FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1994
or
X Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-2346
SOUTHWESTERN BELL TELEPHONE COMPANY
Incorporated under the laws of the State of Missouri
I.R.S. Employer Identification Number 43-0529710
One Bell Center, St. Louis, Missouri 63101-3099
Telephone Number: (314) 235-9800
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF SOUTHWESTERN BELL
CORPORATION, MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING
THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION H(2).
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
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHWESTERN BELL TELEPHONE COMPANY
STATEMENTS OF INCOME
Dollars in millions
(Unaudited)
Three months ended
March 31,
1994 1993
Operating Revenues
Local service $ 987.3 $ 948.6
Network access 681.5 637.7
Long-distance service 220.7 236.0
Other 138.1 138.2
Total operating revenues 2,027.6 1,960.5
Operating Expenses
Cost of services and products 642.9 595.9
Selling, general and administrative 468.5 480.1
Depreciation and amortization 419.4 414.2
Total operating expenses 1,530.8 1,490.2
Operating Income 496.8 470.3
Other Income (Expense)
Interest expense (88.0) (99.1)
Other expense - net (2.8) (3.4)
Total other income (expense) (90.8) (102.5)
Income Before Income Taxes, Extraordinary Loss and
Cumulative Effect of Changes in
Accounting Principles 406.0 367.8
Income Taxes
Federal 118.7 96.6
State and local 15.2 15.1
Total income taxes 133.9 111.7
Income Before Extraordinary Loss and Cumulative
Effect of Changes in Accounting Principles 272.1 256.1
Extraordinary Loss on Early Extinguishment
of Debt, net of tax - (89.4)
Cumulative Effect of Changes in Accounting
Principles, net of tax - (1,849.4)
Net Income (Loss) $ 272.1 $ (1,682.7)
See Notes to Financial Statements.
SOUTHWESTERN BELL TELEPHONE COMPANY
BALANCE SHEETS
Dollars in millions
March 31, December 31,
1994 1993
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 40.0 $ 37.8
Accounts receivable - net of allowances for
uncollectibles of
$13.9 and $14.2 1,361.8 1,375.0
Material and supplies 133.8 129.0
Deferred charges 58.9 46.8
Deferred income taxes 152.6 152.4
Prepaid expenses and other current assets 127.9 56.6
Total current assets 1,875.0 1,797.6
Property, Plant and Equipment - at cost 26,481.5 26,231.3
Less: Accumulated depreciation and amortization 10,817.1 10,532.2
Property, Plant and Equipment - Net 15,664.4 15,699.1
Other Assets 367.1 401.7
Total Assets $17,906.5 $ 17,898.4
Liabilities and Shareowner's Equity
Current Liabilities
Debt maturing within one year $ 914.7 $ 663.0
Accounts payable and accrued liabilities 2,157.1 2,160.0
Total current liabilities 3,071.8 2,823.0
Long-Term Debt 4,383.3 4,383.0
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 1,771.3 1,746.7
Postemployment benefit obligation 2,591.0 2,817.7
Unamortized investment tax credits 414.8 429.8
Other noncurrent liabilities 346.2 356.7
Total deferred credits and other
noncurrent liabilities 5,123.3 5,350.9
Shareowner's Equity
Common stock - one share, no par value 1.0 1.0
Paid-in surplus 5,421.4 5,706.9
Retained deficit (94.3) (366.4)
Total shareowner's equity 5,328.1 5,341.5
Total Liabilities and Shareowner's Equity $17,906.5 $ 17,898.4
See Notes to Financial Statements.
SOUTHWESTERN BELL TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalent
(Unaudited)
Three months ended
March 31,
1994 1993
Operating Activities
Net income (loss) $ 272.1 $ (1,682.7)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization 419.4 414.2
Provision for uncollectible accounts 14.1 14.8
Amortization of investment tax credits (15.0) (16.6)
Pensions and other postemployment expenses 77.4 71.3
Deferred income tax expense 11.3 41.9
Extraordinary loss, net of tax - 89.4
Cumulative effect of accounting changes,
net of tax - 1,849.4
Other - net (381.6) (510.6)
Total adjustments 125.6 1,953.8
Net Cash Provided by Operating Activities 397.7 271.1
Investing Activities
Construction and capital expenditures (362.5) (364.1)
Net Cash Used in Investing Activities (362.5) (364.1)
Financing Activities
Net change in short-term borrowings
with original
maturities of three months or less 306.6 468.7
Repayment of other short-term borrowings (5.0) (118.6)
Issuance of long-term debt 1.5 610.1
Repayment of long-term debt (50.6) (3.8)
Early extinguishment of debt and
related call premiums - (632.1)
Dividends paid (285.5) (241.9)
Net Cash Provided by (Used in)
Financing Activities (33.0) 82.4
Net increase (decrease) in cash and
cash equivalents 2.2 (10.6)
Cash and cash equivalents beginning of year 37.8 44.9
Cash and Cash Equivalents End of Period $ 40.0 $ 34.3
Cash Paid During the Three Months Ended
March 31 for:
Interest $ 84.8 $ 94.6
Income taxes $ 201.4 $ 96.8
See Notes to Financial Statements.
