the possible
advantages of a combination. Under the original terms of the
Agreement, each share of the Corporation's common stock was to be
exchanged for 0.8784 shares of SBC common stock. On January 30,
1998, SBC announced a two-for-one stock split, which modified the
exchange ratio to 1.7568. The transaction is intended to be
accounted for as a pooling-of-interests and as a tax-free
reorganization under the applicable provisions of the Internal
Revenue Code. In addition, the Agreement does not require any
changes to the Corporation's quarterly dividend prior to closing.
The process leading to the Board's adoption of the merger began
in late 1996 with a review of strategic goals in the context of
rising costs (including non-recurring items such as Year 2000
costs) and a rapidly changing regulatory environment. As a
result of this review, the Board concluded that the Corporation
would need to substantially increase the scale and scope of its
operations in order to continue to compete successfully and in a
cost-effective manner in the increasingly competitive
telecommunications industry, and to provide customers with the
broad range of telecommunications products and services they
would demand and to meet the goals of its shareholders. During
1997, management explored possibilities for various joint
ventures and business alliances in specific product areas with a
view toward increasing the scale and scope of operations. In the
fall of 1997, management ultimately concluded that a combination
with a major telecommunications company was the best alternative
in order to achieve the Corporation's strategic and financial
objectives.
The merger has been reviewed by the U.S. Department of Justice
and must still be approved by the Corporation's shareholders, the
Connecticut Department of Public Utility Control ("DPUC") and the
Federal Communications Commission ("FCC"). The Corporation is
currently authorized to provide interexchange services in 46
states. For the majority of these states these authorizations
have been utilized solely to provide calling card services to
Connecticut-based customers traveling in the respective states.
The Corporation does, however, provide long-distance service to a
small number of customers in states where SBC is an Incumbent
Local Exchange Carrier ("ILEC"). The Corporation may be required
to modify or withdraw its interexchange authorizations in the
states where SBC is an ILEC. In addition, authorizations may be
required from a number of other states to allow the Corporation
to transfer its existing long-distance authorizations to SBC.
Once the necessary approvals are obtained, the merger is expected
to close by December 31, 1998.
Management believes that the merger with SBC is in the best
interest of shareholders because it offers them the opportunity
of becoming investors in a company with global presence and a
track record of success in growing long-term value for
shareholders. In addition, the merger will likely strengthen the
Corporation's ability to compete in the increasingly competitive
telecommunications industry.
4
Corporate Restructure
In a decision issued June 25, 1997, the DPUC approved the
Corporation's proposal to establish separate wholesale and retail
organizations [see Regulatory Matters - State]. As a result, the
Telephone Company will become an ILEC, providing network services
and functionality to retail providers under the wholesale
provisions of the Federal Telecommunications Act of 1996 ("Act").
The Telephone Company will be treated as a public service
company, and will continue to be subject to alternative forms of
regulation. In a separate order, SNET America, Inc. ("SAI"), a
subsidiary of the Corporation, was certified to operate as a
competitive local exchange carrier ("CLEC"), allowing it to
provide competitive retail service to customers with the same
flexibility as all other CLECs in the state. As part of the
DPUC's decision allowing the restructure, Connecticut customers
must choose their local exchange provider via a balloting
process. Until balloting is complete, the Telephone Company and
SAI will jointly offer retail telecommunication services to the
public. Once the balloting process is completed, SAI will become
the sole provider of retail service for the Corporation. In
addition, as part of the restructure, the directory publishing
operations were incorporated into a separate subsidiary of the
Corporation on January 1, 1998.
WIRELINE
The Southern New England Telephone Company
The Southern New England Telephone Company, a local exchange
carrier, was incorporated in 1882 under the laws of the State of
Connecticut and is engaged in providing telecommunications
services in Connecticut, subject to various forms of regulation.
These telecommunications services include: local and intrastate
toll services; network access service, which links customers'
premises to the facilities of other carriers; and other services
such as digital transmission of data and transmission of radio
and television programs, packet switched data network and private
line services.
The Telephone Company is subject to the jurisdiction of the FCC
with respect to interstate rates, services, access charges and
other matters, including the prescription of a uniform system of
accounts. 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 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.
The Telephone Company's interstate access services have been
subject to price cap regulation since January 1991. Price caps
are a form of incentive regulation to limit prices and improve
productivity.
The Telephone Company, in providing telecommunications services
in Connecticut, is subject to regulation by the DPUC, which has
jurisdiction with respect to intrastate rates and services and
other matters such as the approval of accounting procedures and
the issuance of securities. The DPUC has adopted accounting and
cost allocation rules for intrastate ratemaking purposes, similar
to those adopted by the FCC, for the separation of costs of
regulated from non-regulated activities. In 1996, the DPUC
replaced the Telephone Company's traditional rate of return
regulation with alternative (price-based) regulation to be
employed during the transition to full competition [see
Regulatory Matters - State].
5
As a result of legislative and regulatory reform, the Corporation
continues to experience an increasingly competitive environment.
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.
