FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For fiscal year ended December 31, 1996
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission File Number: 1-8610
SBC COMMUNICATIONS INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
175 E. Houston, San Antonio, Texas 78205-2233
Telephone Number 210-821-4105
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Shares New York, Chicago and
(Par Value $1.00 Per Share) Pacific Stock Exchanges
$75 Million 8.48% Medium-Term Notes New York Stock Exchange
Series D, Due December 8, 1999, of
SBC Communications Capital Corporation
Securities registered pursuant to Section 12(g) of the Act: None.
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
Based on composite closing sales price on February 28, 1997, the aggregate
market value of all voting stock held by non-affiliates was $34,397,200,000.
As of February 28, 1997, 598,842,533 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of SBC Communications Inc.'s Annual Report to Shareowners for the
fiscal year ended December 31, 1996 (Parts I and II).
(2) Portions of SBC Communications Inc.'s Notice of 1997 Annual Meeting and
Proxy Statement dated March 11, 1997 (Parts III and IV).
TABLE OF CONTENTS
Item Page
PART I
1. Business......................................................
2. Properties....................................................
3. Legal Proceedings.............................................
4. Submission of Matters to a Vote of Security Holders...........
Executive Officers of the Registrant..............................
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.........................................
6. Selected Financial and Operating Data.........................
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................
8. Financial Statements and Supplementary Data...................
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................
PART III
10. Directors and Executive Officers of the Registrant............
11. Executive Compensation........................................
12. Security Ownership of Certain Beneficial Owners and
Management..................................................
13. Certain Relationships and Related Transactions................
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
PART I
ITEM 1. BUSINESS
GENERAL
SBC Communications Inc. (SBC) is a holding company whose subsidiaries and
affiliates operate predominantly in the communications services industry.
SBC's subsidiaries and affiliates provide landline and wireless
telecommunications services and equipment, directory advertising, publishing
and cable television services. Southwestern Bell Telephone Company (Telephone
Company) is SBC's largest subsidiary, providing telecommunications services in
Texas, Missouri, Oklahoma, Kansas and Arkansas (five-state area). SBC has its
principal executive offices at 175 E. Houston, San Antonio, Texas 78205-2233
(telephone number 210-821-4105).
On April 1, 1996, SBC and Pacific Telesis Group (PAC) jointly announced a
definitive agreement to merge an SBC subsidiary with PAC, in a transaction in
which each share of PAC common stock will be exchanged for 0.733 of a share of
SBC common stock (equivalent to approximately 314 million shares), subject to
adjustment as described in the merger agreement based upon an allocation of the
costs, fees and expenses and other financial effects incurred or sustained in
connection with obtaining state regulatory approvals. After the merger, PAC
will be a wholly-owned subsidiary of SBC. The transaction is intended to be
accounted for as a pooling of interests and to be a tax-free reorganization.
Certain pro-forma financial information concerning the merger is set forth in
Note 3 to the financial statements of the 1996 SBC Annual Report to Shareowners.
On July 31, 1996, the shareowners of SBC and PAC each approved the transaction,
which had previously been approved by the board of directors of each company.
On November 5, 1996, the United States Department of Justice announced it would
not initiate action on the merger under the Hart-Scott-Rodino antitrust law.
The Public Service Commission of Nevada approved the merger on December 31,
1996. The FCC approved the transfer of licenses from PAC to SBC on January 31,
1997. The merger agreement is subject to certain other regulatory approvals,
including approval by the California Public Utilities Commission (CPUC). On
February 21, 1997, an Administrative Law Judge recommendation was issued which
proposed approval of the merger subject to certain conditions. Among these
conditions was a recommendation that $590 million be refunded to California
ratepayers over the next five years, with the annual payments being increased by
10% each year. SBC believes the recommendations are excessive and
inappropriate, and intends to ask the CPUC to eliminate or substantially modify
the refunds and other conditions. The CPUC is expected to issue an order on the
transaction by the end of the first quarter. Subject to allocation of the
regulatory approval costs, as discussed above, and receipt of remaining
regulatory approvals, the transaction is expected to close in the first half of
1997.
SBC was incorporated under the laws of the State of Delaware in 1983 by AT&T
Corp. (AT&T) as one of seven regional holding companies (RHCs) formed to hold
AT&T's local telephone companies. AT&T divested SBC by means of a spin-off of
stock to its shareowners on January 1, 1984 (divestiture). The divestiture was
made pursuant to a consent decree, referred to as the Modification of Final
Judgment (MFJ), issued by the United States District Court for the District of
Columbia (District Court).
FEDERAL LEGISLATION AND THE MFJ
On February 8, 1996, the Federal Government enacted the Telecommunications Act
of 1996 (the Telecom Act), a major, wide-ranging amendment to the Communications
Act of 1934.
By its specific terms, the Telecom Act supersedes the jurisdiction of the
District Court with regard to activities occurring after the date of enactment.
The Federal Communications Commission (FCC) is given authority for all post-
enactment conduct, with the District Court retaining jurisdiction of pre-
enactment conduct for a five-year period. As a result of these provisions, on
April 11, 1996 the District Court issued its Opinion and Order terminating the
MFJ and dismissing all pending motions as moot, thereby effectively ending 13
years of RHCs regulation under the MFJ.
Among other things, the Telecom Act defines the conditions which must be met
before SBC will be authorized to provide landline interLATA long-distance
service throughout the five-state area. Additional information relating to the
Telecom Act is contained in SBC's Annual Report to Shareowners for 1996 under
the heading "Competition" beginning on page 14, and is incorporated herein by
reference pursuant to General Instruction G(2).
BUSINESS OPERATIONS
In July 1995, SBC announced a strategic realignment which positions the company
to be a single-source provider of telecommunications services. All of SBC's
operations within the five-state area (in-region) report to one management
group, while international operations and domestic operations outside the
five-state area (out-region) report to a separate management group. Services
and products are provided through several subsidiaries, which include: the
Telephone Company, Southwestern Bell Mobile Systems, Inc. (Mobile Systems),
SBC International, Inc. (SBC International), Southwestern Bell Yellow Pages,
Inc. (Yellow Pages), Southwestern Bell Messaging Services, Inc. (SMSI), and
SBC Media Ventures, Inc. (Media Ventures). These services and products
(which are described more fully below) include landline and wireless
telecommunications services, sales of advertising for and publication of
yellow pages and white pages directories, sales of customer premises,
private business exchange (PBX) and wireless equipment, enhanced services,
and cable television services. Wireless telecommunications services are
provided by Mobile Systems. Landline telecommunications services are
provided in the five-state area by the Telephone Company. In December 1996,
most of the operations of Southwestern Bell Telecommunications, Inc.
(Telecom) merged into the operations of the Telephone Company with enhanced
services being moved into SMSI.
SBC's revenues are categorized for financial reporting purposes as local service
(substantially all of which were provided by the Telephone Company and Mobile
Systems), network access (provided by the Telephone Company), long-distance
service (substantially all of which were provided by the Telephone Company and
Mobile Systems), directory advertising (principally provided by Yellow Pages)
and other (including equipment sales at Mobile Systems and Telecom, nonregulated
products and services provided by the Telephone Company, billing and collection
services for interexchange carriers provided by the Telephone Company, and cable
television services provided by Media Ventures). With the passage of the
Telecom Act, Mobile Systems began offering interLATA and intraLATA
long-distance services in February 1996. In November 1996, Southwestern Bell
Communications Services, Inc. (SBCS), another SBC subsidiary, began offering
interLATA long-distance services to customers in selected out-region areas.
The following table sets forth for SBC the percentage of total operating
revenues by any class of service which accounted for 10% or more of total
operating revenues in any of the last three fiscal years.
Percentage of Total
Operating Revenues
1996 1995 1994
Local service:
Landline 34% 34% 34%
Wireless 19% 18% 15%
Network access 23% 24% 24%
Telecommunications
Telecommunications services include local, long-distance and network access
services. Local services involve the transport of landline and wireless
telecommunications traffic between telephones and other customer premises
equipment (CPE) located within the same local service calling area. Local
services include: basic local exchange service, certain extended area service,
dedicated private line services for voice and special services, directory
assistance and various vertical services, including custom calling services,
call control options and Caller ID services. Until the passage of the Telecom
Act, SBC's long-distance services involved the transport of telecommunications
traffic between local calling areas within the same LATA (intraLATA), except for
certain wireless service areas which cover more than one LATA, for which SBC had
obtained MFJ waivers. In addition to these services, in 1996 SBC provided both
interLATA and intraLATA long-distance services over its wireless networks, as
well as landline interLATA long-distance services in selected areas outside the
five-state area. Long-distance services also include other services such as
Wide Area Telecommunications Service (WATS or 800 services) and other special
services. Network access services connect a subscriber's telephone or other
equipment to the transmission facilities of other carriers which provide long-
distance (principally interLATA) and other communications services. Network
access services are either switched, which use a switched communications path
between the carrier and the customer, or special, which use a direct nonswitched
path.
During the latter half of 1996 and over the course of 1997, the Telephone
Company has and will be offering certain services on a "wholesale" basis to
competitors, as well as providing elements of the Telephone Company's network on
an "unbundled" basis for local competition. These services are being offered as
specified by the Telecom Act and state actions and agreements. That legislation
and the regulations promulgated by state and federal agencies to implement it
will result in SBC facing increased competition in significant portions of its
business. Such increased competition is a prerequisite to SBC's permitted entry
into the long-distance business and markets from which it is currently excluded.
The precise impact to SBC's business in 1997 from local exchange competition is
impossible to quantify due to the fact state and federal regulations governing
such competition are not yet finalized.
The Telephone Company is SBC's largest subsidiary, providing approximately 70%
of SBC's operating revenues in 1996. The Telephone Company provides its
services over approximately 9.8 million residential and 4.9 million business
access lines in the five-state area. During 1996, nearly two-thirds of the
Telephone Company's access line growth occurred in Texas.
During 1996, the Telephone Company continued to expand its offering of vertical
services throughout its five-state area. Some of these services include
Caller ID, a feature which displays the telephone number of the person calling
and the caller's name in certain markets; Call Return, a feature that redials
the number of the last incoming call; and Call Blocker, a feature which allows
customers to automatically reject calls from a designated list of telephone
numbers.
