FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-8610
SBC COMMUNICATIONS INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
175 E. Houston, San Antonio, Texas 78205
Telephone Number: (210) 821-4105
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At April 30, 1996, 609,158,765 common shares were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SBC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
Three months ended
March 31,
1996 1995
Operating Revenues
Local service $ 1,732.6 $ 1,539.9
Network access 804.0 743.3
Long-distance service 224.4 210.2
Directory advertising 104.2 115.0
Other 331.5 301.5
Total operating revenues 3,196.7 2,909.9
Operating Expenses
Cost of services and products 933.1 867.5
Selling, general and administrative 917.7 802.3
Depreciation and amortization 545.9 532.2
Total operating expenses 2,396.7 2,202.0
Operating Income 800.0 707.9
Other Income (Expense)
Interest expense (120.1) (133.8)
Equity in net income of affiliates 53.4 8.3
Other income (expense) - net (4.0) 1.8
Total other income (expense) (70.7) (123.7)
Income Before Income Taxes 729.3 584.2
Income Taxes
Federal 237.9 170.7
State and local 27.4 18.3
Total income taxes 265.3 189.0
Net Income $ 464.0 $ 395.2
Earnings Per Common Share $ 0.76 $ 0.65
Weighted Average Number of Common
Shares Outstanding (in millions) 609.2 607.5
Dividends Declared Per Common Share $ 0.43 $ 0.4125
See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
March 31, December 31,
1996 1995
(Unaudited)
Current Assets
Cash and cash equivalents $ 570.8 $ 489.9
Accounts receivable - net of allowances
for uncollectibles of $131.2 and $134.0 2,203.9 2,389.2
Material and supplies 93.4 130.6
Prepaid expenses 286.7 156.8
Deferred charges 225.0 201.9
Other 396.1 311.0
Total current assets 3,775.9 3,679.4
Property, Plant and Equipment - at cost 31,331.6 30,789.5
Less: Accumulated depreciation
and amortization 18,179.2 17,801.2
Property, Plant and Equipment - Net 13,152.4 12,988.3
Intangible Assets - Net of
Accumulated Amortization of $529.6
and $547.7 2,623.2 2,679.4
Investments in Equity Affiliates 1,607.4 1,586.3
Other Assets 1,013.1 1,069.1
Total Assets $ 22,172.0 $ 22,002.5
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 1,869.0 $ 1,679.5
Accounts payable and accrued liabilities 2,920.2 3,125.3
Dividends payable 261.9 251.4
Total current liabilities 5,051.1 5,056.2
Long-Term Debt 5,587.6 5,672.3
Deferred Credits and Other Noncurrent
Liabilities
Deferred income taxes 749.6 723.5
Postemployment benefit obligation 2,732.8 2,735.7
Unamortized investment tax credits 278.3 286.6
Other noncurrent liabilities 1,332.7 1,272.4
Total deferred credits and other
noncurrent liabilies 5,093.4 5,018.2
Shareowners' Equity
Common shares issued ($1 par value) 620.5 620.5
Capital in excess of par value 6,305.0 6,297.6
Retained earnings 878.9 672.4
Guaranteed obligations of employee
stock ownership (259.7) (272.5)
Foreign currency translation adjustment (591.0) (580.9)
Treasury shares (at cost) (513.8) (481.3)
Total shareowners' equity 6,439.9 6,255.8
Total Liabilities and Shareowners' Equity $ 22,172.0 $ 22,002.5
See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
Three months ended
March 31,
1996 1995
Operating Activities
Net income $ 464.0 $ 395.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 545.9 532.2
Undistributed earnings from investments
in equity affiliates (45.5) (4.4)
Provision for uncollectible accounts 39.9 32.2
Amortization of investment tax credits (8.3) (12.0)
Pensions and other postemployment expenses 24.6 (100.6)
Deferred income taxes 66.4 41.3
Other - net (171.0) (235.0)
Total adjustments 452.0 253.7
Net Cash Provided by Operating Activities 916.0 648.9
Investing Activities
Construction and capital expenditures (634.7) (460.3)
Investments in affiliates (4.0) (72.3)
Purchase of short-term investments (252.7) (98.0)
Proceeds from short-term investments 167.7 122.8
Dispositions 44.8 -
Acquisitions - (360.9)
Net Cash Used in Investing Activities (678.9) (868.7)
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 112.1 599.7
Issuance of other short-term borrowings 88.8 -
Issuance of long-term debt 0.1 92.2
Repayment of long-term debt (71.5) (15.7)
Purchase of treasury shares (75.0) (105.8)
Issuance of treasury shares 14.4 16.5
Dividends paid (225.1) (214.4)
Net Cash Provided by (Used in) Financing
Activities (156.2) 372.5
Net increase in cash and cash equivalents 80.9 152.7
Cash and cash equivalents beginning of year 489.9 364.6
Cash and Cash Equivalents End of Period $ 570.8 $ 517.3
Cash paid during the three months ended March 31 for:
Interest $ 133.7 $ 140.8
Income taxes $ 178.3 $ 320.9
See Notes to Consolidated Financial Statements.
