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
For fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-8610
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: (See attached
Schedule A)
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 27, 1998, the aggregate
market value of all voting stock held by non-affiliates was $69,458,800,000.
As of February 27, 1998, 919,465,202 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, 1997 (Parts I and II).
(2) Portions of SBC Communications Inc.'s Notice of 1998 Annual Meeting and
Proxy Statement dated March 11, 1998 (Parts III and IV).
SCHEDULE A
Securities Registered Pursuant To Section 12(b) Of The Act:
Name of each exchange
Title of each class on which registered
Common Shares (Par Value $1.00 Per New York, Chicago and
Share) Pacific Stock Exchanges
7 3/4 % Exchangeable Notes, New York Stock Exchange
Due March 15, 2001
7.56% Pacific Telesis Group (PAC) New York Stock Exchange
Corporation-obligated mandatorily
redeemable preferred securities of
subsidiary trusts
8.5% PAC Corporation-obligated New York Stock Exchange
mandatorily redeemable preferred
securities of subsidiary trusts
TABLE OF CONTENTS
Item Page
----- ----
PART I
1. Business....................................................... 4
2. Properties..................................................... 15
3. Legal Proceedings.............................................. 15
4. Submission of Matters to a Vote of Security Holders............ 15
Executive Officers of the Registrant.............................. 16
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 17
6. Selected Financial and Operating Data.......................... 17
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 17
7A. Quantitative and Qualitative Disclosures about Market Risk..... 17
8. Financial Statements and Supplementary Data.................... 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 20
PART III
10. Directors and Executive Officers of the Registrant............. 21
11. Executive Compensation......................................... 21
12. Security Ownership of Certain Beneficial Owners and Management. 21
13. Certain Relationships and Related Transactions................. 21
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22
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. SBC's largest subsidiaries are Southwestern Bell Telephone Company
(SWBell), providing telecommunications services over approximately 16 million
access lines in Texas, Missouri, Oklahoma, Kansas and Arkansas (five-state
area), and Pacific Bell (PacBell), providing telecommunications services over
approximately 17 million access lines in California. SBC also provides
telecommunications services through its Nevada Bell subsidiary over
approximately 300 thousand access lines in Nevada. (SWBell, PacBell and Nevada
Bell are collectively referred to as the Telephone Companies.) The Telephone
Companies operate within an authorized region (in-region) providing local
exchange services and are subject to regulation by each state in which they
operate and by the Federal Communications Commission (FCC). SBC was incorporated
under the laws of the State of Delaware in 1983 and has its principal executive
offices at 175 E. Houston, San Antonio, Texas 78205-2233 (telephone number
210-821-4105).
SBC was one of the original seven regional holding companies (RHCs) formed to
hold AT&T Corp.'s (AT&T) local telephone companies. AT&T divested SBC by means
of a spin-off of stock to its shareowners on January 1, 1984 (divestiture). As a
result, SBC became a publicly traded company. 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). With the mergers of SBC and Pacific Telesis Group (PAC), and
Bell Atlantic Corporation and NYNEX Corporation, there are now five RHCs.
COMPLETION OF MERGER WITH PAC
On April 1, 1997, SBC and PAC completed the merger of an SBC subsidiary with
PAC, in a transaction in which each outstanding share of PAC common stock was
exchanged for 1.4629 shares of SBC common stock (equivalent to approximately 626
million shares; both the exchange ratio and shares issued have been restated to
reflect the two-for-one stock split, effected in the form of a stock dividend,
declared January 30, 1998 with a record date of February 20, 1998 and payable
March 19, 1998). With the merger, PAC became a wholly-owned subsidiary of SBC.
The transaction was accounted for as a pooling of interests and a tax-free
reorganization.
Post-merger initiatives
Several strategic decisions resulted from the merger integration process. The
decisions resulted from an extensive review of operations throughout the merged
company and include significant integration of operations and consolidation of
some administrative and support functions.
Reorganization
SBC is centralizing several key functions that will support the operations of
the Telephone Companies, including network planning, strategic marketing and
procurement. It is also consolidating a number of corporate-wide support
activities, including research and development, information technology,
financial transaction processing and real estate management. The Telephone
Companies will continue as separate legal entities. These initiatives will
result in the creation of some jobs and the elimination and realignment of
others, with many of the affected employees changing job responsibilities and in
some cases assuming positions in other locations.
SBC recognized charges during 1997 in connection with these initiatives. The
charges were comprised mainly of postemployment benefits, primarily related to
severance, and costs associated with closing down duplicate operations,
primarily contract cancellations. Other charges arising out of the merger
relating to relocation, retraining and other effects of consolidating certain
operations are being recognized in the periods those charges are incurred.
Additional information on these charges is contained in Note 3 of the 1997 SBC
Annual Report to Shareowners, and is incorporated herein by reference pursuant
to General Instruction G(2).
MERGER WITH SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORPORATION
On January 5, 1998, SBC and Southern New England Telecommunications Corporation
(SNET) jointly announced a definitive agreement to merge an SBC subsidiary with
SNET, in a transaction in which each share of SNET common stock will be
exchanged for 1.7568 shares of SBC common stock (equivalent to approximately 120
million shares; both the exchange ratio and shares to be issued have been
restated to reflect the two-for-one stock split declared January 30, 1998). The
transaction is intended to be accounted for as a pooling of interests and to be
a tax-free reorganization. Additional information on this matter is contained in
Note 4 of the 1997 SBC Annual Report to Shareowners, and is incorporated herein
by reference pursuant to General Instruction G(2).
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 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.
In July 1997, SBC brought suit in the U.S. District Court for the Northern
District of Texas (U.S. Court), seeking a declaration that a portion of the
Telecom Act is unconstitutional on the grounds that it improperly discriminates
against the Telephone Companies by name by imposing restrictions that prohibit
SBC from offering interLATA (Local Access Transport Area) long-distance and
other services in-region that other Local Exchange Carriers (LECs) are free to
provide. The suit challenged only that portion of the Telecom Act that excluded
SBC from competing in certain lines of business. On December 31, 1997 the Court
issued a ruling declaring unconstitutional, among other things, the prohibitions
on SBC providing interLATA long-distance in-region. The FCC and competitor
intervenors sought and received a stay of the decision by the Court, and SBC
anticipates further opposition to this ruling from the Justice Department and
interexchange carriers, but is unable to predict the outcome of subsequent
appeals. Additional information relating to the Telecom Act is contained in the
1997 SBC Annual Report to Shareowners under the heading "Competitive
Environment" beginning on page 25, and is incorporated herein by reference
pursuant to General Instruction G(2).
BUSINESS OPERATIONS
SBC is among the largest telecommunications companies in the United States, with
approximately 33 million access lines and approximately 5.5 million wireless
customers in the United States. SBC serves the nation's two most populous
states, California and Texas as well as 7 of the country's 10 largest
metropolitan areas, 16 of the country's 50 largest metropolitan areas, and has
investments in telecommunications businesses in selected international markets,
including Mexico, France, South Africa, Chile, South Korea, The United Kingdom,
Switzerland, Israel and Taiwan. SBC's broad operations offer customers an
expansive range of services and products, varying by market, including: local
exchange services, wireless communications, long-distance, Internet services,
telecommunications equipment, enhanced services, and directory advertising.
