SOUTHWESTERN BELL TELEPHONE COMPANY
FORM 10-Q
United States
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 June 30, 1997
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
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHWESTERN BELL TELEPHONE COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF INCOME
Dollars in millions
(Unaudited)
- --------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
-------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
Operating Revenues
Local service $ 1,307 $ 1,171 $ 2,561 $2,292
Network access
Interstate 518 530 1,083 1,064
Intrastate 270 274 540 544
Long-distance service 205 226 416 443
Other 242 209 477 412
- --------------------------------------------------------------------------------
Total operating revenues 2,542 2,410 5,077 4,755
- --------------------------------------------------------------------------------
Operating Expenses
Cost of services and products 970 877 1,908 1,731
Selling, general and 615 454 1,040 864
administrative
Depreciation and amortization 503 445 965 885
- --------------------------------------------------------------------------------
Total operating expenses 2,088 1,776 3,913 3,480
- --------------------------------------------------------------------------------
Operating Income 454 634 1,164 1,275
- --------------------------------------------------------------------------------
Other Income (Expense)
Interest expense (85) (80) (169) (163)
Other income - net 1 1 1 2
- --------------------------------------------------------------------------------
Total other income (expense) (84) (79) (168) (161)
- --------------------------------------------------------------------------------
Income Before Income Taxes 370 555 996 1,114
- --------------------------------------------------------------------------------
Income Taxes 142 207 373 415
- --------------------------------------------------------------------------------
Net Income $ 228 $ 348 $ 623 $ 699
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
SOUTHWESTERN BELL TELEPHONE COMPANY
- --------------------------------------------------------------------------------
BALANCE SHEETS
Dollars in millions
- --------------------------------------------------------------------------------
---------- -------------
June 30, December 31,
----------- -------------
1997 1996
- --------------------------------------------------------------------------------
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 64 $ 69
Accounts receivable - net of allowances for
uncollectibles of $32 and $23 1,727 1,674
Prepaid expenses 290 168
Deferred charges 50 35
Deferred income taxes 105 96
Other current assets 125 137
- --------------------------------------------------------------------------------
Total current assets 2,361 2,179
- --------------------------------------------------------------------------------
Property, Plant and Equipment - at cost 30,250 29,347
Accumulated depreciation and amortization 18,165 17,588
- --------------------------------------------------------------------------------
Property, Plant and Equipment - Net 12,085 11,759
- --------------------------------------------------------------------------------
Other Assets 29 30
- --------------------------------------------------------------------------------
Total Assets $ 14,475 $ 13,968
- --------------------------------------------------------------------------------
Liabilities and Shareowner's Equity
Current Liabilities
Debt maturing within one year $ 1,460 $ 921
Accounts payable and accrued liabilities 2,604 2,517
- --------------------------------------------------------------------------------
Total current liabilities 4,064 3,438
- --------------------------------------------------------------------------------
Long-Term Debt 4,142 4,265
- --------------------------------------------------------------------------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 288 209
Postemployment benefit obligation 2,588 2,646
Unamortized investment tax credits 239 255
Other noncurrent liabilities 297 269
- --------------------------------------------------------------------------------
Total deferred credits and other noncurrent 3,412 3,379
liabilities
- --------------------------------------------------------------------------------
Shareowner's Equity
Common stock - one share, no par value 1 1
Paid-in surplus 3,035 3,687
Retained earnings (deficit) (179) (802)
- --------------------------------------------------------------------------------
Total shareowner's equity 2,857 2,886
- --------------------------------------------------------------------------------
Total Liabilities and Shareowner's Equity $ 14,475 $ 13,968
- --------------------------------------------------------------------------------
See Notes to the Financial Statements.
<PAGE>
<TABLE>
- ---------------------------------------------------
SOUTHWESTERN BELL TELEPHONE COMPANY
- -----------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash
and cash equivalents
(Unaudited)
<CAPTION>
- -----------------------------------------------------------------------------------
Six months ended
June 30,
--------------------
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 623 $ 699
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 965 885
Provision for uncollectible accounts 59 44
Amortization of investment tax credits (16) (16)
Deferred income tax expense 69 54
Other - net (218) (183)
- -----------------------------------------------------------------------------------
Total adjustments 859 784
- -----------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 1,482 1,483
- -----------------------------------------------------------------------------------
Investing Activities
Construction and capital expenditures (1,251) (1,042)
- -----------------------------------------------------------------------------------
Net Cash Used in Investing Activities (1,251)
(1,042)
- -----------------------------------------------------------------------------------
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 492 190
Issuance of other short-term borrowings 120 164
Repayment of other short-term borrowings (195) (89)
Repayment of long-term debt (1) (201)
Dividends paid (807) (686)
Equity received from parent 155 200
- -----------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing (236) (422)
Activities
- -----------------------------------------------------------------------------------
Net increase in cash and cash equivalents (5) 19
- -----------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 69 43
- -----------------------------------------------------------------------------------
Cash and Cash Equivalents End of Period $ 64 $ 62
- -----------------------------------------------------------------------------------
Cash paid during the six months ended June 30 for:
Interest $ 169 $ 164
Income taxes $ 128 $ 238
<FN>
See Notes to the Financial Statements.
