FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 1995
or
_ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-8610
SBC COMMUNICATIONS INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
175 E. Houston, San Antonio, Texas 78205
Telephone Number: (210) 821-4105
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
At October 31, 1995, 609,860,483 common shares were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SBC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
Operating Revenues
Local service $ 1,667.5 $ 1,473.9 $ 4,832.4 $ 4,273.2
Network access 780.8 707.7 2,290.7 2,094.9
Long-distance service 210.3 242.4 629.3 695.7
Directory advertising 313.4 307.5 547.0 550.3
Other 270.0 268.6 809.0 796.8
Total operating revenues 3,242.0 3,000.1 9,108.4 8,410.9
Operating Expenses
Cost of services and products 963.7 959.0 2,713.0 2,665.5
Selling, general and administrative 846.4 764.4 2,410.4 2,220.0
Depreciation and amortization 541.1 506.3 1,612.6 1,502.8
Total operating expenses 2,351.2 2,229.7 6,736.0 6,388.3
Operating Income 890.8 770.4 2,372.4 2,022.6
Other Income (Expense)
Interest expense (130.5) (116.9) (390.5) (349.6)
Equity in net income of affiliates 51.7 73.1 99.3 210.5
Other expense - net (12.0) (6.3) (28.8) (38.0)
Total other income (expense) (90.8) (50.1) (320.0) (177.1)
Income Before Income Taxes and
Extraordinary Loss 800.0 720.3 2,052.4 1,845.5
Income Taxes
Federal 236.6 211.1 607.4 545.9
State and local 29.1 28.4 73.5 75.6
Total income taxes 265.7 239.5 680.9 621.5
Income Before Extraordinary Loss 534.3 480.8 1,371.5 1,224.0
Extraordinary Loss from
Discontinuance of Regulatory
Accounting, net of tax (2,819.3) - (2,819.3) -
Net Income (Loss) $ (2,285.0) $ 480.8 $ (1,447.8) $ 1,224.0
Earnings Per Common Share:
Income Before Extraordinary Loss $ 0.88 $ 0.80 $ 2.25 $ 2.03
Extraordinary Loss from
Discontinuance of Regulatory
Accounting, net of tax (4.63) - (4.63) -
Net Income (Loss) $ (3.75) $ 0.80 $ (2.38) $ 2.03
Weighted Average Number of Common
Shares Outstanding (in millions) 609.9 601.7 608.5 601.6
Dividends Declared Per Common Share $ 0.4125 $ 0.3950 $ 1.2375 $ 1.1850
See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
September 30, December 31,
1995 1994
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 454.6 $ 364.6
Accounts receivable - net of allowances
for uncollectibles of $126.6 and $130.4 2,214.1 2,204.6
Material and supplies 129.9 141.8
Prepaid expenses 172.5 162.0
Deferred charges 242.8 240.1
Deferred income taxes 109.7 180.7
Other 466.5 199.5
Total current assets 3,790.1 3,493.3
Property, Plant and Equipment - at cost 30,274.4 29,256.4
Less: Accumulated depreciation and amortization 17,486.5 11,939.8
Property, Plant and Equipment - Net 12,787.9 17,316.6
Intangible Assets - Net of Accumulated
Amortization of $518.7 and $427.6 2,668.3 2,648.9
Investments in Equity Affiliates 2,091.5 1,748.0
Other Assets 714.1 798.5
Total Assets $ 22,051.9 $ 26,005.3
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 1,837.1 $ 1,668.6
Accounts payable and accrued liabilities 3,194.6 3,281.4
Dividends payable 251.7 240.8
Total current liabilities 5,283.4 5,190.8
Long-Term Debt 5,660.3 5,848.3
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 658.1 2,319.7
Postemployment benefit obligation 2,636.2 2,707.2
Unamortized investment tax credits 294.5 369.8
Other noncurrent liabilities 1,378.1 1,213.9
Total deferred credits and other
noncurrent liabilities 4,966.9 6,610.6
Shareowners' Equity
Common shares issued ($1 par value) 620.5 620.5
Capital in excess of par value 6,292.2 6,286.1
Retained earnings 401.9 2,593.5
Guaranteed obligations of employee
stock ownership plans (284.9) (314.7)
Foreign currency translation adjustment (456.5) (366.5)
Treasury shares (at cost) (431.9) (463.3)
Total shareowners' equity 6,141.3 8,355.6
Total Liabilities and Shareowners' Equity $ 22,051.9 $ 26,005.3