Services and products are provided through several subsidiaries, which include:
the Telephone Companies, Southwestern Bell Mobile Systems, Inc. including its
affiliates (Mobile Systems), Pacific Bell Mobile Services (PBMS), SBC
International, Inc. (SBC International), Southwestern Bell Yellow Pages, Inc.
(SWBYP), Pacific Bell Directory (PBD), Southwestern Bell Messaging Services,
Inc. (SMSI), Pacific Bell Information Services (PBIS), Pacific Bell Internet
(PBI), Southwestern Bell Internet Services (SBIS), 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, Internet services, and cable television services.
Wireless telecommunications services are provided by Mobile Systems and PBMS
(collectively SBC Wireless). Landline telecommunications services are provided
to the in-region states by the Telephone Companies. In December 1996,
substantially all of the operations of Southwestern Bell Telecommunications,
Inc. (Telecom) moved into the operations of SWBell with enhanced services being
moved into SMSI.
SBC's revenues are categorized for financial reporting purposes as local service
(substantially all of which was provided by the Telephone Companies and SBC
Wireless), network access (provided by the Telephone Companies), long-distance
service (substantially all of which was provided by the Telephone Companies and
SBC Wireless), directory advertising (principally provided by SWBYP and PBD) and
other (including equipment sales at SBC Wireless and SWBell, nonregulated
products and services provided by the Telephone Companies, billing and
collection services for interexchange carriers provided by the Telephone
Companies, Internet services provided by PBI and SBIS, and cable television
services provided by Media Ventures). With the passage of the Telecom Act, SBC
Wireless offers interLATA and intraLATA wireless long-distance services. In
1996, two SBC subsidiaries, Southwestern Bell Communications Services, Inc.
(SBCS) and Pacific Bell Communications, began offering landline interLATA
long-distance services to customers in selected areas outside the Telephone
Companies' authorized regions (out-region). The Telephone Companies provide
intraLATA long-distance services in-region.
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
----------------------------------------------- -------------------------------
1997 1996 1995
----------------------------------------------- ---------- --------- ----------
Local service:
Landline 38% 36% 37%
Wireless 12% 11% 10%
Network access 23% 24% 25%
----------------------------------------------- ---------- --------- ----------
Communication Services
Communication 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 intraLATA telecommunications traffic, except for
certain wireless service areas that cover more than one LATA, for which SBC had
obtained MFJ waivers. In addition to these services, beginning in 1996, SBC
provided both interLATA and intraLATA cellular long-distance services to its
wireless customers, as well as landline interLATA long-distance services in
selected out-region areas. 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 that 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.
Landline Network Services
During the latter half of 1996 and over the course of 1997, the Telephone
Companies have been offering certain services on a "wholesale" basis to
competitors, as well as providing elements of the Telephone Companies' networks
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 have resulted in SBC facing increased competition in significant
portions of its business. At December 31, 1997 SBC provided wholesale services
to approximately 500 thousand access lines. Management cannot quantify the
impact to SBC's business in 1998 from local exchange competition, as uncertainty
exists as to the breadth and scope of competitors' offering of local exchange
services to all portions of the market in-region, and as certain regulations,
tariffs and negotiations governing such competition are not yet finalized.
The Telephone Companies are SBC's largest subsidiaries, providing approximately
82% of SBC's operating revenues in 1997. The Telephone Companies provide their
services to approximately 20.9 million residential and 12.1 million business
access lines in the seven states in which they operate. During 1997 total access
lines grew by 5%, of which 50% of the increase was due to growth in California
and over 30% of the increase was due to growth in Texas.
During 1997, the Telephone Companies continued to expand their offering of
vertical services throughout their operating areas. These services include,
among other things 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.
SMSI provides voice messaging services under the registered trademark CallNotes
to residential and business customers. PBIS has several registered trademark
products, which include residential voice messaging services (The Message
Center), business messaging services (Pacific Bell Voice Mail), and business
call management services (Pacific Bell Call Management). During 1996, PBI and
SBIS began providing Internet services in selected in-region metropolitan areas.
Internet access services were introduced throughout many other in-region
metropolitan areas in 1997.
Wireless
At the end of 1997, Mobile Systems provided wireless services to 5,068,000
customers over its traditional cellular networks, or 12.2 out of every 100
residents in its service areas. Mobile Systems provides services in 39
metropolitan markets in 10 states and the District of Columbia, 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 is licensed to provide service in 40 rural service areas
(RSA) and is currently providing service in all of these markets. Each RSA is
contiguous to an existing metropolitan service area or another RSA 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 one RSA in Arkansas
under an interim operating authority granted by the FCC.
In January 1997, Mobile Systems began doing business within the five-state area
as Southwestern Bell Wireless, Inc. Mobile Systems operates in out-region areas
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; Albany, Buffalo, and Rochester, New
York 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, 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, on a resale basis, in
Rochester, New York.
In October 1994, SBC formed a long-term marketing alliance between Mobile
Systems and GTE in Texas. This alliance has enabled both Mobile Systems and GTE
to offer wireless service in each other's Texas wireless markets, using the host
company's wireless system. As a result, Mobile Systems 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 now offers digital service, including advanced features in most
of the metropolitan areas where it's licensed to provide wireless service.
Mobile Systems first 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 markets wireless communications equipment in each of its
service areas.
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 using lower powered transmission equipment. 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 or affiliates
acquired PCS licenses in the Major Trading Areas (MTAs) of Los Angeles-San
Diego, California; San Francisco-San Jose, California; Memphis, Tennessee;
Little Rock, Arkansas; and Tulsa, Oklahoma. The California licenses cover
substantially all of California and Nevada. SBC is currently operational in all
of its major California-Nevada markets and 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.
PBMS was formed to offer PCS services across California and Nevada. The network
incorporates the Global System for Mobile Communications (GSM) standard, which
is widely used internationally, and its phones feature a built-in pager and
answering machine. PBMS began trials in August 1996 and began offering services
in January 1997, and by mid-1997 provided widespread offerings of PCS services
to all of California and Nevada. At the end of 1997, PBMS provided wireless
services to 340,000 customers over its PCS networks.
In an FCC auction concluded in January 1997, SBC acquired the following
additional PCS licenses for Basic Trading Areas (BTAs) that are within the
five-state area: Springfield, Missouri; McAlester, Oklahoma; Joplin, Missouri;
Pittsburgh, Kansas; Temple-Killeen, Texas; Waco, Texas; Tyler, Texas and
Longview-Marshall, Texas.
Overall, at the end of 1997, SBC Wireless operations provided local wireless
services to 5,493,000 customers throughout its wireless markets. In addition,
since the Telecom Act passed, Mobile Systems began providing wireless
long-distance service to its wireless customers, and at year-end 1997 had been
selected as the long-distance carrier by approximately 3,286,000, or 63 percent,
of its wireless customers.
