FORM 10-K
UNITED STATES
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 (No Fee Required)
For fiscal year ended December 31, 1996
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
SBC Communications 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 28, 1997, the aggregate
market value of all voting stock held by non-affiliates was $34,397,200,000.
As of February 28, 1997, 598,842,533 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, 1996 (Parts I and II).
(2) Portions of SBC Communications Inc.'s Notice of 1997 Annual Meeting and
Proxy Statement dated March 11, 1997 (Parts III and IV).
TABLE OF CONTENTS
Item Page
PART I
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).
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 (equivalent to approximately 314 million shares), subject to
adjustment as described in the merger agreement based upon an allocation of the
costs, fees and expenses and other financial effects incurred or sustained in
connection with obtaining state regulatory approvals. After the merger, PAC
will be a wholly-owned subsidiary of SBC. The transaction is intended to be
accounted for as a pooling of interests and to be a tax-free reorganization.
Certain pro-forma financial information concerning the merger is set forth in
Note 3 to the financial statements of the 1996 SBC Annual Report to Shareowners.
On July 31, 1996, the shareowners of SBC and PAC each approved the transaction,
which had previously been approved by the board of directors of each company.
On November 5, 1996, the United States Department of Justice announced it would
not initiate action on the merger under the Hart-Scott-Rodino antitrust law.
The Public Service Commission of Nevada approved the merger on December 31,
1996. The FCC approved the transfer of licenses from PAC to SBC on January 31,
1997. The merger agreement is subject to certain other regulatory approvals,
including approval by the California Public Utilities Commission (CPUC). On
February 21, 1997, an Administrative Law Judge recommendation was issued which
proposed approval of the merger subject to certain conditions. Among these
conditions was a recommendation that $590 million be refunded to California
ratepayers over the next five years, with the annual payments being increased by
10% each year. SBC believes the recommendations are excessive and
inappropriate, and intends to ask the CPUC to eliminate or substantially modify
the refunds and other conditions. The CPUC is expected to issue an order on the
transaction by the end of the first quarter. Subject to allocation of the
regulatory approval costs, as discussed above, and receipt of remaining
regulatory approvals, the transaction is expected to close in the first half of
1997.
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 Federal Government enacted the Telecommunications Act
of 1996 (the Telecom Act), a major, wide-ranging amendment to the Communications
Act of 1934.
By its specific terms, the Telecom Act supersedes the jurisdiction of the
District Court with regard to activities occurring after the date of enactment.
The Federal Communications Commission (FCC) is given authority for all post-
enactment conduct, with the District Court retaining jurisdiction of pre-
enactment conduct for a five-year period. As a result of these provisions, on
April 11, 1996 the District Court issued its Opinion and Order terminating the
MFJ and dismissing all pending motions as moot, thereby effectively ending 13
years of RHCs regulation under the MFJ.
Among other things, the Telecom Act defines the conditions which must be met
before SBC will be authorized to provide landline interLATA long-distance
service throughout the five-state area. Additional information relating to the
Telecom Act is contained in SBC's Annual Report to Shareowners for 1996 under
the heading "Competition" beginning on page 14, and is incorporated herein by
reference pursuant to General Instruction G(2).
BUSINESS OPERATIONS
In July 1995, SBC announced a strategic realignment which positions the company
to be a single-source provider of telecommunications services. All of SBC's
operations within the five-state area (in-region) report to one management
group, while international operations and domestic operations outside the
five-state area (out-region) 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 Messaging Services, Inc. (SMSI), 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, enhanced services,
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. In December 1996,
most of the operations of Southwestern Bell Telecommunications, Inc.
(Telecom) merged into the operations of the Telephone Company with enhanced
services being moved into SMSI.
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 and
Mobile Systems), 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 Media Ventures). With the passage of the
Telecom Act, Mobile Systems began offering interLATA and intraLATA
long-distance services in February 1996. In November 1996, Southwestern Bell
Communications Services, Inc. (SBCS), another SBC subsidiary, began offering
interLATA long-distance services to customers in selected out-region areas.
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
1996 1995 1994
Local service:
Landline 34% 34% 34%
Wireless 19% 18% 15%
Network access 23% 24% 24%
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 customer premises
equipment (CPE) located within the same local service calling area. Local
services include: basic local exchange service, certain extended area service,
dedicated private line services for voice and special services, directory
assistance and various vertical services, including custom calling services,
call control options and Caller ID services. Until the passage of the Telecom
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, in 1996 SBC provided both
interLATA and intraLATA long-distance services over its wireless networks, as
well as landline 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.
During the latter half of 1996 and over the course of 1997, the Telephone
Company has and will be offering certain services on a "wholesale" basis to
competitors, as well as providing elements of the Telephone Company's network on
an "unbundled" basis for local competition. These services are being offered as
specified by the Telecom Act and state actions and agreements. That legislation
and the regulations promulgated by state and federal agencies to implement it
will result in SBC facing increased competition in significant portions of its
business. Such increased competition is a prerequisite to SBC's permitted entry
into the long-distance business and markets from which it is currently excluded.
The precise impact to SBC's business in 1997 from local exchange competition is
impossible to quantify due to the fact state and federal regulations governing
such competition are not yet finalized.
The Telephone Company is SBC's largest subsidiary, providing approximately 70%
of SBC's operating revenues in 1996. The Telephone Company provides its
services over approximately 9.8 million residential and 4.9 million business
access lines in the five-state area. During 1996, nearly two-thirds of the
Telephone Company's access line growth occurred in Texas.
During 1996, the Telephone Company continued to expand its offering of vertical
services throughout its five-state area. Some of these services include
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 certain 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
a comparably 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 with certainty, it is anticipated that the FCC will
reaffirm the nonstructural safeguards.
SMSI provides voice messaging services under the registered trademark CallNotes
to residential and business customers. During 1996, Southwestern Bell Internet
Services, Inc., another SBC subsidiary, began providing Internet access services
in selected metropolitan areas within the five-state area. Planning is under
way to introduce access services to other in-region areas in 1997. During 1996,
Southwestern Bell Communications Inc., began providing strategic marketing,
product development and network services to SBC subsidiaries operating in the
five-state area.
Through the end of 1996, Mobile Systems provided wireless
services to 4,398,000 customers, or 10.8 out of every 100 residents in its
service areas. Mobile Systems provides services in 38 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 38 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 also operates a
rural RSA in Arkansas under an interim operating authority granted by the FCC.
In January 1997, Mobile Systems began doing business within its five-state area
as Southwestern Bell Wireless, Inc. 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. Cellular One does or can offer on a
resale basis wireless and landline interLATA long-distance service in all
out-region markets where it provides local wireless service. In January
1997, Cellular One also began offering landline local service in Rochester,
New York on a resale basis.
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,
allows additional service offerings, 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 also markets wireless communications equipment in each of its
service areas.
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 an
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 in the
build-out phase of PCS in Tulsa, Oklahoma. During 1996, SBC received several
AT&T cellular networks in Arkansas in exchange for SBC's PCS licenses in
Memphis, Tennessee and Little Rock, Arkansas and other considerations.
In an FCC auction concluded in January 1997, SBC acquired 8 additional PCS
licenses for Basic Trading Areas (BTAs) that are within its five-state area
(includes Springfield, Missouri; McAlester, Oklahoma; Joplin, Missouri;
Pittsburgh, Kansas; Temple-Killeen, Texas; Waco, Texas; Tyler, Texas and
Longview-Marshall, Texas). SBC plans to build out the new BTAs as part of its
strategy to be a full service telecommunications provider. Once the BTAs are
completed (expected completion 1999), SBC will be able to offer wireless
services to approximately 85% of its landline local service customers.
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.
(Grupo Carso), 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. During 1996, Grupo Carso transferred its Telmex interest to a spin-
off company named Carso Global Telecom, S.A. de C.V. This transaction will have
no effect on SBC International's Telmex holdings. SBC International also owns
Class L shares which have limited voting rights. In 1996, Telmex made
significant purchases under a share repurchase program. In January 1997, SBC
International sold a portion of its Class L shares to Telmex so that SBC's
total equity investment (including both AA shares and L shares) was slightly
below 10% of Telmex's total equity capitalization. Telmex provides complete
landline and wireless telecommunications services within Mexico. At the end of
1996, Telmex had 8.8 million access lines in service and provided cellular
service to approximately 657,000 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. During 1996, in response to the 1996 exercise of an option by
another company to purchase additional SFR shares, SBC International exercised
an option to maintain its 10% indirect ownership interest in SFR. At the end of
1996, SFR provided cellular service to approximately 928,000 subscribers.
In February 1995, SBC International purchased 40% of VTR S.A. (VTR), a privately
owned telecommunications holding company in Chile. During 1996 SBC
International increased its stake to 49% through the purchase of shares from
a minority investor. VTR is 51% indirectly 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
1996, local services were provided over approximately 97,000 access lines,
wireless services were provided to more than 175,000 subscribers and cable
television services were provided to approximately 322,000 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 through its subsidiaries also holds a minority interest in
Golden Channels, a cable television provider in Israel. At the end of 1996,
Golden Channels' systems passed 433,000 households and provided service to
approximately 277,000 households, a penetration rate of approximately 64%.
In Israel and Australia, SBC International has interests in companies involved
in the publication of yellow pages directories and marketing directory and other
software.
In November, a consortium in which SBC International participated received one
of two licenses for international telecommunications service in Israel. Other
consortium members are STET, (Italy's national telephone company), the
US/Israeli Aureq Group, and the Israelis Globescom and Kahan group. At the
present time, the award of these licenses is undergoing judicial review.
SBC also has wireless interests in South Korea and SBC International has
wireless interests in South Africa.
Directory Advertising
Yellow Pages publishes more than 43 million copies of approximately 350
directories principally 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.
Customer Premises Equipment and Other Equipment Sales
In December 1996, most of the operations of Telecom merged with the operations
of the Telephone Company. Telecom markets business and residential
communications equipment. Their 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 1996,
these systems passed 426,000 homes and served 268,000 customers. In August
1996, Media Ventures contributed Cable TV Montgomery and Cable TV Arlington to
SBC Media Ventures, LP (Partnership), a recently formed partnership between
Media Ventures and affiliates of Prime Cable (Prime). Media Ventures is general
partner and retains an approximate 95% ownership interest in the Partnership.
Prime contributed $20 million to the Partnership and now manages the cable
systems on behalf of the Partnership.
In December 1995, SBC began offering video services over a fiber-to-the-curb
network passing 1,800 homes in a consumer trial in Richardson, Texas. In
January 1997, SBC announced it plans to build a testbed network to approximately
31,000 homes in Richardson by 1998 and use that network to offer video and
communications services citywide.
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. In 1996,
Southern New England Telephone Company became a minority partner in this
venture.
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 1996 under the
heading "Regulatory Environment" on page 12, 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 Gary, Indiana;
Worcester, Massachusetts; Buffalo, New York; Syracuse, New York; Rochester, New
York; and Corpus Christi, Texas in September 1996. Renewal applications were
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. Renewal licenses were
awarded in November 1996. Renewal applications will be filed in the following
markets during September 1997: Abilene, Texas; Brownsville-Harlingen, Texas;
Champaign-Urbana-Rantoul, Illinois; Decatur, Illinois; McAllen-Edinburgh-
Mission, Texas; Midland, Texas; Odessa, Texas; Springfield, Illinois and
Fayetteville-Springdale, Arkansas.
Under the auction process of an FCC order outlining the development of PCS,
licenses with durations of ten years were awarded in 51 major markets. The
license acquired by SBC for Tulsa, Oklahoma expires in June 2005 and is
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
suburban Washington, D.C. 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 1996
or 1995. Approximately 10% of SBC's 1994 consolidated revenues were from
services provided to AT&T. No other customer accounted for more than 10% of
consolidated revenues in 1994.
COMPETITION
Telecommunications
Information relating to competition in the telecommunications industry is
contained in SBC's Annual Report to Shareowners for 1996 under the heading
"Competition" beginning on page 14, 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 1996 under the heading "International" on page 17, 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
The Telephone Company and Telecom face 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 November
1996, SBC and the other RHCs announced their agreement to sell their
interests in Bellcore to Science Applications International Corporation.
Regulatory approvals of the transaction are pending, and if they are received it
is expected to close in late 1997. The RHCs will 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, 1996, SBC and its subsidiaries employed 61,540 persons.
Approximately 67% of the employees are represented by the Communications
Workers of America (CWA). A three-year contract and a 20-month contract (both
covering an estimated 37,800 employees) were negotiated between the CWA and the
Telephone Company, effective in August 1995 and December 1996 and each ending
in August 1998. A three-year contract (covers an estimated 1,800 employees)
was negotiated between the CWA and Yellow Pages, which became effective in
December 1995. A 31-month contract (covers an estimated 800 employees) was
negotiated between the CWA and Southwestern Bell Communications, Inc., which
became effective in January 1997. The CWA also represents a small 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, 1996, 90% of the property, plant
and equipment of SBC was owned by the Telephone Company. Network access lines
represented 44% of the Telephone Company's investment in telephone plant;
central office equipment represented 39%; land and buildings represented 9%;
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
Six putative 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 relating to telephone inside wire located on customer premises in
these states and in Arkansas. 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.
Whitacre Jr. 55 Chairman and Chief Executive Officer 1-90
Royce S.
Caldwell 58 President - Southwestern Bell Operations 7-95
James W.
Callaway 50 Senior Vice President - Strategic Planning 8-96
Cassandra C.
Carr 52 Senior Vice President - Human Resources 5-94
William E.