<TABLE>
SBC COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
Dollars in millions
(Unaudited)
<CAPTION>
Guaranteed
Obligation Foreign
Capital in of Employe Currency
Common Excess of Retained Stock Owner- Translation Treasury
Shares Par Value Earnings ship Plans Adjustment Shares
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 620.5 $ 6,286.1 $ 2,593.5 $ (314.7) $ (366.5) $ (463.3)
Net income - - 395.2 - - -
Dividends to shareowners - - (250.0) - - -
Reduction of debt associated
with Employee Stock
Ownership Plans - - - 12.2 - -
Foreign currency translation
adjustment - - - - (166.1) -
Purchase of treasury shares - - - - - (105.8)
Issuance of treasury shares:
Dividend Reinvestment Plan - 2.5 - - - 29.3
Other - (1.3) - - - 15.4
Other - - 2.1 - - -
Balance, March 31, 1995 $ 620.5 $ 6,287.3 $ 2,740.8 $ (302.5) $ (532.6) $ (524.4)
Balance, December 31, 1995 $ 620.5 $ 6,297.6 $ 672.4 $ (272.5) $ (580.9) $ (481.3)
Net income - - 464.0 - - -
Dividends to shareowners - - (261.9) - - -
Reduction of debt associated
with Employee Stock
Ownership Plans - - - 12.8 - -
Foreign currency translation
adjustment - - - - (10.1) -
Purchase of treasury shares - - - - - (75.0)
Issuance of treasury shares:
Dividend Reinvestment Plan - 9.6 - - - 24.8
Other - (2.2) - - - 17.7
Other - - 4.4 - - -
Balance, March 31, 1996 $ 620.5 $ 6,305.0 $ 878.9 $ (259.7) $ (591.0) $ (513.8)
See Notes to Consolidated Financial Statements.
</TABLE>
* * * *
SELECTED FINANCIAL AND OPERATING DATA
At March 31, or for the three months then ended: 1996 1995
Return on weighted average shareowners' equity * . . . . 28.80% 18.88%
Debt ratio *. . . . . . . . . . . . . . . . . . . . . . . 53.66% 48.70%
Network access lines in service (000) . . . . . . . . . 14,466 13,794
Access minutes of use (000,000) . . . . . . . . . . . . . 14,048 12,678
Long-distance messages billed (000) . . . . . . . . . . 243,034 243,792
Cellular customers (000) . . . . . . . . . . . . . . . . 3,807 3,092
Number of employees . . . . . . . . . . . . . . . . . . 59,540 58,380
* 1996 reflects the impact of the 1995 third quarter extraordinary loss from
discontinuance of regulatory accounting on shareowners' equity.
SBC COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
1. BASIS OF PRESENTATION - The consolidated financial
statements have been prepared by SBC Communications Inc. (SBC)
pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management,
include all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the results for the interim
periods shown. Certain information and footnote disclosures,
normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been
condensed or omitted pursuant to such SEC rules and regulations.
Management believes that the disclosures made are adequate to
make the information presented not misleading. Certain
reclassifications have been made to the 1995 consolidated
financial statements to conform with the 1996 presentation. The
results for the interim periods are not necessarily indicative of
results for the full year. The consolidated financial statements
contained herein should be read in conjunction with the
consolidated financial statements and notes thereto included in
SBC's 1995 Annual Report to Shareowners. Effective September
1995, Southwestern Bell Telephone Company (Telephone Company),
SBC's largest subsidiary, discontinued its application of
Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation."
2. CONSOLIDATION - The consolidated financial statements
include the accounts of SBC and its majority-owned subsidiaries.
