<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8609
PACIFIC TELESIS GROUP
I.R.S. Employer No. 94-2919931
A Nevada Corporation
130 Kearny Street, San Francisco, California 94108
Telephone - Area Code (415) 394-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
At July 31, 1994, 424,065,165 common shares were outstanding.
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Review Report of Independent Accountants .............. 3
Condensed Consolidated Statements of Income ........... 4
Condensed Consolidated Balance Sheets ................. 6
Condensed Consolidated Statements of
Shareowners' Equity ............................... 7
Condensed Consolidated Statements of Cash Flows ....... 8
Notes to Condensed Consolidated Financial Statements .. 10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition .................... 13
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders ..... 23
Item 6. Exhibits and Reports on Form 8-K ........................ 24
SIGNATURE ........................................................ 25
- ---------
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareowners
of Pacific Telesis Group:
We have reviewed the accompanying condensed consolidated balance sheet of
Pacific Telesis Group and Subsidiaries as of June 30, 1994, and the related
condensed consolidated statements of income for the three- and six-month
periods ended June 30, 1994 and 1993, and the condensed consolidated
statements of shareowners' equity and cash flows for the six-month periods
ended June 30, 1994 and 1993. These financial statements are the
responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Pacific Telesis Group and
Subsidiaries as of December 31, 1993, and the related consolidated statements
of income, shareowners' equity, and cash flows for the year then ended (not
presented herein); and in our report dated March 3, 1994, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1993, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
Coopers & Lybrand
San Francisco, California
August 12, 1994
3
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
(Unaudited)
For the 3 Months Ended For the 6 Months Ended
June 30, June 30,
---------------------- ----------------------
1994 1993 1994 1993
OPERATING REVENUES ---------- ---------- ---------- ----------
Local service ................ $ 845 $ 874 $1,701 $1,730
Network access
Interstate ................. 400 406 809 808
Intrastate ................. 167 165 342 333
Toll service ................. 506 517 1,004 1,033
Other service revenues........ 338 355 694 699
---------- ---------- ---------- ----------
TOTAL OPERATING REVENUES ..... 2,256 2,317 4,550 4,603
---------- ---------- ---------- ----------
OPERATING EXPENSES
Cost of products and services 475 475 951 984
Customer operations and
selling expenses ........... 462 447 884 864
General, administrative, and
other expenses ............. 329 409 736 796
Restructuring charges ........ - - - 413
Depreciation and amortization 443 437 884 872
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES ..... 1,709 1,768 3,455 3,929
---------- ---------- ---------- ----------
OPERATING INCOME ............. 547 549 1,095 674
Interest expense ............. 121 122 229 247
Miscellaneous income ......... 12 23 24 32
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES................ 438 450 890 459
Income taxes ................. 160 167 330 170
---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS.................. 278 283 560 289
Income (loss) from spin-off
operations, net of tax
(Notes A and B)............. - 8 23 (1)
---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGES .................... 278 291 583 288
Cumulative effect of
accounting changes ......... - - - (1,724)
---------- ---------- ---------- ----------
NET INCOME (LOSS) ............ $ 278 $ 291 $ 583 $(1,436)
========== ========== ========== ==========
(Continued)
4
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Continued)
(Dollars in millions, except per share amounts)
(Unaudited)
For the 3 Months Ended For the 6 Months Ended
June 30, June 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
Earnings (loss) per share:
Income from continuing
operations .............. $ 0.65 $ 0.69 $ 1.32 $ 0.71
Income from spin-off
operations .............. - 0.02 0.06 -
---------- ---------- ---------- ----------
Income before cumulative
effect of accounting
changes ................. 0.65 0.71 1.38 0.71
Cumulative effect of
accounting changes ...... - - - (4.22)
---------- ---------- ---------- ----------
Net income (loss) ......... $ 0.65 $ 0.71 $ 1.38 $ (3.51)
========== ========== ========== ==========
Dividends per share ......... $ 0.545 $ 0.545 $ 1.09 $ 1.09
Average shares outstanding
(thousands) ............... 424,051 410,567 423,873 408,613
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
5
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
June 30, December 31,
1994 1993
----------- ------------
ASSETS: (Unaudited)
Cash and cash equivalents ................... $ 48 $ 69
Accounts receivable -(net of allowances for
uncollectibles of $146 and $138 in 1994 and
1993, respectively) ....................... 1,504 1,548
Prepaid expenses and other current assets.... 1,002 1,029
----------- -----------
Total current assets ........................ 2,554 2,646
----------- -----------
Property, plant, and equipment - at cost .... 26,721 26,607
Less: accumulated depreciation ........... (10,282) (9,961)
----------- -----------
Property, plant, and equipment - net ........ 16,439 16,646
----------- -----------
Net assets of spin-off operations
(Notes A and B) ........................... - 2,874
----------- -----------
Deferred charges and other noncurrent assets. 1,304 1,271
----------- -----------
TOTAL ASSETS ................................ $20,297 $23,437
=========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY:
Accounts payable and accrued liabilities .... $ 1,757 $ 1,645
Debt maturing within one year ............... 79 595
Other current liabilities ................... 1,166 1,168
----------- -----------
Total current liabilities.................... 3,002 3,408
----------- -----------
Long-term obligations ....................... 5,143 5,129
----------- -----------
Deferred income taxes ....................... 1,589 1,598
----------- -----------
Other noncurrent liabilities and
deferred credits .......................... 5,476 5,516
----------- -----------
Commitments and contingencies (Notes C and D)
Total shareowners' equity.................... 5,087 7,786
----------- -----------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY ... $20,297 $23,437
=========== ===========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
6
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(Dollars in millions)
(Unaudited)
For the 6 Months Ended
June 30,
----------------------
1994 1993
-------- --------
COMMON STOCK
Balance at beginning of period ............... $ 43 $ 43
-------- --------
Balance at end of period ..................... 43 43
