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: June 19, 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
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Item 5. Other Events.
The following information was included in a press release issued by SBC
Communications Inc., a Delaware corporation ("SBC") on June 19, 1997:
SBC ANNOUNCES STRATEGIC DECISIONS RELATED TO
MERGER WITH PACIFIC TELESIS AND REGULATORY POLICIES
Strategic Initiatives, Reorganizations, Consolidations and Regulatory Costs
Will Result in Special 1997 Charges of $1.9 Billion to $2.3 Billion
SAN ANTONIO, June 19, 1997 - SBC Communications Inc. (NYSE: SBC) today announced
several strategic decisions resulting from the merger integration process that
began with the April 1 closing of its merger with Pacific Telesis Group. The
initiatives, which are the product of an extensive review of operations
throughout the merged company, include significant integration of operations and
consolidation of some administrative and support functions.
SBC said that these actions, combined with the financial impact of several
recent federal and state regulatory rulings, including the present value of the
costs associated with the approval of the merger by California and Nevada
regulators, will result in special one-time charges to net income of $1.9
billion to $2.3 billion during 1997, with between $1.6 billion and $1.9 billion
of that total recorded in the second quarter.
"Our merger with Pacific Telesis offers exciting opportunities for growth
and value creation, and we believe it will be extremely positive for our
customers and shareowners," said Edward E. Whitacre Jr., chairman and chief
executive officer. "These strategic decisions will increase revenues, lower
costs, improve productivity and increase cash flow.
"While we recognize that merger integration does not occur instantly,
we're fulfilling the promise we made at the time the merger was completed to
move quickly to complete the process of identifying and seizing these
outstanding opportunities for both revenue growth and improvements in efficiency
and productivity," Whitacre said. "Today's announcement represents an important
step toward realizing the benefits offered by this merger."
SBC said the strategic initiatives announced today represent an
opportunity to add about $1 billion annually in net income by the year 2000.
"Reaching this target will position us to achieve industry-leading earnings
growth and provide us the capability to make additional strategic investments,"
Whitacre said.
The three main components of these special 1997 charges are described in
detail below.
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Merger Integration Initiatives
Whitacre noted that transition teams have been examining the operations of
the merged company, identifying opportunities to create value through an
aggressive focus on revenue-generating synergies and the combination of
administrative and support functions, elimination of redundancy and integration
of operations. The company announced that a number of separate Pacific Telesis
and SBC operations would be combined or integrated, including directory,
long-distance, Internet, wireless, operator and messaging services,
administrative services, public and wholesale operations.
As previously announced, SBC will locate the headquarters of its
long-distance, international, Internet and administrative services subsidiaries
in California. SBC also confirmed that the wireless/PCS business in California
and Nevada would be structured into five regions, with headquarters in San
Diego, San Francisco, Los Angeles, Sacramento and Las Vegas.
SBC said it is centralizing several key functions that will support the
operations of Pacific Bell, Nevada Bell and Southwestern Bell, including network
planning, strategic marketing and procurement. It is also consolidating a number
of corporate-wide support activities, including research and development,
information technology, financial transaction processing and real estate
management. Pacific Bell, Nevada Bell and Southwestern Bell will continue as
separate legal entities.
These initiatives will result in the creation of some jobs and the
elimination and realignment of others, with many of the affected employees
changing job responsibilities and in some cases assuming positions in other
locations.
Post-employment benefits and costs associated with closing down duplicate
operations will result in a charge to second-quarter net income of approximately
$200 million. SBC anticipates that further charges related to relocation,
retraining and the effects of consolidating certain operations of approximately
$175 million after tax will be incurred in the third and fourth quarters of
1997.
Also, as the result of SBC's merger integration plans, strategic review of
domestic operations and organizational alignments, SBC will take an after-tax
charge of approximately $700 million in the second quarter, principally to
recognize the impairment of such items as certain analog switches, voice-mail
platforms, wireless equipment and wireless video assets.
Curtailment of Video and Hybrid Fiber-Coaxial Initiatives
SBC announced it is scaling back its limited direct investment in video
services, reflecting SBC's determination that it is not necessary to build
wireline video networks to meet the total communications needs of its customers.
SBC said the decision to curtail its video operations was linked to the
merger with Pacific Telesis and followed careful post-merger analysis of several
options, including partnerships with video providers. "We've concluded that, at
this time, we will continue to concentrate on growing and investing in our core
businesses - high quality, advanced wireline and wireless telecommunications
networks," Whitacre said. "Our merger with Pacific Telesis reinforces this
emphasis on meeting growing demand for our core products and services throughout
our markets."
SBC will discontinue its broadband network video trial in Richardson,
Texas. In addition, SBC has substantially scaled back its involvement in the
Tele-TV joint venture and is working with Americast to define the appropriate
ongoing role for SBC within the Americast venture.
In a separate decision, SBC said it is halting construction of the hybrid
fiber-coaxial network in San Jose and San Diego, reflecting SBC's determination
that other network architectures would be more technologically, operationally
and financially viable.
Curtailment of these initiatives will reduce net income in the second
quarter by approximately $500 million.
The company added that recent federal regulatory actions which force SBC
to sell its wireline services and network to new competitors at below actual
cost have prompted the company to carefully examine all capital expenditures,
including those for the video and hybrid fiber-coaxial initiatives.
Regulatory Rulings
SBC said that in the second quarter it will reflect a charge to net income
of approximately $175 million, which is the present value using market interest
rates of the regulatory costs related to the approval of the merger by
California and Nevada regulators.
Also, SBC said it is recording a second-quarter charge to net income of
approximately $100 million related primarily to interstate price-cap issues.
In addition to announcing charge offs, SBC outlined the expected costs
associated with implementing number portability, which allows customers to
switch to new local competitors and keep the same phone number. SBC said it
expects the capital costs and expenses associated with number portability to
total approximately $1.5 billion on a pre-tax basis. The net income impact is
expected to total approximately $30 million in the second quarter, an additional
$175 million in the remainder of 1997, and $350 million after 1997. SBC said
that while full recovery of its costs is required under the Telecommunications
Act of 1996, the FCC has not yet determined when or how those significant costs
will be recovered. SBC's Southwestern Bell Telephone subsidiary has filed a
tariff with the FCC for recovery of the costs of implementing number
portability, proposing an effective date of July 21, 1997. A filing for Pacific
Bell is expected to follow. SBC said that although it could not predict the
likelihood of the FCC permitting the tariffs to become effective, they are based
on real costs associated with the FCC's number portability regulatory actions.
While the majority of costs will be incurred in 1997 and 1998, these tariffs
provide for recovery of the significant cost of number portability
implementation over the next five years.
SBC Communications Inc. is an international leader in the
telecommunications industry, with more than 31 million access lines and 4.7
million wireless customers across the United States, as well as investments in
telecommunications businesses in nine countries. Under the Southwestern Bell,
Pacific Bell, Nevada Bell and Cellular One brands, the company, through its
subsidiaries, offers a wide range of innovative services, including local and
long-distance telephone service, wireless communications, paging, Internet
access, cable TV and messaging, as well as telecommunications equipment, and
directory advertising and publishing. SBC (www.sbc.com) has approximately
110,000 employees. SBC and Pacific Telesis Group reported combined 1996 revenues
of $23.5 billion.
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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
June 19, 1997