The FCC has certain rules that impact the manner in which the Telephone Company
may offer network services for enhanced service providers. Enhanced services
are certain services other than basic transmission services. Under these rules,
the Telephone Company is permitted to offer enhanced services either on its own
or jointly with its affiliates, subject to nonstructural safeguards designed to
permit the Telephone Company's competitors to acquire needed network services on
a comparably efficient, non-discriminatory basis and to reduce the risk of
cross-subsidization. These safeguards include accounting and reporting
procedures and Open Network Architecture (ONA) requirements, which represent the
Telephone Company's plan to provide equal access to its network to all enhanced
service providers. Enhanced services are deregulated at the federal level, and
none of the state commissions to which the Telephone Company is subject has
asserted jurisdiction over intrastate enhanced services. The nonstructural
safeguards are currently being reviewed by the FCC as a result of an
October 1994 judicial remand which ruled that the FCC had not adequately
explained how ONA would prevent discrimination against competitors. While the
outcome cannot be predicted with certainty, it is anticipated that the FCC will
reaffirm the nonstructural safeguards.
SMSI provides voice messaging services under the registered trademark CallNotes
to residential and business customers. During 1996, Southwestern Bell Internet
Services, Inc., another SBC subsidiary, began providing Internet access services
in selected metropolitan areas within the five-state area. Planning is under
way to introduce access services to other in-region areas in 1997. During 1996,
Southwestern Bell Communications Inc., began providing strategic marketing,
product development and network services to SBC subsidiaries operating in the
five-state area.
Through the end of 1996, Mobile Systems provided wireless
services to 4,398,000 customers, or 10.8 out of every 100 residents in its
service areas. Mobile Systems provides services in 38 metropolitan markets,
including 5 of the nation's top 15 metropolitan areas, as follows: Washington,
D.C.; Chicago, Illinois; Boston, Massachusetts; St. Louis, Missouri; and Dallas-
Fort Worth, Texas. Mobile Systems (or partnerships in which it has an ownership
interest) is licensed to provide service in 38 rural service areas and is
currently providing service in all of these markets. Each rural service area is
contiguous to an existing metropolitan service area or another rural service
area operated by Mobile Systems, which allows for the expansion of service in a
way that may add value to customers' service. Mobile Systems also operates a
rural RSA in Arkansas under an interim operating authority granted by the FCC.
In January 1997, Mobile Systems began doing business within its five-state area
as Southwestern Bell Wireless, Inc. Mobile Systems operates in areas outside
the five-state area under the name of Cellular One by means of licenses from
Cellular One Group, a partnership among affiliates of Mobile Systems, AT&T
Wireless Services and Vanguard Cellular Systems, Inc. These areas include
metropolitan service areas, such as Washington, D.C.; Chicago, Illinois; and
Boston, Massachusetts; and rural service areas in Illinois, Massachusetts,
New York, Virginia and West Virginia. Cellular One does or can offer on a
resale basis wireless and landline interLATA long-distance service in all
out-region markets where it provides local wireless service. In January
1997, Cellular One also began offering landline local service in Rochester,
New York on a resale basis.
In October 1994, SBC announced the formation of a long-term marketing alliance
between Mobile Systems and GTE in Texas. This alliance has enabled both Mobile
Systems and GTE to begin offering wireless service in each other's Texas
wireless markets, using the host company's wireless system. As a result, Mobile
Systems now provides wireless service in Houston, Austin and Beaumont and has
the right, under this alliance, to market wireless service in a number of
additional markets including El Paso and Galveston.
Mobile Systems began providing commercial digital service in Chicago in
July 1993. Digital service improves sound quality, provides a greater degree of
privacy on individual calls, increases call-handling capacity of the networks,
allows additional service offerings, and reduces exposure to billing fraud.
Mobile Systems also began providing commercial digital service in St. Louis in
September 1993, in Dallas-Fort Worth in January 1994, and in Washington,
D.C.-Baltimore in March 1994. Mobile Systems is evaluating other areas for
digital service.
Mobile Systems also markets wireless communications equipment in each of its
service areas.
In December 1994, SBC acquired the domestic wireless business of Associated
Communications Corporation, including wireless systems in Buffalo, Rochester,
Albany and Glens Falls, New York, which are adjacent to other SBC wireless
systems in Syracuse, Utica and Ithaca, New York.
In March 1995, SBC acquired United States Cellular Corporation's wireless system
that operates in the Watertown, New York area. In December 1995, SBC obtained a
controlling interest in a wireless property serving the Laredo, Texas, area, as
a part of a joint venture with PriCellular Corporation. SBC contributed two
wireless properties serving Central Illinois, known as RSAs 4 and 6, to the
joint venture. Combined with SBC's other markets, this joint venture permits
SBC to now serve the entire South Texas region.
In 1993, the FCC adopted an order allocating radio spectrum and outlining the
development of licenses for new personal communications services (PCS). PCS
utilizes wireless telecommunications digital technology at a higher frequency
radio spectrum than cellular. Like cellular, it is designed to permit access to
a variety of communications services regardless of subscriber location. In an
FCC auction, which concluded in March 1995, PCS licenses were awarded in 51
major markets. SBC acquired PCS licenses in the major trading areas of Memphis,
Tennessee; Little Rock, Arkansas; and Tulsa, Oklahoma. SBC is currently in the
build-out phase of PCS in Tulsa, Oklahoma. During 1996, SBC received several
AT&T cellular networks in Arkansas in exchange for SBC's PCS licenses in
Memphis, Tennessee and Little Rock, Arkansas and other considerations.
In an FCC auction concluded in January 1997, SBC acquired 8 additional PCS
licenses for Basic Trading Areas (BTAs) that are within its five-state area
(includes Springfield, Missouri; McAlester, Oklahoma; Joplin, Missouri;
Pittsburgh, Kansas; Temple-Killeen, Texas; Waco, Texas; Tyler, Texas and
Longview-Marshall, Texas). SBC plans to build out the new BTAs as part of its
strategy to be a full service telecommunications provider. Once the BTAs are
completed (expected completion 1999), SBC will be able to offer wireless
services to approximately 85% of its landline local service customers.
International
A consortium consisting of SBC International, together with a subsidiary of
France Telecom and a group of Mexican investors led by Grupo Carso, S.A. de C.V.
(Grupo Carso), has voting control of Telefonos de Mexico, S.A. de C.V. (Telmex),
Mexico's national telecommunications company, through its ownership of all of
Telmex's Class AA shares. The Mexican investors have voting control of the
consortium. During 1996, Grupo Carso transferred its Telmex interest to a spin-
off company named Carso Global Telecom, S.A. de C.V. This transaction will have
no effect on SBC International's Telmex holdings. SBC International also owns
Class L shares which have limited voting rights. In 1996, Telmex made
significant purchases under a share repurchase program. In January 1997, SBC
International sold a portion of its Class L shares to Telmex so that SBC's
total equity investment (including both AA shares and L shares) was slightly
below 10% of Telmex's total equity capitalization. Telmex provides complete
landline and wireless telecommunications services within Mexico. At the end of
1996, Telmex had 8.8 million access lines in service and provided cellular
service to approximately 657,000 subscribers. In June 1995, Telmex acquired a
49% stake of Grupo Televisa's cable television subsidiary, Cablevision.
In October 1994, SBC International formed a strategic alliance with Compagnie
Generale des Eaux (CGE), a French diversified public company. Through this
alliance, SBC International acquired an indirect 10% ownership of Societe
Francaise du Radiotelephone S.A. (SFR), a nationwide cellular company in France,
and minority ownership interests in other communications businesses controlled
by CGE, and CGE obtained an effective 10% interest in SBC's wireless operations
in Washington, D.C.- Baltimore, and surrounding rural markets. SBC and CGE both
made contributions to the alliance. SBC's effective contribution was
$375.9 million. During 1996, in response to the 1996 exercise of an option by
another company to purchase additional SFR shares, SBC International exercised
an option to maintain its 10% indirect ownership interest in SFR. At the end of
1996, SFR provided cellular service to approximately 928,000 subscribers.
In February 1995, SBC International purchased 40% of VTR S.A. (VTR), a privately
owned telecommunications holding company in Chile. During 1996 SBC
International increased its stake to 49% through the purchase of shares from
a minority investor. VTR is 51% indirectly owned by Grupo Luksic, a large
Chilean conglomerate. Through its subsidiaries, VTR provides local, long-
distance, wireless and cable television services in Chile. At the end of
1996, local services were provided over approximately 97,000 access lines,
wireless services were provided to more than 175,000 subscribers and cable
television services were provided to approximately 322,000 subscribers.
In October 1995, SBC International combined its United Kingdom cable television
operations, which included Midlands Cable Communications and Northwest Cable
Communications, with those of TeleWest Communications, P.L.C., a publicly held
joint venture between Telecommunications, Inc. and U S WEST, Inc. The resulting
entity, TeleWest P.L.C., is the largest cable television operator in the United
Kingdom and also provides local exchange services. SBC International owns
approximately 15% of the new entity.
SBC International through its subsidiaries also holds a minority interest in
Golden Channels, a cable television provider in Israel. At the end of 1996,
Golden Channels' systems passed 433,000 households and provided service to
approximately 277,000 households, a penetration rate of approximately 64%.
In Israel and Australia, SBC International has interests in companies involved
in the publication of yellow pages directories and marketing directory and other
software.
In November, a consortium in which SBC International participated received one
of two licenses for international telecommunications service in Israel. Other
consortium members are STET, (Italy's national telephone company), the
US/Israeli Aureq Group, and the Israelis Globescom and Kahan group. At the
present time, the award of these licenses is undergoing judicial review.
SBC also has wireless interests in South Korea and SBC International has
wireless interests in South Africa.
Directory Advertising
Yellow Pages publishes more than 43 million copies of approximately 350
directories principally within the five-state area. The ten largest revenue-
producing yellow pages directories are currently published in the second half of
SBC's fiscal year. Directory advertising revenues and expenses associated with
yellow pages directories are recognized in the month the related directory is
published. Since 1995, SBC's yellow and white pages directories have been
printed by R.R. Donnelley & Sons.
Customer Premises Equipment and Other Equipment Sales
In December 1996, most of the operations of Telecom merged with the operations
of the Telephone Company. Telecom markets business and residential
communications equipment. Their offerings range from single-line and
cordless telephones to sophisticated digital PBX systems. PBX is a private
telephone switching system, usually located on a customer's premises, which
provides intra-premise telephone services as well as access to the public
switched network. Telecom, through an exclusive, long-term distribution
agreement with Conair Corporation, also markets a full line of residential
telephones to retailers nationwide, under the Southwestern Bell Freedom Phone
name.
Domestic Video Services
Media Ventures owns two cable television systems serving the suburban
Washington, D.C. area. Cable TV Montgomery serves Montgomery County, Maryland
and Cable TV Arlington serves Arlington County, Virginia. At the end of 1996,
these systems passed 426,000 homes and served 268,000 customers. In August
1996, Media Ventures contributed Cable TV Montgomery and Cable TV Arlington to
SBC Media Ventures, LP (Partnership), a recently formed partnership between
Media Ventures and affiliates of Prime Cable (Prime). Media Ventures is general
partner and retains an approximate 95% ownership interest in the Partnership.
