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, 1995
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
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 78205-2233
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
$75 Million 8.48% Medium-Term Notes New York Stock Exchange
Series D, Due December 8, 1999, of
Southwestern Bell Capital Corporation
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 29, 1996, the
aggregate market value of all voting stock held by non-affiliates
was $33,393,200,000.
As of February 29, 1996, 609,127,657 shares of Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of SBC Communications Inc.'s Annual Report to
Shareowners for the fiscal year ended December 31, 1995
(Parts I and II).
(2) Portions of SBC Communications Inc.'s Notice of 1996
Annual Meeting and Proxy Statement dated March 12, 1996 (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
SBC Communications Inc. (SBC) is a holding company whose
subsidiaries and affiliates operate predominantly in the
communications services industry. SBC's subsidiaries and
affiliates provide landline and wireless telecommunications
services and equipment, directory advertising, publishing and
cable television services. Southwestern Bell Telephone Company
(Telephone Company) is SBC's largest subsidiary, providing
telecommunications services in Texas, Missouri, Oklahoma, Kansas
and Arkansas (five-state area). SBC has its principal executive
offices at 175 E. Houston, San Antonio, Texas 78205-2233
(telephone number 210-821-4105).
At the 1995 Annual Meeting of Shareowners, a change in the
corporate name from Southwestern Bell Corporation to SBC
Communications Inc. was approved by shareowners. This change was
made in order to better reflect SBC's position as a diversified
global communications company.
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).
FEDERAL LEGISLATION AND THE MFJ
On February 8, 1996, the Telecommunications Act of 1996 (the Act)
was enacted into law. The Act is intended to address various
aspects of competition within, and regulation of, the
telecommunications industry. The Act provides that all post-
enactment conduct or activities which were subject to the MFJ are
now subject to the provisions of the Act. Among other things,
the Act also defines conditions SBC must comply with before being
permitted to offer interLATA long-distance service and
establishes certain terms and conditions intended to promote
competition for the Telephone Company's local exchange services.
Additional information relating to the Act is contained in SBC's
Annual Report to Shareowners for 1995 under the heading
"Competition" on page 27, and is incorporated herein by reference
pursuant to General Instruction G(2).
The MFJ, as originally approved by the District Court in 1982,
had placed restrictions, known as the "line of business"
restrictions, on the types of businesses in which SBC could
engage. SBC could obtain relief from these restrictions upon a
showing that there was no substantial possibility that it could
use its monopoly power to impede competition in the specific
market it sought to enter (the Waiver Standard).
As a result of waiver proceedings before the District Court since
divestiture, the MFJ's initial line of business restrictions
against engaging in nontelecommunications businesses, providing
intraLATA information services, and providing telecommunications
products had all been removed. SBC was also 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. However, SBC was prohibited from
providing interexchange telecommunications services and
manufacturing telecommunications products and customer premises
equipment (CPE).
Interexchange telecommunications refers to telecommunications
between Local Access and Transport Areas (LATAs) which were
created during the divestiture process, and are generally
centered on a standard metropolitan statistical area or other
identifiable community of interest. The District Court
interpreted manufacturing to include design and development
activities, as well as actual equipment fabrication.
Through 1995, SBC had submitted various requests to the District
Court, seeking to remove or modify the remaining restrictions.
The passage of the Act potentially supersedes many of these and
other court actions filed by SBC or to which SBC was a party.
Among these actions are a petition requesting the MFJ be vacated,
a court order establishing conditions under which SBC could offer
interLATA long-distance over its wireless network and a suit
challenging the Federal Communications Commission's (FCC)
intention to require telephone companies to file applications
with the FCC before they acquire or operate cable television
systems in their telephone service areas.
BUSINESS OPERATIONS
In July 1995, SBC announced a strategic realignment which will
position the company to be a single-source provider of
telecommunications services. All of SBC's operations within the
five-state area will report to one management group, while
international operations and domestic operations outside the five-
state area will report to a separate management group. Services
and products are provided through several subsidiaries, which
include: the 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 wireless
equipment, and cable television services. Wireless
telecommunications services are provided by Mobile Systems.
Landline telecommunications services are provided in the five-
state area by the Telephone Company. During 1996, the operations
of Telecom will be merged into the operations of the Telephone
Company.
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). With
the passage of the Act, Mobile Systems began offering interLATA
and intraLATA long-distance services on February 9, 1996.
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
1995 1994 1993
Local service:
Landline 34% 34% 36%
Wireless 18% 15% 12%
Network access 24% 24% 25%
Telecommunications
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. Until the passage of the Act, SBC's long-
distance services involved 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 had obtained MFJ waivers.
In addition to these services, during 1996 SBC will
provide both interLATA and intraLATA long-distance
services over its wireless networks, as
well as interLATA long-distance services in selected areas
outside the five-state area. Long-distance services also include
other services such 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 other 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 71% of SBC's operating revenues in 1995. The
Telephone Company provides its services over approximately
9.5 million residential and 4.5 million business access lines in
the five-state area. During 1995, nearly two-thirds of the
Telephone Company's access line growth occurred in Texas.
During 1995, 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.
The 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 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 ruled 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.
Southwestern Bell Messaging Services, Inc., another SBC
subsidiary, provides voice messaging services under the
registered trademark CallNotes to residential and small business
customers. Telecom provides voice messaging services to medium
and large business customers.
At the end of 1995, Mobile Systems provided wireless services to
3,659,000 customers, or 9 out of every 100 residents living in
its service areas. These services are provided in
35 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
28 rural service areas and is currently providing service in all
of these markets. Each rural service area is 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 areas outside the five-state area under the
name of Cellular One by means of licenses from Cellular One
Group, a partnership among affiliates of Mobile Systems, AT&T
Wireless Services and Vanguard Cellular Systems, Inc. These
areas include metropolitan service areas, such as
Washington, D.C.; Chicago, Illinois; and Boston, Massachusetts;
and rural 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 Texas. This
alliance has enabled both Mobile Systems and GTE to begin
offering wireless service in each other's Texas wireless markets,
using the host company's wireless system. As a result, Mobile
Systems now provides wireless service in Houston, Austin and
Beaumont and has the right, under this alliance, to market
wireless service in a number of additional markets including El
Paso and Galveston.
Mobile Systems began providing 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,
D.C.-Baltimore in March 1994. Mobile Systems is evaluating other
areas for digital service.
Mobile Systems markets wireless communications equipment in each
of its service areas to customers entering into wireless service
contracts.
In December 1994, SBC acquired the domestic wireless business of
Associated Communications Corporation, including wireless systems
in Buffalo, Rochester, Albany and Glens Falls, New York, which
are adjacent to other SBC wireless systems in Syracuse, Utica and
Ithaca, New York.
In March 1995, SBC acquired United States Cellular Corporation's
wireless system that operates in the Watertown, New York area.
In December 1995, SBC obtained a controlling interest in a
wireless property serving the Laredo, Texas, area, as a part of a
joint venture with PriCellular Corporation. SBC contributed two
wireless properties serving Central Illinois, known as RSAs 4 and
6, to the joint venture. Combined with SBC's other markets, this
joint venture permits SBC to now serve the entire South Texas
region.
In 1993, the FCC adopted an order allocating radio spectrum and
outlining the development of licenses for new personal
communications services (PCS). PCS utilizes wireless
telecommunications digital technology at a higher frequency radio
spectrum than cellular. Like cellular, it is designed to permit
access to a variety of communications services regardless of
subscriber location. In a FCC auction, which concluded in March
1995, PCS licenses were awarded in 51 major markets. SBC
acquired PCS licenses in the major trading areas of Memphis,
Tennessee; Little Rock, Arkansas; and Tulsa, Oklahoma. SBC is
currently evaluating strategies to build out PCS in these areas.
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 1995,
Telmex had 8.8 million access lines in service and provided
cellular service to more than 399,000 subscribers. In June 1995,
Telmex acquired a 49% stake of Grupo Televisa's cable television
subsidiary, Cablevision.
In October 1994, SBC International formed a strategic alliance
with Compagnie Generale des Eaux (CGE), a French diversified
public company. Through this alliance, SBC International
acquired an indirect 10% ownership of Societe Francaise du
Radiotelephone S.A. (SFR), a nationwide cellular company in
France, and minority ownership interests in other communications
businesses controlled by CGE, and CGE obtained an effective
10% interest in SBC's wireless operations in
Washington, D.C.-Baltimore and surrounding rural markets. SBC
and CGE both made contributions to the alliance. SBC's effective
contribution was $375.9 million. At the end of 1995, SFR
provided cellular service to approximately 443,000 subscribers.
In February 1995, SBC International purchased 40% of VTR S.A.
(VTR), a privately owned telecommunications holding company in
Chile. VTR is 51% owned by Grupo Luksic, a large Chilean
conglomerate. Through its subsidiaries, VTR provides local,
long-distance, wireless and cable television services in Chile.
At the end of 1995, local services were provided over
approximately 74,000 access lines, wireless services were
provided to more than 30,000 subscribers and cable television
services were provided to more than 178,000 subscribers.
In October 1995, SBC International combined its United Kingdom
cable television operations, which included Midlands Cable
Communications and Northwest Cable Communications, with those of
TeleWest Communications, P.L.C., a publicly held joint venture
between Telecommunications, Inc. and U S WEST, Inc. The
resulting entity, TeleWest P.L.C., is the largest cable
television operator in the United Kingdom and also provides local
exchange services. SBC International owns approximately 15% of
the new entity.
SBC International also holds a minority interest in Golden
Channels, a cable television provider in Israel. Golden Channels
holds franchises in areas containing 404,000 potential
households. At the end of 1995, Golden Channels served
approximately 249,000 households, a penetration rate of
approximately 62%.
In Israel and Australia, SBC International has interests in
companies involved in the publication of yellow pages directories
and marketing directory software.
SBC International also has wireless interests in South Korea and
South Africa.
Directory Advertising and Publishing
Yellow Pages publishes more than 43 million copies of
approximately 350 directories within the 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. Since 1995, SBC's yellow and white pages
directories have been printed by R.R. Donnelley & Sons.
During 1995, SBC agreed to sell its publishing contracts for GTE
Corporation's service areas to GTE Directories. Directories
covered by these contracts were previously published by
Associated Directory Services, a subsidiary of SBC.
Customer Premises Equipment and Other Equipment Sales
During 1996, the operations of Telecom will be merged with the
operations of the Telephone Company. Telecom markets business
and residential communications 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. Telecom, through an exclusive, long-term
distribution agreement with Conair Corporation, also markets a
full line of residential telephones to retailers nationwide,
under the Southwestern Bell Freedom Phone name.
Domestic Video Services
Media Ventures owns two cable television systems serving the
suburban Washington, D.C. area. Cable TV Montgomery serves
Montgomery County, Maryland, and Cable TV Arlington serves
Arlington County, Virginia. At the end of 1995, these systems
passed 420,000 homes and served 258,000 customers. In September
1995, Media Ventures and affiliates of Prime Cable (Prime) formed
a partnership called SBC Media Ventures, L.P. (the Partnership)
to own and operate Cable TV Montgomery and Cable TV Arlington.
Media Ventures will be general partner and retain an approximate
95% ownership interest in the Partnership. Prime will contribute
$20 million to the Partnership and will manage the cable systems.
Regulatory approval of the transaction is pending.
In December 1995, SBC began offering video services to 1,800
customers in a consumer trial in Richardson, Texas. The advanced
broadband network in Richardson is capable of delivering a
variety of video and communications services. SBC has a
franchise to eventually provide 31,000 homes with access to both
video and telephone services over the network.
During 1995, SBC became an equal partner in a venture, with
Ameritech Corporation, BellSouth Corporation, GTE, and The Walt
Disney Company, to design, market and deliver video programming
and interactive services.
GOVERNMENT REGULATION
In the five-state area, the Telephone Company is subject to
regulation by state commissions which have the power to regulate,
in varying degrees, 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 other carriers. There are currently no access
charges for access to the Internet.
Additional information relating to federal and state regulation
of the Telephone Company is contained in SBC's Annual Report to
Shareowners for 1995 under the heading "Regulatory Environment"
on page 24, and is incorporated herein by reference pursuant to
General Instruction G(2).
SBC's 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.
Renewal licenses were received for Chicago, Illinois; San
Antonio, Texas; Boston, Massachusetts; Oklahoma City, Oklahoma;
and Wichita, Kansas in May 1995. Renewal applications were filed
in the following markets during September 1995: Gary, Indiana;
Worcester, Massachusetts; Buffalo, New York; Syracuse, New York;
Rochester, New York; and Corpus Christi, Texas. Renewal licenses
are expected to be awarded during 1996. Renewal applications
will be filed in the following markets during September 1996:
Lawrence, Kansas; Topeka, Kansas; St. Joseph, Missouri; Amarillo,
Texas; Lubbock, Texas; Sherman-Denison, Texas; Albany, New York;
and Utica-Rome, New York.
Under the auction process of the FCC order outlining the
development of PCS, licenses with durations of ten years were
awarded in 51 major markets. The licenses acquired by SBC in
Memphis, Tennessee; Little Rock, Arkansas; and Tulsa, Oklahoma
each expire in June 2005 and are renewable upon application and a
showing of compliance with FCC use and conduct standards.