International
Mexico
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 largest 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 had
no effect on SBC International's Telmex holdings. SBC International also owns
Class L shares, which have limited voting rights. Telmex made significant
purchases under various share repurchase programs from 1995 through 1997, buying
back 23% of its stock. Throughout 1997 and in February 1998, SBC International
sold portions 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 1997, Telmex
had 9.3 million access lines in service and provided cellular service to
approximately 1.1 million subscribers. Telmex began providing cable television
services through its purchase in 1995 of a 49% stake of Grupo Televisa's cable
television subsidiary, Cablevision. In March 1997, SBC issued approximately $396
million in debt due March 2001 which, at SBC's option, may be redeemed upon
maturity either in cash or Telmex L shares (equivalent to up to 2.4% of Telmex's
equity capitalization at March 31, 1997).
France
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. In 1997, SBC International contributed its
indirect 10% ownership of SFR shares and an additional $240 million to acquire a
15% interest in Cegetel, S.A., a new French company formed by CGE to provide a
broad base of telecommunications services throughout France. Operations on a
limited scale are scheduled to begin during the first half of 1998. At the end
of 1997, SFR had 2.2 million wireless subscribers.
Chile
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 (Luksic), a large Chilean
conglomerate. During 1997, Luksic exercised an option to purchase more shares of
VTR from SBC International, reducing SBC's ownership to 44%. Through its
subsidiaries, VTR provides local, long-distance, wireless and cable television
services in Chile. In December 1997, VTR sold its wireless service operations.
At the end of 1997, local services were provided to approximately 123,000 access
lines and cable television services were provided to approximately 367,000
subscribers.
United Kingdom
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 TeleWest P.L.C.
Israel
SBC International through its subsidiaries holds a minority interest in Golden
Channels, a cable television provider in Israel. At the end of 1997, Golden
Channels' systems passed 449,000 households and provided service to
approximately 292,000 households, a penetration rate of approximately 65%. SBC
International also has interests in companies involved in the publication of
yellow pages directories, and marketing directory and other software in Israel.
In 1996, 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
Aurec Group, and the Israeli Globescom and Kahn groups. At the present time, the
award of these licenses is undergoing judicial review.
Australia
In 1997, SBC International sold its directory interests in Australia to Telstra
Corporation Limited, the principal provider of telecommunications services in
Australia.
South Africa
In 1997, SBC International acquired an effective 18% stake in Telkom, S.A.
Limited (Telkom), South Africa's state-owned local exchange, long distance, and
cellular company. SBC International's partner in the acquisition is Telekom
Malaysia, which acquired a 12% stake in Telkom. SBC International's still holds
its 15.5% ownership stake in MTN, one of South Africa's two national cellular
companies, but is obligated to divest it as part of the acquisition of Telkom.
At the end of 1997, Telkom provided local exchange services to 4.5 million
access lines. Telkom provides long-distance service to all of its local exchange
customers.
Switzerland
In June 1997, SBC International purchased a 40% interest in diAx, a new company
formed by SBC International and a Swiss-based company. diAx is currently
building a network to provide long-distance telephone service in Switzerland.
The target date for commencement of service is mid-1998.
China
In December 1997, SBC International signed a Cable and Maintenance Agreement
with China Telecom and twelve other telecommunications companies to construct a
direct undersea cable link between the United States and China. The cable is
expected to be completed by the year 2000.
South Korea
SBC also has wireless interests in South Korea where its affiliate provided
wireless service to approximately 1.1 million subscribers at the end of 1997.
Taiwan
SBC International owns a 20% interest in a consortium that formed TransAsia
Telecommunications, Inc., a new cellular service provider in Taiwan.
Offering of services commenced in January 1998.
Directory Advertising
SWBYP publishes more than 43 million books, representing approximately 347
directories, principally within the five-state area. PBD, the publisher of
Pacific Bell SMART Yellow Pages, publishes 35 million books, representing
approximately 112 directories in California and Nevada. SBC recognizes all
directory advertising revenues and expenses in the month the related directory
is published. SWBYP's nine largest revenue-producing yellow pages directories
are currently published in the second half of SBC's fiscal year, while PBD's
publishing schedule is spread throughout the year for its directories. SWBYP's
directories are printed by R.R. Donnelley & Sons and PBD's directories are
printed by World Color Press.
Customer Premises Equipment and Other Equipment Sales
In December 1996, substantially all of the operations of Telecom were moved into
the operations of SWBell. Equipment 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
As part of the changes in strategic direction of the post-merger initiatives,
SBC announced during 1997 that it is scaling back its limited direct investment
in a number of video services. Additional information on these matters is
contained in Note 3 of the 1997 SBC Annual Report to Shareowners, and is
incorporated herein by reference pursuant to General Instruction G(2). As part
of this curtailment, SBC has halted construction on the Advanced Communications
Network (ACN) in California. As part of an agreement with the ACN vendor, SBC
paid the liabilities of the ACN trust that owns and finances ACN construction
and incurred costs to shut down all construction previously conducted under the
trust and receive certain consideration from the vendor. SBC also curtailed
several other video-related activities, including its broadband network video
trials in Richardson, Texas. SBC has also substantially scaled back its
involvement in the Tele-TV joint venture.
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 1997,
these systems passed 432,000 homes and served 278,000 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 became the
general partner and retained 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 October 1997, SBC entered a
definitive agreement to sell Media Ventures' interest in the Partnership to
Prime and other investors. These transactions are expected to close during 1998.
On the same date, SBC entered into definitive agreements to sell its interests
in Prime Cable of Chicago, Inc. to Prime and other investors. A PAC subsidiary
had acquired these interests prior to the merger with SBC.
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, SNET
became a minority partner in this venture. In mid-1997, SBC Interactive Media,
Inc. (SBC Interactive), a wholly-owned subsidiary of SBC, notified the venture
of its withdrawal. On October 7, 1997 the remaining partners in the venture
attempted to initiate arbitration against SBC Interactive regarding the validity
of its withdrawal. On October 15, 1997, SBC Interactive filed a declaratory
judgement action in and sought a preliminary injunction from Delaware Chancery
Court to halt the arbitration attempt. On December 24, 1997, the Chancery Court
directed that the arbitration proceed, and on January 22, 1998, SBC appealed
that ruling. This matter is still being litigated.
In connection with the post-merger initiatives, SBC reviewed the carrying values
of certain wireless video assets and other related long-lived assets. This
review included estimating remaining useful lives and cash flows and identifying
certain assets to be abandoned. Where this review indicated impairment,
discounted cash flows related to those assets were analyzed to determine the
amount of the impairment. In 1997, SBC recognized impairments and took writeoffs
of equipment related to the wireless digital TV operations in southern
California.
GOVERNMENT REGULATION
In the in-region states, the Telephone Companies are 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
Companies are also subject to the jurisdiction of the FCC with respect to
interstate and international rates and services, including interstate access
charges. Access charges are designed to compensate the Telephone Companies for
the use of their 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
Companies is contained in the 1997 SBC Annual Report to Shareowners under the
heading "Regulatory Environment" on page 23, 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 licenses for multiple wireless carriers in each
geographic market. The cellular licenses, of which there are only two in each
geographic region have a standard duration of ten years, and upon application
and a showing of compliance with FCC use and conduct standards may be renewed.
