FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For fiscal year ended December 31, 1994
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission File Number: 1-8610
SOUTHWESTERN BELL CORPORATION
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
175 E. Houston, San Antonio, Texas 78205-2233
Telephone Number 210-821-4105
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Shares New York, Chicago and
(Par Value $1.00 Per Share) Pacific Stock
Exchanges
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 )
Based on composite closing sales price on February 28, 1995, the
aggregate market value of all voting stock held by non-affiliates was
$25,290,132,635.
As of February 28, 1995, 607,570,754 shares of Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Southwestern Bell Corporation's annual report to
shareowners for the fiscal year ended December 31, 1994 (Parts I and
II).
(2) Portions of Southwestern Bell Corporation's Notice of 1995
Annual Meeting and Proxy Statement dated
March 14, 1995 (Parts III and IV).
TABLE OF CONTENTS
PART I
Item Page
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters
6. Selected Financial and Operating Data
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and
Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
PART I
ITEM 1. BUSINESS
GENERAL
Southwestern Bell Corporation (SBC) is a diversified communications
holding company, with various subsidiaries providing
telecommunications services and products, directory advertising and
publishing, business, consumer and cellular telecommunications
equipment, and owning cable television interests in both domestic and
international markets. SBC has its principal executive offices at 175
E. Houston, San Antonio, Texas 78205-2233 (telephone number 210-821-
4105).
In order to better reflect SBC's position as a diversified global
communications company, SBC's Board of Directors approved in September
1994 a change in the corporate name to SBC Communications Inc., subject
to shareowner approval at the 1995 Annual Meeting of Shareowners
scheduled for April 1995.
SBC was incorporated under the laws of the State of Delaware in 1983
by AT&T Corp. (AT&T) as one of seven regional holding companies (RHCs)
formed to hold AT&T's local telephone companies. AT&T divested SBC by
means of a spin-off of stock to its shareowners on January 1, 1984
(divestiture). The divestiture was made pursuant to a consent decree,
referred to as the Modification of Final Judgment (MFJ), issued by the
United States District Court for the District of Columbia (District
Court).
THE MFJ AND LINE OF BUSINESS RESTRICTIONS
The MFJ, as originally approved by the District Court in 1982, placed
restrictions on the types of businesses in which SBC could engage.
The principal restriction prohibits SBC from providing
telecommunications services between Local Access and Transport Areas
(LATAs), which are generally centered on a standard metropolitan
statistical area or other identifiable community of interest. The MFJ
also initially restricted SBC from providing information services,
engaging in nontelecommunications lines of business, and manufacturing
or providing telecommunications products, other than the provision of
customer premises equipment (CPE) manufactured by others. CPE, as
defined in the MFJ, represents equipment used on customers' premises
to originate, route or terminate telecommunications. These services
and products are collectively known as "restricted lines of business."
The MFJ permits SBC to obtain relief from these restrictions upon a
showing that there is no substantial possibility that it could use its
monopoly power to impede competition in the specific market it seeks
to enter (the Waiver Standard). As a result of proceedings before the
District Court since divestiture, the restrictions against engaging in
nontelecommunications lines of business and providing intraLATA
information services have been removed. SBC has also been authorized
to engage in the restricted lines of business outside the United
States, subject to certain conditions designed to prevent an impact on
United States markets. SBC has submitted various requests to the
District Court which seek to remove or modify the remaining
restrictions. These include, among others, pending waiver requests to
provide information services on an interLATA basis and to provide
interLATA long-distance service outside the five-state area (defined
below) and to cellular customers. In addition, SBC and two other RHCs
have asked the District Court, in a joint petition filed in July 1994,
to vacate the MFJ. This matter is currently pending.
BUSINESS OPERATIONS
SBC provides services and products through several subsidiaries, which
include: Southwestern Bell Telephone Company (Telephone Company),
Southwestern Bell Mobile Systems, Inc. (Mobile Systems), SBC
International, Inc. (SBC International), Southwestern Bell Yellow
Pages, Inc. (Yellow Pages), Southwestern Bell Telecommunications, Inc.
(Telecom) and SBC Media Ventures, Inc. (Media Ventures). These
services and products (which are described more fully below) include
landline and wireless telecommunications services, sales of
advertising for and publication of yellow pages and white pages
directories, sales of customer premises, private business exchange
(PBX) and cellular equipment, and cable television services. Landline
telecommunications services are provided in the states of (listed by
number of access lines) Texas, Missouri, Oklahoma, Kansas and Arkansas
(five-state area) by the Telephone Company. Wireless
telecommunications services are provided by Mobile Systems.
SBC's revenues are categorized for financial reporting purposes as
local service (substantially all of which were provided by the
Telephone Company and Mobile Systems), network access (provided by the
Telephone Company), long-distance service (substantially all of which
were provided by the Telephone Company), directory advertising
(principally provided by Yellow Pages) and other (including equipment
sales at Mobile Systems and Telecom, nonregulated products and
services provided by the Telephone Company, billing and collection
services for interexchange carriers provided by the Telephone Company,
and cable television services provided by SBC International and Media
Ventures).
The following table sets forth for SBC the percentage of total
operating revenues by any class of service which accounted for 10% or
more of total operating revenues in any of the last three fiscal
years.
Percentage
of Total
Operating
Revenues
1994 1993 1992
Local service:
Landline 35% 37% 37%
Wireless 15% 12% 10%
Long-distance service 8% 9% 10%
Network access 25% 25% 25%
Telecommunications services
Telecommunications services include local, long-distance and network
access services. Local services involve the transport of landline and
wireless telecommunications traffic between telephones and other CPE
located within the same local service calling area. Local services
include: basic local exchange service, extended area service,
dedicated private line services for voice and special services,
directory assistance and various custom calling services. Long-
distance services involve the transport of telecommunications traffic
between local calling areas within the same LATA (intraLATA), except
for certain wireless service areas which cover more than one LATA, for
which SBC has obtained MFJ waivers. Long-distance services also
include such other services as Wide Area Telecommunications Service
(WATS or 800 services) and other special services. Network access
services connect a subscriber's telephone or other equipment to the
transmission facilities of non-Telephone Company carriers which
provide long-distance (principally interLATA) and other communications
services. Network access services are either switched, which use a
switched communications path between the carrier and the customer, or
special, which use a direct nonswitched path.
The Telephone Company is SBC's largest subsidiary, providing
approximately 65% of SBC's consolidated net income in 1994. The
Telephone Company provides its services over approximately 9 million
residential and 4 million business access lines in the five-state
area. During 1994, nearly two-thirds of the Telephone Company's
access line growth occurred in Texas.
During 1994, the Telephone Company continued to expand its offering of
optional services including Caller ID, a feature which displays the
telephone number of the person calling and the caller's name in
certain markets; Call Return, a feature that redials the number of the
last incoming call; and Call Blocker, a feature which allows customers
to automatically reject calls from a designated list of telephone
numbers. Caller ID is now being offered in certain markets in all of
the states in the Telephone Company's five-state area.
The Federal Communications Commission (FCC) has certain rules that
impact the manner in which the Telephone Company may offer network
services for enhanced service providers. Enhanced services are
services other than basic transmission services. Under these rules,
the Telephone Company is permitted to offer enhanced services either
on its own or jointly with its affiliates, subject to nonstructural
safeguards designed to permit the Telephone Company's competitors to
acquire needed network services on an efficient, non-discriminatory
basis and to reduce the risk of cross-subsidization. These safeguards
include accounting and reporting procedures and Open Network
Architecture (ONA) requirements, which represent the Telephone
Company's plan to provide equal access to its network to all enhanced
service providers. Enhanced services are deregulated at the federal
level, and thus far none of the state commissions to which the
Telephone Company is subject has asserted jurisdiction over intrastate
enhanced services. The nonstructural safeguards are currently being
reviewed by the FCC as a result of an October 1994 judicial remand,
which charged that the FCC had not adequately explained how ONA would
prevent discrimination against competitors. While the outcome cannot
be predicted, it is anticipated that the FCC will reaffirm the
nonstructural safeguards.
Telecom provides voice messaging services to medium and large business
customers through its Voice Processing division. Voice messaging
services are provided under the registered trademark CallNotes to
residential and small business customers through Southwestern Bell
Messaging Services, Inc., another SBC subsidiary.
At the end of 1994, Mobile Systems provided cellular services to
2,979,000 customers, or 7.4 out of every 100 residents living in its
service areas. These services are provided in 34 metropolitan
markets, including 5 of the nation's top 15 metropolitan areas, as
follows: Washington, D.C.; Chicago, Illinois; Boston, Massachusetts;
St. Louis, Missouri; and Dallas-Fort Worth, Texas. Mobile Systems (or
partnerships in which it has an ownership interest) is licensed to
provide service in 27 rural service areas and is currently providing
service in all of these markets. All of these rural service areas are
contiguous to an existing metropolitan service area or another rural
service area operated by Mobile Systems, which allows for the
expansion of service in a way that may add value to customers'
service. Mobile Systems operates in certain areas under the name of
Cellular One by means of a partnership arrangement which holds the
Cellular One service mark, with McCaw Cellular Communications, Inc.
and Vanguard Cellular Systems, Inc. These areas include both
metropolitan and rural service areas, such as Washington, D.C.;
Chicago, Illinois; and other service areas in Illinois, Massachusetts,
New York, Virginia and West Virginia.
In October 1994, SBC announced the formation of a long-term marketing
alliance between Mobile Systems and GTE in their Texas markets. This
alliance will enable both companies to begin offering cellular service
in each other's markets, using the host company's cellular system. As
a result, Mobile Systems will have access to a number of additional
markets, including Houston, Austin and El Paso.
Mobile Systems began providing commercial digital service by launching
the largest digital deployment program in North America with
commercial digital service in Chicago in July 1993. Digital service
improves sound quality, provides a greater degree of privacy on
individual calls, increases call-handling capacity of the networks and
reduces exposure to billing fraud. Mobile Systems also began
providing commercial digital service in St. Louis in September 1993,
in Dallas-Fort Worth in January 1994, and in Washington-Baltimore in
March 1994. Mobile Systems plans to begin providing digital service
in Boston during 1995.
In December 1994, SBC acquired for $705 million the domestic cellular
business of Associated Communications Corporation, including cellular
systems in Buffalo, Rochester, Albany and Glens Falls, New York.
These properties are adjacent to smaller cellular systems in Syracuse,
Utica and Ithaca, New York which SBC purchased from other parties in
two separate transactions in the second quarter of 1994. In October
1994, SBC announced that it entered into an agreement with United
States Cellular Corporation to acquire a cellular property that
operates in and around Watertown, New York. This acquisition will
increase the number of markets served by Mobile Systems to 62 and
increase Mobile Systems' potential customer base to more than
40 million. This transaction is expected to close during 1995.
International
A consortium consisting of SBC International, together with a
subsidiary of France Telecom and a group of Mexican investors led by
Grupo Carso, S.A. de C.V., has voting control of Telefonos de Mexico,
S.A. de C.V. (Telmex), Mexico's national telecommunications company,
through its ownership of all of Telmex's Class AA shares. The Mexican
investors have voting control of the consortium. The Class AA shares
owned by SBC International represent approximately 5% of Telmex's
total equity capitalization. SBC International's total interest in
Telmex, including ownership of Class L shares with limited voting
rights, represents approximately 10% of Telmex's total equity
capitalization. Telmex provides complete landline and wireless
telecommunications services within Mexico. At the end of 1994, Telmex
had 8.5 million access lines in service and provided cellular service
to more than 305,000 subscribers. For additional information
regarding SBC's investment in Telmex, see Note 3, "Equity
Investments," on page 39 of SBC's annual report to shareowners for the
fiscal year ended December 31, 1994, which is incorporated herein by
reference pursuant to General Instruction G(2).
In October 1994, SBC International formed a strategic alliance with
Compagnie Generale des Eaux (CGE), a French diversified public
company. In December 1994, SBC International invested $615 million
through this alliance to acquire an indirect 10% ownership of Societe
Francaise du Radiotelephone S.A. (SFR), a French national cellular
company, and minority ownership interests in other communications
businesses controlled by CGE. As part of this alliance, CGE is
expected to invest $247 million to attain a 10% interest in SBC's
Washington-Baltimore wireless operations. This investment is expected
to occur during the first half of 1995.
In February 1995, SBC International purchased 40% of VTR S.A. (VTR), a
privately owned telecommunications holding company in Chile, for
$317 million. Through its subsidiaries, VTR provides local,
long-distance, wireless and cable television services in Chile. VTR
is 51% owned by Grupo Luksic, a large Chilean conglomerate.
SBC International's cable television operations in the United Kingdom
include Midlands Cable Communications and Northwest Cable
Communications, with combined service areas containing 1.3 million
potential households. At the end of 1994, SBC International's cable
television operations in the United Kingdom served approximately
117,000 subscribers, for a penetration rate of 23.7%. Penetration
rate is defined as the number of customers, as a percentage of
solicited households, that have network access. Cable operators in
the United Kingdom may provide both cable television and local
exchange services. At the end of 1994, SBC International provided
local exchange service to approximately 114,000 subscribers. During
1993 and 1994, SBC International sold 50% of its United Kingdom cable
television operations to Cox Cable Communications (Cox). SBC
International and Cox each own 50% and share management of the cable
operations.
SBC International also holds a minority interest in Golden Channels, a
cable television provider in Israel. Golden Channels holds franchises
in areas containing 368,000 potential households. At the end of 1994,
Golden Channels served approximately 224,000 households, for a
penetration rate of approximately 61%.
In Israel and Australia, SBC International also has interests in
companies involved in the publication of yellow pages directories and
marketing directory software.
Directory Advertising and Publishing
Yellow Pages publishes nearly 42 million copies of 360 classified
directories within the Telephone Company's five-state area. The ten
largest revenue-producing yellow pages directories are currently
published in the second half of SBC's fiscal year. Directory
advertising revenues and expenses associated with yellow pages
directories are recognized in the month the related directory is
published.
Customer Premises Equipment and Other Equipment Sales
Telecom markets business and residential communications equipment
through two divisions, Business Systems and Original Equipment.
Telecom's offerings range from single-line and cordless telephones to
sophisticated digital PBX systems. PBX is a private telephone
switching system, usually located on a customer's premises, which
provides intra-premise telephone services as well as access to the
public switched network.
The Business Systems division markets a wide variety of
telecommunications products and services to business customers in the
Telephone Company's five-state area. The Original Equipment division,
through an exclusive, long-term distribution agreement with Conair
Corporation, markets a full line of residential telephones to
retailers nationwide, under the Freedom Phone name. Separately, the
Original Equipment division markets residential and business products
to U.S. telephone companies and internationally in 39 countries.
Mobile Systems markets cellular communications equipment in each of
its service areas.
Domestic Cable Television
In January 1994, SBC completed the purchase of two cable television
systems serving suburban Washington, D.C. for $650 million from Hauser
Communications, Inc. These systems serve Montgomery County, Maryland,
and Arlington County, Virginia. The individual systems operate as
Cable TV Montgomery and Cable TV Arlington, which together form SBC's
Media Ventures. At the end of 1994, these systems served 255,000
customers and passed 402,000 homes.
In February 1994, SBC announced the Telephone Company's plans for a
consumer trial of video and interactive services in Richardson, Texas.
With the construction of the broadband network currently under way,
the Telephone Company plans to begin offering telephone service to
customers over the network in early 1995. Delivery of video service
is expected to begin during 1996. Eventually, 42,000 homes will be
included in the trial.
Printing
In December 1994, Southwestern Bell Printing Company, which operated
plants in Texas and Oklahoma, ceased doing business. Beginning in
1995, SBC's yellow and white pages directories will be printed by
R.R. Donnelley & Sons.
GOVERNMENT REGULATION
In the five-state area, the Telephone Company is subject to regulation
by state commissions which have the power to regulate intrastate rates
and services, including local, long-distance and network access (both
intraLATA and interLATA access within the state) services. The
Telephone Company is also subject to the jurisdiction of the FCC with
respect to foreign and interstate rates and services, including
interstate access charges. Access charges are designed to compensate
the Telephone Company for the use of its facilities for the
origination or termination of long-distance and other communications
by non-Telephone Company carriers.
Additional information relating to federal and state regulation of the
Telephone Company is contained in the registrant's annual report to
shareowners for 1994 under the heading "Regulatory Environment" on
page 27, and is incorporated herein by reference pursuant to General
Instruction G(2).
SBC's recently acquired cable systems are subject to federal and local
regulation, including regulation by the FCC and local franchising
authorities, concerning rates, service and programming access.
IMPORTANCE, DURATION AND EFFECT OF LICENSES
The FCC authorizes the licensing of only two cellular carriers in each
geographic market. These cellular licenses have a standard duration
of ten years and are renewable upon application and a showing of
compliance with FCC use and conduct standards. The FCC licenses
granted to Mobile Systems in Chicago, Illinois; San Antonio, Texas;
Boston, Massachusetts; Oklahoma City, Oklahoma; and Wichita, Kansas
all expired in 1994. Renewal applications were filed in each of these
markets during August 1994. Renewal licenses are expected to be
awarded during 1995. Renewal licenses were received for Washington,
D.C.; Baltimore, Maryland; Kansas City, Missouri/Kansas; St. Louis,
Missouri; and Dallas, Texas in October 1994. Renewal applications are
to be filed in the following markets during August 1995: Gary,
Indiana; Worcester, Massachusetts; Syracuse, New York; Rochester, New
York; and Corpus Christi, Texas.