Dreyer 59 Senior Executive Vice President - External Affairs 7-93
James D.
Ellis 53 Senior Executive Vice President and General Counsel 3-89
Charles E.
Foster 60 President - SBC Operations 7-95
James S.
Kahan 49 Senior Vice President - Corporate Development 7-93
Donald E.
Kiernan 56 Senior Vice President, Treasurer and 7-93
Chief Financial Officer
All of the above executive officers have held high-level managerial positions
with SBC or its subsidiaries for more than the past five years. Executive
officers are not appointed to a fixed term of office but hold office until their
successors are elected and qualified.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The number of shareowners of record as of December 31, 1996 and 1995 were
800,465 and 840,378. Other information required by this Item is included in the
SBC Annual Report to Shareowners for the fiscal year ended December 31, 1996
under the headings "Quarterly Financial Information" on page 33, "Selected
Financial and Operating Data" on page 8, and "Stock Trading Information" on page
37, which are incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1996 under the heading
"Selected Financial and Operating Data" on page 8 which is incorporated herein
by reference pursuant to General Instruction G(2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1996 on page 9 through page
19, which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1996 on page 20 through page
34, which 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
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANTS
Information regarding executive officers required by Item 401 of Regulation S-K
is furnished in a separate disclosure at the end of Part I of this report since
the registrant did not furnish such information in its definitive proxy
statement prepared in accordance with Schedule 14A. Other information required
by this Item is included in the registrant's definitive proxy statement, dated
March 11, 1997, under the heading "Board of Directors" beginning on page 3 which
is incorporated herein by reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1997, under the headings "Compensation of
Directors" on page 11 through page 12, and "Compensation Committee Interlocks
and Insider Participation", "Executive Compensation", "Pension Plans", and
"Contracts with Management" from page 16 through page 26, which are incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1997, under the heading "Common Stock Ownership
of Directors and Officers" from page 13 through 14, which is incorporated herein
by reference pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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, 1996. (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......................................................
2-a Agreement and Plan of Merger, among Pacific Telesis Group, SBC
Communications Inc. and SBC Communications (NV) Inc., dated as of
April 1, 1996. (Exhibit 2 to Form 8-K, dated April 1, 1996.)
3-a Restated Certificate of Incorporation, filed with the Secretary of
State of Delaware on April 29, 1996. (Exhibit 3 to Form 10-Q dated
March 31, 1996.)
3-b Bylaws dated January 31, 1996.
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 SBC Communications 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, 1992.)
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 July 26, 1996. (Exhibit 10-a to
Form 10-Q dated June 30, 1996.)
10-o 1992 Stock Option Plan, revised effective July 26, 1996.
(Exhibit 10-b to Form 10-Q dated June 30, 1996.)
10-p Officer Retirement Savings Plan. (Exhibit 10.18 to Registration
Statement No. 33-54795.)
10-q 1996 Stock and Incentive Plan, revised effective July 26, 1996.
(Exhibit 10-d to Form 10-Q dated June 30, 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, 1996. 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 1996 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 1996 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 November 11, 1996, SBC filed a Current Report on Form 8-K, reporting on
Item 7, Financial Statements and Exhibits. In the Report, SBC provided pro
forma combined condensed financial statements of SBC and PAC assuming the
merger will be accounted for as a "pooling of interests".
<TABLE>
SBC COMMUNICATIONS INC. Schedule II - Sheet 1
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 of to Costs and Accounts Deductions at End of
Description Period Expenses -Note (a) -Note (b) Period
<S> <C> <C> <C> <C> <C>
Year 1996............. $ 134 227 54 267 $ 148
Year 1995............. $ 130 186 46 228 $ 134
Year 1994............. $ 111 166 41 188 $ 130
<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 - Sheet 2
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)
Balance at Charged Balance
Beginning of Charged to Other at End of
Description Period to Expense Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year 1996........ $ 548 117 - 58(a) $ 607
Year 1995........ $ 428 122 - 2 $ 548
Year 1994........ $ 368 97 - 37 $ 428
<FN>
(a) Primarily related to the disposition of Associated Directory 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 11th day of
March, 1997.
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
/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 11, 1997
Ruben R. Cardenas*
Martin K. Eby, Jr.*
Tom C. Frost*
Jess Hay*
B. R. Inman*
Charles F. Knight*
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............................................
2-a Agreement and Plan of Merger, among Pacific Telesis Group, SBC
Communications Inc. and SBC Communications (NV) Inc., dated as of
April 1, 1996. (Exhibit 2 to Form 8-K, dated April 1, 1996.)
3-a Restated Certificate of Incorporation, filed with the Secretary of
State of Delaware on April 29, 1996. (Exhibit 3 to Form 10-Q dated
March 31, 1996.)
3-b Bylaws dated January 31, 1996.
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 SBC Communications 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, 1992.)
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 July 26, 1996. (Exhibit 10-a to
Form 10-Q dated June 30, 1996.)
10-o 1992 Stock Option Plan, revised effective July 26, 1996.
(Exhibit 10-b to Form 10-Q dated June 30, 1996.)
10-p Officer Retirement Savings Plan. (Exhibit 10.18 to Registration
Statement No. 33-54795.)
10-q 1996 Stock and Incentive Plan, revised effective July 26, 1996.
(Exhibit 10-d to Form 10-Q dated June 30, 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, 1996. 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 1996 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 1996 to be filed under Form 10-K/A.
Exhibit 3-b
SBC COMMUNICATIONS INC.
Incorporated under the Laws of the State of Delaware, October 5,
1983
Bylaws
Article I
Stockholders
Section 1. Annual Meeting
An annual meeting of the stockholders, for the election of
Directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before
the meeting, shall be held at such place, on such date, and at
such time as the Board of Directors shall fix each year.
Section 2. Special Meeting
Special meetings of the stockholders may be called at any
time, either by the Board of Directors or by the Chairman of the
Board, and the Chairman of the Board shall call a special meeting
whenever requested in writing to do so by stockholders
representing two-thirds of the shares of the corporation, then
outstanding, and entitled to vote at such meeting. This request
must specify the time, place and object of the proposed meeting.
Section 3. Notice of Meetings
Written notice of all meetings of the stockholders shall be
given to each stockholder entitled to vote at such meeting not
less than ten (10) nor more than sixty (60) days before the date
on which the meeting is to be held. The notice shall state the
place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is
called. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail with postage thereon
prepaid, addressed to the stockholder at his address as it
appears on the stock transfer books of the corporation. Any
previously scheduled meeting of the stockholders may be postponed
by resolution of the Board of Directors upon public notice given
prior to the time previously scheduled for such meeting of
stockholders.
When a meeting is adjourned to another place, date, or time,
written notice need not be given of the meeting when reconvened,
if the place, date, and time thereof are announced at the meeting
at which the adjournment is taken. If the date of the meeting to
be reconvened is more than thirty (30) days after the date for
which notice of the meeting was originally given or if a new
record date is fixed for the meeting, written notice of the
place, date and time of the meeting to be reconvened shall be
given in conformity herewith. At any reconvened meeting, any
business may be transacted that might have been transacted at the
original meeting.
Section 4. Quorum
At any meeting of the stockholders, the holders of forty
percent (40%) of all of the shares of the stock entitled to vote
at the meeting, present in person or by proxy, shall constitute a
quorum for the transaction of business.
If a quorum shall fail to attend any meeting, the chairman
of the meeting or the holders of a majority of the shares of the
stock entitled to vote who are present, in person or by proxy,
may adjourn the meeting to another place, date, or time.
Section 5. Organization
The Chairman of the Board, or a Director or officer as the
Chairman of the Board may designate, shall act as chairman of the
stockholders' meeting. The chairman of the meeting shall
designate an officer to act as a secretary for the meeting in the
absence of the corporation's Secretary.
Section 6. Proxies and Voting
At any meeting of the stockholders, every stockholder
entitled to vote may vote in person or by proxy executed in
writing and filed with the corporation in accordance with the
procedure established for the meeting.
Each holder of common stock shall have one vote for every
share of stock that is registered in the stockholder's name on
the record date for the meeting.
All voting may be by a voice vote, provided that upon demand
of a stockholder entitled to vote in person or by proxy, a
recorded vote of all shares of stock at the meeting shall be
taken.
Directors shall be elected by a plurality of the votes cast.
All other matters shall be determined by a majority of the votes
cast, unless a greater number is required by law or the
Certificate of Incorporation for the action proposed.
Section 7. Nomination of Directors
Only persons who are nominated in accordance with the
following procedures shall be eligible for election as Directors.
Nomination of persons for election to the Board of Directors may
be made at any annual meeting of stockholders (a) by or at the
direction of the Board of Directors or any duly authorized
committee thereof or (b) by any stockholder of the corporation
entitled to vote for the election of Directors at the annual
meeting. In addition to any other applicable requirements, a
nomination made by a stockholder shall be pursuant to timely
notice in proper written form to the Secretary of the
Corporation.
To be timely, a stockholder's notice to the Secretary must
be received at the principal executive offices of the corporation
not less than sixty (60) days nor more than ninety (90) days
prior to the date of the annual meeting; provided, however, that
in the event that less than seventy (70) days' notice or prior
public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder must be received not
later than ten (10) days following the day on which notice or
public disclosure of the date of the annual meeting was mailed or
made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the
stockholder proposes to nominate for election as Director (i) the
name, age, business address, and residence address of the person,
(ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the
corporation which are owned beneficially or of record by the
person, and (iv) any other information relating to the person
that is required to be disclosed in solicitations of proxies for
election of Directors pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended, and (b) as to the stockholder
giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of
capital stock of the corporation which are owned beneficially or
of record by such stockholder, and (iii) any other information
relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to be
made in connection with solicitation of proxies for the election
of Directors pursuant to Section 14 of the Securities Exchange
Act of 1934, as amended. Such notice must be accompanied by a
written consent of each proposed nominee to being named as a
nominee and to serve as a Director if elected.
No person shall be eligible for election as a Director of
the corporation unless nominated in accordance with the
procedures set forth in this Section 7. If the Chairman
determines that a nomination was not made in accordance with the
foregoing procedure, the Chairman shall declare to the meeting
that the nomination was defective and such defective nomination
shall be disregarded.
Section 8. Conduct of Annual Meeting
No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in
the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors (or any
duly authorized committee thereof), or (c) otherwise properly
brought before the meeting by a stockholder as of the record date
for the determination of stockholders entitled to vote at such
annual meeting. In addition to any other applicable requirements
for business to be properly brought before an annual meeting by a
stockholder, such stockholder must have given timely notice
thereof in proper written form to the Secretary of the
Corporation.
To be timely, a stockholder's notice to the Secretary must
be received at the principal executive offices of the corporation
not less than sixty (60) days nor more than ninety (90) days
prior to the date of the annual meeting; provided, however, that
in the event that less than seventy (70) days' notice or prior
public disclosure of the date of the annual meeting is given or
made to the stockholder, notice by the stockholder must be
received not later than the close of business on the tenth day
following the day in which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, stockholder's notice to the
Secretary must set forth, as to each matter such stockholder
proposes to bring before the annual meeting, (i) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at
the annual meeting, (ii) the name and record address of such
stockholder, (iii) the class or series and number of shares of
capital stock of the corporation which are owned beneficially or
of record of such stockholder, and (iv) any material interest of
the stockholder in such business.
No business shall be conducted at the annual meeting of
stockholders except in accordance with the procedures set forth
in this Section 8; provided, however, that nothing in this
Section 8 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual
meeting. If the Chairman determines that business was not
properly brought before the annual meeting in accordance with the
foregoing procedures, the Chairman shall declare to the meeting
that the business was not brought properly before the meeting and
such business shall not be transacted.
Article II
Board of Directors
Section 1. Number and Terms of Office
The business and affairs of the corporation shall be under
the direction of a Board of Directors.
The number of Directors shall be not more than twenty-one
(21), as determined by a majority vote of the total number of
Directors then serving in office.
Directors shall be divided into three classes designated as
Group A, Group B, and Group C. The three classes of Directors
shall each consist of an equal number of Directors or a number of
Directors as nearly equal as possible. When the total number of
Directors is divided by three and one remains, the Director
remaining shall be assigned to Group A. When the total number of
Directors is divided by three and two remain, they shall be
assigned one to Group A and one to Group B. The number of
Directors in any one class may not exceed the number of Directors
in any other class by more than one, except as may result from
the phasing-in of a decrease in Directors under Section 2 of this
Article II.
The Board of Directors appointed by the incorporators shall
serve until the first stockholders' meeting. At the first
meeting of stockholders after organization of the corporation,
Directors to serve in Group A shall be elected to a term of one
year; Directors to serve in Group B shall be elected to a term of
two years; and Directors to serve in Group C shall be elected to
a full term of three years. Thereafter, at each annual meeting
of the stockholders, Directors shall be elected to a full term of
three years to succeed those in the Director group whose terms
expire at that annual meeting.
Section 2. Increases and Decreases in Directors
The Board of Directors may increase or decrease the number
of Directors, subject to the maximum limits provided in Section 1
of this Article II, by a vote of a majority of the total number
of Directors. Any vacancies created by an increase in the number
of Directors shall be filled as provided in Section 3 of this
Article II and be distributed among the Director groups in
accordance with Section 1 of this Article II. Any decrease in
the authorized number of Directors shall be phased in by reducing
the number of Directors in the first Director group whose terms
expire subsequent to the decrease to the number required to be in
that group by Section 1 of this Article II at the end of the
phasing-in period, and by similarly reducing the number of
Directors in the other Director groups upon expiration of their
terms, so that when the terms of Directors in all three Director
groups have successively expired subsequent to the decrease, each
Director group shall have the distribution of Directors required
by Section 1 of this Article II of these Bylaws.