The Telephone Company is SBC's largest subsidiary. All
significant intercompany transactions are eliminated in the
consolidation process. Investments in companies in which SBC
owns 20% to 50% of the voting common stock or otherwise exercises
significant influence over operating and financial policies of
the company are accounted for under the equity method. Earnings
from foreign investments accounted for under the equity method
are included for periods ended within three months of the date of
SBC's Consolidated Statements of Income.
3. SUBSEQUENT EVENT - On April 1, 1996, SBC and Pacific Telesis
Group (PAC) jointly announced a definitive agreement to merge an
SBC subsidiary with PAC, in a transaction in which each share of
PAC common stock will be exchanged for 0.733 of a share of SBC
common stock, subject to adjustment as described in the merger
agreement. After the merger, PAC will be a wholly-owned
subsidiary of SBC. The transaction, which has been approved by
the board of directors of each company, is intended to be
accounted for as a pooling of interests and to be a tax-free
reorganization. The merger agreement is subject to certain
regulatory approvals as well as approval by the shareowners of
each company at special meetings expected to be held within the
next few months.
SBC COMMUNICATIONS INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Dollars in millions except per share amounts
RESULTS OF OPERATIONS
SBC Communications Inc. (SBC) reported net income of $464.0, or
$.76 per share, for the first quarter of 1996. Financial results
for the first quarters of 1996 and 1995 are summarized as
follows:
First Quarter Percent
Change
1996 vs.
1996 1995 1995
Operating revenues $ 3,196.7 $ 2,909.9 9.9%
Operating expenses $ 2,396.7 $ 2,202.0 8.8%
Net income $ 464.0 $ 395.2 17.4%
The primary factors contributing to the increase in net income
during the first quarter of 1996 were growth in demand for
services and products at the Telephone Company and Southwestern
Bell Mobile Systems (Mobile Systems) and an increase in SBC's
earnings from its equity affiliate, Telefonos de Mexico, S.A. de
C.V. (Telmex).
SBC's operating revenues in the first quarter of 1996 increased
$286.8, or 9.9%, over the first quarter of 1995. Components of
operating revenues for the first quarters of 1996 and 1995 are as
follows:
First Quarter Percent
Change
1996 vs.
1996 1995 1995
Local service
Landline $ 1,120.8 $ 1,037.2 8.1%
Wireless 611.8 502.7 21.7%
Network access
Interstate 533.6 497.4 7.3%
Intrastate 270.4 245.9 10.0%
Long-distance service 224.4 210.2 6.8%
Directory advertising 104.2 115.0 (9.4)%
Other 331.5 301.5 10.0%
Total $ 3,196.7 $ 2,909.9 9.9%
Landline local service revenues increased in the first
quarter of 1996 due primarily to increases in demand,
including 4.9% growth in the number of access lines since
March 31, 1995, and increased demand for enhanced services,
including Caller ID. Approximately 29% of access line
growth was due to the sales of additional access lines to
existing residential customers. Results for the first
quarter of 1995 were negatively impacted by accruals for
revenue sharing under the previous regulatory plan that was
in effect through August 1995 in Texas.
Wireless local service revenues increased in the first
quarter of 1996 due primarily to a 23.1% increase in
cellular customers since March 31, 1995, partially offset by
a slight decline in average revenue per customer. Market
penetration at the end of the first quarters of 1996 and
1995 was 9.4 and 7.6 customers per 100 residents,
respectively, in Mobile Systems' service areas.
Interstate network access revenues increased in the first
quarter of 1996 due primarily to an increase in demand for
access services. Growth in revenues from end user charges
attributable to an increasing access line base also
contributed to the increase.
Intrastate network access revenues increased in the first
quarter of 1996 due primarily to increases in demand,
including usage by alternative intraLATA toll carriers.
Long-distance service revenues increased in the first quarter
of 1996 due to the inclusion in 1995 of accruals for rate
reductions relating to an appealed 1992 rate order in
Oklahoma. The settlement of the appeals in October 1995
eliminated the need for these accruals. Excluding the effect
of these accruals, long-distance service revenues in the
first quarter of 1996 decreased due to the continuing impact
of competition. However, long-distance service message
volumes in the first quarter of 1996 were relatively
unchanged from the first quarter of 1995, as competition-
related decreases were mostly offset by the higher message
volumes caused by optional calling plans.