Cable television systems generally are operated under
nonexclusive permits or "franchises" granted by local
governmental authorities. SBC operates its Washington, D.C. area
cable systems under franchises granted by Montgomery County,
Maryland, which expires in May 1998; Arlington County, Virginia,
which expires in October 2000; and the City of Gaithersburg,
Maryland, which expires in November 2001. During 1995, SBC
received a franchise to operate a cable system in Richardson,
Texas, which expires in September 2013. Each franchise is
renewable upon a showing of compliance with established local and
federal standards.
MAJOR CUSTOMER
No customer accounted for more than 10% of SBC's consolidated
revenues in 1995. Approximately 10% in 1994 and 11% in 1993 of
SBC's consolidated revenues were from services provided to AT&T.
No other customer accounted for more than 10% of consolidated
revenues in 1994 and 1993.
COMPETITION
Telecommunications
Information relating to competition in the telecommunications
industry is contained in SBC's Annual Report to Shareowners for
1995 under the heading "Competition" on page 27, and is
incorporated herein by reference pursuant to General Instruction
G(2).
International
Information relating to international competition is contained in
SBC's Annual Report to Shareowners for 1995 under the heading
"Competition" on page 27, and is incorporated herein by reference
pursuant to General Instruction G(2).
Directory Advertising and Publishing
Yellow Pages faces competition from numerous directory publishing
companies as well as other advertising media. There are over 50
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 marketing its telecommunications products.
RESEARCH AND DEVELOPMENT
The majority of company-sponsored basic and applied research is
conducted at Bell Communications Research, Inc. (Bellcore). The
Telephone Company owns a one-seventh interest in Bellcore along
with the other six RHCs. In April 1995, SBC and the other RHCs
announced their intention to pursue the disposition of their
interests in Bellcore. A disposition would be subject to
obtaining satisfactory financial and other terms and all
necessary approvals. If a disposition were to occur, the RHCs
would retain the portion of Bellcore that coordinates the Federal
government's telecommunications requirements for 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 evaluation services to SBC and
its subsidiaries.
EMPLOYEES
As of December 31, 1995, SBC and its subsidiaries employed 59,300
persons. Approximately 66% of the employees are represented by
the Communications Workers of America (CWA). A three-year
contract was negotiated between the CWA and the Telephone
Company, which became effective in August 1995. A three-year
contract was negotiated between the CWA and Yellow Pages, which
became effective in December 1995. A three-year contract was
negotiated between the CWA and Telecom, which became effective in
February 1994. 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, 1995, 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
Seven class action lawsuits are now pending against the Telephone
Company in state and federal courts in Texas, Missouri, Oklahoma
and Kansas involving the provision by the Telephone Company of
maintenance and trouble diagnosis services covering standard
telephone inside wire located on the customer's premises. The
actions allege that the Telephone Company's sales practices in
connection with these services violated antitrust, fraud and/or
deceptive trade practices statutes and seek unspecified damages
together with punitive damages and attorney's fees. The
Telephone Company believes it has several meritorious defenses to
these claims and is vigorously contesting the allegations.
Although the outcomes of these cases are uncertain, management
believes that this litigation will not have a material adverse
impact on SBC's results of operations.
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. 54 Chairman and Chief Executive 1-90
Whitacre Jr. Officer
Royce S. 57 President - Southwestern Bell 7-95
Caldwell Operations
Cassandra C. 51 Senior Vice President - Human 5-94
Carr Resources
William E. 58 Senior Executive Vice President - 7-93
Dreyer External Affairs
James D. Ellis 52 Senior Executive Vice President 3-89
and General Counsel
Charles E. 59 President - SBC Operations 7-95
Foster
James S. Kahan 48 Senior Vice President - Corporate 7-93
Development
Donald E. 55 Senior Vice President, Treasurer 7-93
Kiernan and Chief Financial Officer
John T. Stupka 46 Senior Vice President - Strategic 7-95
Planning
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 Mr. Kahan who has held a high-
level managerial position since January 1992. Prior to his
appointment as an executive officer, 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 number of shareowners of record as of December 31, 1995 and
1994 were 840,378 and 928,670, respectively. Other information
required by Items 5 through 8 is included on page 18 through page
45 and in the "Stock Trading Information" section on the back
cover of the registrant's annual report to shareowners for the
fiscal year ended December 31, 1995. 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 12, 1996,
from page 4 through page 7 and beginning with the "Compensation
Committee Interlocks and Insider Participation" section on
page 12 through page 19 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, 1995. (See Part II.)
Page
(2) Financial Statement Schedules Covered by Report of
Independent Auditors:
II - 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. Unless otherwise
indicated, all exhibits so incorporated are from
File No. 1-8610.
Exhibit
Number
3-a Restated Certificate of Incorporation, filed with
the Secretary of State of Delaware on April 28, 1995.
(Exhibit 3 to Form 10-Q for the first quarter 1995.)
3-b Bylaws dated June 28, 1991. (Exhibit 3-b to Form 10-
Q for the second quarter 1991.)
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
SBC Communications Inc. (SBC) 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 SBC 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.)
4-d Amendment of Rights Agreement, dated as of August 5,
1992, among SBC, 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.)
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.)
4-f Second Amendment of Rights Agreement, dated June 15,
1994, between SBC and The Bank of New York, as
successor Rights Agent. (Exhibit 4-e to Form 8-A/A,
dated June 22, 1994.)
10-a Senior Management Short Term Incentive Plan,
revised January 1, 1991. (Exhibit 10-a to Form 10-K
for 1990.)
10-b Senior Management Long Term Incentive Plan, revised
effective January 1, 1993. (Exhibit 10-b to Form 10-K
for 1992.)
10-c Senior Management Survivor Benefit Plan. (Exhibit
10-c to Form 10-K for 1986.)
10-d Senior Management Supplemental Retirement Income
Plan, revised effective January 1, 1993. (Exhibit 10-d
to Form 10-K for 1992.)
10-e 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.)
10-f Senior Management Deferred Compensation Plan of
1988 (effective for Units of Participation Having a
Unit Start Date of January 1, 1988 or later), revised
July 30, 1993. (Exhibit 10.6 to Registration Statement
No. 33-54795.)
10-g Senior Management Long Term Disability Plan.
(Exhibit 10-f to Form 10-K for 1986.)
10-h Senior Management Incentive Award Deferral
Plan. (Exhibit 10-g to Form 10-K for 1986.)
10-i Senior Management Financial Counseling Program.
(Exhibit 10-h to Form 10-K for 1986.)
10-j Senior Management Executive Health Plan, effective
January 1, 1987. (Exhibit 10-i to Form 10-K for 1986.)
10-k Retirement Plan for Non-Employee Directors.
(Exhibit 10-t to Form 10-K for 1985.)
10-l Form of Indemnity Agreement, effective July 1,
1986, between SBC and each of its directors and
officers. (Appendix 1 to Definitive Proxy Statement
dated March 18, 1987.)
10-m Form of Change of Control Severance Agreements for
all Officers and certain Officers of SBC's
subsidiaries. (Exhibit 10-p to Form 10-K for 1988.)
10-n Stock Savings Plan, revised effective February 1,
1994. (Appendix A to Definitive Proxy Statement dated
March 18, 1994.)
10-o 1992 Stock Option Plan, revised effective
December 1, 1993. (Exhibit 10.15 to Registration
Statement No. 33-54795.)
10-p Key Executive Officer Short Term Incentive Plan.
(Appendix B to Definitive Proxy Statement dated March
18, 1994.)
10-q Restricted Stock Plan for Non-Employee Directors.
(Exhibit 10.17 to Registration Statement No. 33-54795.)
10-r Officer Retirement Savings Plan. (Exhibit 10.18 to
Registration Statement No. 33-54795.)
10-s 1996 Stock and Incentive Plan. (Appendix to
Definitive Proxy Statement dated March 12, 1996.)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of SBC's Annual Report to shareowners for
the fiscal year ended December 31, 1995. Only the
information incorporated by reference into this Form 10-
K is included in the exhibit.
21 Subsidiaries of SBC.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for
the year 1995 to be filed under Form 10-K/A.
99-b Annual Report on Form 11-K for the Savings and
Security Plan for the year 1995 to be filed under
Form 10-K/A.
SBC 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. SBC will furnish any other exhibit at cost.
(b) Reports on Form 8-K:
On December 12, 1995, SBC filed a current report on Form 8-K
reporting on Item 7, Financial Statements and Exhibits. SBC
filed exhibits relating to the issuance of a fixed rate
Medium-Term Note by Southwestern Bell Capital Corporation.
<TABLE>
SBC COMMUNICATIONS INC. Schedule II
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Uncollectibles
Dollars in Millions
<CAPTION>
COL. A COL. B ------ COL. C------ COL. D COL. E
-----Additions------
(1) (2)
Charged
Balance at Charged to Other Balance
Beginning to Costs Accounts Deductions at End
Description of and -Note (a) -Note (b) of
Period Expenses Period
<S> <C> <C> <C> <C> <C>
Year 1995 $ 130.4 186.2 45.5 228.1 $ 134.0
Year 1994 $ 111.2 165.9 41.2 187.9 $ 130.4
Year 1993 $ 95.5 149.9 35.2 169.4 $ 111.2
<FN>
(a)Amounts previously written off which were credited directly to this account
when recovered.
(b)Amounts written off as uncollectible.
</TABLE>
<TABLE>
SBC COMMUNICATIONS INC. Schedule II
SCHEDULE II - 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)
Charged
Balance at to Other Balance
Beginning Charged Accounts at End of
Description of to Expense Deductions Period
Period
<S> <C> <C> <C> <C> <C>
Year 1995 $ 427.6 121.6 - 1.5 $ 547.7
Year 1994 $ 368.2 96.6 - 37.2 $ 427.6
Year 1993 $ 443.6 100.1 .7 176.2 (a) $ 368.2
<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 12th day of March, 1996.
SBC COMMUNICATIONS INC.
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
By /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 12 , 1996
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
herein by reference as exhibits hereto. Unless otherwise
indicated, all exhibits so incorporated are from
File No. 1-8610.
Exhibit
Number
3-a Restated Certificate of Incorporation, filed with
the Secretary of State of Delaware on April 28, 1995.
(Exhibit 3 to Form 10-Q for the first quarter 1995.)
3-b Bylaws dated June 28, 1991. (Exhibit 3-b to Form 10-
Q for the second quarter 1991.)
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
SBC Communications Inc. (SBC) 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 SBC 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.)
4-d Amendment of Rights Agreement, dated as of August 5,
1992, among SBC, 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.)
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.)
4-f Second Amendment of Rights Agreement, dated June 15,
1994, between SBC and The Bank of New York, as
successor Rights Agent. (Exhibit 4-e to Form 8-A/A,
dated June 22, 1994.)
10-a Senior Management Short Term Incentive Plan,
revised January 1, 1991. (Exhibit 10-a to Form 10-K
for 1990.)
10-b Senior Management Long Term Incentive Plan, revised
effective January 1, 1993. (Exhibit 10-b to Form 10-K
for 1992.)
10-c Senior Management Survivor Benefit Plan. (Exhibit
10-c to Form 10-K for 1986.)
10-d Senior Management Supplemental Retirement Income
Plan, revised effective January 1, 1993. (Exhibit 10-d
to Form 10-K for 1992.)
10-e 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.)
10-f Senior Management Deferred Compensation Plan of
1988 (effective for Units of Participation Having a
Unit Start Date of January 1, 1988 or later), revised
July 30, 1993. (Exhibit 10.6 to Registration Statement
No. 33-54795.)
10-g Senior Management Long Term Disability Plan.
(Exhibit 10-f to Form 10-K for 1986.)
10-h Senior Management Incentive Award Deferral
Plan. (Exhibit 10-g to Form 10-K for 1986.)
10-i Senior Management Financial Counseling Program.
(Exhibit 10-h to Form 10-K for 1986.)
10-j Senior Management Executive Health Plan, effective
January 1, 1987. (Exhibit 10-i to Form 10-K for 1986.)
10-k Retirement Plan for Non-Employee Directors.
(Exhibit 10-t to Form 10-K for 1985.)
10-l Form of Indemnity Agreement, effective July 1,
1986, between SBC and each of its directors and
officers. (Appendix 1 to Definitive Proxy Statement
dated March 18, 1987.)
10-m Form of Change of Control Severance Agreements for
all Officers of SBC and certain Officers of SBC's
subsidiaries. (Exhibit 10-p to Form 10-K for 1988.)
10-n Stock Savings Plan, revised effective February 1,
1994. (Appendix A to Definitive Proxy Statement dated
March 18, 1994.)
10-o 1992 Stock Option Plan, revised effective
December 1, 1993. (Exhibit 10.15 to Registration
Statement No. 33-54795.)
10-p Key Executive Officer Short Term Incentive Plan.
(Appendix B to Definitive Proxy Statement dated March
18, 1994.)
10-q Restricted Stock Plan for Non-Employee Directors.
(Exhibit 10.17 to Registration Statement No. 33-54795.)
10-r Officer Retirement Savings Plan. (Exhibit 10.18 to
Registration Statement No. 33-54795.)
10-s 1996 Stock and Incentive Plan. (Appendix to
Definitive Proxy Statement dated March 12, 1996.)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of SBC's Annual Report to shareowners for
the fiscal year ended December 31, 1995. Only the
information incorporated by reference into this Form 10-
K is included in the exhibit.