Section 3. Vacancies
If the position of any Director is or becomes vacant, a
majority of the Directors remaining in office may appoint a
successor to serve the full or remaining term, as the case may
be, of the other Directors in the group in which the vacancy
occurred or was created.
Section 4. Regular Meetings
Regular meetings of the Board of Directors shall be held at
such place or places, on such date or dates, and at such time or
times as shall be established by the Board of Directors. A
notice of each regular meeting shall not be required.
Section 5. Special Meetings
Special meetings of the Board of Directors may be called by
one-third of the Directors or by the Chairman of the Board and
shall be held at such place, on such date, and at such time as
the Directors calling the meeting or the Chairman of the Board
shall fix. Notice of a special meeting shall be given to each
Director in any of the following ways: in person, by telephone
or by delivery of a written notice or facsimile communication to
the Director's business or residence. Notice given in writing or
by facsimile communication to the Director's business or
residence must be delivered at least twenty-four (24) hours
before such meeting. Notice given by telephone or in person
shall be given at least twelve (12) hours prior to the time set
for the meeting. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of
Directors need be specified in the notice of such meeting. A
written waiver of any notice, signed by a Director, whether
before or after the time of the event for which notice is to be
given, shall be equivalent to the notice required to be given to
such person.
Section 6. Quorum
At any meeting of the Board of Directors, a majority of the
total number of the Directors shall constitute a quorum.
Section 7. Committees of the Board of Directors
The corporation elects to be governed by the provisions of
Section 141(c)(2) of the General Corporation of the State of
Delaware, as amended effective July 1, 1996. The Board of
Directors may from time to time designate committees of the Board
of Directors, with such lawfully delegable powers and duties as
it thereby confers, to serve at the pleasure of the Board of
Directors and shall elect a Director or Directors to serve as the
member or members, designating, if it desires, other Directors as
alternate members who may replace any absent or disqualified
members at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of
Directors as permitted by law. In the absence or
disqualification of any member of any committee and any alternate
member designated to replace such member, the members of the
committee present at the meeting and not disqualified from voting
may by unanimous vote appoint another member of the Board of
Directors to act at the meeting in the place of the absent or
disqualified member.
Each committee may determine procedural rules for the
conduct of its meetings and business, and shall act in accordance
therewith, unless otherwise provided by the Board of Directors in
the resolution establishing the committee.
Article III
Officers of the Company
Section 1. Generally
The officers of the corporation shall consist of a Chairman
of the Board, a President, one or more Vice Presidents, a
Secretary, a Treasurer, and a Vice President-Chief Financial
Officer appointed by the Board of Directors. The Board of
Directors may also appoint one or more Assistant Secretaries,
Assistant Treasurers, and such other officers and agents as the
Board of Directors may desire. Officers shall be appointed by
the Board of Directors at its first meeting after every annual
meeting of stockholders. Each officer or agent appointed by the
Board of Directors shall hold office until a successor is elected
and qualified or until such person's earlier resignation or
removal. Any number of offices may be held by the same person.
Section 2. Duties of the Chairman of the Board
The Chairman of the Board shall preside at all meetings of
the stockholders and of the Board of Directors.
Unless otherwise directed by the Board of Directors, the
Chairman of the Board, or such other officer or agent as the
Chairman of the Board may designate, shall have authority to vote
and otherwise act on behalf of the corporation, in person or by
proxy, at any meeting of stockholders, or with respect to any
action of stockholders of any other corporation in which this
corporation may hold securities, and otherwise to exercise any
and all rights and powers that this corporation may possess by
reason of its ownership of securities in any other corporation.
Section 3. Duties of the President
The President shall perform the duties as usually pertain to
the office and such other duties as may from time to time be
assigned.
Section 4. Duties of Vice Presidents
Each Vice President shall perform the duties as usually
pertain to the office to which appointed and such other duties as
may from time to time be assigned.
Section 5. Duties of Secretary and Assistant Secretaries
The Secretary shall make a record of the proceedings of all
meetings of the stockholders, Board of Directors and any
committee of Directors, in books to be kept for that purpose.
The Secretary shall also give and publish all necessary notices
of all meetings, have custody of the corporate seal and affix it
when authorized, and preserve and keep all general contracts,
papers and documents. In general, the Secretary shall perform
all duties incident to the office of Secretary and such other
duties as from time to time may be assigned.
Each Assistant Secretary shall perform such duties of the
Secretary as may from time to time be assigned.
Section 6. Duties of Treasurer and Assistant Treasurers
The Treasurer shall have charge of all monies, funds and
securities which may come into the Treasurer's possession,
maintain deposits of the corporation's monies and funds in such
depositories as the Board of Directors, the Chairman of the Board
or the President shall approve, make disbursements of such monies
and funds under direction of the Board of Directors, the Chairman
of the Board, or the President, keep an account of all receipts
and disbursements, and make such reports as may be required. The
Treasurer shall also maintain a record of the outstanding shares
of stock in the corporation, a stock transfer record and a list
of the stockholders of the corporation. In general, the
Treasurer shall perform all duties incident to the office of
Treasurer and such other duties as from time to time may be
assigned.
Each Assistant Treasurer shall perform such duties of the
Treasurer as may from time to time be assigned.
Section 7. Duties of the Vice President-Chief Financial
Officer
The Vice President-Chief Financial Officer shall be the
principal officer in charge of the accounts of the corporation
and shall perform all duties incident to the office of Vice
President-Chief Financial Officer and such other duties as from
time to time may be assigned.
Section 8. Delegation of Authority
The Board of Directors may from time to time assign or
delegate the powers, authorities or duties of the Chairman of the
Board, the President or any officer or agent to any other
officers or agents, notwithstanding any provision hereof.
Article IV
Indemnification
The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or
investigative (including any action or suit by or in the right of
the corporation) by reason of the fact that such person is or was
a Director, officer or employee of the corporation, or, while
such person is or was a Director, officer or employee of the
corporation, such person is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such
action, suit, or proceeding, but in each case only if and to the
extent permitted under applicable state or federal law.
The indemnification provided herein shall not be deemed
exclusive of any other rights to which those indemnified may be
entitled, and shall continue as to a person who has ceased to be
a Director, officer, employee, or agent, and shall inure to the
benefit of the heirs and personal representatives of such a
person.
Article V
Stock
Section 1. Stock Certificates; Uncertificated Shares
The shares of the corporation shall be represented by
certificates, provided that the Board of Directors of the
corporation may provide by resolution or resolutions that some or
all of any or all classes or series of its stock shall be
uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of
stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the Chairman or
Vice-Chairman of the Board of Directors, or the President or Vice-
President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of such corporation
representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Section 2. Transfers of Stock
Transfers of stock shall be made only on the stock transfer
record of the corporation and upon surrender of the certificate
previously issued therefor which is outstanding and not canceled,
except in the case of uncertificated shares.
Section 3. Transfer on Death Directions
At the request of a stockholder residing in a state that
permits transfer on death directions by law, the Treasurer shall
record on the stockholder's certificate, or, in the case of
uncertificated shares, upon the account statements evidencing the
shares, a direction to transfer the stockholder's interest in the
corporation to a person designated by the stockholder on death of
the stockholder. The Treasurer shall execute such direction upon
proof of death of the stockholder, surrender of the outstanding
certificate with the direction written thereon, and under such
regulations as may be prescribed by the Treasurer.
Article VI
Business Combinations
Section 1. Vote Required for Certain Business Combinations
A. In addition to any vote of stockholders required by law or
these Bylaws, and except as otherwise expressly provided in
Section 2 of this Article VI, any Business Combination (as
hereinafter defined) shall require the affirmative vote of
the holders of at least 66b percent of the then outstanding
shares of capital stock of the corporation entitled to vote
generally in the election of Directors (the "Voting Stock"),
voting together as a single class. Such affirmative vote
shall be required notwithstanding the fact that no vote may
be required, or that a lesser percentage may be specified,
by law or in any agreement with any national securities
exchange or otherwise.
B. The term "Business Combination" shall mean:
i. Any merger or consolidation of the corporation or any
subsidiary (as hereinafter defined) with (a) any
Interested Stockholder (as hereinafter defined) or (b)
any other corporation which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
ii. Any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in either one or in a series of
transactions) to or with any Interested Stockholder or
any Affiliate of any Interested Stockholder of any
assets of the corporation or any subsidiary having an
aggregate Fair Market Value (as hereinafter defined) of
$10,000,000 or more; or
iii. The issuance or transfer by the corporation or any
subsidiary (in either one or in a series of
transactions) of any securities of the corporation or
any subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder for cash,
securities or other property (or a combination thereof)
having an aggregate Fair Market Value of $10,000,000 or
more; or
iv. The adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed
by or on behalf of an Interested Stockholder or any
Affiliate of any Interested Stockholder; or
v. Any reclassification of securities (including any
reverse stock split), or recapitalization of the
corporation, or any merger or consolidation of the
corporation with any of its subsidiaries or any other
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the
effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any
class of equity or convertible securities of the
corporation or any subsidiary which is directly or
indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder.
Section 2. Exceptions to Vote Required by Section 1
The provisions of Section 1 of this Article VI shall not be
applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote as
is required by law and any other provision of these Bylaws, if:
A. The Business Combination is approved by a majority of the
Continuing Directors (as hereinafter defined); or
B. All of the following conditions are met:
i. The aggregate amount of the cash and the Fair Market
Value of any consideration other than cash as of the
date of the consummation of the Business Combination to
be received per share by holders of common stock in
such Business Combination or by holders of shares of
any other class of outstanding Voting Stock shall be at
least equal to the highest amount determined under sub-
clauses (a), (b), and (c) below:
a. The highest per share price (including any
brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested
Stockholder for any shares of common stock
acquired by it (1) within the two-year period
immediately prior to the first public announcement
of the proposal of the Business Combination (the
"Announcement Date") or (2) in the transaction in
which it became an Interested Stockholder,
whichever is higher; and
b. The Fair Market Value per share of common stock on
the day after the Announcement Date or on the date
on which the Interested Stockholder became an
Interested Stockholder, whichever is higher; and
c. The price per share equal to the Fair Market Value
per share of common stock determined pursuant to
paragraph B(i)(b) above, multiplied by the ratio
of (1) the highest per share price (including any
brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested
Stockholder for any shares of common stock it
acquired within the two-year period immediately
prior to the Announcement Date to (2) the Fair
Market Value per share of common stock on the
first day in such two-year period upon which the
Interested Stockholder acquired any shares of
common stock; and
ii. The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be
in cash or in the same form as the Interested
Stockholder has previously paid for shares of such
class of Voting Stock. If the Interested Stockholder
has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of
consideration for such class of Voting Stock shall be
either cash or the form of consideration used by the
Interested Stockholder to acquire the largest number of
shares of such class of Voting Stock previously
acquired by it; and
iii. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of
such Business Combination:
a. Except as approved by a majority of the Continuing
Directors, there shall have been no failure to
declare and pay at the regular date therefor any
full quarterly dividends (whether or not
cumulative) on any outstanding preferred stock;
and
b. There shall have been (1) no reduction in the
annual rate of dividends paid on the common stock
(except as necessary to reflect any subdivision of
the common stock), except as approved by a
majority of the Continuing Directors, and (2) an
increase in such annual rate of dividends as
necessary to reflect any reclassification
(including any reverse stock split),
recapitalization, reorganization or any similar
transaction which has the effect of reducing the
number of outstanding shares of the common stock,
unless the failure so to increase such annual rate
is approved by a majority of the Continuing
Directors; and
c. Such Interested Stockholder shall have not become
the beneficial owner of any additional shares of
Voting Stock except as part of the transaction
which resulted in such Interested Stockholder
becoming an Interested Stockholder; and
iv. A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and
the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations)
shall be mailed to the stockholders of the corporation
at least thirty (30) days prior to the consummation of
such Business Combination, whether or not such proxy or
information statement is required pursuant thereto.
Section 3. Definitions
For the purposes of this Article VI:
A. A "person" shall mean any individual, firm, corporation or
other entity.
B. "Interested Stockholder" shall mean any person (other than
the corporation or any subsidiary (as hereinafter defined)
and other than any profit sharing, thrift, employee stock
ownership, retirement or other employee benefit plan of the
corporation or any subsidiary of any trustee of or fiduciary
with respect to any such plan when acting in such capacity)
who or which:
i. Is the beneficial owner (as hereinafter defined),
directly or indirectly, of more than 10 percent (10%)
of any shares of the Voting Stock of the corporation;
or
ii. Is an Affiliate (as hereinafter defined) of the
corporation and at any time within the two-year period
immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10 percent
(10%) or more of any shares of the Voting Stock of the
corporation; or
iii. Is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in
question beneficially owned by any Interested
Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series
of transactions not involving a public offering within
the meaning of the Securities Act of 1933.
C. A person shall be deemed a "beneficial owner" of any shares
of Voting Stock:
i. Which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns,
directly or indirectly; or
ii. Which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such
right is exercisable immediately or only after the
passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants, or
options or otherwise, or (b) the right to vote pursuant
to any agreement, arrangement or understanding; or
iii. Which are beneficially owned, directly or indirectly,
by any other person with which such person or any of
its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares
of Voting Stock.
D. "Affiliate" or "Associate" shall have the same meanings set
forth for such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in
effect on March 1, 1983.
E. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the corporation; provided, however, that for
the purposes of the definition of Interested Stockholder set
forth in paragraph B of this Section 3, the term
"subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the corporation.
F. "Continuing Director" means any member of the Board of
Directors of the corporation who is unaffiliated with the
Interested Stockholder and was a member of the Board prior
to the time that the Interested Stockholder became an
Interested Stockholder and any successor of a Continuing
Director who is unaffiliated with the Interested Stockholder
and is recommended or elected to succeed a Continuing
Director by a majority of Continuing Directors then on the
Board.
G. "Fair Market Value" means: (1) in the case of stock, the
highest closing sale price during the 30-day period
immediately preceding the date in question of a share of
such stock on the Composite Tape for New York Stock Exchange-
Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on such Exchange, on the principal
United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to
a share of such stock during the 30-day period preceding the
date in question on the National Association of Securities
Dealers, Inc., Automated Quotations System or any system
then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such
stock as determined by the majority of the Continuing
Directors in good faith; and (2) in the case of property
other than cash or stock, the fair market value of such
property on the date in question as determined by a majority
of the Continuing Directors in good faith.
H. In the event of any Business Combination in which the
corporation survives, the phrase "any consideration other
than cash" as used in paragraph B(i) of Section 2 of this
Article VI shall include the shares of common stock and/or
the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
Section 4. Certain Determinations
The Continuing Directors of the corporation shall have the
power and duty to determine for the purposes of this Article VI,
on the basis of information known to them after reasonable
inquiry: (a) whether a person is an Interested Stockholder; (b)
the number of shares of Voting Stock beneficially owned by any
person; (c) whether a person is an Affiliate or Associate of
another person; and (d) whether the assets which are the subject
of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the
corporation or any subsidiary in any Business Combination has, an
aggregate Fair Market Value of $10,000,000 or more.
Section 5. No Effect on Fiduciary Obligations of Interested
Stockholders
Nothing contained in this Article VI shall be construed to
relieve any Interested Stockholder from any fiduciary obligation
otherwise imposed by law.
Article VII
Miscellaneous
Section 1. Facsimile Signatures
In addition to the provision for the use of facsimile
signatures on stock certificates as provided in Section 1 of
Article V, facsimile signatures of any officer or officers of the
corporation may be used whenever and as authorized by the Board
of Directors.
Section 2. Corporate Seal
The Board of Directors shall provide a suitable seal for the
corporation that contains the name of the corporation and the
state of incorporation, which seal shall be kept by the
Secretary.
Section 3. Fiscal Year
The fiscal year of the corporation shall be identical with
the calendar year unless otherwise established by the Board of
Directors.
Section 4. Time Periods
In applying any provision of these Bylaws which requires
that an act be done or not be done in a specified number of days
prior to an event, or that an act be done during a period of a
specified number of days prior to an event, calendar days shall
be used. The day of the doing of the act shall be excluded and
the day of the event shall be included.
Article VIII
Amendments
These Bylaws may be amended or repealed in accordance with
the Certificate of Incorporation by the Board of Directors at any
meeting or by the stockholders at any meeting.
<TABLE>
EXHIBIT 12
SBC COMMUNICATIONS INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Income Before Income Taxes,
Extraordinary Loss and Cumulative
Effect of Changes in Accounting Principles* $ 3,093 $ 2,698 $ 2,300 $ 1,883 $ 1,701
Add: Interest Expense 472 515 480 496 530
1/3 Rental Expense 57 46 42 41 45
Adjusted Earnings $ 3,622 $ 3,259 $ 2,822 $ 2,420 $ 2,276
Total Interest Charges $ 493 $ 515 $ 480 $ 496 $ 530
1/3 Rental Expense 57 46 42 41 45
Adjusted Fixed Charges $ 550 $ 561 $ 522 $ 537 $ 575
Ratio of Earnings to Fixed Charges 6.59 5.81 5.41 4.51 3.96
<FN>
* Undistributed earnings on investments accounted for under the equity method have been excluded.
</TABLE>
Exhibit 13
<TABLE>
SELECTED FINANCIAL AND OPERATING DATA
Dollars in millions except per share amounts
<CAPTION>
At December 31 or for the year ended: 1996 1995 1994 1993 1992 CAGR (6)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA
Operating revenues $ 13,898 $ 12,670 $ 11,772 $ 10,840 $ 10,150 8.2%
Operating expenses $ 10,342 $ 9,633 $ 9,010 $ 8,480 $ 7,953 6.8%
Operating income $ 3,556 $ 3,037 $ 2,762 $ 2,360 $ 2,197 12.8%
Interest expense $ 472 $ 515 $ 480 $ 496 $ 530 -
Equity in net income of affiliates $ 244 $ 156 $ 223 $ 250 $ 208 -
Income taxes $ 1,166 $ 903 $ 785 $ 625 $ 568 -
Income before extraordinary loss and cumulative
effect of changes in accounting principles (1) $ 2,101 $ 1,889 $ 1,649 $ 1,435 $ 1,302 12.7%
Net income (loss) $ 2,101 $ (930) $ 1,649 $ (845) $ 1,302 -
Earnings per common share:
Income before extraordinary loss and cumulative
effect of changes in accounting principles (1) $ 3.46 $ 3.10 $ 2.74 $ 2.39 $ 2.17 12.4%
Net income (loss) $ 3.46 $ (1.53) $ 2.74 $ (1.41) $ 2.17 -
Total assets $ 23,449 $ 22,002 $ 26,005 $24,308 $ 23,810 -
Long-term debt $ 5,505 $ 5,672 $ 5,848 $ 5,459 $ 5,716 -
Construction and capital expenditures $ 3,027 $ 2,336 $ 2,350 $ 2,221 $ 2,144 9.0%
Free cash flow (2) $ 1,797 $ 1,685 $ 1,618 $ 1,220 $ 1,470 5.2%
Dividends declared per common share $ 1.72 $ 1.65 $ 1.58 $ 1.51 $ 1.46 4.2%
Book value per common share (3) $ 11.39 $ 10.27 $ 13.72 $ 12.61 $ 15.47 -
Ratio of earnings to fixed charges 6.59 5.81 5.41 4.51 3.96 -
Return on weighted average shareowners' equity (4) 31.22% 24.18% 20.61% 19.29% 14.28% -
Debt ratio (3) 51.40% 54.03% 47.36% 47.49% 42.99% -
OPERATING DATA*
EBITDA (5) $ 5,796 $ 5,207 $ 4,800 $ 4,367 $ 4,040 9.4%
Network access lines in service (000) 14,955 14,223 13,612 13,145 12,724 4.1%
Access minutes of use (000,000) 58,668 53,681 48,430 44,203 41,235 -
Long-distance messages (000,000) 998 988 1,018 1,012 974 -
Cellular customers (000) 4,398 3,659 2,992 2,049 1,413 -
Number of employees 61,540 59,300 58,800 58,400 59,500 -
<FN>
*Operating data may be periodically revised to reflect the most current information available.
1 1995 Discontinuance of Regulatory Accounting; 1993 Early Extinguishment of Debt and Cumulative Effect of Changes
in Accounting Principles.
2 Free cash flow is net cash provided by operating activities less construction and capital
expenditures.
3 Shareowners' equity used in book value per common share and debt ratio calculations includes extraordinary loss
and changes in accounting principles.
4 Calculated using income before extraordinary loss and changes in accounting
principles. These impacts are included in shareowners' equity.
5 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.
6 Compound Annual Growth Rate from 1992 to 1996.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Dollars in millions except per share amounts
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 and cable television services.
SBC's largest subsidiary is Southwestern Bell Telephone Company (Telephone
Company), which provides telecommunications services over approximately
15 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 1996, the Telephone Company provided 70% of SBC's
operating revenues and 65% of its net income.
This discussion should be read in conjunction with the consolidated financial
statements and the accompanying notes.
RESULTS OF OPERATIONS
SUMMARY
Financial results, including percentage changes from the prior year, are
summarized as follows:
<TABLE>
<CAPTION>
Percent Change
1996 vs. 1995 vs.
1996 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
Operating revenues $13,898 $12,670 $11,772 9.7% 7.6%
Operating expenses $10,342 $ 9,633 $ 9,010 7.4% 6.9%
Income before extraordinary loss $ 2,101 $ 1,889 $ 1,649 11.2% 14.6%
Extraordinary loss - $(2,819) - - -
Net income (loss) $ 2,101 $ (930) $ 1,649 - -
</TABLE>
SBC recognized an extraordinary loss in 1995 from the discontinuance of
regulatory accounting at the Telephone Company.
The primary factors contributing to the increase in income before extraordinary
loss in 1996 were growth in demand for services and products at the Telephone
Company and Southwestern Bell Mobile Systems, Inc. (Mobile Systems).
The primary factors contributing to the increase in income before extraordinary
loss in 1995 were growth in demand for services and products at the Telephone
Company and Mobile Systems, and an after-tax gain of $111 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 $88
recorded in connection with SBC's strategic functional realignment.
Items affecting the comparison of the operating results between 1996 and 1995,
and between 1995 and 1994, are discussed in the following sections.
OPERATING REVENUES
Total operating revenues increased $1,228, or 9.7%, in 1996 and $898, or 7.6%,
in 1995. Components of total operating revenues, including percentage changes
from the prior year, are as follows:
<TABLE>
<CAPTION>
Percent Change
1996 VS. 1995 vs.
1996 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
Local service
Landline $ 4,718 $ 4,302 $ 4,039 9.7% 6.5%
Wireless 2,676 2,247 1,749 19.1 28.5
Network access
Interstate 2,145 2,035 1,912 5.4 6.4
Intrastate 1,099 1,032 945 6.5 9.2
Long-distance service 945 841 917 12.4 (8.3)
Directory advertising 914 953 947 (4.1) 0.6
Other 1,401 1,260 1,263 11.2 (0.2)
$13,898 $ 12,670 $ 11,772 9.7% 7.6%
</TABLE>
LOCAL SERVICE Landline revenues increased in 1996 and 1995 due to increases
in demand, primarily increases in residential and business access lines and
vertical services revenues. Total access lines increased 5.1% in 1996 and
4.5% in 1995. Nearly two-thirds of the access line growth occurred in
Texas, which now has approximately 59% of the Telephone Company's access
lines. Approximately 29% in 1996 and 25% in 1995 of access line growth was
due to the sales of additional access lines to existing residential
customers. Vertical services revenues, which include custom calling
options, Caller ID and other enhanced services, increased by approximately
22% in 1996 and 17% in 1995.
Wireless revenues increased in 1996 and 1995 due primarily to the growth in
the number of cellular customers of 20.2% and 22.3%. These increases were
partially offset by slight declines in average revenue per customer. Market
penetration at the end of 1996, 1995 and 1994 was 10.8, 9.0 and 7.4
customers per 100 residents in Mobile Systems' service areas.
NETWORK ACCESS Interstate network access revenues increased in 1996 and
1995 due largely to increases in demand for access services by interexchange
carriers. Growth in revenues from end user charges, attributable to an
increasing access line base, also contributed to the increases in both
years. Net rate reductions under the FCC's revised price cap plan, which
was effective August 1, 1995, partially offset these increases by
approximately $65 in both 1996 and 1995.
Intrastate network access revenues increased in 1996 and 1995 due primarily
to increases in demand, including usage by alternative intraLATA toll
carriers.
LONG-DISTANCE SERVICE revenues increased in 1996 due principally to growth
in Mobile Systems' wireless revenues including interLATA service that began
in February 1996, and the inclusion in 1995 of the Telephone Company's
intraLATA toll pool settlement payments and accruals for rate reductions
relating to an appealed 1992 rate order in Oklahoma. The settlement of the
appeals in October 1995 eliminated the need to continue these accruals.
Absent these accruals and settlements, the Telephone Company's long-distance
service revenues in 1996 would have decreased slightly due to the continuing
impact of price competition from alternative intraLATA toll carriers.
Competition had less impact on message volumes in 1996 due to the Telephone
Company's deployment and promotion of optional long-distance calling plans,
which generally result in higher message volumes but lower average revenue
per message. This message volume trend is not expected to continue, because
the Telephone Company plans to emphasize promotions of extended area local
service plans. Long-distance service revenues decreased in 1995, reflecting
competition-related decreases in residential message volumes and the impact
of optional calling plans and extended area service plans.
DIRECTORY ADVERTISING revenues decreased in 1996 as increased yellow pages
revenues from Southwestern Bell Yellow Pages, Inc. were more than offset by
the decrease resulting from the January 1996 sale of SBC's publishing
contracts for GTE Corporation's service areas to GTE Directories. Excluding
the impact of this sale, revenues increased 6.7% in 1996. Revenues in 1995
were relatively unchanged from 1994, reflecting the impact of increased
competition.
OTHER operating revenues in 1996 and 1995 reflect the increased demand for
the Telephone Company's non-regulated services and products, including
Caller ID equipment, computer network services, contract programming and
videoconferencing services. The increase in 1995 was offset by the decrease
in equipment sales revenues at Mobile Systems resulting primarily from
declining equipment prices.
OPERATING EXPENSES
Total operating expenses increased $709, or 7.4%, in 1996 and $623, or 6.9%, in
1995. Components of total operating expenses, including percentage changes from
the prior year, are as follows:
<TABLE>
<CAPTION>
Percent Change
1996 vs. 1995 vs.
