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 quarterly period ended September 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
175 E. Houston, San Antonio, Texas 78205
Telephone Number: (210) 821-4105
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 Nine months ended
September 30, September 30,
--------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
Operating Revenues
Local service $ 1,337 $ 1,203 $ 3,898 $ 3,495
Network access
Interstate 548 537 1,631 1,601
Intrastate 273 283 813 827
Long-distance service 204 213 620 656
Other 266 220 743 632
- --------------------------------------------------------------------------------
Total operating revenues 2,628 2,456 7,705 7,211
- --------------------------------------------------------------------------------
Operating Expenses
Cost of services and products 1,002 897 2,910 2,628
Selling, general and 485 468 1,525 1,332
administrative
Depreciation and amortization 475 452 1,440 1,337
- --------------------------------------------------------------------------------
Total operating expenses 1,962 1,817 5,875 5,297
- --------------------------------------------------------------------------------
Operating Income 666 639 1,830 1,914
- --------------------------------------------------------------------------------
Other Income (Expense)
Interest expense (85) (79) (254) (242)
Other income - net 11 2 12 4
- --------------------------------------------------------------------------------
Total other income (expense) (74) (77) (242) (238)
- --------------------------------------------------------------------------------
Income Before Income Taxes 592 562 1,588 1,676
- --------------------------------------------------------------------------------
Income Taxes 218 208 591 623
- --------------------------------------------------------------------------------
Net Income $ 374 $ 354 $ 997 $ 1,053
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
SOUTHWESTERN BELL TELEPHONE COMPANY
- --------------------------------------------------------------------------------
BALANCE SHEETS
Dollars in millions
- --------------------------------------------------------------------------------
September 30, December 31,
-------------- --------------
1997 1996
- --------------------------------------------------------------------------------
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 97 $ 69
Accounts receivable - net of allowances for 1,789 1,674
uncollectibles of $30 and $23
Prepaid expenses 267 168
Deferred charges 43 35
Deferred income taxes 98 96
Other current assets 120 137
- --------------------------------------------------------------------------------
Total current assets 2,414 2,179
- --------------------------------------------------------------------------------
Property, Plant and Equipment - at cost 30,509 29,347
Accumulated depreciation and amortization 18,234 17,588
- --------------------------------------------------------------------------------
Property, Plant and Equipment - Net 12,275 11,759
- --------------------------------------------------------------------------------
Other Assets 44 30
- --------------------------------------------------------------------------------
Total Assets $ 14,733 $ 13,968
- --------------------------------------------------------------------------------
Liabilities and Shareowner's Equity
Current Liabilities
Debt maturing within one year $ 1,107 $ 921
Accounts payable and accrued liabilities 2,668 2,517
- --------------------------------------------------------------------------------
Total current liabilities 3,775 3,438
- --------------------------------------------------------------------------------
Long-Term Debt 4,629 4,265
- --------------------------------------------------------------------------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 320 209
Postemployment benefit obligation 2,597 2,646
Unamortized investment tax credits 231 255
Other noncurrent liabilities 318 269
- --------------------------------------------------------------------------------
Total deferred credits and other noncurrent 3,466 3,379
liabilities
- --------------------------------------------------------------------------------
Shareowner's Equity
Common stock - one share, no par value 1 1
Paid-in surplus 2,667 3,687
Retained earnings (deficit) 195 (802)
- --------------------------------------------------------------------------------
Total shareowner's equity 2,863 2,886
- --------------------------------------------------------------------------------
Total Liabilities and Shareowner's Equity $ 14,733 $ 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)
- -----------------------------------------------------------------------------------
Nine months ended
September 30,
<CAPTION>
--------------------
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 997 $ 1,053
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,440 1,337
Provision for uncollectible accounts 87 71
Amortization of investment tax credits (24) (23)
Deferred income tax expense 109 61
Other - net (220) (289)
- -----------------------------------------------------------------------------------
Total adjustments
1,392 1,157
- -----------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,389 2,210
- -----------------------------------------------------------------------------------
Investing Activities
Construction and capital expenditures (1,890) (1,629)
- -----------------------------------------------------------------------------------
Net Cash Used in Investing Activities (1,890) (1,629)
- -----------------------------------------------------------------------------------
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 238 295
Issuance of other short-term borrowings 120 209
Repayment of other short-term borrowings (195) (89)
Issuance of long-term debt 487 75
Repayment of long-term debt (101) (201)
Dividends paid (1,175) (1,039)
Equity received from parent 155 200
- -----------------------------------------------------------------------------------
Net Cash Used in Financing Activities (471) (550)
- -----------------------------------------------------------------------------------
Net increase in cash and cash equivalents 28 31
- -----------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 69 43
- -----------------------------------------------------------------------------------
Cash and Cash Equivalents End of Period $ 97 $ 74
- -----------------------------------------------------------------------------------
Cash paid during the nine months ended September 30 for:
Interest $ 237 $ 237
Income taxes $ 370 $ 498
<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 - - 997
Dividend to shareowner - (1,175) -
Equity received from parent - 155 -
- ----------------------------------------------------------------------------
Balance, September 30, 1997 $ 1 $ 2,667 $ 195
- ----------------------------------------------------------------------------
See Notes to Financial Statements.