The FCC adopted an order in 1993 which outlines the development of
licenses for new personal communications services (PCS). Under an
auction process, up to seven PCS licenses could be awarded in each of
51 geographical areas. SBC is allowed to participate fully in bidding
for licenses in areas outside its cellular service areas, and may bid
on a smaller license in areas where it has a cellular presence. SBC
is participating in the auctions, which began in December 1994, and is
pursuing licenses in a number of markets that would complement its
existing cellular service territories.
Cable television systems generally are operated under nonexclusive
permits or "franchises" granted by local governmental authorities.
SBC operates its recently acquired cable systems under franchises
granted by Montgomery County, Maryland (expires May 25, 1998);
Arlington County, Virginia (expires October 18, 2000); and the City of
Gaithersburg, Maryland (expires November 2, 2001). Each franchise is
renewable upon a showing of compliance with established local and
federal standards.
MAJOR CUSTOMER
Approximately 10% in 1994, and 12% in 1993 and 1992, of SBC's
consolidated revenues were from services provided to AT&T. No other
customer accounted for more than 10% of consolidated revenues.
COMPETITION
Telecommunications
Information relating to competition in the telecommunications industry
is contained in the registrant's annual report to shareowners for 1994
under the heading "Competition" on page 28, and is incorporated herein
by reference pursuant to General Instruction G(2).
International
Most major and several minor cable operators in the United Kingdom
have begun to offer both cable television and local exchange services
in selected franchise service areas. The United Kingdom's domestic
telephone companies are restricted from offering video entertainment
over their networks until 1998. In addition to cable, viewers in the
United Kingdom may select television programming from four television
stations which are broadcast free, or may subscribe to programming
directly from satellite broadcasting services.
Directory Advertising and Publishing
Yellow Pages faces competition from numerous directory publishing
companies as well as other advertising media. There are 51 other
directory publishers in the five-state area producing yellow page
directories.
Customer Premises Equipment and Other Equipment Sales
Telecom faces significant price competition from numerous companies in
both its Business Systems division and Original Equipment division.
RESEARCH AND DEVELOPMENT
The majority of company-sponsored basic and applied research
activities is conducted at Bell Communications Research, Inc.
(Bellcore). The Telephone Company owns a one-seventh interest in
Bellcore along with the other six RHCs. Bellcore is the central point
of contact for coordinating the Federal government's
telecommunications requirements on national security and emergency
preparedness.
Basic and applied research is also conducted at Southwestern Bell
Technology Resources, Inc. (TRI), a subsidiary of SBC. TRI provides
technology planning and assessment services to SBC and its
subsidiaries.
EMPLOYEES
As of December 31, 1994, SBC and its subsidiaries employed 58,750
persons. Approximately 66% of the employees are represented by the
Communications Workers of America (CWA). Effective in August 1992, a
three-year contract was negotiated between the CWA and the Telephone
Company. Effective in December 1992, a three-year contract was
negotiated between the CWA and Yellow Pages. These contracts will be
subject to renegotiation in mid 1995. Effective February 1994, a
three-year contract was negotiated between the CWA and Telecom. The
CWA also represents a minor number of employees in other subsidiaries
of SBC.
ITEM 2. PROPERTIES
The properties of SBC do not lend themselves to description by
character and location of principal units. At December 31, 1994, 91%
of the property, plant and equipment of SBC was owned by the Telephone
Company. Network access lines represented 45% of the Telephone
Company's investment in telephone plant; central office equipment
represented 37%; land and buildings represented 10%; other
miscellaneous property, comprised principally of furniture and office
equipment and vehicles and other work equipment, represented 6%; and
information origination/termination equipment represented 2%.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareowners in the fourth quarter
of the fiscal year covered by this report.
EXECUTIVE OFFICERS
OF THE REGISTRANT
Name Age Position Held
Since
Edward E. 53 Chairman and Chief Executive 1-90
Whitacre Jr. Officer
James R. Adams 55 Group President 7-92
Royce S. 56 President and Chief Executive 4-94
Caldwell Officer of Southwestern Bell
Telephone Company
Cassandra C. 50 Senior Vice President - Human 5-94
Carr Resources
Robert A. 51 Senior Vice President - Corporate 5-94
Dickemper Communications
William E. 56 Senior Executive Vice President - 7-93
Dreyer External Affairs
James D. Ellis 51 Senior Executive Vice President 3-89
and General Counsel
Charles E. 58 Group President 10-90
Foster
James S. Kahan 47 Senior Vice President - Strategic 7-93
Planning and Corporate Development
Donald E. 54 Senior Vice President, Treasurer 7-93
Kiernan and Chief Financial Officer
All of the above Executive Officers have held high-level managerial
positions with SBC or its subsidiaries for more than the past five
years, except for Messrs. Kiernan and Kahan who have held such high-
level managerial positions since May 1990 and January 1992,
respectively. Prior to their appointments as Executive Officers,
Mr. Kiernan was a partner with Ernst & Young and Mr. Kahan held
responsible managerial positions with SBC. Executive Officers are not
appointed to a fixed term of office but hold office until their
successors are elected and qualified.
PART II
ITEMS 5 THROUGH 8.
The information required by these Items is included in the "1994
Financial Highlights - Number of shareowners" line on page 1, page 22
through page 45 and in the "Stock Data" section on the back cover of
the registrant's annual report to shareowners for the fiscal year
ended December 31, 1994. Such information is appended hereto as
Exhibit 13 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 accountants or disagreements with accountants on any
accounting or financial disclosure matters occurred during the period
covered by this report.
PART III
ITEMS 10 THROUGH 13.
Information regarding executive officers required by Item 401 of
Regulation S-K is furnished in a separate disclosure in Part I of this
report since the registrant did not furnish such information in its
definitive proxy statement prepared in accordance with Schedule 14A.
The other information required by these Items is included in the
registrant's definitive proxy statement, dated March 14, 1995, from
page 4 through page 7 and beginning with the last paragraph on page 13
through page 20 and is incorporated herein by reference pursuant to
General Instruction G(3).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as a part of the report:
Page
(1) Report of Independent Auditors *
Financial Statements covered by Report
of Independent Auditors:
Consolidated Statements of Income *
Consolidated Balance Sheets *
Consolidated Statements of Cash Flows *
Consolidated Statements of Shareowners' Equity *
Notes to Consolidated Financial Statements *
* Incorporated herein by reference to the appropriate portions of
the registrant's annual report to shareowners for the fiscal year
ended December 31, 1994. (See Part II.)
Page
(2) Financial Statement Schedules Covered by Report of Independent
Auditors:
VIII - Valuation and Qualifying Accounts
Financial statement 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 required or applicable.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the
Securities and Exchange Commission (SEC), are incorporated herein
by reference as exhibits hereto.
Exhibit
Number
3-a Restated Certificate of Incorporation, of Southwestern
Bell Corporation, dated June 6, 1988. (Exhibit 3-a to Form
8-A/A, dated June 22, 1994, File 1-8610.)
3-b Bylaws of Southwestern Bell Corporation, dated June 28,
1991. (Exhibit 3-b to Form 10-Q for the second quarter 1991,
File 1-8610.)
4-a Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no
instrument which defines the rights of holders of long-term
debt of the registrant or any of its consolidated
subsidiaries is filed herewith. Pursuant to this
regulation, the registrant hereby agrees to furnish a copy
of any such instrument to the SEC upon request.
4-b Support Agreement dated November 10, 1986, between
Southwestern Bell Corporation and Southwestern Bell Capital
Corporation. (Exhibit 4-b to Registration Statement
No. 33-11669.)
4-c Form of Rights Agreement, dated as of January 27, 1989,
between Southwestern Bell Corporation and American
Transtech, Inc., the Rights Agent, which includes as
Exhibit B thereto the form of Rights Certificate.
(Exhibit 4-a to Form 8-A dated February 9, 1989, File 1-
8610.)
4-d Amendment of Rights Agreement, dated as of August 5,
1992, between Southwestern Bell Corporation, American
Transtech, Inc., and The Bank of New York, the successor
Rights Agent, which includes the Form of Rights Certificate
as an attachment identified as Exhibit B. (Exhibit 4-a to
Form 8-K, dated August 7, 1992, File 1-8610.)
4-e Form of Rights Certificate (included in the attachment to
the Amendment of Rights Agreement and identified as Exhibit
B.) (Exhibit 4-b to Form 8-K, dated August 7, 1992, File 1-
8610.)
4-f Second Amendment of Rights Agreement, dated June 15,
1994, between Southwestern Bell Corporation and The Bank of
New York, as successor Rights Agent. (Exhibit 4-e to
Form 8-A/A, dated June 22, 1994, File 1-8610.)
10-a Southwestern Bell Corporation Senior Management Short
Term Incentive Plan, revised January 1, 1991. (Exhibit 10-a
to Form 10-K for 1990, File 1-8610.)
10-b Southwestern Bell Corporation Senior Management Long
Term Incentive Plan, revised effective January 1, 1993.
(Exhibit 10-b to Form 10-K for 1992, File 1-8610.)
10-c Southwestern Bell Corporation Senior Management Survivor
Benefit Plan. (Exhibit 10-c to Form 10-K for 1986, File 1-
8610.)
10-d Southwestern Bell Corporation Senior Management
Supplemental Retirement Income Plan, revised effective
January 1, 1993. (Exhibit 10-d to Form 10-K for 1992,
File 1-8610.)
10-e Southwestern Bell Corporation Senior Management Deferred
Compensation Plan (effective for Units of Participation
Having a Unit Start Date Prior to January 1, 1988), revised
July 30, 1993. (Exhibit 10.5 to Registration Statement
No. 33-54795, File 1-8610.)
10-f Southwestern Bell Corporation Senior Management Deferred
Compensation Plan of 1988 (effective for Units of Partici
pation Having a Unit Start Date of January 1, 1988 or
later), revised July 30, 1993. (Exhibit 10.6 to
Registration Statement No. 33-54795, File 1-8610.)
10-g Southwestern Bell Corporation Senior Management Long
Term Disability Plan. (Exhibit 10-f to Form 10-K for 1986,
File 1-8610.)
10-h Southwestern Bell Corporation Senior Management
Incentive Award Deferral Plan. (Exhibit 10-g to Form 10-K
for 1986, File 1-8610.)
10-i Southwestern Bell Corporation Senior Management
Financial Counseling Program. (Exhibit 10-h to Form 10-K
for 1986, File 1-8610.)
10-j Southwestern Bell Corporation Senior Management
Executive Health Plan, effective January 1, 1987. (Exhibit
10-i to Form 10-K for 1986, File 1-8610.)
10-k Southwestern Bell Corporation Retirement Plan for Non-
Employee Directors. (Exhibit 10-t to Form 10-K for 1985,
File 1-8610.)
10-l Form of Indemnity Agreement, effective July 1, 1986,
between Southwestern Bell Corporation and each of its
directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987, File 1-8610.)
10-m Form of Southwestern Bell Corporation Change of Control
Severance Agreements for all Officers of the Corporation and
certain Officers of the Corporation's subsidiaries.
(Exhibit 10-p to Form 10-K for 1988, File 18610.)
10-n Southwestern Bell Corporation Stock Savings Plan,
revised effective February 1, 1994. (Appendix A to
Definitive Proxy Statement dated March 18, 1994, File 1-
8610.)
10-o Southwestern Bell Corporation 1992 Stock Option Plan,
revised effective December 1, 1993. (Exhibit 10.15 to
Registration Statement No. 33-54795, File 1-8610.)
10-p Southwestern Bell Corporation Key Executive Officer
Short Term Incentive Plan. (Appendix B to Definitive Proxy
Statement dated March 18, 1994, File 1-8610.)
10-q Southwestern Bell Corporation Restricted Stock Plan for
Non-Employee Directors. (Exhibit 10.17 to Registration
Statement No. 33-54795, File 1-8610.)
10-r Southwestern Bell Corporation Officer Retirement Savings
Plan. (Exhibit 10.18 to Registration Statement No. 33-
54795, File 1-8610.)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of Southwestern Bell Corporation's annual report
to shareowners for the fiscal year ended December 31, 1994.
Only the information incorporated by reference into this
Form 10-K is included in the exhibit.
21 Subsidiaries of Southwestern Bell Corporation.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Southwestern Bell
Corporation Savings Plan for the year 1994 to be filed under
Form 10-K/A.
99-b Annual Report on Form 11-K for the Southwestern Bell
Corporation Savings and Security Plan for the year 1994 to
be filed under Form 10-K/A.
Southwestern Bell Corporation will furnish to shareowners upon
request, and without charge, a copy of the annual report to
shareowners and the proxy statement, portions of which are
incorporated by reference in the Form 10-K. Southwestern Bell
Corporation will furnish any other exhibit at cost.
(b) Reports on Form 8-K:
No report on Form 8-K was filed by the Registrant during the last
quarter of the year covered by this report.
<TABLE>
SOUTHWESTERN BELL CORPORATION
Schedule VIII - Sheet 1
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Uncollectibles
Dollars in Millions
<CAPTION>
COL. A COL. B -----COL. C------ COL. D COL. E
Additions
(1) (2)
Balance at Charged Charged Balance
Description Beginning to Costs to Other Deductions at End of
of Period and Accounts -Note (b) Period
Expenses -Note (a)
<S> <C> <C> <C> <C> <C>
Year 1994 $ 111.2 165.9 41.2 187.9 $ 130.4
Year 1993 $ 95.5 149.9 35.2 169.4 $ 111.2
Year 1992 $ 82.3 134.9 36.5 158.2 $ 95.5
<FN>
(a)Amounts previously written off which were credited directly to this account
when recovered.
(b)Amounts written off as uncollectible.
</TABLE>
<TABLE>
SOUTHWESTERN BELL CORPORATION
Schedule VIII - Sheet 2
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Accumulated Amortization of Intangibles
Dollars in Millions
<CAPTION>
COL. A COL. B ---COL. C------- COL. D COL. E
Additions
(1) (2)
Balance at Balance
Description Beginning Charged Deductions at End of
of Period Charged to Other Period
to Expense Accounts
<S> <C> <C> <C> <C> <C>
Year 1994 $ 368.2 96.6 - 37.2 $ 427.6
Year 1993 $ 443.6 100.1 .7 176.2 (a) $ 368.2
Year 1992 $ 366.0 80.1 - 2.5 $ 443.6
<FN>
(a)Primarily related to the disposition of Metromedia Paging Services, Inc.
</TABLE>
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, on the 14th day of March, 1995.
SOUTHWESTERN BELL CORPORATION
By /s/ Donald E. Kiernan
(Donald E. Kiernan
Senior Vice President, Treasurer and
Chief Financial Officer)
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:
Edward E. Whitacre Jr.*
Chairman and
Chief Executive Officer
Principal Financial and
Accounting Officer:
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
/s/ Donald E. Kiernan
Directors: (Donald E. Kiernan, as attorney-in-fact
and on his own behalf as Principal
Edward E. Whitacre Jr.* Financial Officer and Principal
Clarence C. Barksdale* Accounting Officer)
James E. Barnes*
Jack S. Blanton*
August A. Busch III* March 14, 1995
Ruben R. Cardenas*
Martin K. Eby, Jr.*
Tom C. Frost*
Jess Hay*
B. R. Inman*
Charles F. Knight*
Sybil C. Mobley*
Haskell M. Monroe, Jr.*
Carlos Slim Helu*
Patricia P. Upton *
* by power of attorney
EXHIBIT INDEX
Exhibits identified in parentheses below, on file with the
Securities and Exchange Commission (SEC), are incorporated by
reference as exhibits hereto.
Exhibit
Number
3-a Restated Certificate of Incorporation, of Southwestern
Bell Corporation, dated June 6, 1988. (Exhibit 3-a to
Form 8-A/A, dated June 22, 1994, File 1-8610.)
3-b Bylaws of Southwestern Bell Corporation, dated June 28,
1991. (Exhibit 3-b to Form 10-Q for the second quarter 1991,
File 1-8610.)
4-a Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no
instrument which defines the rights of holders of long-term
debt of the registrant or any of its consolidated
subsidiaries is filed herewith. Pursuant to this
regulation, the registrant hereby agrees to furnish a copy
of any such instrument to the SEC upon request.
4-b Support Agreement dated November 10, 1986, between
Southwestern Bell Corporation and Southwestern Bell Capital
Corporation. (Exhibit 4-b to Registration Statement
No. 33-11669.)
4-c Form of Rights Agreement, dated as of January 27, 1989,
between Southwestern Bell Corporation and American
Transtech, Inc., the Rights Agent, which includes as
Exhibit B thereto the form of Rights Certificate.
(Exhibit 4-a to Form 8-A dated February 9, 1989, File 1-
8610.)
4-d Amendment of Rights Agreement, dated as of August 5,
1992, between Southwestern Bell Corporation, American
Transtech, Inc., and The Bank of New York, the successor
Rights Agent, which includes the Form of Rights Certificate
as an attachment identified as Exhibit B. (Exhibit 4-a to
Form 8-K, dated August 7, 1992, File 1-8610.)
4-e Form of Rights Certificate (included in the attachment to
the Amendment of Rights Agreement and identified as Exhibit
B.) (Exhibit 4-b to Form 8-K, dated August 7, 1992, File 1-
8610.)
4-f Second Amendment of Rights Agreement, dated June 15,
1994, between Southwestern Bell Corporation and The Bank of
New York, as successor Rights Agent. (Exhibit 4-e to
Form 8-A/A, dated June 22, 1994, file 1-8610.)
10-a Southwestern Bell Corporation Senior Management Short
Term Incentive Plan, revised January 1, 1991. (Exhibit 10-a
to Form 10-K for 1990, File 1-8610.)
10-b Southwestern Bell Corporation Senior Management Long
Term Incentive Plan, revised effective January 1, 1993.
(Exhibit 10-b to Form 10-K for 1992, File 1-8610.)