Renewal applications were filed in the following markets during 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. Renewals for
these licenses were granted in January 1998. Renewal applications will be filed
in the following markets during 1998: Bloomington-Normal, Illinois; Glen Falls,
New York; Laredo, Texas; Little Rock-North Little Rock, Arkansas; and Pine
Bluff, 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. SBC's
licenses for Los Angeles-San Diego, California, San Francisco-San Jose,
California and Tulsa, Oklahoma expire in 2005. These licenses, upon application
and a showing of compliance with FCC use and conduct standards, may be renewed.
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. A number of SBC subsidiaries hold FCC channel licenses for wireless
video services. These subsidiaries also have numerous leases with Instructional
Television Fixed Service (ITFS) channel licensees to use their excess channel
capacity. The channels under these licenses and leases are primarily in southern
California.
MAJOR CUSTOMER
No customer accounted for more than 10% of SBC's consolidated revenues in 1997,
1996 or 1995.
COMPETITION
Communication Services
Information relating to competition in the communications industry is contained
in SBC's Annual Report to Shareowners for 1997 under the heading "Competitive
Environment" beginning on page 25, 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 1997 under the heading "International" on page 28, and
is incorporated herein by reference pursuant to General Instruction G(2).
Directory Advertising and Publishing
Both SWBYP and PBD face competition from over 100 publishers of printed
directories in their operating areas. Direct and indirect competition also exist
from other advertising media, including newspapers, radio, television, and
direct mail providers, as well as from directories offered over the Internet.
Customer Premises Equipment and Other Equipment Sales
SBC faces significant competition from numerous companies in marketing its
telecommunications equipment.
RESEARCH AND DEVELOPMENT
Certain company-sponsored basic and applied research was conducted at Bell
Communications Research, Inc. (Bellcore). The Telephone Companies owned a
two-seventh interest in Bellcore, with the remainder owned by the other four
remaining RHCs. In November 1997, the sale of Bellcore was completed. The RHCs
have retained the activities of Bellcore that coordinate the Federal
Government's telecommunications requirements for national security and emergency
preparedness.
Applied research is also conducted at SBC Technology Resources, Inc. (TRI), a
subsidiary of SBC. TRI provides research, technology planning and evaluation
services to SBC and its subsidiaries.
EMPLOYEES
As of December 31, 1997, SBC and its subsidiaries employed 118,340 persons.
Approximately 67% of the employees are represented by the Communications Workers
of America (CWA). Contracts covering an estimated 73,000 employees between the
CWA and the Telephone Companies end in August 1998. New contracts are scheduled
to be negotiated in 1998. A three-year contract (which covers an estimated 2,000
employees) was negotiated between the CWA and SWBYP, which became effective in
December 1995. A new contract is scheduled to be negotiated in 1998. In 1995,
PBD negotiated two new three-year contracts with the International Brotherhood
of Electrical Workers (IBEW), covering approximately 1,600 employees in northern
and southern California. PBD also is scheduled to negotiate new contracts with
the IBEW in 1998. The CWA also represents an estimated 2,000 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, 1997, 94% of the property, plant
and equipment of SBC was owned by the Telephone Companies. Network access lines
represented 42% of the Telephone Companies' investment in telephone plant;
central office equipment represented 39%; land and buildings represented 10%;
other miscellaneous property, comprised principally of furniture and office
equipment and vehicles and other work equipment, represented 6%; and information
origination/termination equipment represented 4%.
ITEM 3. LEGAL PROCEEDINGS
Six putative class actions in Texas, Missouri, Oklahoma, and Kansas that
involved the provision by SWBell of maintenance and trouble diagnosis services
relating to telephone inside wire located on customer premises have been
settled. These actions alleged that SWBell's sales practices in connection with
these services violated antitrust, fraud and/or deceptive trade practices
statutes. The trial court has approved the settlement, which is not expected to
materially affect the financial results of SBC.
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. 56 Chairman and Chief Executive Officer 1-90
John H. Atterbury III 49 Senior Vice President - International 6-97
Operations
Royce S. Caldwell 59 President - SBC Operations 7-95
Cassandra C. Carr 53 Senior Vice President - Human Resources 5-94
William E. Dreyer 60 Senior Executive Vice President - 7-93
External Affairs
James D. Ellis 54 Senior Executive Vice President and 3-89
General Counsel
Charles E. Foster 61 Group President - SBC 7-95
James S. Kahan 50 Senior Vice President - Corporate 7-93
Development
Donald E. Kiernan 57 Senior Vice President, Treasurer and 7-93
Chief Financial Officer
Stanley T. Sigman 50 President and Chief Executive Officer 4-97
SBC Wireless Inc.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The number of shareowners of record as of December 31, 1997 and 1996 were
1,059,158 and 800,465. Other information required by this Item is included in
the SBC Annual Report to Shareowners for the fiscal year ended December 31, 1997
under the headings "Quarterly Financial Information" on page 45, "Selected
Financial and Operating Data" on page 18, and "Stock Trading Information" on the
inside of back cover, which are incorporated herein by reference pursuant to
General Instruction G(2).
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1997 under the heading
"Selected Financial and Operating Data" on page 18 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, 1997 on page 19 through page
30, which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative Information about Market Risk
--------------------------------------------------------------------------------
Foreign Exchange Risk Sensitivity Analysis
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
December 31, US Dollar Value Net Underlying Net Exposed Foreign Exchange
1997 of Net Foreign Foreign Long/Short Loss from a 10%
(millions of $) Exchange Currency Currency Depreciation of
Contracts Transaction Position the US dollar
Exposures
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Swiss Franc $ 14 $ 14 $ 0 $0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Japanese Yen 142 142 0 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Exposure $ 156 $156 $0 $0
--------------------------------------------------------------------------------
The preceding table describes the effects of a change in the value of the Swiss
franc and Japanese yen. Since the identified exposure is fully covered with
forward contracts, changes in the value of the US dollar which affect the value
of the underlying foreign currency commitment are fully offset by changes in the
value of the foreign currency contract. Were the underlying currency transaction
exposure to change, the resulting mismatch would expose the company to currency
risk of the foreign exchange contract. For this reason, all contracts are
related to firm commitments and matched by maturity and currency.
--------------------------------------------------------------------------------
Equity Price Risk Sensitivity Analysis
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
December 31, 1997 Net Value of Net Loss from a 40%
(millions of $) Appreciated Underlying Exposed Increase in the
Value of Employee Long/Short price of AirTouch
Equity Swap Stock Option Equity Common
Contract Exposures Position
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AirTouch $12 $14 $2 $(.8)
Communications
Inc. (AirTouch)
Common
--------------------------------------------------------------------------------
The table above describes the effects of an appreciation in the price of
AirTouch common used in settlement of employee stock options. At December 31,
1997 the notional value of an equity swap contract entered in 1994 had
appreciated by $12 million, while the value of the underlying options for
AirTouch common had increased to $14 million, a difference of $2 million. If the
obligations under the options granted were left exposed to a 40 percent rise in
the value of the stock, the result would have been an $800,000 loss. Since 1995
the average yearly rate of change in the price of AirTouch common stock has
ranged from 25%-40%. The equity swap contract expires April 1999.
