SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: March 14, 1997
SBC COMMUNICATIONS INC.
A Delaware Corporation
Commission File No. 1-8610
IRS Employer No. 43-1301883
175 E. Houston, San Antonio, Texas 78205
Telephone Number (210) 821-4105
Item 7. Financial Statements and Exhibits
SBC Communications Inc. (SBC) hereby incorporates by reference herein Pacific
Telesis Group's (PAC) Current Report on Form 8-K dated March 13, 1997 as filed
with the Securities and Exchange Commission (File No. 1-8609). SBC also
presents herein unaudited pro forma combined condensed financial statements of
SBC and PAC to reflect the proposed business combination of SBC and PAC as of
and for the year ended December 31, 1996.
(a)UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF SBC
COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
The following unaudited pro forma combined condensed financial statements
and notes thereto are presented assuming the merger will be accounted for as
a "pooling of interests." Under this method of accounting, SBC will restate
its consolidated financial statements to include the assets, liabilities,
shareowners' equity and results of operations of PAC.
The following unaudited pro forma combined condensed financial statements
have been prepared using an assumed exchange ratio of 0.733. The actual
exchange ratio is subject to change under the terms of the merger agreement.
The unaudited pro forma combined condensed income statement reflects the
combination of the historical operating results of SBC and PAC for the year
ended December 31, 1996. The unaudited pro forma combined condensed balance
sheet reflects the combination of the historical balance sheets of SBC and
PAC at December 31, 1996. The information set forth in the pro forma
financial statements below should be read in conjunction with the annual
financial statements and notes thereto and other information included in
(a) SBC's 1996 Annual Report to Shareowners, which is incorporated by
reference into SBC's Annual Report on Form 10-K for 1996, and (b) PAC's
Current Report on Form 8-K dated March 13, 1997. The unaudited pro forma
combined condensed income statement and balance sheet for 1995 were included
in SBC's registration statement on Form S-4, dated June 3, 1996 (File
No. 333-02587).
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the results of operations or financial position
that actually would have occurred had the merger been consummated on the
dates indicated or that may be obtained in the future.
<TABLE>
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
Unaudited Pro Forma Combined Condensed Balance Sheet
As of December 31, 1996
<CAPTION>
Historical Pro Forma
SBC PAC Adjustments Combined
(in millions)
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 242 $ 72 $ - $ 314
Accounts receivable - net 2,575 1,982 - 4,557
Other current assets 1,095 593 (79) 2a 1,609
Total current assets 3,912 2,647 (79) 6,480
Property, Plant and Equipment - Net 14,007 12,073 - 26,080
Intangible Assets - Net 2,485 1,108 - 3,593
Other Assets 3,045 780 (379) 2a 3,446
Total Assets $ 23,449 $ 16,608 $ (458) $ 39,599
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 1,722 $ 613 $ - $ 2,335
Other current liabilities 4,098 2,914 (79) 2a 6,933
Total current liabilities 5,820 3,527 (79) 9,268
Long-term debt 5,505 5,424 - 10,929
Postemployment benefit obligation 2,720 2,417 - 5,137
Other noncurrent liabilities 2,569 1,467 (379) 2a 3,657
Corporation-obligated mandatorily redeemable
preferred securities of subsidiary trusts* - 1,000 - 1,000
Shareowners' Equity
Common shares 620 43 271 2b 934
Capital in excess of par value 6,322 3,501 (432) 2b 9,391
Retained earnings (deficit) 1,739 (479) - 1,260
Guaranteed obligations of ESOPs (229) - - (229)
Deferred compensation-LESOP trust - (131) - (131)
Foreign currency translation adjustment (633) - - (633)
Treasury shares (984) (161) 161 2b (984)
Total shareowners' equity 6,835 2,773 - 9,608
Total Liabilities and Shareowners' Equity $ 23,449 $ 16,608 $ (458) $ 39,599
<FN>
* The trusts contain assets of $1,030 million in principal amount of the Subordinated Debentures of PAC.
The accompanying notes are an integral part of these pro forma combined condensed financial statements.
</TABLE>
<TABLE>
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
Unaudited Pro Forma Combined Condensed Statement of Income
For the Year Ended December 31, 1996
<CAPTION>
Historical Pro Forma
SBC PAC Adjustments Combined
(in millions, except per share amounts)
<S> <C> <C> <C> <C>
Total operating revenues $ 13,898 $ 9,588 $ 23,486
Total operating expenses 10,342 7,390 17,732
Operating Income 3,556 2,198 5,754
Interest expense 472 341 813
Other income (expense) - net 183 (59) 124
Income Before Income Taxes and
Cumulative Effect of Accounting Change 3,267 1,798 5,065
Income Taxes 1,166 741 1,907
Income Before Cumulative Effect of
Accounting Change 2,101 1,057 3,158
Cumulative Effect of Accounting
Change, net of tax - 85 85
Net Income $ 2,101 $ 1,142 $ 3,243
Earnings Per Common Share:
Income Before Cumulative Effect of
Accounting Change $ 3.46 $ 2.47 $ 3.43
Cumulative Effect of Accounting Change - 0.20 0.09
Net Income $ 3.46 $ 2.67 $ 3.52
Weighted Average Number of Common
Shares Outstanding 607 428 (114) 2c 921
<FN>
The accompanying notes are an integral part of these pro forma combined condensed financial statements.