Prime contributed $20 million to the Partnership and now manages the cable
systems on behalf of the Partnership.
In December 1995, SBC began offering video services over a fiber-to-the-curb
network passing 1,800 homes in a consumer trial in Richardson, Texas. In
January 1997, SBC announced it plans to build a testbed network to approximately
31,000 homes in Richardson by 1998 and use that network to offer video and
communications services citywide.
During 1995, SBC became an equal partner in a venture, with Ameritech
Corporation, BellSouth Corporation, GTE, and The Walt Disney Company, to design,
market and deliver video programming and interactive services. In 1996,
Southern New England Telephone Company became a minority partner in this
venture.
GOVERNMENT REGULATION
In the five-state area, the Telephone Company is subject to regulation by state
commissions which have the power to regulate, in varying degrees, intrastate
rates and services, including local, long-distance and network access (both
intraLATA and interLATA access within the state) services. The Telephone
Company is also subject to the jurisdiction of the FCC with respect to
foreign and interstate rates and services, including interstate access
charges. Access charges are designed to compensate the Telephone Company for
the use of its facilities for the origination or termination of long-distance
and other communications by other carriers. There are currently no access
charges for access to the Internet.
Additional information relating to federal and state regulation of the Telephone
Company is contained in SBC's Annual Report to Shareowners for 1996 under the
heading "Regulatory Environment" on page 12, and is incorporated herein by
reference pursuant to General Instruction G(2).
SBC's cable systems are subject to federal and local regulation, including
regulation by the FCC and local franchising authorities, concerning rates,
service and programming access.
IMPORTANCE, DURATION AND EFFECT OF LICENSES
The FCC authorizes the licensing of only two cellular carriers in each
geographic market. These cellular licenses have a standard duration of ten
years and are renewable upon application and a showing of compliance with FCC
use and conduct standards. Renewal licenses were received for Gary, Indiana;
Worcester, Massachusetts; Buffalo, New York; Syracuse, New York; Rochester, New
York; and Corpus Christi, Texas in September 1996. Renewal applications were
filed in the following markets during September 1996: Lawrence, Kansas; Topeka,
Kansas; St. Joseph, Missouri; Amarillo, Texas; Lubbock, Texas; Sherman-Denison,
Texas; Albany, New York; and Utica-Rome, New York. Renewal licenses were
awarded in November 1996. Renewal applications will be filed in the following
markets during September 1997: Abilene, Texas; Brownsville-Harlingen, Texas;
Champaign-Urbana-Rantoul, Illinois; Decatur, Illinois; McAllen-Edinburgh-
Mission, Texas; Midland, Texas; Odessa, Texas; Springfield, Illinois and
Fayetteville-Springdale, Arkansas.
Under the auction process of an FCC order outlining the development of PCS,
licenses with durations of ten years were awarded in 51 major markets. The
license acquired by SBC for Tulsa, Oklahoma expires in June 2005 and is
renewable upon application and a showing of compliance with FCC use and conduct
standards.
Cable television systems generally are operated under nonexclusive permits or
"franchises" granted by local governmental authorities. SBC operates its
suburban Washington, D.C. cable systems under franchises granted by Montgomery
County, Maryland, which expires in May 1998; Arlington County, Virginia, which
expires in October 2000; and the City of Gaithersburg, Maryland, which expires
in November 2001. During 1995, SBC received a franchise to operate a cable
system in Richardson, Texas, which expires in September 2013. Each franchise is
renewable upon a showing of compliance with established local and federal
standards.
MAJOR CUSTOMER
No customer accounted for more than 10% of SBC's consolidated revenues in 1996
or 1995. Approximately 10% of SBC's 1994 consolidated revenues were from
services provided to AT&T. No other customer accounted for more than 10% of
consolidated revenues in 1994.
COMPETITION
Telecommunications
Information relating to competition in the telecommunications industry is
contained in SBC's Annual Report to Shareowners for 1996 under the heading
"Competition" beginning on page 14, and is incorporated herein by reference
pursuant to General Instruction G(2).
International
Information relating to international competition is contained in SBC's Annual
Report to Shareowners for 1996 under the heading "International" on page 17, and
is incorporated herein by reference pursuant to General Instruction G(2).
Directory Advertising and Publishing
Yellow Pages faces competition from numerous directory publishing companies as
well as other advertising media. There are over 50 other directory publishers
in the five-state area producing yellow page directories.
Customer Premises Equipment and Other Equipment Sales
The Telephone Company and Telecom face significant price competition from
numerous companies in marketing its telecommunications products.
RESEARCH AND DEVELOPMENT
The majority of company-sponsored basic and applied research is conducted at
Bell Communications Research, Inc. (Bellcore). The Telephone Company owns a
one-seventh interest in Bellcore along with the other six RHCs. In November
1996, SBC and the other RHCs announced their agreement to sell their
interests in Bellcore to Science Applications International Corporation.
Regulatory approvals of the transaction are pending, and if they are received it
is expected to close in late 1997. The RHCs will retain the portion of
Bellcore that coordinates the Federal Government's telecommunications
requirements for national security and emergency preparedness.
Basic and applied research is also conducted at Southwestern Bell Technology
Resources, Inc. (TRI), a subsidiary of SBC. TRI provides technology planning
and evaluation services to SBC and its subsidiaries.
EMPLOYEES
As of December 31, 1996, SBC and its subsidiaries employed 61,540 persons.
Approximately 67% of the employees are represented by the Communications
Workers of America (CWA). A three-year contract and a 20-month contract (both
covering an estimated 37,800 employees) were negotiated between the CWA and the
Telephone Company, effective in August 1995 and December 1996 and each ending
in August 1998. A three-year contract (covers an estimated 1,800 employees)
was negotiated between the CWA and Yellow Pages, which became effective in
December 1995. A 31-month contract (covers an estimated 800 employees) was
negotiated between the CWA and Southwestern Bell Communications, Inc., which
became effective in January 1997. The CWA also represents a small number of
employees in other subsidiaries of SBC.
ITEM 2. PROPERTIES
The properties of SBC do not lend themselves to description by character and
location of principal units. At December 31, 1996, 90% of the property, plant
and equipment of SBC was owned by the Telephone Company. Network access lines
represented 44% of the Telephone Company's investment in telephone plant;
central office equipment represented 39%; land and buildings represented 9%;
other miscellaneous property, comprised principally of furniture and office
equipment and vehicles and other work equipment, represented 6%; and
information origination/termination equipment represented 2%.
ITEM 3. LEGAL PROCEEDINGS
Six putative class action lawsuits are now pending against the Telephone Company
in state and federal courts in Texas, Missouri, Oklahoma and Kansas involving
the provision by the Telephone Company of maintenance and trouble diagnosis
services relating to telephone inside wire located on customer premises in
these states and in Arkansas. The actions allege that the Telephone
Company's sales practices in connection with these services violated
antitrust, fraud and/or deceptive trade practices statutes and seek
unspecified damages together with punitive damages and attorney's fees. The
Telephone Company believes it has several meritorious defenses to these
claims and is vigorously contesting the allegations. Although the outcomes
of these cases are uncertain, management believes that this litigation will
not have a material adverse impact on SBC's results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareowners in the fourth quarter of the
fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position Held
Since
Edward E.
Whitacre Jr. 55 Chairman and Chief Executive Officer 1-90
Royce S.
Caldwell 58 President - Southwestern Bell Operations 7-95
James W.
Callaway 50 Senior Vice President - Strategic Planning 8-96
Cassandra C.
Carr 52 Senior Vice President - Human Resources 5-94
William E.
Dreyer 59 Senior Executive Vice President - External Affairs 7-93
James D.
Ellis 53 Senior Executive Vice President and General Counsel 3-89
Charles E.
Foster 60 President - SBC Operations 7-95
James S.
Kahan 49 Senior Vice President - Corporate Development 7-93
Donald E.
Kiernan 56 Senior Vice President, Treasurer and 7-93
Chief Financial Officer
All of the above executive officers have held high-level managerial positions
with SBC or its subsidiaries for more than the past five years. Executive
officers are not appointed to a fixed term of office but hold office until their
successors are elected and qualified.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The number of shareowners of record as of December 31, 1996 and 1995 were
800,465 and 840,378. Other information required by this Item is included in the
SBC Annual Report to Shareowners for the fiscal year ended December 31, 1996
under the headings "Quarterly Financial Information" on page 33, "Selected
Financial and Operating Data" on page 8, and "Stock Trading Information" on page
37, which are incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1996 under the heading
"Selected Financial and Operating Data" on page 8 which is incorporated herein
by reference pursuant to General Instruction G(2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1996 on page 9 through page
19, which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1996 on page 20 through page
34, which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No changes in accountants or disagreements with accountants on any accounting or
financial disclosure matters occurred during the period covered by this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANTS
Information regarding executive officers required by Item 401 of Regulation S-K
is furnished in a separate disclosure at the end of Part I of this report since
the registrant did not furnish such information in its definitive proxy
statement prepared in accordance with Schedule 14A. Other information required
by this Item is included in the registrant's definitive proxy statement, dated
March 11, 1997, under the heading "Board of Directors" beginning on page 3 which
is incorporated herein by reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1997, under the headings "Compensation of
Directors" on page 11 through page 12, and "Compensation Committee Interlocks
and Insider Participation", "Executive Compensation", "Pension Plans", and
"Contracts with Management" from page 16 through page 26, which are incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1997, under the heading "Common Stock Ownership
of Directors and Officers" from page 13 through 14, which is incorporated herein
by reference pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as a part of the report:
Page
(1) Report of Independent Auditors.......................... *
Financial Statements covered by Report of Independent Auditors:
Consolidated Statements of Income...................... *
Consolidated Balance Sheets............................ *
Consolidated Statements of Cash Flows.................. *
Consolidated Statements of Shareowners' Equity......... *
Notes to Consolidated Financial Statements............. *
* Incorporated herein by reference to the appropriate portions of the
registrant's annual report to shareowners for the fiscal year ended
December 31, 1996. (See Part II.)
Page
(2) Financial Statement Schedules Covered by Report of Independent
Auditors:
II - Valuation and Qualifying Accounts.................
Financial statement schedules other than those listed above have been
omitted because the required information is contained in the financial
statements and notes thereto, or because such schedules are not required or
applicable.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission (SEC), are incorporated herein by reference as exhibits
hereto. Unless otherwise indicated, all exhibits so incorporated are from
File No. 1-8610.
