United States
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: November 19, 1998
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
<PAGE>
Item 7. Financial Statements and Exhibits
SBC Communications Inc. (SBC) presents herein unaudited pro forma combined
condensed financial statements of SBC and Ameritech Corporation (Ameritech) to
reflect the proposed business combination of SBC and Ameritech as of and for the
nine months ended September 30, 1998. In addition, the SBC information included
in the pro forma combined condensed financial statements reflect the merger of a
subsidiary of SBC and Southern New England Telecommunications Corporation
(SNET), which was completed on October 26, 1998. The merger with SNET was
accounted for as a "pooling of interests" and, accordingly financial statements
for all prior periods have been restated.
(a) Unaudited Pro Forma Combined Condensed Financial Statements Of SBC
Communications Inc. And Ameritech Corporation
The following unaudited pro forma combined condensed financial statements
and notes thereto are presented assuming the merger with Ameritech 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
Ameritech.
The following unaudited pro forma combined condensed financial statements
have been prepared using the exchange ratio of 1.316 per the merger
agreement with Ameritech.
The unaudited pro forma combined condensed statement of income reflects the
combination of the historical operating results of SBC and Ameritech for the
nine months ended September 30, 1998. The unaudited pro forma combined
condensed balance sheet reflects the combination of the historical balance
sheets of SBC and Ameritech at September 30, 1998. 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 with Ameritech been consummated on the dates
indicated or that may be obtained in the future. The information set forth
in the unaudited pro forma combined condensed financial statements below
should be read in conjunction with the historical financial statements and
notes thereto and other information included in (a) SBC's 1997 Annual Report
to Shareowners, which is incorporated by reference into SBC's Annual Report
on Form 10-K for 1997, (b) Ameritech's 1997 Annual Report to Shareowners,
which is incorporated by reference into SBC's amended registration statement
on Form S-4, dated October 15, 1998 (Registration No. 333-56141), (c) SBC's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(which does not include financial statements that are restated for the
merger with SNET), and (d) Ameritech's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
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<TABLE>
SBC Communications Inc and Ameritech Corporation
Unaudited Pro Forma Combined Condensed Balance Sheet
As of September 30, 1998
<CAPTION>
Historical Pro Forma
SBC Ameritech Adjustments Combined
(in millions)
<S> <C> <C> <C> <C>>
Assets
Current Assets
Cash and cash equivalents $ 801 $ 381 $ $ 1,182
Accounts receivable - net 5,279 3,003 8,282
Other current assets 1,548 1,883 3,431
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Total current assets 7,628 5,267 12,895
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Property, Plant and Equipment - Net 29,715 14,144 43,859
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Intangible Assets - Net 3,122 1,900 5,022
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Investments in Equity Affiliates 2,545 4,761 7,306
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Other Assets 2,343 3,771 6,114
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Total Assets $45,353 $29,843 $ $75,196
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Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 1,768 $ 1,229 $ $ 2,997
Other current liabilities 8,372 5,195 13,567
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Total current liabilities 10,140 6,424 16,564
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Long-Term Debt 12,357 7,013 19,370
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Postemployment benefit obligation 5,123 3,123 8,246
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Other noncurrent liabilities 4,385 2,491 6,876
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Corporation-obligated mandatorily redeemable
preferred securities of subsidiary trusts* 1,000 - 1,000
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Shareowners' Equity
Common shares 1,987 1,177 275 (2a) 3,439
Capital in excess of par value 9,088 5,475 (1,876)(2a) 12,687
Retained earnings 3,098 6,043 9,141
Guaranteed obligations of employee stock
ownership plans (164) (114) (278)
Deferred compensation - LESOP (84) - (84)
Accumulated other comprehensive income (554) (188) (742)
Treasury shares (at cost) (1,023) (1,601) 1,601 (2a) (1,023)
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Total shareowners' equity 12,348 10,792 - 23,140
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Total Liabilities and Shareowners' Equity $45,353 $29,843 $- $75,196
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<FN>
* The trusts contain assets of $1,030 in principal amount of the Subordinated
Debentures of Pacific Telesis Group. The accompanying notes are an integral part
of these unaudited pro forma combined condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SBC Communications Inc and Ameritech Corporation
Unaudited Pro Forma Combined Condensed Statement of Income
For the Nine Months Ended September 30, 1998
<CAPTION>
Historical Pro Forma
SBC Ameritech Adjustments Combined
(in millions, except per share data)
<S> <C> <C> <C> <C>
Total operating revenues $21,397 $12,712 $ $34,109
Total operating expenses 15,902 9,580 25,482
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Operating Income 5,495 3,132 8,627
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Interest expense 760 462 1,222
Equity in net income of affiliates 181 296 477
Other income (expense) - net 209 1,465 1,674
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Income Before Income Taxes and Cumulative Effect
of Accounting Change 5,125 4,431 9,556
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Income Taxes 1,873 1,586 3,459
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Income Before Cumulative Effect of Accounting
Change 3,252 2,845 6,097
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Cumulative Effect of Accounting Change, net of tax 15 15
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Net Income $3,267 $2,845 $ $6,112
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Earnings Per Common Share:
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Income Before Cumulative Effect of Accounting
Change $1.66 $2.58 $1.79
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Net Income $1.67 $2.58 $1.80
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Weighted Average Number of Common Shares
Outstanding (000,000) 1,956 1,101 348 (2b) 3,405
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Earnings Per Common Share-Assuming Dilution:
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Income Before Cumulative Effect of Accounting
Change $1.64 $2.56 $1.77
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Net Income $1.65 $2.56 $1.77
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Weighted Average Number of Common Shares
Outstanding-Assuming Dilution (000,000) 1,983 1,110 351 (2b) 3,444
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<FN>
The accompanying notes are an integral part of these unaudited pro forma combined condensed
financial statements.