21 Subsidiaries of SBC.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for
the year 1995 to be filed under Form 10-K/A.
99-b Annual Report on Form 11-K for the Savings and
Security Plan for the year 1995 to be filed under
Form 10-K/A.
<TABLE>
EXHIBIT 12
SBC COMMUNICATIONS INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars In Millions
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income Before Income Taxes,
Extraordinary Loss and Cumulative
Effect of Changes in Accounting
Principles* $ 2,698.2 $ 2,300.0 $ 1,882.9 $ 1,701.2 $ 1,557.0
Add: Interest Expense 515.1 480.2 496.2 530.0 577.7
1/3 Rental Expense 45.9 41.8 41.0 45.1 37.5
Adjusted Earnings $ 3,259.2 $ 2,822.0 $ 2,420.1 $ 2,276.3 $ 2,172.2
Total Interest Charges $ 515.1 $ 480.2 $ 496.2 $ 530.0 $ 577.7
1/3 Rental Expense 45.9 41.8 41.0 45.1 37.5
Adjusted Fixed Charges $ 561.0 $ 522.0 $ 537.2 $ 575.1 $ 615.2
Ratio of Earnings to Fixed Charges 5.81 5.41 4.51 3.96 3.53
<FN>
*Undistributed earnings on investments accounted for under the equity method have been excluded.
</TABLE>
<TABLE>
<CAPTION>
Selected Financial and Operating Data
Dollars in millions except per share amounts
At December 31 or for the year ended: 1995 1994 1993 1992
<S> <C> <C> <C> <C>
Financial Data
Operating revenues (1) $ 12,670 $ 11,772 $ 10,840 $ 10,150
Operating expenses (1) $ 9,633 $ 9,010 $ 8,480 $ 7,953
Operating income (1) $ 3,037 $ 2,762 $ 2,360 $ 2,197
Interest expense $ 515 $ 480 $ 496 $ 530
Equity in net income of affiliates $ 156 $ 223 $ 250 $ 208
Income taxes $ 903 $ 785 $ 625 $ 568
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1,889 $ 1,649 $ 1,435 $ 1,302
Extraordinary loss, net of tax (2) $ (2,819) - $ (153) -
Cumulative effect of accounting changes, net of tax - - $ (2,127) -
Net income (loss) $ (930) $ 1,649 $ (845) $ 1,302
Earnings per common share:
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 3.10 $ 2.74 $ 2.39 $ 2.17
Extraordinary loss, net of tax (2) (4.63) - (0.25) -
Cumulative effect of accounting changes, net of tax - - (3.55) -
Net income (loss) $ (1.53) $ 2.74 $ (1.41) $ 2.17
Total assets $ 22,003 $ 26,005 $ 24,308 $ 23,810
Long-term debt $ 5,672 $ 5,848 $ 5,459 $ 5,716
Construction and capital expenditures $ 2,336 $ 2,350 $ 2,221 $ 2,144
Free cash flow (3) $ 1,685 $ 1,616 $ 1,220 $ 1,470
Dividends declared per common share $ 1.65 $ 1.58 $ 1.51 $ 1.46
Book value per common share (4) $ 10.27 $ 13.72 $ 12.61 $ 15.47
Ratio of earnings to fixed charges 5.81 5.41 4.51 3.96
Return on weighted average shareowners' equity (5) 24.18% 20.61% 19.29% 14.28%
Debt ratio (4) 54.03% 47.36% 47.49% 42.99%
Operating Data*
EBITDA (6) $ 5,207 $ 4,800 $ 4,367 $ 4,040
Network access lines in service (000) 14,223 13,612 13,145 12,724
Access minutes of use (000,000) 53,681 48,430 44,203 41,235
Long-distance messages (000,000) 988 1,018 1,012 974
Cellular customers (000) 3,659 2,992 2,049 1,413
Number of employees 59,300 58,800 58,400 59,500
<FN>
* Operating data may be periodically revised to reflect the most current information available.
1 Prior years have been restated to conform to the current year's classifications.
2 1995 Discontinuance of Regulatory Accounting; 1993 and 1991 Early Extinguishment of Debt.
3 Free cash flow is net cash provided by operating activities less construction and capital expenditures.
4 Shareowners' equity used in book value per common share and debt ratio calculations includes extraordinary
loss and changes in accounting principles.
5 Calculated using income before extraordinary loss and changes in accounting principles. These impacts are
included in shareowners' equity.
6 EBITDA is earnings before interest, taxes, depreciation and amortization (operating income plus depreciation
and amortization). SBC considers EBITDA an important component in our economic value added systems as an
indicator of the operational strength and performance of our businesses. It is provided as supplemental
information and is not intended to be a substitute for operating income, net income or net cash provided by
operating activities as a measure of financial performance or liquidity.
7 Compound Annual Growth Rate from 1985 to 1995.
</TABLE>
<TABLE>
<CAPTION>
Selected Financial and Operating Data
Dollars in millions except per share amounts
At December 31 or for the year ended: 1991 1990 1989 1988
<S> <C> <C> <C> <C>
Financial Data
operating revenues (1) $ 9,460 $ 9,241 $ 8,825 $ 8,569
Operating expenses (1) $ 7,326 $ 7,199 $ 6,817 $ 6,619
Operating income (1) $ 2,134 $ 2,042 $ 2,008 $ 1,950
Interest expense $ 578 $ 530 $ 544 $ 578
Equity in net income of affiliates $ 95 $ 6 $ 6 $ 8
Income taxes $ 488 $ 440 $ 387 $ 350
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1,157 $ 1,101 $ 1,093 $ 1,060
Extraordinary loss, net of tax (2) $ (81) - - -
Cumulative effect of accounting changes, net of tax - - - -
Net income (loss) $ 1,076 $ 1,101 $ 1,093 $ 1,060
Earnings per common share:
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1.93 $ 1.83 $ 1.82 $ 1.76
Extraordinary loss, net of tax (2) (0.14) - - -
Cumulative effect of accounting changes, net of tax - - - -
Net income (loss) $ 1.79 $ 1.83 $ 1.82 $ 1.76
Total assets $ 23,179 $ 22,196 $ 21,161 $ 20,985
Long-term debt $ 5,675 $ 5,483 $ 5,456 $ 5,039
Construction and capital expenditures $ 1,826 $ 1,778 $ 1,483 $ 1,222
Free cash flow (3) $ 1,067 $ 893 $ 1,283 $ 1,308
Dividends declared per common share $ 1.42 $ 1.38 $ 1.30 $ 1.24
Book value per common share (4) $ 14.77 $ 14.31 $ 13.92 $ 14.15
Ratio of earnings to fixed charges 3.53 3.69 3.52 3.26
Return on weighted average shareowners' equity (5) 13.22% 12.92% 12.90% 12.69%
Debt ratio (4) 45.08% 43.97% 42.01% 41.42%
Operating Data*
EBITDA (6) $ 3,899 $ 3,733 $ 3,899 $ 3,795
Network access lines in service (000) 12,328 12,042 11,708 11,295
Access minutes of use (000,000) 38,885 36,982 34,295 31,412
Long-distance messages (000,000) 976 961 988 940
Cellular customers (000) 960 667 382 244
Number of employees 61,200 66,700 66,200 64,900
<FN>
* Operating data may be periodically revised to reflect the most current information available.
1 Prior years have been restated to conform to the current year's classifications.
2 1995 Discontinuance of Regulatory Accounting; 1993 and 1991 Early Extinguishment of Debt.
3 Free cash flow is net cash provided by operating activities less construction and capital expenditures.
4 Shareowners' equity used in book value per common share and debt ratio calculations includes extraordinary
loss and changes in accounting principles.
5 Calculated using income before extraordinary loss and changes in accounting principles. These impacts are
included in shareowners' equity.
6 EBITDA is earnings before interest, taxes, depreciation and amortization (operating income plus depreciation
and amortization). SBC considers EBITDA an important component in our economic value added systems as an
indicator of the operational strength and performance of our businesses. It is provided as supplemental
information and is not intended to be a substitute for operating income, net income or net cash provided by
operating activities as a measure of financial performance or liquidity.
7 Compound Annual Growth Rate from 1985 to 1995.
</TABLE>
<TABLE>
<CAPTION>
Selected Financial and Operating Data
Dollars in millions except per share amounts
At December 31 or for the year ended: 1987 1986 1985 CAGR (7)
<S> <C> <C> <C> <C>
Financial Data
Operating revenues (1) $ 8,222 $ 8,122 $ 8,048 4.6%
Operating expenses (1) $ 6,146 $ 5,925 $ 5,925 5.0%
Operating income (1) $ 2,077 $ 2,197 $ 2,123 3.6%
Interest expense $ 532 $ 543 $ 542 -
Equity in net income of affiliates $ 5 $ 3 - -
Income taxes $ 544 $ 711 $ 655 -
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1,047 $ 1,023 $ 996 6.6%
Extraordinary loss, net of tax (2) - - - -
Cumulative effect of accounting changes, net of tax - - - -
Net income (loss) $ 1,047 $ 1,023 $ 996 -
Earnings per common share:
Income before extraordinary loss and cumulative
effect of changes in accounting principles $ 1.74 $ 1.71 $ 1.67 6.4%
Extraordinary loss, net of tax (2) - - - -
Cumulative effect of accounting changes, net of tax - - - -
Net income (loss) $ 1.74 $ 1.71 $ 1.67 -
Total assets $ 21,500 $ 20,300 $ 19,291 1.3%
Long-term debt $ 5,649 $ 4,912 $ 5,001 -
Construction and capital expenditures $ 1,450 $ 1,912 $ 1,989 1.6%
Free cash flow (3) $ 1,028 $ 659 $ 209 23.2%
Dividends declared per common share $ 1.16 $ 1.07 $ 1.00 5.1%
Book value per common share (4) $ 13.63 $ 13.04 $ 12.38 -
Ratio of earnings to fixed charges 3.72 3.91 3.78 -
Return on weighted average shareowners' equity (5) 12.98% 13.34% 13.71% -
Debt ratio (4) 44.59% 43.43% 43.72% -
Operating Data*
EBITDA (6) $ 3,753 $ 3,623 $ 3,426 4.3%
Network access lines in service (000) 11,086 11,067 10,886 2.7%
Access minutes of use (000,000) 30,114 28,034 26,623 -
Long-distance messages (000,000) 873 831 797 -
Cellular customers (000) 155 41 35 -
Number of employees 67,100 67,500 71,400 -
<FN>
* Operating data may be periodically revised to reflect the most current information available.
1 Prior years have been restated to conform to the current year's classifications.
2 1995 Discontinuance of Regulatory Accounting; 1993 and 1991 Early Extinguishment of Debt.
3 Free cash flow is net cash provided by operating activities less construction and capital expenditures.
4 Shareowners' equity used in book value per common share and debt ratio calculations includes extraordinary
loss and changes in accounting principles.
5 Calculated using income before extraordinary loss and changes in accounting principles. These impacts are
included in shareowners' equity.
6 EBITDA is earnings before interest, taxes, depreciation and amortization (operating income plus depreciation
and amortization). SBC considers EBITDA an important component in our economic value added systems as an
indicator of the operational strength and performance of our businesses. It is provided as supplemental
information and is not intended to be a substitute for operating income, net income or net cash provided by
operating activities as a measure of financial performance or liquidity.
7 Compound Annual Growth Rate from 1985 to 1995.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Dollars in millions except per share amounts
SBC's subsidiaries and affiliates provide landline and wireless
telecommunications services and equipment, directory advertising,
publishing and cable TV services.
SBC Communications Inc. (SBC) is a holding company whose
subsidiaries and affiliates operate predominantly in the
communications services industry. SBC's subsidiaries and
affiliates 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 14 million access lines in Texas, Missouri,
Oklahoma, Kansas and Arkansas (five-state area). The Telephone
Company is subject to regulation by each of the state
jurisdictions in which it operates and by the Federal
Communications Commission (FCC). In 1995, the Telephone Company
provided 71% 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
1995 1994
1995 1994 1993 vs. vs.
1994 1993
Operating revenues $ 12,669.7 $ 11,771.8 $ 10,840.2 7.6% 8.6%
Operating expenses $ 9,632.5 $ 9,009.5 $ 8,479.8 6.9% 6.2%
Income before
extraordinary loss $ 1,889.3 $ 1,648.7 $ 1,435.2 14.6% 14.9%
and accounting
changes
Extraordinary loss $ (2,819.3) - $ (153.2) - -
Accounting changes - - $ (2,127.2) - -
Net income (loss) $ (930.0) $ 1,648.7 $ (845.2) - -
SBC reported income before extraordinary loss and cumulative
effect of changes in accounting principles of $1,889.3, $1,648.7
and $1,435.2 in 1995, 1994 and 1993, respectively. The
corresponding earnings per common share for those years were
$3.10, $2.74 and $2.39, respectively. In 1995, SBC recognized an
extraordinary loss of $2,819.3, or $4.63 per share, from the
discontinuance of regulatory accounting at the Telephone Company.
As a result, net loss for 1995 was $930.0, or $1.53 per share.