In 1997, major interexchange carriers continued to intensify
their marketing efforts to sell intrastate long-distance services
since the Telephone Company's full implementation of intrastate
equal access. Since the introduction of intrastate long-distance
toll competition, in excess of 230 telecommunications providers
have received approval from the DPUC to offer intrastate long-
distance services with an additional 70 filed and awaiting DPUC
approval. The reduction in intrastate toll rates and the
increasingly competitive intrastate toll market continue to place
significant downward pressure on the Telephone Company's
intrastate toll revenues.
Thirty-five telecommunications providers have been granted
approvals for local service and twelve additional applications
are pending before the DPUC. These providers began offering
local exchange service to business and residential customers
throughout the state. There has been growth in local service
competition in 1997 and continued growth is expected,
particularly upon commencement of the DPUC-mandated balloting
process [see Regulatory Matters - State], 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 Telephone Company's network and that
increased network access revenues will offset a significant
portion of local service revenues lost to competition.
Management supports bringing customers the benefits of
competition and affording all competitors the opportunity to
compete fairly under reduced regulation.
The Corporation's ability to compete is dependent upon regulatory
reform that will allow pricing flexibility to meet competition
and provide a level playing field with similar regulation for
similar services. In addition, the Corporation's restructure
into wholesale and retail affiliates will provide additional
flexibility to compete at the retail level [see Regulatory
Matters - State].
The competitive environment also allows opportunities for the
Corporation to continue to increase its provision of interstate,
international long-distance and cable television services.
SNET America, Inc.
SAI was incorporated in 1993 under the laws of the State of
Connecticut. SAI resells 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 SNET All Distance Simple Solutions, a
calling plan for small business and residence customers.
Currently, SAI and the Telephone Company jointly sell toll
services. This enables the Corporation to satisfy its customers'
long-distance calling needs with a single point of contact
through SNET All Distance[R], a seamless toll service product line
which provides discount calling plans that include intrastate,
interstate and international calling. The joint marketing as
SNET All Distance[R] has produced such features as one-second rating
and one bill for all toll calls. The migration of Connecticut
customers to wireline's bundled calling plans resulted in
significant growth for interstate and international long-distance
services.
As previously discussed, the DPUC has granted SAI the authority
to operate as a CLEC in the state of Connecticut and as a result,
SAI will be able to provide competitive retail services to end
user customers with the same regulatory and pricing flexibility
as all other CLEC's in the state [see Regulatory Matters -
State].
6
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 business opportunities. The majority of
Diversified's activities is the offering of premium services,
such as information and enhanced network-related services.
Another activity is leasing and selling customer premises
equipment ("CPE") to residential and small business customers.
Key telephone systems and related products are offered and
maintained which are complementary to the Telephone Company's
central office-based solutions.
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
including leasing options.
Woodbury Telephone Company
Woodbury was incorporated in 1899 under the laws of the State of
Connecticut. On July 23, 1997, the DPUC approved the
Corporation's acquisition of Woodbury and on July 30, 1997, the
Corporation completed its acquisition of Woodbury by issuing
approximately 528,000 shares of the Corporation's treasury stock
for the remaining 63.5% of Woodbury's common stock not formerly
held by the Corporation. The total cost of completing the
acquisition was $30.1 million, which includes the assumption of
$9.0 million in long-term debt. Woodbury is the primary provider
of local exchange telephone services, intrastate toll services,
and access to long-distance telephone services in the major
portions of the towns of Woodbury, Southbury, and Bethlehem, and
also serves small portions of the towns of Oxford and Roxbury,
Connecticut.
Regulatory Matters
The Telephone Company is regulated by the FCC and the DPUC.
Historically, the FCC has regulated the Corporation's provision
of interstate services, both at the wholesale (access service
provided by the Telephone Company) and retail (long-distance toll
charges provided by SAI as a non-dominant carrier) levels. Since
the passage of the Federal Telecommunications Act ("Act") in
1996, the FCC has also been charged, by Congress, with the
implementation of many of the provisions of the Act designed to
foster local competition.
The DPUC regulates the Telephone Company's provision of services
within the state of Connecticut including local and in-state long-
distance services. Since the passage of state legislation in
1994, regarding local competition, as well as the Act, the DPUC
also regulates the provision of wholesale services within the
state that are required for interconnection to the Telephone
Company's network. A synopsis of key Federal and State
regulatory decisions follows.
Regulatory Matters - Federal
On February 8, 1996, Congress passed the Act which was designed
to overhaul U.S. telecommunications policy by removing barriers
to local competition. The FCC's First and Second Report and
Order ("Order") implements the Act and contains numerous
provisions regarding the interconnection of the Telephone
Company's network with those of its competitors. The Order
requires significant changes in the way business is conducted,
how the network is designed and the systems that support it
(including repair and service ordering). In addition, the Order
requires fundamental changes in the development of the prices
that the Telephone Company would charge competitors for
purchasing regulated network products and services. This Order,
as well as the orders discussed below, could have a material
adverse financial impact on the Telephone Company.