</FN>
</TABLE>
<PAGE>
SBC COMMUNICATIONS INC. AND AMERITECH CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
Note 1--Basis Of Presentation
The accompanying unaudited pro forma combined condensed financial statements
include the historical financial statements of SBC and Ameritech and are
intended to reflect the impact of the pending merger of an SBC subsidiary with
Ameritech (Ameritech Merger) on SBC's financial statements. On October 26, 1998,
SBC and SNET completed the merger of an SBC subsidiary with SNET (SNET Merger),
in a transaction in which each share of common stock, par value $1.00 per share,
of SNET was converted into and exchanged for 1.7568 shares of SBC Common Stock
(equivalent to approximately 120 million shares, or 6% of the outstanding shares
of SBC Common Stock at September 30, 1998). SNET became a wholly-owned
subsidiary of SBC effective with the SNET Merger, which was accounted for as a
"pooling of interests" and a tax-free reorganization. Effective with the SNET
Merger, the SBC historical financial statements have been restated to include
the accounts of SNET and include the effects of the conforming accounting
changes related to pension and postemployment benefits.
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, Ameritech's and SNET's
operations. These potential savings, as well as any potential revenue synergies,
reflect future opportunities, including the reduction of expected cost
increases, and do not necessarily involve reductions from historical cost
levels. Certain of these synergies are discussed in SBC's amended registration
statement on Form S-4, dated October 15, 1998 (Registration No. 333-56141) in
the section "The Merger - Reasons for the Merger; Recommendations of the Board
of Directors - SBC." Additionally, the unaudited pro forma combined condensed
financial statements do not include any future transaction costs relating to the
Ameritech Merger (which are estimated to be approximately $130 million), nor do
they consider any reorganization costs or costs associated with the disposition
of the overlapping cellular licenses owned by SBC and Ameritech that may be
required in several markets as a result of the Ameritech Merger. As the nature
of any dispositions relating to the overlapping cellular licenses is unknown,
the accompanying unaudited pro forma combined condensed financial statements do
not reflect any such disposition which may be made or consideration which may be
received. Differences in accounting policies do not have a material effect on
either the pro forma combined financial position or pro forma combined results
of operations and have not been reflected in the unaudited pro forma combined
condensed financial statements. The unaudited pro forma combined condensed
statement of income reflects the Ameritech Merger as if it had been in effect on
January 1, 1998.
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 Ameritech Merger been consummated on the
date 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 of SBC and Ameritech
incorporated by reference in (a) SBC's 1997 Annual Report to Shareowners, which
is incorporated by reference into SBC's Annual Report on Form 10-K for 1997, (b)
Ameritech's 1997 Annual Report to Shareowners, which is incorporated by
reference into SBC's amended registration statement on Form S-4, dated October
15, 1998 (Registration No. 333-56141), (c) SBC's Quarterly Report on Form 10-Q
for the quarter ended
<PAGE>
September 30, 1998 (this Form 10-Q does not include financial statements
that are restated for the merger with SNET), and (d) Ameritech's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
It is expected that SBC and Ameritech will form review teams subsequent to the
completion of the Ameritech Merger to perform comprehensive reviews of the
combined companies' operations and strategic initiatives. Though the results of
any such reviews cannot be determined at this time, such reviews may result in
significant accounting charges.
Note 2--Pro Forma Adjustments
a. Shareowners' Equity--The shareowners' equity accounts have been adjusted to
reflect the assumed issuance of approximately 1,450 million shares of SBC
Common Stock in exchange for all of the issued and outstanding Ameritech
Common Stock (based on the Exchange Ratio of 1.316). The actual number of
shares of SBC Common Stock to be issued in connection with the Ameritech
Merger will be based upon the number of shares of Ameritech Common Stock
issued and outstanding on the effective date of the merger.
b. Earnings per Common Share--Pro forma combined earnings per common share and
earnings per common share assuming dilution are based on the combined
weighted average shares outstanding after conversion of shares of Ameritech
Common Stock into shares of SBC Common Stock, as appropriate.
c. Intercompany Transactions--There are no significant intercompany transactions
between or among SBC and Ameritech.
Note 3--Federal Income Tax Consequences Of The Merger
The unaudited pro forma combined condensed financial statements assume that the
Ameritech Merger qualifies as a tax-free reorganization for federal income tax
purposes.
Note 4--Recent Developments--Sale Of Investment In Telecom Corporation Of New
Zealand Limited By Ameritech
During the nine months ended September 30, 1998, Ameritech sold substantially
all of its shares in Telecom Corporation of New Zealand Limited for
approximately $2.1 billion. Ameritech reflected a gain in its "other income" of
approximately $1.5 billion, which resulted in an after-tax gain of approximately
$1.0 billion. Additional details of this transaction are summarized in
Ameritech's Form 10-Q for the quarter ended September 30, 1998.
(b) Exhibits
Exhibit 99 Ameritech Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (File No. 1-8612) is incorporated
herein by reference.
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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/ Randall Stephenson
Randall Stephenson
Vice President and Controller
November 19, 1998