Exhibit
Number......................................................
2-a Agreement and Plan of Merger, among Pacific Telesis Group, SBC
Communications Inc. and SBC Communications (NV) Inc., dated as of
April 1, 1996. (Exhibit 2 to Form 8-K, dated April 1, 1996.)
3-a Restated Certificate of Incorporation, filed with the Secretary of
State of Delaware on April 29, 1996. (Exhibit 3 to Form 10-Q dated
March 31, 1996.)
3-b Bylaws dated January 31, 1996.
4-a Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument
which defines the rights of holders of long-term debt of the
registrant or any of its consolidated subsidiaries is filed herewith.
Pursuant to this regulation, the registrant hereby agrees to furnish a
copy of any such instrument to the SEC upon request.
4-b Support Agreement dated November 10, 1986, between SBC Communications
Inc. (SBC) and SBC Communications Capital Corporation. (Exhibit 4-b
to Registration Statement No. 33-11669.)
4-c Form of Rights Agreement, dated as of January 27, 1989, between SBC
and American Transtech, Inc., the Rights Agent, which includes as
Exhibit B thereto the form of Rights Certificate. (Exhibit 4-a to
Form 8-A dated February 9, 1989.)
4-d Amendment of Rights Agreement, dated as of August 5, 1992, among SBC,
American Transtech, Inc., and The Bank of New York, the successor
Rights Agent, which includes the Form of Rights Certificate as an
attachment identified as Exhibit B. (Exhibit 4-a to Form 8-K, dated
August 7, 1992.)
4-e Form of Rights Certificate (included in the attachment to the
Amendment of Rights Agreement and identified as Exhibit B.) (Exhibit
4-b to Form 8-K, dated August 7, 1992.)
4-f Second Amendment of Rights Agreement, dated June 15, 1994, between SBC
and The Bank of New York, as successor Rights Agent. (Exhibit 4-e to
Form 8-A/A, dated June 22, 1994.)
10-a Senior Management Short Term Incentive Plan, revised January 1, 1991.
(Exhibit 10-a to Form 10-K for 1990.)
10-b Senior Management Long Term Incentive Plan, revised effective
January 1, 1993. (Exhibit 10-b to Form 10-K for 1992.)
10-c Senior Management Survivor Benefit Plan. (Exhibit 10-c to Form 10-K
for 1986.)
10-d Senior Management Supplemental Retirement Income Plan, revised
effective January 1, 1993. (Exhibit 10-d to Form 10-K for 1992.)
10-e Senior Management Deferred Compensation Plan (effective for Units of
Participation Having a Unit Start Date Prior to January 1, 1988),
revised July 30, 1993. (Exhibit 10.5 to Registration Statement
No. 33-54795.)
10-f Senior Management Deferred Compensation Plan of 1988 (effective for
Units of Participation Having a Unit Start Date of January 1, 1988 or
later), revised July 30, 1993. (Exhibit 10.6 to Registration
Statement No. 33-54795.)
10-g Senior Management Long Term Disability Plan. (Exhibit 10-f to Form
10-K for 1986.)
10-h Senior Management Incentive Award Deferral Plan. (Exhibit 10-g to
Form 10-K for 1986.)
10-i Senior Management Financial Counseling Program. (Exhibit 10-h to Form
10-K for 1986.)
10-j Senior Management Executive Health Plan, effective January 1, 1987.
(Exhibit 10-i to Form 10-K for 1986.)
10-k Retirement Plan for Non-Employee Directors. (Exhibit 10-t to Form 10-
K for 1985.)
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
each of its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Form of Change of Control Severance Agreements for all Officers of SBC
and certain Officers of SBC's subsidiaries. (Exhibit 10-p to Form 10-
K for 1988.)
10-n Stock Savings Plan, revised effective July 26, 1996. (Exhibit 10-a to
Form 10-Q dated June 30, 1996.)
10-o 1992 Stock Option Plan, revised effective July 26, 1996.
(Exhibit 10-b to Form 10-Q dated June 30, 1996.)
10-p Officer Retirement Savings Plan. (Exhibit 10.18 to Registration
Statement No. 33-54795.)
10-q 1996 Stock and Incentive Plan, revised effective July 26, 1996.
(Exhibit 10-d to Form 10-Q dated June 30, 1996.)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of SBC's Annual Report to shareowners for the fiscal year
ended December 31, 1996. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1996 to
be filed under Form 10 K/A.
99-b Annual Report on Form 11-K for the Savings and Security Plan for the
year 1996 to be filed under Form 10-K/A.
SBC will furnish to shareowners upon request, and without charge, a copy of the
annual report to shareowners and the proxy statement, portions of which are
incorporated by reference in the Form 10-K. SBC will furnish any other exhibit
at cost.
(b) Reports on Form 8-K:
On November 11, 1996, SBC filed a Current Report on Form 8-K, reporting on
Item 7, Financial Statements and Exhibits. In the Report, SBC provided pro
forma combined condensed financial statements of SBC and PAC assuming the
merger will be accounted for as a "pooling of interests".
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 11th day of
March, 1997.
SBC COMMUNICATIONS INC.
By /s/ Donald E. Kiernan
(Donald E. Kiernan
Senior Vice President, Treasurer and
Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Principal Executive Officer:
Edward E. Whitacre, Jr.*
Chairman and
Chief Executive Officer
Principal Financial and
Accounting Officer:
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
/s/ Donald E. Kiernan
Directors: (Donald E. Kiernan, as attorney-in-fact
and on his own behalf as Principal
Edward E. Whitacre, Jr.* Financial Officer and Principal
Clarence C. Barksdale* Accounting Officer)
James E. Barnes*
Jack S. Blanton*
August A. Busch III* March 11, 1997
Ruben R. Cardenas*
Martin K. Eby, Jr.*
Tom C. Frost*
Jess Hay*
B. R. Inman*
Charles F. Knight*
Haskell M. Monroe, Jr.*
Carlos Slim Helu*
Patricia P. Upton *
* by power of attorney
EXHIBIT INDEX
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission (SEC), are incorporated herein by reference as exhibits
hereto. Unless otherwise indicated, all exhibits so incorporated are from
File No. 1-8610.
Exhibit
Number............................................
2-a Agreement and Plan of Merger, among Pacific Telesis Group, SBC
Communications Inc. and SBC Communications (NV) Inc., dated as of
April 1, 1996. (Exhibit 2 to Form 8-K, dated April 1, 1996.)
3-a Restated Certificate of Incorporation, filed with the Secretary of
State of Delaware on April 29, 1996. (Exhibit 3 to Form 10-Q dated
March 31, 1996.)
3-b Bylaws dated January 31, 1996.
4-a Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument
which defines the rights of holders of long-term debt of the
registrant or any of its consolidated subsidiaries is filed herewith.
Pursuant to this regulation, the registrant hereby agrees to furnish a
copy of any such instrument to the SEC upon request.
4-b Support Agreement dated November 10, 1986, between SBC Communications
Inc. (SBC) and SBC Communications Capital Corporation. (Exhibit 4-b
to Registration Statement No. 33-11669.)
4-c Form of Rights Agreement, dated as of January 27, 1989, between SBC
and American Transtech, Inc., the Rights Agent, which includes as
Exhibit B thereto the form of Rights Certificate. (Exhibit 4-a to
Form 8-A dated February 9, 1989.)
4-d Amendment of Rights Agreement, dated as of August 5, 1992, among SBC,
American Transtech, Inc., and The Bank of New York, the successor
Rights Agent, which includes the Form of Rights Certificate as an
attachment identified as Exhibit B. (Exhibit 4-a to Form 8-K, dated
August 7, 1992.)
4-e Form of Rights Certificate (included in the attachment to the
Amendment of Rights Agreement and identified as Exhibit B.) (Exhibit
4-b to Form 8-K, dated August 7, 1992.)
4-f Second Amendment of Rights Agreement, dated June 15, 1994, between SBC
and The Bank of New York, as successor Rights Agent. (Exhibit 4-e to
Form 8-A/A, dated June 22, 1994.)
10-a Senior Management Short Term Incentive Plan, revised January 1, 1991.
(Exhibit 10-a to Form 10-K for 1990.)
10-b Senior Management Long Term Incentive Plan, revised effective
January 1, 1993. (Exhibit 10-b to Form 10-K for 1992.)
10-c Senior Management Survivor Benefit Plan. (Exhibit 10-c to Form 10-K
for 1986.)
10-d Senior Management Supplemental Retirement Income Plan, revised
effective January 1, 1993. (Exhibit 10-d to Form 10-K for 1992.)
10-e Senior Management Deferred Compensation Plan (effective for Units of
Participation Having a Unit Start Date Prior to January 1, 1988),
revised July 30, 1993. (Exhibit 10.5 to Registration Statement
No. 33-54795.)
10-f Senior Management Deferred Compensation Plan of 1988 (effective for
Units of Participation Having a Unit Start Date of January 1, 1988 or
later), revised July 30, 1993. (Exhibit 10.6 to Registration
Statement No. 33-54795.)
10-g Senior Management Long Term Disability Plan. (Exhibit 10-f to Form
10-K for 1986.)
10-h Senior Management Incentive Award Deferral Plan. (Exhibit 10-g to
Form 10-K for 1986.)
10-i Senior Management Financial Counseling Program. (Exhibit 10-h to Form
10-K for 1986.)
10-j Senior Management Executive Health Plan, effective January 1, 1987.
(Exhibit 10-i to Form 10-K for 1986.)
10-k Retirement Plan for Non-Employee Directors. (Exhibit 10-t to Form 10-
K for 1985.)
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
each of its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Form of Change of Control Severance Agreements for all Officers of SBC
and certain Officers of SBC's subsidiaries. (Exhibit 10-p to Form 10-
K for 1988.)
10-n Stock Savings Plan, revised effective July 26, 1996. (Exhibit 10-a to
Form 10-Q dated June 30, 1996.)
10-o 1992 Stock Option Plan, revised effective July 26, 1996.
(Exhibit 10-b to Form 10-Q dated June 30, 1996.)
10-p Officer Retirement Savings Plan. (Exhibit 10.18 to Registration
Statement No. 33-54795.)
10-q 1996 Stock and Incentive Plan, revised effective July 26, 1996.
(Exhibit 10-d to Form 10-Q dated June 30, 1996.)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of SBC's Annual Report to shareowners for the fiscal year
ended December 31, 1996. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1996 to
be filed under Form 10 K/A.
