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 September 30, 1996
or
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 SBC COMMUNICATIONS INC., 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
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHWESTERN BELL TELEPHONE COMPANY
STATEMENTS OF INCOME
Dollars in millions
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues
Local service $ 1,202.8 $ 1,085.1 $ 3,495.2 $ 3,192.8
Network access 820.1 780.8 2,427.9 2,290.7
Long-distance service 213.7 205.8 656.1 615.4
Other 219.0 190.8 631.4 553.2
Total operating revenues 2,455.6 2,262.5 7,210.6 6,652.1
Operating Expenses
Cost of services and products 760.0 705.0 2,218.2 2,055.0
Selling, general and administrative 604.2 564.1 1,741.1 1,636.5
Depreciation and amortization 452.1 442.9 1,337.3 1,325.9
Total operating expenses 1,816.3 1,712.0 5,296.6 5,017.4
Operating Income 639.3 550.5 1,914.0 1,634.7
Other Income (Expense)
Interest expense (79.0) (85.3) (242.2) (257.2)
Other income - net 1.7 4.5 4.0 9.3
Total other income (expense) (77.3) (80.8) (238.2) (247.9)
Income Before Income Taxes
and Extraordinary Loss 562.0 469.7 1,675.8 1,386.8
Income Taxes
Federal 186.3 147.6 554.5 424.1
State and local 22.1 16.6 68.5 49.9
Total income taxes 208.4 164.2 623.0 474.0
Income Before Extraordinary Loss 353.6 305.5 1,052.8 912.8
Extraordinary Loss from Discontinuance
of Regulatory Accounting, net of tax - (2,819.3) - (2,819.3)
Net Income (Loss) $ 353.6 $ (2,513.8) $ 1,052.8 $ (1,906.5)
See Notes to Financial Statements.
</TABLE>
<TABLE>
SOUTHWESTERN BELL TELEPHONE COMPANY
BALANCE SHEETS
Dollars in millions
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 73.8 $ 42.7
Accounts receivable - net of allowances for uncollectibles of
$23.6 and $15.5 1,622.1 1,509.2
Material and supplies 79.9 130.6
Deferred charges 40.0 31.9
Deferred income taxes 102.3 143.3
Prepaid expenses and other current assets 266.9 81.4
Total current assets 2,185.0 1,939.1
Property, Plant and Equipment - at cost 29,033.4 28,008.7
Less: Accumulated depreciation and amortization 17,500.9 16,881.3
Property, Plant and Equipment - Net 11,532.5 11,127.4
Other Assets 40.8 75.4
Total Assets $ 13,758.3 $ 13,141.9
Liabilities and Shareowner's Equity
Current Liabilities
Debt maturing within one year $ 1,065.6 $ 750.4
Accounts payable and accrued liabilities 2,323.8 2,289.8
Total current liabilities 3,389.4 3,040.2
Long-Term Debt 4,192.8 4,217.1
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 194.6 174.3
Postemployment benefit obligation 2,654.9 2,656.7
Unamortized investment tax credits 262.6 286.0
Other noncurrent liabilities 182.6 99.7
Total deferred credits and other noncurrent liabilities 3,294.7 3,216.7
Shareowner's Equity
Common stock - one share, no par value 1.0 1.0
Paid-in surplus 3,998.5 4,837.8
Retained earnings (deficit) (1,118.1) (2,170.9)
Total shareowner's equity 2,881.4 2,667.9
Total Liabilities and Shareowner's Equity $ 13,758.3 $ 13,141.9
See Notes to Financial Statements.
</TABLE>
<TABLE>
SOUTHWESTERN BELL TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
<CAPTION>
Nine months ended
September 30,
1996 1995
<S> <C> <C>
Operating Activities
Net income (loss) $ 1,052.8 $ (1,906.5)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,337.3 1,325.9
Provision for uncollectible accounts 70.6 58.5
Amortization of investment tax credits (23.4) (34.4)
Pensions and other postemployment expenses 101.3 (17.8)
Deferred income taxes 61.3 52.7
Extraordinary loss, net of tax - 2,819.3
Other - net (389.9) (249.2)
Total adjustments 1,157.2 3,955.0
Net Cash Provided by Operating Activities 2,210.0 2,048.5
Investing Activities
Construction and capital expenditures (1,629.0) (1,237.7)
Net Cash Used in Investing Activities (1,629.0) (1,237.7)
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 295.6 (12.8)
Issuance of other short-term borrowings 208.8 91.1
Repayment of other short-term borrowings (88.8) (60.0)
Issuance of long-term debt 74.8 149.7
Repayment of long-term debt (201.1) (117.0)
Dividends paid (1,039.2) (885.4)
Net equity from parent 200.0 28.0
Net Cash Used in Financing Activities (549.9) (806.4)
Net increase in cash and cash equivalents 31.1 4.4
Cash and cash equivalents beginning of year 42.7 46.1
Cash and Cash Equivalents End of Period $ 73.8 $ 50.5
Cash paid during the nine months ended September 30 for:
Interest $ 237.2 $ 255.1
Income taxes $ 498.4 $ 392.2
See Notes to Financial Statements.