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 1993. As a result, net loss for 1993 was $845.2, or
$1.41 per share. Subsidiaries and affiliates other than the
Telephone Company provided 41%, 35% and 29% of SBC's income
before extraordinary loss and cumulative effect of changes in
accounting principles in 1995, 1994 and 1993, respectively.
The primary factors contributing to the increase in income before
extraordinary loss and cumulative effect of changes in accounting
principles in 1995 were growth in demand for services and
products at the Telephone Company and Southwestern Bell Mobile
Systems, Inc. (Mobile Systems) and an after-tax gain of $111.5
associated with the merger of SBC's United Kingdom cable
television operations into TeleWest P.L.C. (TeleWest). These
factors were partially offset by an after-tax charge of $87.5
recorded in connection with SBC's strategic functional
realignment.
The primary factors contributing to the increase in income before
extraordinary loss and cumulative effect of changes in accounting
principles in 1994 were growth in demand for services and
products at 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 effect of 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).
Items affecting the comparison of the operating results between
1995 and 1994, and between 1994 and 1993, are discussed in the
following sections.
Operating Revenues
Total operating revenues increased $897.9, or 7.6%, in 1995 and
$931.6, or 8.6%, in 1994. Components of total operating
revenues, including changes from the prior year, are as follows:
Percent
Change
1995 1994
1995 1994 1993 vs. vs.
1994 1993
Local service
Landline $ 4,302.3 $ 4,039.1 $ 3,904.9 6.5% 3.4%
Wireless 2,247.1 1,748.7 1,282.5 28.5 36.4
Network access
Interstate 2,034.4 1,912.5 1,804.7 6.4 6.0
Intrastate 1,032.3 944.5 880.7 9.3 7.2
Long-distance 840.5 917.1 977.3 (8.4) (6.2)
service
Directory 953.1 946.8 869.0 0.7 9.0
advertising
Other 1,260.0 1,263.1 1,121.1 (0.2) 12.7
$ 12,669.7 $11,771.8 $ 10,840.2 7.6% 8.6%
Local Service Landline revenues increased in 1995 and 1994
due to increases in demand, including growth in the number of
access lines of 4.5% and 3.6%, respectively. Nearly two-
thirds of the access line growth occurred in Texas.
Approximately 25% in 1995 and 18% in 1994 of access line
growth was due to the sales of additional residential access
lines. In 1995, increased demand for enhanced services,
including Caller ID, also contributed to the increase in
revenues. Previous rate orders, primarily in Texas and
Missouri, reduced 1994 revenues by approximately $80.
Wireless revenues increased in 1995 and 1994 due primarily to
the growth in the number of cellular customers of 22.3% and
46.0% (36.8% increase excluding acquisitions), respectively.
These increases were partially offset by declines in average
revenue per customer of 3% in 1995 and 7% in 1994. Market
penetration at the end of 1995, 1994 and 1993 was 9.0, 7.4
and 5.7 customers per 100 residents, respectively, in Mobile
Systems' service areas.
Network Access Interstate network access revenues increased
in 1995 and 1994 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. The increase in
1995 was partially offset by rate reductions of approximately
$65 under the FCC's revised price cap plan which became
effective August 1, 1995. Revenues in 1994 reflect a
retroactive billing adjustment that decreased interstate
network access revenues slightly while increasing intrastate
network access revenues.
Intrastate network access revenues increased in 1995 and
1994, due primarily to increases in demand, including usage
by alternative intraLATA toll carriers. Since 1994, revenues
also reflect the partial replacement of the Texas pool
settlement process with a system of primary toll carrier
access charges. Under this system, charges paid to the
Telephone Company by other intrastate carriers are recorded
as intrastate network access revenues, while those paid by
the Telephone Company are recorded as cost of services and
products. These amounts were each approximately $40 in 1994
and did not materially affect operating income. 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 network access revenues in
1994. In addition, previous rate orders, primarily in Texas,
reduced 1994 revenues by approximately $120.
Long-Distance Service revenues decreased in 1995, reflecting
the continuing trend of competition-related decreases in
residential message volumes and the impact of optional
calling plans and extended area service plans. 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 in 1995 was
partially mitigated by higher network access revenues, as
noted above, and the impact of extended area service plans.
Long-distance service message volumes in 1994 were 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 rate decreases (primarily in Missouri), caused
the decrease in 1994 long-distance service revenues.
Directory Advertising revenues were relatively unchanged in
1995, reflecting the impact of increasing competition on
yellow pages revenues. Revenues in 1994 reflect increased
yellow pages revenues attributable to growth from product
enhancements and increased use of color. Directory
advertising revenues are expected to decline in 1996 as a
result of SBC's agreement to sell its publishing contracts
for GTE Corporation's service areas to GTE Directories.
Other operating revenues in 1995 and 1994 reflect the
increased demand for the Telephone Company's non-regulated
services and products, including Caller ID equipment,
computer network services and videoconferencing services. In
1995, this increase was offset by the decrease in equipment
sales revenues at Mobile Systems resulting primarily from
declining equipment prices. In 1994, increases in equipment
sales, mainly at Mobile Systems, and the addition of cable
television revenues resulting from the January 1994
acquisition of two systems from Hauser Communications, Inc.
(Hauser) were partially offset by the absence of revenues
associated with the sale of Paging in December 1993. Other
operating revenues no longer include the provision for
uncollectibles, which has been reclassified to selling,
general and administrative expenses.
Operating Expenses
Total operating expenses increased $623.0, or 6.9%, in 1995 and
$529.7, or 6.2%, in 1994. Components of total operating
expenses, including changes from the prior year, are as follows:
Percent
Change
1995 1994
1995 1994 1993 vs. vs.
1994 1993
Cost of services and $ 3,805.9 $ 3,746.9 $ 3,387.6 1.6% 10.6%
products
Selling, general and 3,656.7 3,224.8 3,085.2 13.4 4.5
administrative
Depreciation and 2,169.9 2,037.8 2,007.0 6.5 1.5
amortization
$ 9,632.5 $ 9,009.5 $ 8,479.8 6.9% 6.2%
Cost of Services and Products increased slightly in 1995 as
demand-related increases for enhanced services at the
Telephone Company and annual compensation increases were
mostly offset by a decrease in switching system software
license fees at the Telephone Company, decreased equipment
costs at Mobile Systems and the absence of expenses
associated with SBC's United Kingdom cable television
operations, which were changed to the equity method of
accounting in October 1994, as discussed in Other Business
Matters. The increase in 1994 was due to increased demand
for services and products at Mobile Systems and the Telephone
Company, increases of approximately $100 in switching system
software license 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.
Selling, General and Administrative expenses increased in
1995 primarily due to growth in wireless operations and a
$138.7 charge for costs associated with the strategic
realignment discussed in Other Business Matters. Increased
advertising and contracted services also contributed to the
increase in 1995. The increase in 1994 was due primarily to
growth in wireless operations and higher pension benefit
expenses, partially offset by savings associated with 1993
force reductions. Additionally, expenses in 1993 included a
$55.9 charge for the elimination of approximately 800
management positions in connection with a restructuring of
operations at the Telephone Company.
Depreciation and Amortization increased in 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 regulatory depreciation
represcription.
The increase in 1994 was due mainly to growth in wireless 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.
Interest Expense increased $34.9, or 7.3%, in 1995 due primarily
to an increase in the average amount of debt outstanding to
finance growth and acquisitions at Mobile Systems. Interest
expense for 1995 also reflects debt issued for acquisitions in
France and Chile. Interest expense decreased $16.0, or 3.2%, in
1994 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.
Equity in Net Income of Affiliates decreased $66.9, or 30.0%, in
1995 due primarily to the impact of the decline in the value of
the Mexican peso on SBC's earnings from its investment in Telmex.
This includes reductions in the translated amount of U.S. dollar
earnings from Telmex's operations and exchange losses on Telmex's
non-peso denominated debt. Operational growth at Telmex from
increases in access lines, cellular customers, and long-distance
usage somewhat offset these declines. The 1995 decrease is also
attributable to SBC's investment in France and to the inclusion
of losses on SBC's United Kingdom cable television operations,
which were accounted for under the equity method from October
1994 through September 1995.
The decrease of $26.6, or 10.7%, in 1994 was due mainly to
exchange losses resulting from the devaluation of the Mexican
peso in December 1994. Excluding this charge, the increase in
1994 was due primarily to higher earnings at Telmex resulting
from overall growth, including increases in access lines and rate
increases, 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. SBC's future earnings from Telmex will continue to
be sensitive to changes in the value of the peso.
Other Income (Expense) - Net reflected increased income of $185.4
in 1995 and increased expenses of $17.7 in 1994. Income in 1995
reflects the gain from the merger of SBC's United Kingdom cable
television operations into TeleWest, somewhat offset by expenses
associated with the refinancing of long-term debt by the
Telephone Company, as described in Note 11 and Note 5,
respectively, to the financial statements. Expenses for 1994
reflect increases in contributions to the SBC Foundation.
Expenses in 1993 include a nonrecurring charge for the write-off
of analog cellular equipment, partially offset by the gain on the
sale of paging operations.
Federal Income Tax expense increased $139.9, or 20.5%, in 1995
and $133.3, or 24.2%, in 1994, primarily due to higher income
before income taxes. Additionally, 1995 expense is affected by a
reduction in the amortization of investment tax credits resulting
from the discontinuance of regulatory accounting, as described in
Note 2 to the financial statements.
Extraordinary Losses In 1995, SBC recorded an extraordinary loss
of $2.8 billion from the discontinuance of regulatory accounting.
The loss included a reduction in the net carrying value of
telephone plant partially offset by the elimination of net
regulatory liabilities of the Telephone Company. Management does
not expect a significant increase in depreciation expense in the
near future as a result of the discontinuance of regulatory
accounting.
In 1993, the Telephone Company recorded extraordinary charges of
$153.2, net of related tax benefits of $92.2, as a result of
refinancing $2,100 of long-term debt.
Operating Environment and Trends of the Business
Regulatory Environment
The Telephone Company's telecommunications operations are subject
to regulation by each of the five states in which it operates for
intrastate services and by the FCC for interstate services. Each
of the states and the FCC have adopted incentive regulation, in
the form of price caps, to regulate prices for various services
provided by the Telephone Company. The Telephone Company is
permitted to establish and modify prices, not to exceed the price
caps, subject to approval by the governing jurisdiction. Prices
for other services not specifically covered by price caps are
also subject to regulatory approval.
The states set intrastate price caps for various periods,
depending upon the state. Price caps set by the FCC are adjusted
annually for inflation, a productivity offset and certain other
changes in costs. The productivity offset is a fixed percentage
used to reduce price caps and is designed to encourage increased
productivity.
Under the original FCC plan adopted in 1991, the Telephone
Company applied a productivity offset of 3.3%, with sharing at
various rates of return on investment. The FCC adopted revised
price cap rules which became effective August 1, 1995. These
revised rules required an initial reduction of 2.8% in price caps
for the Telephone Company, based on its previous productivity
offset. In addition, the new rules allowed a choice of three new
productivity offsets, two of which provide for a sharing of
profits with consumers above certain earnings levels. The
Telephone Company elected a 5.3% productivity offset with no
sharing. Other changes adopted by the FCC include changes to the
Telephone Company's costs that may be used to adjust price caps
(referred to as Exogenous Treatment), which, among other things,
exclude the effects of the Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The total effect of these changes
in price cap regulation is expected to result in an annualized
reduction in interstate access revenues of approximately $150.
The Telephone Company has filed two separate judicial appeals of
certain aspects of the FCC's price cap plan which are still
pending.
The revised plan described above is an interim measure and should
be revised again in 1996. The FCC is expected to conduct further
proceedings to address various pricing and productivity issues,
and to perform a broader review of price cap regulation in a
competitive environment.
Following is a summary of significant state regulatory
developments.
Texas In Texas, House Bill 2128 facilitating telecommunications
reform was signed into law on May 26, 1995, effective
September 1, 1995. Following are major provisions of the new
legislation.
The law allows the Telephone Company and other Local Exchange
Carriers (LECs) to elect to move from rate of return regulation
to price regulation, with elimination of earnings sharing. On
September 1, 1995, the Telephone Company notified the Texas
Public Utility Commission (TPUC) that it elected incentive
regulation under the new law. Basic network service rates will
be capped at existing levels for four years. Pricing flexibility
is provided for other services according to their classification
as "discretionary" (e.g., Call Waiting, Call Return, Integrated
Services Digital Network (ISDN), 1 plus intraLATA toll, etc.) or
"competitive" (e.g., WATS, 800 services, private lines, special
access, etc.). The TPUC is prohibited from reducing switched
access rates charged to interexchange carriers for a four-year
period.
The law requires LECs electing price regulation to commit to
network and infrastructure improvement goals, including expansion
of digital switching and advanced high-speed services to
qualifying public institutions such as schools, libraries and
hospitals requesting the services. The law also establishes an
infrastructure grant fund for use by public institutions in
upgrading their communications and computer technology. The law
provides for a fund that will assess a total of $150 annually on
all telecommunications providers in Texas for a ten-year period,
half of which would be paid by the cellular and wireless
industry. The constitutionality of the law requiring the
establishment of different assessment rates for the landline
service providers and the cellular and wireless service providers
was challenged in state district court by a number of paging and
cellular phone companies. In January 1996, the court ruled that
the law requiring two different rates was unconstitutional and
ordered the lower rate be applied to both categories of service
providers, which will result in less than a $150 annual
assessment. Based on this order, SBC's total annual payment is
currently estimated to be approximately $45. It is not yet known
whether the state will challenge the court's ruling. Depending
upon the final resolution of any subsequent state actions, SBC's
annual payment could change.