SOUTHWESTERN BELL TELEPHONE COMPANY
STATEMENTS OF SHAREOWNER'S EQUITY
Dollars in millions
(Unaudited)
Retained
Common Paid-in Earnings
Stock Surplus (Deficit)
Balance, December 31, 1992 $ 6,469.9 $ - $ 621.2
Net Income (Loss) - - (1,682.7)
Dividend to Shareowner - (238.4) -
Transfer of Equity (6,468.9) 6,468.9 -
Balance, March 31, 1993 $ 1.0 $ 6,230.5 $ (1,061.5)
Balance, December 31, 1993 $ 1.0 $ 5,706.9 $ (366.4)
Net Income - - 272.1
Dividend to Shareowner - (285.5) -
Balance, March 31, 1994 $ 1.0 $ 5,421.4 $ (94.3)
See Notes to Financial Statements.
* * * *
SELECTED FINANCIAL AND OPERATING DATA
At March 31, or for the three months then ended: 1994 1993
Return on weighted average total capital* . . 13.14% 12.71%
Debt ratio . . . . . . . . . . . . . . . . . 49.86% 50.88%
Network access lines in service (000) . . . 13,416 12,961
Access minutes of use (000,000) . . . . . . . 11,423 10,355
Long-distance messages (000) . . . . . . . . 269,924 261,740
Number of employees . . . . . . . . . . . . 49,190 50,120
* 1993 calculated using Income Before Extraordinary Loss and Cumulative
Changes in Accounting Principles.
SOUTHWESTERN BELL TELEPHONE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1.PREPARATION OF INTERIM FINANCIAL STATEMENTS - Southwestern Bell
Telephone Company (Telephone Company) is a wholly-owned
subsidiary of Southwestern Bell Corporation (Corporation). The
financial statements have been prepared by the Telephone Company
pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management,
include all adjustments (consisting only of normal recurring
accruals and adjustments necessary for adoption of new accounting
standards) necessary to present fairly the results for the
interim periods shown. Certain information and footnote
disclosures, normally included in financial statements prepared
in accordance with generally accepted accounting principles, have
been condensed or omitted pursuant to such SEC rules and
regulations. Management believes that the disclosures made are
adequate to make the information presented not misleading.
Certain reclassifications have been made to the 1993 financial
statements to conform with the 1994 presentation. The results for
the interim periods are not necessarily indicative of results for
the full year. The financial statements contained herein should
be read in conjunction with the financial statements and notes
thereto included in the Telephone Company's 1993 Annual Report on
Form 10-K.
SOUTHWESTERN BELL TELEPHONE COMPANY
Item 2. Management's Discussion and Analysis of Results of
Operations
Dollars in millions
RESULTS OF OPERATIONS
Southwestern Bell Telephone Company (Telephone Company) reported
net income of $272.1 for the first quarter of 1994. Financial
results for the first quarters of 1994 and 1993 are summarized as
follows:
First Quarter Percent
change
1994 vs.
1994 1993 1993
Operating revenues $ 2,027.6 $ 1,960.5 3.4 %
Operating expenses $ 1,530.8 $ 1,490.2 2.7 %
Income before
extraordinary loss and 6.2 %
accounting changes $ 272.1 $ 256.1
Extraordinary loss - $ (89.4) -
Accounting changes - $ (1,849.4) -
Net income (loss) $ 272.1 $ (1,682.7) -
The primary factor contributing to the increase in income before
extraordinary loss and cumulative effect of changes in accounting
principles during the first quarter of 1994 was growth in demand
for services and products. This increase was partially offset by
a combination of previously ordered rate reductions and accruals
for potential rate reductions, as discussed in the Telephone
Company's 1993 Annual Report on Form 10-K.
First quarter 1993 results reflect an extraordinary loss of $89.4
associated with refinancing of long-term debt. In addition,
effective January 1, 1993, the Telephone Company adopted new
financial accounting standards relating to postretirement
benefits, postemployment benefits, and income taxes resulting in
a one-time, non-cash charge to first quarter 1993 earnings of
$1,849.4.
The Telephone Company's operating revenues in the first quarter
of 1994 increased $67.1, or 3.4 percent over the first quarter of
1993. Components of operating revenues for the first quarters of
1994 and 1993 are as follows:
First Quarter Percent
change
1994 vs.