10-c Southwestern Bell Corporation Senior Management Survivor
Benefit Plan. (Exhibit 10-c to Form 10-K for 1986, File 1-
8610.)
10-d Southwestern Bell Corporation Senior Management
Supplemental Retirement Income Plan, revised effective
January 1, 1993. (Exhibit 10-d to Form 10-K for 1992,
File 1-8610.)
10-e Southwestern Bell Corporation Senior Management Deferred
Compensation Plan (effective for Units of Participation
Having a Unit Start Date Prior to January 1, 1988), revised
July 30, 1993. (Exhibit 10.5 to Registration Statement
No. 33-54795, File 1-8610.)
10-f Southwestern Bell Corporation Senior Management Deferred
Compensation Plan of 1988 (effective for Units of Partici
pation Having a Unit Start Date of January 1, 1988 or
later), revised July 30, 1993. (Exhibit 10.6 to
Registration Statement No 33-54795, File 1-8610.)
10-g Southwestern Bell Corporation Senior Management Long
Term Disability Plan. (Exhibit 10-f to Form 10-K for 1986,
File 1-8610.)
10-h Southwestern Bell Corporation Senior Management
Incentive Award Deferral Plan. (Exhibit 10-g to Form 10-K
for 1986, File 1-8610.)
10-i Southwestern Bell Corporation Senior Management
Financial Counseling Program. (Exhibit 10-h to Form 10-K
for 1986, File 1-8610.)
10-j Southwestern Bell Corporation Senior Management
Executive Health Plan, effective January 1, 1987. (Exhibit
10-i to Form 10-K for 1986, File 1-8610.)
10-k Southwestern Bell Corporation Retirement Plan for Non-
Employee Directors. (Exhibit 10-t to Form 10-K for 1985,
File 1-8610.)
10-l Form of Indemnity Agreement, effective July 1, 1986,
between Southwestern Bell Corporation and each of its
directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987, File 1-8610.)
10-m Form of Southwestern Bell Corporation Change of Control
Severance Agreements for all Officers of the Corporation and
certain Officers of the Corporation's subsidiaries.
(Exhibit 10-p to Form 10-K for 1988, File 1-8610.)
10-n Southwestern Bell Corporation Stock Savings Plan,
revised effective February 1, 1994. (Appendix A to
Definitive Proxy Statement dated March 18, 1994, File 1-
8610.)
10-o Southwestern Bell Corporation 1992 Stock Option Plan,
revised effective December 1, 1993. (Exhibit 10.15 to
Registration Statement No. 33-54795, File 1-8610.)
10-p Southwestern Bell Corporation Key Executive Officer
Short Term Incentive Plan. (Appendix B to Definitive Proxy
Statement dated March 18, 1994, File 1-8610.)
10-q Southwestern Bell Corporation Restricted Stock Plan for
Non-Employee Directors. (Exhibit 10.17 to Registration
Statement No. 33-54795, File 1-8610.)
10-r Southwestern Bell Corporation Officer Retirement Savings
Plan. (Exhibit 10.18 to Registration Statement No. 33-
54795, File 1-8610.)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of Southwestern Bell Corporation's annual report
to shareowners for the fiscal year ended December 31, 1994.
Only the information incorporated by reference into this
Form 10-K is included in this exhibit.
21 Subsidiaries of Southwestern Bell Corporation.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Southwestern Bell
Corporation Savings Plan for the year 1994 to be filed under
Form 10-K/A.
99-b Annual Report on Form 11-K for the Southwestern Bell
Corporation Savings and Security Plan for the year 1994 to
be filed under Form 10-K/A.
<TABLE>
EXHIBIT 12
SOUTHWESTERN BELL CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars In Millions
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Income Before Income Taxes,
Extraordinary Loss and Cumulative
Effect of Changes in Accounting
Principles* $ 2,300.0 $ 1,882.9 $ 1,701.2 $ 1,557.0 $ 1,541.4
Add: Interest Expense 480.2 496.2 530.0 577.7 529.7
1/3 Rental Expense 41.8 41.0 45.1 37.5 43.4
Adjusted Earnings $ 2,822.0 $ 2,420.1 $ 2,276.3 $ 2,172.2 $ 2,114.5
Total Interest Charges $ 480.2 $ 496.2 $ 530.0 $ 577.7 $ 529.7
1/3 Rental Expense 41.8 41.0 45.1 37.5 43.4
Adjusted Fixed Charges $ 522.0 $ 537.2 $ 575.1 $ 615.2 $ 573.1
Ratio of Earnings to Fixed Charges 5.41 4.51 3.96 3.53 3.69
<FN>
*Undistributed earnings on investments accounted for under the equity method have been excluded.
</TABLE>
Exhibit 13
1994 1993 Change
Number of 928,670 963,355 (3.6)%
shareowners
The above information appears on page one of the printed Annual Report.
<TABLE>
<CAPTION>
Selected Financial and Operating Data
Dollars in millions except per share amounts
At December 31 or for the year ended: 1994 1993 1992 1991
Financial Data
<S> <C> <C> <C> <C>
Operating revenues $ 11,618 $ 10,690 $ 10,015 $ 9,332
Operating expenses $ 8,828 $ 8,310 $ 7,818 $ 7,198
Operating income $ 2,790 $ 2,380 $ 2,197 $ 2,134
Interest expense $ 480 $ 496 $ 530 $ 578
Equity in net income of affiliates $ 223 $ 250 $ 208 $ 95
Income taxes $ 785 $ 625 $ 568 $ 488
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1,649 $ 1,435 $ 1,302 $ 1,157
Extraordinary loss on early extinguishment
of debt, net of tax - $ (153) - $ (81)
Cumulative effect of changes in
accounting principles, net of tax - $ (2,127) - -
Net income (loss) $ 1,649 $ (845) $ 1,302 $ 1,076
Earnings per common share:
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 2.74 $ 2.39 $ 2.17 $ 1.93
Extraordinary loss on early extinguishment
of debt, net of tax - (0.25) - (0.14)
Cumulative effect of changes in
accounting principles, net of tax - (3.55) - -
Net income (loss) $ 2.74 $ (1.41) $ 2.17 $ 1.79
Total assets $ 26,005 $ 24,308 $ 23,810 $ 23,179
Long-term debt $ 5,848 $ 5,459 $ 5,716 $ 5,675
Construction and capital expenditures $ 2,350 $ 2,221 $ 2,144 $ 1,826
Free cash flow (1) $ 1,616 $ 1,220 $ 1,470 $ 1,067
Dividends declared per common share $ 1.58 $ 1.51 $ 1.46 $ 1.42
Book value per common share (2, 3) $ 13.72 $ 12.61 $ 15.47 $ 14.77
Ratio of earnings to fixed charges 5.41 4.51 3.96 3.53
Return on weighted average shareowners'
equity (2, 4) 20.61% 19.29% 14.28% 13.22%
Debt ratio (2, 3) 47.36% 47.49% 42.99% 45.08%
Operating Data*
Network access lines in service (000) 13,612 13,145 12,724 12,328
Access minutes of use (000,000) 48,430 44,203 41,235 38,885
Long-distance messages (000,000) 1,018 1,012 974 976
Cellular customers (000) 2,979 2,049 1,413 960
Number of employees 58,800 58,400 59,500 61,200
<FN>
*Operating data may be periodically revised to reflect the most current information available.
1 Free cash flow is net cash provided by operating activities less construction and capital expenditures.
2 Prior years have been restated to conform to the current year's classifications.
3 Shareowners' equity used in book value per common share and debt ratio calculations includes
extraordinary loss and changes in accounting principles.
4 Calculated using income before extraordinary loss and changes in accounting principles. These impacts
are included in shareowners' equity.
5 Compound Annual Growth Rate from 1984 to 1994.
NA - Not Available.
</TABLE>
<TABLE>
<CAPTION>
Selected Financial and Operating Data
Dollars in millions except per share amounts
At December 31 or for the year ended: 1990 1989 1988 1987
Financial Data
<S> <C> <C> <C> <C>
Operating revenues $ 9,113 $ 8,730 $ 8,453 $ 8,003
Operating expenses $ 7,071 $ 6,722 $ 6,503 $ 5,926
Operating income $ 2,042 $ 2,008 $ 1,950 $ 2,077
Interest expense $ 530 $ 544 $ 578 $ 532
Equity in net income of affiliates $ 6 $ 6 $ 8 $ 5
Income taxes $ 440 $ 387 $ 350 $ 544
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1,101 $ 1,093 $ 1,060 $ 1,047
Extraordinary loss on early extinguishment
of debt, net of tax - - - -
Cumulative effect of changes in
accounting principles, net of tax - - - -
Net income (loss) $ 1,101 $ 1,093 $ 1,060 $ 1,047
Earnings per common share:
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1.83 $ 1.82 $ 1.76 $ 1.74
Extraordinary loss on early extinguishment
of debt, net of tax - - - -
Cumulative effect of changes in
accounting principles, net of tax - - - -
Net income (loss) $ 1.83 $ 1.82 $ 1.76 $ 1.74
Total assets $ 22,196 $ 21,161 $ 20,985 $ 21,500
Long-term debt $ 5,483 $ 5,456 $ 5,039 $ 5,649
Construction and capital expenditures $ 1,778 $ 1,483 $ 1,222 $ 1,450
Free cash flow (1) $ 893 $ 1,283 $ 1,308 $ 1,028
Dividends declared per common share $ 1.38 $ 1.30 $ 1.24 $ 1.16
Book value per common share (2, 3) $ 14.31 $ 13.92 $ 14.15 $ 13.63
Ratio of earnings to fixed charges 3.69 3.52 3.26 3.72
Return on weighted average shareowners'
equity (2, 4) 12.92% 12.90% 12.69% 12.98%
Debt ratio (2, 3) 43.97% 42.01% 41.42% 44.59%
Operating Data*
Network access lines in service (000) 12,042 11,708 11,295 11,086
Access minutes of use (000,000) 36,982 34,295 31,412 30,114
Long-distance messages (000,000) 961 988 940 873
Cellular customers (000) 667 382 244 155
Number of employees 66,700 66,200 64,900 67,100
<FN>
*Operating data may be periodically revised to reflect the most current information available.
1 Free cash flow is net cash provided by operating activities less construction and capital expenditures.
2 Prior years have been restated to conform to the current year's classifications.
3 Shareowners' equity used in book value per common share and debt ratio calculations includes
extraordinary loss and changes in accounting principles.
4 Calculated using income before extraordinary loss and changes in accounting principles. These impacts
are included in shareowners' equity.
5 Compound Annual Growth Rate from 1984 to 1994.
NA - Not Available.
</TABLE>
<TABLE>
<CAPTION>
Selected Financial and Operating Data
Dollars in millions except per share amounts
At December 31 or for the year ended: 1986 1985 1984 CAGR(5)
Financial Data
<S> <C> <C> <C> <C>
Operating revenues $ 7,902 $ 7,925 $ 7,191 4.9%
Operating expenses $ 5,705 $ 5,802 $ 5,254 5.3%
Operating income $ 2,197 $ 2,123 $ 1,937 3.7%
Interest expense $ 543 $ 542 $ 521 -
Equity in net income of affiliates $ 3 - - -
Income taxes $ 711 $ 655 $ 579 -
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1,023 $ 996 $ 883 6.4%
Extraordinary loss on early extinguishment
of debt, net of tax - - - -
Cumulative effect of changes in
accounting principles, net of tax - - - -
Net income (loss) $ 1,023 $ 996 $ 883 -
Earnings per common share:
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1.71 $ 1.67 $ 1.51 6.1%
Extraordinary loss on early extinguishment
of debt, net of tax - - - -
Cumulative effect of changes in
accounting principles, net of tax - - - -
Net income (loss) $ 1.71 $ 1.67 $ 1.51 -
Total assets $ 20,300 $ 19,291 $ 18,042 3.7%
Long-term debt $ 4,912 $ 5,001 $ 4,935 -
Construction and capital expenditures $ 1,912 $ 1,989 $ 1,727 3.1%
Free cash flow (1) $ 659 $ 209 $ 481 12.9%
Dividends declared per common share $ 1.07 $ 1.00 $ 0.93 5.4%
Book value per common share (2, 3) $ 13.04 $ 12.38 $ 11.71 -
Ratio of earnings to fixed charges 3.91 3.78 3.57 -
Return on weighted average shareowners'
equity (2, 4) 13.34% 13.71% 13.14% -
Debt ratio (2, 3) 43.43% 43.72% 43.65% -
Operating Data*
Network access lines in service (000) 11,067 10,886 10,641 2.5%
Access minutes of use (000,000) 28,034 26,623 NA -
Long-distance messages (000,000) 831 797 747 -
Cellular customers (000) 41 35 9 -
Number of employees 67,500 71,400 71,900 -
<FN>
*Operating data may be periodically revised to reflect the most current information available.
1 Free cash flow is net cash provided by operating activities less construction and capital expenditures.
2 Prior years have been restated to conform to the current year's classifications.
3 Shareowners' equity used in book value per common share and debt ratio calculations includes
extraordinary loss and changes in accounting principles.
4 Calculated using income before extraordinary loss and changes in accounting principles. These impacts
are included in shareowners' equity.
5 Compound Annual Growth Rate from 1984 to 1994.
NA - Not Available.
</TABLE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
SBC's subsidiaries principally provide landline and wireless
telecommunications services and equipment, directory advertising,
publishing and cable TV services.
Dollars in millions except per share amounts
Southwestern Bell Corporation (SBC) is a holding company whose
subsidiaries operate predominantly in the communications service
industry. SBC's subsidiaries principally provide landline and
wireless telecommunications services and equipment, directory
advertising, publishing and cable television services.
SBC's largest subsidiary is Southwestern Bell Telephone Company
(Telephone Company), which provides telecommunications services over
approximately 13.6 million access lines in (listed by number of access
lines) Texas, Missouri, Oklahoma, Kansas and Arkansas (five-state
area). The Telephone Company is a public utility subject to
regulation by each of the state jurisdictions in which it operates and
by the Federal Communications Commission (FCC). In 1994, the
Telephone Company provided 72% of SBC's operating revenues.
In December 1994, SBC discontinued its printing operations, closing
plants in Texas and Oklahoma. In December 1993, SBC sold Metromedia
Paging Services, Inc. (Paging), which provided paging services.
This discussion should be read in conjunction with the consolidated
financial statements and the accompanying notes.
Results of Operations
Summary
Financial results, including changes from the prior year, are
summarized as follows:
Percent change
1994 1993
1994 1993 1992 vs. vs.
1993 1992
Operating revenues $ 11,618.5 $10,690.3 $ 10,015.4 8.7% 6.7%
Operating expenses $ 8,828.2 $ 8,310.7 $ 7,818.0 6.2% 6.3%
Income before
extraordinary loss $ 1,648.7 $ 1,435.2 $ 1,301.7 14.9% 10.3%
and accounting
changes
Extraordinary loss - $ (153.2) - - -
Accounting changes - $ (2,127.2) - - -
Net income (loss) $ 1,648.7 $ (845.2) $ 1,301.7 - -
SBC reported income before extraordinary loss and cumulative effect of
changes in accounting principles of $1,648.7, $1,435.2 and $1,301.7 in
1994, 1993 and 1992, respectively. The corresponding earnings per
common share for those years were $2.74, $2.39 and $2.17,
respectively. In 1993, an extraordinary loss associated with early
extinguishment of debt was $153.2, or $.25 per share. The adoption of
financial accounting standards relating to postretirement benefits,
postemployment benefits and income taxes resulted in one-time charges
totaling $2,127.2, or $3.55 per share, in the first quarter of 1993.
As a result, net loss for 1993 was $845.2, or $1.41 per share.
Subsidiaries other than the Telephone Company provided 35%, 29% and
26% of SBC's income before extraordinary loss and cumulative effect of
changes in accounting principles in 1994, 1993 and 1992, respectively.
The primary factors contributing to the increase in income before
extraordinary loss and cumulative effect of changes in accounting
principles in 1994 were the growth in demand for services and products
at Southwestern Bell Mobile Systems, Inc. (Mobile Systems) and the
Telephone Company. These factors were partially offset by rate
reductions at the Telephone Company and an increase in license fees
paid by the Telephone Company for switching system software. Results
for 1994 also reflect a $34 after-tax charge relating to the
devaluation of the Mexican peso on the foreign currency denominated
debt of SBC's equity affiliate, Telefonos de Mexico, S.A. de C.V.
(Telmex).
The primary factors contributing to the increase in income before
extraordinary loss and cumulative effect of changes in accounting
principles in 1993 were the growth in demand for services and products
at Mobile Systems and the Telephone Company, the decrease in license
fees paid by the Telephone Company for switching system software, and
the increase in income generated from SBC's equity investments,
primarily Telmex. These factors were partially offset by increased
postretirement benefit and depreciation expenses and accruals for
potential rate reductions, mainly at the Telephone Company. Results
for 1993 also reflect one-time charges for Telephone Company
restructuring and write-off of analog cellular equipment, partially
offset by a gain on the sale of Paging.
Items affecting the comparison of the operating results between 1994
and 1993, and between 1993 and 1992, are discussed in the following
sections.
Operating Revenues
Total operating revenues increased $928.2, or 8.7%, in 1994 and
$674.9, or 6.7%, in 1993. Components of total operating revenues,
including changes from the prior year, are as follows:
Percent
change
1994 1993
1994 1993 1992 vs. vs.