Directory advertising revenues decreased in the first quarter
of 1996 as a result of the January 1996 sale of SBC's
publishing contracts for GTE Corporation's service areas to
GTE Directories.
Other operating revenues increased in the first quarter of
1996 due primarily to increased demand for the Telephone
Company's non-regulated services and products, including
Caller ID equipment.
SBC's operating expenses in the first quarter of 1996 increased
$194.7, or 8.8%, over the first quarter of 1995. Components of
operating expenses for the first quarters of 1996 and 1995 are as
follows:
First Quarter Percent
Change
1996 vs.
1996 1995 1995
Cost of services and products $ 933.1 $ 867.5 7.6%
Selling, general and 917.7 802.3 14.4%
administrative
Depreciation and amortization 545.9 532.2 2.6%
Total $ 2,396.7 $ 2,202.0 8.8%
Cost of services and products increased for the first
quarter of 1996 due to demand related increases at the
Telephone Company, largely in the form of increases in
materials, contract services and annual compensation
increases. Increases at Mobile Systems, largely related to
growth, were offset by the absence of costs related to
directory printing contracts sold in January 1996.
Selling, general and administrative expenses increased in
the first quarter of 1996 largely due to growth-related
increases at Mobile Systems and higher operating taxes,
including the new Texas Infrastructure Fund established as
part of legislation that became effective in September 1995.
Interest expense decreased $13.7, or 10.2%, in the first quarter
of 1996, due primarily to lower debt levels.
Equity in net income of affiliates increased $45.1 in the first
quarter of 1996. This increase was primarily due to higher
earnings from SBC's investment in Telmex, due to stabilization of
the peso and operational growth, indicated by increases in
cellular customers and long-distance usage.
SBC's investment in Telmex is recorded in accordance with U.S.
generally accepted accounting principles, which exclude inflation
adjustments and include adjustments for the purchase method of
accounting.
Income taxes increased $76.3, or 40.4%, in the first quarter of
1996 due to higher earnings and the effect on taxes of the
discontinuance of regulatory accounting in the third quarter of
1995.
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
REGULATORY ENVIRONMENT
Telecommunications Reform Legislation Both the Missouri and
Kansas legislatures recently passed bills designed to reform
state telecommunications regulation and facilitate implementation
of the federal Telecommunications Act of 1996 (the Act). A
further description of the Act is contained in SBC's 1995 annual
report to shareowners. Both bills would replace rate of return
regulation with forms of price cap regulation. Basic local rates
will be capped at their current levels for four years in Missouri
and three years in Kansas.
The Missouri bill provides for pricing flexibility and is
designed to provide equal regulation for all competitors with the
potential for price deregulation after five years unless the
Missouri Public Service Commission finds that "effective
competition" does not exist.
The Kansas bill provides for reduced regulation, including the
possibility for price deregulation if the Kansas Corporation
Commission finds that an alternative provider of comparable
telecommunications services exists. Other provisions of the bill
include a revenue neutral rate rebalancing between intrastate
access charges and local service rates. This rebalancing is
designed to lower intrastate long-distance rates, making them
more comparable to interstate rates.
OTHER BUSINESS MATTERS
Merger Agreement On April 1, 1996, SBC and Pacific Telesis Group
(PAC) jointly announced a definitive agreement to merge an SBC
subsidiary with PAC, in a transaction in which each share of PAC
common stock will be exchanged for 0.733 of a share of SBC common
stock, subject to adjustment as described in the merger
agreement. After the merger, PAC will be a wholly-owned
subsidiary of SBC. The transaction, which has been approved by
the board of directors of each company, is intended to be
accounted for as a pooling of interests and to be a tax-free
reorganization. The merger agreement is subject to certain
regulatory approvals as well as approval by the shareowners of
each company at special meetings expected to be held within the
next few months.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1996, as in 1995, SBC's primary
source of funds continued to be cash provided by operating
activities. This, combined with external financing and proceeds
from the sale of directory printing contracts, was used primarily
to fund capital expenditures and pay dividends. SBC had $570.8
of cash and cash equivalents available at March 31, 1996. 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. These lines had not been utilized
as of March 31, 1996. Commercial paper and similar borrowings as
of March 31, 1996 totaled $1,438.9.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2 Agreement and Plan of Merger, among Pacific
Telesis Group, SBC Communication Inc. and SBC Communications
(NV) Inc., dated as of April 1, 1996. (Exhibit 2 to
Form 8-K (File No. 1-8610), dated April 1, 1996.)