-------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period ............... 6,372 5,220
Spin-off stock distribution (Note B).......... (2,901) -
Issuance of shares ........................... 22 (7)
Other changes ................................ 2 6
-------- --------
Balance at end of period ..................... 3,495 5,219
-------- --------
REINVESTED EARNINGS
Balance at beginning of period ............... 2,040 4,459
Net income (loss) ............................ 583 (1,436)
Dividends declared ........................... (462) (448)
Other changes................................. (12) 2
-------- --------
Balance at end of period ..................... 2,149 2,577
-------- --------
TREASURY STOCK
Balance at beginning of period ............... (283) (1,011)
Issuance of shares ........................... 29 378
-------- --------
Balance at end of period ..................... (254) (633)
-------- --------
DEFERRED COMPENSATION - LESOP TRUST
Balance at beginning of period ............... (386) (460)
Cost of trust shares allocated
to employee accounts ....................... 40 41
-------- --------
Balance at end of period ..................... (346) (419)
-------- --------
TOTAL SHAREOWNERS' EQUITY ...................... $ 5,087 $ 6,787
======== ========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
7
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited) For the 6 Months Ended
June 30,
----------------------
1994 1993
CASH FROM (USED FOR) OPERATING ACTIVITIES: --------- ---------
Net income (loss)................................... $ 583 $(1,436)
Adjustments to net income (loss):
(Income) loss from spin-off operations (Note A)... (23) 1
Cumulative effect of accounting changes .......... - 1,724
Restructuring charges ............................ - 413
Depreciation and amortization .................... 884 872
Deferred income taxes ............................ (46) (143)
Changes in operating assets and liabilities:
Accounts receivable ............................ 43 15
Prepaid expenses and other current assets ...... 5 (24)
Deferred charges and other noncurrent assets ... 17 61
Accounts payable and accrued liabilities ....... 110 (55)
Other current liabilities....................... (3) (22)
Noncurrent liabilities and deferred credits .... (3) (84)
Other adjustments, net ........................... (75) (66)
---------- ---------
Cash from operating activities of continuing
operations........................................ 1,492 1,256
---------- ---------
CASH FROM (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant, and equipment ........ (703) (855)
Net investment in spin-off operations............... - (917)
Decrease in net receivable from
spin-off operations .............................. 33 804
Other investing activities, net .................... 6 58
---------- ---------
Cash used for investing activities ................. (664) (910)
---------- ---------
CASH FROM (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of common and
treasury shares .................................. 118 458
Proceeds from issuance of long-term debt ........... 10 1,665
Retirements of long-term debt ...................... (1) (1,306)
Dividends paid ..................................... (445) (358)
Decrease in short-term borrowings, net ............. (516) (707)
Other financing activities, net .................... (15) (70)
---------- ---------
Cash used for financing activities ................. (849) (318)
---------- ---------
Increase (decrease) in cash and cash equivalents ... (21) 28
Cash and cash equivalents at January 1 ............. 69 74
---------- ---------
Cash and cash equivalents at June 30 ............... $ 48 $ 102
========== =========
(Continued)
8
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Dollars in millions)
(Unaudited)
For the 6 Months Ended
June 30,
----------------------
1994 1993
- ----------------------------------------------------------------------------
Cash payments for:
Interest ......................................... $ 228 $ 237
Income taxes ..................................... $ 244 $ 281
- ----------------------------------------------------------------------------
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
9
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements include the accounts of
Pacific Telesis Group (the "Corporation") and its wholly and majority
owned subsidiaries. The Corporation includes a holding company, Pacific
Telesis; its telephone subsidiaries: Pacific Bell and its subsidiaries,
Pacific Bell Directory and Pacific Bell Information Services, and Nevada
Bell (the "Telephone Companies"); and several other units. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The Condensed Consolidated Financial Statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission (the "SEC") applicable to interim financial information.
Certain information and footnote disclosures included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in these interim statements
pursuant to such SEC rules and regulations. Management recommends that
these interim financial statements be read in conjunction with both the
Corporation's 1993 annual report on Form 10-K and its 1994 Proxy Statement
that includes the audited 1993 financial statements.
In management's opinion, the Condensed Consolidated Financial Statements
include all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position and results of
operations for each interim period shown. The Condensed Consolidated
Financial Statements have been reviewed by Coopers & Lybrand, independent
accountants. Their report is on page 3.
The Condensed Consolidated Financial Statements have been reclassified to
conform to the current presentation. The Corporation's previous interests
in the operating results and net assets of AirTouch Communications
("AirTouch") are classified separately as "spin-off operations." (See
Note B - "Spin-off" following.) These operations are excluded from
amounts reported for the Corporation's revenues, expenses, assets,
liabilities, and cash flows. Prior intercompany transactions with these
operations which were previously eliminated in consolidation are now
reflected in the Corporation's financial statements. Financial
information presented for spin-off operations in the Condensed
Consolidated Financial Statements has been prepared solely for the purpose
of reporting Pacific Telesis Group results.
10
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
B. SPIN-OFF
Effective April 1, 1994, the Corporation spun off to shareowners its
domestic and international cellular, paging, and other wireless operations
in a one-for-one stock distribution of its 86 percent interest in
AirTouch. The stock distribution was recorded at the carrying amount of
the net assets of spin-off operations. As a result, the Corporation's
total assets and shareowners' equity were each reduced by $2.9 billion
during the six-month period ended June 30, 1994. The stock distribution
itself is a noncash transaction which did not affect the Corporation's
cash flow statement.