99-b Annual Report on Form 11-K for the Savings and Security Plan for the
year 1996 to be filed under Form 10-K/A.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For fiscal year ended December 31, 1996
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission File Number: 1-8610
SBC COMMUNICATIONS INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
175 E. Houston, San Antonio, Texas 78205-2233
Telephone Number 210-821-4105
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Shares New York, Chicago and
(Par Value $1.00 Per Share) Pacific Stock Exchanges
$75 Million 8.48% Medium-Term Notes New York Stock Exchange
Series D, Due December 8, 1999, of
SBC Communications Capital Corporation
Securities registered pursuant to Section 12(g) of the Act: None.
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
Based on composite closing sales price on February 28, 1997, the aggregate
market value of all voting stock held by non-affiliates was $34,397,200,000.
As of February 28, 1997, 598,842,533 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of SBC Communications Inc.'s Annual Report to Shareowners for the
fiscal year ended December 31, 1996 (Parts I and II).
(2) Portions of SBC Communications Inc.'s Notice of 1997 Annual Meeting and
Proxy Statement dated March 11, 1997 (Parts III and IV).
TABLE OF CONTENTS
Item Page
PART I
1. Business......................................................
2. Properties....................................................
3. Legal Proceedings.............................................
4. Submission of Matters to a Vote of Security Holders...........
Executive Officers of the Registrant..............................
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.........................................
6. Selected Financial and Operating Data.........................
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................
8. Financial Statements and Supplementary Data...................
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................
PART III
10. Directors and Executive Officers of the Registrant............
11. Executive Compensation........................................
12. Security Ownership of Certain Beneficial Owners and
Management..................................................
13. Certain Relationships and Related Transactions................
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
PART I
ITEM 1. BUSINESS
GENERAL
SBC Communications Inc. (SBC) is a holding company whose subsidiaries and
affiliates operate predominantly in the communications services industry.
SBC's subsidiaries and affiliates provide landline and wireless
telecommunications services and equipment, directory advertising, publishing
and cable television services. Southwestern Bell Telephone Company (Telephone
Company) is SBC's largest subsidiary, providing telecommunications services in
Texas, Missouri, Oklahoma, Kansas and Arkansas (five-state area). SBC has its
principal executive offices at 175 E. Houston, San Antonio, Texas 78205-2233
(telephone number 210-821-4105).
On April 1, 1996, SBC and Pacific Telesis Group (PAC) jointly announced a
definitive agreement to merge an SBC subsidiary with PAC, in a transaction in
which each share of PAC common stock will be exchanged for 0.733 of a share of
SBC common stock (equivalent to approximately 314 million shares), subject to
adjustment as described in the merger agreement based upon an allocation of the
costs, fees and expenses and other financial effects incurred or sustained in
connection with obtaining state regulatory approvals. After the merger, PAC
will be a wholly-owned subsidiary of SBC. The transaction is intended to be
accounted for as a pooling of interests and to be a tax-free reorganization.
Certain pro-forma financial information concerning the merger is set forth in
Note 3 to the financial statements of the 1996 SBC Annual Report to Shareowners.
On July 31, 1996, the shareowners of SBC and PAC each approved the transaction,
which had previously been approved by the board of directors of each company.
On November 5, 1996, the United States Department of Justice announced it would
not initiate action on the merger under the Hart-Scott-Rodino antitrust law.
The Public Service Commission of Nevada approved the merger on December 31,
1996. The FCC approved the transfer of licenses from PAC to SBC on January 31,
1997. The merger agreement is subject to certain other regulatory approvals,
including approval by the California Public Utilities Commission (CPUC). On
February 21, 1997, an Administrative Law Judge recommendation was issued which
proposed approval of the merger subject to certain conditions. Among these
conditions was a recommendation that $590 million be refunded to California
ratepayers over the next five years, with the annual payments being increased by
10% each year. SBC believes the recommendations are excessive and
inappropriate, and intends to ask the CPUC to eliminate or substantially modify
the refunds and other conditions. The CPUC is expected to issue an order on the
transaction by the end of the first quarter. Subject to allocation of the
regulatory approval costs, as discussed above, and receipt of remaining
regulatory approvals, the transaction is expected to close in the first half of
1997.
SBC was incorporated under the laws of the State of Delaware in 1983 by AT&T
Corp. (AT&T) as one of seven regional holding companies (RHCs) formed to hold
AT&T's local telephone companies. AT&T divested SBC by means of a spin-off of
stock to its shareowners on January 1, 1984 (divestiture). The divestiture was
made pursuant to a consent decree, referred to as the Modification of Final
Judgment (MFJ), issued by the United States District Court for the District of
Columbia (District Court).
FEDERAL LEGISLATION AND THE MFJ
On February 8, 1996, the Federal Government enacted the Telecommunications Act
of 1996 (the Telecom Act), a major, wide-ranging amendment to the Communications
Act of 1934.
By its specific terms, the Telecom Act supersedes the jurisdiction of the
District Court with regard to activities occurring after the date of enactment.
The Federal Communications Commission (FCC) is given authority for all post-
enactment conduct, with the District Court retaining jurisdiction of pre-
enactment conduct for a five-year period. As a result of these provisions, on
April 11, 1996 the District Court issued its Opinion and Order terminating the
MFJ and dismissing all pending motions as moot, thereby effectively ending 13
years of RHCs regulation under the MFJ.
Among other things, the Telecom Act defines the conditions which must be met
before SBC will be authorized to provide landline interLATA long-distance
service throughout the five-state area. Additional information relating to the
Telecom Act is contained in SBC's Annual Report to Shareowners for 1996 under
the heading "Competition" beginning on page 14, and is incorporated herein by
reference pursuant to General Instruction G(2).
BUSINESS OPERATIONS
In July 1995, SBC announced a strategic realignment which positions the company
to be a single-source provider of telecommunications services. All of SBC's
operations within the five-state area (in-region) report to one management
group, while international operations and domestic operations outside the
five-state area (out-region) report to a separate management group. Services
and products are provided through several subsidiaries, which include: the
Telephone Company, Southwestern Bell Mobile Systems, Inc. (Mobile Systems),
SBC International, Inc. (SBC International), Southwestern Bell Yellow Pages,
Inc. (Yellow Pages), Southwestern Bell Messaging Services, Inc. (SMSI), and
SBC Media Ventures, Inc. (Media Ventures). These services and products
(which are described more fully below) include landline and wireless
telecommunications services, sales of advertising for and publication of
yellow pages and white pages directories, sales of customer premises,
private business exchange (PBX) and wireless equipment, enhanced services,
and cable television services. Wireless telecommunications services are
provided by Mobile Systems. Landline telecommunications services are
provided in the five-state area by the Telephone Company. In December 1996,
most of the operations of Southwestern Bell Telecommunications, Inc.
(Telecom) merged into the operations of the Telephone Company with enhanced
services being moved into SMSI.
SBC's revenues are categorized for financial reporting purposes as local service
(substantially all of which were provided by the Telephone Company and Mobile
Systems), network access (provided by the Telephone Company), long-distance
service (substantially all of which were provided by the Telephone Company and
Mobile Systems), directory advertising (principally provided by Yellow Pages)
and other (including equipment sales at Mobile Systems and Telecom, nonregulated
products and services provided by the Telephone Company, billing and collection
services for interexchange carriers provided by the Telephone Company, and cable
television services provided by Media Ventures). With the passage of the
Telecom Act, Mobile Systems began offering interLATA and intraLATA
long-distance services in February 1996. In November 1996, Southwestern Bell
Communications Services, Inc. (SBCS), another SBC subsidiary, began offering
interLATA long-distance services to customers in selected out-region areas.
The following table sets forth for SBC the percentage of total operating
revenues by any class of service which accounted for 10% or more of total
operating revenues in any of the last three fiscal years.
Percentage of Total
Operating Revenues
1996 1995 1994
Local service:
Landline 34% 34% 34%
Wireless 19% 18% 15%
Network access 23% 24% 24%
Telecommunications
Telecommunications services include local, long-distance and network access
services. Local services involve the transport of landline and wireless
telecommunications traffic between telephones and other customer premises
equipment (CPE) located within the same local service calling area. Local
services include: basic local exchange service, certain extended area service,
dedicated private line services for voice and special services, directory
assistance and various vertical services, including custom calling services,
call control options and Caller ID services. Until the passage of the Telecom
Act, SBC's long-distance services involved the transport of telecommunications
traffic between local calling areas within the same LATA (intraLATA), except for
certain wireless service areas which cover more than one LATA, for which SBC had
obtained MFJ waivers. In addition to these services, in 1996 SBC provided both
interLATA and intraLATA long-distance services over its wireless networks, as
well as landline interLATA long-distance services in selected areas outside the
five-state area. Long-distance services also include other services such as
Wide Area Telecommunications Service (WATS or 800 services) and other special
services. Network access services connect a subscriber's telephone or other
equipment to the transmission facilities of other carriers which provide long-
distance (principally interLATA) and other communications services. Network
access services are either switched, which use a switched communications path
between the carrier and the customer, or special, which use a direct nonswitched
path.
During the latter half of 1996 and over the course of 1997, the Telephone
Company has and will be offering certain services on a "wholesale" basis to
competitors, as well as providing elements of the Telephone Company's network on
an "unbundled" basis for local competition. These services are being offered as
specified by the Telecom Act and state actions and agreements. That legislation
and the regulations promulgated by state and federal agencies to implement it
will result in SBC facing increased competition in significant portions of its
business. Such increased competition is a prerequisite to SBC's permitted entry
into the long-distance business and markets from which it is currently excluded.
The precise impact to SBC's business in 1997 from local exchange competition is
impossible to quantify due to the fact state and federal regulations governing
such competition are not yet finalized.
The Telephone Company is SBC's largest subsidiary, providing approximately 70%
of SBC's operating revenues in 1996. The Telephone Company provides its
services over approximately 9.8 million residential and 4.9 million business
access lines in the five-state area. During 1996, nearly two-thirds of the
Telephone Company's access line growth occurred in Texas.
During 1996, the Telephone Company continued to expand its offering of vertical
services throughout its five-state area. Some of these services include
Caller ID, a feature which displays the telephone number of the person calling
and the caller's name in certain markets; Call Return, a feature that redials
the number of the last incoming call; and Call Blocker, a feature which allows
customers to automatically reject calls from a designated list of telephone
numbers.