The law establishes local exchange competition by allowing other
providers of local exchange services to apply for certification
by the TPUC, subject to certain build-out requirements, resale
restrictions and minimum service requirements. The Telephone
Company will remain the default carrier of 1 plus intraLATA toll
traffic until all LECs are allowed to carry interLATA long-
distance.
In January 1996, MCI Communications Corporation (MCI) sued the
state of Texas, alleging that the law violates the Texas state
constitution. MCI claims the law establishes anticompetitive
barriers designed to prevent MCI, AT&T Corp. (AT&T) and Sprint
Corporation (Sprint) from providing local services within Texas.
Management is unable to predict the outcome of this proceeding.
More than 20 applications for competitive local service
certification have been filed with the TPUC, and several have
been approved. As a result, the Telephone Company expects
competition to continue to develop for its local services, but
the specific financial impacts of this legislation cannot be
reasonably estimated until all required tariff filings are
approved by the TPUC for the Telephone Company and other
companies intending to provide local service.
Prior to September 1, 1995, the Telephone Company operated under
an extension of a four-year incentive regulation agreement which
ended in November 1994. 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. The agreement also
provided an earnings-sharing mechanism designed to encourage
efficiency and innovation by the Telephone Company. There was no
sharing of 1993 revenues. Sharing amounts for the period ending
November 1994 included earnings sharing credits of approximately
$30 plus additional Lifeline Surplus credits for the four-year
period of approximately $18. Sharing amounts for the period
ending August 1995 have not been approved by the TPUC but are
estimated to be approximately $20.
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)
overturned 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 which had required rate reductions of
$84.6 annually, beginning in 1994. Under the agreement, which
would have continued in effect 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, including $35 in
special projects, during the term of the agreement. It also
provided that the Telephone Company would not file a general rate
case or increase basic local exchange service rates. There would
be no sharing of earnings under the agreement. The MPSC and OPC
agreed not to initiate any complaints regarding the Telephone
Company's earnings prior to January 1, 1999.
The practical effect of the Circuit Court's decision is to
eliminate the prospective commitments under the settlement
agreement including the rate review moratorium and capital
investment requirements. The decision has no immediate impact on
the Telephone Company's current rates because they were approved
by the MPSC in separate proceedings, which were not appealed.
The Telephone Company is continuing to fulfill the terms of the
settlement agreement.
The MPSC and the Telephone Company appealed the Circuit Court's
decision on October 12 and 13, 1995, respectively. These appeals
are currently pending.
Oklahoma On October 30, 1995, the Oklahoma Corporation
Commission (OCC) approved a settlement that resolved pending
court appeals of a 1992 rate order. The settlement ended 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, the Telephone Company paid a
cash settlement of $170 to business and residential customers,
and offered 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 had 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 also
provides that no overearnings complaint can be filed against the
Telephone Company until January 1, 1998. In addition, the OCC
began exploring alternative forms of regulation.
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.
Competition
Competition continues to expand in the telecommunications
industry. Legislation and regulatory and court decisions have
increased 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
Recent federal legislation will increase both competition and
competitive opportunities for SBC. On February 8, 1996, the
Telecommunications Act of 1996 (the Act) was enacted into law.
The Act is intended to address various aspects of competition
within, and regulation of, the telecommunications industry. The
Act provides that all post-enactment conduct or activities which
were subject to the consent decree issued at the time of AT&T's
divestiture of the Regional Holding Companies (RHCs) are now
subject to the provisions of the Act. Among other things, the
Act also defines conditions SBC must comply with before being
permitted to offer interLATA long-distance service and
establishes certain terms and conditions intended to promote
competition for the Telephone Company's local exchange services.
SBC may immediately offer interLATA long-distance outside the
five-state area and over its wireless network both inside and
outside the five-state area. Before being permitted to offer
landline interLATA long-distance service in the five-state area,
SBC must obtain state and FCC approval of an interconnection
agreement with a predominantly facilities-based competitor
serving residential and business customers. The interconnection
agreement must comply with the 14 point competitive checklist
contained in the Act. If no competing provider within a state
requests an interconnection agreement, the Telephone Company may
receive interLATA authority from the FCC upon obtaining a state-
approved statement of terms and conditions under which it will
offer access and interconnection, which includes all items in the
competitive checklist. The Act directs the FCC to establish
rules and regulations to implement the Act, and to preempt
specific state law provisions under certain circumstances. The
Act also allows RHCs to provide cable services over their own
networks, but sets limits on RHCs acquiring interests in cable
television operations in their telephone service areas.
The passage of the Act potentially supersedes various court
actions filed by SBC or to which SBC was a party. Among these
court actions are a petition requesting the consent decree be
vacated, a court order establishing conditions under which SBC
could offer interLATA long-distance over its wireless network and
a suit challenging the FCC's intention to require telephone
companies to file applications with the FCC before they acquire
or operate cable television systems in their telephone service
areas.
The Telephone Company currently faces competition from various
local service providers. Some of these providers have built
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 in
part to mitigate the effect of system bypass.
The FCC adopted rules requiring large LECs, 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
LEC central office. Switched access refers to the link between
LECs' switching facilities and long-distance carriers' networks;
switched access transport is one component of this service.) A
July 1994 FCC order required that LECs provide equipment and
establish a set of technical and pricing rules intended to
position alternative providers as if their equipment were located
in the central office (referred to as virtual collocation).
Alternatively, the LEC could, at its discretion, allow
alternative providers to physically collocate their equipment
within its central office.
The current FCC collocation rules will be affected by the Act
which requires incumbent LECs to provide physical collocation of
equipment necessary for interconnection or access to unbundled
network elements at the premises of the LEC. The Act allows the
incumbent LEC to provide virtual collocation if the LEC
demonstrates to state commissions that physical collocation is
not practical for technical reasons or because of space
limitations.
Competition exists and continues to intensify in 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.
Recently enacted and pending state regulatory and legislative
proceedings also allow increased competition for local exchange
services in the future. In Texas, the TPUC has granted several
companies authority to provide local exchange services in areas
within the Telephone Company's service territory. Hearings
continue on additional applications. In Missouri, legislation
that embraced most of the recommendations of a commission
appointed by the Governor was proposed but not adopted in 1995.
The legislation would have opened the Telephone Company's local
exchange market to competition and ended earnings regulation for
the Telephone Company, but also would have provided only limited
pricing flexibility for its services. Similar legislation has
been filed for the 1996 legislative session, and other proposals
to permit basic local exchange competition and authorize price
cap and other forms of incentive regulation are also expected to
be introduced, but it is not known whether such legislation will
be passed during 1996. Additionally, the MPSC has established a
docket to investigate local competition issues. In Kansas, the
Kansas Corporation Commission (KCC) has approved direct local
telephone service competition in Kansas City, Kansas and,
pursuant to a 1994 KCC order, Wichita, Kansas has local private
line competition. In Kansas and Oklahoma, there are generic
competition dockets pending which address competitive issues
related to the provision and regulation of intrastate
telecommunications services.
In 1993, the FCC adopted an order allocating radio spectrum and
outlining the development of licenses for new personal
communications services (PCS). PCS utilizes wireless
telecommunications digital technology at a higher frequency radio
spectrum than cellular. Like cellular, it is designed to permit
access to a variety of communications services regardless of
subscriber location. In a FCC auction, which concluded in March
1995, PCS licenses were awarded in 51 major markets. SBC
acquired PCS licenses in the major trading areas (MTAs) of
Memphis, Tennessee; Little Rock, Arkansas; and Tulsa, Oklahoma.
SBC is currently evaluating strategies to build out PCS in these
areas. PCS licenses were awarded in 14 MTAs which overlap SBC
wireless and landline markets. Companies granted licenses in
these MTAs include subsidiaries and affiliates of AT&T, other
RHCs and Sprint. The degree of competition which SBC will
encounter from PCS providers will depend on the timing and extent
of the build out of PCS services.
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,
or already are, 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 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.
In 1994, SBC filed a lawsuit in the United States District Court
in Dallas (Court), seeking to overturn provisions of the Cable
Communications Policy Act of 1984, in order to provide video
service in the Telephone Company's five-state area. In March
1995, the Court ruled in favor of SBC. In December 1995, SBC
began offering video services to 1,800 customers in a consumer
trial in Richardson, Texas. The advanced broadband network in
Richardson is capable of delivering a variety of video and
communications services. Alternatives for offering these
services in other markets within the five-state area are being
evaluated in connection with the Richardson trial.
SBC is aggressively representing its interests regarding
competition before federal and state regulatory bodies, courts,
Congress and state legislatures. SBC will continue to evaluate
the increasingly competitive nature of its business and develop
the appropriate regulatory, legislative and competitive 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 1995, the Mexican Senate and Chamber of Deputies passed
legislation encompassing a series of rules for the introduction
of competition into the Mexican long-distance market previously
issued by the Mexican Secretary of Communication and
Transportation. Those rules 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
more than 200 interconnection points by the year 2000. Several
large competitors have announced their intention to compete with
Telmex and have filed for licenses, including a joint venture
between AT&T and Alfa, a Mexican consortium, and Avantel, S.A., a
joint venture between MCI and Grupo Financiero Banamex-Accival,
Mexico's largest financial group.
Other Business Matters
Acquisitions and Dispositions SBC made several acquisitions and
dispositions in 1995, 1994 and 1993.
SBC's acquisitions of two cable television systems located in
Montgomery County, Maryland, and Arlington County, Virginia, the
domestic wireless business of Associated Communications
Corporation, adjacent properties in New York state and indirect
10% ownership of a nationwide cellular company in France are
described in Note 11 to the financial statements. In addition,
the merger of SBC's United Kingdom cable television operations
into TeleWest is described in Note 11 to the financial
statements.
During 1995, SBC also purchased a wireless system serving
Watertown, New York, and, as previously discussed, obtained at
auction PCS licenses in Memphis, Tennessee; Little Rock,
Arkansas; and Tulsa, Oklahoma. SBC also made an equity
investment in Chile, purchasing 40% of VTR S.A. (VTR), a
privately owned telecommunications holding company, for $317.
VTR provides local, long-distance, wireless and cable television
services in Chile and is 51% owned by Grupo Luksic, a large
Chilean conglomerate. Additionally, SBC made an equity
investment in a South African wireless company.
In October 1994, SBC sold an additional 25% of its United Kingdom
cable television operations to Cox Cable Communications. From
October 1994 until the merger into TeleWest in 1995, SBC's United
Kingdom cable television investment was accounted for under the
equity method.
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.
Except as discussed in Note 11 to the financial statements, none
of these transactions had a material effect on SBC's financial
results in 1995, 1994 or 1993, nor does management expect them to
have a material effect on SBC's financial position or results of
operations in 1996.
Strategic Realignment In July 1995, SBC announced a strategic
realignment which will position the company to be a single-source
provider of telecommunications services. All of SBC's operations
within the five-state area will report to one management group,
while international operations and domestic operations outside
the five-state area will report to a separate management group.
In connection with this realignment of functions, in 1995 SBC
recognized $138.7 in selling, general and administrative
expenses. These expenses include postemployment benefits for
approximately 2,400 employees arising from the consolidation of
operations within the five-state area, streamlining support and
administrative functions and integrating financial systems over
the next 18 to 24 months. The charge reduced net income for 1995
by approximately $87.5.
Pending Litigation During 1995, the Telephone Company settled
litigation with several 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. 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 varied, they all
alleged that the Telephone Company should have included revenues
received from other services in calculating the compensation
described in the ordinances. The settlement did 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 $2,335.7, $2,350.2 and
$2,221.1 for 1995, 1994 and 1993, respectively. In 1995,
Telephone Company and Mobile Systems expenditures increased 4.7%
and 6.2%, respectively. The Telephone Company's increase in
capital expenditures was due primarily to customer-contracted
requirements, regulatory commitments, Advanced Intelligent
Network (AIN) and ISDN projects. Mobile Systems expenditures
increased due to continued growth, the acquisition of the New
York properties and first year expenditures for PCS. 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.
Funding provided by SBC to its United Kingdom cable television
operations after September 1994 is not classified as capital
expenditures, but appears in the Consolidated Statements of Cash
Flows as investments in affiliates. Because these expenditures
were included in consolidated capital expenditures prior to that
time, this reported decrease offsets the increases at the
Telephone Company and Mobile Systems, resulting in SBC's total
reported 1995 capital expenditures being relatively unchanged
compared to 1994.
In connection with the Texas legislation effective in September
1995, the Telephone Company committed to improve the network and
infrastructure in Texas over a six-year period. Total capital
expenditures under this commitment will vary based on actual
demand of potential end users. The Telephone Company anticipates
spending approximately $200 to $250 in 1996 associated with this
commitment.
In 1994, the Telephone Company committed to make additional
network upgrades estimated to cost approximately $435 in
Missouri, Arkansas and Kansas over various periods ranging from
two to four years. As of December 31, 1995, the Telephone
Company had invested $246 under these commitments.