* * * *
SELECTED FINANCIAL AND OPERATING DATA
At September 30, or for the nine months 1997 1996
then ended:
------- -------
Return on weighted average total capital.............19.59% 21.55%
Debt ratio...........................................66.70% 64.60%
Network access lines in service (000)................15,556 14,797
Access minutes of use (000,000)......................44,229 40,971
Number of employees..................................50,870 48,280
<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. During the third quarter of 1997, SWBell's
commercial paper was replaced by intercompany loans from SBC. Intercompany
loans as of September 30, 1997 totaled $963.
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
During the second quarter 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, which also includes its
subsidiaries) 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 are being recognized in the
periods 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 nine months of 1997 and 1996 are summarized as follows:
- ---------------------------------------------------------------------------
Nine-Month Period
-----------------------------
Percent
1997 1996 Change
- ---------------------------------------------------------------------------
Operating revenues $ 7,705 $ 7,211 6.9%
Operating expenses $ 5,875 $ 5,297 10.9%
Net income $ 997 $ 1,053 (5.3)%
===========================================================================
SWBell's nine-month net income includes after-tax charges of $168 reflecting
strategic initiatives resulting from SBC Communications Inc.'s (SBC)
comprehensive review of operations of the merged company, the impact of several
regulatory rulings during the second quarter of 1997, costs incurred for
customer number portability since the merger and charges for ongoing merger
integration costs, primarily related to the movement of employees. Excluding
these charges, SWBell reported net income of $1,165 for the first nine months of
1997, 10.6% higher than the first nine months of 1996 net income of $1,053.
SWBell currently anticipates additional after-tax charges for ongoing merger
integration costs, primarily related to movement of employees, and customer
number portability of $100 to $150 during the remainder of 1997.
Excluding these charges, the primary factors contributing to the increase in net
income during the first nine months of 1997 was growth in demand for services
and products.
Revenues SWBell's operating revenues for the first nine months of 1997 reflect
reductions of $66 related primarily to the impact of several regulatory rulings
during the second quarter of 1997. Excluding these reductions, SWBell's
operating revenues increased $560, or 7.8%. Components of operating revenues for
the first nine months of 1997 and 1996 are as follows:
- ----------------------------------------------------------------------------
Nine Month Period
------------------------------
Percent
1997 1996 Change
- ----------------------------------------------------------------------------
Local service $ 3,898 $ 3,495 11.5%
Network access:
Interstate 1,631 1,601 1.9
Intrastate 813 827 (1.7)
Long-distance service 620 656 (5.5)
Other 743 632 17.6
- -------------------------------------------------------------------
Total $ 7,705 $ 7,211 6.9%
============================================================================
Local Service revenues increased in the first nine 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 5.1%
since September 30, 1996, of which 67% 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 24%. Additionally, Federal
payphone deregulation increased local service revenues and decreased
long-distance and interstate network access; the overall impact was a
slight increase in total operating revenues.