</FN>
</TABLE>
<PAGE>
- -------------------------------------------------------------
SOUTHWESTERN BELL TELEPHONE COMPANY
- --------------------------------------------------------------------------
STATEMENT OF SHAREOWNER'S EQUITY
Dollars in millions
(Unaudited)
- ----------------------------------------------------------------------------
Retained
Common Paid-in Earnings
Stock Surplus (Deficit)
- ----------------------------------------------------------------------------
Balance, December 31, 1996 $ 1 $ 3,687 $ (802)
Net income - - 623
Dividend to shareowner - (807) -
Equity received from parent - 155 -
- ----------------------------------------------------------------------------
Balance, June 30, 1997 $ 1 $ 3,035 $ (179)
- ----------------------------------------------------------------------------
See Notes to Financial Statements.
* * * *
SELECTED FINANCIAL AND OPERATING DATA
At June 30, or for the six months then 1997 1996
ended:
------- -------
Return on weighted average total capital. . . . . 19.13% 21.54%
Debt ratio . . . . . . . . . . . . . . . . . . . 66.22% 63.60%
Network access lines in service (000) . . . . . 15,345 14,631
Access minutes of use (000,000) . . . . . . . . . 29,136 27,016
Number of employees . . . . . . . . . . . . . . . 50,670 48,360
<PAGE>
SOUTHWESTERN BELL TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions
1. BASIS OF PRESENTATION - Southwestern Bell Telephone Company (SWBell) is a
wholly-owned subsidiary of SBC Communications Inc. (SBC). The financial
statements have been prepared by SWBell 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. Certain reclassifications have been made to the 1996
financial statements to conform with the 1997 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 SWBell's 1996
Annual Report on Form 10-K.
2. COMPLETION OF MERGER SBC and Pacific Telesis Group (PAC) completed the merger
of an SBC subsidiary with PAC, in a transaction in which each outstanding
share of PAC common stock was exchanged for 0.73145 of a share of SBC common
stock (equivalent to approximately 313 million shares). With the merger, PAC
became a wholly-owned subsidiary of SBC. The transaction was accounted for as
a pooling of interests and a tax-free reorganization.
Post-merger initiatives
On June 19, 1997, SBC announced several strategic decisions resulting from
the merger integration process that began with the April 1 closing of its
merger with PAC. The decisions resulted from an extensive review of
operations throughout the merged company and include significant integration
of operations and consolidation of some administrative and support functions.
In connection with these initiatives, SWBell recognized several charges
during the second quarter. Following is a discussion of the most significant
of these charges.
Reorganization SBC will centralize several key functions that will support
the operations of SWBell, Pacific Bell (PacBell) and Nevada 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. SWBell, PacBell, and Nevada 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.
SWBell recognized a charge of approximately $57 ($36 net of tax) during the
second quarter of 1997 in connection with these initiatives. This charge was
comprised mainly of postemployment benefits, primarily related to severance.
Other charges arising out of the merger related to relocation, retraining and
other effects of consolidating certain operations will be recognized in
future periods as those charges are incurred.
Impairments/asset valuation As a result of SBC's merger integration plans,
strategic review of domestic operations and organizational alignments, SWBell
reviewed the carrying value of related long-lived assets . This review
included estimating remaining useful lives and cash flows. Where this review
indicated impairment, discounted cash flows related to those assets were
analyzed to determine the amount of the impairment. As a result of these
reviews, in the second quarter of 1997 SWBell wrote off some assets and
recognized impairments to the value of other assets with a combined charge of
$84 ($51 after tax), including the write off of voice dial equipment which
will be discontinued.