7
Certain provisions in the Order have been appealed by various
local telephone companies, including the Telephone Company, the
National Association of Regulatory Utility Commissioners and
individual state regulatory commissions. On July 18, 1997, the
Eighth Circuit Court of Appeals ("Eighth Circuit") issued a
partial stay of the Order, delaying the effectiveness of the
pricing provisions and the rule allowing competitors to "pick and
choose" isolated terms out of negotiated interconnection
agreements and struck down those key provisions and other terms
under which potential competitors can lease pieces of the
Telephone Company's network. The Eighth Circuit declared that
the FCC had overstepped its authority and concluded that "the Act
plainly grants the state commissions, not the FCC, the authority
to determine the rates involved in the implementation of the
local competition provisions of the Act." The Eighth Circuit's
decision is a strong endorsement of Congress' intention that the
states play a primary role in implementing local
telecommunications competition. This decision should allow the
Corporation to implement local competition on the course mapped
out by the DPUC and the Connecticut state legislature.
On October 14, 1997, the Eighth Circuit also vacated a portion of
the FCC's rules which required ILECs to provide combinations of
network elements that effectively recreated the end-to-end
service at a significant discount to CLECs. The Eighth Circuit
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. The Eighth Circuit's
decisions have now been appealed to the Supreme Court which has
agreed to review the case in the fall 1998 session. A decision
is expected in 1999.
On August 18, 1997, the FCC also released its Third Report and
Order requiring ILECs, including the Telephone Company, to
provide shared transport to new entrants as an unbundled network
element at cost-based prices. Several companies, including the
Telephone Company, have filed Petitions for Review, which will be
heard by the Eighth Circuit. A decision in this matter is
expected in 1998.
On May 8, 1997, the FCC issued an order regarding Universal
Service. The order revises the current universal service
programs for low income customers and high cost areas (including
Woodbury) and establishes new federal support for
telecommunications services provided to schools, libraries and
rural health care facilities. The federal universal service
mechanisms are funded, beginning January 1, 1998, by an
assessment on the end user revenues of all telecommunications
service providers. Funding for the new federally supported
services provided to schools, libraries and rural healthcare
facilities will come from both interstate and intrastate end user
revenues, while funding for the revised high cost support and low
income support programs will be from interstate end user
revenues. ILECs can recover their contributions to the federal
universal service mechanisms through their interstate access
charges. The Universal Service Order is on appeal in the Fifth
Circuit Court. The Telephone Company has intervened in the
appeal. The FCC has no timeline currently to resolve this issue
and the Corporation cannot determine when it will be resolved.
On May 16, 1997, the FCC also issued an order regarding access
charge reform which changes the way the Telephone Company
recovers interstate access charges from interstate toll
providers, including SAI. Specifically, the order establishes
flat-rated per-call carrier access charges, rather than 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 any such impact. The Access Charge
Reform Order is being appealed and is pending in the Eighth
Circuit. The Telephone Company has intervened in the appeal.
The FCC is also expected to release a Pricing Flexibility Order
in 1998. This order will establish a market-based approach to
pricing.
8
On May 21, 1997, the FCC released its Price Cap Order revising
its price cap plan for regulating ILECs including the Telephone
Company. This order establishes a single productivity factor of
6.5% and eliminates the sharing requirements of the prior rules.
This order is being appealed in the District of Columbia Circuit
Court. 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. A decision is still pending.
The Telephone Company filed its 1997 annual interstate access
price cap revisions, in which the Telephone Company elected to
use a 6.5% productivity factor, which took effect July 1, 1997.
The FCC 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 for both the 1996-
1997 and 1997-1998 tariff years. The filing would decrease
interstate network access rates by approximately $28 million for
the period July 1, 1997 to June 30, 1998. The Telephone Company
expects that this decrease will be partially offset by increased
demand.
In addition, the FCC has released Reports and Orders on the
Implementation of the Pay Telephone Reclassification and
Compensation Provisions of the Act. The orders, among other
things, mandate that all ILECs, including the Telephone Company,
unbundle payphone instruments, file tariffs on payphone service
lines and make them available on a non-discriminatory basis to
Payphone Service Providers ("PSPs"). Additionally, the orders
establish mechanisms for the full and fair compensation to PSPs,
including per-call compensation for subscriber "800" and access
code calls from payphones. The Telephone Company has filed the
necessary revisions to its interstate access charges with the FCC
and has filed with the DPUC new retail and wholesale Pay
Telephone Access Line Service offerings in accordance with the
FCC's order.
In December 1996, the FCC acted on an outstanding petition by the
New England Public Communications Council, Inc. and preempted a
prior DPUC decision which only authorized ILECs and CLECs to
provide payphone service in Connecticut. On July 1, 1997, the
District of Columbia Circuit Court rendered its decision in
Illinois Public Telecommunications Association v. FCC remanding
back to the FCC its decision setting the per-call compensation
rate for subscriber "800" and access code calls. The FCC on
August 5, 1997, established a pleading and comment cycle on these
remanded issues. The FCC released a subsequent order setting the
per-call compensation rate at $.284.
Noting the need to revise its jurisdictional separations rules as
a result of the increasingly competitive nature of the
telecommunications industry, the FCC initiated on October 7,
1997, a rulemaking proceeding to begin separations reform.
Jurisdictional separations assigns telecommunications property
costs, revenues, expenses, taxes and reserves to specific
categories that are then allocated between the interstate and
intrastate jurisdictions. Comprehensive reform in this area
could result in changes to the structure of ILEC pricing.