</TABLE>
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited pro forma combined condensed financial statements are
presented for illustrative purposes only and do not give effect to any cost
savings which may result from the integration of SBC's and PAC's operations.
Additionally, the unaudited pro forma combined condensed financial statements do
not include any future transaction costs relating to the merger (which are
estimated to be approximately $50 million), nor do they consider any
reorganization or regulatory costs that might occur as a result of the merger.
(See SBC's Annual Report on Form 10-K for 1996 for further discussion of the
merger and regulatory approval costs). Differences in accounting policies for,
among other items, pensions, postretirement benefits, sales commissions or
merger transaction costs and certain deferred tax adjustments resulting from
the merger do not have a material effect on either the pro forma financial
position or pro forma results of operations. These differences will be
conformed retroactively and have not been reflected in the unaudited pro forma
combined condensed financial statements. The unaudited pro forma combined
condensed balance sheet reflects the merger as if it had occurred on December
31, 1996. The unaudited pro forma combined condensed statement of income
reflects the merger as if it had been in effect on January 1, 1996.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the results of operations or financial position that
actually would have occurred had the merger been consummated on the dates
indicated or that may be obtained in the future. These unaudited pro forma
combined condensed financial statements should be read in conjunction with the
related historical financial statements and notes thereto included in (a) SBC's
1996 Annual Report to Shareowners, which is incorporated by reference into SBC's
Annual Report on Form 10-K for 1996, and (b) PAC's Current Report on Form 8-K
dated March 13, 1997.
Note 2 - Pro Forma Adjustments
a. Deferred income taxes - Deferred income taxes were reclassified to present
a net asset or liability for both current and non-current amounts.
b. Shareowners' Equity - The shareowners' equity accounts of PAC have been
adjusted to reflect the assumed issuance of approximately 314 million
shares of SBC Common Stock in exchange for all of the issued and
outstanding PAC Common Stock (assuming an Exchange Ratio of 0.733 of a
share of SBC Common Stock for each share of PAC Common Stock; the exchange
ratio is subject to change under the terms of the merger agreement). The
actual number of shares of SBC Common Stock to be issued in connection with
the merger will be based upon the number of shares of PAC Common stock
issued and outstanding immediately prior to the consummation of the merger
and the exchange ratio determined as of the effective date of the merger.
c. Earnings per Common Share - Pro forma combined earnings per common share
information for the year ended December 31, 1996 is based on the combined
weighted average shares outstanding for the year ended December 31, 1996
after conversion of PAC's weighted average shares outstanding at a ratio of
0.733 shares of SBC Common Stock for each share of PAC Common Stock. The
actual ratio is subject to change under the terms of the merger agreement.
d. Intercompany transactions - There are no significant intercompany
transactions between SBC and PAC.
Note 3 - Federal Income Tax Consequences of the Merger
The unaudited pro forma combined condensed financial statements assume that the
merger qualifies as a tax-free reorganization for federal income tax purposes.
(b) Exhibits
Exhibit 23 Consent of Coopers & Lybrand L.L.P.
Exhibit 99 Pacific Telesis Group's Current Report on Form 8-K dated
March 13, 1997 (File No. 1-8609) is incorporated herein by
reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SBC Communications Inc.
/s/ Donald E. Kiernan
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
March 14, 1997
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Form 8-K of SBC
Communications Inc. dated March 14, 1997, of our report dated February 27, 1997
on our audits of the consolidated financial statements of Pacific Telesis Group
and Subsidiaries as of December 31, 1996 and 1995, and for each of the three
years in the period ended December 31, 1996, which reports are included in
the Pacific Telesis Group Form 8-K dated March 13, 1997.
We also consent to the reference to our firm under the caption "Experts" in and
the incorporation by reference in the following registration statements and
related prospectuses of SBC Communications Inc. of our report dated
February 27, 1997, with respect to the aforementioned financial statements
of Pacific Telesis Group:
Form S-3: Nos. 33-49893 SBC Communications Inc. Dividend Reinvestment Plan
and 333-08979
Form S-3: Nos. 33-45490 SBC Communications Inc. and SBC Communications Capital
and 33-56909 Corporation
Form S-8: Nos. 33-38706 SBC Savings Plan and Savings and Security Plan
and 33-54309
Form S-8: Nos. 33-37451 Stock Savings Plans, Management Stock Savings Plan and
and 33-54291 Stock Based Savings Plan
Form S-8: No 33-49855 SBC Communications Inc. 1992 Stock Option Plan
Form S-8: No. 33-61715 SBC Communications Inc. 1995 Management Stock Option
Plan
Coopers & Lybrand L.L.P.
San Francisco, California
March 14, 1997