Under a separation agreement, any unrecorded non-tax contingent
liabilities that become certain after the spin-off date will be allocated
based on origin of the claim, and acts by, or benefits to, the Corporation
or AirTouch. In addition, the Corporation's responsibilities terminate in
connection with any future obligations under AirTouch's joint venture
agreement with Cellular Communications, Inc., and under various financial
instrument contracts. As of December 31, 1993, these financial
instruments included foreign currency swap and forward contracts with face
amounts totaling $291 million.
C. PRIOR YEAR ACCOUNTING CHANGES AND RESTRUCTURING CHARGES
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Postretirement Benefits Other than Pensions," and Statement of Financial
Accounting Standards No. 112 ("SFAS 112"), "Employers' Accounting for
Postemployment Benefits." These new rules require a change from the cash
to the accrual method of accounting for these costs. The cumulative
after-tax effects of applying the new rules to prior years were recognized
in first quarter 1993 by one-time charges of $1.724 billion. The charges
are net of deferred income tax benefits of $1.155 billion and reduced
earnings applicable to continuing operations by $4.22 per share for the
six-month period ended June 30, 1993. Under decisions by the California
Public Utilities Commission (the "CPUC"), Pacific Bell was granted $100
and $108 million for 1994 and 1993, respectively, for partial recovery of
its higher costs under SFAS 106. Two ratepayer advocacy groups have each
challenged certain aspects of the original CPUC decision adopting SFAS 106
for ratemaking, which could affect Pacific Bell's rate recovery. The
Corporation is unable to predict the outcome of these pending challenges.
11
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PACIFIC TELESIS GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
C. PRIOR YEAR ACCOUNTING CHANGES AND RESTRUCTURING CHARGES (Continued)
As previously reported, the Corporation recorded pre-tax restructuring
charges during first quarter 1993 relating to its planned disposal of real
estate assets, the spin-off of wireless operations, and other
restructuring activities. Overall, these charges reduced income from
continuing operations for the six-month period ended June 30, 1993 by
$258 million, or $.63 per share.
D. LOAN GUARANTEE CONTINGENCY
In June 1990, Prime Cable of Chicago, Inc. ("Prime Cable"), acquired
certain Chicago cable television properties from Group W. The
Corporation, through its PacTel Cable subsidiary, holds options to
purchase up to a 75 percent interest in Prime Cable upon receiving the
necessary regulatory and legal approvals. TC Cable, Inc. ("TC Cable") now
holds this interest. PacTel Capital Funding, a wholly owned subsidiary of
the Corporation, has guaranteed bank financing used by TC Cable and its
parent corporation to acquire this interest. The guarantees cover initial
loan amounts of $60 million as well as interest accruing on the loans
which will be added to the outstanding loan balances up to an aggregate of
$136 million. In the Corporation's opinion, the likelihood that it will
be required to pay principal or interest on this debt under these
guarantees is remote.
12
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following discussions and data compare the results of operations of
Pacific Telesis Group (the "Corporation") for the three- and six-month periods
ended June 30, 1994 to the same periods in 1993. The Corporation's previous
interests in the operating results of wireless operations which were spun off
to shareowners on April 1, 1994 are classified separately as "spin-off
operations" in the accompanying financial statements. (See Note B - "Spin-
off" on page 11.) These operations are excluded from the reported amounts of
the Corporation's revenues and expenses. The Corporation's "continuing
operations" include Pacific Bell and Nevada Bell (the "Telephone Companies"),
along with several other units. Results for the first six months of 1994 for
continuing operations may not be indicative of results for the full year.
(See discussions of "Pending Regulatory Issues" beginning on page 19.)
A summary of supplemental financial and operating data is shown below:
For the 3 Months Ended For the 6 Months Ended
June 30, June 30,
---------------------- ----------------------
% %
Selected Operating Data* 1994 1993 Change 1994 1993 Change
- ----------------------------------------------------------------------------
Return on shareowners'
equity (%)................ 21.7 21.5 0.9 22.0 (46.7) -
Operating ratio (%)......... 75.8 76.3 -0.7 75.9 85.4 -11.1
Revenues per employee
($ in thousands).......... 42 41 2.4 84 81 3.7
Total employees at June 30.. 53,532 56,318 -4.9 - - -
Telephone Company employees
per ten thousand
access lines**............ 33.4 36.4 -8.2 - - -
- ----------------------------------------------------------------------------
* continuing operations
** excludes Pacific Bell Directory employees
Earnings
- --------
Earnings reflect an improved California economy and the Corporation's
continuing cost reduction programs. For second quarter 1994, the Corporation
reported net income of $278 million, or $0.65 per share, compared to earnings
of $283 million, or $0.69 per share, from continuing operations for a year
ago. However, this year's second quarter net income was reduced by a one-time
charge of $29 million resulting from a California Public Utilities Commission
("CPUC") refund order. In April 1994, the CPUC let stand its previous order
requiring Pacific Bell to refund about $35 million in late payment and
reconnection charges which resulted from past problems with its payment
processing system. The order also imposed penalties totaling $15 million.
Without the after-tax charge of $29 million, net income would have increased
to $307 million, up about eight percent. Earnings per share would have risen
to $0.72, up about four percent.
13
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For the first six months of 1994, earnings without one-time effects also
improved. Last year's results reflected after-tax charges in first quarter of
$1.7 billion for adopting new accounting rules and $258 million for
restructuring reserves. Without last year's charges and one-time effects this
year, earnings from continuing operations for the six-month period would have
increased about nine percent. On a per share basis, earnings would have
increased about five percent.