</TABLE>
<TABLE>
SOUTHWESTERN BELL TELEPHONE COMPANY
STATEMENTS OF SHAREOWNER'S EQUITY
Dollars in millions
(Unaudited)
<CAPTION>
Retained
Common Paid-in Earnings
Stock Surplus (Deficit)
<S> <C> <C> <C>
Balance, December 31, 1994 $ 1.0 $ 5,389.9 $ 22.6
Net income - - (1,906.5)
Dividend to shareowner - (383.7) (494.9)
Net equity from parent - 28.0 -
Balance, September 30, 1995 $ 1.0 $ 5,034.2 $ (2,378.8)
Balance, December 31, 1995 $ 1.0 $ 4,837.8 $ (2,170.9)
Net income - - 1,052.8
Dividend to shareowner - (1,039.2) -
Net equity from parent - 200.0 -
Balance, September 30, 1996 $ 1.0 $ 3,998.6 $ (1,118.1)
See Notes to Financial Statements.
</TABLE>
* * * *
<TABLE>
SELECTED FINANCIAL AND OPERATING DATA
At September 30, or for the nine months then ended: 1996 1995
<S> <C> <C>
Return on weighted average total capital* . . . . . . . . . 21.55% 14.98%
Debt ratio * . . . . . . . . . . . . . . . . . . . . . . . 64.60% 65.22%
Network access lines in service (000) . . . . . . . . . . 14,799 14,074
Access minutes of use (000,000) . . . . . . . . . . . . . . 43,587 39,854
Long-distance messages billed (000) . . . . . . . . . . . . 753,004 751,405
Number of employees . . . . . . . . . . . . . . . . . . . . 48,280 47,960
* Reflects the impact of the 1995 third quarter extraordinary loss from discontinuance of
regulatory accounting on shareowner's equity.
</TABLE>
SOUTHWESTERN BELL TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions
1.BASIS OF PRESENTATION - Southwestern Bell Telephone Company (Telephone
Company) is a wholly-owned subsidiary of SBC Communications Inc. (SBC). 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) 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 1995 financial
statements to conform with the 1996 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 1995 Annual Report on Form 10-K.
2.EXTRAORDINARY LOSS - Effective 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." Upon
discontinuance of FAS 71, the Telephone Company recorded a non-cash,
extraordinary charge of $2,819.3 (after a deferred tax benefit of $1,764.0).
This charge is composed of an after-tax charge of $2,897.3 to reduce the net
carrying value of telephone plant, partially offset by an after-tax benefit
of $78.0 for the elimination of net regulatory liabilities.
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
$353.6 for the third quarter and $1,052.8 for the first nine months of 1996.
Financial results for the third quarters and first nine months of 1996 and 1995
are summarized as follows:
<TABLE>
<CAPTION>
Third Quarter Nine-Month Period
Percent Percent
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 2,455.6 $ 2,262.5 8.5% $ 7,210.6 $ 6,652.1 8.4%
Operating expenses $ 1,816.3 $ 1,712.0 6.1% $ 5,296.6 $ 5,017.4 5.6%
Income before
extraordinary loss $ 353.6 $ 305.5 15.7% $ 1,052.8 $ 912.8 15.3%
Extraordinary Loss - $ (2,819.3) - - $ (2,819.3) -
Net income (loss) $ 353.6 $ (2,513.8) - $ 1,052.8 $ (1,906.5) -
</TABLE>
The primary factor contributing to the increase in net income during the third
quarter and first nine months of 1996 was growth in demand for services and
products.
The Telephone Company's operating revenues in the third quarter and first nine
months of 1996 increased $193.1, or 8.5%, and $558.5, or 8.4%, over the third
quarter and first nine months of 1995. Components of operating revenues for
the third quarters and first nine months of 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Third Quarter Nine-Month Period
Percent Percent
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Local service $ 1,202.8 $ 1,085.1 10.8% $ 3,495.2 $ 3,192.8 9.5%
Network access
Interstate 537.1 517.7 3.7 1,601.3 1,525.9 4.9
Intrastate 283.0 263.1 7.6 826.6 764.8 8.1
Long-distance service 213.7 205.8 3.8 656.1 615.4 6.6
Other 219.0 190.8 14.8 631.4 553.2 14.1
Total $ 2,455.6 $ 2,262.5 8.5% $ 7,210.6 $ 6,652.1 8.4%
</TABLE>
Local service revenues increased in the third quarter and first nine months
of 1996 due primarily to increases in demand, including increases in access
lines and vertical services revenues. The number of access lines increased
by 5.2% since September 30, 1995, with approximately 29% of access line
growth due to 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%.