<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 mandated in the July 1, 1997 Federal
price cap filing. Without these impacts, interstate network access
revenues increased in the first nine 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. Partially offsetting these
increases was the effect of the rate reduction related to the productivity
factor adjustment.
Intrastate network access revenues decreased slightly in the first nine
months of 1997 as modest increases in demand, including usage by
alternative intraLATA toll carriers, were more than offset by net price
decreases resulting from state regulatory rate orders.
Long-Distance Service revenues decreased in the first nine 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 state regulatory rate orders.
Other operating revenues increased in the first nine 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. Results also reflect increases in demand for SWBell's nonregulated
services and products. These increases were somewhat offset by decreases
in sales of Caller ID equipment resulting from outsourcing Caller ID
equipment sales to an external vendor during 1997.
Expenses SWBell's operating expenses for the first nine months of 1997 reflect
$193 of charges related to strategic initiatives resulting from a comprehensive
review of operations (see Note 2 to the Financial Statements), costs incurred
for customer number portability since the merger and charges for ongoing merger
integration costs. Excluding these charges, operating expenses increased $385,
or 7.3%. Components of operating expenses for the first nine months of 1997 and
1996 are as follows:
- ---------------------------------------------------------------------------
Nine-Month Period
-----------------------------
Percent
1997 1996 Change
- ---------------------------------------------------------------------------
Cost of services and products $ 2,910 $ 2,628 10.7%
Selling, general and administrative 1,525 1,332 14.5
Depreciation and amortization 1,440 1,337 7.7
- ------------------------------------------------------------------
Total $ 5,875 $ 5,297 10.9%
===========================================================================
Cost of services and products for the first nine months of 1997 reflects
charges of $41 relating to strategic initiatives, including charges for
customer number portability. Excluding these charges, cost of services and
products increased $241, or 9.2%, in the first nine months of 1997 due
primarily to increases in employee compensation, network expansion and
maintenance and interconnection costs. 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 expense for the first nine months of
1997 reflects one-time charges of $115, including the $57 charge relating
to reorganization (see Note 2 to the Financial Statements). Excluding
these charges, selling, general and administrative expenses increased $78,
or 5.9%, in the first nine months of 1997 due primarily to increases in
sales agents commissions, employee compensation, advertising and
uncollectibles.
Depreciation and amortization for the first nine months of 1997 reflects
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 $66, or 4.9%, in the
first nine months of 1997 due primarily to growth in plant levels.
Depreciation and amortization for the first nine months of 1997 also
reflects a $69 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 $12, or 5.0%, in the first nine months of 1997 due to
increased debt levels.
Income taxes decreased $32, or 5.1%, in the first nine 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
State Interconnection Agreements/ Reselling Developments SWBell continues to
enter into interconnection agreements with companies desiring to provide local
service in its operating territory. Approximately 180 interconnection agreements
have been reached, and most have been approved by the relevant state
commissions. AT&T Corp. (AT&T) and other competitors are reselling SWBell local
exchange services, and as of September 30, 1997, there were more than 150,000
access lines supporting services resold by competitors.
Federal Interconnection In September 1997, 28 state commissions, the National
Association of Regulatory Utilities Commissioners and the D.C. Public Service
Commission, along with many companies who have Local Exchange Carriers (LECs)
including SBC, filed petitions to enforce the July 18, 1997 ruling of the U.S.
Court of Appeals for the Eighth Circuit in St. Louis (8th Circuit) that the
right to set local exchange prices, including the pricing methodology used, is
reserved exclusively to the states. The petitions respond to the Federal
Communications Commission's (FCC) rejection of Ameritech Corporation's interLATA
long-distance application in Michigan in which the FCC stated it is applying its
own pricing standards to interLATA applications. The petitioners assert the FCC
is violating state authority. On October 14, 1997, the 8th Circuit granted the
LECs' petitions for rehearing and ruled that they do not have to deliver network
elements to competitors in anything other than completely unbundled form.