The FCC has certain rules that impact the manner in which the Telephone Company
may offer network services for enhanced service providers. Enhanced services
are certain services other than basic transmission services. Under these rules,
the Telephone Company is permitted to offer enhanced services either on its own
or jointly with its affiliates, subject to nonstructural safeguards designed to
permit the Telephone Company's competitors to acquire needed network services on
a comparably efficient, non-discriminatory basis and to reduce the risk of
cross-subsidization. These safeguards include accounting and reporting
procedures and Open Network Architecture (ONA) requirements, which represent the
Telephone Company's plan to provide equal access to its network to all enhanced
service providers. Enhanced services are deregulated at the federal level, and
none of the state commissions to which the Telephone Company is subject has
asserted jurisdiction over intrastate enhanced services. The nonstructural
safeguards are currently being reviewed by the FCC as a result of an
October 1994 judicial remand which ruled that the FCC had not adequately
explained how ONA would prevent discrimination against competitors. While the
outcome cannot be predicted with certainty, it is anticipated that the FCC will
reaffirm the nonstructural safeguards.
SMSI provides voice messaging services under the registered trademark CallNotes
to residential and business customers. During 1996, Southwestern Bell Internet
Services, Inc., another SBC subsidiary, began providing Internet access services
in selected metropolitan areas within the five-state area. Planning is under
way to introduce access services to other in-region areas in 1997. During 1996,
Southwestern Bell Communications Inc., began providing strategic marketing,
product development and network services to SBC subsidiaries operating in the
five-state area.
Through the end of 1996, Mobile Systems provided wireless
services to 4,398,000 customers, or 10.8 out of every 100 residents in its
service areas. Mobile Systems provides services in 38 metropolitan markets,
including 5 of the nation's top 15 metropolitan areas, as follows: Washington,
D.C.; Chicago, Illinois; Boston, Massachusetts; St. Louis, Missouri; and Dallas-
Fort Worth, Texas. Mobile Systems (or partnerships in which it has an ownership
interest) is licensed to provide service in 38 rural service areas and is
currently providing service in all of these markets. Each rural service area is
contiguous to an existing metropolitan service area or another rural service
area operated by Mobile Systems, which allows for the expansion of service in a
way that may add value to customers' service. Mobile Systems also operates a
rural RSA in Arkansas under an interim operating authority granted by the FCC.
In January 1997, Mobile Systems began doing business within its five-state area
as Southwestern Bell Wireless, Inc. Mobile Systems operates in areas outside
the five-state area under the name of Cellular One by means of licenses from
Cellular One Group, a partnership among affiliates of Mobile Systems, AT&T
Wireless Services and Vanguard Cellular Systems, Inc. These areas include
metropolitan service areas, such as Washington, D.C.; Chicago, Illinois; and
Boston, Massachusetts; and rural service areas in Illinois, Massachusetts,
New York, Virginia and West Virginia. Cellular One does or can offer on a
resale basis wireless and landline interLATA long-distance service in all
out-region markets where it provides local wireless service. In January
1997, Cellular One also began offering landline local service in Rochester,
New York on a resale basis.
In October 1994, SBC announced the formation of a long-term marketing alliance
between Mobile Systems and GTE in Texas. This alliance has enabled both Mobile
Systems and GTE to begin offering wireless service in each other's Texas
wireless markets, using the host company's wireless system. As a result, Mobile
Systems now provides wireless service in Houston, Austin and Beaumont and has
the right, under this alliance, to market wireless service in a number of
additional markets including El Paso and Galveston.
Mobile Systems began providing commercial digital service in Chicago in
July 1993. Digital service improves sound quality, provides a greater degree of
privacy on individual calls, increases call-handling capacity of the networks,
allows additional service offerings, and reduces exposure to billing fraud.
Mobile Systems also began providing commercial digital service in St. Louis in
September 1993, in Dallas-Fort Worth in January 1994, and in Washington,
D.C.-Baltimore in March 1994. Mobile Systems is evaluating other areas for
digital service.
Mobile Systems also markets wireless communications equipment in each of its
service areas.
In December 1994, SBC acquired the domestic wireless business of Associated
Communications Corporation, including wireless systems in Buffalo, Rochester,
Albany and Glens Falls, New York, which are adjacent to other SBC wireless
systems in Syracuse, Utica and Ithaca, New York.
In March 1995, SBC acquired United States Cellular Corporation's wireless system
that operates in the Watertown, New York area. In December 1995, SBC obtained a
controlling interest in a wireless property serving the Laredo, Texas, area, as
a part of a joint venture with PriCellular Corporation. SBC contributed two
wireless properties serving Central Illinois, known as RSAs 4 and 6, to the
joint venture. Combined with SBC's other markets, this joint venture permits
SBC to now serve the entire South Texas region.
In 1993, the FCC adopted an order allocating radio spectrum and outlining the
development of licenses for new personal communications services (PCS). PCS
utilizes wireless telecommunications digital technology at a higher frequency
radio spectrum than cellular. Like cellular, it is designed to permit access to
a variety of communications services regardless of subscriber location. In an
FCC auction, which concluded in March 1995, PCS licenses were awarded in 51
major markets. SBC acquired PCS licenses in the major trading areas of Memphis,
Tennessee; Little Rock, Arkansas; and Tulsa, Oklahoma. SBC is currently in the
build-out phase of PCS in Tulsa, Oklahoma. During 1996, SBC received several
AT&T cellular networks in Arkansas in exchange for SBC's PCS licenses in
Memphis, Tennessee and Little Rock, Arkansas and other considerations.
In an FCC auction concluded in January 1997, SBC acquired 8 additional PCS
licenses for Basic Trading Areas (BTAs) that are within its five-state area
(includes Springfield, Missouri; McAlester, Oklahoma; Joplin, Missouri;
Pittsburgh, Kansas; Temple-Killeen, Texas; Waco, Texas; Tyler, Texas and
Longview-Marshall, Texas). SBC plans to build out the new BTAs as part of its
strategy to be a full service telecommunications provider. Once the BTAs are
completed (expected completion 1999), SBC will be able to offer wireless
services to approximately 85% of its landline local service customers.
International
A consortium consisting of SBC International, together with a subsidiary of
France Telecom and a group of Mexican investors led by Grupo Carso, S.A. de C.V.
(Grupo Carso), has voting control of Telefonos de Mexico, S.A. de C.V. (Telmex),
Mexico's national telecommunications company, through its ownership of all of
Telmex's Class AA shares. The Mexican investors have voting control of the
consortium. During 1996, Grupo Carso transferred its Telmex interest to a spin-
off company named Carso Global Telecom, S.A. de C.V. This transaction will have
no effect on SBC International's Telmex holdings. SBC International also owns
Class L shares which have limited voting rights. In 1996, Telmex made
significant purchases under a share repurchase program. In January 1997, SBC
International sold a portion of its Class L shares to Telmex so that SBC's
total equity investment (including both AA shares and L shares) was slightly
below 10% of Telmex's total equity capitalization. Telmex provides complete
landline and wireless telecommunications services within Mexico. At the end of
1996, Telmex had 8.8 million access lines in service and provided cellular
service to approximately 657,000 subscribers. In June 1995, Telmex acquired a
49% stake of Grupo Televisa's cable television subsidiary, Cablevision.
In October 1994, SBC International formed a strategic alliance with Compagnie
Generale des Eaux (CGE), a French diversified public company. Through this
alliance, SBC International acquired an indirect 10% ownership of Societe
Francaise du Radiotelephone S.A. (SFR), a nationwide cellular company in France,
and minority ownership interests in other communications businesses controlled
by CGE, and CGE obtained an effective 10% interest in SBC's wireless operations
in Washington, D.C.- Baltimore, and surrounding rural markets. SBC and CGE both
made contributions to the alliance. SBC's effective contribution was
$375.9 million. During 1996, in response to the 1996 exercise of an option by
another company to purchase additional SFR shares, SBC International exercised
an option to maintain its 10% indirect ownership interest in SFR. At the end of
1996, SFR provided cellular service to approximately 928,000 subscribers.
In February 1995, SBC International purchased 40% of VTR S.A. (VTR), a privately
owned telecommunications holding company in Chile. During 1996 SBC
International increased its stake to 49% through the purchase of shares from
a minority investor. VTR is 51% indirectly owned by Grupo Luksic, a large
Chilean conglomerate. Through its subsidiaries, VTR provides local, long-
distance, wireless and cable television services in Chile. At the end of
1996, local services were provided over approximately 97,000 access lines,
wireless services were provided to more than 175,000 subscribers and cable
television services were provided to approximately 322,000 subscribers.
In October 1995, SBC International combined its United Kingdom cable television
operations, which included Midlands Cable Communications and Northwest Cable
Communications, with those of TeleWest Communications, P.L.C., a publicly held
joint venture between Telecommunications, Inc. and U S WEST, Inc. The resulting
entity, TeleWest P.L.C., is the largest cable television operator in the United
Kingdom and also provides local exchange services. SBC International owns
approximately 15% of the new entity.
SBC International through its subsidiaries also holds a minority interest in
Golden Channels, a cable television provider in Israel. At the end of 1996,
Golden Channels' systems passed 433,000 households and provided service to
approximately 277,000 households, a penetration rate of approximately 64%.
In Israel and Australia, SBC International has interests in companies involved
in the publication of yellow pages directories and marketing directory and other
software.
In November, a consortium in which SBC International participated received one
of two licenses for international telecommunications service in Israel. Other
consortium members are STET, (Italy's national telephone company), the
US/Israeli Aureq Group, and the Israelis Globescom and Kahan group. At the
present time, the award of these licenses is undergoing judicial review.
SBC also has wireless interests in South Korea and SBC International has
wireless interests in South Africa.
Directory Advertising
Yellow Pages publishes more than 43 million copies of approximately 350
directories principally within the five-state area. The ten largest revenue-
producing yellow pages directories are currently published in the second half of
SBC's fiscal year. Directory advertising revenues and expenses associated with
yellow pages directories are recognized in the month the related directory is
published. Since 1995, SBC's yellow and white pages directories have been
printed by R.R. Donnelley & Sons.
Customer Premises Equipment and Other Equipment Sales
In December 1996, most of the operations of Telecom merged with the operations
of the Telephone Company. Telecom markets business and residential
communications equipment. Their offerings range from single-line and
cordless telephones to sophisticated digital PBX systems. PBX is a private
telephone switching system, usually located on a customer's premises, which
provides intra-premise telephone services as well as access to the public
switched network. Telecom, through an exclusive, long-term distribution
agreement with Conair Corporation, also markets a full line of residential
telephones to retailers nationwide, under the Southwestern Bell Freedom Phone
name.
Domestic Video Services
Media Ventures owns two cable television systems serving the suburban
Washington, D.C. area. Cable TV Montgomery serves Montgomery County, Maryland
and Cable TV Arlington serves Arlington County, Virginia. At the end of 1996,
these systems passed 426,000 homes and served 268,000 customers. In August
1996, Media Ventures contributed Cable TV Montgomery and Cable TV Arlington to
SBC Media Ventures, LP (Partnership), a recently formed partnership between
Media Ventures and affiliates of Prime Cable (Prime). Media Ventures is general
partner and retains an approximate 95% ownership interest in the Partnership.