See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
Nine months ended
September 30,
1995 1994
Operating Activities
Net income (loss) $(1,447.8) $ 1,224.0
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,612.6 1,502.8
Undistributed earnings from investments
in equity affiliates (58.9) (159.8)
Provision for uncollectible accounts 118.8 110.2
Amortization of investment tax credits (34.4) (45.7)
Pensions and other postemployment benefits 0.1 26.4
Deferred income tax expense 206.6 108.0
Extraordinary loss, net of tax 2,819.3 -
Other - net (286.8) (169.6)
Total adjustments 4,377.3 1,372.3
Net Cash Provided by Operating Activities 2,929.5 2,596.3
Investing Activities
Construction and capital expenditures (1,619.5) (1,674.0)
Investments in affiliates (16.0) -
Purchase of short-term investments (596.7) (305.3)
Proceeds from short-term investments 315.9 249.3
Acquisitions (515.6) (773.6)
Net Cash Used in Investing Activities (2,431.9) (2,503.6)
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 94.0 697.4
Issuance of other short-term borrowings 91.1 35.5
Repayment of other short-term borrowings (60.0) (12.5)
Issuance of long-term debt 438.9 193.8
Repayment of long-term debt (241.5) (411.4)
Issuance of common shares - 32.3
Purchase of treasury shares (129.0) (204.8)
Issuance of treasury shares 62.3 15.4
Dividends paid (663.4) (625.8)
Net Cash Used in Financing Activities (407.6) (280.1)
Net increase (decrease) in cash and cash equivalents 90.0 (187.4)
Cash and cash equivalents beginning of year 364.6 618.4
Cash and Cash Equivalents End of Period $ 454.6 $ 431.0
Cash paid during the nine months ended September 30 for:
Interest $ 383.1 $ 348.9
Income taxes $ 639.2 $ 650.6
See Notes to Consolidated Financial Statements.
<TABLE>
SBC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
Dollars in millions
(Unaudited)
<CAPTION>
Guaranteed
Obligations Foreign
Capital in of Employee Currency
Common Excess of Retained Stock Owner- Translation Treasury
Shares Par Value Earnings ship Plans Adjustment Shares
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 602.7 $ 5,577.0 $ 1,891.4 $ (352.9) $ (40.2) $ (109.6)
Net income - - 1,224.0 - - -
Dividends to shareowners - - (712.9) - - -
Reduction of debt associated
with Employee Stock Ownership
Plans - - - 34.9 - -
Foreign currency translation
adjustment - - - - (102.0) -
Issuance of common shares:
Dividend Reinvestment Plan 2.6 103.3 - - - -
Other issuances 0.8 29.8 - - - -
Purchase of treasury shares - - - - - (205.0)
Issuance of treasury shares - 4.1 - - - 93.8
Other - - 5.0 - - -
Balance, September 30, 1994 $ 606.1 $ 5,714.2 $ 2,407.5 $ (318.0) $ (142.2) $ (220.8)
Balance, December 31, 1994 $ 620.5 $ 6,286.1 $ 2,593.5 $ (314.7) $ (366.5) $ (463.3)
Net income (loss) - - (1,447.8) - - -
Dividends to shareowners - - (753.3) - - -
Reduction of debt associated
with Employee Stock Ownership
Plans - - - 29.8 - -
Foreign currency translation
adjustment - - - - (90.0) -
Purchase of treasury shares - - - - - (129.0)
Issuance of treasury shares:
Dividend Reinvestment Plan - 10.1 - - - 86.5
Other issuances - (4.0) - - - 73.9
Other - - 9.5 - - -
Balance, September 30, 1995 $ 620.5 $ 6,292.2 $ 401.9 $ (284.9) $ (456.5) $ (431.9)
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
* * *
SELECTED FINANCIAL AND OPERATING DATA
At September 30, or for the nine months then ended: 1995 1994
Return on weighted average shareowners' equity * . . . . . 22.00% 20.59%
Debt ratio . . . . . . . . . . . . . . . . . . . . . . . . 54.97% 47.58%
Network access lines in service (000) # . . . . . . . . . 14,074 13,507
Access minutes of use (000,000). . . . . . . . . . . . . . 39,854 35,859
Long-distance messages billed (000). . . . . . . . . . . . 751,405 773,075
Cellular customers (000) #. . . . . . . . . . . . . . . . 3,387 2,603
Number of employees . . . . . . . . . . . . . . . . . . . 58,720 59,350
* 1995 calculated using Income Before Extraordinary Loss.