1996 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
Cost of services and products $ 4,135 $ 3,806 $ 3,747 8.6% 1.6%
Selling, general and administrative 3,967 3,657 3,225 8.5 13.4
Depreciation and amortization 2,240 2,170 2,038 3.2 6.5
$10,342 $ 9,633 $ 9,010 7.4% 6.9%
</TABLE>
COST OF SERVICES AND PRODUCTS increased in 1996 due to increases at the
Telephone Company for network expansion and maintenance, employee
compensation and demand-related increases, primarily increases in switching
system software license fees. Other increases in 1996 related principally
to growth at Mobile Systems. Similarly, in 1995, expenses increased
primarily due to increases at the Telephone Company for network expansion
and maintenance, employee compensation, and demand-related increases for
enhanced services. These increases were mostly offset by decreased
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 (discussed in Other
Business Matters).
SELLING, GENERAL AND ADMINISTRATIVE expenses increased in 1996 and 1995
primarily due to growth-related increases at Mobile Systems and the
Telephone Company including increases in operating taxes, which include the
Texas Infrastructure Fund assessments, contracted services, employee
compensation, advertising and uncollectibles. The increase in 1995 was also
attributable to the $139 charge for costs associated with the strategic
realignment discussed in Other Business Matters.
DEPRECIATION AND AMORTIZATION increased in 1996 and 1995 due primarily to
growth in plant levels and changes in plant composition, primarily at Mobile
Systems and the Telephone Company. The increase in 1995 also reflects the
effect of regulatory depreciation represcription at the Telephone Company.
INTEREST EXPENSE decreased $43, or 8.3%, in 1996 due to lower interest rates on
short-term debt, lower long-term debt levels, and capitalization of interest
during construction required by the discontinuance of regulatory accounting in
the third quarter of 1995. Under regulatory accounting, the Telephone Company
accounted for a capitalization of both interest and equity costs during periods
of construction as other income. Interest expense increased $35, 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.
EQUITY IN NET INCOME OF AFFILIATES increased $88 in 1996 and decreased $67 in
1995. The 1996 increase reflects increased income from Telefonos de Mexico,
S.A. de C.V. (Telmex), Mexico's national telecommunications company, due to the
relative stabilization of the peso, net gains on international affiliate
transactions and improved results from SBC's investment in French cellular
operations. Results for 1995 include losses on SBC's United Kingdom cable
television operations, which were accounted for under the equity method prior to
October 1995, and exchange losses on the non-peso denominated debt of Telmex.
Results for 1996 and 1995 also reflect reductions in the translated amount of
U.S. dollar earnings from Telmex's operations. Operational growth at Telmex in
both years somewhat offsets these declines. The 1995 decrease is also
attributable to SBC's investment in French cellular operations.
SBC's future earnings from Telmex will continue to be sensitive to changes in
the value of the peso. SBC's investment in Telmex has been recorded under U.S.
generally accepted accounting principles (GAAP), which exclude inflation
adjustments and include adjustments for the purchase method of accounting.
Beginning in 1997, SBC will use the U.S. dollar, instead of the peso, as the
functional currency for its investment in Telmex due to the Mexican economy
becoming highly inflationary as defined by GAAP. Earnings in 1997 will reflect
SBC's reduced ownership percentage in Telmex as discussed in Note 5 to the
financial statements. These changes are each expected to have a slightly
negative impact on equity in net income from Telmex.
OTHER INCOME (EXPENSE) - NET In 1995, SBC recognized a gain from the merger of
SBC's United Kingdom cable television operations into TeleWest (see Note 12 to
the financial statements). The gain was somewhat offset by expenses associated
with the refinancing of long-term debt by the Telephone Company (see Note 6 to
the financial statements).
FEDERAL INCOME TAX expense increased $233, or 28.3%, in 1996 and $140, or 20.5%,
in 1995, primarily due to higher income before income taxes. The elimination of
excess deferred taxes and the reduction in the amortization of investment tax
credits resulting from the discontinuance of regulatory accounting, as described
in Note 2 to the financial statements, also contributed to the increases in both
years.
EXTRAORDINARY LOSS 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 (see Note 2 to the
financial statements).
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. Through the end of 1996, the Telephone Company
operated under incentive regulation or price caps for various services provided
by the Telephone Company. In early 1997, Arkansas enacted legislation
establishing incentive regulation for electing companies, replacing a settlement
which had expired on December 31, 1996. Under price cap regulation, the
Telephone Company is permitted to establish and modify prices, not to exceed the
price caps, subject to expedited approval by the governing jurisdiction. Prices
for some 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 effective August 1, 1995.
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.
The revised FCC price cap plan was intended to be an interim plan that would be
revised in 1996. However, with the passage of the Telecommunications Act of
1996 (the Telecom Act), the FCC is conducting further proceedings to address
various pricing and productivity issues, and is performing a broader review of
price cap regulation in a competitive environment. Additionally, the FCC will
also examine universal service and access charge rules during 1997. The Telecom
Act and FCC actions taken to implement provisions of the Telecom Act are
discussed further under the heading "Competition."
Following is a summary of significant state regulatory developments.
TEXAS The Public Utility Regulatory Act, which became effective in May 1995
(PURA), 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. In September 1995, the Telephone Company
notified the Texas Public Utility Commission (TPUC) that it elected incentive
regulation under the new law. Basic local service rates are capped at existing
levels for four years following the election. The TPUC is prohibited from
reducing switched access rates charged by LECs to interexchange carriers for the
four-year election period.
LECs electing price regulation must 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. PURA also established an
infrastructure grant fund for use by public institutions in upgrading their
communications and computer technology. PURA provided for a total fund
assessment 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 provisions establishing different assessment rates for landline
and cellular and wireless service providers were ruled unconstitutional under
the Texas constitution in January 1996, and the lower rate was ordered to be
applied to both categories of service providers, resulting in less than a $150
annual assessment. Based on this order, SBC's total annual payment is estimated
to be approximately $35 to $45. The 1997 Texas legislative session is
considering this issue with the goal of restoring the assessment to its original
$150 annual amount. As a result, SBC's annual payment could increase.
PURA establishes local exchange competition by allowing other companies who
desire to provide local exchange services to apply for certification by the
TPUC, subject to certain build-out requirements, resale restrictions and minimum
service requirements. PURA provides that 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 1996, MCI Communications Corporation (MCI) and AT&T Corp. (AT&T) sued the
state of Texas, alleging that PURA violates the Texas state constitution,
claiming PURA establishes anticompetitive barriers designed to prevent MCI, AT&T
and Sprint Corporation (Sprint) from providing local services within Texas. SBC
is unable to predict the outcome of this proceeding. During 1996, the TPUC
approved the application of Sprint to be granted a certificate of authority to
provide local service, waiving the build-out requirements specified under state
law for facilities-based certificates of authority. AT&T and MCI have also
filed petitions with the FCC arguing the build-out requirements should be
preempted; they have also requested TPUC grant them similar treatment as Sprint.
TPUC has also requested the FCC issue an expedited ruling on whether PURA's
build-out requirements are lawful under the Telecom Act.
More than 80 applications to provide competitive local service certification
have been approved by the TPUC, with over 30 more applications pending approval.
As a result, the Telephone Company expects competition to continue to develop
for local service, but the specific financial impacts of this competition 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.
MISSOURI During 1996, the 1995 Cole County Circuit Court ruling which
overturned the August 1994 settlement agreement reached among the Telephone
Company, the Missouri Public Service Commission (MPSC) and the Office of Public
Counsel (OPC) was upheld on appeal. The practical effect of this decision is to
eliminate the prospective commitments under the settlement agreement, including
a rate review moratorium and capital investment commitments. 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.
OKLAHOMA On October 30, 1995, the Oklahoma Corporation Commission (OCC)
approved a settlement that resolved pending court appeals of a 1992 rate order.
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 were lowered to $84, of which $57 had already been
implemented. The settlement allowed the remaining $27 in rate reductions to be
deferred, with approximately $9 becoming effective in 1996 and the remainder
during 1997. The settlement also provides that no overearnings complaint can be
filed against the Telephone Company until January 1, 1998. 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 regulation have increased the opportunities for 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
On February 8, 1996, the Telecom Act was enacted into law. The Telecom Act is
intended to address various aspects of competition within, and regulation of,
the telecommunications industry. The Telecom Act provides that all
post-enactment conduct or activities which were subject to the consent decree,
referred to as the Modification of Final Judgment (MFJ), issued at the time of
AT&T's divestiture of the Regional Holding Companies (RHCs) are now subject to
the provisions of the Telecom Act. Among other things, the Telecom Act also
defines conditions SBC must comply with before being permitted to offer
interLATA long-distance service within the five-state area and establishes
certain terms and conditions intended to promote competition for the Telephone
Company's local exchange services. Under terms of the Telecom Act, 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 any state within
the Telephone Company's five-state region, SBC must apply for and obtain state-
specific approval from the FCC. The FCC's approval, which involves consultation
with the United States Department of Justice, requires favorable determinations
that the Telephone Company has entered into interconnection agreement(s) that
satisfy a 14-point "competitive checklist" with predominantly facilities based
carrier(s) that serve residential and business customers or, alternatively, that
the Telephone Company has a statement of terms and conditions effective in that
state under which it offers the "competitive checklist" items. The FCC must
also make favorable public interest and structural separation determinations.
The Telecom Act directed the FCC to establish rules and regulations to implement
the Telecom Act, and to preempt specific state law provisions under certain
circumstances. The Telecom 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.
In April 1996, the United States District Court for the District of Columbia
issued its Opinion and Order terminating the MFJ and dismissing all pending
motions related to the MFJ as moot. This ruling effectively ended 13 years of
RHC regulation under the MFJ.
In August 1996, the FCC issued rules by which competitors could connect with
LECs' networks, including those of the Telephone Company. Among other things,
the rules addressed unbundling of network elements, pricing for interconnection
and unbundled elements (Pricing Provisions), and resale of network services.
The FCC rules were appealed by numerous parties, including SBC, other LECs,
various state regulatory commissions and the National Association of Regulatory
Utility Commissioners.
On October 15, 1996, the United States Court of Appeals for the Eighth Circuit
(Eighth Circuit) issued an order to stay the FCC's Pricing Provisions and its
rules permitting new entrants to "pick and choose" among the terms and
conditions of approved interconnection agreements. The stay provides that it
will remain in effect while the Eighth Circuit considers the validity of the
rules. Other provisions of rules adopted by the FCC to implement the Telecom
Act remain in effect.
The effects of the FCC rules are dependent on many factors including, but not
limited to: the ultimate resolution of the pending appeals; the number and
nature of competitors requesting interconnection, unbundling or resale; and the
results of the state regulatory commissions' review and handling of related
matters within their jurisdictions. Accordingly, SBC is not able to assess the
impact of the FCC rules.
Recently enacted and pending state laws and regulations also allow increased
competition for local exchange services. Companies wishing to provide
competitive local service have filed numerous applications with state
commissions throughout the Telephone Company's five-state area, and the
commissions of each state have begun approving these applications. Under the
Telecom Act, companies seeking to interconnect to the Telephone Company's
network and exchange local calls must enter into interconnection agreements with
the Telephone Company, which are then subject to approval by the appropriate
state commission. Numerous interconnection agreements have been entered into
and approved in the Telephone Company's five-state area. Several companies who
have failed to agree on all interconnection terms have filed for arbitration
before the state commissions.
In October 1996, the TPUC announced its ruling in a consolidated arbitration
hearing between the Telephone Company and AT&T, MCI, MFS Communications Company,
Inc. (MFS), Teleport Communications Group, and American Communications Services,
Inc. The TPUC approved interim interconnection rates to be charged by the
Telephone Company as well as certain other terms of interconnection between the
parties. Some agreements containing the arbitrated rates and terms have been
approved by the TPUC. The Telephone Company also filed revised cost support for
the establishment of permanent rates with the TPUC, with an anticipated
effective date of April 1997. The Telephone Company has filed suit in state and
federal court maintaining that, for various reasons, the arbitration award is
unlawful.
In Missouri, the MPSC issued orders on a consolidated arbitration hearing with
AT&T and MCI and on selected items with MFS. Among other terms, the orders
established discount rates for resale of Telephone Company services and prices
for unbundled network elements. The Telephone Company has filed suit in federal
court appealing the orders as unlawful.
As a result of the Telecom Act and conforming interconnection agreements, the
Telephone Company expects in 1997 it will experience local exchange competition
from multiple providers in various markets. SBC intends to use approved
agreements in support of its application to the FCC to provide interLATA long-
distance service in the Telephone Company's five-state area.
The Telephone Company also faces competition from various local service
providers that bypass the local exchange network. 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. Others provide high-usage customers, particularly large
businesses, 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 using 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.
Competition 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.
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 an
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 in the build out phase of PCS in Tulsa, Oklahoma. During 1996, SBC
received several AT&T cellular networks in Arkansas in exchange for SBC's PCS
licenses in Memphis, Tennessee and Little Rock, Arkansas and other
consideration. In an FCC auction concluded January 1997, SBC acquired eight
additional PCS licenses for Basic Trading Areas (BTAs) that are within its five-
state area. SBC plans to build out the new BTAs as part of its strategy to be a
full service telecommunications provider. Including these new BTAs, SBC will be
able to offer approximately 85% of its landline local service customers wireless
service as well.
Companies granted licenses in MTAs and BTAs where SBC also provides service
include subsidiaries and affiliates of AT&T, Sprint and other RHCs. 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 TV and
telephone services in the Telephone Company's operating territory.
Interexchange carriers have been certified to provide local service, and a
number of other 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.
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 to develop appropriate competitive, legislative and regulatory
responses.