Management is currently unable to determine the impact any change
would have on 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 by 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 substantial investment and operating
costs relating to the number portability system. Local number
portability expenditures were approximately $4 million in 1997
and are estimated to be $19 million in 1998.
9
Regulatory Matters - State
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. In addition, basic local service
rates for residence, business and coin may not be raised above
current levels until January 1, 1998, at which time the price cap
plan becomes effective for these services, unless they have been
reclassified into the emerging-competitive or competitive
categories. The impact of these changes on the Telephone
Company's operating results will depend on the timing of
classifying the various products and services from non-
competitive into the emerging-competitive and competitive
categories for pricing changes.
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. As such, the CLEC
will not be subject to price cap regulations. The wholesale
organization, an ILEC, will provide network services and
functionality to retail providers, including SAI, the
Corporation's new CLEC, on comparable terms. The ILEC will be
treated as a public service company and will continue to be
subject to alternative forms of regulation. The directory
publishing operations were incorporated into a separate
subsidiary of the Corporation on January 1, 1998. 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 is scheduled to begin on January 4,
1999 and to be completed by May 1999.
In order for the balloting process to commence, the ILEC 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.
The DPUC's evaluation will establish a set of tests and standards
that can be used to 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 Act. A final decision is
due on June 24, 1998. The DPUC's decision to allow the
Corporation to establish separate wholesale and retail affiliates
has been challenged by other parties in both state court and
federal court. In an oral decision, the federal court has denied
the other parties' motion for summary judgment and granted the
Corporation's motion for summary judgment. A written decision is
expected in the first quarter of 1998. A decision is also
expected from the state court in 1998.
On March 18, 1997, SAI filed an application with the DPUC to
provide local and intrastate toll services throughout
Connecticut. The DPUC issued a final decision granting approval
on June 25, 1997. This grants SAI the authority to operate as a
CLEC in the state of Connecticut and to provide competitive
retail services to end user customers with the same regulatory
and pricing flexibility as all other CLECs in the state.
In compliance with the Act, the ILEC 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 current
retail prices for telecommunications services sold to CLECs.
10
On April 23, 1997, the DPUC issued a final decision addressing
the proposal for allocation of Hybrid Fiber Coax ("HFC") network
joint costs between broadband 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 approved the Telephone Company's proposed 50/50
allocation of HFC network joint costs between broadband 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. The cost allocation
decision has been appealed by the cable television industry to
state Superior Court. A decision is expected in 1998.
WIRELESS
The Corporation provides cellular (wholesale and retail),
personal communications, equipment sales and resale of paging
services in Connecticut, Rhode Island and portions of
Massachusetts, through its subsidiaries SNET Cellular, Inc.
("Cellular") and SNET Mobility, Inc. ("Mobility").
SNET Cellular, Inc.
Cellular was incorporated in 1985 under the laws of the State of
Connecticut and provides directly or indirectly through
affiliates retail and wholesale services in the states of
Connecticut and Rhode Island and portions of Massachusetts.
Cellular is currently subject to FCC jurisdiction. In November
1996, the DPUC opened an investigation to determine whether
wireless service was a replacement for landline telephone
service. If wireless service is determined to be a replacement
for landline service, the DPUC may petition the FCC for rate
regulation authority.
In 1990, Cellular formed the Springwich Cellular Limited
Partnership ("Springwich") with four other partners. 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 four Rural Service Areas, Windham
and Litchfield Counties in Connecticut and Franklin and Berkshire
Counties in Massachusetts. The Corporation through its
subsidiaries holds over a 99.6% partnership interest in
Springwich.
Cellular has "roaming agreements" with other carriers which allow
the carriers' subscribers access to Cellular's network and allow
Cellular's subscribers access to other networks throughout the
United States and Canada.
Cellular is facing considerable competition as a result of the
completion of the Bell Atlantic and NYNEX merger which created
the largest wireless service provider on the East Coast and the
second largest provider in the United States. In addition,
Cellular expects increasing competition from new alliances and
the impact from auctions of personal communications services
("PCS") and other licenses. A major long-distance provider has
launched a digital PCS service in Connecticut during 1997,
creating the third wireless provider in the state. Other
wireless carriers are expected to begin offering services in the
near future. Cellular has made and will continue to make
investments in network expansion and enhancements.
11
SNET Mobility, Inc.
Mobility was incorporated in 1985 under the laws of the State of
Connecticut under its predecessor's name SNET MobileCom, Inc.
Mobility purchases wholesale cellular communications service from
Springwich and resells cellular communications service in the
Connecticut retail market. In addition, Mobility also provides
paging services.
Mobility markets its services through its internal sales force
and through agreements with third-party distributors and dealers.
Mobility anticipates continuing competition from local, regional
and national resellers. In response to this competition,
Mobility continues to evaluate the quality of its distribution
channels, price aggressively, bundle with other
telecommunications services and introduce both creative customer
acquisition programs and differentiated value-added services.
INFORMATION AND ENTERTAINMENT
SNET Information Services, Inc.