Operating Revenues
- ------------------
For the 3 Months Ended For the 6 Months Ended
June 30, June 30,
---------------------- ----------------------
% %
Volume Indicators 1994 1993 Change 1994 1993 Change
- ----------------------------------------------------------------------------
Carrier access minutes-
of-use (millions)........ 13,274 12,314 7.8 26,458 24,318 8.8
Interstate............... 7,868 7,249 8.5 15,740 14,242 10.5
Intrastate............... 5,406 5,065 6.7 10,718 10,076 6.4
Toll messages (millions)*.. 1,122 1,079 4.0 2,218 2,118 4.7
Customer switched access
lines in service at
June 30 (thousands)...... 15,056 14,692 2.5 - - -
- ----------------------------------------------------------------------------
* Toll messages for 1993 have been restated to conform to the current
presentation.
For the 3 months Ended For the 6 Months Ended
June 30, June 30,
---------------------- ----------------------
(Dollars in millions) 1994 1993 Change 1994 1993 Change
- ----------------------------------------------------------------------------
Total operating revenues .. $2,256 $2,317 -$61 $4,550 $4,603 -$53
-2.6% -1.2%
- ----------------------------------------------------------------------------
The revenue decreases for the three- and six-month periods reflect rate
reductions ordered by the CPUC and the Federal Communications Commission (the
"FCC") under incentive-based regulation. In addition, revenues were reduced
by accruals at the Telephone Companies for sharing interstate earnings with
customers. The FCC requires sharing earnings above a threshold rate of
return. In addition, Pacific Bell revenues were reduced due to the CPUC's
refund order related to customer late payment charges. These and other
reductions were partially offset by increases due to customer demand.
14
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The factors affecting revenues are summarized in the following tables:
For the 3 Months Ended June 30,
----------------------------------------------------
Total
Price Late Misc. Change
Cap Sharing Payment Rates Customer from
(Dollars in millions) Rates Accruals Refund & Other Demand 1993
- ---------------------------------------------------------------------------
Local service ...... -$14 -$24 $9 -$29
Network access
Interstate ....... -5 -$12 -10 21 -6
Intrastate ....... -4 -12 18 2
Toll service ....... -11 -1 1 -11
Other service
revenues ......... -$27 -4 14 -17
------- ------- ------- ------- ------- -------
Total operating
revenues ......... -$34 -$12 -$27 -$51 $63 -$61
- ---------------------------------------------------------------------------
For the 6 Months Ended June 30,
----------------------------------------------------
Total
Price Late Misc. Change
Cap Sharing Payment Rates Customer from
(Dollars in millions) Rates Accruals Refund & Other Demand 1993
- ---------------------------------------------------------------------------
Local service ...... -$27 -$35 $ 33 -$29
Network access
Interstate ....... -10 -$31 -8 50 1
Intrastate ....... -8 -16 33 9
Toll service ....... -21 -13 5 -29
Other service
revenues ......... -$27 22 -5
------- ------- ------- ------- ------- -------
Total operating
revenues ......... -$66 -$31 -$27 -$72 $143 -$53
- ---------------------------------------------------------------------------
The increases in revenues due to customer demand in the above tables are the
result of growth in key volume indicators. Local service revenues reflect a
2.5 percent increase from a year ago in the Telephone Companies' customer
access lines. Interstate network access revenues reflect a 10.5 percent
increase in minutes-of-use for the six-month period, as well as the increased
access lines. Intrastate network access revenues reflect 6.4 percent growth
in minutes-of-use. Competition continues to constrain demand for Pacific
Bell's toll services.
The increases in other service revenues due to customer demand reflect the
success of the Telephone Companies' business and residential voice mail
products. Voice processing units in service at Pacific Bell increased
37.2 percent for the six-month period. Directory advertising revenues
decreased slightly each period.
15
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Operating Expenses
- ------------------
For the 3 Months Ended For the 6 Months Ended
June 30, June 30,
---------------------- -----------------------
% %
(Dollars in millions) 1994 1993 Change 1994 1993 Change
- --------------------------------------------------- -----------------------
Cost of products
and services ............ $ 475 $ 475 - $ 951 $ 984 -3.4
Customer operations and
selling expenses ........ 462 447 3.4 884 864 2.3
General, administrative,
and other expenses ...... 329 409 -19.6 736 796 -7.5
Restructuring charges ..... - - - - 413 -
Depreciation and
amortization ............ 443 437 1.4 884 872 1.4
------- ------- ------- ------- ------- -------
Total operating expenses .. $1,709 $1,768 -3.3 $3,455 $3,929 -12.1
- ----------------------------------------------------------------------------
The above decreases in total operating expenses reflect the Corporation's
continuing cost reduction efforts and resulting expense savings, primarily at
Pacific Bell. Without last year's first quarter restructuring charges,
recorded expenses for the current six-month period would have decreased
1.7 percent from a year ago. Those pre-tax charges relate to the
Corporation's planned disposal of real estate assets, the spin-off of its
wireless operations, and other restructuring activities.
Expense savings at Pacific Bell include decreases in salaries, wages and
employee benefits. Pacific Bell's salary and wage expense declined $26 and
$55 million for the three- and six-month periods, respectively, reflecting
reduced overtime pay and savings due to workforce reductions. Of these
amounts, $26 and $38 million, respectively, were due to Pacific Bell's force
reductions. Overtime pay decreased $8 and $42 million, respectively, each
period due to storm repairs in the comparable periods last year, and continued
cost reduction efforts. Annual management salary increases scheduled to take
effect in January were deferred to July 1994. Pacific Bell estimates this
deferral saved about $11 million for the six-month period. The decreases in
salary and wage expense were partially offset by higher nonsalaried wage
rates. In addition, employee benefits expense at Pacific Bell decreased by
$35 and $47 million, respectively, over the three- and six-month periods.