Interstate network access revenues increased in the third quarter and first
nine months of 1996 due primarily to an increase 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 increase. Reduced rates under the Federal Communications Commission's
(FCC) revised price cap plan, which was effective August 1, 1995, partially
offset the increases in the third quarter and, to a lesser extent, the
first nine months of 1996.
Intrastate network access revenues increased in the third quarter and first
nine months of 1996 due primarily to increases in demand, including usage
by alternative intraLATA toll carriers.
Long-distance service revenues increased in the third quarter and first
nine months of 1996 due to intraLATA toll pool settlements and the
inclusion in 1995 of 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, long-distance service revenues in the third quarter and first
nine months of 1996 decreased due to the continuing impact of
price competition from alternative intraLATA toll carriers.
Competition has had less impact on message volumes, which were relatively
unchanged, due to deployment and promotion of optional calling plans.
Other operating revenues consist of the Telephone Company's non-regulated
services and products, billing and collection services performed for
interexchange carriers and other miscellaneous revenues. Other operating
revenues increased in the third quarter and first nine months of 1996 due
primarily to increased demand for the Telephone Company's non-regulated
services and products.
The Telephone Company's operating expenses in the third quarter and first nine
months of 1996 increased $104.3, or 6.1%, and $279.2, or 5.6%, over the third
quarter and first nine months of 1995. Components of operating expenses for the
third quarters and first nine months of 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Third Quarter Nine-Month Period
Percent Percent
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Cost of services and
products $ 760.0 $ 705.0 7.8% $ 2,218.2 $ 2,055.0 7.9%
Selling, general and
administrative 604.2 564.1 7.1 1,741.1 1,636.5 6.4
Depreciation and
amortization 452.1 442.9 2.1 1,337.3 1,325.9 0.9
Total $ 1,816.3 $ 1,712.0 6.1% $ 5,296.6 $ 5,017.4 5.6%
</TABLE>
Cost of services and products increased for the third quarter and first
nine months of 1996 due to demand related increases, primarily increases in
switching system software license fees, network expansion and maintenance
and annual compensation. The nine-month increase was also attributable to
demand related increases in materials.
Selling, general and administrative expenses increased in the third quarter
and first nine months of 1996 due to increases in employee-related
expenses, including annual compensation and training, and contracted
services. Also increasing nine-month results were
higher operating taxes, including the 1996 Texas Infrastructure Fund
assessments, which for the third quarter were partially offset by decreases
in other operating taxes.
Interest expense decreased $6.3, or 7.4%, and $15.0, or 5.8%, in the third
quarter and first nine months of 1996 due to lower interest rates on short-term
debt 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.
Income taxes increased $44.2, or 26.9%, and $149.0, or 31.4%, in the third
quarter and first nine months of 1996 due to higher earnings and the effect on
taxes of the discontinuance of regulatory accounting in the third quarter of
1995.
Extraordinary Loss - As described in Note 2 to the financial statements, the
Telephone Company recorded an extraordinary loss of $2.8 billion from
discontinuance of regulatory accounting which included a reduction in plant
asset lives in the third quarter of 1995.
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
COMPETITION
Federal Legislation - In February 1996, the Telecommunications Act of 1996 (the
Act) was enacted as a comprehensive federal telecommunications law. Among other
things, the Act established certain terms and conditions intended to promote
competition for the Telephone Company's local exchange services and defined
conditions SBC must comply with before being permitted to offer wireline
interLATA long-distance service in the Telephone Company's five-state area
(Texas, Missouri, Oklahoma, Kansas and Arkansas). SBC may offer this service
after obtaining state approval for an interconnection agreement with a
predominantly facilities-based competitor serving residential and business
customers that complies with a 14 point competitive checklist and FCC approval
of SBC's checklist compliance. The Act also directed the FCC to establish rules
and regulations to implement the Act, and to preempt specific state law
provisions under certain circumstances.
FCC Rules - In August 1996, the FCC adopted rules by which competitors could
connect with Local Exchange Carriers' (LEC) networks, including those of the
Telephone Company. Some of the provisions of 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.
FCC Rules Stayed - On October 15, 1996, the United States Court of Appeals for
the Eighth Circuit (Court) 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. Other provisions of rules
adopted by the FCC in August 1996 to implement the Act remain in effect. The
terms of the stay will be in effect pending a review by the Court of the
appeal of the FCC rules, beginning in January 1997. The FCC has filed a request
to vacate the Court's stay with the United States Supreme Court.