INTERNATIONAL
Telmex was granted a concession in 1990 which expired in August 1996, as the
sole provider of long-distance services in Mexico. 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 was required to 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. Balloting for
presubscription of long-distance service has begun among Telmex's customers in
selected areas.
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 based upon an allocation of the costs, fees
and expenses and other financial effects incurred or sustained in connection
with obtaining state regulatory approvals. After the merger, PAC will be a
wholly-owned subsidiary of SBC. The transaction is intended to be accounted for
as a pooling of interests and to be a tax-free reorganization. On July 31,
1996, the shareowners of SBC and PAC each approved the transaction, which had
previously been approved by the board of directors of each company. On November
5, 1996, the United States Department of Justice announced it would not initiate
action on the merger under the Hart-Scott-Rodino antitrust law. The Public
Service Commission of Nevada approved the merger on December 31, 1996. The FCC
approved the transfer of licenses from PAC to SBC on January 31, 1997. The
merger agreement is subject to certain other regulatory approvals, including
approval by the California Public Utilities Commission, which has established a
schedule for review of the transaction with approval expected before the end of
the first quarter of 1997. If approvals are granted, the transaction is
expected to close in the first half of 1997 (see Note 3 to the financial
statements for more information).
ACQUISITIONS AND DISPOSITIONS SBC made several acquisitions and dispositions in
1996, 1995 and 1994.
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
an indirect 10% ownership of a nationwide cellular company in France are
described in Note 12 to the financial statements. In addition, the merger of
SBC's United Kingdom cable television operations into TeleWest is described in
Note 12 to the financial statements.
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. In December 1996, SBC made an
additional investment to maintain its indirect 10% ownership in the French
cellular company to offset dilution of its interest resulting from other equity
sales.
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. During 1996, SBC
received several AT&T cellular networks in Arkansas in exchange for SBC's PCS
licenses in Memphis, Tennessee and Little Rock, Arkansas and other
consideration.
In 1995, SBC 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. During 1996,
SBC increased its holding in VTR to 49% through the purchase of shares from
another minority shareowner. Also, in 1995, SBC made an equity investment in a
South African wireless company.
Except as discussed in Note 12 to the financial statements, none of these
transactions had a material effect on SBC's financial results in 1996, 1995 or
1994, nor does management expect them to have a material effect on SBC's
financial position or results of operations in 1997.
STRATEGIC REALIGNMENT In July 1995, SBC announced a strategic realignment which
positions the company to be a single-source provider of telecommunications
services. All of SBC's operations within the five-state area report to one
management group, while international operations and domestic operations outside
the five-state area report to a separate management group.
In connection with this realignment of functions, in 1995 SBC recognized $139 in
selling, general and administrative expenses. These expenses include
postemployment benefits for approximately 2,400 employees arising from the
future consolidation of operations within the five-state area, streamlining
support and administrative functions and integrating financial systems.
Implementation of the realignment has been delayed due to the pending merger
with PAC. The charge reduced net income for 1995 by approximately $88.
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 for services and products.
SBC's capital expenditures totaled $3,027, $2,336 and $2,350 for 1996, 1995 and
1994. In 1996, Telephone Company and Mobile Systems expenditures increased 33%
and 10%. The Telephone Company's increase in capital expenditures was due
primarily to demand-related growth, network upgrades, customer-contracted
requirements, regulatory commitments and ISDN projects. Mobile Systems
expenditures increased due primarily to continued growth.
SBC's total reported 1995 capital expenditures were relatively unchanged
compared to 1994. Reported decreases in SBC's capital expenditures related to
the change in accounting for its United Kingdom cable television operations were
offset by capital expenditures increases of 5% at the Telephone Company and 6%
at Mobile Systems.
In 1997, management expects total capital spending to increase from 1996, to
between $3,300 and $3,500. Capital expenditures in 1997 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.
The Telephone Company continues to make additional network and infrastructure
improvements over periods ranging through 2001 to satisfy regulatory
commitments. Total capital expenditures under these commitments can vary based
on actual demand of potential end users. The Telephone Company anticipates
spending approximately $150 to $200 in 1997 associated with these commitments.
Over the next few years, SBC is expecting to incur significant software
expenditures for interconnection and customer number portability. The extent
and timing of these expenditures will vary depending on the timing and nature of
regulatory actions and corresponding or compensating network improvements.
DIVIDENDS DECLARED
Dividends declared by SBC totaled $1,042 ($1.72 per share) in 1996, $1,004
($1.65 per share) in 1995 and $954 ($1.58 per share) in 1994. 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 $242 of cash and cash equivalents available at December 31, 1996.
Commercial paper borrowings as of December 31, 1996, totaled $1,318. SBC has
entered into agreements with several banks for lines of credit totaling $750,
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, 1996.
During 1996, as in 1995 and 1994, SBC's primary source of funds continued to be
cash generated from operations, as shown in the Consolidated Statements of Cash
Flows. In 1996, 1995 and 1994, cash provided by operating activities was
reduced by the contribution of $57, $151 and $134 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 1996, as in 1995 and 1994;
this excess is referred to as free cash flow, a supplemental measure of
liquidity. SBC generated free cash flow of $1,797, $1,685 and $1,618 in 1996,
1995 and 1994.
During 1995, the Telephone Company refinanced long-term debt with an aggregate
principal amount of $450. 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 increased $454 in 1996 and
decreased $2,265 in 1995. The increase in 1996 was due to the reinvestment of
earnings, partially offset by the acquisition of treasury shares. The decrease
in 1995 was due to the effects of the discontinuance of regulatory accounting.
Absent this extraordinary charge, total capital increased by $554 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.
DEBT RATIO
SBC's debt ratio (long-term debt and debt maturing within one year, as a
percentage of total capital) was 51.4%, 54.0% and 47.4% at December 31, 1996,
1995 and 1994. 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 11 to the financial statements.
EMPLOYEE STOCK OWNERSHIP PLANS
See Note 9 to the financial statements.
<TABLE>
Consolidated Statements of Income
Dollars in millions except per share amounts
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating Revenues
Local service $ 7,394 $ 6,549 $ 5,788
Network access 3,244 3,067 2,857
Long-distance service 945 841 917
Directory advertising 914 953 947
Other 1,401 1,260 1,263
Total operating revenues 13,898 12,670 11,772
Operating Expenses
Cost of services and products 4,135 3,806 3,747
Selling, general and administrative 3,967 3,657 3,225
Depreciation and amortization 2,240 2,170 2,038
Total operating expenses 10,342 9,633 9,010
Operating Income 3,556 3,037 2,762
Other Income (Expense)
Interest expense (472) (515) (480)
Equity in net income of affiliates 244 156 223
Other income (expense) - net (61) 114 (71)
Total other income (expense) (289) (245) (328)
Income Before Income Taxes and Extraordinary Loss 3,267 2,792 2,434
Income Taxes
Federal 1,057 824 684
State and local 109 79 101
Total income taxes 1,166 903 785
Income Before Extraordinary Loss 2,101 1,889 1,649
Extraordinary Loss from Discontinuance of
Regulatory Accounting, net of tax - (2,819) -
Net Income (Loss) $ 2,101 $ (930) $ 1,649
Earnings Per Common Share:
Income Before Extraordinary Loss $ 3.46 $ 3.10 $ 2.74
Extraordinary Loss - (4.63) -
Net Income (Loss) $ 3.46 $ (1.53) $ 2.74
Weighted Average Number of Common
Shares Outstanding (in millions) 607 609 601
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Balance Sheets
Dollars in millions except per share amounts
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 242 $ 490
Short-term cash investments and other current assets 513 310
Accounts receivable - net of allowances for uncollectibles
of $148 and $134 2,575 2,389
Material and supplies 116 131
Prepaid expenses 261 157
Deferred charges 205 202
Total current assets 3,912 3,679
Property, Plant and Equipment - Net 14,007 12,988
Intangible Assets - Net of Accumulated Amortization of
$607 and $548 2,485 2,679
Investments in Equity Affiliates 1,955 1,586
Other Assets 1,090 1,070
Total Assets $23,449 $ 22,002
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 1,722 $ 1,680
Accounts payable and accrued liabilities 3,839 3,125
Dividends payable 259 251
Total current liabilities 5,820 5,056
Long-Term Debt 5,505 5,672
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 784 723
Postemployment benefit obligation 2,720 2,736
Unamortized investment tax credits 255 287
Other noncurrent liabilities 1,530 1,272
Total deferred credits and other noncurrent liabilities 5,289 5,018
Shareowners' Equity
Preferred shares ($1 par value, 10,000,000 authorized: none issued) - -
Common shares ($1 par value, 2,200,000,000 authorized: issued
620,483,301 at December 31, 1996 and 1995) 620 620
Capital in excess of par value 6,322 6,298
Retained earnings 1,739 672
Guaranteed obligations of employee stock ownership plans (229) (272)
Foreign currency translation adjustment (633) (581)
Treasury shares (20,616,939 at December 31, 1996 and 11,122,981 at
December 31, 1995, at cost) (984) (481)
Total shareowners' equity 6,835 6,256
Total Liabilities and Shareowners' Equity $23,449 $ 22,002
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
Dollars in millions, increase (decrease) in cash and cash equivalents
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net income (loss) $2,101 $ (930) $ 1,649
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,240 2,170 2,038
Undistributed earnings from investments in equity affiliates (174) (94) (134)
Provision for uncollectible accounts 226 178 153
Amortization of investment tax credits (32) (42) (61)
Pensions and other postemployment expenses 221 138 202
Deferred income tax expense 165 463 (124)
Extraordinary loss, net of tax - 2,819 -
Changes in operating assets and liabilities:
Accounts receivable (412) (363) (303)
Other current assets (106) 33 (90)
Accounts payable and accrued liabilities 660 (186) 430
Other - net (65) (165) 208
Total adjustments 2,723 4,951 2,319
Net Cash Provided by Operating Activities 4,824 4,021 3,968
Investing Activities
Construction and capital expenditures (3,027) (2,336) (2,350)
Investments in affiliates (29) (16) (22)
Purchase of short-term investments (1,005) (704) (325)
Proceeds from short-term investments 816 587 390
Dispositions 67 - 141
Acquisitions (264) (538) (1,182)
Net Cash Used in Investing Activities (3,442) (3,007) (3,348)
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 5 (111) 463
Issuance of other short-term borrowings 209 91 36
Repayment of other short-term borrowings (134) (91) (41)
Issuance of long-term debt 209 981 345
Repayment of long-term debt (393) (272) (450)
Early extinguishment of debt and related call premiums - (465) -
Issuance of common shares - - 40
Purchase of treasury shares (650) (216) (447)
Issuance of treasury shares 52 82 18
Dividends paid (928) (888) (837)
Net Cash Used in Financing Activities (1,630) (889) (873)
Net increase (decrease) in cash and cash equivalents (248) 125 (253)
Cash and cash equivalents beginning of year 490 365 618
Cash and Cash Equivalents End of Year $ 242 $ 490 $ 365
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, 1993 602,744,484 $603 $5,577 $1,891 $(353) $(40) (2,510,404) $(110) $7,568
Net income for the year
($2.74 per share) - - - 1,649 - - - -
Dividends to shareowners
($1.58 per share) - - - (954) - - - -
Reduction of debt associated with
Employee Stock Ownership Plans - - - - 38 - - -
Foreign currency translation adjustment,
net of income tax benefit of $197 - - - - - (326) - -
Issuance of common shares:
Dividend Reinvestment Plan 3,334,668 3 134 - - - - -
Other issuances 14,404,149 14 571 - - - - -
Purchase of treasury shares - - - - - - (11,301,550) (447)
Issuance of treasury shares - - 4 - - - 2,410,326 94
Other - - - 7 - - - -
Balance, December 31, 1994 620,483,301 620 6,286 2,593 (315) (366) (11,401,628) (463) 8,355
Net income (loss) for the year
($(1.53) per share) - - - (930) - - - -
Dividends to shareowners
($1.65 per share) - - - (1,004) - - - -
Reduction of debt associated with
Employee Stock Ownership Plans - - - - 43 - - -
Foreign currency translation
adjustment, net of income tax
benefit of $116 - - - - - (215) - -
Purchase of treasury shares - - - - - - (4,610,713) (216)
Issuance of treasury shares:
Dividend Reinvestment Plan - - 19 - - - 2,730,666 111
Other issuances - - (7) - - - 2,158,694 87
Other - - - 13 - - - -
Balance, December 31, 1995 620,483,301 620 6,298 672 (272) (581) (11,122,981) (481) 6,256
Net income for the year
($3.46 per share) - - - 2,101 - - - -
Dividends to shareowners
($1.72 per share) - - - (1,042) - - - -
Reduction of debt associated with
Employee Stock Ownership Plans - - - - 43 - - -
Foreign currency translation
adjustment, net of income tax
benefit of $28 - - - - - (52) - -
Purchase of treasury shares - - - - - - (13,099,709) (650)
Issuance of treasury shares:
Dividend Reinvestment Plan - - 26 - - - 2,667,752 109
Other issuances - - (5) - - - 937,999 38
Other - - 3 8 - - - -
Balance, December 31, 1996 620,483,301 $620 $6,322 $1,739 $(229) $(633) (20,616,939) $(984) $6,835
<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 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.
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 original maturities of three months or less.
Deferred Charges - Certain 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 their 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, 1996 and 1995, amounts
included in net intangible assets for licenses were $1,838 and $1,798.
Management periodically reviews the carrying value and lives of all
intangible assets based on expected future cash flows.