1993 1992
Local service
Landline $ 4,039.1 $ 3,904.9 $ 3,727.5 3.4% 4.8%
Wireless 1,748.7 1,282.5 940.9 36.4 36.3
Network access
Interstate 1,912.5 1,804.7 1,710.3 6.0 5.5
Intrastate 944.5 880.7 837.5 7.2 5.2
Long-distance 917.1 977.3 1,011.7 (6.2) (3.4)
service
Directory 946.8 869.0 847.9 9.0 2.5
advertising
Other 1,109.8 971.2 939.6 14.3 3.4
$ 11,618.5 $ 10,690.3 $ 10,015.4 8.7% 6.7%
Local Service Landline revenues increased in 1994 and 1993 due to
increases in demand, including growth in the number of access
lines of 3.6% and 3.3%, respectively. Nearly two-thirds of the
access line growth occurred in Texas. To a lesser extent,
landline revenues also increased during 1993 as a result of
extended area service plans, which expanded the area defined as
local service. Previously ordered rate reductions, primarily in
Texas and Missouri, reduced 1994 revenues by approximately $80.
Wireless revenues increased in 1994 and 1993 due primarily to the
growth in the number of cellular customers of 45.4% and 45.0%,
respectively. These increases were partially offset by declines
in average revenue per customer in both periods. Market
penetration at the end of 1994, 1993 and 1992 was 7.4, 5.7 and 4.0
customers per 100 residents, respectively, in Mobile Systems'
service areas. Excluding acquisitions completed during 1994, the
number of cellular customers increased by 36.2% and market
penetration at the end of 1994 was 7.8%.
Network Access Interstate network access revenues increased in
1994 and 1993 due largely to increases in demand for access
services. Growth in revenues from end user charges attributable
to an increasing access line base also contributed to the
increases in both years. Revenues in 1994 reflect a retroactive
billing adjustment that decreased interstate access revenues
slightly while increasing intrastate access revenues. In 1993,
these increases were partially offset by decreases in interstate
rates recognized by the Telephone Company.
Intrastate network access revenues increased in 1994 and 1993, due
primarily to increases in demand. Also affecting intrastate
revenues in 1994 was the partial replacement of the Texas pool
settlement process with a system of primary toll carrier access
charges. Under this system, charges received by the Telephone
Company from other intrastate carriers are recorded as intrastate
access revenues, while those paid by the Telephone Company are
recorded as cost of services and products. These amounts were
each approximately $40 and did not materially affect operating
income in 1994. Previously, only the net settlement pool payment
or receipt was recognized as an adjustment to revenue. The
retroactive billing adjustment noted in the preceding paragraph
also slightly increased intrastate access revenues. Previously
ordered rate reductions, primarily in Texas, reduced revenues by
approximately $120 and $25, in 1994 and 1993, respectively.
Long-Distance Service message volumes in 1994 are relatively
unchanged from 1993, as the implementation of optional calling
plans encouraged higher volumes which offset competition-related
decreases in messages. These optional calling plans also lower
the average revenue per message and, combined with other
demand-related decreases and rate decreases (primarily in
Missouri), caused a decrease in long-distance service revenue.
The 1993 decrease was due mainly to accruals for potential rate
reductions in Oklahoma and the impact of extended area service
plans, partially offset by increases in demand for long-distance
services. Although extended area service plans have reduced long-
distance service revenues, this effect is partially offset by
related increases in local service revenues, as noted in the
discussion of landline local service revenues.
Directory Advertising increased in 1994 and 1993, reflecting
growth in yellow pages revenues, including product enhancements
and increased use of color. Increases in 1993 were offset by the
absence of revenues associated with certain directory operations
sold in June 1992.
Other revenues increased in 1994 due primarily to increases in
equipment sales, mainly at Mobile Systems, and increases in demand
for the Telephone Company's nonregulated services and products,
including Caller ID equipment, computer network services and
videoconferencing services. Revenues in 1994 also increased due
to the addition of cable television revenues resulting from the
January 1994 acquisition of two systems from Hauser
Communications, Inc. (Hauser). These increases were partially
offset by the absence of revenues associated with the sale of
Paging in the fourth quarter of 1993. Other revenues increased in
1993 due to increases in equipment sales, primarily at Mobile
Systems, and increases in demand for the Telephone Company's
nonregulated services and products, partially offset by the
absence of revenues associated with operations sold during 1993,
including residential equipment sales, commercial printing and
paging services.
Operating Expenses
Total operating expenses increased $517.5, or 6.2%, in 1994 and
$492.7, or 6.3%, in 1993. Components of total operating expenses,
including changes from the prior year, are as follows:
Percent
change
1994 1993
1994 1993 1992 vs. vs.
1993 1992
Cost of services and $ 3,746.9 $ 3,387.6 $ 3,423.4 10.6% (1.0)%
products
Selling, general and 3,043.5 2,916.1 2,552.4 4.4 14.2
administrative
Depreciation and 2,037.8 2,007.0 1,842.2 1.5 8.9
amortization
$ 8,828.2 $ 8,310.7 $ 7,818.0 6.2% 6.3%
Cost of Services and Products increased in 1994 due to increased
demand for services and products at Mobile Systems and the
Telephone Company, increases of approximately $100 in switching
system software licensing fees at the Telephone Company, including
fees related to enhanced services, and Texas primary toll carrier
access charges noted in the discussion of intrastate network
access revenues. These increases were partially offset by the
absence of expenses associated with paging services and
residential equipment sales operations sold in 1993. The decrease
in 1993 was due primarily to a decrease of more than $160 in
license fees at the Telephone Company for switching system
software and the absence of expenses associated with operations
that were sold, including residential equipment sales and
commercial printing (sold in 1993) and directory advertising
operations (sold in 1992). These decreases were partially offset
by costs related to increased demand for services and products at
Mobile Systems and the Telephone Company, and by annual
compensation increases.
Selling, General and Administrative expenses increased in 1994 due
primarily to growth in cellular operations and higher pension
benefit expenses, partially offset by savings associated with 1993
force reductions. Additionally, as discussed in Other Business
Matters, expenses in 1993 included a one-time charge for the
restructuring of operations at the Telephone Company.
In addition to the restructuring charge noted above, expenses in
1993 increased due primarily to increased demand for cellular
services and products and the increase of approximately $110 in
postretirement benefits expense required by the adoption of
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions"
(Statement No. 106), as discussed in Note 7 to the financial
statements. The increased expenses also reflect increases in
property and other taxes and annual compensation increases.
Expenses in 1992 included one-time charges for an offer of pension
enhancements and related benefits to designated nonmanagement
employees and for estimated expenses associated with relocating
SBC's headquarters.
Depreciation and Amortization increased in 1994 due mainly to
growth in cellular and cable television investment levels and
changes in plant levels and composition at the Telephone Company.
These increases were partially offset by the completion of
accelerated regulatory amortization of certain analog equipment at
the Telephone Company.
The increase in 1993 was mainly due to changes in plant level and
composition, particularly at the Telephone Company and Mobile
Systems. Depreciation expense also increased in 1993 due to a
reduction in cellular analog equipment lives. These increases
were partially offset by a decrease in reserve deficiency
amortization at the Telephone Company.
Interest Expense decreased $16.0, or 3.2%, in 1994. The decrease was
due to lower interest rates on debt refinanced by the Telephone
Company and the repayment of debt during 1993, partially offset by
interest accrued on potential rate reductions. Interest expense
decreased $33.8, or 6.4%, in 1993 due to lower interest rates on short-
term obligations and interest savings on long-term debt refinanced by
the Telephone Company in 1993.
Equity in Net Income of Affiliates decreased $26.6, or 10.7%, in 1994
due mainly to a fourth quarter charge of approximately $52 to reflect
SBC's share of Telmex's exchange loss on its foreign currency
denominated debt resulting from the sharp decline in the value of the
Mexican peso in December 1994. Excluding this charge, the increase in
1994, as well as the 1993 increase of $41.7, or 20.0%, was due
primarily to higher earnings at Telmex resulting from overall growth,
including increases in access lines and rate increases. In both
years, these factors were offset partially by increases in wages and
benefit expenses, and other operating expenses related to the
rehabilitation and modernization of the telephone network. SBC's
investment in Telmex is recorded under U.S. generally accepted
accounting principles, which exclude inflation adjustments and include
adjustments for the purchase method of accounting. See Note 3 to the
financial statements for additional information.
SBC's earnings from Telmex are sensitive to changes in the value of
the peso. As a result of the significant devaluation of the peso in
December 1994 and January 1995, it is anticipated there will be a
decline in SBC's expected earnings from Telmex in 1995, absent further
changes in the value of the peso and results of Telmex's operations.
The magnitude of the effect is partially mitigated by the fact that a
portion of Telmex's revenues are denominated in U.S. dollars and are
unaffected by the decline.
Other Expense - Net increased $26.5 in 1994 and $67.2 in 1993.
Expenses for 1994 reflect increases in contributions to the SBC
Foundation and in legislative advocacy expenses. Expenses in 1993
include a nonrecurring charge for the write-off of analog cellular
equipment and an increase in legislative advocacy expenses, partially
offset by the gain on the sale of paging operations. Other expense -
net in 1992 includes interest income associated with the settlement of
federal income tax audit issues.
Federal Income Tax expense increased $133.3, or 24.2%, in 1994 and
$62.5, or 12.8%, in 1993, primarily due to higher income before income
taxes. Federal income taxes in 1993 as compared to 1992 were also
affected by the increase in federal income tax rates from 34% to 35%
in 1993.
Extraordinary Item The Telephone Company recorded extraordinary
charges of $153.2 in 1993 as a result of refinancing $2,100 of long-
term debt. See Note 4 to the financial statements for additional
information.
Operating Environment and Trends of the Business
Regulatory Environment
The Telephone Company's intrastate telecommunications operations in
Texas, Missouri and Kansas are presently operating under incentive
regulation plans, while operations in Oklahoma and Arkansas are
regulated under traditional rate-of-return methodology. The Telephone
Company's interstate telecommunications operations in the five states
are regulated by the FCC, using a price cap system. The FCC is in the
process of reviewing the current price cap plan, in order to evaluate
issues related to price cap methodology, the goals of price cap
regulation and transition to a fully competitive market. It is
expected that the FCC will complete their review during the first half
of 1995.
Regulatory jurisdictions may require that adjustments be made to
reported earnings in order to compute earnings subject to sharing or
regulatory returns, as applicable, according to its regulatory plan.
As a result, differences may exist between the returns reported to
these regulatory bodies and those computed from Telephone Company
financial information included in the consolidated financial
statements.
Following is a summary of significant regulatory proceedings.
Texas In 1994, the Telephone Company completed the final year of its
four-year incentive regulation agreement. Under its terms, the
Telephone Company agreed to cap certain local rates, provide annual
rate reductions and other benefits to customers in Texas, and upgrade
the network at a cost of approximately $329. Rate reductions for 1994
and 1993 were $146 and $21, respectively. Rate reductions and
customer benefits for 1992 were $34.
The agreement also provided an earnings-sharing mechanism designed to
encourage efficiency and innovation by the Telephone Company. Revenue
sharing amounts for 1992 were not significant, and there will be no
sharing of 1993 revenues. Sharing amounts for 1994 have not been
approved by the Texas Public Utility Commission (TPUC), but are
estimated to be approximately $30.
The Telephone Company has offered to extend the agreement until
September 1, 1995. This extension was offered because of the
possibility that new legislation concerning utility regulation may be
written during the 1995 session of the Texas legislature. Such
legislation, if enacted, would become effective in September 1995.
Although no formal reply regarding the extension has been received
from the TPUC, no objections have been raised by the TPUC and the
Telephone Company is continuing to operate under the provisions of the
original agreement.
Missouri In response to a Missouri Public Service Commission (MPSC)
staff complaint, the MPSC issued an order in December 1993 requiring
rate reductions of $84.6 annually, beginning January 1994. The
Telephone Company appealed the order and, in August 1994, reached a
settlement agreement with the MPSC and Office of Public Counsel (OPC).
Under the terms of the settlement agreement, the Telephone Company
implemented annual rate reductions of $69.6 effective October 1, 1994,
representing the original $84.6 reduction ordered by the MPSC, offset
by $15 for recovery of a portion of the costs associated with
postretirement benefit accruals, allowed by legislation enacted in
1994. In addition, customers were given one-time credits totaling $64
for rate reductions which were accrued under the original order and
paid to the court beginning in 1994. The Telephone Company has also
committed to invest an average of $275 annually in capital
expenditures during the term of the agreement.
The agreement extends through December 31, 1998. During this period,
the agreement provides that the Telephone Company will not file a
general rate case or raise local service rates and there will be no
sharing of earnings. In addition, the MPSC and the OPC have agreed
not to file complaints about the level of Telephone Company earnings
during the term of the agreement. The agreement does not preclude the
Telephone Company from increasing its revenues through the
introduction of new or additional services or features during this
period. Two interexchange carriers and the Missouri Cable TV
Association have challenged the legality of the agreement in a case
currently pending in the Cole County Circuit Court.
Oklahoma In January 1989, the Oklahoma Corporation Commission (OCC)
ordered an investigation into the reasonableness of the Telephone
Company's intrastate rates. In August 1992, a final order was issued
requiring the Telephone Company to refund revenues in excess of an
11.41% return on equity, effective April 1991 through the date of the
final order. The ordered refund obligation is $148.4.
The OCC order also would reduce annual revenues by $100.6 effective
September 1992 (of which $44.6 relates to plans already implemented),
partially offset by a positive annual revenue adjustment of $7.8 to
compensate the Telephone Company for its investment of $84 for network
modernization over five years following the date the order becomes
effective. The order would also lower the allowed return on equity
from 14.25% to 12.20%.
In September 1992, the Telephone Company appealed to the Oklahoma
Supreme Court (Court), which suspended the effectiveness of the entire
order pending final disposition. This appeal is still pending.
The Telephone Company is contesting all aspects of the OCC's actions.
Management believes that the OCC-ordered refund of revenues collected
before the date of the OCC's August 1992 order is illegal under
Oklahoma law and will be overturned by the Court. The Court may
require the Telephone Company to implement some portion of the annual
rate reductions indicated in the OCC order. Management is unable to
determine the outcome of the remaining portions of the OCC order.
Future effects arising from an unfavorable ruling would not be
expected to have a material impact on SBC's financial results.
Competition
Competition is growing in the telecommunications industry. Regulatory
and court decisions have expanded the number of alternative service
providers offering telecommunications services. Technological
advances have expanded the types and uses of services and products
available. Accordingly, SBC faces increasing competition in
significant portions of its business.
Domestic
The Telephone Company currently faces competition principally from
competitive access providers (CAPs), private networks, shared tenant
services, providers of telecommunications equipment, interexchange
carriers, resellers and cellular providers.
CAPs typically build fiber optic "rings" throughout large metropolitan
areas to provide transport services (generally high-speed data) for
large business customers and interexchange carriers. Also, an
increasing number of high usage customers, particularly large
businesses, now bypass Telephone Company facilities by establishing
alternative telecommunications links for voice and data, such as
private network systems, shared tenant services or private branch
exchange (PBX) systems (which are customer-owned and provide internal
switching functions without use of Telephone Company central office
facilities). The extent of the economic incentive to bypass the local
exchange network depends upon local exchange prices, access charges,
regulatory policy and other factors. End user charges ordered by the
FCC are designed to mitigate the effect of system bypass.
The FCC has adopted rules requiring large local exchange carriers,
including the Telephone Company, to provide expanded interconnection
to independent parties for provision of special access and switched
access transport services. (Special access refers to a dedicated
transmission path, used primarily by large business customers and long-
distance carriers, which does not involve switching at the local
exchange carrier central office. Switched access refers to the link
between local exchange carriers' switching facilities and long-
distance carriers' networks; switched access transport is one
component of this process.) A July 1994 FCC order requires that local
exchange carriers provide equipment and establish a set of technical
and pricing rules intended to position alternate providers as if their
equipment were located in the central office (referred to as virtual
collocation). Alternatively, the local exchange carrier may, at its
discretion, allow alternate providers to physically collocate their
equipment within its central office. This order followed a June 1994
judicial remand which vacated the FCC's previous order requiring
physical collocation. Various aspects of the FCC rules are being
contested by a number of local exchange carriers, including the
Telephone Company.
Collocation for access services is also being addressed at the state
regulatory level. In general, collocation requirements in Texas and
Oklahoma follow terms similar to those of interstate requirements.
Proceedings in Missouri and Arkansas have been delayed awaiting the
outcome of pending FCC collocation issues. The Kansas Corporation
Commission presently does not authorize intrastate collocation.
Competition exists in all of the Telephone Company's intraLATA toll
markets. Principal competitors are interexchange carriers, which are
assigned an access code (e.g., "10XXX") used by their customers to
route intraLATA calls through the interexchange carrier's network, and
resellers, which sell toll services obtained at bulk rates.
Pending regulatory and legislative proceedings could allow increased
competition for local exchange services in the future. In Texas,
three companies have filed applications with the TPUC seeking
authority to provide local exchange services in selected metropolitan
areas within the Telephone Company's service territory. Hearings on
these applications are scheduled to begin in mid 1995. In Missouri, a
commission appointed by the Governor recommended in January 1995 that
legislation be adopted to open the Telephone Company's local exchange
market to competition. The report also recommended an end to earnings
regulation for the Telephone Company, but provided only limited
pricing flexibility for its services. It is not known whether such
legislation will be passed in the 1995 legislative session. In
Oklahoma and Kansas, there are generic competition dockets pending
which address competitive issues related to the provision and
regulation of intrastate telecommunications services.
Wireless telecommunications services, such as cellular, increasingly
compete with landline services. Furthermore, the FCC adopted an order
in 1993 allocating radio spectrum and outlining development of
licenses for new personal communications services (PCS). PCS utilizes
wireless telecommunications technology using radio spectrum different
from cellular. Like cellular, it is designed to permit access to a
variety of communications services regardless of subscriber location.