# 1994 amounts have been revised to reflect the most current information
available.
SBC COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
1. PREPARATION OF INTERIM FINANCIAL STATEMENTS - The
consolidated financial statements have been prepared by SBC
Communications Inc. (SBC) pursuant to the rules and regulations
of the Securities and Exchange Commission (SEC) and, in the
opinion of management, include all adjustments (consisting only
of normal recurring accruals and discontinuance of regulatory
accounting discussed in Note 3) necessary to present fairly the
results for the interim periods shown. Certain information and
footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such SEC
rules and regulations. Management believes that the disclosures
made are adequate to make the information presented not
misleading. Certain reclassifications have been made to the 1994
consolidated financial statements to conform with the 1995
presentation. The results for the interim periods are not
necessarily indicative of results for the full year. The
consolidated financial statements contained herein should be read
in conjunction with the consolidated financial statements and
notes thereto included in SBC's 1994 Annual Report to
Shareowners.
2. CONSOLIDATION - The consolidated financial statements
include the accounts of SBC and its majority-owned subsidiaries.
Southwestern Bell Telephone Company (Telephone Company) is SBC's
largest subsidiary. All significant intercompany transactions
are eliminated in the consolidation process. Investments in
companies in which SBC owns 20% to 50% of the voting common stock
or otherwise exercises significant influence over operating and
financial policies of the company are accounted for under the
equity method. Earnings from foreign investments accounted for
under the equity method are included for periods ended within
three months of the date of SBC's Consolidated Statements of
Income.
3. EXTRAORDINARY LOSS - In September 1995, SBC announced that
the Telephone Company discontinued its application of Statement
of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (FAS 71). The rapid pace
of change within the telecommunications industry and the
evolution of the regulatory framework in which the Telephone
Company operates have resulted in price-based regulation for most
of the Telephone Company's revenues and accelerated competition
in the Telephone Company's markets. Under these conditions, the
Telephone Company can no longer be assured that rates charged to
and collected from customers will be adequate to recover the
costs of providing service, which includes the carrying value of
telephone plant depreciated over relatively long regulator-
prescribed lives. As a result, management determined that the
Telephone Company no longer met the criteria for application of
FAS 71.
Therefore, in September 1995, the Telephone Company recorded a
non-cash, extraordinary charge to net income of $2,819.3
(after a deferred tax benefit of $1,764.0). This is comprised
of an after-tax charge of $2,897.3 to reduce the net carrying
value of telephone plant, partially offset by an after-tax
benefit of $78.0 for the elimination of net regulatory
liabilities. The components of the charge are as follows:
Pretax After-
tax
-------- --------
Increase telephone plant accumulated $ 4,657.0 $ 2,897.3
depreciation
Adjust unamortized investment tax (40.9) (25.4)
credits
Eliminate tax-related regulatory (87.5) (87.5)
assets and liabilities
Eliminate other regulatory assets 54.7 34.9
Total $ 4,583.3 $ 2,819.3
The increase in accumulated depreciation of $4,657.0 reflects
the effects of adopting depreciable lives for many of the
Telephone Company's plant categories which more closely
reflect the economic and technological lives of the plant.