These reductions were primarily due to certain nonrecurring adjustments and a
decrease in postretirement benefit costs related to force reduction plans.
Overall, Pacific Bell's expense decreases were partially offset by an increase
in software licensing fees and a slight increase in contract services expense.
Licensing fees for digital switching software increased $16 million over the
six-month period as Pacific Bell implemented plans to create a fully digital
telecommunications network. Research and development costs supporting Pacific
Bell's plans to build an integrated telecommunications, information, and
entertainment network contributed to increased contract services expense.
However, this increase was largely offset by a $15 million reduction for
contract systems programmers resulting from last year's completion of billing
system enhancements.
16
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Interest Expense
- ----------------
Interest expense for the first six months of 1994 decreased by $18 million,
but only slightly for second quarter. Over the six-month period, Pacific
Bell's interest on long-term debt decreased $21 million, including $9 million
in savings due to lower rates and a $12 million reduction related to higher
borrowing levels last year. Long-term debt levels were temporarily higher in
1993 due to time-lags between new debt issuances and the retirements of
refinanced amounts. The Corporation's interest on its short-term borrowings
also decreased, reflecting reduced borrowings in the first half of 1994.
However, these decreases were substantially offset by second quarter increases
in miscellaneous interest expense primarily relating to the CPUC's late
payment charges decision and other nonrecurring items.
Income Taxes
- ------------
The decrease in income tax expense for second quarter 1994 primarily reflects
the Corporation's lower pre-tax income. For the six-month period, the
increase in income tax expense reflects higher pre-tax income. The effective
tax rate on pre-tax income of 37.1 percent for the first half of 1994 compares
to 37.0 percent for the same period last year. This year's effective tax rate
reflects the increase in the corporate federal tax rate from 34 percent to
35 percent which was enacted in August 1993.
Cumulative Effect of Accounting Changes
- ---------------------------------------
Effective January 1, 1993, the Corporation adopted two new accounting rules
for postretirement benefits and postemployment benefits and recorded related
one-time charges. These noncash charges in 1993 represent the cumulative
after-tax effects of applying the new rules to prior years. The new rules
increase annual benefit costs in comparison to prior methods. These higher
costs are being partially recovered through rates and, therefore, have not
materially affected reported earnings. However, Pacific Bell's rate recovery
could be affected by challenges from two ratepayer advocacy groups. (See
Note C - "Prior Year Accounting Changes and Restructuring Charges" on
page 11.)
Status of Restructuring Reserves
- --------------------------------
As previously reported, Pacific Bell established a restructuring reserve at
the end of 1993 to provide for the incremental cost of force reductions and
other related costs to restructure its internal business processes through
1997. Pacific Bell expects to reduce force in all of its business units.
During the first six months of 1994, 2,750 employees left Pacific Bell.
However, this number does not equal the net force reduction because employees
were also added during the period. A total of $52 million was charged to the
reserve in the first half of 1994, primarily to cover severance benefits for
about 1,400 employees. The majority of this year's costs will be incurred
during the second half of 1994. As of June 30, 1994, a balance of
$1,045 million remained in the restructuring reserve.
17
<PAGE>
In order to maximize cost savings from restructuring, Pacific Bell is
reviewing the feasibility of moving certain high priority reengineering
projects from later years into 1995. As a result, the timing of force
reductions and charges to the reserve may vary from original estimates.
Pacific Bell may also change the distribution among cost components due to
refinement of original estimates. The Corporation does not believe that these
changes would result in a material adjustment to the total amount of the
reserve.
During the first six months of 1994, the Corporation charged $19 million of
realized losses to its reserve for exiting its real estate business. As of
June 30, 1994, the remaining balance of the reserve was $319 million.
LIQUIDITY AND FINANCIAL CONDITION
The Corporation defines liquidity as its ability to generate resources to
finance business expansion, construct capital assets, pay its current
obligations, and pay dividends. The Corporation has met most of its financing
needs from internally generated funds, but also can obtain external financing
through the issuance of common stock and short- and long-term debt, if needed.
The Corporation expects to continue to meet most of its long-term financing
needs of its capital program from internally generated funds.
Short-term borrowings are available under a commercial paper program and
through unused formal and informal lines of credit. These lines of credit are
subject to continued review by the lending banks.
For longer term borrowings, Pacific Bell has remaining authority from the CPUC
to issue up to $1.25 billion of long- and intermediate-term debt. The
proceeds may be used to redeem maturing debt and to refinance other debt
issues. Pacific Bell has remaining authority from the SEC to issue up to
$650 million of long- and intermediate-term debt through an April 1993 shelf
registration. The Corporation's PacTel Capital Resources subsidiary may also
issue up to $192 million of medium-term notes through an SEC shelf
registration.
Cash flow from operating activities of continuing operations increased
$236 million for the six months ended June 30, 1994, compared to the same
period in 1993. The increase is primarily due to timing differences in the
payment of accounts payable and other liabilities.
For the first six months of 1994, cash used for investing activities decreased
$246 million due partially to delays in capital expenditures. The Telephone
Companies invested about $700 million in their networks during the first half
of 1994 and continue to expect to invest about $1.9 billion for the year.
Cash used for investing activities also decreased because last year's
investments in spin-off operations raised the comparative 1993 amount. The
investments in these operations in the six-month period of 1993, less cash
received from their repayment of intercompany balances, raised last year's
comparative amount by $113 million.