Prime contributed $20 million to the Partnership and now manages the cable
systems on behalf of the Partnership.
In December 1995, SBC began offering video services over a fiber-to-the-curb
network passing 1,800 homes in a consumer trial in Richardson, Texas. In
January 1997, SBC announced it plans to build a testbed network to approximately
31,000 homes in Richardson by 1998 and use that network to offer video and
communications services citywide.
During 1995, SBC became an equal partner in a venture, with Ameritech
Corporation, BellSouth Corporation, GTE, and The Walt Disney Company, to design,
market and deliver video programming and interactive services. In 1996,
Southern New England Telephone Company became a minority partner in this
venture.
GOVERNMENT REGULATION
In the five-state area, the Telephone Company is subject to regulation by state
commissions which have the power to regulate, in varying degrees, intrastate
rates and services, including local, long-distance and network access (both
intraLATA and interLATA access within the state) services. The Telephone
Company is also subject to the jurisdiction of the FCC with respect to
foreign and interstate rates and services, including interstate access
charges. Access charges are designed to compensate the Telephone Company for
the use of its facilities for the origination or termination of long-distance
and other communications by other carriers. There are currently no access
charges for access to the Internet.
Additional information relating to federal and state regulation of the Telephone
Company is contained in SBC's Annual Report to Shareowners for 1996 under the
heading "Regulatory Environment" on page 12, and is incorporated herein by
reference pursuant to General Instruction G(2).
SBC's cable systems are subject to federal and local regulation, including
regulation by the FCC and local franchising authorities, concerning rates,
service and programming access.
IMPORTANCE, DURATION AND EFFECT OF LICENSES
The FCC authorizes the licensing of only two cellular carriers in each
geographic market. These cellular licenses have a standard duration of ten
years and are renewable upon application and a showing of compliance with FCC
use and conduct standards. Renewal licenses were received for Gary, Indiana;
Worcester, Massachusetts; Buffalo, New York; Syracuse, New York; Rochester, New
York; and Corpus Christi, Texas in September 1996. Renewal applications were
filed in the following markets during September 1996: Lawrence, Kansas; Topeka,
Kansas; St. Joseph, Missouri; Amarillo, Texas; Lubbock, Texas; Sherman-Denison,
Texas; Albany, New York; and Utica-Rome, New York. Renewal licenses were
awarded in November 1996. Renewal applications will be filed in the following
markets during September 1997: Abilene, Texas; Brownsville-Harlingen, Texas;
Champaign-Urbana-Rantoul, Illinois; Decatur, Illinois; McAllen-Edinburgh-
Mission, Texas; Midland, Texas; Odessa, Texas; Springfield, Illinois and
Fayetteville-Springdale, Arkansas.
Under the auction process of an FCC order outlining the development of PCS,
licenses with durations of ten years were awarded in 51 major markets. The
license acquired by SBC for Tulsa, Oklahoma expires in June 2005 and is
renewable upon application and a showing of compliance with FCC use and conduct
standards.
Cable television systems generally are operated under nonexclusive permits or
"franchises" granted by local governmental authorities. SBC operates its
suburban Washington, D.C. cable systems under franchises granted by Montgomery
County, Maryland, which expires in May 1998; Arlington County, Virginia, which
expires in October 2000; and the City of Gaithersburg, Maryland, which expires
in November 2001. During 1995, SBC received a franchise to operate a cable
system in Richardson, Texas, which expires in September 2013. Each franchise is
renewable upon a showing of compliance with established local and federal
standards.
MAJOR CUSTOMER
No customer accounted for more than 10% of SBC's consolidated revenues in 1996
or 1995. Approximately 10% of SBC's 1994 consolidated revenues were from
services provided to AT&T. No other customer accounted for more than 10% of
consolidated revenues in 1994.
COMPETITION
Telecommunications
Information relating to competition in the telecommunications industry is
contained in SBC's Annual Report to Shareowners for 1996 under the heading
"Competition" beginning on page 14, and is incorporated herein by reference
pursuant to General Instruction G(2).
International
Information relating to international competition is contained in SBC's Annual
Report to Shareowners for 1996 under the heading "International" on page 17, and
is incorporated herein by reference pursuant to General Instruction G(2).
Directory Advertising and Publishing
Yellow Pages faces competition from numerous directory publishing companies as
well as other advertising media. There are over 50 other directory publishers
in the five-state area producing yellow page directories.
Customer Premises Equipment and Other Equipment Sales
The Telephone Company and Telecom face significant price competition from
numerous companies in marketing its telecommunications products.
RESEARCH AND DEVELOPMENT
The majority of company-sponsored basic and applied research is conducted at
Bell Communications Research, Inc. (Bellcore). The Telephone Company owns a
one-seventh interest in Bellcore along with the other six RHCs. In November
1996, SBC and the other RHCs announced their agreement to sell their
interests in Bellcore to Science Applications International Corporation.
Regulatory approvals of the transaction are pending, and if they are received it
is expected to close in late 1997. The RHCs will retain the portion of
Bellcore that coordinates the Federal Government's telecommunications
requirements for national security and emergency preparedness.
Basic and applied research is also conducted at Southwestern Bell Technology
Resources, Inc. (TRI), a subsidiary of SBC. TRI provides technology planning
and evaluation services to SBC and its subsidiaries.
EMPLOYEES
As of December 31, 1996, SBC and its subsidiaries employed 61,540 persons.
Approximately 67% of the employees are represented by the Communications
Workers of America (CWA). A three-year contract and a 20-month contract (both
covering an estimated 37,800 employees) were negotiated between the CWA and the
Telephone Company, effective in August 1995 and December 1996 and each ending
in August 1998. A three-year contract (covers an estimated 1,800 employees)
was negotiated between the CWA and Yellow Pages, which became effective in
December 1995. A 31-month contract (covers an estimated 800 employees) was
negotiated between the CWA and Southwestern Bell Communications, Inc., which
became effective in January 1997. The CWA also represents a small number of
employees in other subsidiaries of SBC.
ITEM 2. PROPERTIES
The properties of SBC do not lend themselves to description by character and
location of principal units. At December 31, 1996, 90% of the property, plant
and equipment of SBC was owned by the Telephone Company. Network access lines
represented 44% of the Telephone Company's investment in telephone plant;
central office equipment represented 39%; land and buildings represented 9%;
other miscellaneous property, comprised principally of furniture and office
equipment and vehicles and other work equipment, represented 6%; and
information origination/termination equipment represented 2%.
ITEM 3. LEGAL PROCEEDINGS
Six putative class action lawsuits are now pending against the Telephone Company
in state and federal courts in Texas, Missouri, Oklahoma and Kansas involving
the provision by the Telephone Company of maintenance and trouble diagnosis
services relating to telephone inside wire located on customer premises in
these states and in Arkansas. The actions allege that the Telephone
Company's sales practices in connection with these services violated
antitrust, fraud and/or deceptive trade practices statutes and seek
unspecified damages together with punitive damages and attorney's fees. The
Telephone Company believes it has several meritorious defenses to these
claims and is vigorously contesting the allegations. Although the outcomes
of these cases are uncertain, management believes that this litigation will
not have a material adverse impact on SBC's results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareowners in the fourth quarter of the
fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position Held
Since
Edward E.
Whitacre Jr. 55 Chairman and Chief Executive Officer 1-90
Royce S.
Caldwell 58 President - Southwestern Bell Operations 7-95
James W.
Callaway 50 Senior Vice President - Strategic Planning 8-96
Cassandra C.
Carr 52 Senior Vice President - Human Resources 5-94
William E.
Dreyer 59 Senior Executive Vice President - External Affairs 7-93
James D.
Ellis 53 Senior Executive Vice President and General Counsel 3-89
Charles E.
Foster 60 President - SBC Operations 7-95
James S.
Kahan 49 Senior Vice President - Corporate Development 7-93
Donald E.
Kiernan 56 Senior Vice President, Treasurer and 7-93
Chief Financial Officer
All of the above executive officers have held high-level managerial positions
with SBC or its subsidiaries for more than the past five years. Executive
officers are not appointed to a fixed term of office but hold office until their
successors are elected and qualified.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The number of shareowners of record as of December 31, 1996 and 1995 were
800,465 and 840,378. Other information required by this Item is included in the
SBC Annual Report to Shareowners for the fiscal year ended December 31, 1996
under the headings "Quarterly Financial Information" on page 33, "Selected
Financial and Operating Data" on page 8, and "Stock Trading Information" on page
37, which are incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1996 under the heading
"Selected Financial and Operating Data" on page 8 which is incorporated herein
by reference pursuant to General Instruction G(2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1996 on page 9 through page
19, which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1996 on page 20 through page
34, which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No changes in accountants or disagreements with accountants on any accounting or
financial disclosure matters occurred during the period covered by this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANTS
Information regarding executive officers required by Item 401 of Regulation S-K
is furnished in a separate disclosure at the end of Part I of this report since
the registrant did not furnish such information in its definitive proxy
statement prepared in accordance with Schedule 14A. Other information required
by this Item is included in the registrant's definitive proxy statement, dated
March 11, 1997, under the heading "Board of Directors" beginning on page 3 which
is incorporated herein by reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1997, under the headings "Compensation of
Directors" on page 11 through page 12, and "Compensation Committee Interlocks
and Insider Participation", "Executive Compensation", "Pension Plans", and
"Contracts with Management" from page 16 through page 26, which are incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1997, under the heading "Common Stock Ownership
of Directors and Officers" from page 13 through 14, which is incorporated herein
by reference pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as a part of the report:
Page
(1) Report of Independent Auditors.......................... *
Financial Statements covered by Report of Independent Auditors:
Consolidated Statements of Income...................... *
Consolidated Balance Sheets............................ *
Consolidated Statements of Cash Flows.................. *
Consolidated Statements of Shareowners' Equity......... *
Notes to Consolidated Financial Statements............. *
* Incorporated herein by reference to the appropriate portions of the
registrant's annual report to shareowners for the fiscal year ended
December 31, 1996. (See Part II.)
Page
(2) Financial Statement Schedules Covered by Report of Independent
Auditors:
II - Valuation and Qualifying Accounts.................
Financial statement schedules other than those listed above have been
omitted because the required information is contained in the financial
statements and notes thereto, or because such schedules are not required or
applicable.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission (SEC), are incorporated herein by reference as exhibits
hereto. Unless otherwise indicated, all exhibits so incorporated are from
File No. 1-8610.