Under an auction process, up to seven PCS licenses could be awarded in
each of 51 geographic areas. Licenses may be combined by spectrum
amounts and geographically, including creation of a nationwide
service. Though a potential source of competition for landline
services, PCS also represents a competitive opportunity for SBC, which
is allowed to participate fully in bidding for licenses in areas
outside its cellular service areas, and may bid on a smaller license
in areas where it has a cellular presence. SBC is participating in
the auctions, which began in December 1994, and is pursuing licenses
in a number of markets that would complement its existing cellular
service territories.
In the future, it is likely that additional competitors will emerge in
the telecommunications industry. Cable television companies and
electric utilities have expressed an interest in providing
telecommunications services. As a result of recent and prospective
mergers and acquisitions within the industry, SBC may face competition
from entities offering both cable and telephone services over their
transport mediums in the Telephone Company's operating territory.
Interexchange carriers have also expressed interest in providing local
service, either directly or through alternative wireless networks, and
a number of major carriers have publicly announced their intent to
provide local service in certain markets, some of which are in the
Telephone Company's five-state area.
Competitive opportunities may arise as a result of pending and
anticipated legislative and legal proceedings. Federal policymakers
have indicated strong interest in telecommunications reform - namely,
lowering regulatory and legislative barriers to competition.
Legislation was introduced in the 1994 United States Congress which,
had it been adopted, would have allowed SBC to enter previously
restricted lines of business, including interLATA telecommunications
services, electronic publishing and telecommunications equipment
manufacturing, and would have allowed local exchange carriers to
compete in the cable television business in their own areas.
Legislation achieving these goals will be advocated by SBC during the
1995 Congressional session; however, no assurance can be given as to
whether or in what form such legislation might be enacted.
SBC and two other Regional Holding Companies (RHCs) are asking the
United States District Court for the District of Columbia, in a joint
petition filed in July 1994, to vacate the consent decree issued at
the time of AT&T Corp.'s (AT&T) divestiture of the RHCs. Among other
items, the consent decree prevents the RHCs from providing interLATA
telecommunications service and manufacturing telecommunications
equipment. This matter is pending and the outcome cannot be
predicted. Also in 1994, SBC filed a lawsuit in the United States
District Court in Dallas, seeking to overturn provisions of the Cable
Communications Policy Act of 1984, in order to provide cable
television service in the Telephone Company's five-state area. While
there can be no assurance of a favorable ruling to SBC, three Circuit
Courts of Appeals have held this statute to be unconstitutional in
similar factual circumstances.
SBC is aggressively representing its interests regarding competition
before federal and state regulatory bodies and courts, and before
Congress and state legislatures, and will continue to evaluate the
increasingly competitive nature of its business and the appropriate
regulatory, legislative and industry solutions needed to respond
effectively to competition.
International
Telmex was granted a concession in 1990 to continue as the sole
provider of long-distance services in Mexico until August 1996. In
July 1994, the Mexican Secretary of Communication and Transportation
issued the first in a series of rules for the introduction of
competition into the Mexican long-distance market. It specified that
there would be an unlimited number of long-distance concessions and
that Telmex must provide 60 interconnection points by January 1, 1997,
and over 200 interconnection points by the year 2000. In addition,
customers will be able to presubscribe to their choice of long-
distance carrier by January 1, 1997. Several large competitors have
announced their intention to compete with Telmex, including AT&T and
MCI Communications Corporation.
Regulatory Accounting
SBC currently accounts for the economic effects of regulation in
accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (Statement
No. 71). Statement No. 71 requires deferral of certain costs and
obligations based on regulatory actions (regulatory assets and
liabilities). In addition, under Statement No. 71, telephone plant is
depreciated using rates set by regulators in a joint federal and state
triennial review process. These rates are usually lower than those
used by unregulated companies. SBC will present proposed depreciation
rates for 1995 through 1997 to federal and state regulators in
triennial review meetings scheduled for mid 1995.
Continued application of Statement No. 71 is appropriate only if it is
reasonable to assume that rates which are adequate to recover costs
can be charged to and collected from customers. This assumption
requires, among other things, consideration of anticipated changes in
levels of demand or competition during the recovery period for any
capitalized costs. It is management's opinion that application of
Statement No. 71 to SBC remains appropriate at this time. However,
due to the rapid pace of change in the telecommunications industry,
SBC must continually assess its position with respect to Statement No.
71. If, as a result of actual and anticipated increases in
competition, technological development and other changes in the
telecommunications industry including the manner of determining rates,
SBC determines that it no longer qualifies for the provisions of
Statement No. 71, SBC would be required to eliminate its regulatory
assets and liabilities, and to adjust the carrying amount of its
telephone plant to the extent that it determines that such amount is
not recoverable. The net effect would be reflected in the financial
statements as a non-cash, extraordinary charge to income. Because of
the uncertainties regarding the timing, extent and potential
combination of circumstances which would cause SBC to discontinue
application of Statement No. 71, management cannot estimate a specific
amount of the charge at this time, but under most combinations of
circumstances would anticipate the after-tax amount of the charge to
be between $2.0 billion and $3.0 billion.
Other Business Matters
Name Change In order to better reflect SBC's position as a
diversified global communications company, SBC's Board of Directors
approved in September 1994 a change in the corporate name to SBC
Communications Inc., subject to shareowner approval at the 1995 Annual
Meeting of Shareowners scheduled for April 1995.
Acquisitions In January 1994, SBC purchased two cable television
systems from Hauser located in Montgomery County, Maryland, and
Arlington County, Virginia, for $650. In December 1994, SBC acquired
the domestic cellular business of Associated Communications
Corporation (Associated) for $705, including cellular systems in
Buffalo, Rochester, Albany and Glens Falls, New York. In addition,
during the second quarter of 1994, SBC purchased smaller cellular
systems in Syracuse, Utica and Ithaca, New York, which are adjacent to
the Associated properties.
In October 1994, SBC formed a strategic alliance with Compagnie
Generale des Eaux (CGE), a French diversified public company. In
December 1994, SBC invested $615 through this alliance to acquire an
indirect 10% ownership of Societe Francaise du Radiotelephone S.A.
(SFR), a French national cellular company, and minority ownership
interests in other communications businesses controlled by CGE. This
investment is accounted for as an equity investment. As part of this
alliance, CGE is expected to invest $247 to attain a 10% interest in
SBC's Washington-Baltimore wireless operations. This investment is
expected to occur during the first half of 1995.
In April 1994, SBC terminated plans to form a $4.9 billion cable
television partnership with Cox Cable Communications (Cox) in the
United States.
In February 1995, SBC purchased 40% of VTR S.A. (VTR), a privately
owned telecommunications holding company in Chile, for $317. Through
its subsidiaries, VTR provides local, long-distance, wireless and
cable television services in Chile. VTR is 51% owned by Grupo Luksic,
a large Chilean conglomerate.
Management does not expect these acquisitions to have a material
effect on SBC's financial position or results of operations in 1995.
Dispositions In October 1994, SBC sold an additional 25% of its
United Kingdom cable television operations to Cox. SBC and Cox each
own 50% and share management of the cable operations. Subsequent to
the sale, SBC's remaining investment is accounted for under the equity
method of accounting.
During 1993, SBC sold Paging, sold portions of its commercial printing
operations, and entered into an agreement which exclusively licensed
sales under its residential equipment trademark. None of these
transactions had a material effect on SBC's financial results in 1993.
Operational Restructuring During the third quarter of 1993, the
Telephone Company announced a restructuring of its operations. The
restructuring realigns the Telephone Company into two operating
divisions, Customer Services, comprised of nine geographic market
areas, and Network Services, which focuses on technology planning and
deployment. As part of the restructuring, approximately 800
management positions were eliminated during 1993. Costs for
severance, relocation and benefits associated with the positions
eliminated were accrued during 1993, reducing net income by
approximately $35.
Pending Litigation The Telephone Company is presently engaged in
litigation with 57 Texas cities arising from the Telephone Company's
alleged breach of certain ordinances relating to the Telephone
Company's use of, and work activities in, streets and other public
ways. In November 1992, City of Port Arthur, et al., v. Southwestern
Bell Telephone Company, et al., in the 136th Judicial District Court
of Jefferson County, Texas, was certified as a class action. Trial is
set for 1995. In addition, three municipalities participating in the
class action had filed separate lawsuits, which have been suspended
pending the outcome of the class action.
The ordinances provide for the payment of a percentage of the gross
receipts received by the Telephone Company from the provision of
certain services within the cities. While the particular claims of
the cities vary, they all allege that the Telephone Company should
have included revenues received from other services in calculating the
compensation described in the ordinances. The Telephone Company
believes it has several meritorious defenses to the claims and intends
to vigorously pursue these defenses. The Telephone Company further
believes that it will either be successful on the merits of the cases
or that any unfavorable result will not have a material impact on
SBC's results of operations.
Liquidity and Capital Resources
Capital Expenditures and Other Commitments
To provide high-quality communications services to its customers, SBC,
particularly the Telephone Company and Mobile Systems, must make
significant investments in property, plant and equipment. The amount
of capital investment is influenced by regulatory commitments and
demand.
SBC's capital expenditures totaled $2,350.2, $2,221.1 and $2,144.3 for
1994, 1993 and 1992, respectively. The 1994 increase in capital
expenditures was due primarily to growth at Mobile Systems, while
expenditures at the Telephone Company were flat compared to 1993. The
1993 increase in capital expenditures was primarily due to increases
in Telephone Company expenditures on broadband infrastructure and
customer-contracted requirements, continued build-out of cable
television and telephone network facilities in the United Kingdom, and
growth and digital conversion at Mobile Systems.
In 1994, the Telephone Company committed to make network upgrades
estimated to cost approximately $570 in Missouri, Arkansas and Kansas
over various periods ranging from two to four years. At December 31,
1994, the Telephone Company had invested $91 under these commitments.
During 1994, the Telephone Company continued to make network upgrades
under previous commitments in Texas, Missouri and Kansas. At
December 31, 1994, amounts remaining under these previous commitments
were not significant.
In 1995, management expects capital spending in total and at the
Telephone Company to be relatively unchanged from 1994 levels, between
$2,200 and $2,400. Capital expenditures in 1995 will relate primarily
to the continued evolution of the Telephone Company's network,
including amounts agreed to under improved regulation plans, and
continued build-out of Mobile Systems' markets. SBC expects to fund
ongoing capital expenditures with cash provided by operations.
With the change in accounting for SBC's United Kingdom cable
operations to the equity method of accounting, funding provided by SBC
in 1995 for the continued expansion of the cable television and
telephone network in the United Kingdom will not be classified as
capital expenditures, but will appear in the Consolidated Statements
of Cash Flows as investments in existing equity affiliates.
In addition to payments shown in the Consolidated Statements of Cash
Flows, 1994 acquisitions were also financed through the issuance of
approximately $660 in new and treasury shares and the issuance of
approximately $360 of long-term debt.
Dividends Declared
Dividends declared by SBC totaled $953.6 ($1.58 per share) in 1994,
$905.3 ($1.51 per share) in 1993 and $876.2 ($1.46 per share) in 1992.
Management's dividend policy considers both the expectations and
requirements of shareowners, internal requirements of SBC, and long-
term growth opportunities.
Cash, Lines of Credit and Cash Flows
SBC had $364.6 of cash and cash equivalents available at December 31,
1994. Commercial paper borrowings as of December 31, 1994, totaled
$1,348.5. SBC has entered into agreements with several banks for
lines of credit totaling $1,020.0, all of which may be used to support
commercial paper borrowings. SBC had no borrowings outstanding under
these lines of credit as of December 31, 1994.
During 1994, as in 1993 and 1992, SBC's primary source of funds
continued to be cash generated from operations, as shown in the
Consolidated Statements of Cash Flows. In 1994 and 1993, cash
provided by operating activities was reduced by the contribution of
$133.6 and $135.5, respectively, to the collectively bargained
Voluntary Employee Beneficiary Association trusts. Cash provided by
operating activities in 1992 also included refunds associated with the
settlement of federal income tax audit issues. Net cash provided by
operating activities exceeded SBC's construction and capital
expenditures during 1994, as in 1993 and 1992; this excess is referred
to as free cash flow, a supplemental measure of liquidity. SBC
generated free cash flow of $1,616.4, $1,219.7 and $1,470.4 in 1994,
1993 and 1992, respectively.
During 1993, long-term debt of $2,207 was issued, principally to
refinance Telephone Company long-term debt with an aggregate principal
amount of $2,100. Since June 1991, the Telephone Company has
refinanced $3,182 in long-term debt.
Total Capital
SBC's total capital consists of debt (long-term debt and debt maturing
within one year) and shareowners' equity. Total capital increased
$1,459.0 in 1994 and decreased in 1993 by $1,858.3. The increase in
1994 was due to reinvestment of earnings and the issuance of common
stock and long-term debt in acquisitions, partially offset by the
foreign currency translation adjustment resulting from the devaluation
of the peso and the acquisition of treasury shares. The decrease in
1993 was due to the effects of adopting new accounting standards and
the extraordinary loss on early extinguishment of debt. Absent these
factors, total capital increased by $422.1 in 1993 due primarily to
reinvestment of earnings.
Debt Ratio
SBC's debt ratio (long-term debt and debt maturing within one year, as
a percentage of total capital) was 47.4%, 47.5% and 43.0% at December
31, 1994, 1993 and 1992, respectively. The debt ratio is affected by
the same factors that affect total capital. For 1993, the decrease in
equity caused by changes in accounting standards increased the debt
ratio by 6.1%.
Share Repurchases
See Note 9 to the financial statements.
Employee Stock Ownership Plans
See Note 7 to the financial statements.
Report of Management
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. The integrity and
objectivity of the data in these financial statements, including
estimates and judgments relating to matters not concluded by year end,
are the responsibility of management, as is all other information
included in the Annual Report, unless otherwise indicated.
The financial statements of Southwestern Bell Corporation (SBC) have
been audited by Ernst & Young LLP, independent auditors. Management
has made available to Ernst & Young LLP all of SBC's financial records
and related data, as well as the minutes of shareowners' and
directors' meetings. Furthermore, management believes that all
representations made to Ernst & Young LLP during its audit were valid
and appropriate.
Management has established and maintains a system of internal
accounting controls that provides reasonable assurance as to the
integrity and reliability of the financial statements, the protection
of assets from unauthorized use or disposition and the prevention and
detection of fraudulent financial reporting. The concept of
reasonable assurance recognizes that the costs of an internal
accounting controls system should not exceed, in management's
judgment, the benefits to be derived.
Management also seeks to ensure the objectivity and integrity of its
financial data by the careful selection of its managers, by
organizational arrangements that provide an appropriate division of
responsibility and by communication programs aimed at ensuring that
its policies, standards and managerial authorities are understood
throughout the organization. Management continually monitors the
system of internal accounting controls for compliance. SBC maintains
an internal auditing program that independently assesses the
effectiveness of the internal accounting controls and recommends
improvements thereto.
The Audit Committee of the Board of Directors, which consists of seven
directors who are not employees, meets periodically with management,
the internal auditors and the independent auditors to review the
manner in which they are performing their responsibilities and to
discuss auditing, internal accounting controls and financial reporting
matters. Both the internal auditors and the independent auditors
periodically meet alone with the Audit Committee and have access to
the Audit Committee at any time.
/s/ Edward E. Whitacre Jr.
Edward E. Whitacre Jr.
Chairman of the Board and
Chief Executive Officer
/s/ Donald E. Kiernan
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
Report of Independent Auditors
The Board of Directors and Shareowners
Southwestern Bell Corporation
We have audited the accompanying consolidated balance sheets of
Southwestern Bell Corporation as of December 31, 1994 and 1993, and
the related consolidated statements of income, shareowners' equity and
cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Southwestern Bell Corporation at December 31,
1994 and 1993, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 7 to the consolidated financial
statements, in 1993 the Corporation changed its method of accounting
for income taxes, postretirement benefits other than pensions, and
postemployment benefits.