The above table describes the results of entering an interest rate swap for the
purpose of providing variable rate payment streams to pay a floating rate note,
in exchange for fixed rate payments. As a result of interest rate fluctuations
if SBC were to terminate the contract it would be required to pay $1.5 million
to replace the fixed rate flow. SBC does not intend to terminate the contract as
it is linked to a bond issued by SBC.
Qualitative Information about Market Risk
Foreign Exchange Risk
SBC has operations in ten countries. From time to time SBC is required to make
investments, receive dividends, or borrow funds in foreign currency. To maintain
the dollar cost of the investment or limit the dollar cost of the funding, SBC
will enter into forward foreign exchange contracts. The contracts are used to
provide currency at a fixed rate. SBC's policy is to measure the risk of adverse
currency fluctuations by calculating the potential dollar losses resulting from
changes in exchange rates that have a reasonable probability of occurring.
Changes that exceed acceptable loss limits require that SBC cover the exposure.
SBC does not speculate in foreign exchange markets, and does not hedge all
foreign exchange exposures due to uncertainty in foreign exchange cash flows.
Equity Risk
PAC entered into an equity swap contract to hedge exposure to risk of market
changes related to its recorded liability for outstanding employee stock options
for common stock of AirTouch (spun-off operations). PAC plans to make open
market purchases of the stock of spun-off operations to satisfy its obligation
for options that are exercised. Off-balance-sheet risk exists to the extent the
market price of AirTouch rises in value. The equity swap was entered into to
hedge this exposure and minimize the impact of market fluctuations. The contract
entitles PAC to receive settlement payments to the extent the price of the
common stock of spun-off operations rises above the notional value of $23.74 per
share, but imposes an obligation to make payments to the extent the price
declines below this level. The swap also obligates PAC to make a monthly payment
of a fee based on LIBOR. The additional cost of AirTouch shares is offset by the
gain in the value of the shares obtained by proportionate sales of the swap. SBC
does not seek to profit from changes in the value of the swap. For this reason
the swap transactions are matched to exercise activity as closely as possible.
Interest Rate Risk
SBC issues debt in fixed and floating rate instruments. Interest rate swaps are
used for the purpose of controlling interest expense by fixing the interest rate
of floating rate debt. When market conditions favor issuing debt in floating
rate instruments, and SBC prefers not to take the risk of floating rates, SBC
will enter interest rate swap contracts to obtain floating rate payments to
service the debt in exchange for paying a fixed rate. SBC does not seek to make
a profit from changes in interest rates. In order to maintain flexibility in
funding amounts, it is necessary to accept exposure to volatile interest rates.
SBC manages interest rate sensitivity by measuring potential increases in
interest expense that would result from a probable change in interest rates.
When the potential increase in interest expense exceeds an acceptable limit, SBC
reduces risk through fixed rate instruments and derivatives.
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, 1997 on page 31 through page
45, 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 THE REGISTRANT
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, 1998, 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, 1998, under the headings "Compensation of
Directors" from page 11 through page 12, and "Compensation Committee Interlocks
and Insider Participation", "Executive Compensation", "Pension Plans", and
"Contracts with Management" from page 20 through page 31, 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, 1998, under the heading "Common Stock Ownership
of Directors and Officers" on page 13, which is incorporated herein by reference
pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1998, under the heading "Compensation of
Directors" from page 11 through page 12 and "Contracts with Management" from
page 30 through 31, which are incorporated herein by reference pursuant to
General Instruction G(3).
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, 1997. (See Part II.)
Page
---
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts.................. 26
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.)
2-b Agreement and Plan of Merger, among Southern New England
Telecommunications Corporation, SBC Communications Inc., and SBC
(CT), dated as of January 4, 1998. (Exhibit 2 to Form 8-K, dated
January 4, 1998.)
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 Certificate of Designation, filed with the Secretary of State of
Delaware on March 31, 1997.
3-c Bylaws dated January 30, 1998. (Exhibit to SBC Communications Inc.
(SBC) Form 8-K dated February 5, 1998.)
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 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.)
4-g Resolutions guaranteeing certain obligations of Pacific Telesis
Group.
10-a Short Term Incentive Plan.
10-b Senior Management Long Term Incentive Plan. (Exhibit 10-b to
Form 10-K for 1992.)
10-c Supplemental Life Insurance Plan.
10-d Supplemental Retirement Income Plan.
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 Salary and Incentive Award Deferral Plan.
10-i Financial Counseling Program.
10-j Supplemental Health Plan.
10-k Retirement Plan for Non-Employee Directors.
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Exhibit 10-p to Form
10-K for 1988.)
10-n Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Approved November 21,
1997).
10-o Stock Savings Plan.
10-p 1992 Stock Option Plan.
10-q Officer Retirement Savings Plan.
10-r 1996 Stock and Incentive Plan.
10-s Non-Employee Director Stock and Deferral Plan.
10-t Agreement with Philip J. Quigley dated March 28, 1997 (Exhibit 10pp
(vii) to Form 10-K for 1996 of Pacific Telesis Group (Reg. 1-8609))
10-u Agreement with Philip J. Quigley, dated October 24, 1998.
10-v Pacific Telesis Group Deferred Compensation Plan for Nonemployee
Directors. (Exhibit 10gg to Form 10-K for 1996 of Pacific
Telesis Group (Reg. 1-8609).)
10-v(i) Resolutions amending the Plan, effective November 21, 1997.
10-w Pacific Telesis Group Outside Directors' Deferred Stock Unit Plan.
(Exhibit 10oo to Form 10-K for 1995 of Pacific Telesis Group (Reg.
1-8609).)
10-x Pacific Telesis Group 1996 Directors' Deferred Compensation Plan.
(Exhibit 10qq to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-x(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-y Pacific Telesis Group Executive Supplemental Cash Balance Pension
Plan. (Exhibit 10kk to Form 10-K for 1996 of Pacific Telesis Group
(Reg. 1-8609).)
10-z Pacific Telesis Group Executive Deferral Plan. (Exhibit 10ll to Form
10-K for 1995 of Pacific Telesis Group (Reg. 1-8609).)
10-aa Pacific Telesis Group 1996 Executive Deferred Compensation Plan.
(Exhibit 10nn to Form 10-K for 1996 of Pacific Telesis Group
(Reg. 1-8609).)
10-aa(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-bb Pacific Telesis Group 1994 Stock Incentive Plan. (Attachment A to
Pacific Telesis Group's 1994 Proxy Statement filed March 11, 1994,
and amended March 14 and March 25, 1994.)
10-bb(i) Resolutions amending the Plan, effective January 1, 1995.
(Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, filed March 13, 1995.)
10-cc Pacific Telesis Group Nonemployee Director Stock Option Plan.
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990.)
10-cc(i) Resolutions amending the Plan, effective April 1, 1994.
(Exhibit 10xx(i) to Form 10-K for 1996 of Pacific Telesis
Group (Reg. 1-8609).)
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, 1997. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23-a Consent of Ernst & Young LLP.