Exhibit 3 Restated Certificate of Incorporation of SBC
Communications Inc., filed with the Secretary of State
of Delaware on April 29, 1996.
Exhibit 12 Computation of Ratios of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the first
quarter ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SBC Communications Inc.
May 7, 1996 /s/ Donald E. Kiernan
Donald E. Kiernan
Senior Vice President,Treasurer
and Chief Financial Officer
Exhibit 3
RESTATED CERTIFICATE OF INCORPORATION
OF
SBC COMMUNICATIONS INC.
SBC Communications Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is SBC Communications Inc., and the name
under which the corporation was originally incorporated was Southwestern
Bell Corporation. The date of filing of its original Certificate of
Incorporation with the Secretary of State was October 5, 1983.
2. This Restated Certificate of Incorporation only restates and integrates
and does not further amend the provisions of the Restated Certificate of
Incorporation of this corporation as heretofore amended or supplemented
and there is no discrepancy between those provisions and the provisions
of this Restated Certificate of Incorporation.
3. The text of the Restated Certificate of Incorporation as amended or
supplemented heretofore is hereby restated and without further amendments
or changes to read as herein set forth in full:
ARTICLE ONE
The name of the corporation is SBC Communications Inc.
ARTICLE TWO
The address of the registered office of the corporation in the State
of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of the registered agent of the corporation at such address
is The Corporation Trust Company.
ARTICLE THREE
The purpose of the corporation is to engage in any business, lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE FOUR
The corporation shall have perpetual existence.
ARTICLE FIVE
The aggregate number of shares which the corporation is authorized to
issue is 2,210,000,000 shares, consisting of 2,200,000,000 common shares
having a par value of $1 per share and 10,000,000 preferred shares having a
par value of $1 per share.
The preferred shares may be issued from time to time in one or more series.
The Board of Directors is authorized to establish by resolution the number of
preferred shares in each series, the designation thereof, the powers,
preferences, and rights and the qualifications, limitations or
restrictions of each series and the variations, if any, as between
each series.
No holder of any class or series of shares shall have any preemptive right
to purchase any additional issue of shares of the corporation of any class
or series or any security convertible into any class or series of shares.
In accordance with this Article Five, the Board of Directors has
designated shares of Preferred Stock with the voting powers, preferences,
rights, qualifications, limitations, and restrictions as set
forth on Exhibit A hereto.
ARTICLE SIX
The business and affairs of the corporation shall be under direction
of a Board of Directors. The number of Directors, their terms and the
manner of their election shall be fixed by the Bylaws of the corporation.
The Directors need not be elected by written ballot unless required by the
Bylaws of the corporation.
No Director of this corporation shall be liable to this corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability 1) for any breach of the Director's duty of
loyalty to the corporation or its stockholders; 2) for acts or omissions
not in good faith or which involve intentional misconduct or knowing
violation of the law; 3) under Section 174 of the Delaware General
Corporation Law; or 4) for any transaction from which a Director
derived an improper benefit.
ARTICLE SEVEN
The Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the corporation, except that any Bylaw of the
corporation providing for the maximum number of Directors that may
serve on the Board of Directors, or providing for a classified Board
of Directors with staggered terms of office or requiring the approval
by the shareholders or the Board of Directors of any business
combinations may only be amended or repealed by a two-thirds majority
vote of the total number of shares of stock of the corporation
then outstanding and entitled to vote.
ARTICLE EIGHT
Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the corporation, no action which is required
to be taken or which may be taken at any annual or special
meeting of stockholders of the corporation may be taken by written
consent without a meeting, except where such consent is signed by
stockholders representing at least two-thirds of the total
number of shares of stock of the corporation then outstanding and
entitled to vote thereon.
ARTICLE NINE
The corporation reserves the right to amend and repeal any provision
contained in this Certificate of Incorporation in the manner prescribed
by the laws of the State of Delaware. All rights
herein conferred are granted subject to this reservation.
4. This Restated Certificate of Incorporation was duly
adopted by the Board of Directors on April 26, 1996, in accordance with
Section 245 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said SBC Communications Inc. has caused this
Restated Certificate of Incorporation to be signed by Edward E. Whitacre, Jr.,
its Chairman of the Board of Directors, President and Chief Executive
Officer, and attested by Judith M. Sahm, its Vice President
and Secretary, this 26th day of April 1996.