The adjustment was supported by a discounted cash flow
analysis which estimated amounts of telephone plant that may
not be recoverable from future discounted cash flows. This
analysis included consideration of the effects of anticipated
competition and technological changes on plant lives and
revenues. Following is a comparison of new lives to those
prescribed by regulators for selected plant categories:
Average Lives (in
Years)
--------------------
Regulator- Estimated
Telephone Plant Category Prescribed Economic
- -------------------------- --------- -------
Digital switch 17 11
Digital circuit 12 7
Copper cable 24 18
Fiber cable 27 20
Conduit 57 50
The increase in accumulated depreciation also includes an
adjustment of approximately $450 million to fully depreciate
analog switching equipment scheduled for replacement.
Remaining analog switching equipment will be depreciated using
an average remaining life of four years.
Investment tax credits (ITC) have historically been deferred
and amortized over the estimated lives of the related plant.
The adjustment to ITC reflects the shortening of those plant
lives discussed above. Regulatory assets and liabilities are
related primarily to accounting policies used by regulators in
the ratemaking process which are different than those used by
non-regulated companies, predominantly in the accounting for
income taxes and deferred compensated absences. These items
are required to be eliminated with the discontinuance of
accounting under FAS 71.
SBC COMMUNICATIONS INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Dollars in millions except per share amounts
RESULTS OF OPERATIONS
SBC Communications Inc. (SBC) reported income before
extraordinary loss of $534.3, or $.88 per share, for the third
quarter of 1995 and $1,371.5, or $2.25 per share, for the first
nine months of 1995. SBC recognized an extraordinary loss of
$2.8 billion from the discontinuance of regulatory accounting at
Southwestern Bell Telephone Company (Telephone Company). Net
losses for the third quarter and first nine months of 1995 were
$2.3 billion and $1.4 billion, respectively. Financial results
for the third quarters and first nine months of 1995 and 1994 are
summarized as follows:
-------- Third Quarter------- --------- Nine-Month Period----
Percent Percent
1995 1994 Change 1995 1994 Change
--------- ------- ----- -------- -------- ----
Operating $ 3,242.0 $ 3,000.1 8.1% $ 9,108.4 $ 8,410.9 8.3%
revenues
Operating $ 2,351.2 $ 2,229.7 5.4% $ 6,736.0 $ 6,388.3 5.4%
expenses
Income
before $ 534.3 $ 480.8 11.1% $ 1,371.5 $ 1,224.0 12.1%
extraordinary
loss
Extraordinary $ (2,819.3) - - $ (2,819.3) - -
loss
Net income $ (2,285.0) $ 480.8 - $ (1,447.8) $ 1,224.0 -
(loss)
The primary factors contributing to the increase in income before
extraordinary loss during the third quarter and first nine months
of 1995 were growth in demand for services and products at the
Telephone Company and Southwestern Bell Mobile Systems (Mobile
Systems). Results for the first nine months of 1995 also reflect
the effects of the decline in value of the Mexican peso on SBC's
earnings from its equity affiliate, Telefonos de Mexico, S.A. de
C.V. (Telmex).
SBC's operating revenues in the third quarter and first nine
months of 1995 increased $241.9, or 8.1%, and $697.5, or 8.3%,
over the third quarter and first nine months of 1994,
respectively. Components of operating revenues for the third
quarters and first nine months of 1995 and 1994 are as follows:
-------- Third Quarter--------- --------- Nine-Month Period---
Percent Percent
1995 1994 Change 1995 1994 Change
--------- -------- ------ --------- ------- ------
Local service
Landline $ 1,085.1 $ 1,020.0 6.4% $ 3,192.8 $ 3,012.3 6.0%
Wireless 582.4 453.9 28.3 1,639.6 1,260.9 30.0
Network
access
Interstate 517.7 475.4 8.9 1,525.9 1,391.2 9.7
Intrastate 263.1 232.3 13.3 764.8 703.7 8.7
Long-distance 210.3 242.4 (13.2) 629.3 695.7 (9.5)
service
Directory 313.4 307.5 1.9 547.0 550.3 (0.6)
advertising
Other 270.0 268.6 0.5 809.0 796.8 1.5
Total $ 3,242.0 $ 3,000.1 8.1% $ 9,108.4 $ 8,410.9 8.3%
Landline local service revenues increased in the third
quarter and first nine months of 1995 due primarily to
increases in demand, including 4.2% growth in the number of
access lines since September 30, 1994 and increased demand
for enhanced services, including Caller ID.