23-b Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1997 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 1997 to be filed under Form 10-K/A.
99-c Report of Independent Auditors Coopers & Lybrand L.L.P.
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:
None.
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, 1998.
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*
August A. Busch III*
Royce S. Caldwell* March 11, 1998
Ruben R. Cardenas*
William P. Clark*
Martin K. Eby, Jr.*
Herman E. Gallegos*
Jess T. Hay*
Bobby R. Inman*
Charles F. Knight*
Mary S. Metz*
Haskell M. Monroe, Jr.*
Toni Rembe*
S. Donley Ritchey*
Richard M. Rosenberg*
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.)
2-b Agreement and Plan of Merger, among Southern New England
Telecommunications Corporation, SBC Communications Inc., and SBC
(CT), dated as of January 4, 1998. (Exhibit 2 to Form 8-K, dated
January 4, 1998.)
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 Certificate of Designation, filed with the Secretary of State of
Delaware on March 31, 1997.
3-c Bylaws dated January 30, 1998. (Exhibit to SBC Communications Inc.
(SBC) Form 8-K dated February 5, 1998.)
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 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.)
4-g Resolutions guaranteeing certain obligations of Pacific Telesis
Group.
10-a Short Term Incentive Plan.
10-b Senior Management Long Term Incentive Plan. (Exhibit 10-b to Form
10-K for 1992.)
10-c Supplemental Life Insurance Plan.
10-d Supplemental Retirement Income Plan.
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 Salary and Incentive Award Deferral Plan.
10-i Financial Counseling Program.
10-j Supplemental Health Plan.
10-k Retirement Plan for Non-Employee Directors.
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Exhibit 10-p to Form
10-K for 1988.)
10-n Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Approved November 21,
1997).
10-o Stock Savings Plan.
10-p 1992 Stock Option Plan.
10-q Officer Retirement Savings Plan.
10-r 1996 Stock and Incentive Plan.
10-s Non-Employee Director Stock and Deferral Plan.
10-t Agreement with Philip J. Quigley, dated March 28, 1997 (Exhibit 10pp
(vii) to Form 10-K for 1996 of Pacific Telesis Group (Reg. 1-8609))
10-u Agreement with Philip J. Quigley, dated October 24, 1998.
10-v Pacific Telesis Group Deferred Compensation Plan for Nonemployee
Directors. (Exhibit 10gg to Form 10-K for 1996 of Pacific Telesis
Group (Reg. 1-8609).)
10-v(i) Resolutions amending the Plan, effective November 21, 1997.
10-w Pacific Telesis Group Outside Directors' Deferred Stock Unit Plan.
(Exhibit 10oo to Form 10-K for 1995 of Pacific Telesis Group (Reg.
1-8609).)
10-x Pacific Telesis Group 1996 Directors' Deferred Compensation Plan.
(Exhibit 10qq to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-x(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-y Pacific Telesis Group Executive Supplemental Cash Balance Pension
Plan. (Exhibit 10kk to Form 10-K for 1996 of Pacific Telesis Group
(Reg. 1-8609).)
10-z Pacific Telesis Group Executive Deferral Plan. (Exhibit 10ll to Form
10-K for 1995 of Pacific Telesis Group (Reg. 1-8609).)
10-aa Pacific Telesis Group 1996 Executive Deferred Compensation Plan.
(Exhibit 10nn to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-aa(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-bb Pacific Telesis Group 1994 Stock Incentive Plan. (Attachment A to
Pacific Telesis Group's 1994 Proxy Statement filed March 11, 1994,
and amended March 14 and March 25, 1994.)
10-bb(i) Resolutions amending the Plan, effective January 1, 1995.
(Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, filed March 13, 1995.)
10-cc Pacific Telesis Group Nonemployee Director Stock Option Plan.
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990.)
10-cc(i) Resolutions amending the Plan, effective April 1, 1994.
(Exhibit 10xx(i) to Form 10-K for 1996 of Pacific Telesis
Group (Reg. 1-8609).)
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, 1997. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23-a Consent of Ernst & Young LLP.
23-b Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1997 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 1997 to be filed under Form 10-K/A.
99-c Report of Independent Auditors Coopers & Lybrand L.L.P.
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
For fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-8610
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: (See attached
Schedule A)
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 27, 1998, the aggregate
market value of all voting stock held by non-affiliates was $69,458,800,000.
As of February 27, 1998, 919,465,202 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, 1997 (Parts I and II).
(2) Portions of SBC Communications Inc.'s Notice of 1998 Annual Meeting and
Proxy Statement dated March 11, 1998 (Parts III and IV).
SCHEDULE A
Securities Registered Pursuant To Section 12(b) Of The Act:
Name of each exchange
Title of each class on which registered
Common Shares (Par Value $1.00 Per New York, Chicago and
Share) Pacific Stock Exchanges
7 3/4 % Exchangeable Notes, New York Stock Exchange
Due March 15, 2001
7.56% Pacific Telesis Group (PAC) New York Stock Exchange
Corporation-obligated mandatorily
redeemable preferred securities of
subsidiary trusts
8.5% PAC Corporation-obligated New York Stock Exchange
mandatorily redeemable preferred
securities of subsidiary trusts
TABLE OF CONTENTS
Item Page
----- ----
PART I
1. Business....................................................... 4
2. Properties..................................................... 15
3. Legal Proceedings.............................................. 15
4. Submission of Matters to a Vote of Security Holders............ 15
Executive Officers of the Registrant.............................. 16
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 17
6. Selected Financial and Operating Data.......................... 17
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 17
7A. Quantitative and Qualitative Disclosures about Market Risk..... 17
8. Financial Statements and Supplementary Data.................... 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 20
PART III
10. Directors and Executive Officers of the Registrant............. 21
11. Executive Compensation......................................... 21
12. Security Ownership of Certain Beneficial Owners and Management. 21
13. Certain Relationships and Related Transactions................. 21
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22
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. SBC's largest subsidiaries are Southwestern Bell Telephone Company
(SWBell), providing telecommunications services over approximately 16 million
access lines in Texas, Missouri, Oklahoma, Kansas and Arkansas (five-state
area), and Pacific Bell (PacBell), providing telecommunications services over
approximately 17 million access lines in California. SBC also provides
telecommunications services through its Nevada Bell subsidiary over
approximately 300 thousand access lines in Nevada. (SWBell, PacBell and Nevada
Bell are collectively referred to as the Telephone Companies.) The Telephone
Companies operate within an authorized region (in-region) providing local
exchange services and are subject to regulation by each state in which they
operate and by the Federal Communications Commission (FCC). SBC was incorporated
under the laws of the State of Delaware in 1983 and has its principal executive
offices at 175 E. Houston, San Antonio, Texas 78205-2233 (telephone number
210-821-4105).
SBC was one of the original seven regional holding companies (RHCs) formed to
hold AT&T Corp.'s (AT&T) local telephone companies. AT&T divested SBC by means
of a spin-off of stock to its shareowners on January 1, 1984 (divestiture). As a
result, SBC became a publicly traded company. 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). With the mergers of SBC and Pacific Telesis Group (PAC), and
Bell Atlantic Corporation and NYNEX Corporation, there are now five RHCs.