ERNST & YOUNG LLP
San Antonio, Texas
February 10, 1995
<TABLE>
Consolidated Statements of Income
Dollars in millions except per share amounts
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Operating Revenues
Local service $ 5,787.8 $ 5,187.4 $ 4,668.4
Network access 2,857.0 2,685.4 2,547.8
Long-distance service 917.1 977.3 1,011.7
Directory advertising 946.8 869.0 847.9
Other 1,109.8 971.2 939.6
Total operating revenues 11,618.5 10,690.3 10,015.4
Operating Expenses
Cost of services and products 3,746.9 3,387.6 3,423.4
Selling, general and administrative 3,043.5 2,916.1 2,552.4
Depreciation and amortization 2,037.8 2,007.0 1,842.2
Total operating expenses 8,828.2 8,310.7 7,818.0
Operating Income 2,790.3 2,379.6 2,197.4
Other Income (Expense)
Interest expense (480.2) (496.2) (530.0)
Equity in net income of affiliates 223.1 249.7 208.0
Other expense - net (99.4) (72.9) (5.7)
Total other income (expense) (356.5) (319.4) (327.7)
Income Before Income Taxes, Extraordinary
Loss and Cumulative Effect of Changes in
Accounting Principles 2,433.8 2,060.2 1,869.7
Income Taxes
Federal 684.0 550.7 488.2
State and local 101.1 74.3 79.8
Total income taxes 785.1 625.0 568.0
Income Before Extraordinary Loss and Cumulative
Effect of Changes in Accounting Principles 1,648.7 1,435.2 1,301.7
Extraordinary Loss on Early Extinguishment
of Debt, net of tax - (153.2) -
Cumulative Effect of Changes in Accounting
Principles, net of tax - (2,127.2) -
Net Income (Loss) $ 1,648.7 $ (845.2) $ 1,301.7
Earnings Per Common Share:
Income Before Extraordinary Loss and Cumulative
Effect of Changes in Accounting Principles $ 2.74 $ 2.39 $ 2.17
Extraordinary Loss on Early Extinguishment
of Debt, net of tax - (0.25) -
Cumulative Effect of Changes in Accounting
Principles, net of tax - (3.55) -
Net Income (Loss) $ 2.74 $ (1.41) $ 2.17
Weighted Average Number of Common
Shares Outstanding (in millions) 601.4 599.8 600.2
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Balance Sheets
Dollars in millions except per share amounts
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 364.6 $ 618.4
Accounts receivable - net of allowances for uncollectibles of
$130.4 and $111.2 2,204.6 2,055.2
Material and supplies 141.8 148.9
Prepaid expenses 162.0 126.5
Deferred charges 240.1 192.0
Deferred income taxes 180.7 197.0
Other 199.5 281.8
Total current assets 3,493.3 3,619.8
Property, Plant and Equipment - Net 17,316.6 17,091.5
Intangible Assets - Net of Accumulated Amortization of
$427.6 and $368.2 2,648.9 1,147.4
Investments in Equity Affiliates 1,748.0 1,420.8
Other Assets 798.5 1,028.0
Total Assets $ 26,005.3 $ 24,307.5
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 1,668.6 $ 1,385.7
Accounts payable and accrued liabilities 3,281.4 2,876.2
Dividends payable 240.8 226.6
Total current liabilities 5,190.8 4,488.5
Long-Term Debt 5,848.3 5,459.4
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 2,319.7 2,387.0
Postemployment benefit obligation 2,707.2 2,897.0
Unamortized investment tax credits 369.8 430.4
Other noncurrent liabilities 1,213.9 1,076.8
Total deferred credits and other noncurrent liabilities 6,610.6 6,791.2
Commitments (Notes 2, 10)
Shareowners' Equity
Preferred shares ($1 par value, 10,000,000 authorized: none issued) - -
Common shares ($1 par value, 1,100,000,000 authorized: issued
620,483,301 at December 31, 1994 and 602,744,484 at December 31, 1993) 620.5 602.7
Capital in excess of par value 6,286.1 5,577.0
Retained earnings 2,593.5 1,891.4
Guaranteed obligations of employee stock ownership plans (314.7) (352.9)
Foreign currency translation adjustment (366.5) (40.2)
Treasury shares (11,401,628 at December 31, 1994 and 2,510,404 at
December 31, 1993, at cost) (463.3) (109.6)
Total shareowners' equity 8,355.6 7,568.4
Total Liabilities and Shareowners' Equity $ 26,005.3 $ 24,307.5
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
Dollars in millions, increase (decrease) in cash and cash equivalents
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 1,648.7 $ (845.2) $ 1,301.7
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,037.8 2,007.0 1,842.2
Undistributed earnings from investments in equity affiliates (133.8) (177.3) (168.5)
Provision for uncollectible accounts 153.3 149.9 134.9
Amortization of investment tax credits (60.6) (65.8) (72.9)
Pensions and other postemployment expenses 201.6 148.8 193.1
Deferred income tax expense (124.0) (123.8) 19.4
Extraordinary loss, net of tax - 153.2 -
Cumulative effect of accounting changes, net of tax - 2,127.2 -
Changes in operating assets and liabilities:
Accounts receivable (302.7) (275.5) (284.9)
Other current assets (90.5) (5.7) (134.0)
Accounts payable and accrued liabilities 429.9 303.3 353.8
Other - net 206.9 44.7 429.9
Total adjustments 2,317.9 4,286.0 2,313.0
Net Cash Provided by Operating Activities 3,966.6 3,440.8 3,614.7
Investing Activities
Construction and capital expenditures (2,350.2) (2,221.1) (2,144.3)
Investments in existing equity affiliates (22.3) - -
Purchase of short-term investments (324.6) (419.7) (195.0)
Proceeds from short-term investments 390.1 315.5 120.4
Dispositions 140.9 378.3 -
Acquisitions (1,181.6) (120.9) (60.9)
Net Cash Used in Investing Activities (3,347.7) (2,067.9) (2,279.8)
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 463.1 (11.0) (332.2)
Issuance of other short-term borrowings 35.5 16.0 521.4
Repayment of other short-term borrowings (40.5) (137.7) (394.8)
Issuance of long-term debt 344.5 2,178.1 556.6
Repayment of long-term debt (449.6) (215.8) (245.7)
Early extinguishment of debt and related call premiums - (2,190.3) (355.6)
Issuance of common shares 40.2 18.0 -
Purchase of treasury shares (446.8) (191.1) (161.5)
Issuance of treasury shares 17.9 77.6 35.0
Dividends paid (837.0) (803.5) (780.4)
Net Cash Used in Financing Activities (872.7) (1,259.7) (1,157.2)
Net increase (decrease) in cash and cash equivalents (253.8) 113.2 177.7
Cash and cash equivalents beginning of year 618.4 505.2 327.5
Cash and Cash Equivalents End of Year $ 364.6 $ 618.4 $ 505.2
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Shareowners' Equity
Dollars in millions except per share amounts
<CAPTION>
Guaranteed Foreign
Obligations Curren-
of Employee cy Tra-
Common Shares Capital in Stock nslation Treasury Shares
------------- Excess of Retained Ownership Adjust- ----------------
Shares Amount Par Value Earnings Plans ment Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 300,889,089 $300.9 $5,829.1 $3,209.3 ($438.7) $4.4 (731,199) ($41.4) $8,863.6
Net income for the year
($2.17 per share) - - - 1,301.7 - - - -
Dividends to shareowners
($1.46 per share) - - - (876.2) - - - -
Reduction of debt associated
with Employee Stock
Ownership Plans - - - - 41.4 - - -
Foreign currency translation
adjustment - - - - - (32.3) - -
Purchase of treasury shares - - - - - - (2,514,092) (161.5)
Issuance of treasury shares:
Dividend Reinvestment Plan - - 5.5 - - - 1,799,731 108.6
Other issuances - - 0.2 - - - 429,768 25.4
Balance, December 31, 1992 300,889,089 300.9 5,834.8 3,634.8 (397.3) (27.9) (1,015,792) (68.9) 9,276.4
Net income (loss) for the
year ($(1.41) per share) - - - (845.2) - - - -
Dividends to shareowners
($1.51 per share) - - - (905.3) - - - -
Two-for-one stock split 300,889,089 300.9 (300.9) - - - (731,569) -
Reduction of debt associated
with Employee Stock
Ownership Plans - - - - 44.4 - - -
Foreign currency translation
adjustment - - - - - (12.3) - -
Issuance of common shares 966,306 0.9 41.2 - - - -
Purchase of treasury shares - - - - - - (3,660,698) (192.9)
Issuance of treasury shares:
Dividend Reinvestment Plan - - 4.0 - - - 1,889,232 103.2
Other issuances - - (2.1) - - - 1,008,423 49.0
Other - - - 7.1 - - - -
Balance, December 31, 1993 602,744,484 602.7 5,577.0 1,891.4 (352.9) (40.2) (2,510,404) (109.6) 7,568.4
Net income for the year
($2.74 per share) - - - 1,648.7 - - - -
Dividends to shareowners
($1.58 per share) - - - (953.6) - - - -
Reduction of debt associated
with Employee Stock
Ownership Plans - - - - 38.2 - - -
Foreign currency translation
adjustment, net of income tax
benefit of $197.3 - - - - - (326.3) - -
Issuance of common shares:
Dividend Reinvestment Plan 3,334,668 3.3 134.4 - - - - -
Other issuances 14,404,149 14.5 570.7 - - - - -
Purchase of treasury shares - - - - - - (11,301,550) (447.0)
Issuance of treasury shares - - 4.0 - - - 2,410,326 93.3
Other - - - 7.0 - - - -
Balance, December 31, 1994 620,483,301 $620.5 $6,286.1 $2,593.5 ($314.7) ($366.5) (11,401,628) ($463.3) $8,355.6
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements
Dollars in millions except per share amounts
1. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements
include the accounts of Southwestern Bell Corporation and its
majority-owned subsidiaries (SBC) which operate predominantly in
the communications service industry. Southwestern Bell Telephone
Company (Telephone Company) is SBC's largest subsidiary. All
significant intercompany transactions are eliminated in the
consolidation process. Investments in partnerships, joint
ventures and less than majority-owned subsidiaries are
principally accounted for under the equity method. Earnings from
certain foreign investments accounted for under the equity method
are included for periods ended within three months of SBC's year
end. Certain amounts in prior period financial statements have
been reclassified to conform to the current year's presentation.
Regulatory Accounting - SBC prepares its financial statements in
accordance with the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (Statement No. 71). The provisions
of Statement No. 71 require, among other things, that regulated
enterprises reflect rate actions of regulators in their financial
statements when certain criteria are met. These rate actions can
provide reasonable assurance of the existence of an asset, reduce
or eliminate the value of an asset, or impose a liability on a
regulated enterprise. SBC continually assesses its position as
to the applicability of Statement No. 71 based upon the current
regulatory and competitive environment.
Allowance for Funds Used During Construction - Where capital
invested by the Telephone Company in construction projects is not
allowed in the rate base upon which revenue requirements are
determined, it is the practice of regulatory authorities to
allow, in lieu thereof, a capitalization of interest and equity
costs during periods of construction. These capitalized costs
are reflected as income during the construction period and as an
addition to the cost of plant constructed, and are included in
other expense - net on SBC's Consolidated Statements of Income.
Income Taxes - Deferred income taxes are provided for certain
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for tax purposes.
Investment tax credits resulted from federal tax law provisions
that allowed for a reduction in income tax liability based on
certain construction and capital expenditures. Corresponding
income tax expense reductions were deferred and are being
amortized as reductions in income tax expense over the life of
the property, plant and equipment that gave rise to the credits.
Cash Equivalents - Cash equivalents include all highly liquid
investments with an original maturity of three months or less.
Deferred Charges - Certain cellular service sales commissions are
deferred and amortized over 12 months. Directory advertising
costs are deferred until the directory is published and
advertising revenues related to these costs are recognized.
Material and Supplies - New and reusable materials are carried
principally at average original cost. Specific costs are used
for large individual items. Nonreusable material is carried at
estimated salvage value.
Property, Plant and Equipment - Property, plant and equipment is
stated at cost. The cost of additions and substantial
betterments of property, plant and equipment is capitalized. The
cost of maintenance and repairs of property, plant and equipment
is charged to operating expenses.
The Telephone Company computes depreciation using certain
straight-line methods and rates as prescribed by the Federal
Communications Commission (FCC) and the applicable state
regulatory authorities. The Telephone Company's provision for
depreciation includes the amortization of interstate and certain
intrastate accumulated depreciation deficiencies (reserve
deficiency amortization). Reserve deficiency amortization allows
additional depreciation to be recognized currently in an attempt
to reflect more accurately prior years' actual consumption of
telephone plant.
When a portion of the Telephone Company's depreciable property,
plant and equipment is retired, the gross book value is charged
to accumulated depreciation.
Property, plant and equipment of SBC, other than the Telephone
Company, is depreciated on a straight-line method over their
estimated useful lives, generally ranging from 3 to 40 years.
Intangible Assets - Intangible assets consist primarily of
cellular and cable television licenses, customer lists and the
excess of consideration paid over net assets acquired in business
combinations. These assets are being amortized using the
straight-line method, over periods generally ranging from 5 to 40
years. At December 31, 1994 and 1993, amounts included in net
intangible assets for licenses were $2,007.1 and $871.9,
respectively. Management periodically reviews the carrying value
and lives of all intangible assets based on expected future
operating results.
Currency Translation Adjustments - The assets and liabilities
relating to SBC's share of foreign operations are translated at
current exchange rates. Revenues and expenses are translated
using average rates during the year. The ensuing foreign
currency translation adjustments are recorded as a separate
component of Shareowners' Equity. Other transaction gains and
losses resulting from exchange rate changes on transactions
denominated in a currency other than the local currency are
included in earnings as incurred.
Earnings Per Common Share - The earnings per common share
computation uses the weighted average number of common shares
outstanding, including shares held by employee stock ownership
plans. Common stock equivalents outstanding are not considered
dilutive.
2. Property, Plant and Equipment
Property, plant and equipment, which is stated at cost, is
summarized as follows at December 31:
1994 1993
Telephone Company plant
In service $ 26,731.6 $ 25,970.0
Under construction 231.5 261.3
26,963.1 26,231.3
Accumulated depreciation and (11,227.1) (10,532.2)
amortization
Total Telephone Company 15,736.0 15,699.1
Other 2,293.3 1,939.3
Accumulated depreciation and (712.7) (546.9)
amortization
Total Other 1,580.6 1,392.4
Property, plant and equipment--net $ 17,316.6 $ 17,091.5
For 1994, 1993 and 1992, SBC's depreciation as a percentage of
average depreciable plant was 6.9%, 7.0% and 6.8%, respectively.
Certain facilities and equipment used in operations are under
operating or capital leases. Rental expenses under operating
leases for 1994, 1993 and 1992 were $125.5, $122.9 and $135.2,
respectively. At December 31, 1994, the aggregate minimum rental
commitments under noncancelable operating leases for the years
1995 through 1999 were $81.9, $69.1, $53.3, $45.1 and $43.2,
respectively, and $171.4 thereafter. Capital leases were not
significant.
3. Equity Investments
Investments in affiliates accounted for under the equity method
consist principally of SBC's investment in Telefonos de Mexico,
S.A. de C.V. (Telmex), Mexico's national telecommunications
company. A consortium consisting of SBC International, Inc. (SBC
International), a wholly-owned subsidiary of SBC, together with a
subsidiary of France Telecom and a group of Mexican investors led
by Grupo Carso, S.A. de C.V., has voting control of Telmex
through its ownership of all of Telmex's Class AA shares. The
Mexican investors have voting control of the consortium. The
Class AA shares owned by SBC International represent
approximately 5% of Telmex's total equity capitalization. SBC
International's total interest in Telmex, including ownership of
Class L shares with limited voting rights, represents
approximately 10% of Telmex's total equity capitalization.
In October 1994, SBC International sold an additional 25% of its
United Kingdom cable television operations to Cox Cable
Communications (Cox). SBC International and Cox each own 50% and
share management of the cable operations. Subsequent to the
sale, SBC's remaining investment is accounted for using the
equity method of accounting.
In December 1994, SBC made an equity investment in the French
cellular market (see Note 10). Other equity investments include
interests in Australian and Israeli operations which provide
directory, cable television and other services.
The following table is a reconciliation of SBC's investments in
equity affiliates. The currency translation adjustment for 1994
primarily reflects the effect on SBC's investment resulting from
the decline in the value of the Mexican peso relative to the U.S.
dollar of approximately 38% during the year. In December 1994,
SBC also recorded an after-tax charge of $34 to reflect its
portion of Telmex's valuation loss on its foreign currency
denominated debt.
1994 1993 1992
Beginning of year $ 1,420.8 $ 1,249.4 $ 1,081.3
Additional investments 626.2 - -
Equity in net income 223.1 249.7 208.0
Dividends received (89.3) (72.4) (39.5)
Currency translation and other (432.8) (5.9) (0.4)
adjustments
End of year $ 1,748.0 $ 1,420.8 $ 1,249.4
The following table presents summarized financial information
obtained from filings with the Securities and Exchange Commission
by Telmex at December 31, or for the year ended:
1994 1993 1992
Balance Sheets
Current assets $ 3,024.7 $ 2,579.8 $ 2,052.8
Noncurrent assets 12,043.4 8,746.4 8,016.7
Current liabilities 1,079.8 834.9 753.5
Noncurrent liabilities 2,939.8 2,559.1 2,157.5
Shareowners' equity 11,048.5 7,932.2 7,158.5
Income Statements
Operating revenues $ 5,842.6 $ 5,267.2 $ 4,787.9
Operating income 2,485.1 2,201.3 2,078.0
Net income 1,572.2 1,927.6 1,844.3
Such public information is based on Mexican generally accepted
accounting principles and is adjusted to recognize the effects of
inflation, including restatement of 1993 and 1992 financial
information for the 1994 inflation effect. Translation to U.S.
dollars was computed using the reported December 31, 1994
exchange rate of 5.0 pesos per dollar.
Telmex also reported in such filings a reconciliation to U.S.
generally accepted accounting principles (GAAP) which decreased
shareowners' equity of Telmex at December 31, 1994, 1993 and 1992
by approximately $1,678, $1,051 and $1,192, respectively, and
increased (decreased) net income for the 12 months ended December
31, 1994, 1993 and 1992, by approximately $196, $(127) and
$(109), respectively.
Earnings reported by Telmex are not directly comparable to SBC's
equity in net income of Telmex, which is based on U.S. GAAP,
includes adjustments made pursuant to the purchase method of
accounting and does not recognize the effects of inflation.