1994 1993 1993
Local service $ 987.3 $ 948.6 4.1 %
Network access
Interstate 454.9 432.1 5.3
Intrastate 226.6 205.6 10.2
Long-distance service 220.7 236.0 (6.5)
Other 138.1 138.2 (0.1)
$ 2,027.6 $ 1,960.5 3.4 %
Local service revenues increased in the first quarter of 1994 due
primarily to increases in demand, including growth in the number
of access lines of 3.5 percent since March 31, 1993. This
increase was partially offset by the impact of previously ordered
rate reductions in Texas and accruals for potential rate
reductions in Missouri.
Interstate network access revenues increased in the first quarter
of 1994 due primarily to an increase in demand for access
services and growth in end user charges attributable to an
increasing access line base, partially offset by the impact of
accruals for sharing under the Federal Communications Commission
price cap plan.
Intrastate network access revenues increased in the first quarter
of 1994 due to an increase in demand, partially offset by
previously ordered rate reductions, primarily in Texas. Also,
beginning in 1994, access revenues reflect the replacement of the
Texas pool settlement process with a system of primary toll
carrier charges. Charges paid to the Telephone Company by other
intrastate carriers are now recorded as access revenues, while
those paid by the Telephone Company are recorded as cost of
services and products. These amounts are offsetting and did not
materially affect operating income in the first quarter of 1994.
Previously, only the net settlement pool payment or receipt was
recorded as access revenue.
Long-distance service revenues decreased in the first quarter of
1994 due mainly to accruals for potential rate reductions,
primarily in Missouri, and reclassification of certain revenues
to access revenues.
Other operating revenues consist of the Telephone Company's non-
regulated network services and products, billing and collection
services performed for interexchange carriers, the provision for
uncollectible revenues related to all revenue classifications and
other miscellaneous revenues. For the first quarter of 1994,
other operating revenues were flat in comparison to 1993 with
increases in non-regulated services and products, including
Caller ID equipment, offset by decreases in miscellaneous
revenues.
The Telephone Company's operating expenses in the first quarter
of 1994 increased $40.6 or 2.7 percent, over the first quarter of
1993. Components of operating expenses for the first quarters of
1994 and 1993 are as follows:
First quarter Percent change
1994 vs.
1994 1993 1993
Cost of services and $ 642.9 $ 595.9 7.9 %
products
Selling, general and 468.5 480.1 (2.4)
administrative
Depreciation and 419.4 414.2 1.3
amortization
$ 1,530.8 $ 1,490.2 2.7 %
Cost of services and products increased in the first quarter of
1994 due to higher expenses for switching system software license
fees, including fees related to enhanced services, annual
compensation increases and Texas primary toll carrier access
expenses discussed above.
Selling, general and administrative expenses decreased in the
first quarter of 1994 primarily due to savings associated with
1993 force reductions. This decrease was partially offset by
annual compensation increases and higher property, gross receipts
and payroll taxes.
Depreciation and amortization increased in the first quarter of
1994 due primarily to a change in plant level and composition.
Interest expense decreased $11.1, or 11.2 percent, in the first
quarter of 1994 due primarily to lower interest rates on debt
refinanced in 1993.
Federal income tax expense increased $22.1, or 22.9 percent, in
the first quarter of 1994 due primarily to higher income before
income taxes and the 1 percent increase in the federal tax rate
enacted in the third quarter of 1993.
PART II - OTHER INFORMATION
SOUTHWESTERN BELL TELEPHONE COMPANY
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
Exhibit 12 Computation of Ratios of Earnings to Fixed
Charges.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Southwestern Bell
Telephone Company
May 10, 1994 /s/ Charles J. Roesslein
Charles J. Roesslein
Vice President-Chief
Financial
Officer and Treasurer
(Principal
Accounting/Financial
Officer)
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EXHIBIT 12
SOUTHWESTERN BELL TELEPHONE COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
DOLLARS IN MILLIONS
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1994 1993 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Income Before Income Taxes,
Extraordinary Loss and Cumulative
Effect of Changes in Accounting
Principles $ 406.0 $ 367.8 $1,424.2 $1,324.7 $1,286.3 $1,319.4 $1,268.9
Add:Interest Expense 88.0 99.1 385.2 408.7 456.3 439.3 476.6
1/3 Rental Expense 6.3 4.9 22.8 27.6 22.7 29.6 28.2
Adjusted Earnings $ 500.3 $ 471.8 $1,832.2 $1,761.0 $1,765.3 $1,788.3 $1,773.7
Total Interest Charges $ 88.0 $ 99.1 $ 385.2 $ 408.7 $ 456.3 $ 439.3 $ 476.6
1/3 Rental Expense 6.3 4.9 22.8 27.6 22.7 29.6 28.2
Adjusted Fixed Charges $ 94.3 $ 104.0 $408.0 $ 436.3 $ 479.0 $ 468.9 $ 504.8
Ratio of Earnings to
Fixed Charges 5.31 4.54 4.49 4.04 3.69 3.81 3.51
</TABLE> <PAGE>