COMPLETION OF MERGER WITH PAC
On April 1, 1997, SBC and PAC completed the merger of an SBC subsidiary with
PAC, in a transaction in which each outstanding share of PAC common stock was
exchanged for 1.4629 shares of SBC common stock (equivalent to approximately 626
million shares; both the exchange ratio and shares issued have been restated to
reflect the two-for-one stock split, effected in the form of a stock dividend,
declared January 30, 1998 with a record date of February 20, 1998 and payable
March 19, 1998). With the merger, PAC became a wholly-owned subsidiary of SBC.
The transaction was accounted for as a pooling of interests and a tax-free
reorganization.
Post-merger initiatives
Several strategic decisions resulted from the merger integration process. The
decisions resulted from an extensive review of operations throughout the merged
company and include significant integration of operations and consolidation of
some administrative and support functions.
Reorganization
SBC is centralizing several key functions that will support the operations of
the Telephone Companies, including network planning, strategic marketing and
procurement. It is also consolidating a number of corporate-wide support
activities, including research and development, information technology,
financial transaction processing and real estate management. The Telephone
Companies will continue as separate legal entities. These initiatives will
result in the creation of some jobs and the elimination and realignment of
others, with many of the affected employees changing job responsibilities and in
some cases assuming positions in other locations.
SBC recognized charges during 1997 in connection with these initiatives. The
charges were comprised mainly of postemployment benefits, primarily related to
severance, and costs associated with closing down duplicate operations,
primarily contract cancellations. Other charges arising out of the merger
relating to relocation, retraining and other effects of consolidating certain
operations are being recognized in the periods those charges are incurred.
Additional information on these charges is contained in Note 3 of the 1997 SBC
Annual Report to Shareowners, and is incorporated herein by reference pursuant
to General Instruction G(2).
MERGER WITH SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORPORATION
On January 5, 1998, SBC and Southern New England Telecommunications Corporation
(SNET) jointly announced a definitive agreement to merge an SBC subsidiary with
SNET, in a transaction in which each share of SNET common stock will be
exchanged for 1.7568 shares of SBC common stock (equivalent to approximately 120
million shares; both the exchange ratio and shares to be issued have been
restated to reflect the two-for-one stock split declared January 30, 1998). The
transaction is intended to be accounted for as a pooling of interests and to be
a tax-free reorganization. Additional information on this matter is contained in
Note 4 of the 1997 SBC Annual Report to Shareowners, and is incorporated herein
by reference pursuant to General Instruction G(2).
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 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.
In July 1997, SBC brought suit in the U.S. District Court for the Northern
District of Texas (U.S. Court), seeking a declaration that a portion of the
Telecom Act is unconstitutional on the grounds that it improperly discriminates
against the Telephone Companies by name by imposing restrictions that prohibit
SBC from offering interLATA (Local Access Transport Area) long-distance and
other services in-region that other Local Exchange Carriers (LECs) are free to
provide. The suit challenged only that portion of the Telecom Act that excluded
SBC from competing in certain lines of business. On December 31, 1997 the Court
issued a ruling declaring unconstitutional, among other things, the prohibitions
on SBC providing interLATA long-distance in-region. The FCC and competitor
intervenors sought and received a stay of the decision by the Court, and SBC
anticipates further opposition to this ruling from the Justice Department and
interexchange carriers, but is unable to predict the outcome of subsequent
appeals. Additional information relating to the Telecom Act is contained in the
1997 SBC Annual Report to Shareowners under the heading "Competitive
Environment" beginning on page 25, and is incorporated herein by reference
pursuant to General Instruction G(2).
BUSINESS OPERATIONS
SBC is among the largest telecommunications companies in the United States, with
approximately 33 million access lines and approximately 5.5 million wireless
customers in the United States. SBC serves the nation's two most populous
states, California and Texas as well as 7 of the country's 10 largest
metropolitan areas, 16 of the country's 50 largest metropolitan areas, and has
investments in telecommunications businesses in selected international markets,
including Mexico, France, South Africa, Chile, South Korea, The United Kingdom,
Switzerland, Israel and Taiwan. SBC's broad operations offer customers an
expansive range of services and products, varying by market, including: local
exchange services, wireless communications, long-distance, Internet services,
telecommunications equipment, enhanced services, and directory advertising.
Services and products are provided through several subsidiaries, which include:
the Telephone Companies, Southwestern Bell Mobile Systems, Inc. including its
affiliates (Mobile Systems), Pacific Bell Mobile Services (PBMS), SBC
International, Inc. (SBC International), Southwestern Bell Yellow Pages, Inc.
(SWBYP), Pacific Bell Directory (PBD), Southwestern Bell Messaging Services,
Inc. (SMSI), Pacific Bell Information Services (PBIS), Pacific Bell Internet
(PBI), Southwestern Bell Internet Services (SBIS), 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, Internet services, and cable television services.
Wireless telecommunications services are provided by Mobile Systems and PBMS
(collectively SBC Wireless). Landline telecommunications services are provided
to the in-region states by the Telephone Companies. In December 1996,
substantially all of the operations of Southwestern Bell Telecommunications,
Inc. (Telecom) moved into the operations of SWBell with enhanced services being
moved into SMSI.
SBC's revenues are categorized for financial reporting purposes as local service
(substantially all of which was provided by the Telephone Companies and SBC
Wireless), network access (provided by the Telephone Companies), long-distance
service (substantially all of which was provided by the Telephone Companies and
SBC Wireless), directory advertising (principally provided by SWBYP and PBD) and
other (including equipment sales at SBC Wireless and SWBell, nonregulated
products and services provided by the Telephone Companies, billing and
collection services for interexchange carriers provided by the Telephone
Companies, Internet services provided by PBI and SBIS, and cable television
services provided by Media Ventures). With the passage of the Telecom Act, SBC
Wireless offers interLATA and intraLATA wireless long-distance services. In
1996, two SBC subsidiaries, Southwestern Bell Communications Services, Inc.
(SBCS) and Pacific Bell Communications, began offering landline interLATA
long-distance services to customers in selected areas outside the Telephone
Companies' authorized regions (out-region). The Telephone Companies provide
intraLATA long-distance services in-region.
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
----------------------------------------------- -------------------------------
1997 1996 1995
----------------------------------------------- ---------- --------- ----------
Local service:
Landline 38% 36% 37%
Wireless 12% 11% 10%
Network access 23% 24% 25%
----------------------------------------------- ---------- --------- ----------
Communication Services
Communication 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 intraLATA telecommunications traffic, except for
certain wireless service areas that cover more than one LATA, for which SBC had
obtained MFJ waivers. In addition to these services, beginning in 1996, SBC
provided both interLATA and intraLATA cellular long-distance services to its
wireless customers, as well as landline interLATA long-distance services in
selected out-region areas. 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 that 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.