18
<PAGE>
During January 1994, the Corporation sold its remaining cable franchises in
the United Kingdom after selling four others in March 1993. Sales proceeds of
$30 and $49 million, respectively, in 1994 and 1993 are reflected in cash
provided from other investing activities for each year's six-month period.
Cash used for financing activities during the first six months of 1994
reflects a reduction of $516 million in the level of the Corporation's short-
term borrowings. As a result, debt maturing within one year on the
Corporation's balance sheet was reduced to $79 million as of June 30, 1994.
The Corporation's debt ratio improved to 50.7 percent at June 30, 1994 from
53.8 percent at December 31, 1993, reflecting the lower level of short-term
debt. Pre-tax interest coverage was 4.9 times for the first half of 1994.
Last year, calculations of this indicator were negative due to the
Corporation's 1993 reported loss.
Proceeds from issuances of treasury stock have declined this year from their
level in the first half of 1993. Last year's proceeds included additional
equity raised from a discounted stock purchase offer under the Corporation's
dividend reinvestment and stock purchase plan. The additional dividends
reinvested under this offer also reduced the cash requirement for 1993
dividend payments. Total cash used for financing activities in the comparable
six-month period of last year was also lowered by a temporary time-lag in
Pacific Bell's debt refinancings. In that period, Pacific Bell's proceeds
from long-term debt issuances included $350 million from a June 1993 issuance
which was subsequently used for a July 1993 debt redemption.
For second quarter 1994, the Pacific Telesis Group Board of Directors
maintained the Corporation's dividend at $0.545 per share. This represents
the same annual dividend level of $2.18 per share as for 1993 and 1992.
PENDING REGULATORY ISSUES
CPUC Regulatory Framework Review
- --------------------------------
In June 1994, the CPUC issued a decision in its review of the New Regulatory
Framework ("NRF") ordered in 1989. Among other issues, this review has
examined elements of the price cap formula, including the rate of return on
investment and the productivity factor.
Effective July 1994, the decision reduces Pacific Bell's benchmark rate of
return from 13.0 percent to 11.5 percent. Earnings from 11.5 percent to
15.0 percent will be shared equally with Pacific Bell's customers. Earnings
above 15.0 percent will be shared 30.0 percent with customers. Also effective
July 1994, the decision increases the productivity factor from 4.5 percent to
5.0 percent, a change which each year will reduce annual rates by
$32.5 million through 1996. Including a smaller adjustment, these changes in
the price cap formula will decrease total revenues from current levels by
about $19, $72, and $104 million, respectively, for 1994, 1995, and 1996. The
CPUC is scheduled to review the NRF again in 1995.
19
<PAGE>
PSCN Regulatory Review
- ----------------------
In Nevada, the Public Service Commission of Nevada (the "PSCN") has opened a
proceeding to consider revising existing regulations for telecommunications
providers. In April 1994, Nevada Bell joined an industry group of
interexchange carriers and local exchange carriers in proposing to the PSCN
fundamental changes in the nature of telecommunications regulation. The
proposal would permit competition where it is in the public interest and would
establish guidelines by which all competitors would be regulated. If adopted
by the PSCN, the proposal would allow local exchange carriers to elect a form
of price regulation.
Toll Services Competition
- -------------------------
In July 1994, the CPUC issued a revised draft decision in Phase III of its
investigation into alternative regulatory frameworks. The draft decision
provides that long-distance and other telecommunications companies would be
allowed to compete with Pacific Bell and other local telephone companies in
providing intra-service area toll calls in California. The draft decision
also would rebalance Pacific Bell's rates bringing them closer to cost. The
draft decision would lower rates for intra-service area toll calls about
40 percent and increase residential flat rate service from $8.35 to $11.25 per
month. Business basic rates would increase from $8.35 to $9.77 per month.
Other rates would also change. Overall, the CPUC intends the draft decision
to be revenue neutral; that is, the effect of rate decreases would be offset
by the effect of rate increases. The Corporation believes the draft decision
does not reduce toll rates far enough to assure fair competition. In an
August 1994 filing with the CPUC, Pacific Bell has proposed a reduction in
toll rates of about 55 percent to be balanced by further rate increases in
basic business access and other services. However, the Corporation believes
there is no need to raise basic residential rates further to balance an
additional reduction in toll rates.
The CPUC announced it expects to issue a final decision on intra-service area
toll competition in September 1994 with implementation scheduled for
January 1, 1995. The Corporation expects the CPUC in the near future to
consider whether customers should be allowed to "presubscribe" to one carrier
to handle all intra-service area calls.
Depreciation Rate Changes
- -------------------------
In June 1994, Pacific Bell filed an application to change its depreciation
rates with the CPUC. The application reflects a preliminary agreement between
Pacific Bell and the CPUC's Division of Ratepayer Advocates. If adopted, the
new rates will increase depreciation expense about $30 million effective
January 1, 1995. In July 1994, the FCC authorized new rates for the Telephone
Companies which will increase depreciation expense about $10 million annually
retroactive to January 1, 1994. Under incentive-based regulation, increases
in depreciation expense are not recovered in rates.
20
<PAGE>
FCC Annual Access Tariff Filing
- -------------------------------
In June 1994, the FCC adopted the Telephone Companies' annual access tariff
filings under price cap regulation. As a result, Pacific Bell's interstate
network access revenues will be reduced about $30 million annually effective
July 1, 1994. Pacific Bell's decrease reflects the application of the price
cap formula and an $8 million price reduction to help it remain competitive
with other access providers. Nevada Bell's rates will decrease $2 million
annually under the new tariffs.