<PAGE>
SOUTHWESTERN BELL TELEPHONE COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
Dollars in millions
RESULTS OF OPERATIONS
Overview Financial results for Southwestern Bell Telephone Company (SWBell) for
the first six months of 1997 and 1996 are summarized as follows:
- ---------------------------------------------------------------------------
Six-Month Period
-----------------------------
Percent
1997 1996 Change
- ---------------------------------------------------------------------------
Operating revenues $ 5,077 $ 4,755 6.8%
Operating expenses $ 3,913 $ 3,480 12.4%
Net income $ 623 $ 699 (10.9)%
===========================================================================
SWBell's six-month net income includes after-tax charges of $149 reflecting
strategic initiatives resulting from SBC Communication Inc.'s (SBC)
comprehensive review of operations of the merged company and the impact of
several recent regulatory rulings. Excluding these charges, SWBell reported net
income of $772, 10.4% higher than the first six months of 1996 net income of
$699. SWBell currently anticipates additional after-tax charges for ongoing
merger integration costs, primarily related to movement of employees, and local
number portability of $165 to $275 during the remainder of 1997.
Excluding these charges, the primary factors contributing to the increase in net
income during the first six months of 1997 was growth in demand for services and
products.
Revenues SWBell's operating revenues in the first six months of 1997 reflect
reductions of $66 related primarily to the impact of several recent regulatory
rulings. Excluding these items, SWBell's operating revenues increased $388, or
8.2%, over the first six months of 1996. Components of operating revenues for
the first six months of 1997 and 1996 are as follows:
- ----------------------------------------------------------------------------
Six Month Period
------------------------------
Percent
1997 1996 Change
- ----------------------------------------------------------------------------
Local service $ 2,561 $ 2,292 11.7%
Network access:
Interstate 1,083 1,064 1.8
Intrastate 540 544 (0.7)
Long-distance service 416 443 (6.1 )
Other 477 412 15.8
- -------------------------------------------------------------------
Total $ 5,077 $ 4,755 6.8%
============================================================================
Local Service revenues increased in the first six months of 1997 due
primarily to increases in demand, including increases in access lines and
vertical services revenues. The number of access lines increased by 4.9%
since June 30, 1996, of which 66% was due to growth in Texas.
Approximately 30% of access line growth was 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%.
<PAGE>
SOUTHWESTERN BELL TELEPHONE COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
Dollars in millions
RESULTS OF OPERATIONS-Continued
Network Access Interstate network access revenues reflect charges of $52
due to the adverse impacts of several recent regulatory issues, including
recovery of certain employee-related expenses and the retroactive effect
of the productivity factor adjustment in the Federal price cap filing.
Without these impacts, interstate network access revenues increased in the
first six months of 1997 due largely to increases 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.
Intrastate network access revenues were relatively unchanged in the first
six months of 1997 as modest increases in demand, including usage by
alternative intraLATA toll carriers, were offset by net price decreases.
Long-Distance Service revenues decreased in the first six months of 1997
due primarily to the impact of price competition from alternative
intraLATA toll carriers and the introduction and deployment of extended
area local service plans. The decrease in long-distance service revenues
also reflects impacts of regulatory rate orders.
Other operating revenues increased in the first six months of 1997 due
primarily to sales of business systems communications equipment
attributable to the December 1996 movement of the business of Southwestern
Bell Telecommunications Inc. (Telecom), a wholly-owned subsidiary of SBC
which marketed business and residential communications equipment, into
SWBell. This increase was somewhat offset by decreased sales of Caller ID
equipment.
Expenses SWBell's operating expenses in the first six months of 1997 reflect
$164 of charges related to strategic initiatives resulting from a comprehensive
review of operations (see Note 2 to the financial statements). Excluding these
charges, operating expenses increased $269, or 7.7%, over the first six months
of 1996. Components of operating expenses for the first six months of 1997 and
1996 are as follows:
- ---------------------------------------------------------------------------
Six-Month Period
-----------------------------
Percent
1997 1996 Change
- ---------------------------------------------------------------------------
Cost of services and products $ 1,908 $ 1,731 10.2%
Selling, general and administrative 1,040 864 20.4
Depreciation and amortization 965 885 9.0
- ------------------------------------------------------------------
Total $ 3,913 $ 3,480 12.4%
===========================================================================
Cost of services and products for the first six months of 1997 reflect
charges of $17 relating to strategic initiatives, including charges for
customer number portability. Excluding these charges, cost of services and
products increased $160, or 9.2%, in the first six months of 1997 due
primarily to increases for employee compensation, network expansion and
maintenance and interconnection. Results also reflect increased expenses
for business systems communications equipment now sold by SWBell (formerly
sold by Telecom as described above).