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, an assessment of the impact of
the FCC rules on the Telephone Company's business is not possible.
Local Service Certification - 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. The Texas Public Utility Commission (TPUC)
has approved the application of Sprint Corporation to be granted a certificate
of authority, waiving the build-out requirements specified under state law for
facilities-based certificates of authority.
Interconnection Agreements - Companies seeking to connect to the Telephone
Company's network and provide local service must enter into interconnection
agreements with the Telephone Company, which are then subject to approval by the
appropriate state commission. The Telephone Company has entered into agreements
in each of its five states, and Texas, Missouri and Oklahoma commissions have
approved various agreements. Several companies who have failed to agree on all
terms of an interconnection agreement with the Telephone Company have filed for
binding arbitration before the state commissions in the five-state area. Only
one arbitration has been ruled on to date.
On October 31, 1996, the TPUC announced its ruling in a consolidated arbitration
hearing between the Telephone Company and AT&T Corp, MCI Telecommunications
Corporation, MFS Communications Company, Inc., 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. Agreements containing these rates and terms must be filed by
November 19, 1996 with the TPUC, which has stated it intends to
issue its final ruling on the
agreements by December 19, 1996. The Telephone Company was also ordered to file
revised cost support for the establishment of permanent rates with the TPUC by
January 15, 1997, with an anticipated effective date of April 1997.
As a result of these agreements, the Telephone Company expects that in 1997 it
will experience local exchange competition from one or more of these providers
in selected markets. When these agreements are finalized, SBC intends to use
these and all other approved agreements as a part of its application to the FCC
to provide interLATA long-distance service in Texas.
SOUTHWESTERN BELL TELEPHONE COMPANY
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 12 Computation of Ratios of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the third quarter ended
September 30, 1996.
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
November 5, 1996 /s/ Richard G. Lindner
Richard G. Lindner
Vice President and Chief Financial
Officer (Principal Accounting/
Financial Officer)
<TABLE>
EXHIBIT 12
SOUTHWESTERN BELL TELEPHONE COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
<CAPTION>
NINE MONTHS ENDED
-- SEPTEMBER 30,---- ------------YEAR ENDED DECEMBER-----------------
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Income Before Income Taxes, Extraordinary
Loss and Cumulative Effect of Changes in
Accounting Principles $ 1,675.8 $ 1,386.8 $ 1,688.3 $ 1,585.9 $ 1,424.2 $1,324.7 $1,286.3
Add: Interest Expense 242.2 257.2 339.4 357.9 385.2 408.7 456.3
1/3 Rental Expense 8.6 7.1 25.9 25.6 22.8 27.6 22.7
Adjusted Earnings $ 1,926.6 $ 1,651.1 $ 2,053.6 $ 1,969.4 $ 1,832.2 $1,761.0 $1,765.3
Total Interest Charges $ 258.5 $ 257.2 $ 339.4 $ 357.9 $ 385.2 $ 408.7 $ 456.3
1/3 Rental Expense 8.6 7.1 25.9 25.6 22.8 27.6 $ 22.7
Adjusted Fixed Charges $ 267.1 $ 264.3 $ 365.3 $ 383.5 $ 408.0 $ 436.3 $ 479.0
Ratio of Earnings to Fixed Charges 7.21 6.25 5.62 5.14 4.49 4.04 3.69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SOUTHWESTERN BELL TELEPHONE COMPANY'S SEPTEMBER 30, 1996 CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 73,800
<SECURITIES> 0
<RECEIVABLES> 1,645,700
<ALLOWANCES> 23,600
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 2,185,000
<PP&E> 29,033,400
<DEPRECIATION> 17,500,900
<TOTAL-ASSETS> 13,758,300
<CURRENT-LIABILITIES> 3,389,400
<BONDS> 4,192,800
0
0
<COMMON> 1,000
<OTHER-SE> 2,880,400
<TOTAL-LIABILITY-AND-EQUITY> 13,758,300
<SALES> 0<F2>
<TOTAL-REVENUES> 7,210,600
<CGS> 0<F3>
<TOTAL-COSTS> 2,218,200
<OTHER-EXPENSES> 1,337,300
<LOSS-PROVISION> 70,600
<INTEREST-EXPENSE> 242,200
<INCOME-PRETAX> 1,675,800
<INCOME-TAX> 623,000
<INCOME-CONTINUING> 1,052,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,052,800
<EPS-PRIMARY> 0
<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 IN THE FINANCIAL STATEMENTS
PURSUANT TO REGULATION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN THE
"TOTAL REVENUE" 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>