Personal Communications Services
- --------------------------------
The Corporation plans to aggressively pursue licenses for personal
communications services ("PCS") at FCC auctions expected late this year or
early in 1995. Winning bids in major PCS markets are expected to require
large capital expenditures. In December 1993, the FCC awarded "pioneer
preferences" to three companies without charge. One company received one of
the broad spectrum licenses covering the Los Angeles, San Diego, and Las Vegas
market area. In August 1994, the FCC reconsidered its previous decision to
award pioneer preferences without charge. Consequently, the FCC amended its
rules to require the recipients to pay approximately 90 percent of the value
of similar licenses.
Interstate Special Access Competition
- -------------------------------------
In June 1993, the FCC ordered large local exchange carriers ("LECs"),
including the Telephone Companies, to offer expanded network interconnection
for interstate special access services. The Telephone Companies and other
LECs appealed a provision of the decision which permitted competitive access
providers and other customers to locate their transmission facilities in the
LECs' central offices. In June 1994, the U.S. Court of Appeals for the D.C.
Circuit overruled the mandatory physical collocation requirement. The Court
also remanded to the FCC the issue of whether the LECs should offer "virtual
collocation" instead of physical collocation. With virtual collocation, the
interconnection is located outside the LEC's central office. In July 1994,
the FCC directed the LECs to provide virtual collocation, but exempted LECs
from this requirement at central offices where they offer physical
collocation. Interstate special access revenues subject to increased
competition represent less than three percent of the Telephone Companies'
total revenues.
21
<PAGE>
Telecommunications Legislation
- ------------------------------
In June 1994, the U.S. House of Representatives approved two
telecommunications bills which would ease certain restrictions imposed by the
1982 Consent Decree and the 1984 Cable Act. The Brooks-Dingell bill would
simplify the procedures under which the telephone regional holding companies
must request authority to provide long-distance service and manufacture
telecommunications equipment. The Markey-Fields bill would open local
telephone service to competition and allow competitors to connect to the local
network. It would also permit LECs to provide video programming to
subscribers in their own service areas, but would prevent them from buying
large existing cable systems within these areas. Similar legislation with
less favorable provisions has been introduced in the U.S. Senate.
In May 1994, the California Assembly passed a bill promoting full competition
for intrastate telecommunications services in California. The legislation
would direct the CPUC to authorize open competition if federal legislation or
court action amends the restriction of the 1982 Consent Decree. If not, the
CPUC would be directed to open all intrastate long-distance markets to full
competition, subject to protective safeguards. The CPUC would also be
directed to issue an order by October 1, 1995 that would require Pacific Bell
to offer long-distance services and to seek a waiver of the Consent Decree's
restriction. The legislation is now in the California Senate.
ACCOUNTING UNDER REGULATION
The Telephone Companies currently account for the economic effects of
regulation under Statement of Financial Accounting Standards No. 71
("SFAS 71"), "Accounting for the Effects of Certain Types of Regulation." If
it becomes no longer reasonable to assume the Telephone Companies will recover
their costs through rates charged to customers, whether resulting from the
effects of increased competition or specific regulatory actions, SFAS 71 would
no longer apply. The Corporation monitors the effects of competition and
changes in regulation to assess the likelihood the Telephone Companies will
continue to recover their costs. If Pacific Bell, the Corporation's largest
subsidiary, were no longer to qualify for the provisions of SFAS 71, the
financial effects would be material.
22
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On April 29, 1994, the Corporation held its tenth Annual Meeting of
Shareowners. Shareowners voted in favor of the election of four directors
to serve a three-year term, the ratification of Coopers & Lybrand as the
Corporation's independent auditors, the approval of the Stock Incentive
Plan and against three shareowner proposals. Each matter presented at the
Annual Meeting of Shareowners received the following number of votes:
Broker
Nominees For Withheld Abstentions Nonvotes
-------- ----------- --------- ----------- --------
Herman E. Gallegos 335,431,637 6,520,467 N/A N/A
Philip J. Quigley 334,199,691 7,752,413 N/A N/A
Toni Rembe 335,168,191 6,783,913 N/A N/A
S. Donley Ritchey 335,272,698 6,679,406 N/A N/A
Directors Whose Term of Office Continued After the Annual Meeting:
------------------------------------------------------------------
William P. Clark, Donald E. Guinn, Frank C. Herringer, Ivan J. Houston,
Mary S. Metz, Lewis E. Platt, and Richard M. Rosenberg.
Ratification of Auditors:
-------------------------
Broker
For Against Abstentions Nonvotes
----------- --------- ----------- ---------
335,640,568 3,031,042 3,280,494 N/A
Approval of the Stock Incentive Plan:
-------------------------------------
Broker
For Against Abstentions Nonvotes
----------- ---------- ----------- ---------
288,215,164 47,388,475 6,348,465 0
Shareowner Proposal to Eliminate the Staggered Board:
-----------------------------------------------------
Broker
For Against Abstentions Nonvotes
----------- ----------- ----------- -----------
93,063,271 193,456,994 7,473,817 47,958,022
Shareowner Proposal to Place a Ceiling on Executive Salaries:
------------------------------------------------------------
Broker
For Against Abstentions Nonvotes
----------- ----------- ----------- -----------
46,693,646 239,982,982 7,317,454 47,958,022
23
<PAGE>
Item 4. (Continued)
Shareowner Proposal to Link Executive Officer Compensation to
Corporate Performance:
-------------------------------------------------------------
Broker
For Against Abstentions Nonvotes
----------- ----------- ----------- -----------
51,400,889 235,393,538 7,199,655 47,958,022
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibits identified in parentheses below, on file with the SEC, are
incorporated herein by reference as exhibits hereto.