Foreign Currency Translation - Local currencies are generally considered
the functional currency for SBC's share of foreign operations, except in
countries considered highly inflationary. SBC translates its share of
foreign assets and liabilities 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 (after a net deferred tax
benefit of $1,764). This charge is comprised of an after-tax charge of
$2,897 to reduce the net carrying value of telephone plant, partially
offset by an after-tax benefit of $78 for the elimination of net regulatory
liabilities. The components of the charge are as follows:
<TABLE>
<CAPTION>
Pre-tax After-tax
<S> <C> <C>
Increase telephone plant accumulated depreciation $4,657 $ 2,897
Adjust unamortized investment tax credits (41) (25)
Eliminate tax-related regulatory assets and liabilities (88) (88)
Eliminate other regulatory assets 55 35
Total $4,583 $ 2,819
</TABLE>
The increase in accumulated depreciation of $4,657 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:
<TABLE>
<CAPTION>
Average Lives (in Years)
Regulator- Estimated
Prescribed Economic
<S> <C> <C>
Digital switch 17 11
Digital circuit 12 7
Copper cable 24 18
Fiber cable 27 20
Conduit 57 50
</TABLE>
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 is being 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. 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 (equivalent to approximately 314 million shares),
subject to adjustment as described in the merger agreement based upon an
allocation of the costs, fees and expenses and other financial effects
incurred or sustained in connection with obtaining state regulatory
approvals. After the merger, PAC will be a wholly-owned subsidiary of SBC.
The transaction is intended to be accounted for as a pooling of interests
and to be a tax-free reorganization. On July 31, 1996, the shareowners of
SBC and PAC each approved the transaction, which had previously been
approved by the board of directors of each company. On November 5, 1996,
the United States Department of Justice announced it would not initiate
action on the merger under the Hart-Scott-Rodino antitrust law. The Public
Service Commission of Nevada approved the merger on December 31, 1996. The
FCC approved the transfer of licenses from PAC to SBC on January 31, 1997.
The merger agreement is subject to certain other regulatory approvals,
including approval by the California Public Utilities Commission, which has
established a schedule for review of the transaction with approval expected
before the end of the first quarter of 1997. If approvals are granted, the
transaction is expected to close in the first half of 1997.
The pro forma effect on SBC's consolidated statements of income had the
merger occurred on January 1, 1994 is as follows:
<TABLE>
<CAPTION>
Pro Forma (unaudited): 1996 1995 1994
<S> <C> <C> <C>
Operating revenues $23,486 $21,712 $21,007
Income before extraordinary loss and
cumulative effect of accounting changes $ 3,158 $ 2,937 $ 2,808
Net income (loss) $ 3,243 $(3,242) $ 2,808
Income before extraordinary loss and
cumulative effect of accounting changes
per common share $ 3.43 $ 3.19 $ 3.08
Net income (loss) per common share $ 3.52 $ (3.52) $ 3.08
</TABLE>
This pro forma information does not include the effect of changes, which
will be applied retroactively, to conform accounting methodologies between
PAC and SBC for, among other items, pensions, postretirement benefits,
sales commissions or merger transaction costs and certain deferred tax
adjustments resulting from the merger. Based on information currently
available, management estimates these changes will not materially affect
the pro forma operating revenues or income before extraordinary loss and
cumulative effect of accounting changes, and estimates the changes will
reduce the pro forma 1995 extraordinary loss from discontinuance of
regulatory accounting by between $100 and $200.
4. Property, Plant and Equipment
Property, plant and equipment is summarized as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Telephone Company plant
In service $ 29,035 $ 27,764
Under construction 312 245
29,347 28,009
Accumulated depreciation and
amortization (17,588) (16,882)
Total Telephone Company 11,759 11,127
Other 3,407 2,781
Accumulated depreciation and
amortization (1,159) (920)
Total other 2,248 1,861
Property, plant and equipment--net $ 14,007 $ 12,988
</TABLE>
SBC's depreciation expense as a percentage of average depreciable plant
was 6.8% for 1996 and 6.9% for 1995 and 1994.
Certain facilities and equipment used in operations are under operating or
capital leases. Rental expenses under operating leases for 1996, 1995 and
1994 were $171, $138 and $126. At December 31, 1996, the future minimum
rental payments under noncancelable operating leases for the years 1997
through 2001 were $105, $91, $94, $51 and $30 and $167 thereafter. Capital
leases were not significant.
5. 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. SBC is a member
of a consortium that holds all of the Class AA shares of Telmex stock,
representing voting control of the company. The consortium is controlled
by a group of Mexican investors led by an affiliate of Grupo Carso, S.A.
de C.V. SBC also owns Class L shares which have limited voting rights.
In January 1997, SBC sold a portion of its Class L shares so that its total
equity investment was below 10% of Telmex's total equity capitalization.
In December 1994 SBC made an equity investment in French cellular
operations (see Note 12). 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 Chilean telecommunications and
South African wireless operations.
The following table is a reconciliation of SBC's investments in equity
affiliates:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Beginning of year $ 1,586 $ 1,748 $ 1,421
Additional investments 292 409 626
Equity in net income 244 156 223
Dividends received (70) (62) (89)
Currency translation adjustment (94) (268) (560)
Reclassifications and other
adjustments (3) (397) 127
End of year $ 1,955 $ 1,586 $ 1,748
</TABLE>
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.
Beginning in 1997, SBC will use the U.S. dollar, instead of the peso, as
the functional currency for its investment in Telmex due to the Mexican
economy becoming highly inflationary.
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 12) and the reclassification of a credit deferred
in 1994 pending completion of the French cellular investment in 1995.
Other adjustments for 1994 reflect the change to the equity method of
accounting for SBC's previously consolidated United Kingdom cable
television operations.
Undistributed earnings from equity affiliates were $837 and $663 at
December 31, 1996 and 1995.
6. Debt
Long-term debt, including interest rates and maturities, is summarized as
follows at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Telephone Company debentures
4.50%-5.88% 1997-2006 $ 600 $ 600
6.12%-6.88% 2000-2024 1,200 1,200
7.00%-7.75% 2009-2026 1,500 1,500
8.30% 1996 - 200
3,300 3,500
Unamortized discount--net of premium (29) (31)
Total Telephone Company debentures 3,271 3,469
Telephone Company notes
5.04%-7.67% 1997-2010 1,118 950
Unamortized discount (6) (5)
Total Telephone Company notes 1,112 945
Other notes
5.70%-6.98% 1996-2007 299 306
7.00%-8.81% 1996-2020 1,021 1,129
1,320 1,435
Unamortized discount (14) (21)
Total other notes 1,306 1,414
Guaranteed obligations of employee
stock ownership plans (1)
8.41%-9.40% 1996-2000 208 260
Capitalized leases 12 26
Total long-term debt, including
current maturities 5,909 6,114
Current maturities (404) (442)
Total long-term debt $ 5,505 $ 5,672
<FN>
(1) See Note 9.
</TABLE>
During 1995, SBC refinanced long-term debentures of the Telephone Company.
Costs of $18 associated with refinancing are included in other income
(expense) - net, with related income tax benefits of $7 included in income
taxes in SBC's Consolidated Statements of Income.
At December 31, 1996, the aggregate principal amounts of long-term debt
scheduled for repayment for the years 1997 through 2001 were $404, $302,
$447, $323 and $270. As of December 31, 1996, 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:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commercial paper $ 1,318 $ 1,238
Current maturities of long-term debt 404 442
Total $ 1,722 $ 1,680
</TABLE>
The weighted average interest rate on commercial paper debt at December 31,
1996 and 1995 was 5.5% and 5.7%. SBC has entered into agreements with
several banks for lines of credit totaling $750. All of these agreements
may be used to support commercial paper borrowings and 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, 1996.
7. 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:
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Telephone Company debentures $3,271 $3,208 $3,469 $3,553
Telephone Company notes 1,112 1,115 945 965
Other notes 1,306 1,338 1,414 1,468
Guaranteed obligations of
employee stock ownership plans 208 219 260 280
</TABLE>
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 were $432 and $243
at December 31, 1996 and 1995. The carrying amounts of cash and cash
equivalents and short-term investments approximate fair values.
8. Income Taxes
Significant components of SBC's deferred tax liabilities and assets are as
follows at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Depreciation and amortization $2,313 $2,166
Other 598 556
Gross deferred tax liabilities 2,911 2,722
Employee benefits 1,485 1,373
Unamortized investment tax credits 96 108
Other 563 604
Gross deferred tax assets 2,144 2,085
Deferred tax assets valuation allowance 96 110
Net deferred tax liabilities $ 863 $ 747
</TABLE>
As a result of implementing Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in 1993, the Telephone Company recorded a
net reduction in its deferred tax liability. This reduction was
substantially offset by the establishment of a net regulatory liability,
which was eliminated with the discontinued application of FAS 71 in
September 1995 (see Note 2).
The decrease in the valuation allowance is the result of an evaluation of
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:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal
Current $ 940 $ 421 $ 867
Deferred--net 149 445 (122)
Amortization of investment tax credits (32) (42) (61)
1,057 824 684
State and local
Current 92 61 103
Deferred--net 17 18 (2)
109 79 101
Total $ 1,166 $ 903 $ 785
</TABLE>
A reconciliation of income tax expense and the amount computed by applying
the statutory federal income tax rate (35%) to income before income taxes
and extraordinary loss is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Taxes computed at federal statutory rate $ 1,143 $ 977 $ 852
Increases (decreases) in taxes resulting from:
Amortization of investment tax credits over the life of the plant
that gave rise to the credits--1996 and 1995, net of deferred tax (21) (39) (61)
Excess deferred taxes due to rate change - (24) (35)
Depreciation of telephone plant construction costs previously
deducted for tax purposes--net - 14 18
State and local income taxes--net of federal tax benefit 71 51 66
Other--net (27) (76) (55)
Total $ 1,166 $ 903 $ 785
</TABLE>
9. 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:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 182 $ 163 $ 157
Interest cost on projected benefit obligation 514 486 464
Actual return on plan assets (1,209) (2,017) 149
Other--net 642 1,495 (670)
Net pension cost $ 129 $ 127 $ 100
</TABLE>
The following table sets forth the pension plans' funded status and the
amounts included in SBC's Consolidated Balance Sheets at December 31:
<TABLE>
1996 1995
<S> <C> <C>
Fair value of plan assets $ 9,293 $ 8,529
Less: Actuarial present value of projected
benefit obligation 7,376 7,276
Plan assets in excess of projected benefit
obligation 1,917 1,253
Unrecognized prior service cost 842 950
Unrecognized net gain (2,447) (1,608)
Unamortized transition asset (605) (686)
Accrued pension cost $ (293) $ (91)
</TABLE>
Significant assumptions used in developing pension information include:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate for determining projected benefit obligation 7.5% 7.25% 7.5%
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%
</TABLE>
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, 1996, was $6,562, of which $5,512 was
vested. At December 31, 1995, these amounts were $6,350 and $5,607.
In December 1996, under the provisions of Section 420 of the Internal
Revenue Code, SBC transferred $73 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 $69, $68 and $68 in
1996, 1995 and 1994. Liabilities of $626 and $584 related to these plans
have been included in other noncurrent liabilities in SBC's Consolidated
Balance Sheets at December 31, 1996 and 1995.
Postretirement Benefits - SBC provides certain medical, dental and life
insurance benefits to substantially all retired employees and accrues
actuarially determined postretirement benefit costs as active employees
earn these benefits.
Postretirement benefit cost is composed of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 55 $ 48 $ 49
Interest cost on accumulated postretirement benefit
obligation (APBO) 230 228 225
Actual return on assets (188) (202) (16)
Other--net 126 144 (24)
Postretirement benefit cost $ 223 $ 218 $ 234
</TABLE>
SBC maintains collectively bargained Voluntary Employee Beneficiary
Association (CBVEBA) trusts to fund postretirement benefits. During 1996
and 1995, SBC contributed $57 and $151 into the CBVEBA trust 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:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Retirees $1,743 $ 1,828
Fully eligible active plan participants 438 353
Other active plan participants 1,025 1,063
Total APBO 3,206 3,244
Less: Fair value of plan assets 1,155 923
APBO in excess of plan assets 2,051 2,321
Unrecognized prior service cost (68) (77)
Unrecognized net gain 752 459
Accrued postretirement benefit obligation $2,735 $ 2,703
</TABLE>
In December 1995, the life insurance benefit plan and the medical plan were
merged. Also in December 1995, $109 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 $265
and $245 at December 31, 1996 and 1995. At December 31, 1996 and 1995, the
accrued life insurance benefits included in the accrued postretirement
benefit obligation were $107 and $91.
The assumed medical cost trend rate in 1997 is 8%, decreasing gradually to
5.5% in 2002, prior to adjustment for cost-sharing provisions of the plan
for active and certain recently retired employees. The assumed dental cost
trend rate in 1997 is 6.25%, 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, 1996 by $135 and increases the aggregate service
and interest cost components of the net periodic postretirement benefit
cost for the year ended December 31, 1996 by approximately $16.
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.
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:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Benefit expense--net of dividends and interest income $ 23 $ 23 $ 26
Interest expense--net of dividends and interest income 11 14 17
Net ESOP expense 34 37 43
Additional savings plans stock purchases - - (1)
Total expense $ 34 $ 37 $ 42
Company contributions for ESOPs $ 37 $ 40 $ 40
Dividends and interest income for debt service $ 29 $ 28 $ 27
</TABLE>
SBC shares held by the ESOPs are summarized as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Unallocated 6,401,613 7,922,909
Committed to be allocated 13,554 25,353
Allocated to participants 11,350,052 10,183,433
Total 17,765,219 18,131,695
</TABLE>
10. Stock Option Plans
Various SBC plans authorize the issuance of stock options to senior and
other management employees to purchase up to 69 million shares of SBC
common stock, of which 32 million have been issued. Options issued through
December 31, 1996 carry exercise prices equal to the market price of the
stock at the date of grant and have maximum terms ranging from five to ten
years. Depending upon the plan, vesting of options occurs one to three
years from the date of grant.