In 1996, management expects capital spending in total, primarily
at the Telephone Company, to be increased from 1995 levels, to
between $2,600 and $2,800. Capital expenditures in 1996 will
relate primarily to the continued evolution of the Telephone
Company's network, including amounts agreed to under regulation
plans, and continued build out of Mobile Systems' markets. SBC
expects to fund ongoing capital expenditures with cash provided
by operations.
Dividends Declared
Dividends declared by SBC totaled $1,004.4 ($1.65 per share) in
1995, $953.6 ($1.58 per share) in 1994 and $905.3 ($1.51 per
share) in 1993. 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 $489.9 of cash and cash equivalents available at December
31, 1995. Commercial paper borrowings as of December 31, 1995,
totaled $1,237.9. SBC has entered into agreements with several
banks for lines of credit totaling $1,055.0, 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, 1995.
During 1995, as in 1994 and 1993, SBC's primary source of funds
continued to be cash generated from operations, as shown in the
Consolidated Statements of Cash Flows. In 1995, 1994 and 1993,
cash provided by operating activities was reduced by the
contribution of $151.0, $133.6 and $135.5, respectively, to the
collectively bargained Voluntary Employee Beneficiary Association
trusts for the future payment of postretirement benefits. Net
cash provided by operating activities exceeded SBC's construction
and capital expenditures during 1995, as in 1994 and 1993; this
excess is referred to as free cash flow, a supplemental measure
of liquidity. SBC generated free cash flow of $1,685.0, $1,616.4
and $1,219.7 in 1995, 1994 and 1993, respectively.
During 1995 and 1993, the Telephone Company refinanced long-term
debt with aggregate principal amounts of $450 and $2,100,
respectively. Since June 1991, the Telephone Company has
refinanced $3,632 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
decreased $2,264.9 in 1995 and increased in 1994 by $1,459.0.
The decrease in 1995 was due to the effects of the discontinuance
of regulatory accounting. Absent this extraordinary charge,
total capital increased by $554.4 in 1995 due primarily to the
reinvestment of earnings, partially offset by foreign currency
translation adjustments resulting from the decline in the value
of the Mexican peso. The increase in 1994 was due to the
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 Mexican peso and the acquisition of treasury shares.
Debt Ratio
SBC's debt ratio (long-term debt and debt maturing within one
year, as a percentage of total capital) was 54.0%, 47.4% and
47.5% at December 31, 1995, 1994 and 1993, respectively. The
debt ratio is affected by the same factors that affect total
capital. For 1995, the decrease in equity caused by the
discontinuance of regulatory accounting increased the debt ratio
by 9.2 percentage points.
Share Repurchases
See Note 10 to the financial statements.
Employee Stock Ownership Plans
See Note 8 to the financial statements.
Consolidated Statements of Income
Dollars in millions except per share amounts
1995 1994 1993
Operating Revenues
Local service $ 6,549.4 $ 5,787.8 $5,187.4
Network access 3,066.7 2,857.0 2,685.4
Long-distance service 840.5 917.1 977.3
Directory advertising 953.1 946.8 869.0
Other 1,260.0 1,263.1 1,121.1
Total operating revenues 12,669.7 11,771.8 10,840.2
Operating Expenses
Cost of services and products 3,805.9 3,746.9 3,387.6
Selling, general and administrative 3,656.7 3,224.8 3,085.2
Depreciation and amortization 2,169.9 2,037.8 2,007.0
Total operating expenses 9,632.5 9,009.5 8,479.8
Operating Income 3,037.2 2,762.3 2,360.4
Other Income (Expense)
Interest expense (515.1) (480.2) (496.2)
Equity in net income of affiliates 156.2 223.1 249.7
Other income (expense) - net 114.0 (71.4) (53.7)
Total other income (expense) (244.9) (328.5) (300.2)
Income Before Income Taxes, Extraordinary Loss
and Cumulative Effect of Changes in Accounting
Principles 2,792.3 2,433.8 2,060.2
Income Taxes
Federal 823.9 684.0 550.7
State and local 79.1 101.1 74.3
Total income taxes 903.0 785.1 625.0
Income Before Extraordinary Loss and Cumulative
Effect of Changes in Accounting Principles 1,889.3 1,648.7 1,435.2
Extraordinary Loss from Discontinuance of
Regulatory Accounting, net of tax (2,819.3) - -
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) $ (930.0) $1,648.7 $ (845.2)
Earnings Per Common Share:
Income Before Extraordinary Loss and Cumulative
Effect of Changes in Accounting Principles $ 3.10 $ 2.74 $ 2.39
Extraordinary Losses (4.63) - (0.25)
Cumulative Effect of Changes in Accounting
Principles, net of tax - - (3.55)
Net Income (Loss) $ (1.53) $ 2.74 $ (1.41)
Weighted Average Number of Common
Shares Outstanding (in millions) 608.8 601.4 599.8
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Balance Sheets
Dollars in millions except per share amounts
December 31,
1995 1994
Assets
Current Assets
Cash and cash equivalents $ 489.9 $ 364.6
Accounts receivable - net of allowances
for uncollectibles of $134.0 and $130.4 2,389.2 2,204.6
Material and supplies 130.6 141.8
Prepaid expenses 156.8 162.0
Deferred charges 201.9 240.1
Deferred income taxes - 180.7
Other 311.0 199.5
Total current assets 3,679.4 3,493.3
Property, Plant and Equipment - Net 12,988.3 17,316.6
Intangible Assets - Net of Accumulated
Amortization of $547.7 and $427.6 2,679.4 2,648.9
Investments in Equity Affiliates 1,586.3 1,748.0
Other Assets 1,069.1 798.5
Total Assets $22,002.5 $ 26,005.3
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 1,679.5 $ 1,668.6
Accounts payable and accrued liabilities 3,125.3 3,281.4
Dividends payable 251.4 240.8
Total current liabilities 5,056.2 5,190.8
Long-Term Debt 5,672.3 5,848.3
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 723.5 2,319.7
Postemployment benefit obligation 2,735.7 2,707.2
Unamortized investment tax credits 286.6 369.8
Other noncurrent liabilities 1,272.4 1,213.9
Total deferred credits and other noncurrent
liabilities 5,018.2 6,610.6
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, 1995 and 1994) 620.5 620.5
Capital in excess of par value 6,297.6 6,286.1
Retained earnings 672.4 2,593.5
Guaranteed obligations of employee stock
ownership plans (272.5) (314.7)
Foreign currency translation adjustment (580.9) (366.5)
Treasury shares (11,122,981 at December 31, 1995
and 11,401,628 at December 31, 1994, at cost) (481.3) (463.3)
Total shareowners' equity 6,255.8 8,355.6
Total Liabilities and Shareowners' Equity $22,002.5 $26,005.3
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Cash Flows
Dollars in millions, increase (decrease) in cash and cash equivalents
1995 1994 1993
Operating Activities
Net income (loss) $ (930.0) $1,648.7 $ (845.2)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,169.9 2,037.8 2,007.0
Undistributed earnings from investments
in equity affiliates (94.1) (133.8) (177.3)
Provision for uncollectible accounts 178.3 153.3 149.9
Amortization of investment tax credits (42.3) (60.6) (65.8)
Pensions and other postemployment expenses 138.2 201.6 148.8
Deferred income taxes 463.2 (124.0) (123.8)
Extraordinary loss, net of tax 2,819.3 - 153.2
Cumulative effect of accounting changes,
net of tax - - 2,127.2
Changes in operating assets and liabilities:
Accounts receivable (362.8) (302.7) (275.5)
Other current assets 32.9 (90.5) (5.7)
Accounts payable and accrued liabilities (186.0) 429.9 303.3
Other - net (165.9) 206.9 44.7
Total adjustments 4,950.7 2,317.9 4,286.0
Net Cash Provided by Operating Activities 4,020.7 3,966.6 3,440.8
Investing Activities
Construction and capital expenditures (2,335.7) (2,350.2) (2,221.1)
Investments in affiliates (16.0) (22.3) -
Purchase of short-term investments (704.0) (324.6) (419.7)
Proceeds from short-term investments 586.8 390.1 315.5
Dispositions - 140.9 378.3
Acquisitions (538.4) (1,181.6) (120.9)
Net Cash Used in Investing Activities (3,007.3) (3,347.7) (2,067.9)
Financing Activities
Net change in short-term borrowings with
original maturities of three months or less (110.6) 463.1 (11.0)
Issuance of other short-term borrowings 91.1 35.5 16.0
Repayment of other short-term borrowings (91.1) (40.5) (137.7)
Issuance of long-term debt 981.0 344.5 2,178.1
Repayment of long-term debt (271.6) (449.6) (215.8)
Early extinguishment of debt and related
call premiums (465.0) - (2,190.3)
Issuance of common shares - 40.2 18.0
Purchase of treasury shares (215.6) (446.8) (191.1)
Issuance of treasury shares 82.2 17.9 77.6
Dividends paid (888.5) (837.0) (803.5)
Net Cash Used in Financing Activities (888.1) (872.7) (1,259.7)
Net increase (decrease) in cash and
cash equivalents 125.3 (253.8) 113.2
Cash and cash equivalents beginning of year 364.6 618.4 505.2
Cash and Cash Equivalents End of Year $ 489.9 $ 364.6 $ 618.4
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
Obligations
of Employee Foreign
Capital in Stock Currency
Common Shares Excess of Retained Ownership Translation Treasury Shares
Shares Amount Par Value Earnings Plans Adjustment Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 $197.3 - - - - - (326.3) - -
Issuance of common shares:
Dividend Reinvestment Plan 3,334,668 3.3 134.4 - - - - -
Other issuances 14,404,149 14.5 570.7 - - - - -
Purchase of treasury shares - - - - - - (11,301,550) (447.0)
Issuance of treasury shares - - 4.0 - - - 2,410,326 93.3
Other - - - 7.0 - - - -
Balance, December 31, 1994 620,483,301 620.5 6,286.1 2,593.5 (314.7) (366.5) (11,401,628) (463.3) 8,355.6
Net income (loss) for the
year ($(1.53) per share) - - - (930.0) - - - -
Dividends to shareowners
($1.65 per share) - - - (1,004.4) - - - -
Reduction of debt associated
with Employee Stock
Ownership Plans - - - - 42.2 - - -
Foreign currency translation
adjustment, net of income
tax benefit of $115.5 - - - - - (214.4) - -
Purchase of treasury shares - - - - - - (4,610,713) (215.6)
Issuance of treasury shares:
Dividend Reinvestment Plan - - 18.5 - - - 2,730,666 110.5
Other issuances - - (7.0) - - - 2,158,694 87.1
Other - - - 13.3 - - - -
Balance, December 31, 1995 620,483,301 $620.5 $6,297.6 $672.4 $(272.5) $(580.9) (11,122,981) $(481.3) $6,255.8
<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 SBC Communications Inc.
and its majority-owned subsidiaries (SBC). SBC's
subsidiaries and affiliates operate predominantly in the
communications services industry, providing landline and
wireless telecommunications services and equipment,
directory advertising, publishing and cable television
services both domestically and worldwide. Southwestern Bell
Telephone Company (Telephone Company) is SBC's largest
subsidiary, providing telecommunications services in Texas,
Missouri, Oklahoma, Kansas and Arkansas (five-state area).
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.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Certain amounts in prior period financial statements have
been reclassified to conform to the current year's
presentation.
Income Taxes - Deferred income taxes are provided for
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 wireless 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.
Property, plant and equipment is depreciated using straight-
line methods over its estimated useful lives, generally
ranging from 3 to 50 years. Prior to September 1995, the
Telephone Company computed depreciation using certain
straight-line methods and rates as prescribed by regulators.
In accordance with composite group depreciation methodology,
when a portion of the Telephone Company's depreciable
property, plant and equipment is retired in the ordinary
course of business, the gross book value is charged to
accumulated depreciation.
Intangible Assets - Intangible assets consist primarily of
wireless 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, 1995 and 1994,
amounts included in net intangible assets for licenses were
$1,798.0 and $2,007.1, 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. Discontinuance of Regulatory Accounting
In September 1995, 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). FAS 71 requires depreciation of
telephone plant using lives set by regulators which are
generally longer than those established by unregulated
companies, and deferral of certain costs and obligations
based on regulatory actions (regulatory assets and
liabilities). As a result of the adoption of price-based
regulation for most of the Telephone Company's revenues and
the acceleration of competition in the telecommunications
market, management determined that the Telephone Company no
longer met the criteria for application of FAS 71.
Upon discontinuance of FAS 71, the Telephone Company
recorded a non-cash, extraordinary charge to net income of
$2,819.3 (after a net deferred tax benefit of $1,764.0).
This charge 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:
Pre-tax 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. The adjustment also included
elimination of accumulated depreciation deficiencies
recognized by regulators and amortized as part of
depreciation expense.
Following is a comparison of new lives to those prescribed
by regulators for selected plant categories:
Average Lives (in
Years)
Regulator- Estimated
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 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 have historically been deferred and
amortized over the estimated lives of the related plant.
The adjustment to unamortized investment tax credits
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 from 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.