Exhibit
Number......................................................
2-a Agreement and Plan of Merger, among Pacific Telesis Group, SBC
Communications Inc. and SBC Communications (NV) Inc., dated as of
April 1, 1996. (Exhibit 2 to Form 8-K, dated April 1, 1996.)
3-a Restated Certificate of Incorporation, filed with the Secretary of
State of Delaware on April 29, 1996. (Exhibit 3 to Form 10-Q dated
March 31, 1996.)
3-b Bylaws dated January 31, 1996.
4-a Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument
which defines the rights of holders of long-term debt of the
registrant or any of its consolidated subsidiaries is filed herewith.
Pursuant to this regulation, the registrant hereby agrees to furnish a
copy of any such instrument to the SEC upon request.
4-b Support Agreement dated November 10, 1986, between SBC Communications
Inc. (SBC) and SBC Communications Capital Corporation. (Exhibit 4-b
to Registration Statement No. 33-11669.)
4-c Form of Rights Agreement, dated as of January 27, 1989, between SBC
and American Transtech, Inc., the Rights Agent, which includes as
Exhibit B thereto the form of Rights Certificate. (Exhibit 4-a to
Form 8-A dated February 9, 1989.)
4-d Amendment of Rights Agreement, dated as of August 5, 1992, among SBC,
American Transtech, Inc., and The Bank of New York, the successor
Rights Agent, which includes the Form of Rights Certificate as an
attachment identified as Exhibit B. (Exhibit 4-a to Form 8-K, dated
August 7, 1992.)
4-e Form of Rights Certificate (included in the attachment to the
Amendment of Rights Agreement and identified as Exhibit B.) (Exhibit
4-b to Form 8-K, dated August 7, 1992.)
4-f Second Amendment of Rights Agreement, dated June 15, 1994, between SBC
and The Bank of New York, as successor Rights Agent. (Exhibit 4-e to
Form 8-A/A, dated June 22, 1994.)
10-a Senior Management Short Term Incentive Plan, revised January 1, 1991.
(Exhibit 10-a to Form 10-K for 1990.)
10-b Senior Management Long Term Incentive Plan, revised effective
January 1, 1993. (Exhibit 10-b to Form 10-K for 1992.)
10-c Senior Management Survivor Benefit Plan. (Exhibit 10-c to Form 10-K
for 1986.)
10-d Senior Management Supplemental Retirement Income Plan, revised
effective January 1, 1993. (Exhibit 10-d to Form 10-K for 1992.)
10-e Senior Management Deferred Compensation Plan (effective for Units of
Participation Having a Unit Start Date Prior to January 1, 1988),
revised July 30, 1993. (Exhibit 10.5 to Registration Statement
No. 33-54795.)
10-f Senior Management Deferred Compensation Plan of 1988 (effective for
Units of Participation Having a Unit Start Date of January 1, 1988 or
later), revised July 30, 1993. (Exhibit 10.6 to Registration
Statement No. 33-54795.)
10-g Senior Management Long Term Disability Plan. (Exhibit 10-f to Form
10-K for 1986.)
10-h Senior Management Incentive Award Deferral Plan. (Exhibit 10-g to
Form 10-K for 1986.)
10-i Senior Management Financial Counseling Program. (Exhibit 10-h to Form
10-K for 1986.)
10-j Senior Management Executive Health Plan, effective January 1, 1987.
(Exhibit 10-i to Form 10-K for 1986.)
10-k Retirement Plan for Non-Employee Directors. (Exhibit 10-t to Form 10-
K for 1985.)
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
each of its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Form of Change of Control Severance Agreements for all Officers of SBC
and certain Officers of SBC's subsidiaries. (Exhibit 10-p to Form 10-
K for 1988.)
10-n Stock Savings Plan, revised effective July 26, 1996. (Exhibit 10-a to
Form 10-Q dated June 30, 1996.)
10-o 1992 Stock Option Plan, revised effective July 26, 1996.
(Exhibit 10-b to Form 10-Q dated June 30, 1996.)
10-p Officer Retirement Savings Plan. (Exhibit 10.18 to Registration
Statement No. 33-54795.)
10-q 1996 Stock and Incentive Plan, revised effective July 26, 1996.
(Exhibit 10-d to Form 10-Q dated June 30, 1996.)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of SBC's Annual Report to shareowners for the fiscal year
ended December 31, 1996. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1996 to
be filed under Form 10 K/A.
99-b Annual Report on Form 11-K for the Savings and Security Plan for the
year 1996 to be filed under Form 10-K/A.
SBC will furnish to shareowners upon request, and without charge, a copy of the
annual report to shareowners and the proxy statement, portions of which are
incorporated by reference in the Form 10-K. SBC will furnish any other exhibit
at cost.
(b) Reports on Form 8-K:
On November 11, 1996, SBC filed a Current Report on Form 8-K, reporting on
Item 7, Financial Statements and Exhibits. In the Report, SBC provided pro
forma combined condensed financial statements of SBC and PAC assuming the
merger will be accounted for as a "pooling of interests".
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 11th day of
March, 1997.
SBC COMMUNICATIONS INC.
By /s/ Donald E. Kiernan
(Donald E. Kiernan
Senior Vice President, Treasurer and
Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Principal Executive Officer:
Edward E. Whitacre, Jr.*
Chairman and
Chief Executive Officer
Principal Financial and
Accounting Officer:
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
/s/ Donald E. Kiernan
Directors: (Donald E. Kiernan, as attorney-in-fact
and on his own behalf as Principal
Edward E. Whitacre, Jr.* Financial Officer and Principal
Clarence C. Barksdale* Accounting Officer)
James E. Barnes*
Jack S. Blanton*
August A. Busch III* March 11, 1997
Ruben R. Cardenas*
Martin K. Eby, Jr.*
Tom C. Frost*
Jess Hay*
B. R. Inman*
Charles F. Knight*
Haskell M. Monroe, Jr.*
Carlos Slim Helu*
Patricia P. Upton *
* by power of attorney
EXHIBIT INDEX
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission (SEC), are incorporated herein by reference as exhibits
hereto. Unless otherwise indicated, all exhibits so incorporated are from
File No. 1-8610.
Exhibit
Number............................................
2-a Agreement and Plan of Merger, among Pacific Telesis Group, SBC
Communications Inc. and SBC Communications (NV) Inc., dated as of
April 1, 1996. (Exhibit 2 to Form 8-K, dated April 1, 1996.)
3-a Restated Certificate of Incorporation, filed with the Secretary of
State of Delaware on April 29, 1996. (Exhibit 3 to Form 10-Q dated
March 31, 1996.)
3-b Bylaws dated January 31, 1996.
4-a Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument
which defines the rights of holders of long-term debt of the
registrant or any of its consolidated subsidiaries is filed herewith.
Pursuant to this regulation, the registrant hereby agrees to furnish a
copy of any such instrument to the SEC upon request.
4-b Support Agreement dated November 10, 1986, between SBC Communications
Inc. (SBC) and SBC Communications Capital Corporation. (Exhibit 4-b
to Registration Statement No. 33-11669.)
4-c Form of Rights Agreement, dated as of January 27, 1989, between SBC
and American Transtech, Inc., the Rights Agent, which includes as
Exhibit B thereto the form of Rights Certificate. (Exhibit 4-a to
Form 8-A dated February 9, 1989.)
4-d Amendment of Rights Agreement, dated as of August 5, 1992, among SBC,
American Transtech, Inc., and The Bank of New York, the successor
Rights Agent, which includes the Form of Rights Certificate as an
attachment identified as Exhibit B. (Exhibit 4-a to Form 8-K, dated
August 7, 1992.)
4-e Form of Rights Certificate (included in the attachment to the
Amendment of Rights Agreement and identified as Exhibit B.) (Exhibit
4-b to Form 8-K, dated August 7, 1992.)
4-f Second Amendment of Rights Agreement, dated June 15, 1994, between SBC
and The Bank of New York, as successor Rights Agent. (Exhibit 4-e to
Form 8-A/A, dated June 22, 1994.)
10-a Senior Management Short Term Incentive Plan, revised January 1, 1991.
(Exhibit 10-a to Form 10-K for 1990.)
10-b Senior Management Long Term Incentive Plan, revised effective
January 1, 1993. (Exhibit 10-b to Form 10-K for 1992.)
10-c Senior Management Survivor Benefit Plan. (Exhibit 10-c to Form 10-K
for 1986.)
10-d Senior Management Supplemental Retirement Income Plan, revised
effective January 1, 1993. (Exhibit 10-d to Form 10-K for 1992.)
10-e Senior Management Deferred Compensation Plan (effective for Units of
Participation Having a Unit Start Date Prior to January 1, 1988),
revised July 30, 1993. (Exhibit 10.5 to Registration Statement
No. 33-54795.)
10-f Senior Management Deferred Compensation Plan of 1988 (effective for
Units of Participation Having a Unit Start Date of January 1, 1988 or
later), revised July 30, 1993. (Exhibit 10.6 to Registration
Statement No. 33-54795.)
10-g Senior Management Long Term Disability Plan. (Exhibit 10-f to Form
10-K for 1986.)
10-h Senior Management Incentive Award Deferral Plan. (Exhibit 10-g to
Form 10-K for 1986.)
10-i Senior Management Financial Counseling Program. (Exhibit 10-h to Form
10-K for 1986.)
10-j Senior Management Executive Health Plan, effective January 1, 1987.
(Exhibit 10-i to Form 10-K for 1986.)
10-k Retirement Plan for Non-Employee Directors. (Exhibit 10-t to Form 10-
K for 1985.)
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
each of its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Form of Change of Control Severance Agreements for all Officers of SBC
and certain Officers of SBC's subsidiaries. (Exhibit 10-p to Form 10-
K for 1988.)
10-n Stock Savings Plan, revised effective July 26, 1996. (Exhibit 10-a to
Form 10-Q dated June 30, 1996.)
10-o 1992 Stock Option Plan, revised effective July 26, 1996.
(Exhibit 10-b to Form 10-Q dated June 30, 1996.)
10-p Officer Retirement Savings Plan. (Exhibit 10.18 to Registration
Statement No. 33-54795.)
10-q 1996 Stock and Incentive Plan, revised effective July 26, 1996.
(Exhibit 10-d to Form 10-Q dated June 30, 1996.)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of SBC's Annual Report to shareowners for the fiscal year
ended December 31, 1996. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1996 to
be filed under Form 10 K/A.
99-b Annual Report on Form 11-K for the Savings and Security Plan for the
year 1996 to be filed under Form 10-K/A.