In January 1998, the Telephone Company's directory publishing
operations and internet services were transferred to SNET
Information Services, Inc. which was incorporated in 1997 under
the laws of the State of Connecticut. The directory publishing
operations, in addition to selling the advertising, produces and
distributes traditional paper products including White and Yellow
Pages directories throughout Connecticut and adjacent
communities. To strategically widen its business focus and
position itself for the future, the publishing operations
introduced electronic publishing services, such as SNET Access[SM],
Consumer Tips and Electronic Yellow Pages.
The Connecticut advertising marketplace continues to undergo
major structural changes and is increasingly more fragmented and
competitive. The publishing division faces increased competition
from traditional directory publishers, established media, and
emerging competitors such as on-line services, electronic
shopping services, CD-ROM, and the expansion of cable television.
On January 31, 1996, the Corporation launched SNET Internet[SM]
access service, which allows all subscribers in the state of
Connecticut to access the Internet with a local phone call.
Internet customers have increased to over 85,000 at the end of
1997 from approximately 35,000 at the end of 1996.
SNET Personal Vision, Inc.
SNET Personal Vision, Inc. ("Personal Vision") was incorporated
in 1996 under the laws of the state of Connecticut. On September
6, 1996, Personal Vision received an 11-year license from the
DPUC to operate a cable television system that will serve the
entire state of Connecticut. Personal Vision also became a
partner in the americast joint venture with The Walt Disney
Company and several large local exchange carriers. The
partnership provides a full range of americast[TM] programming and
marketing services. Personal Vision began deploying its cable
service during the first quarter of 1997. The DPUC's decision
granting the statewide franchise was appealed to state Superior
Court by members of the cable industry. The Superior Court
upheld the DPUC's decision and the cable industry has now
appealed to the state Appellate Court. A decision is anticipated
in 1998.
12
OTHER BUSINESS ACTIVITIES
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 the
owner of commercial property which it leases under operating
leases and is a 99% partner in a limited liability company 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 deteriorate
from their current value. This risk is minimized by the
conservative nature of Real Estate's portfolio, a majority of
which is leased to affiliates.
Holding Company
The DPUC had limited the amount that the Corporation could invest
in unregulated diversified activities, without DPUC approval, to
40% of its total assets. In January 1997, the Corporation
requested the DPUC to completely lift the restriction. In June
1997, the DPUC lifted the restriction.
EMPLOYEE RELATIONS
The Corporation and its subsidiaries employed 9,841 persons at
February 27, 1998, of whom approximately 63% are represented by
the Connecticut Union of Telephone Workers, Inc. ("CUTW"), an
unaffiliated union.
In January 1998, under the current union contract, bargaining-
unit employees received a general wage increase totaling 3.0%;
made up of various forms and combinations of basic wage
increases, one-time cash payments and/or Cash Balance Plan
Account credits. The current labor agreement will expire on
August 8, 1998. Management and the union expect to begin
negotiations on a new labor agreement early in 1998.
Item 2. Properties
The principal properties of the Corporation do not lend
themselves to a detailed description by character and location.
The majority of telecommunications property, plant and equipment
of the Corporation is owned by the Telephone Company. Of the
Corporation's investment in telecommunications property, plant
and equipment at December 31, 1997, central office equipment
represented 43%; connecting lines not on customers' premises, the
majority of which are over or under public roads, highways or
streets and the remainder over or under private property,
represented 35%; land and buildings (occupied principally by
central offices) represented 11%; telephone instruments and
related wiring and equipment, including private branch exchanges,
substantially all of which are on the premises of customers,
represented 1%; and other, principally vehicles and general
office equipment, represented 10%.
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.
The Corporation has a significant investment in the properties,
facilities and equipment necessary to conduct its business with
the overwhelming majority of this investment relating to
telephone operations. Management believes that the Corporation's
facilities and equipment are suitable and adequate for the
business.
13
Capital Expenditures
The Corporation has been making, and expects to continue to make,
significant capital expenditures to meet the demand for
telecommunications services and to further improve such services.
The total gross investment in property, plant and equipment
increased from approximately $4.1 billion at December 31, 1992 to
approximately $4.9 billion at December 31, 1997, after giving
effect to retirements, but before deducting accumulated
depreciation at either date. Since 1993, cash expended for
capital additions was as follows:
Dollars in Millions,
For the Years Ended 1997 1996 1995 1994 1993
Cash Expended for
Capital Additions $472 $374 $357 $283 $269
In 1997, the Corporation funded its cash expenditures for capital
additions entirely through cash flows from operations. In 1998,
capital additions are expected to be approximately $475 million,
including estimated additions of $290 to the wireline network.
These additions include expenditures primarily related to the
modernization, growth and upgrading of wireline's central office
switching and circuit equipment, to meet customer demand for new
services. Additionally, to reduce maintenance costs and to meet
access line growth, increased focus is being placed on replacing
and supplementing the existing core network of twisted copper
wire and fiber-optic and coaxial cable.
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 financial position, operating results or cash flows of the
Corporation or its subsidiaries.
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.
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, was 47,787 as of
February 27, 1998. Information with respect to the quarterly
high, low and closing sales price for the Corporation's common
stock and quarterly cash dividends declared is included in the
registrant's combined 1997 Annual Report to Shareholders and
Proxy Statement on page 34 under the caption "Market and Dividend
Data" and is incorporated herein by reference pursuant to General
Instruction G(2).