SBC Communications Inc.
(seal) By: /s/ Edward E. Whitacre, Jr.
Edward E. Whitacre, Jr.
Chairman of the Board, President
and Chief Executive Officer
Attest: /s/ Judith M. Sahm
Judith M. Sahm
Vice President and Secretary
EXHIBIT A
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
SOUTHWESTERN BELL CORPORATION*
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
That pursuant to the authority conferred upon the Board of Directors by
the Restated Certificate of Incorporation of the said Corporation, the
said Board of Directors on January 27, 1989, adopted the following
resolution creating a series of 4,000,000 shares of Preferred Stock designated
as Series A Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of
its Restated Certificate of Incorporation, a series of Preferred Stock
of the Corporation be and it hereby is created, and that the designation and
amount thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 4,000,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Junior Participating
Preferred Stock shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the last day of April,
July, October and January in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series A Junior Participating Preferred Stock,
in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $5.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $1.00 per share
of the Corporation (the "Common Stock") since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Junior Participating
Preferred Stock. In the event the Corporation shall at any time after
January 27, 1989 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then
in each such case the amount to which holders of shares of Series
A Junior Participating Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Junior Participating Preferred Stock as
provided in paragraph (A) above immediately after it declares
a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $5.00 per share on the Series A Junior
Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred
Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares of Series A Junior Participating
Preferred Stock, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for
the determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Junior Participating Preferred
Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be
no more than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of
Series A Junior Participating Preferred Stock shall have the
following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to 100 votes on all matters submitted
to a vote of the shareowners of the Corporation. In the event
the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common
Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior
to such event shall be adjusted by multiplying such number
by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class
on all matters submitted to a vote of the shareowners of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount
equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") which shall
extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A Junior
Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of
the Series A Junior Participating Preferred Stock) with dividends in
arrears in an amount equal to six (6) quarterly dividends thereon,
voting as a class, irrespective of series, shall have the right to elect
two (2) Directors.
(ii) During any default period, such voting right of the holders of
Series A Junior Participating Preferred Stock may be exercised initially
at a special meeting called pursuant to subparagraph (iii) of this
Section 3 (C) or at any annual meeting of shareowners, and thereafter at
annual meetings of shareowners, provided that neither such voting right nor
the right of the holders of any other series of Preferred Stock, if
any, to increase, in certain cases, the authorized number of Directors
shall be exercised unless the holders of ten percent (10%) in number
of shares of Preferred Stock outstanding shall be present in person or by
proxy. The absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of such voting
right. At any meeting at which the holders of Preferred Stock shall
exercise such voting right initially during an existing default period,
they shall have the right, voting as a class, to elect Directors to
fill such vacancies, if any, in the Board of Directors as may then
exist up to two (2) Directors or, if such right is exercised
at an annual meeting, to elect two (2) Directors. If the number
which may be so elected at any special meeting does not amount to the
required number, the holders of the Preferred Stock shall have the
right to make such increase in the number of Directors as shall be
necessary to permit the election by them of the required number.
After the holders of the Preferred Stock shall have exercised
their right to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be
increased or decreased except by vote of the holders of Preferred
Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the
Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right
to elect Directors, the Board of Directors may order, or any
shareowner or shareowners owning in the aggregate not less
than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series,
may request, the calling of a special meeting of the holders
of Preferred Stock, which meeting shall thereupon be called
by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting
at which holders of Preferred Stock are entitled to vote
pursuant to this paragraph (C) (iii) shall be given to each
holder of record of Preferred Stock by mailing a copy of such
notice to him at his last address as the same appears on the
books of the Corporation. Such meeting shall be called for a
time not earlier than 20 days and not later than 60 days
after such order or request or in default of the
calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any
shareowner or shareowners owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph
(C) (iii), no such special meeting shall be called during the
period within 60 days immediately preceding the date fixed
for the next annual meeting of the shareowners.