Wireless local service revenues increased in the third
quarter and first nine months of 1995 due primarily to a
30.1% increase in cellular customers since September 30,
1994 (24.2% increase excluding acquisitions), offset
partially by a slight decline in average revenue per
customer.
Interstate network access revenues increased in the third
quarter and first nine months of 1995 due primarily to an
increase in demand for access services and growth in end
user charges attributable to an increasing access line base,
partially offset by reduced rates under the Federal
Communications Commission's (FCC) revised price cap plan
which became effective August 1, 1995. Results for the
first nine months of 1994 also reflect a retroactive billing
adjustment that decreased interstate revenues while
increasing intrastate revenues.
Intrastate network access revenues increased in the third
quarter and first nine months of 1995 due primarily to
increases in demand, including usage by alternative
intraLATA toll carriers. Revenues for the first nine months
of 1994 also include the billing adjustment noted above.
Long-distance service revenues decreased in the third quarter
and first nine months of 1995 due to competition-related
decreases in residential message volumes. Competition from
interexchange carriers has continued to increase through
advertising and usage of "10xxx" and "1-800" access numbers.
The decrease in long-distance service revenues is partially
offset by higher access revenues, as noted above.
Other operating revenues were flat in the third quarter of
1995 as the increased demand for the Telephone Company's non-
regulated services and products, including Caller ID
equipment, was offset by the decrease in equipment sales
revenues at Mobile Systems. For the first nine months of
1995, the demand increases exceeded the decline in equipment
sales.
SBC's operating expenses in the third quarter and first nine
months of 1995 increased $121.5, or 5.4%, and $347.7, or 5.4%,
over the third quarter and first nine months of 1994,
respectively. Components of operating expenses for the third
quarters and first nine months of 1995 and 1994 are as follows:
-------- Third Quarter------ -------- Nine-Month Period----
1995 1994 Percent 1995 1994 Percent
Change Change
------ ------ ----- -------- ------- ------
Cost of
services $ 963.7 $ 959.0 0.5% $ 2,713.0 $ 2,665.5 1.8%
and products
Selling,
general and 846.4 764.4 10.7 2,410.4 2,220.0 8.6
administrative
Depreciation
and 541.1 506.3 6.9 1,612.6 1,502.8 7.3
amortization
Total $ 2,351.2 $ 2,229.7 5.4% $ 6,736.0 $ 6,388.3 5.4%
Cost of services and products increased for the third
quarter and first nine months of 1995 due to demand related
increases for enhanced services at the Telephone Company and
annual compensation increases. These increases were
partially offset by the absence of expenses associated with
United Kingdom cable television operations, which were
changed to the equity method of accounting in the fourth
quarter of 1994, decreased equipment costs at Mobile Systems
and a decrease in switching system software license fees at
the Telephone Company.
Selling, general and administrative expenses increased in
the third quarter and first nine months of 1995 due to
growth in cellular operations, higher benefit expenses,
increased advertising and increased contracted services.
Depreciation and amortization increased in the third quarter
and first nine months of 1995 due primarily to a growth in
plant level and changes in plant composition, primarily at
Mobile Systems and the Telephone Company, and, to a lesser
extent, the effect of depreciation represcription.
Interest expense increased $13.6, or 11.6%, and $40.9, or 11.7%,
in the third quarter and first nine months of 1995, respectively,
due primarily to an increase in the average amount of debt
outstanding resulting from debt issued to finance growth and
acquisitions at Mobile Systems. Interest expense for the first
nine months of 1995 also reflects debt issued for acquisitions in
France and Chile.
Equity in net income of affiliates decreased $21.4, or 29.3%, and
$111.2, or 52.8%, in the third quarter and first nine months of
1995, respectively. The third quarter decrease is primarily due
to the inclusion in 1995 of losses on United Kingdom cable
television operations, which were changed to the equity method of
accounting in the fourth quarter of 1994 due to decreased
ownership percentage, and the investment in France made in late
1994. These investments also affected the nine-month results.
United Kingdom cable television operations are further discussed
in "Other Business Matters".