In 1996 SBC elected to continue measuring compensation cost for these plans
using the intrinsic value based method of accounting prescribed in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (FAS 123). Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for stock
option plans been recognized using the fair value based method of
accounting at the date of grant for awards in 1996 and 1995 as defined by
FAS 123, SBC's net income (loss) would have been $2,075 and $(939) and net
income (loss) per share would have been $3.42 and $(1.54).
For purposes of these pro forma disclosures, the estimated fair value of
the options granted after 1994 is amortized to expense over the options'
vesting period. Because most employee options vest over a two to three
year period, these disclosures will not be indicative of future pro forma
amounts until the FAS 123 rules are applied to all outstanding non-vested
awards. The fair value for these options was estimated at the date of
grant, using a Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: risk-free
interest rate of 6.37% and 6.31%; dividend yield of 3.45% and 3.45%;
expected volatility factor of 16% and 18%; and expected option life of 4.5
and 4.6 years.
Information related to options is summarized below:
<TABLE>
<CAPTION>
Weighted
Number of Average Exercise
Options Price Per Option
<S> <C> <C>
Outstanding at December 31, 1993 (2,297,538 exercisable) 9,794,665 $36.30
Granted 5,226,551 41.71
Exercised (386,331) 31.34
Forfeited/Expired (498,315) 38.09
Outstanding at December 31, 1994 (5,352,273 exercisable) 14,136,570 38.37
Granted 8,101,794 47.19
Exercised (1,413,276) 34.79
Forfeited/Expired (362,691) 42.11
Outstanding at December 31, 1995 (8,539,081 exercisable) 20,462,397 42.04
Granted 8,287,849 50.09
Exercised (816,179) 37.26
Forfeited/Expired (445,448) 45.89
Outstanding at December 31, 1996 (11,962,332 exercisable) 27,488,619 $44.55
</TABLE>
Information related to options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Exercise Price Range $27.00-39.99 $40.00-44.99 $45.00-57.38
<S> <C> <C> <C>
Number of options:
Outstanding 3,283,091 8,500,278 15,705,250
Exercisable 3,280,699 7,166,462 1,515,171
Weighted average exercise price:
Outstanding $ 32.73 $ 41.23 $ 48.81
Exercisable $ 32.72 $ 41.12 $ 47.36
Weighted average remaining contractual life 5.6 years 7.2 years 6.2 years
</TABLE>
The weighted-average grant-date fair value of each option granted during
the year was $8.32 for 1996 and $8.45 for 1995.
11. Shareowners' Equity
Share Repurchases - From time to time, SBC has repurchased shares of common
stock for distribution, to offset shares distributed through its employee
benefit plans and SBC's Dividend Reinvestment Plan, in connection with
certain acquisitions or for general purposes. In January 1997, the Board
of Directors of SBC (Board) rescinded all authorizations to repurchase
common stock.
Guaranteed Obligations of Employee Stock Ownership Plans - SBC's guarantee
of the ESOPs' notes issued by the savings plans (see Note 9) 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. After
giving effect to a stock split in May 1993, effected in the form of a stock
dividend, each share of common stock represents one-half of a right.
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.
12. 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 over the next four years exist on the
sale of SBC's interest in TeleWest. SBC recorded an after-tax gain of $111
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 $376. 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 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
are being 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 and 1994, nor would they had they occurred
on January 1 of the respective periods.
13. Additional Financial Information
<TABLE>
<CAPTION>
December 31,
Balance Sheets 1996 1995
<S> <C> <C>
Accounts payable and accrued liabilities
Accounts payable $ 1,118 $ 1,029
Accrued taxes 799 438
Advance billing and customer deposits 351 333
Compensated future absences 211 199
Accrued interest 144 141
Accrued payroll 163 117
Other 1,053 868
Total $ 3,839 $ 3,125
</TABLE>
<TABLE>
<CAPTION>
Statements of Income 1996 1995 1994
<S> <C> <C> <C>
Interest expense incurred $ 493 $ 520 $ 480
Capitalized interest (21) (5) -
Total interest expense $ 472 $ 515 $ 480
Allowance for funds used during construction - $ 11 $ 19
Statements of Cash Flows 1996 1995 1994
Cash paid during the year for:
Interest $ 469 $ 504 $ 481
Income taxes $ 830 $ 690 $ 928
</TABLE>
No customer accounted for more than 10% of consolidated revenues in 1996 or
1995. Approximately 10% of SBC's consolidated revenues in 1994 were from
services provided to AT&T Corp. No other customer accounted for more than
10% of consolidated revenues in 1994.
Three subsidiaries of SBC have negotiated contracts with the Communications
Workers of America (CWA), none of which is subject to renegotiation in
1997. Approximately 67% of SBC's employees are represented by the CWA.
14. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Earnings
Total per
Calendar Operating Operating Net Income Common Stock Price
Quarter Revenues Income (Loss) Share High Low Close
<S> <C> <C> <C> <C> <C> <C> <C>
1996
First $ 3,197 $ 800 $ 464 $ 0.76 $ 60.250 $ 49.750 $ 52.625
Second 3,333 845 501 0.82 50.750 46.250 49.250
Third 3,600 980 593 0.97 51.000 46.000 48.125
Fourth 3,768 931 543 0.90 55.250 47.000 51.875
Annual $ 13,898 $ 3,556 $ 2,101 $ 3.46
1995
First $ 2,910 $ 708 $ 395 $ 0.65 $ 43.875 $ 39.625 $ 42.000
Second 3,025 754 442 0.73 47.875 41.625 47.625
Third (1) 3,292 883 (2,285) (3.75) 55.125 45.500 55.000
Fourth (2) 3,443 692 518 0.85 58.500 53.125 57.250
Annual (1) $ 12,670 $ 3,037 $ (930) $ (1.53)
<FN>
(1)Net Loss and Earnings per Common Share reflect an extraordinary loss of $2,819, or $4.63 per share, from discontinuance of
regulatory accounting.
(2)Operating Income reflects $139 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 $88 for the strategic realignment of functions and $11 for
refinancing of debt and an after-tax gain of $111 from the merger of SBC's United Kingdom cable television operations into
TeleWest. The net of these transactions was $12, or $0.02 per share.
</TABLE>
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
six 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, 1996 and 1995,
and the related consolidated statements of income, shareowners'
equity and cash flows for each of the three years in the period
ended December 31, 1996. 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,
1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1996, 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.
ERNST & YOUNG LLP
San Antonio, Texas
February 14, 1997
Stock Trading Information
Trading: SBC is listed on the New York, Chicago and Pacific
stock exchanges, as well as The London Stock Exchange and The
Swiss Exchange.
Ticker symbol (NYSE): SBC
Newspaper stock listing: SBC Comm or SBC
The above information appears on the inside 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 inside back cover.
The section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appears on pages
9-19. The text of this section appears in two columns.
A bar graph titled "Operating Income (dollars in billions)"
appears in the right column on page 9 and to the right side of
the section titled "Results of Operations - Summary". The graph
shows Operating Income for the past five years. The actual
figures are listed on the graph. Listed below are the plot
points:
1992 2.2
1993 2.4
1994 2.8
1995 3.0
1996 3.6
The following footnote appears at the base of the graph:
Operating income has grown by more than half since 1992.
A stacked bar graph titled "Local Service (dollars in billions)"
appears in the left column on page 10 and to the left 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
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
1996 7.4 2.7 4.7
The following footnote appears at the base of the graph:
Wireless local services revenues have nearly tripled in the last
four years.
A stacked bar graph titled "Distribution of Revenues (dollars in
billions)" appears in the right column on page 11 and to the
right of the section titled "Operating Expenses". The graph
shows various categories of revenues for the past five years.
The actual figures are listed on the graph. Listed below are
the plot points by category:
Local Network Directory
Year Total service access Long- advertising Other
distance
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
1996 13.9 7.4 3.2 1.0 0.9 1.4
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 1992.
A stacked bar graph titled "Distribution of Expenses (dollars in
billions)" appears in the left column on page 12 and to the
left side of the subsection titled "Equity in Net Income of
Affiliates". 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:
Cost of
services Selling, Depreciation
Year Total and general and and
products administrative amortization
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
1996 10.3 4.1 4.0 2.2
The following footnote appears at the base of the graph:
Expenses as a percentage of operating revenues decreased for the
fourth consecutive year.
In the section titled "Operating Environment and Trends of the
Business", on page 13 an icon (approximately one inch) of the state
of Texas, appears in the left column.
A stacked bar graph titled "Access Lines (in millions)" appears
in the right column on page 13 and to the right side of the
subsection titled "Texas". 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
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
1996 15.0 8.8 2.4 1.6 1.3 0.9
The following footnote appears at the base of the graph: Texas
accounts for nearly two-thirds of access line growth since 1992.
A stacked bar graph titled "Business Access Lines (in millions)"
appears in the left column on page 14 and to the left side of the
subsection titled "Missouri". The graph shows business access
lines in total for the past five years. The actual figures are
listed on the graph. Listed below are the plot points:
Year Total
1992 3.7
1993 4.0
1994 4.2
1995 4.5
1996 4.9
The following footnote appears at the base of the graph: Business
access lines have grown nearly one-third 1992.
In the subsections titled "Missouri" and "Oklahoma" on page 14,
icons (approximately one inch) of the states of Missouri and
Oklahoma in the left and right columns, respectively.
A bar graph titled "Additional Lines (in thousands)" appears in
the right column on page 15 and to the right side of the
subsection titled "Domestic". The graph shows additional lines
for the past 5 years. The actual figures are listed on the
graph. Listed below are the plot points.
1992 732.5
1993 793.9
1994 878.9
1995 1,030.1
1996 1,244.2
The following footnote appears at the base of the graph:
Additional lines growth represents nearly one-fourth of the
increase in access lines since 1992.
A bar graph titled "Wireless Penetration (in percent)" appears in
the left column on page 16. The graph shows the percentage of
Wireless Penetration for the past five years. Listed below are
the plot points:
1992 4.0%
1993 5.7%
1994 7.4%
1995 9.0%
1996 10.8%
The following footnote appears at the base of the graph: SBC's
wireless penetration leads the industry.
In the subsection titled "International" on page 17, an icon
(approximately one inch) of the country of Mexico appears in the
left column.
A bar graph titled "Capital Expenditures (dollars in billions)"
appears in the left column on page 18 and to the left side of the
section titled "Liquidity and Capital Resources". The graph shows
Capital Expenditures for the past five years. The actual figures
are listed on the graph. Listed below are the plot points:
1992 2.1
1993 2.2
1994 2.4
1995 2.3
1996 3.0
The following footnote appears at the base of the graph: Capital
expenditures have increased for growth and network modernization.
EXHIBIT 21
SUBSIDIARIES OF SBC COMMUNICATIONS INC.
AS OF JANUARY 1, 1997
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.
SBC Media Ventures, Delaware Same
Inc.
Southwestern Bell Messaging Delaware Same
Services, 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 14, 1997, included in the 1996 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
Savings Plan and Savings and Security Plan (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. 33-49893
and 333-08979), and SBC Communications Capital Corporation and
SBC Communications Inc. (Nos. 33-45490 and 33-56909), and in
the related Prospectuses of our report dated February 14,
1997, 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, 1996.
ERNST & YOUNG LLP
San Antonio, Texas
March 7, 1997
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, all having addresses
in the City of San Antonio and State of Texas, 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 31st day of January, 1997.
/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, all having
addresses in the City of San Antonio and State of Texas, 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 31st day of January, 1997.
/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, all having addresses in the City of San Antonio and
State of Texas, 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 31st day of January, 1997.
/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 T. Hay
Tom C. Frost Jess T. Hay
Director Director
/s/ Bobby R. Inman /s/ Charles F. Knight
Bobby R. Inman Charles F. Knight
Director Director
/s/ Haskell M. Monroe, Jr. /s/ Carlos Slim Helu
Haskell M. Monroe, Jr. Carlos Slim Helu
Director Director
/s/ Patricia P. Upton
Patricia P. Upton
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANACIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S DECEMBER 31, 1996 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 242,000
<SECURITIES> 432,000
<RECEIVABLES> 2,723,000
<ALLOWANCES> 148,000
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 3,912,000
<PP&E> 32,754,000
<DEPRECIATION> 18,747,000
<TOTAL-ASSETS> 23,449,000
<CURRENT-LIABILITIES> 5,820,000
<BONDS> 5,505,000
0
0
<COMMON> 620,000
<OTHER-SE> 6,215,000
<TOTAL-LIABILITY-AND-EQUITY> 23,449,000
<SALES> 0<F2>
<TOTAL-REVENUES> 13,898,000
<CGS> 0<F3>
<TOTAL-COSTS> 4,135,000
<OTHER-EXPENSES> 2,240,000
<LOSS-PROVISION> 226,000
<INTEREST-EXPENSE> 472,000
<INCOME-PRETAX> 3,267,000
<INCOME-TAX> 1,166,000
<INCOME-CONTINUING> 2,101,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,101,000
<EPS-PRIMARY> 3.46
<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 INT HE 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>