(iv) In any default period, the holders of Common Stock, and
other classes of Stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised their right to
elect two (2) Directors voting as a class, after the exercise of
which right (x) the Directors so elected by the holders of Preferred
Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the
default period, and (y) any vacancy in the Board of Directors may
(except as provided in paragraph (C) (ii) of this Section 3) be
filled by vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock which elected the
Director whose office shall have become vacant. References in
this paragraph (C) to Directors elected by the holders of a particular
class of Stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by the
holders of Preferred Stock as a class shall terminate, and (z) the
number of Directors shall be such number as may be provided for in
the Certificate of Incorporation or Bylaws irrespective of any
increase made pursuant to the provisions of paragraph (C) (ii) of
this Section 3 (such number being subject, however, to change thereafter
in any manner provided by law or in the Certificate of Incorporation
or Bylaws). Any vacancies in the Board of Directors effected
by the provisions of clauses (y) and (z) in the preceding sentence
may be filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein)
for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on shares
of Series A Junior Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating
Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Junior Participating Preferred Stock, except dividends paid
ratably on the Series A Junior Participating Preferred Stock and
all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of
all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation
or winding up) to the Series A Junior Participating
Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares of
Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith
will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A)
of this Section 4, purchase or otherwise acquire such shares
at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Junior Participating Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a
new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of
shares of Series A Junior Participating Preferred Stock shall have
received $100 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the holders
of shares of Series A Junior Participating Preferred Stock unless,
prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth
in subparagraph C below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common
Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and
Common Stock, respectively, holders of Series A Junior
Participating Preferred Stock and holders of shares of Common
Stock shall receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the
Adjustment Number to 1 with respect to such Preferred Stock and
Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
Preferred Stock, if any, which rank on a parity with the Series A
Junior Participating Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
In the event, however, that there are not sufficient assets available
to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders
of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property,
then in any such case the shares of Series A Junior Participating
Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the
amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Junior Participating
Preferred Stock shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating
Preferred Stock shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall
provide otherwise.
Section 10. Amendment. The Restated Certificate of Incorporation of
the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of
the Series A Junior Participating Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series A Junior Participating
Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle
the holder, in proportion to such holder's fractional shares,
to exercise voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series A
Junior Participating Preferred Stock.
- ----
* Pursuant to an amendment to the Restated Certificate of Incorporation
effective April 28, 1995, the name of the Corporation was changed to
SBC Communications Inc.
<TABLE>
EXHIBIT 12
SBC COMMUNICATIONS INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Income Before Income Taxes,
Extraordinary Loss and
Cumulative Effect of Changes
in Accounting Principles* $ 683.8 $ 579.8 $2,698.2 $2,300.0 $1,882.9 $1,701.2 $1,557.0
Add: Interest Expense 120.1 133.8 515.1 480.2 496.2 530.0 577.7
1/3 Rental Expense 14.3 11.7 45.9 41.8 41.0 45.1 37.5
Adjusted Earnings $ 818.2 $ 725.3 $3,259.2 $2,822.0 $2,420.1 $2,276.3 $2,172.2
Total Interest Charges $ 125.1 $ 133.8 $ 515.1 $ 480.2 $ 496.2 $ 530.0 $ 577.7
1/3 Rental Expense 14.3 11.7 45.9 41.8 41.0 45.1 37.5
Adjusted Fixed Charges $ 139.4 $ 145.5 $ 561.0 $ 522.0 $ 537.2 $ 575.1 $ 615.2
Ratio of Earnings to Fixed
Charges 5.87 4.98 5.81 5.41 4.51 3.96 3.53
*Undistributed earnings on investments accounted for under the equity method have been excluded.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC. MARCH 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 570,800
<SECURITIES> 0
<RECEIVABLES> 2,335,100
<ALLOWANCES> 131,200
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 3,775,900
<PP&E> 31,331,600
<DEPRECIATION> 18,179,200
<TOTAL-ASSETS> 22,172,000
<CURRENT-LIABILITIES> 5,051,100
<BONDS> 5,587,600
0
0
<COMMON> 620,500
<OTHER-SE> 5,819,400
<TOTAL-LIABILITY-AND-EQUITY> 22,172,000
<SALES> 0<F2>
<TOTAL-REVENUES> 3,196,700
<CGS> 0<F3>
<TOTAL-COSTS> 933,100
<OTHER-EXPENSES> 545,900
<LOSS-PROVISION> 39,900
<INTEREST-EXPENSE> 120,100
<INCOME-PRETAX> 729,300
<INCOME-TAX> 265,300
<INCOME-CONTINUING> 464,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 464,000
<EPS-PRIMARY> .76
<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 REVENUE" 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>