14
Items 6 through 8.
Information required under Items 6 through 8 is included in the
registrant's combined 1997 Annual Report to Shareholders and
Proxy Statement dated March 26, 1998 on pages 6 through 33 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 combined 1997 Annual Report to Shareholders and
Proxy Statement dated March 26, 1998 on pages 38 through 47.
Such information is incorporated herein by reference pursuant to
General Instruction G(3).
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 as follows:
15
Executive Officers of the Registrant(1)
(as of February 27, 1998)
Executive
Officer
Name Age(2) Position Since
Daniel J. Miglio 57 Chairman, President and
Chief Executive Officer 1/86
Madelyn M. DeMatteo 49 Senior Vice President-
General Counsel and Secretary 1/98
Karin D. Mayhew(3) 46 Senior Vice President-
Organization Development 1/98
Fred T. Page 51 Senior Vice President-
Network Services 2/96
Ronald M. Serrano 42 Senior Vice President-Communication
Information and Entertainment Group 1/93
Donald R. Shassian 42 Senior Vice President and Chief
Financial Officer 12/93
(1) Executive officers subject to Section 16 of the Securities
Exchange Act of 1934.
(2) As of December 31, 1997.
(3) Replaced Jean M. LaVecchia whose employment with the Corporation
ended December 31, 1997.
Mr. Miglio, Ms. DeMatteo, Ms. Mayhew and Mr. Page 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.
16
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) Documents filed as part of the report: Page
(1) Report of Management *
Report of Independent Accountants *
Consolidated Financial Statements:
Consolidated Statements of Income (Loss) -
for the years ended
December 31, 1997, 1996 and 1995 *
Consolidated Balance Sheets - as of
December 31, 1997 and 1996 *
Consolidated Statements of Changes in
Shareholders' Equity - for
the years ended December 31, 1997, 1996 and 1995 *
Consolidated Statements of Cash Flows -
for the years ended
December 31, 1997, 1996 and 1995 *
Notes to Consolidated Financial Statements *
(2) Consolidated Financial Statement Schedule for the
year ended December 31, 1997
Report of Independent Accountants 22
II - Valuation and Qualifying Accounts 23
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 combined 1997 Annual Report to Shareholders
and Proxy Statement dated March 26, 1998 [see Part II].
17
(3) Exhibits:
Exhibits identified in parentheses below, on file with the SEC,
are incorporated herein by reference as exhibits hereto.
Exhibits numbered 10(iii)(A)1 through 10(iii)(A)17 are management
contracts or compensatory plans required to be filed as exhibits
pursuant to Item 14(c) of Form 10-K.
Exhibit
Number
2 Agreement and Plan of Merger dated January 4, 1998,
between Southern New England Telecommunications
Corporation, SBC Communications Inc. and SBC (CT),
Inc. (Exhibit 2 to Form 8-K dated 1/5/98, File No. 1-
9157).
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 December 11, 1996 between
Southern New England Telecommunications Corporation
and State Street Bank and Trust Company, as Rights
Agent (Exhibit 4 to Form 8-K dated 12/11/96, File
No. 1-9157). Amendment No. 1 dated January 4, 1998
(Exhibit 4.2 to Form 8-K dated 1/5/98, File No. 1-
9157).
4b Stock Option Agreement dated January 4, 1998,
between Southern New England Telecommunications
Corporation, SBC Communications Inc. and SBC (CT)
Inc. (Exhibit 4.1 to Form 8-K dated 1/5/98, File No.
1-9157).
4c Indenture dated December 13, 1993 between The
Southern New England Telephone Company and Fleet
National Bank of Connecticut, Trustee, issued in
connection with the sale of $200,000,000 of 6 1/8%
Medium-Term Notes, Series C, due December 15, 2003
and $245,000,000 of 7 1/4% Medium-Term Notes, Series
C, due December 15, 2033 (Exhibit 4b to 1994 Form 10-K
dated 3/10/95, File No. 1-9157).
4d Indenture dated July 10, 1991 between the registrant
and Fleet National Bank of Connecticut, Trustee,
issued in connection with the sale of $100,000,000
of 6 1/2% Medium-Term Notes, Series 2, due August
15, 2000, $200,000,000 of 7% Medium-Term Notes,
Series 2, due August 15, 2005 and $100,000,000 of 6
1/2% Medium-Term Notes, Series 2, due February 15,
2002 (Exhibit 4c to 1995 Form 10-K dated 3/20/96,
File No. 1-9157).
10(iii)(A)1 SNET Short Term Incentive Plan as amended February
8, 1995 (Exhibit 10(iii)(A)1 to 1994 Form 10-K dated
3/10/95, 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).
18
(3) Exhibits (continued):
Exhibit
Number
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 Pension Benefit Plan as amended through January
1, 1998.
10(iii)(A)6 SNET Management Pension Plan as amended March 31,
1995. Amendments effective December 20, 1995 through
April 1, 1996 (Exhibit 10(iii)(A)6 to 1995 Form 10-K
dated 3/20/96, File No. 1-9157). Amendments
effective April 1, 1996 through December 18, 1996
(Exhibit 10(iii)(A)6 to 1996 Form 10-K dated 3/20/97,
File No. 1-9157). Amendments effective July 9, 1997
through January 1, 1998.