SBC's third quarter earnings from its investment in Telmex were
flat compared to the third quarter of 1994. The effects of the
decline in the value of the Mexican peso since the third quarter
of 1994 were largely offset by operational growth at Telmex,
indicated by increases in access lines, cellular customers and
long-distance usage.
Results for the first nine months of 1995 also reflect the
effects of the first quarter 1995 decline in the value of the
peso on SBC's earnings from its investment in Telmex.
Substantially all of the decline occurred in the first quarter,
when earnings decreased equally from exchange losses on Telmex's
non-peso denominated debt and reductions in the translated amount
of U.S. dollar earnings from Telmex's operations. Since that
time, there have been no exchange losses on non-peso denominated
debt due to the relative stabilization of the peso through the
end of the third quarter, and operational growth has offset
translation losses. SBC's future earnings from Telmex are
sensitive to changes in the value of the peso.
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.
Extraordinary Loss - As described in Note 3 to the consolidated
financial statements, SBC recorded an extraordinary loss of $2.8
billion from discontinuance of regulatory accounting and
reduction in plant asset lives by the Telephone Company in the
third quarter. Management does not expect a significant increase
in depreciation expense in the near future to result from the
discontinuance of regulatory accounting.
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
REGULATORY DEVELOPMENTS
Oklahoma
On October 30, 1995, the Oklahoma Corporation Commission (OCC)
approved a settlement that resolves pending court appeals of a
1992 rate order. The settlement ends a dispute which began in
1989, when the OCC ordered an investigation into the
reasonableness of the Telephone Company's intrastate rates. An
order was issued in August 1992, requiring the Telephone Company
to refund $148.4, representing revenues in excess of an 11.41%
return on equity for the period April 1991 through the date of
the final order. The order also called for prospective annual
rate reductions of $100.6 effective September 1992, required an
investment of $84 in network modernization over five years, and
lowered the allowed return on equity from 14.25% to 12.20%.
Under the terms of the settlement agreement, the Telephone
Company will pay a cash settlement of $170 to business and
residential customers, and offer discounts with a retail value of
$268 for certain Telephone Company services. Previously ordered
rate reductions of $100.6 have been lowered to $84.4, of which
$57.1 have already been implemented. The settlement allows the
remaining $27.3 in rate reductions to be deferred with
approximately $8.9 becoming effective in 1996, and the remainder
during 1997. The Telephone Company will continue a previously
announced $84 network modernization plan for rural Oklahoma. The
settlement agreement also provides that no overearnings complaint
can be filed against the Telephone Company until January 1, 1998.
In addition, the OCC will begin exploring alternative forms of
regulation within ten days of the settlement. The order
approving the settlement becomes effective on November 30, 1995.
Management anticipates that this settlement will not have a
significant impact on earnings. The Telephone Company began
accruing for the order in 1992 and the settlement and associated
costs had been fully accrued as of the end of the third quarter
of 1995.
Missouri
On September 7, 1995, in response to a legal challenge brought by
interexchange carriers and the Missouri Cable TV Association, the
Cole County Circuit Court (Circuit Court) reversed the August
1994 settlement agreement reached among the Telephone Company,
the Missouri Public Service Commission (MPSC) and the Office of
Public Counsel (OPC).
The settlement agreement had ended a legal dispute with the MPSC
over a December 1993 order. Under the agreement, which had
extended through December 31, 1998, the Telephone Company
implemented annual rate reductions of $69.6, issued one-time
credits to customers totaling $64, and committed to an
average annual capital investment of $275 during the term of the
agreement. Also, it was agreed that the Telephone Company would
not file a general rate case, not increase basic local exchange
service rates and there would be no sharing of earnings. The
MPSC and OPC agreed not to initiate any complaints regarding the
Telephone Company's earnings prior to January 1, 1999.
The Circuit Court's decision applies primarily to the rate review
moratorium and capital investment agreements. The decision has
no immediate impact on the Telephone Company's current rates
because they were approved by the MPSC in separate proceedings
and were not appealed.