Additionally, in September 1995, the Telephone Company began
accounting for interest on funds borrowed to finance
construction as an increase in property, plant and equipment
and a reduction of interest expense. Under the provisions
of FAS 71, the Telephone Company accounted for a
capitalization of both interest and equity costs allowed by
regulators during periods of construction as other income
and as an addition to the cost of plant constructed.
3. Property, Plant and Equipment
Property, plant and equipment, which is stated at cost, is
summarized as follows at December 31:
1995 1994
Telephone Company plant
In service $ 27,763.6 $ 26,731.6
Under construction 245.1 231.5
28,008.7 26,963.1
Accumulated depreciation and (16,881.3) (11,227.1)
amortization
Total Telephone Company 11,127.4 15,736.0
Other 2,780.8 2,293.3
Accumulated depreciation and (919.9) (712.7)
amortization
Total other 1,860.9 1,580.6
Property, plant and equipment--net $ 12,988.3 $ 17,316.6
SBC's depreciation expense as a percentage of average
depreciable plant was 6.9% for 1995 and 1994 and 7.0% for
1993.
Certain facilities and equipment used in operations are
under operating or capital leases. Rental expenses under
operating leases for 1995, 1994 and 1993 were $137.8, $125.5
and $122.9, respectively. At December 31, 1995, the future
minimum rental payments under noncancelable operating leases
for the years 1996 through 2000 were $88.0, $79.5, $65.2,
$78.4 and $39.3, respectively, and $160.5 thereafter.
Capital leases were not significant.
4. 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. Mexican investors led by Grupo
Carso, S.A. de C.V. (Grupo Carso), have voting control of
the consortium, consisting of Grupo Carso, SBC and others,
which controls Telmex through its ownership of all of
Telmex's Class AA shares. SBC's Class AA shares and Class L
shares with limited voting rights each represent
approximately 5% of Telmex's total equity capitalization.
In December 1994 SBC made an equity investment in the French
cellular market (see Note 11). Other equity investments
held by SBC include interests in Australian and Israeli
operations which provide directory, cable television and
other services, minority ownership of several domestic
wireless properties and 1995 investments in the Chilean
telecommunications market and South African wireless market.
The following table is a reconciliation of SBC's investments
in equity affiliates:
1995 1994 1993
Beginning of year $ 1,748.0 $ 1,420.8 $ 1,249.4
Additional investments 409.5 626.2 -
Equity in net income 156.2 223.1 249.7
Dividends received (62.1) (89.3) (72.4)
Currency translation and other (665.3) (432.8) (5.9)
adjustments
End of year $ 1,586.3 $ 1,748.0 $ 1,420.8
Currency translation adjustments for 1995 and 1994 primarily
reflect the effect on SBC's investment in Telmex resulting
from the decline in the value of the Mexican peso relative
to the U.S. dollar during those years. SBC's investment in
Telmex will continue to be sensitive to changes in the value
of the peso.
Other adjustments for 1995 reflect the change to the cost
method of accounting in October 1995 for SBC's United
Kingdom cable television operations (see Note 11). Other
adjustments for 1994 reflect the change to the equity method
of accounting for these operations.
Undistributed earnings from equity affiliates were $662.9
and $568.8 at December 31, 1995 and 1994, respectively.
5. Debt
Long-term debt, including interest rates and maturities, is
summarized as follows at December 31:
1995 1994
Telephone Company debentures
4.50%-5.88% 1995-2006 $ 600.0 $ 700.0
6.12%-6.88% 2000-2024 1,200.0 1,050.0
7.00%-7.75% 2009-2026 1,500.0 1,200.0
8.25%-8.30% 1996-2017 200.0 650.0
3,500.0 3,600.0
Unamortized discount--net of premium (30.7) (31.2)
Total Telephone Company debentures 3,469.3 3,568.8
Telephone Company notes
5.04%-7.67% 1995-2010 950.5 815.9
Unamortized discount (5.4) (5.2)
Total Telephone Company notes 945.1 810.7
Other notes
4.28%-6.98% 1995-2007 305.5 607.8
7.00%-9.00% 1995-2020 1,129.2 888.0
1,434.7 1,495.8
Unamortized discount (21.0) (24.6)
Total other notes 1,413.7 1,471.2
Guaranteed obligations of employee stock
ownership plans (1)
8.41%-9.40% 1995-2000 259.7 308.4
Capitalized leases 26.1 9.3
Total long-term debt, including current 6,113.9 6,168.4
maturities
Current maturities (441.6) (320.1)
Total long-term debt $ 5,672.3 $ 5,848.3
(1) See Note 8.
During 1995, SBC refinanced long-term debentures of the
Telephone Company. Costs of $18.2 associated with
refinancing are included in other income (expense) - net,
with related income tax benefits of $6.8 included in income
taxes, in SBC's Consolidated Statements of Income.
During 1993, SBC recorded an extraordinary loss on the
refinancing of long-term debentures of the Telephone Company
of $153.2, net of related income tax benefits of $92.2.
At December 31, 1995, the aggregate principal amounts of
long-term debt scheduled for repayment for the years 1996
through 2000 were $441.6, $400.8, $299.2, $451.7 and $302.6,
respectively. As of December 31, 1995, 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:
1995 1994
Commercial paper $ 1,237.9 $ 1,348.5
Current maturities of long-term debt 441.6 320.1
Total $ 1,679.5 $ 1,668.6
The weighted average interest rate on commercial paper debt
at December 31, 1995 and 1994 was 5.7% and 5.9%,
respectively. SBC has entered into agreements with several
banks for lines of credit totaling $1,055.0. 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, 1995.
6. Financial Instruments
The carrying amounts and estimated fair values of SBC's
long-term debt, including current maturities, are summarized
as follows at December 31:
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Telephone Company debentures $3,469.3 $3,553.4 $3,568.8 $3,169.3
Telephone Company notes 945.1 964.8 810.7 730.2
Other notes 1,413.7 1,468.2 1,471.2 1,450.9
Guaranteed obligations of
employee 259.7 279.7 308.4 321.0
stock ownership plans
The fair values of SBC's long-term debt were estimated based
on quoted market prices, where available, or on discounted
future cash flows using current interest rates. The
carrying amounts of commercial paper debt approximate fair
values.
SBC does not hold or issue any financial instruments for
trading purposes. SBC's cash equivalents and short-term
investments are recorded at amortized cost. Short-term
investments are included in other current assets in SBC's
Consolidated Balance Sheets and were $243.0 and $125.7 at
December 31, 1995 and 1994, respectively. The carrying
amounts of cash and cash equivalents and short-term
investments approximate fair values.
7. Income Taxes
SBC adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS 109) effective
January 1, 1993. In adopting FAS 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. The cumulative effect of adopting FAS 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 FAS 109 had no material effect on
pre-tax income for 1993.
As a result of implementing FAS 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, resulting in
minimal effect on net income for 1993. The net regulatory
liability was eliminated with the discontinued application
of FAS 71 in September 1995 (see Note 2).
Significant components of SBC's deferred tax liabilities and
assets are as follows at December 31:
1995 1994
Depreciation and amortization $ 2,166.0 $ 3,739.1
Other 556.3 334.2
Gross deferred tax liabilities 2,722.3 4,073.3
Employee benefits 1,372.6 1,304.5
Unamortized investment tax credits 108.3 134.8
Other 604.1 561.0
Gross deferred tax assets 2,085.0 2,000.3
Deferred tax assets valuation 109.8 66.0
allowance
Net deferred tax liabilities $ 747.1 $ 2,139.0
The increase in the valuation allowance recognizes the
uncertainty associated with the realization of certain deferred
tax assets. The valuation allowance is maintained in deferred
tax assets for certain unused federal and state loss
carryforwards.
The components of income tax expense are as follows:
1995 1994 1993
Federal
Current $ 420.6 $ 866.8 $ 727.3
Deferred--net 445.6 (122.2) (110.8)
Amortization of investment tax (42.3) (60.6) (65.8)
credits
823.9 684.0 550.7
State and local
Current 61.4 102.9 87.3
Deferred--net 17.7 (1.8) (13.0)
79.1 101.1 74.3
Total $ 903.0 $ 785.1 $ 625.0
A reconciliation of income tax expense and the amount
computed by applying the statutory federal income tax rate
(35%) to income before income taxes, extraordinary loss and
cumulative effect of changes in accounting principles is as
follows:
1995 1994 1993
Taxes computed at federal statutory $ 977.3 $ 851.8 $ 721.1
rate
Increases (decreases) in taxes
resulting from:
Amortization of investment tax
credits over the life of the
plant that gave rise to the credits (38.8) (60.6) (65.8)
credits--1995 net of deferred tax
Excess deferred taxes due to rate (24.2) (34.6) (43.2)
change
Depreciation of telephone plant
construction costs previously 14.3 18.3 22.5
deducted for tax purposes--net
State and local income taxes--net 51.4 65.7 48.3
of federal tax benefit
Other--net (77.0) (55.5) (57.9)
Total $ 903.0 $ 785.1 $ 625.0
8. 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:
1995 1994 1993
Service cost--benefits earned $ 163.0 $ 157.0 $ 131.1
during the period
Interest cost on projected benefit 485.9 463.8 428.3
obligation
Actual return on plan assets (2,017.6) 149.3 (1,019.9)
Other--net 1,495.3 (670.4) 498.7
Net pension cost $ 126.6 $ 99.7 $ 38.2
The following table sets forth the pension plans' funded
status and the amounts included in SBC's Consolidated
Balance Sheets at December 31:
1995 1994
Fair value of plan assets $ 8,528.9 $ 6,877.2
Less: Actuarial present value of projected 7,275.8 6,600.3
benefit obligation
Plan assets in excess of projected benefit 1,253.1 276.9
obligation
Unrecognized prior service cost 950.4 976.0
Unrecognized net gain (1,608.3) (450.4)
Unamortized transition asset (686.6) (768.0)
Prepaid (accrued) pension cost $ (91.4) $ 34.5
Significant assumptions used in developing pension
information include:
1995 1994 1993
Discount rate for determining projected 7.25% 7.5% 7.25%
benefit obligation
Long-term rate of return on plan assets 8.0% 8.0% 8.0%
Composite rate of compensation increase 4.6% 4.6% 4.6%
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, 1995, was $6,350.0, of which $5,607.3 was vested. At
December 31, 1994, these amounts were $5,807.7 and $5,128.5,
respectively.
In December 1994, under the provisions of Section 420 of the
Internal Revenue Code, SBC transferred $121.8 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, $67.7 and $66.8 in 1995, 1994 and 1993,
respectively. Liabilities of $583.9 and $509.9 related to
these plans have been included in other noncurrent
liabilities in SBC's Consolidated Balance Sheets at
December 31, 1995 and 1994, respectively.
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" (FAS 106), which requires accrual of
actuarially determined postretirement benefit costs as
active employees earn these benefits. Prior to the adoption
of FAS 106, SBC expensed retiree medical benefits when
claims were incurred.
In implementing FAS 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.
Postretirement benefit cost is composed of the following:
1995 1994 1993
Service cost--benefits earned during $ 48.4 $ 49.0 $ 48.1
the period
Interest cost on accumulated
postretirement benefit obligation 228.3 224.5 231.6
(APBO)
Actual return on assets (202.3) (15.6) (28.2)
Other--net 144.1 (24.3) (3.6)
Postretirement benefit cost $ 218.5 $ 233.6 $ 247.9
SBC maintains collectively bargained Voluntary Employee
Beneficiary Association (CBVEBA) trusts to fund
postretirement benefits. During 1995 and 1994, SBC
contributed $151.0 and $133.6, respectively, into the CBVEBA
trusts to be ultimately used for the payment of
postretirement benefits. 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:
1995 1994
Retirees $ 1,827.5 $ 1,873.4
Fully eligible active plan participants 353.5 273.2
Other active plan participants 1,063.0 938.0
Total APBO 3,244.0 3,084.6
Less: Fair value of plan assets 923.4 580.8
APBO in excess of plan assets 2,320.6 2,503.8
Unrecognized prior service cost (77.3) (13.6)
Unrecognized net gain 459.8 277.1
Accrued postretirement benefit obligation $ 2,703.1 $ 2,767.3
In December 1995, the life insurance benefit plan and the
medical plan were merged. Also in December 1995, $108.9 of
postretirement life insurance assets were transferred to the
CBVEBA trusts. The fair value of plan assets restricted to
the payment of life insurance benefits only were $244.5 and
$298.8 at December 31, 1995 and 1994, respectively. At
December 31, 1995 and 1994, the accrued (prepaid) life
insurance benefits included in the accrued postretirement
benefit obligation were $90.5 and $(26.8), respectively.
The assumed medical cost trend rate in 1996 is 9.5%,
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
trend rate in 1996 is 6.5%, reducing to 5.0% in 2002.
Raising the annual medical and dental cost trend rates by
one percentage point increases the APBO as of December 31,
1995 by $178.7 and increases the aggregate service and
interest cost components of the net periodic postretirement
benefit cost for the year ended December 31, 1995 by
approximately $15.9. Significant assumptions for the
discount rate, long-term rate of return on plan assets and
composite rate of compensation increase used in developing
the APBO were the same as those used in developing the
pension information.
Postemployment Benefits - Under its benefit plans, SBC
provides employees varying levels of severance pay,
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"
(FAS 112), which 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.
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.