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). Amendment dated December 8, 1993 (Exhibit
10 (iii)(A)8 to 1993 Form 10-K dated 3/23/94, File
No. 1-9157).
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). Amendment dated January
4, 1998.
10(iii)(A)12 SNET Retirement and Disability Plan for Non-Employee
Directors as amended April 14, 1993 (Exhibit
10(iii)(A)12 to 1993 Form 10-K dated 3/23/94, File
No. 1-9157). Amendment dated February 14, 1996
(Exhibit 10(iii)(A)12 to 1996 Form 10-K dated
3/20/97, File No. 1-9157).
10(iii)(A)13 SNET Non-Employee Director Stock Plan effective
January 1, 1994 (Exhibit 4.4 to Registration No. 33-
51055 on Form S-8, File No. 1-9157).
10(iii)(A)14 SNET Executive Retirement Savings Plan as amended
through January 1, 1998.
10(iii)(A)15 SNET 1995 Stock Incentive Plan (Exhibit 4.4 to
Registration No. 33-64975, File No. 1-9157).
Amendment dated January 4, 1998.
19
(3) Exhibits (continued):
Exhibit
Number
10(iii)(A)16 SNET Non-Employee Director Stock Plan effective June
1, 1996 (Exhibit 4.2 to Registration No. 333-05757 on
Form S-8, File No. 1-9157).
10(iii)(A)17 SNET Stay Bonus Program effective January 4, 1998.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Pages 6 through 34 of the registrant's combined 1997
Annual Report to Shareholders and Proxy Statement for
the fiscal year ended December 31, 1997.
21 Subsidiaries of the Corporation.
23 Consent of Independent Accountants.
24a Powers of Attorney.
24b Board of Directors' Resolution.
27 Financial Data Schedule.
99a Annual Report on Form 11-K for the plan year ended
December 31, 1997 for the SNET Management Retirement
Savings Plan will be filed as an amendment prior to
June 30, 1998.
99b Annual Report on Form 11-K for the plan year ended
December 31, 1997 for the SNET Bargaining-Unit
Retirement Savings Plan will be filed as an amendment
prior to June 30, 1998.
The Corporation will furnish, without charge, to a shareholder
upon request a copy of the combined 1997 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 October 23, 1997, the Corporation and the Telephone Company
filed, separately, reports on Form 8-K, dated October 23, 1997
announcing the Corporation's financial results for the third
quarter of 1997.
On January 5, 1998 and January 6, 1998, the Corporation and
the Telephone Company respectively filed, separately, 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
filed, separately, reports on Form 8-K, dated January 27,
1998, announcing the Corporation's 1997 financial results.
20
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/ Donald R. Shassian
Donald R. Shassian, Senior Vice President
and Chief Financial Officer March 20, 1998
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:
Daniel J. Miglio*
Chairman, President, Chief Executive Officer and Director
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
Donald R. Shassian
Senior Vice President and By /s/ Donald R. Shassian
Chief Financial Officer (Donald R. Shassian, as attorney-
in-fact and on his own behalf)
DIRECTORS:
William F. Andrews*
Richard H. Ayers*
Robert L. Bennett*
Barry M. Bloom* March 20, 1998
Frank J. Connor*
William R. Fenoglio*
Claire L. Gaudiani*
Ira D. Hall*
Burton G. Malkiel*
Frank R. O'Keefe, Jr.*
Joyce M. Roche* * by power of attorney
21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders 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 combined 1997 Annual
Report to Shareholders and Proxy Statement of Southern New
England Telecommunications Corporation on page 15 therein. In
connection with our audits of such financial statements, we have
also audited the related financial statement schedule for each of
the three years in the period ended December 31, 1997 listed in
Item 14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included
therein.
Hartford, Connecticut /s/ COOPERS & LYBRAND L.L.P.
January 27, 1998
22
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance at Balance
beginning of Charged to Charged to at end
Description period expense other accounts Deductions of period
Allowance for Uncollectible
Accounts Receivable:
Year 1997 $27.4 $43.4 $11.3 (a) $49.6 (b) $32.5
Year 1996 34.2 42.6 5.1 (a) 54.5 (b) 27.4
Year 1995 29.8 23.1 3.6 (a) 22.3 (b) 34.2
Allowance for Uncollectible
Direct-Financing Lease Notes Receivable:
Year 1997 $11.0 $ - $ - $ - $11.0
Year 1996 9.7 1.8 - 0.5 (b) 11.0
Year 1995 8.4 1.4 - 0.1 (b) 9.7
Restructuring Charge:
Year 1997 $31.5 $ - $ - $25.0 $ 6.5
Year 1996 77.0 - - 45.5 (c) 31.5
Year 1995 264.9 - - 187.9 (c) 77.0
(a) Includes amounts previously written off that were credited
directly to this account when recovered and miscellaneous
amounts.