4. Debt
Long-term debt, including interest rates and maturities, is
summarized as follows at December 31:
1994 1993
Telephone Company debentures
4.50%-5.88% 1995-2006 $ 700.0 $ 700.0
6.12%-6.88% 2000-2024 1,050.0 1,050.0
7.00%-7.75% 1994-2025 1,200.0 1,400.0
8.25%-8.30% 1996-2017 650.0 650.0
3,600.0 3,800.0
Unamortized discount-net of premium (31.2) (34.2)
Total Telephone Company debentures 3,568.8 3,765.8
Telephone Company notes
5.04%-7.35% 1994-2010 815.9 900.0
Unamortized discount (5.2) (4.8)
Total Telephone Company notes 810.7 895.2
Other notes
4.28%-6.95% 1994-2000 607.8 191.5
7.00%-9.00% 1994-2004 888.0 736.1
1,495.8 927.6
Unamortized discount (24.6) -
Total other notes 1,471.2 927.6
Guaranteed obligations of employee stock
ownership plans #
8.41%-9.40% 1994-2000 308.4 354.3
Capitalized leases 9.3 11.7
Total long-term debt, including current 6,168.4 5,954.6
maturities
Current maturities (320.1) (495.2)
Total long-term debt $ 5,848.3 $ 5,459.4
# See Note 7.
SBC recorded an extraordinary loss on the refinancing of long-
term debentures by the Telephone Company of $153.2 in 1993, net
of related income tax benefits of $92.2. At December 31, 1994,
the aggregate principal amounts of long-term debt scheduled for
repayment for the years 1995 through 1999 were $320.1, $423.2,
$705.7, $299.5 and $442.9, respectively. As of December 31,
1994, SBC was in compliance with all covenants and conditions of
instruments governing its debt.
Debt maturing within one year consists of the following at
December 31:
1994 1993
Commercial paper $ 1,348.5 $ 890.5
Current maturities of long-term debt 320.1 495.2
Total $ 1,668.6 $ 1,385.7
The weighted average interest rate on commercial paper debt at
December 31, 1994 and 1993 was 5.9% and 3.3%, respectively. SBC
has entered into agreements with several banks for lines of
credit totaling $1,020.0. All of these agreements may be used to
support commercial paper borrowings. The majority of these lines
are on a negotiated fee basis with interest rates negotiable at
time of borrowing. There were no borrowings outstanding under
these lines of credit at December 31, 1994.
5. Financial Instruments
SBC does not have any financial instruments held or issued for
trading purposes. The carrying amounts reported in the
Consolidated Balance Sheets for cash and cash equivalents, other
short-term investments and commercial paper debt approximate fair
values. The carrying amounts and fair values of SBC's long-term
debt, including current maturities, are summarized as follows at
December 31:
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Telephone Company debentures $3,568.8 $3,169.3 $3,765.8 $3,830.8
Telephone Company notes 810.7 730.2 895.2 915.1
Other notes 1,471.2 1,450.9 927.6 983.6
Guaranteed obligations of
employee stock
ownership plans 308.4 321.0 354.3 398.5
The fair value of SBC's long-term debt was based on quoted market
prices, where available, or on discounted future cash flows using
current interest rates.
6. Income Taxes
SBC adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (Statement No. 109) effective
January 1, 1993. In adopting Statement No. 109, SBC adjusted its
net deferred income tax liability for all temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, computed based on provisions of the enacted tax law.
Financial statements prior to January 1, 1993, have not been
restated to apply the provisions of Statement No. 109. The
cumulative effect of adopting Statement No. 109 as of January 1,
1993 was to decrease net income for 1993 by $213.9 or $.36 per
share, resulting primarily from the establishment of a deferred
tax liability associated with certain prior acquisitions not
related to the Telephone Company. The adoption of Statement
No. 109 had no material effect on pre-tax income for 1993.
As a result of implementing Statement No. 109, the Telephone
Company recorded a $431.4 net reduction in its deferred tax
liability. This reduction was substantially offset by the
establishment of a net regulatory liability in accordance with
Statement No. 71, resulting in minimal effect on net income. The
net regulatory liability recognizes the differences between the
recording of income taxes for financial reporting purposes and
recovery of those taxes through telephone service rates. Amounts
comprising the net liability will be amortized over the
regulatory lives of the associated assets. Future regulatory
proceedings may affect the period in which these amounts are
recognized in net income.
Significant components of SBC's deferred tax liabilities and
assets are as follows at December 31:
1994 1993
Depreciation and amortization $ 3,739.1 $ 3,439.1
Employee benefits 38.8 131.9
Other 295.4 423.1
Gross deferred tax liabilities 4,073.3 3,994.1
Employee benefits 1,304.5 1,281.6
Unamortized investment tax credits 134.8 156.9
Other 561.0 462.7
Gross deferred tax assets 2,000.3 1,901.2
Deferred tax assets valuation allowance 66.0 70.0
Net deferred tax liabilities $ 2,139.0 $ 2,162.9
The components of income tax expense are as follows:
1994 1993 1992
Federal
Current $ 866.8 $ 727.3 $ 560.4
Deferred--net (122.2) (110.8) 0.7
Amortization of investment tax (60.6) (65.8) (72.9)
credits
684.0 550.7 488.2
State and local
Current 102.9 87.3 61.1
Deferred--net (1.8) (13.0) 18.7
101.1 74.3 79.8
Total $ 785.1 $ 625.0 $ 568.0
The components of deferred federal income tax expense for 1992 as
recorded prior to the adoption of Statement No. 109 were as
follows:
1992
Depreciation and amortization $ 29.6
Employee benefits (93.7)
Undistributed earnings from investments in equity 60.7
affiliates
Other--net 4.1
Total $ 0.7
A reconciliation of income tax expense and the amount computed by
applying the statutory federal income tax rate (35% for 1994 and
1993, 34% for 1992) to income before income taxes, extraordinary
loss and cumulative effect of changes in accounting principles is
as follows:
1994 1993 1992
Taxes computed at federal statutory $ 851.8 $ 721.1 $ 635.7
rate
Increases (decreases) in taxes
resulting from:
Amortization of investment tax (60.6) (65.8) (72.9)
credits over the life of the
plant that gave rise to the credits
Excess deferred taxes due to rate (34.6) (43.2) (74.3)
change
Depreciation of telephone plant 18.3 22.5 21.7
construction costs previously
deducted for tax purposes--net
State and local income taxes--net 65.7 48.3 52.7
of federal tax benefit
Other--net (55.5) (57.9) 5.1
Total $ 785.1 $ 625.0 $ 568.0
7. Employee Benefits
Pensions - Substantially all employees of SBC are covered by
noncontributory pension and death benefit plans. The pension
benefit formula used in the determination of pension cost is
based on a flat dollar amount per year of service according to
job classification for nonmanagement employees, and a stated
percentage of adjusted career income for management employees.
SBC's objective in funding the plans, in combination with the
standards of the Employee Retirement Income Security Act of 1974
(as amended), is to accumulate funds sufficient to meet its
benefit obligations to employees upon their retirement.
Contributions to the plans are made to a trust for the benefit of
plan participants. Plan assets consist primarily of stocks, U.S.
government and domestic corporate bonds and real estate.
Net pension cost is composed of the following:
1994 1993 1992
Service cost--benefits earned $ 157.0 $ 131.1 $ 126.5
during the period
Interest cost on projected benefit 463.8 428.3 399.5
obligation
Actual return on plan assets 149.3 (1,019.9) (312.0)
Other--net (670.4) 498.7 (139.8)
Net pension cost $ 99.7 $ 38.2 $ 74.2
The following table sets forth the pension plans' funded status
and amounts recognized as other assets in SBC's Consolidated
Balance Sheets at December 31:
1994 1993
Fair value of plan assets $ 6,877.2 $ 7,507.9
Less: Actuarial present value of projected 6,600.3 6,319.5
benefit obligation
Plan assets in excess of projected benefit 276.9 1,188.4
obligation
Unrecognized prior service cost 976.0 785.5
Unrecognized net gain (450.4) (867.4)
Unamortized transition asset (768.0) (849.3)
Prepaid pension cost $ 34.5 $ 257.2
Significant assumptions used in developing pension information
include:
1994 1993 1992
Assumed discount rate for determining 7.5% 7.25% 7.5%
projected benefit obligation
Assumed long-term rate of return on plan 8.0% 8.0% 8.0%
assets
Assumed composite rate of compensation 4.6% 4.6% 4.6%
increase
The projected benefit obligation is the actuarial present value
of all benefits attributed by the pension benefit formula to
previously rendered employee service. It is measured based on
assumptions concerning future interest rates and employee
compensation levels. Should actual experience differ from the
actuarial assumptions, the benefit obligation will be affected.
The actuarial estimate of the accumulated benefit obligation does
not include assumptions about future compensation levels. The
accumulated benefit obligation as of December 31, 1994, was
$5,807.7, of which $5,128.5 was vested. At December 31, 1993,
these amounts were $5,815.0 and $5,197.8, respectively.
In December 1994 and 1993, under the provisions of Section 420 of
the Internal Revenue Code, SBC transferred $121.8 and $123.9,
respectively, in pension assets to a health care benefit account
for the reimbursement of retiree health care benefits paid by
SBC.
Supplemental Retirement Plans - SBC also provides senior and
middle management employees with nonqualified, unfunded
supplemental retirement and savings plans. The plans allow
employees to defer and invest portions of their current
compensation for later payment, and SBC matches a percentage of
the compensation deferral according to thresholds specified in
the plans. Expenses related to these plans were $67.7, $66.8 and
$63.1 in 1994, 1993 and 1992, respectively. Liabilities of
$509.9 and $483.4 related to these plans have been included in
other noncurrent liabilities in SBC's Consolidated Balance Sheets
at December 31, 1994 and 1993, respectively.
Voluntary Retirement Program - As a result of a March 1992
agreement with the Communications Workers of America, the
Telephone Company offered a limited early retirement plan to
designated nonmanagement employees which included incentives
affecting service pension eligibility and amounts. Approximately
1,200 nonmanagement employees participated in this offer. The
plan resulted in a charge to 1992 net income of approximately
$24.
Postretirement Benefits - SBC provides certain medical, dental
and life insurance benefits to substantially all retired
employees. Effective January 1, 1993, SBC adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" (Statement
No. 106), which requires accrual of actuarially determined
postretirement benefit costs as active employees earn these
benefits. Prior to the adoption of Statement No. 106, SBC
expensed retiree medical benefits when claims were incurred.
In implementing Statement No. 106, SBC immediately recognized an
accumulated obligation for postretirement benefits (transition
obligation) in the amount of $2,861.2 and a related deferred
income tax benefit of $1,013.4. The resulting charge to net
income of $1,847.8, or $3.08 per share, is included in the
cumulative effect of changes in accounting principles in the 1993
Consolidated Statement of Income.
Most of the Telephone Company's state regulatory jurisdictions
have addressed the adoption of Statement No. 106 for ratemaking
purposes, recognizing all or a portion of accrued expenses, with
some funding requirements. The FCC has allowed increases to the
interstate price caps for all postretirement benefit expenses,
including the transition obligation, subject to further
proceedings. Because of the uncertainty surrounding the
interstate treatment and the conditional nature of the intrastate
recovery, the Telephone Company does not meet the requirements to
establish a regulatory asset in accordance with Statement No. 71.
Postretirement benefit cost is composed of the following:
1994 1993
Service cost--benefits earned during the $ 49.0 $ 48.1
period
Interest cost on accumulated
postretirement benefit obligation (APBO) 224.5 231.6
Actual return on assets (15.6) (28.2)
Other--net (24.3) (3.6)
Postretirement benefit cost $ 233.6 $ 247.9
Expense recognized under the claims incurred method for providing
postretirement benefits was $104.9 for 1992 and would have been
approximately $129.5 for 1993.
In connection with 1992 collective bargaining agreements, SBC
established collectively bargained Voluntary Employee Beneficiary
Association (CBVEBA) trusts to fund postretirement benefits.
During 1994 and 1993, SBC contributed $133.6 and $135.5,
respectively, into the CBVEBA trusts to be ultimately used for
the payment of postretirement benefits. SBC also funds
postretirement life insurance benefits at an actuarially
determined rate. Assets consist principally of stocks and U.S.
government and corporate bonds.
The following table sets forth the plans' funded status and the
amount included in SBC's Consolidated Balance Sheets at December
31:
1994 1993
Retirees $ 1,873.4 $ 1,952.8
Fully eligible active plan participants 273.2 261.4
Other active plan participants 938.0 886.3
Total APBO 3,084.6 3,100.5
Less: Fair value of plan assets 580.8 442.5
APBO in excess of plan assets 2,503.8 2,658.0
Unrecognized net gain 263.5 134.8
Accrued postretirement benefit obligation $ 2,767.3 $ 2,792.8
The fair value of plan assets includes assets relating to life
insurance benefits of $298.8 and $296.6 at December 31, 1994 and
1993, respectively. At December 31, 1994 and 1993, the prepaid
life insurance benefits included in the accrued postretirement
benefit obligation were $26.8 and $31.1, respectively.
Significant assumptions used in developing the APBO information
include:
1994 1993
Assumed discount rate 7.5% 7.25%
Assumed long-term rate of return on plan assets 8.0% 8.0%
Assumed composite rate of compensation increase 4.6% 4.6%
The assumed medical cost trend rate in 1995 is 10.0%, decreasing
gradually to 5.5% in 2004, prior to adjustment for cost-sharing
provisions of the plan for active and certain recently retired
employees. The assumed dental cost rate in 1995 is 6.75%,
reducing to 5.0% in 2002. The discount rate used in determining
the postretirement benefit cost for 1993 was 7.5%. Raising the
annual medical and dental cost trend rates by one percentage
point increases the APBO as of December 31, 1994 by $208.1 and
the net periodic postretirement benefit cost for the year ended
December 31, 1994 by approximately $17.7.
Postemployment Benefits - Under its benefit plans, SBC provides
employees varying levels of disability pay, workers' compensation
and medical benefits under specified circumstances. Effective
January 1, 1993, SBC adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment
Benefits" (Statement No. 112). Statement No. 112 requires
accrual of these postemployment benefits at the occurrence of an
event that renders an employee inactive or, if the benefits
ratably vest, over the vesting period. These expenses were
previously recognized as the claims were incurred. A charge to
net income of $65.5, or $.11 per share, after a deferred tax
benefit of $36.1, is included in the cumulative effect of changes
in accounting principles in the 1993 Consolidated Statement of
Income. Statement No. 112 has not materially affected
postemployment benefit expense.
Employee Stock Ownership Plans - SBC maintains contributory
savings plans which cover substantially all employees. Under the
savings plans, SBC matches a stated percentage of eligible
employee contributions, subject to a specified ceiling.
SBC has two leveraged Employee Stock Ownership Plans (ESOPs) as
part of the existing savings plans. The ESOPs were funded with
notes issued by the savings plans, the proceeds of which were
used to purchase shares of SBC's common stock in the open market.
The notes are unconditionally guaranteed by SBC and will be
repaid with SBC contributions to the savings plans, dividends
paid on SBC shares and interest earned on funds held by the
ESOPs.
Since 1990, SBC's match of employee contributions to the savings
plans has been fulfilled with shares of stock allocated from the
ESOPs and with purchases of SBC's stock in the open market.
Benefit cost is based on a combination of the contributions to
the savings plans and the cost of shares allocated to
participating employees' accounts. Both benefit cost and
interest expense on the notes are reduced by dividends on SBC's
shares held by the ESOPs and interest earned on the ESOPs' funds.
Information related to the ESOPs and the savings plans is
summarized below:
1994 1993 1992
Benefit expense - net of dividends $ 25.9 $ 29.0 $ 27.7
and interest income
Interest expense - net of dividends 17.1 19.9 22.6
and interest income
Net ESOP expense 43.0 48.9 50.3
Additional savings plans stock (0.5) 0.5 4.7
purchases
Total expense $ 42.5 $ 49.4 $ 55.0
Company contributions for ESOPs $ 39.8 $ 50.3 $ 50.4
Dividends and interest income for $ 27.1 $ 26.3 $ 26.0
debt service
SBC shares held by the ESOPs (in millions) is summarized as follows at
December 31:
1994 1993
Unallocated 9.5 11.1
Committed to be allocated 0.1 0.3
Allocated to participants 8.8 7.3
Total 18.4 18.7
8. Stock Option Plans
Under various plans, SBC is authorized to issue to senior and
middle management employees up to 28.5 million options to
purchase shares of SBC's common stock. Options become
exercisable in periods of one year to three years after the date
of grant and expire ten years after the date of grant. All
options issued through December 31, 1994 have been issued with
exercise prices equal to the market price of the stock at the
date of grant.
Information related to outstanding options is summarized below:
Weighted
Number of Average Exercise
Options Price Per Option
Outstanding December 31, 1991 438,634 $27.00
Granted 5,192,742 32.73
Exercised (24,782) 27.00
Cancelled (23,648) 32.36
Outstanding December 31, 1992 5,582,946 $32.31
Granted 5,062,285 40.25
Exercised (368,053) 30.72
Cancelled (482,513) 35.89
Outstanding December 31, 1993 9,794,665 $36.30
Granted 5,226,551 41.71
Exercised (386,331) 31.34
Cancelled (498,315) 38.09
Outstanding December 31, 1994 14,136,570 $38.37
Options to purchase 5,352,273 shares of SBC stock were
exercisable at December 31, 1994.
9. Shareowners' Equity
Common Stock Split - In 1993, the Board of Directors of SBC
(Board) declared a two-for-one stock split effected in the form
of a stock dividend on shares of SBC's common stock to holders of
record on May 7, 1993. SBC issued 300,889,089 additional shares
of common stock in connection with the stock split and retained
the current par value of $1.00 per share for all outstanding
shares of common stock. An amount equal to the aggregate par
value of the additional shares of common stock issued was
transferred from capital in excess of par value to common shares.
Weighted average common share amounts for periods prior to May
25, 1993 have been restated to reflect the effects of the stock
split.
Share Repurchases - From time to time SBC repurchases shares of
common stock to distribute, or to offset shares distributed,
through its employee benefit plans and the Southwestern Bell
Corporation Dividend Reinvestment Plan, or in connection with
certain acquisitions. In addition, the Board has authorized the
repurchase of up to 30 million shares of SBC's outstanding common
stock. As of December 31, 1994, no shares had been repurchased
pursuant to this authorization.