<PAGE>
SOUTHWESTERN BELL TELEPHONE COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
Dollars in millions
RESULTS OF OPERATIONS-Continued
Selling, general and administrative expenses for the first six months of
1997 reflect one-time charges of $110, including the $57 charge relating
to reorganization (see Note 2 to the financial statements). Excluding
these charges, selling, general and administrative expenses increased $66,
or 7.6%, in the first six months of 1997 due primarily to increases in
sales agents commissions, uncollectibles and employee compensation.
Depreciation and amortization for the first six months of 1997 reflect
one-time charges of $37 for the write off of voice dial equipment which
will be discontinued (see Note 2 to the financial statements). Excluding
this charge, depreciation and amortization increased $43, or 4.9%, in the
first six months of 1997 due primarily to growth in plant levels.
Depreciation and amortization for the first six months of 1997 also
reflects a $45 decrease due to an increase in copper cable life caused by
a limited deployment of asymmetrical digital subscriber line equipment.
This decrease was mostly offset by a change in the effective composite
rate for other plant categories.
Interest expense increased $6, or 3.7%, in the first six months of 1997 due to
increases in short-term debt levels.
Income taxes decreased $42, or 10.1%, in the first six months of 1997 due
primarily to lower income before income taxes.
<PAGE>
SOUTHWESTERN BELL TELEPHONE COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
Dollars in millions
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
COMPETITIVE AND REGULATORY ENVIRONMENT
Access Reform/Price Caps - On June 3, 1997, SBC filed with the Federal
Communications Commission (FCC) a Petition for Partial Stay (Petition) of
aspects of the orders adopted on May 7, 1997 by the FCC on access reform and
local exchange carrier price caps. The Petition asked the FCC to stay the
application of the 6.5% productivity offset to all price cap Local Exchange
Carriers (LECs), its retroactive application to the 1996 annual tariff filings,
and exogenous reductions associated with the completion of equal access
amortization. The FCC denied the stay on June 18, 1997. The impact of the
retroactive portion of the FCC orders was recorded in the second quarter of
1997.
On June 16, 1997, SBC and several other parties filed court appeals regarding
several aspects of the Access Reform and Price Cap Orders. The appeal related to
access reform has been assigned to the U.S. Court of Appeals for the Eighth
Circuit in St. Louis (8th Circuit). The appeal related to price caps and the
productivity offset decision had been assigned to the U.S. Court of Appeals for
the 10th Circuit in Denver, but on July 28, 1997 it was transferred to the U.S
Court of Appeals for the D.C. Circuit.
Interconnection Agreements SWBell continues to enter into interconnection
agreements with companies desiring to provide local service in its operating
territory. Agreements have been reached and approved by all of the state
commissions in states where SWBell operates.
Some parties have entered into second arbitration processes to address remaining
interconnection issues in dispute in Kansas, Oklahoma, and Texas. Additionally,
on July 17, 1997 the Federal District Court in Kansas City dismissed without
prejudice SWBell's lawsuit challenging the AT&T arbitration
order in Kansas on the grounds it was premature.
<PAGE>
SOUTHWESTERN BELL TELEPHONE COMPANY
Item 2. Management's Discussion and Analysis of Results of Operations
Dollars in millions
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
COMPETITIVE AND REGULATORY ENVIRONMENT-Continued
On July 18, 1997, the 8th Circuit set aside key parts of the FCC Interconnection
Order that attempted to set prices for local exchange services, holding that the
right to set such prices is reserved exclusively to the states. SWBell is in
agreement with the 8th Circuit's ruling on the order and believes the intent of
the Telecommunications Act of 1996 (Telecom Act) retained state regulators'
jurisdiction over pricing of intrastate service and local interconnection. The
FCC has indicated it will appeal the 8th Circuit's decision to the Supreme
Court.
InterLATA Long-distance Filing On April 11, 1997, SBC filed an application with
the FCC for the provision of interLATA long-distance services in Oklahoma under
the provisions of the Telecom Act. The Oklahoma Corporation Commission approved
SBC's application in April 1997. On June 26, 1997, the FCC denied SBC's
application on the basis that SBC had not met the requirement established by the
Telecom Act. SBC intends to appeal.