SBC's match of employee contributions to the savings plans
is 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:
1995 1994 1993
Benefit expense--net of dividends $ 23.4 $ 25.9 $ 29.0
and interest income
Interest expense--net of dividends 14.0 17.1 19.9
and interest income
Net ESOP expense 37.4 43.0 48.9
Additional savings plans stock 0.2 (0.5) 0.5
purchases
Total expense $ 37.6 $ 42.5 $ 49.4
Company contributions for ESOPs $ 40.0 $ 39.8 $ 50.3
Dividends and interest income for $ 28.1 $ 27.1 $ 26.3
debt service
SBC shares held by the ESOPs are summarized as follows at
December 31:
1995 1994
Unallocated 7,922,909 9,514,787
Committed to be allocated 25,353 61,949
Allocated to participants 10,183,433 8,824,275
Total 18,131,695 18,401,011
9. Stock Option Plans
Under various plans, SBC is authorized to issue to senior
and other management employees up to 33.5 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 five or ten years after the date of
grant. All options issued through December 31, 1995 have
been issued with exercise prices equal to the market price
of the stock at the date of grant, and therefore no
compensation expense has been recognized.
Information related to outstanding options is summarized
below:
Weighted
Number of Average
Options Exercise
Price Per
Option
Outstanding at 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 at 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 at December 31, 1994 14,136,570 38.37
Granted 8,101,794 47.19
Exercised (1,413,276) 34.79
Cancelled (362,691) 42.11
Outstanding at December 31, 1995 20,462,397 $42.04
Options to purchase 8,539,081 shares of SBC stock were
exercisable at December 31, 1995.
10. Shareowners' Equity
Share Repurchases - From time to time, SBC repurchases
shares of common stock for distribution, or to offset shares
distributed through its employee benefit plans and SBC's
Dividend Reinvestment Plan, or in connection with certain
acquisitions. In addition, the Board of Directors of SBC
(Board) has authorized the repurchase of up to 30 million
shares of SBC's outstanding common stock. As of December
31, 1995, 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 8) 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 - The Shareowners' Rights Plan
(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.
11. Acquisitions and Dispositions
In October 1995, SBC combined its United Kingdom cable
television operations with those of TeleWest Communications,
P.L.C., a publicly held joint venture between
Telecommunications, Inc. and U S WEST, Inc. The resulting
entity, TeleWest P.L.C., (TeleWest) is the largest cable
television operator in the United Kingdom. SBC owns
approximately 15% of the new entity and accounts for its
investment using the cost method of accounting.
Restrictions expiring in one to five years exist on the sale
of SBC's interest in TeleWest. SBC recorded an after-tax
gain of $111.5 associated with the combination.
During 1994, SBC purchased two cable television systems
located in Montgomery County, Maryland, and Arlington
County, Virginia, for $650. Also in 1994, SBC acquired the
domestic wireless business of Associated Communications
Corporation (Associated) for $705, including wireless
systems in Buffalo, Rochester, Albany and Glens Falls, New
York, and in two separate transactions purchased smaller
wireless 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. Through this alliance, SBC acquired an
indirect 10% ownership of Societe Francaise du
Radiotelephone S.A. (SFR), a nationwide cellular company in
France, and minority ownership interests in other
communications businesses controlled by CGE, and CGE
obtained an effective 10% interest in SBC's wireless
operations in Washington, D.C.-Baltimore and surrounding
rural markets. SBC and CGE both made contributions to the
alliance. SBC's effective contribution was $375.9. This
investment is accounted for under the equity method of
accounting.
In addition to payments shown in the Consolidated Statements
of Cash Flows, the 1994 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 1995, 1994 and 1993,
nor would they had they occurred on January 1 of the
respective periods.
12. Additional Financial Information
December 31,
Balance Sheets 1995 1994
Accounts payable and accrued
liabilities
Accounts payable $ 1,028.7 $ 1,001.7
Accrued taxes 438.1 566.7
Advance billing and customer 333.4 315.2
deposits
Compensated future absences 199.5 191.6
Accrued interest 141.2 129.7
Accrued payroll 116.8 119.0
Other 867.6 957.5
Total $ 3,125.3 $ 3,281.4
Statements of Income 1995 1994 1993
Interest expense incurred $ 520.3 $ 480.2 $ 496.2
Capitalized interest (5.2) - -
Total interest expense $ 515.1 $ 480.2 $ 496.2
Allowance for funds used during $ 11.2 $ 19.3 $ 21.5
construction
Statements of Cash Flows 1995 1994 1993
Cash paid during the year for:
Interest $ 503.6 $ 481.4 $ 502.0
Income taxes $ 689.6 $ 927.9 $ 592.3
No customer accounted for more than 10% of consolidated
revenues in 1995. Approximately 10% in 1994 and 11% in 1993
of SBC's consolidated revenues were from services provided
to AT&T Corp. No other customer accounted for more than 10%
of consolidated revenues in 1994 and 1993.
Three subsidiaries of SBC have negotiated contracts with the
Communications Workers of America (CWA), none of which is
subject to renegotiation in 1996. Approximately 66% of
SBC's employees are represented by the CWA.
13. Quarterly Financial Information (Unaudited)
Earnings
Total per ------Stock Price-------
Calendar Operating Operating Net Income Common
Quarter Revenues Income (Loss) Share High Low Close
1995
First $ 2,909.9 $ 707.9 $ 395.2 $ 0.65 $ 43.875 $39.625 $42.000
Second 3,025.0 754.2 442.0 0.73 47.875 41.625 47.625
Third(1) 3,292.3 883.3 (2,285.0) (3.75) 55.125 45.500 55.000
Fourth(2) 3,442.5 691.8 517.8 0.85 58.500 53.125 57.250
- ---------------------------------------
Annual(1) $12,669.7 $ 3,037.2 $ (930.0) $ (1.53)
- ----------------------------------------------------------------------------
1994
First $ 2,674.0 $ 590.6 $ 357.7 $ 0.59 $ 42.000 $ 36.750 $ 40.375
Second 2,797.2 646.3 385.5 0.64 44.375 38.500 43.500
Third 3,049.9 765.3 480.8 0.80 44.250 40.250 42.500
Fourth 3,250.7 760.1 424.7 0.71 43.125 39.250 40.375
- ----------------------------------------
Annual $ 11,771.8 $ 2,762.3 $ 1,648.7 $ 2.74
(1)Net Loss and Earnings per Common Share reflect an extraordinary
loss of $2,819.3, or $4.63 per share, from discontinuance of
regulatory accounting.
(2)Operating Income reflects $138.7 in selling, general and
administrative expenses associated with a strategic realignment
of functions. These expenses include postemployment benefits
for approximately 2,400 employees arising from the consolidation
of operations within the five-state area, streamlining support
and administrative functions and integrating financial systems.
Net Income and Earnings per Common Share reflect after-tax
charges of $87.5 for the strategic realignment of functions and
$11.4 for refinancing of debt and an after-tax gain of $111.5
from the merger of SBC's United Kingdom cable television
operations into TeleWest. The net of these transactions was
$12.6, or $0.02 per share.
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 SBC Communications Inc. (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
SBC Communications Inc.
We have audited the accompanying consolidated balance sheets of
SBC Communications Inc. (SBC) as of December 31, 1995 and 1994,
and the related consolidated statements of income, shareowners'
equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the
responsibility of SBC'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 SBC Communications Inc. at December 31,
1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements,
SBC discontinued its application of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" in 1995. As discussed in Notes 7
and 8 to the consolidated financial statements, SBC changed its
method of accounting for income taxes, postretirement benefits
other than pensions, and postemployment benefits in 1993.
ERNST & YOUNG LLP
San Antonio, Texas
February 9, 1996
Stock Trading Information
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
Newspaper stock listing: SBC Comm or 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. The Stock Data
section appears on the back cover.
The section titled "Selected Financial and Operating Data" (shown
on pages 18 and 19), details 11 year financial information for
SBC. In the printed document, the information is spread
horizontally across two pages with just one set of headings on
page 18. 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
20-31. 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 left
column on page 20 and to the left side of the section 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:
1991 1.16
1992 1.30
1993 1.44
1994 1.65
1995 1.89
The following footnote appears at the base of the graph: SBC
achieved double-digit percentage earnings growth for the fourth
consecutive year in 1995.
A stacked bar graph titled "Local Service (dollars in billions)"
appears in the right column on page 21 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
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
1995 6.5 2.2 4.3
The following footnote appears at the base of the graph:
Wireless local services revenues have more than tripled in the
last four years.
A stacked bar graph titled "Distribution of Revenues (dollars in
billions)" appears in the left column on page 22 and to the left
of the subsection titled "Long-Distance Service". 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
1991 9.5 4.2 2.5 1.0 0.9 0.9
1992 10.2 4.7 2.5 1.0 0.9 1.1
1993 10.8 5.2 2.7 1.0 0.8 1.1
1994 11.8 5.8 2.9 0.9 0.9 1.3
1995 12.7 6.5 3.1 0.8 1.0 1.3
The following footnote appears at the base of the graph: Local
service revenue growth represents nearly three-fourths of the
increase in operating revenues since 1991.
A stacked bar graph titled "Distribution of Expenses (dollars in
billions)" appears in the right column on page 23 and to the
right side of the subsection titled "Depreciation and
Amortization". 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
1991 7.3 3.1 2.4 1.8
1992 8.0 3.4 2.7 1.9
1993 8.5 3.4 3.1 2.0
1994 9.0 3.8 3.2 2.0
1995 9.6 3.8 3.6 2.2
The following footnote appears at the base of the graph:
Expenses as a percentage of operating revenues decreased for the
third consecutive year.
In the section titled "Operating Environment and Trends of the
Business", on pages 25 and 26 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 right column on page 27 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
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
1995 14.2 8.3 2.3 1.5 1.2 0.9
The following footnote appears at the base of the graph: Texas
accounts for nearly two-thirds of access line growth since 1991.
In the subsection titled "International", on page 29 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 left column on page 30 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:
1991 1.83
1992 2.14
1993 2.22
1994 2.35
1995 2.34
The following footnote appears at the base of the graph: The
increase in capital expenditures since 1991 primarily reflects
growth and network modernization at Mobile Systems and the
Telephone Company.
A bar graph titled "Dividends per Share (dollars)" appears in the
right column on page 31 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:
1991 1.42
1992 1.46
1993 1.51
1994 1.58
1995 1.65
The following footnote appears at the base of the graph:
Dividends per share increased 4.4% in 1995.
EXHIBIT 21
SUBSIDIARIES OF SBC COMMUNICATIONS INC.
AS OF JANUARY 1, 1996
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.
SBC Media Ventures, Delaware Same
Inc.
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of SBC Communications Inc. (SBC) of our report
dated February 9, 1996, included in the 1995 Annual Report to
Shareowners of SBC.
Our audits also included the financial statement schedules of SBC
listed in Item 14(a). These schedules are the responsibility of
SBC'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 SBC
Communications Inc. 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), the SBC Communications Inc. 1992
Stock Option Plan (No. 33-49855) and the SBC Communications
Inc. 1995 Management Stock Option Plan (No. 33-61715), and in
the Registration Statements (Form S-3) pertaining to the SBC
Communications Inc. Dividend Reinvestment Plan (Nos. 2-99261
and 33-49893), and Southwestern Bell Capital Corporation and
SBC Communications Inc. (Nos. 33-45490 and 33-56909), and in
the related Prospectuses of our report dated February 9, 1996,
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, 1995.
ERNST & YOUNG LLP
San Antonio, Texas
March 8, 1996
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., 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, Alfred G. Richter,
Jr., 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 26th day of January, 1996.
/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, SBC COMMUNICATIONS INC., 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, Alfred G.
Richter, Jr., 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 26th day of January, 1996.
/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, SBC COMMUNICATIONS INC., 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, Alfred G. Richter, Jr., 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 26th day of January, 1996.
/s/ Clarence C. Barksdale /s/ James E. Barnes
Clarence C. Barksdale James E. Barnes
Director Director
EXHIBIT 24
POWER OF ATTORNEY
/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 SBC
COMMUNICATIONS INC.'S DECEMBER 31, 1995 CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 489,900
<SECURITIES> 243,000
<RECEIVABLES> 2,523,200
<ALLOWANCES> 134,000
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 3,679,400
<PP&E> 30,789,500
<DEPRECIATION> 17,801,200
<TOTAL-ASSETS> 22,002,500
<CURRENT-LIABILITIES> 5,056,200
<BONDS> 5,672,300
0
0
<COMMON> 620,500
<OTHER-SE> 5,635,300
<TOTAL-LIABILITY-AND-EQUITY> 22,002,500
<SALES> 0<F2>
<TOTAL-REVENUES> 12,669,700
<CGS> 0<F3>
<TOTAL-COSTS> 3,805,900
<OTHER-EXPENSES> 2,169,900
<LOSS-PROVISION> 178,300
<INTEREST-EXPENSE> 515,100
<INCOME-PRETAX> 2,792,300
<INCOME-TAX> 903,000
<INCOME-CONTINUING> 1,889,300
<DISCONTINUED> 0
<EXTRAORDINARY> (2,819,300)
<CHANGES> 0
<NET-INCOME> (930,000)
<EPS-PRIMARY> (1.53)
<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>