The MPSC and the Telephone Company appealed the Circuit Court's
decision on October 12 and 13, 1995, respectively.
OTHER BUSINESS MATTERS
United Kingdom Cable Television Operations
In October 1995, SBC combined its United Kingdom cable television
operations with those of Tele-West Communications, P.L.C., a
publicly held joint venture between Telecommunications, Inc. and
U S West. The resulting entity, Tele-West P.L.C., is the largest
cable television operator in the United Kingdom. SBC owns
approximately 15% of the new entity and will account for its
investment using the cost method of accounting. During the
fourth quarter of 1995, SBC will record an after-tax gain on the
transaction of approximately $110.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1995, as in 1994, SBC's primary
source of funds continued to be cash provided by operating
activities. Other sources of cash used for acquisitions and
affiliate investments in early 1995 included proceeds from the
issuance of short-term debt and sales of short-term investments.
SBC had $454.6 of cash and cash equivalents available at
September 30, 1995. SBC has entered into agreements with several
banks for lines of credit totaling $1,170.0 all of which may be
used to support commercial paper borrowings. These lines had not
been utilized as of September 30, 1995. Commercial paper
borrowings as of September 30, 1995 totaled $1,473.7.
SBC COMMUNICATIONS INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 12 Computation of Ratios of Earnings to Fixed
Charges.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
On September 29, 1995, SBC Communications Inc. (SBC) filed a
Current Report on Form 8-K, reporting on Item 5, Other
Events. SBC announced its Southwestern Bell Telephone
Company subsidiary was discontinuing the use of Statement of
Financial Accounting Standards No. 71.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SBC Communications Inc.
November 7, 1995 /s/ Donald E. Kiernan
Donald E. Kiernan
Senior Vice President,Treasurer
and Chief Financial Officer
Exhibit 12
<TABLE>
SBC COMMUNICATIONS INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Income Before Income Taxes,
Extraordinary Loss and Cumulative
Effect of Changes in
Accounting Principles* $ 1,993.5 $1,685.7 $2,300.0 $1,882.9 $1,701.2 $1,557.0 $1,541.4
Add: Interest Expense 390.5 349.6 480.2 496.2 530.0 577.7 529.7
1/3 Rental Expense 22.6 30.4 41.8 41.0 45.1 37.5 43.4
Adjusted Earnings $ 2,406.6 $2,065.7 $2,822.0 $2,420.1 $2,276.3 $2,172.2 $2,114.5
Total Interest Charges $ 390.5 $ 349.6 $ 480.2 $ 496.2 $ 530.0 $ 577.7 $ 529.7
1/3 Rental Expense 22.6 30.4 41.8 41.0 45.1 37.5 43.4
Adjusted Fixed Charges $ 413.1 $ 380.0 $ 522.0 $ 537.2 $ 575.1 $ 615.2 $ 573.1
Ratio of Earnings to Fixed Charges 5.83 5.44 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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SBC COMMUNICATIONS INC. SEPTEMBER 30, 1995 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 454,600
<SECURITIES> 0<F1>
<RECEIVABLES> 2,340,700
<ALLOWANCES> 126,600
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 3,790,100
<PP&E> 30,274,400
<DEPRECIATION> 17,486,500
<TOTAL-ASSETS> 22,051,900
<CURRENT-LIABILITIES> 5,283,400
<BONDS> 5,660,300
<COMMON> 620,500
0
0
<OTHER-SE> 5,520,800
<TOTAL-LIABILITY-AND-EQUITY> 22,051,900
<SALES> 0<F2>
<TOTAL-REVENUES> 9,108,400
<CGS> 0<F3>
<TOTAL-COSTS> 2,713,000
<OTHER-EXPENSES> 1,612,600
<LOSS-PROVISION> 118,800
<INTEREST-EXPENSE> 390,500
<INCOME-PRETAX> 2,052,400
<INCOME-TAX> 680,900
<INCOME-CONTINUING> 1,371,500
<DISCONTINUED> 0
<EXTRAORDINARY> (2,819,300)
<CHANGES> 0
<NET-INCOME> (1,447,800)
<EPS-PRIMARY> (2.38)
<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>