Guaranteed Obligations of Employee Stock Ownership Plans - SBC's
guarantee of the ESOPs notes issued by the savings plans (see
Note 7) is presented as a reduction to shareowners' equity and an
increase in long-term debt. The amount of debt guaranteed
decreases as the notes are repaid.
Shareowners' Rights Plan - In 1989, SBC adopted the Shareowners'
Rights Plan (Plan). The Plan becomes operative in certain events
involving the acquisition of 20% or more of SBC's common stock by
any person or group in a transaction not approved by the Board,
or the designation by the Board of a person or group owning more
than 10% of the outstanding stock as an adverse person, as
provided in the Plan. Upon the occurrence of these events, each
right, unless redeemed by the Board, generally entitles the
holder (other than the holder triggering the right) to purchase
an amount of common stock of SBC (or, in certain circumstances,
of the potential acquiror) having a value equal to two times the
exercise price of $160. The rights expire in January 1999.
The rights have certain antitakeover effects. The rights will
cause substantial dilution to a person or group that attempts to
acquire SBC on terms not approved by the Board.
The rights should not interfere with any merger or other business
combination approved by the Board since the rights may be
redeemed.
10. Acquisitions
SBC completed several acquisitions of communications properties
during 1994. In January, SBC purchased two cable television
systems located in Montgomery County, Maryland, and Arlington
County, Virginia, for $650. In December, SBC acquired the
domestic cellular business of Associated Communications
Corporation (Associated) for $705, including cellular systems in
Buffalo, Rochester, Albany and Glens Falls, New York. In
addition, during the second quarter of 1994, SBC purchased
smaller cellular systems in Syracuse, Utica and Ithaca, New York,
which are adjacent to the Associated properties.
In October 1994, SBC formed a strategic alliance with Compagnie
Generale des Eaux (CGE), a French diversified public company. In
December 1994, SBC invested $615 through this alliance to acquire
an indirect 10% ownership of Societe Francaise du Radiotelephone
S.A. (SFR), a French national cellular company, and minority
ownership interests in other communications businesses controlled
by CGE. This investment is accounted for under the equity method
of accounting. As part of this alliance, CGE is expected to
invest $247 to attain a 10% interest in SBC's Washington-
Baltimore wireless operations. This investment is expected to
occur during the first half of 1995.
In April 1994, SBC terminated plans to form a $4.9 billion cable
television partnership with Cox in the United States.
In addition to payments shown in the Consolidated Statements of
Cash Flows, the above acquisitions were also financed through the
issuance of 16.1 million new and treasury shares, valued at
approximately $660, and the issuance of approximately $360 of
long-term debt. All of the acquisitions were accounted for under
the purchase method of accounting. The purchase prices in excess
of the underlying fair value of identifiable net assets acquired
will be amortized over periods not to exceed 40 years. Results
of operations of the properties acquired have been included in
the consolidated financial statements from their respective dates
of acquisition.
The above developments did not have a significant impact on
consolidated results of operations for 1994 and 1993, nor would
they had the acquisitions occurred on January 1 of the respective
periods.
11. Additional Financial Information
December 31,
Balance Sheets 1994 1993
Accounts payable and accrued
liabilities
Accounts payable $ 1,001.7 $ 893.1
Accrued taxes 566.7 554.5
Advance billing and customer 315.2 278.6
deposits
Compensated future absences 191.6 202.7
Accrued interest 129.7 130.9
Accrued payroll 119.0 117.7
Other 957.5 698.7
Total $ 3,281.4 $ 2,876.2
Statements of Income 1994 1993 1992
Interest expense
Long-term debt $ 401.2 $ 448.0 $ 476.7
Notes payable 57.2 36.8 50.1
Other 21.8 11.4 3.2
Total $ 480.2 $ 496.2 $ 530.0
Allowance for funds used during $ 19.3 $ 21.5 $ 30.7
construction
Statements of Cash Flows 1994 1993 1992
Cash paid during the year for:
Interest $ 481.4 $ 502.0 $ 538.4
Income taxes $ 927.9 $ 592.3 $ 605.9
Approximately 10% in 1994, and 12% in 1993 and 1992, of SBC's
consolidated revenues were from services provided to AT&T Corp.
No other customer accounted for more than 10% of consolidated
revenues.
<TABLE>
12. Quarterly Financial Information (Unaudited)
<CAPTION>
Stock Price
Total Earnings per
Calendar Operating Operating Net Income Common Share ------------------------
Quarter Revenues Income (Loss) High Low Close
1994
<S> <C> <C> <C> <C> <C> <C> <C>
First $ 2,646.2 $ 598.4 $ 357.7 $ 0.59 $ 42.000 $ 36.750 $ 40.375
Second 2,764.6 653.8 385.5 0.64 44.375 38.500 43.500
Third 3,000.1 770.4 480.8 0.80 44.250 40.250 42.500
Fourth 3,207.6 767.7 424.7 0.71 43.125 39.250 40.375
Annual $ 11,618.5 $ 2,790.3 $ 1,648.7 $ 2.74
1993
First $ 2,457.8 $ 520.7 $ (1,914.1)# $ (3.19)# $ 39.063 $ 34.188 $ 39.063
Second 2,539.3 574.9 294.4 # 0.49 # 40.750 37.000 38.750
Third 2,795.1 655.3 388.6 # 0.65 # 47.000 38.625 43.000
Fourth 2,898.1 628.7 385.9 0.64 45.250 39.625 41.500
Annual $ 10,690.3 $ 2,379.6 $ (845.2) $ (1.41)
<FN>
# Includes extraordinary losses of $89.4 or $.15 per share, $43.6 or
$.07 per share and $20.2 or $.03 per share for the first, second
and third quarters of 1993, respectively. The first quarter of
1993 also includes a charge of $2,127.2 or $3.55 per share for
cumulative effect of changes in accounting principles.
</TABLE>
Stock Data
Trading: SBC is listed on the New York, Chicago and Pacific stock
exchanges, as well as international exchanges in London, Zurich,
Geneva and Basel.
Ticker symbol (NYSE): SBC
The above information appears on the back cover of the printed
Annual Report.
APPENDIX
All page numbers referenced in this Exhibit and the Form 10-K relate
to the printed Annual Report. The order of the sections is as they
appear in the printed Annual Report. The colored graphs and related
footnotes that appear in the printed document are approximately
1-1/2 inches by 3-1/2 inches. Information on the number of
shareowners is contained in the "1994 Financial Highlights-Number of
Shareowners" line on page 1. The Stock Data section appears on the
back cover.
The section titled "Selected Financial and Operating Data" (shown on
pages 22 and 23), details 11 year financial information for the
Corporation. In the printed document, the information is spread
horizontally across two pages with just one set of headings on page
22. Due to constraints in the EDGAR system for page width, the EDGAR
version contains three sets of headings.
The section titled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appears on pages 24-32. The text
of this section appears in two columns.
A bar graph titled "Income Before Extraordinary Loss and Accounting
Changes (dollars in billions)" appears in the right column on page 24 and
to the right side of the subsection titled "Results of Operations -
Summary". The graph shows Income Before Extraordinary Loss and
Accounting Changes for the past five years. The actual figures are listed
on the graph. Listed below are the plot points:
1990 1.10
1991 1.16
1992 1.30
1993 1.44
1994 1.65
The following footnote appears at the base of the graph: SBC had
double-digit percentage earnings growth for the third consecutive year
in 1994.
A stacked bar graph titled "Local Service (dollars in billions)"
appears in the left column on page 25 and to the right of the
subsection titled "Local Service". The graph shows local service
revenues by categories for the past five years. Listed below are
the plot points:
Year Total Wireless Landline
1990 3.9 0.5 3.4
1991 4.2 0.7 3.5
1992 4.7 1.0 3.7
1993 5.2 1.3 3.9
1994 5.8 1.8 4.0
The following footnote appears at the base of the graph: Wireless
local service revenues have more than tripled in the last five years.
A stacked bar graph titled "Distribution of Revenues (dollars in
billions)" appears in the right column on page 26 and to the right
side of the subsection titled "Other". The graph shows various
categories of revenue distribution for the past five years.
The actual figures are listed on the graph. Listed below are the plot
points by category:
Year Total Local Network Long- Directory Other
service access distance advertising
1990 9.1 3.9 2.6 1.1 0.8 0.7
1991 9.3 4.2 2.4 1.0 0.9 0.8
1992 10.0 4.7 2.5 1.0 0.9 0.9
1993 10.7 5.2 2.7 1.0 0.9 0.9
1994 11.6 5.8 2.9 0.9 0.9 1.1
The following footnote appears at the base of the graph: Revenues
grew at a compound annual growth rate of 6.3% from 1990 to 1994.
A stacked bar graph titled "Distribution of Expenses (dollars in
billions)" appears in the right column on page 26 and to the right side
of the subsection titled "Selling, General and Administrataive". The graph
shows the categories of expenses for the past five years. The actual
figures are listed on the graph. Listed below are the plot points:
Year Total Cost of Selling, Depreciation
services general and and
and administrative amortization
products
1990 7.1 3.2 2.2 1.7
1991 7.2 3.1 2.3 1.8
1992 7.8 3.4 2.6 1.8
1993 8.3 3.4 2.9 2.0
1994 8.8 3.8 3.0 2.0
The following footnote appears at the base of the graph: Operating
expenses increased at a compound annual rate of 5.7% from 1990 to
1994.
In the section titled "Operating Environment and Trends of the
Business", on pages 27 and 28 icons (approximately one inch) of the
states of Texas, Missouri and Oklahoma appear to the right side of
the subsections of the respective state discussion.
A stacked bar graph titled "Access Lines (in millions)" appears in the left
column on page 29 and to the right side of the subsection titled
"Domestic". The graph shows access lines in total and by state for
the past five years. The actual figures are listed on the graph.
Listed below are the plot points:
Year Total Texas Missouri Oklahoma Kansas Arkansas
1990 12.0 6.9 2.0 1.3 1.1 0.7
1991 12.3 7.1 2.1 1.3 1.1 0.7
1992 12.7 7.3 2.1 1.4 1.1 0.8
1993 13.1 7.6 2.2 1.4 1.1 0.8
1994 13.6 7.9 2.2 1.4 1.2 0.9
The following footnote appears at the base of the graph: Nearly two-
thirds of access line growth since 1990 has occurred in Texas.
In the subsection titled "International", on page 30 an icon
(approximately one inch) of the country of Mexico appears to the right side.
A bar graph titled "Capital Expenditures (dollars in billions)"
appears in the right column on page 31 and to the left side of the
section titled "Liquidity and Capital Resources" and the subsection
titled "Capital Expenditures and Other Commitments". The graph shows
Capital Expenditures for the past five years. The actual figures are
listed on the graph. Listed below are the plot points:
1990 1.78
1991 1.83
1992 2.14
1993 2.22
1994 2.35
The following footnote appears at the base of the graph: Capital
expenditures primarily reflect growth and modernization of networks at
Mobile Systems and the Telephone Company.
A bar graph titled "Dividends per Share (dollars-adjusted for stock
splits)" appears in the left column on page 32 and to the right side
of the subsection titled "Dividends Declared". The graph shows
Dividends for the past five years. The actual figures are listed on
the graph. Listed below are the plot points:
1990 1.38
1991 1.42
1992 1.46
1993 1.51
1994 1.58
The following footnote appears at the base of the graph: Dividends
per share increased 4.6% in 1994.
EXHIBIT 21
SUBSIDIARIES OF SOUTHWESTERN BELL CORPORATION
AS OF JANUARY 1, 1995
State of Conducts
Name Incorporation Business
Under
Southwestern Bell Missouri Same
Telephone Company
Southwestern Bell Dually Same
Mobile Systems, Inc. incorporated in
Delaware and
Virginia
SBC International, Inc. Delaware Same
Southwestern Bell Missouri Same
Yellow Pages, Inc.
Southwestern Bell Delaware Same
Telecommunications,
Inc.
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Southwestern Bell Corporation of our report dated
February 10, 1995, included in the 1994 Annual Report to Shareowners
of Southwestern Bell Corporation.
Our audits also included the financial statement schedules of
Southwestern Bell Corporation listed in Item 14(a). These schedules
are the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audits. In our
opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8) pertaining to the Southwestern Bell Corporation
Savings Plan for Salaried Employees and Savings and Security Plan (Non-
Salaried Employees) (Nos. 33-38706 and 33-54309), the Stock Savings
Plan, Management Stock Savings Plan and Stock Based Savings Plan
(Nos. 33-37451 and 33-54291) and the Southwestern Bell Corporation
1992 Stock Option Plan (No. 33-49855), and in the Registration
Statements (Form S-3) pertaining to the Southwestern Bell Corporation
Dividend Reinvestment Plan (Nos. 2-99261 and 33-49893), and
Southwestern Bell Capital Corporation and Southwestern Bell
Corporation (Nos. 33-45490 and 33-56909), and in the related
Prospectuses of our report dated February 10, 1995, with respect to
the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with
respect to the financial statement schedules included in this Annual
Report (From 10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
San Antonio, Texas
March 10, 1995
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SOUTHWESTERN BELL CORPORATION, a Delaware
corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions
of the Securities Exchange Act of 1934, as amended, an annual report
on Form 10-K, and
WHEREAS, the undersigned is an officer and a director of the
Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
James D. Ellis, Donald E. Kiernan, Liam S. Coonan, Judith M. Sahm, or
any one of them, his attorney, for him and in his name, place and
stead, and in his office and capacity in the Corporation as an officer
and a director, to execute and file such annual report, and thereafter
to execute and file any amendment or amendments thereto, hereby giving
and granting to said attorneys full power and authority to do and
perform each and every act and thing whatsoever requisite or necessary
to be done in and concerning the premises, as fully to all intents and
purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may
or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of
Attorney the 27th day of January, 1995.
/s/ Edward E. Whitacre, Jr.
Edward E. Whitacre, Jr.
Director and Chairman of the Board
and Chief Executive Officer
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SOUTHWESTERN BELL CORPORATION, a Delaware
corporation, hereinafter referred to as the "Corporation," proposes
to file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K, and
WHEREAS, the undersigned is an officer of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints Edward E. Whitacre, Jr., James D. Ellis, Liam S. Coonan,
Judith M. Sahm, or any one of them, his attorney, for him and in
his name, place and stead, and in his office and capacity in the
Corporation as an officer, to execute and file such annual report,
and thereafter to execute and file any amendment or amendments
thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing
whatsoever requisite or necessary to be done in and concerning the
premises, as fully to all intents and purposes as he might or could
do if personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of
Attorney the 27th day of January, 1995.
/s/ D. E. Kiernan
D. E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SOUTHWESTERN BELL CORPORATION, a Delaware
corporation, hereinafter referred to as the "Corporation," proposes
to file with the Securities and Exchange Commission, under the
provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints Edward E. Whitacre, Jr., James D. Ellis, Donald E.
Kiernan, Liam S. Coonan, Judith M. Sahm, or any one of them, the
undersigned's attorney, for the undersigned and in the
undersigned's name, place and stead, and in the undersigned's
office and capacity in the Corporation as a director, to execute
and file such annual report, and thereafter to execute and file any
amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every
act and thing whatsoever requisite or necessary to be done in and
concerning the premises, as fully to all intents and purposes as
the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue
hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of
Attorney the 27th day of January, 1995.
/s/ Clarence C. /s/ James E. Barnes
Barksdale
Clarence C. Barksdale James E. Barnes
Director Director
/s/ Jack S. Blanton /s/ August A. Busch III
Jack S. Blanton August A. Busch III
Director Director
/s/ Ruben R. Cardenas /s/ Martin K. Eby, Jr.
Ruben R. Cardenas Martin K. Eby, Jr.
Director Director
/s/ Tom C. Frost /s/ Jess Hay
Tom C. Frost Jess Hay
Director Director
/s/ B. R. Inman /s/ Charles F. Knight
B. R. Inman Charles F. Knight
Director Director
/s/ Sybil C. Mobley /s/Haskell M. Monroe, Jr.
Sybil C. Mobley Haskell M. Monroe, Jr.
Director Director
/s/ Carlos Slim Helu /s/ Patricia P. Upton
Carlos Slim Helu Patricia P. Upton
Director Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SOUTHWESTERN BELL CORPORATION'S DECEMBER 31, 1994 CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 364,600
<SECURITIES> 0<F1>
<RECEIVABLES> 2,335,000
<ALLOWANCES> 130,400
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 3,493,300
<PP&E> 29,256,400
<DEPRECIATION> 11,939,800
<TOTAL-ASSETS> 26,005,300
<CURRENT-LIABILITIES> 5,190,800
<BONDS> 5,848,300
<COMMON> 620,500
0
0
<OTHER-SE> 7,735,100
<TOTAL-LIABILITY-AND-EQUITY> 26,005,300
<SALES> 0<F2>
<TOTAL-REVENUES> 11,618,500
<CGS> 0<F3>
<TOTAL-COSTS> 3,746,900
<OTHER-EXPENSES> 2,037,800
<LOSS-PROVISION> 153,300
<INTEREST-EXPENSE> 480,200
<INCOME-PRETAX> 2,433,800
<INCOME-TAX> 785,100
<INCOME-CONTINUING> 1,648,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,648,700
<EPS-PRIMARY> 2.74
<EPS-DILUTED> 0
<FN>
<F1> THIS AMOUNT IS IMMATERIAL.
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGULATION S-X, RULE 5-03(B). THIS AMOUNT IS
INCLUDED IN THE "TOTAL-REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN COST OF SERVICES AND PRODUCTS
IN THE FINANCIAL STATEMENTS AND THE "TOTAL-COST" TAG, PURSUANT TO
REGULATION S-X, RULE 5-03(B).
</FN>
</TABLE>