(b) Includes amounts written off as uncollectible. 1997
reflects the continuous collection difficulties as the
competitive environment increases despite the Corporation's
increased emphasis on collections. 1996 also includes fully
reserved amounts written off of $17.8 as a result of a
revised procedure to write-off uncollectible accounts
receivable within a shorter time frame.
(c) Includes non-cash net pension and postretirement settlement
gain charged against the restructuring reserve of $65.1 in
1996 and curtailment losses of $102.2 in 1995.
23
EXHIBIT INDEX
Exhibits identified in parentheses below, on file with the SEC,
are incorporated herein by reference as exhibits hereto.
Exhibit
Number
2 Agreement and Plan of Merger dated January 4, 1998,
between Southern New England Telecommunications
Corporation, SBC Communications Inc. and SBC (CT),
Inc. (Exhibit 2 to Form 8-K dated 1/5/98, File No. 1-
9157).
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 December 11, 1996 between
Southern New England Telecommunications Corporation
and State Street Bank and Trust Company, as Rights
Agent (Exhibit 4 to Form 8-K dated 12/11/96, File
No. 1-9157). Amendment No. 1 dated January 4, 1998
(Exhibit 4.2 to Form 8-K dated 1/5/98, File No. 1-
9157).
4b Stock Option Agreement dated January 4, 1998,
between Southern New England Telecommunications
Corporation, SBC Communications Inc. and SBC (CT)
Inc. (Exhibit 4.1 to Form 8-K dated 1/5/98, File No.
1-9157).
4c Indenture dated December 13, 1993 between The
Southern New England Telephone Company and Fleet
National Bank of Connecticut, Trustee, issued in
connection with the sale of $200,000,000 of 6 1/8%
Medium-Term Notes, Series C, due December 15, 2003
and $245,000,000 of 7 1/4% Medium-Term Notes, Series
C, due December 15, 2033 (Exhibit 4b to 1994 Form 10-K
dated 3/10/95, File No. 1-9157).
4d Indenture dated July 10, 1991 between the registrant
and Fleet National Bank of Connecticut, Trustee,
issued in connection with the sale of $100,000,000
of 6 1/2% Medium-Term Notes, Series 2, due August
15, 2000, $200,000,000 of 7% Medium-Term Notes,
Series 2, due August 15, 2005 and $100,000,000 of 6
1/2% Medium-Term Notes, Series 2, due February 15,
2002 (Exhibit 4c to 1995 Form 10-K dated 3/20/96,
File No. 1-9157).
10(iii)(A)1 SNET Short Term Incentive Plan as amended February
8, 1995 (Exhibit 10(iii)(A)1 to 1994 Form 10-K dated
3/10/95, 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 Pension Benefit Plan as amended through January
1, 1998.
10(iii)(A)6 SNET Management Pension Plan as amended March 31,
1995. Amendments effective December 20, 1995 through
April 1, 1996 (Exhibit 10(iii)(A)6 to 1995 Form 10-K
dated 3/20/96, File No. 1-9157). Amendments
effective April 1, 1996 through December 18, 1996
(Exhibit 10(iii)(A)6 to 1996 Form 10-K dated 3/20/97,
File No. 1-9157). Amendments effective July 9, 1997
through January 1, 1998.
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). Amendment dated December 8, 1993 (Exhibit
10 (iii)(A)8 to 1993 Form 10-K dated 3/23/94, File
No. 1-9157).
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). Amendment dated January
4, 1998.
10(iii)(A)12 SNET Retirement and Disability Plan for Non-Employee
Directors as amended April 14, 1993 (Exhibit
10(iii)(A)12 to 1993 Form 10-K dated 3/23/94, File
No. 1-9157). Amendment dated February 14, 1996
(Exhibit 10(iii)(A)12 to 1996 Form 10-K dated
3/20/97, File No. 1-9157).
10(iii)(A)13 SNET Non-Employee Director Stock Plan effective
January 1, 1994 (Exhibit 4.4 to Registration No. 33-
51055 on Form S-8, File No. 1-9157).
10(iii)(A)14 SNET Executive Retirement Savings Plan as amended
through January 1, 1998.
10(iii)(A)15 SNET 1995 Stock Incentive Plan (Exhibit 4.4 to
Registration No. 33-64975, File No. 1-9157).
Amendment dated January 4, 1998.
10(iii)(A)16 SNET Non-Employee Director Stock Plan effective June
1, 1996 (Exhibit 4.2 to Registration No. 333-05757 on
Form S-8, File No. 1-9157).
10(iii)(A)17 SNET Stay Bonus Program effective January 4, 1998.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Pages 6 through 34 of the registrant's combined 1997
Annual Report to Shareholders and Proxy Statement for
the fiscal year ended December 31, 1997.
21 Subsidiaries of the Corporation.
23 Consent of Independent Accountants.
24a Powers of Attorney.
24b Board of Directors' Resolution.
27 Financial Data Schedule.
99a Annual Report on Form 11-K for the plan year ended
December 31, 1997 for the SNET Management Retirement
Savings Plan will be filed as an amendment prior to
June 30, 1998.
99b Annual Report on Form 11-K for the plan year ended
December 31, 1997 for the SNET Bargaining-Unit
Retirement Savings Plan will be filed as an amendment
prior to June 30, 1998.