Payphone Deregulation/Market Price Adjustments Final price deregulation of the
payphone industry took effect October 7, 1997. SWBell raised payphone prices
throughout its operating territories, beginning in October 1997. The new prices
are the result of federal telecommunications deregulation, which prohibits the
subsidy of payphone service directly or indirectly from telephone service
operations and allows payphone providers to determine their own pricing.
<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-Continued
Portions of the Telecommunication Act of 1996 (Telecom Act) Challenged In July
1997, SBC brought suit in the U.S. District Court for the Northern District of
Texas, seeking a declaration that a portion of the Telecom Act is
unconstitutional on the grounds that it improperly discriminates against SBC by
imposing restrictions that prohibit SBC from offering interLATA long-distance
and other services that other LECs are free to provide. The suit challenges only
that portion of the Telecom Act that excludes SBC from competing in certain
lines of business. SBC is currently awaiting a decision by the court on its
motion for summary judgement.
FCC Pre-empts Portions of Texas Public Utility Regulatory Act (PURA) The FCC
pre-empted and voided portions of PURA that required certain new entrants to
build telephone networks to cover a 27 square-mile area in any market they
entered. Also pre-empted were rules that excluded competitors from entering
markets with fewer than 31,000 access lines and limited resale of Centrex phone
services. Texas regulators have already given AT&T and MCI Communications
Corporation waivers of the build-out requirement that was pre-empted, and SWBell
has dismissed all appeals relating to this issue.
Price Cap Regulation Approved in Missouri The Missouri Public Service Commission
(MPSC) issued an order determining that SWBell is now subject to price cap
regulation. Prices in effect as of December 31, 1996 are the initial maximum
allowable rates for services. Maximum allowable rates cannot be adjusted until
January 1, 2000 for basic and access services and until January 1, 1999 for
non-basic services. On an exchange basis where a competitor begins operations,
the January 1, 1999 freeze on maximum allowable rates for non-basic services is
removed. After those dates, caps may be adjusted based on one of two government
indices. In an exchange where competition for basic local service exists for
five years, services will be declared competitive and subject to market pricing
unless the MPSC finds effective competition does not exist.
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 $600 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. SWBell has filed a tariff for recovery of
these costs. No action has been taken by the FCC on this tariff, 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
November 12, 1997 /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 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 Changes $ 1,588 $ 1,676 $ 2,168 $ 1,688 $ 1,586 $ 1,424 $ 1,325
Add:Interest Expense 254 242 327 340 358 385 409
1/3 Rental Expense 29 22 33 26 25 23 27
--------- --------- ---------- ---------- ---------- ----------- -----------
Adjusted Earnings $ 1,871 $ 1,940 $ 2,528 $ 2,054 $ 1,969 $ 1,832 $ 1,761
========= ========= ========== ========== ========== =========== ===========
Total Interest Charges $ 275 $ 258 $ 348 $ 340 $ 358 $ 385 $ 409
1/3 Rental Expense 29 22 33 26 25 23 27
--------- --------- ---------- ---------- ---------- ----------- -----------
Adjusted Fixed Charges $ 304 $ 280 $ 381 $ 366 $ 383 $ 408 $ 436
========= ========= ========== ========== ========== =========== ===========
Ratio of Earnings to Fixed Charges 6.15 6.93 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 SEPTEMBER 30, 1997 FINANCIAL STATEMENTS ON
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 97
<SECURITIES> 0
<RECEIVABLES> 1,819
<ALLOWANCES> 30
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 2,414
<PP&E> 30,509
<DEPRECIATION> 18,234
<TOTAL-ASSETS> 14,733
<CURRENT-LIABILITIES> 3,775
<BONDS> 4,629
0
0
<COMMON> 1
<OTHER-SE> 2,862
<TOTAL-LIABILITY-AND-EQUITY> 14,733
<SALES> 0<F2>
<TOTAL-REVENUES> 7,705
<CGS> 0<F3>
<TOTAL-COSTS> 2,910
<OTHER-EXPENSES> 1,440
<LOSS-PROVISION> 87
<INTEREST-EXPENSE> 254
<INCOME-PRETAX> 1,588
<INCOME-TAX> 591
<INCOME-CONTINUING> 997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 997
<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>