Incentive Legislation Oklahoma enacted legislation, effective July 1, 1997,
which provides for alternative regulation in Oklahoma for telecommunications
providers. Key provisions of the new law allow SWBell to apply for alternative
regulation at any time, impose a restriction against the state commission
initiating a rate case until February 5, 2001, establish a Universal Service
Fund (USF), and require SWBell to keep intrastate access rates in parity with
interstate rates, but allows SWBell to seek partial recovery of the access rate
reductions from the USF. In addition, the new law allows for streamlined tariff
processing procedures and allows companies to apply to have services declared
competitive and eventually deregulated.
Portions of Telecom Act Challenged On July 2, 1997, SBC sued in U.S. District
Court for the Northern District of Texas to declare a portion of the Telecom Act
unconstitutional on the grounds the Telecom Act improperly discriminates against
SBC by imposing restrictions that prohibit SBC from offering interLATA
long-distance and other services that other local exchange companies are free to
provide. The suit challenges only that portion of the Telecom Act which excludes
SBC from competing in certain lines of business.
OTHER BUSINESS MATTERS
Over the next few years, SWBell is expecting to incur significant capital and
software expenditures for interconnection and customer number portability.
SWBell expects the capital costs and expenses associated with customer number
portability, which allows customers to switch to new local competitors and keep
the same phone number, to total up to $750 on a pre-tax basis over the next four
years. Full recovery of customer number portability costs is required under the
Telecom Act; however, the FCC has not yet determined when or how those
significant costs will be recovered. The FCC has suspended the tariff filed by
SWBell for recovery of these costs until September 1997, pending the issuance of
its order on customer number portability. SWBell is unable to predict the
likelihood of the FCC permitting the tariff to become effective. Capital costs
and expenses associated with interconnection will vary based on the number of
competitors seeking interconnection and markets entered and customers served by
those competitors. Accordingly, SWBell is currently unable to reasonably
estimate these costs.
<PAGE>
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
On July 15, 1997 SWBell filed a Current Report on Form 8-K, reporting on
Item 7, Financial Statements and Exhibits. In the report, SWBell filed
exhibits relating to the issuance of 6 5/8% Notes due July 15, 2007 and 7
3/8% debentures due July 15, 2027.
<PAGE>
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
August 13, 1997 /s/Richard G. Lindner
Richard G. Lindner
Vice President and Chief Financial
Officer (Principal Accounting/
Financial Officer)
<TABLE>
SOUTHWESTERN BELL TELEPHONE COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- -------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Before Income Taxes,
Extraordinary
Loss and Cumulative Effect of $ 996 $ 1,114 $ 2,168 $ 1,688 $ 1,586 $ 1,424 $ 1,325
Changes
Add:Interest Expense 169 163 327 340 358 385 409
1/3 Rental Expense 19 15 33 26 25 23 27
--------- --------- ---------- ---------- ---------- ----------- -----------
Adjusted Earnings $ 1,184 $ 1,292 $ 2,528 $ 2,054 $ 1,969 $ 1,832 $ 1,761
========= ========= ========== ========== ========== =========== ===========
Total Interest Charges $ 181 $ 174 $ 348 $ 340 $ 358 $ 385 $ 409
1/3 Rental Expense 19 15 33 26 25 23 27
--------- --------- ---------- ---------- ---------- ----------- -----------
Adjusted Fixed Charges $ 200 $ 189 $ 381 $ 366 $ 383 $ 408 $ 436
========= ========= ========== ========== ========== =========== ===========
Ratio of Earnings to Fixed Charges 5.92 6.84 6.64 5.61 5.14 4.49 4.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANACIAL INFORMATION EXTRACTED FROM
SOUTHWESTERN BELL TELEPHONE COMPANY'S QUARTERLY REPORT ON FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 64,000
<SECURITIES> 0
<RECEIVABLES> 1,759,000
<ALLOWANCES> 32,000
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 2,361,000
<PP&E> 30,250,000
<DEPRECIATION> 18,165,000
<TOTAL-ASSETS> 14,475,000
<CURRENT-LIABILITIES> 4,064,000
<BONDS> 4,142,000
0
0
<COMMON> 1,000
<OTHER-SE> 2,856,000
<TOTAL-LIABILITY-AND-EQUITY> 14,475,000
<SALES> 0<F2>
<TOTAL-REVENUES> 5,077,000
<CGS> 0<F3>
<TOTAL-COSTS> 1,908,000
<OTHER-EXPENSES> 965,000
<LOSS-PROVISION> 59,000
<INTEREST-EXPENSE> 169,000
<INCOME-PRETAX> 996,000
<INCOME-TAX> 373,000
<INCOME-CONTINUING> 623,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 623,000
<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 REVENUES" 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>