Exhibit
Number Description
- ------- -----------
4a Rights Agreement, dated as of September 22, 1989, between Pacific
Telesis Group and The First National Bank of Boston, as successor
Rights Agent, which includes as Exhibit B thereto the form of Rights
Certificate (Exhibits 1 and 2 to Form SE filed September 25, 1989 as
part of Form 8-A, File No. 1-8609).
4b No instrument which defines the rights of holders of long- and
intermediate-term debt of Pacific Telesis Group or its subsidiaries
is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this regulation, Pacific Telesis Group hereby agrees to
furnish a copy of any such instrument to the SEC upon request.
11 Computation of Earnings per common share.
15 Letter re unaudited interim financial information.
The Corporation will furnish to a security holder upon request a copy of any
exhibit at cost.
(b) Reports on Form 8-K.
--------------------
Form 8-K, Date of Report April 1, 1994, was filed with the SEC, under
Item 2, with respect to the distribution of AirTouch Communications
("AirTouch") common stock to Pacific Telesis Group shareowners and,
under Item 7, with respect to financial statement information giving
effect to the spin-off of AirTouch.
24
<PAGE>
FORM 10-Q
SIGNATURE
---------
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.
Pacific Telesis Group
BY W. E. Downing
--------------------------
W. E. Downing
Executive Vice President,
Chief Financial Officer and
Treasurer
August 12, 1994
25
<PAGE>
EXHIBIT INDEX
Exhibits identified in parentheses below, on file with the SEC, are
incorporated herein by reference as exhibits hereto. All other exhibits are
provided as part of the electronic transmission.
Exhibit
Number Description
- ------- -----------
4a Rights Agreement, dated as of September 22, 1989, between Pacific
Telesis Group and The First National Bank of Boston, as successor
Rights Agent, which includes as Exhibit B thereto the form of Rights
Certificate (Exhibits 1 and 2 to Form SE filed September 25, 1989 as
part of Form 8-A, File No. 1-8609).
4b No instrument which defines the rights of holders of long- and
intermediate-term debt of Pacific Telesis Group or its subsidiaries
is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this regulation, Pacific Telesis Group hereby agrees to
furnish a copy of any such instrument to the SEC upon request.
11 Computation of Earnings per common share.
15 Letter re unaudited interim financial information.
26
<PAGE>
Exhibit 11
----------
PACIFIC TELESIS GROUP AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(Dollars in millions, except per share amounts; shares in thousands)
For the 3 Months Ended For the 6 Months Ended
June 30, June 30,
---------------------- ----------------------
1994 1993 1994 1993
---------------------- ----------------------
Net income (loss) ....... $ 278 $ 291 $ 583 $ (1,436)
========= ========= ========= =========
Weighted average number
of common shares
outstanding ........... 424,051 410,567 423,873 408,613
Common stock equivalent
shares applicable to
stock options ......... 1,163 1,173 1,313 0
--------- --------- --------- ----------
Total number of shares
for computing primary
earnings (loss)
per share ............. 425,214 411,740 425,186 408,613
Incremental shares for
computing fully diluted
earnings (loss)
per share ............. 0 144 0 0
--------- --------- --------- ---------
Total number of shares
for computing fully
diluted earnings (loss)
per share ............. 425,214 411,884 425,186 408,613
========= ========= ========= =========
Earnings (loss) per common
share (as reported) ... $ 0.65 $ 0.71 $ 1.38 $ (3.51)
Primary earnings (loss)
per share ............. $ 0.65 $ 0.71 $ 1.37 $ (3.51)
Fully diluted earnings
(loss) per share ...... $ 0.65 $ 0.71 $ 1.37 $ (3.51)
Earnings (loss) per share amounts for the three- and six-month periods ended
June 30, 1994 and June 30, 1993, as reported in the Condensed Consolidated
Statements of Income, were based on the weighted average number of common
shares outstanding for the respective periods. Primary and fully diluted
earnings (loss) per share amounts were not shown in the Condensed Consolidated
Statements of Income, as they differ from the reported earnings per share
amounts by less than three percent. Common stock equivalents were excluded
from the six-month 1993 primary and fully dilutive loss per share calculations
because their inclusion would have diluted the reported loss per share.
<PAGE>
Exhibit 15
----------
COOPERS
& LYBRAND
August 12, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Re: Pacific Telesis Group
Registrations on Forms S-3, Form S-4, and Forms S-8
---------------------------------------------------
We are aware that our report dated August 12, 1994 on our review of the
interim financial information of Pacific Telesis Group and Subsidiaries for
the six- month period ended June 30, 1994 and included in this Form 10-Q is
incorporated by reference in the Corporation's registration statements as
follows:
Form S-3: PacTel Capital Resources $500,000,000 Debt Securities and
Guarantee thereof by Pacific Telesis Group
Form S-3: Secondary Offering of 137,504 shares of Pacific Telesis Group
Common Stock
Form S-3: Shareowner Dividend Reinvestment and Stock Purchase Plan
Form S-4: ABI American Businessphones, Inc. Merger
Form S-8: Nonemployee Director Stock Option Plan
Form S-8: Supplemental Retirement and Savings Plan for Salaried Employees
Form S-8: Supplemental Retirement and Savings Plan for Nonsalaried
Employees
Form S-8: Stock Option and Stock Appreciation Rights Plan
Form S-8: PacTel Corporation Retirement Plan
Form S-8: Stock Incentive Plan
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the registration statements prepared or certified
by us within the meaning of Sections 7 and 11 of that Act.
Very truly yours,
Coopers & Lybrand