Landline Network Services
During the latter half of 1996 and over the course of 1997, the Telephone
Companies have been offering certain services on a "wholesale" basis to
competitors, as well as providing elements of the Telephone Companies' networks
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 have resulted in SBC facing increased competition in significant
portions of its business. At December 31, 1997 SBC provided wholesale services
to approximately 500 thousand access lines. Management cannot quantify the
impact to SBC's business in 1998 from local exchange competition, as uncertainty
exists as to the breadth and scope of competitors' offering of local exchange
services to all portions of the market in-region, and as certain regulations,
tariffs and negotiations governing such competition are not yet finalized.
The Telephone Companies are SBC's largest subsidiaries, providing approximately
82% of SBC's operating revenues in 1997. The Telephone Companies provide their
services to approximately 20.9 million residential and 12.1 million business
access lines in the seven states in which they operate. During 1997 total access
lines grew by 5%, of which 50% of the increase was due to growth in California
and over 30% of the increase was due to growth in Texas.
During 1997, the Telephone Companies continued to expand their offering of
vertical services throughout their operating areas. These services include,
among other things 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.
SMSI provides voice messaging services under the registered trademark CallNotes
to residential and business customers. PBIS has several registered trademark
products, which include residential voice messaging services (The Message
Center), business messaging services (Pacific Bell Voice Mail), and business
call management services (Pacific Bell Call Management). During 1996, PBI and
SBIS began providing Internet services in selected in-region metropolitan areas.
Internet access services were introduced throughout many other in-region
metropolitan areas in 1997.
Wireless
At the end of 1997, Mobile Systems provided wireless services to 5,068,000
customers over its traditional cellular networks, or 12.2 out of every 100
residents in its service areas. Mobile Systems provides services in 39
metropolitan markets in 10 states and the District of Columbia, 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 is licensed to provide service in 40 rural service areas
(RSA) and is currently providing service in all of these markets. Each RSA is
contiguous to an existing metropolitan service area or another RSA 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 one RSA in Arkansas
under an interim operating authority granted by the FCC.
In January 1997, Mobile Systems began doing business within the five-state area
as Southwestern Bell Wireless, Inc. Mobile Systems operates in out-region areas
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; Albany, Buffalo, and Rochester, New
York 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, 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, on a resale basis, in
Rochester, New York.
In October 1994, SBC formed a long-term marketing alliance between Mobile
Systems and GTE in Texas. This alliance has enabled both Mobile Systems and GTE
to offer wireless service in each other's Texas wireless markets, using the host
company's wireless system. As a result, Mobile Systems 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 now offers digital service, including advanced features in most
of the metropolitan areas where it's licensed to provide wireless service.
Mobile Systems first 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 markets wireless communications equipment in each of its
service areas.
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 using lower powered transmission equipment. 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 or affiliates
acquired PCS licenses in the Major Trading Areas (MTAs) of Los Angeles-San
Diego, California; San Francisco-San Jose, California; Memphis, Tennessee;
Little Rock, Arkansas; and Tulsa, Oklahoma. The California licenses cover
substantially all of California and Nevada. SBC is currently operational in all
of its major California-Nevada markets and 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.
PBMS was formed to offer PCS services across California and Nevada. The network
incorporates the Global System for Mobile Communications (GSM) standard, which
is widely used internationally, and its phones feature a built-in pager and
answering machine. PBMS began trials in August 1996 and began offering services
in January 1997, and by mid-1997 provided widespread offerings of PCS services
to all of California and Nevada. At the end of 1997, PBMS provided wireless
services to 340,000 customers over its PCS networks.
In an FCC auction concluded in January 1997, SBC acquired the following
additional PCS licenses for Basic Trading Areas (BTAs) that are within the
five-state area: Springfield, Missouri; McAlester, Oklahoma; Joplin, Missouri;
Pittsburgh, Kansas; Temple-Killeen, Texas; Waco, Texas; Tyler, Texas and
Longview-Marshall, Texas.
Overall, at the end of 1997, SBC Wireless operations provided local wireless
services to 5,493,000 customers throughout its wireless markets. In addition,
since the Telecom Act passed, Mobile Systems began providing wireless
long-distance service to its wireless customers, and at year-end 1997 had been
selected as the long-distance carrier by approximately 3,286,000, or 63 percent,
of its wireless customers.
International
Mexico
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 largest 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 had
no effect on SBC International's Telmex holdings. SBC International also owns
Class L shares, which have limited voting rights. Telmex made significant
purchases under various share repurchase programs from 1995 through 1997, buying
back 23% of its stock. Throughout 1997 and in February 1998, SBC International
sold portions 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 1997, Telmex
had 9.3 million access lines in service and provided cellular service to
approximately 1.1 million subscribers. Telmex began providing cable television
services through its purchase in 1995 of a 49% stake of Grupo Televisa's cable
television subsidiary, Cablevision. In March 1997, SBC issued approximately $396
million in debt due March 2001 which, at SBC's option, may be redeemed upon
maturity either in cash or Telmex L shares (equivalent to up to 2.4% of Telmex's
equity capitalization at March 31, 1997).
France
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. In 1997, SBC International contributed its
indirect 10% ownership of SFR shares and an additional $240 million to acquire a
15% interest in Cegetel, S.A., a new French company formed by CGE to provide a
broad base of telecommunications services throughout France. Operations on a
limited scale are scheduled to begin during the first half of 1998. At the end
of 1997, SFR had 2.2 million wireless subscribers.
Chile
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 (Luksic), a large Chilean
conglomerate. During 1997, Luksic exercised an option to purchase more shares of
VTR from SBC International, reducing SBC's ownership to 44%. Through its
subsidiaries, VTR provides local, long-distance, wireless and cable television
services in Chile. In December 1997, VTR sold its wireless service operations.
At the end of 1997, local services were provided to approximately 123,000 access
lines and cable television services were provided to approximately 367,000
subscribers.
United Kingdom
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 TeleWest P.L.C.
Israel
SBC International through its subsidiaries holds a minority interest in Golden
Channels, a cable television provider in Israel. At the end of 1997, Golden
Channels' systems passed 449,000 households and provided service to
approximately 292,000 households, a penetration rate of approximately 65%. SBC
International also has interests in companies involved in the publication of
yellow pages directories, and marketing directory and other software in Israel.
In 1996, 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
Aurec Group, and the Israeli Globescom and Kahn groups. At the present time, the
award of these licenses is undergoing judicial review.
Australia
In 1997, SBC International sold its directory interests in Australia to Telstra
Corporation Limited, the principal provider of telecommunications services in
Australia.
South Africa
In 1997, SBC International acquired an effective 18% stake in Telkom, S.A.
Limited (Telkom), South Africa's state-owned local exchange, long distance, and
cellular company. SBC International's partner in the acquisition is Telekom
Malaysia, which acquired a 12% stake in Telkom. SBC International's still holds
its 15.5% ownership stake in MTN, one of South Africa's two national cellular
companies, but is obligated to divest it as part of the acquisition of Telkom.
At the end of 1997, Telkom provided local exchange services to 4.5 million
access lines. Telkom provides long-distance service to all of its local exchange
customers.
Switzerland
In June 1997, SBC International purchased a 40% interest in diAx, a new company
formed by SBC International and a Swiss-based company. diAx is currently
building a network to provide long-distance telephone service in Switzerland.
The target date for commencement of service is mid-1998.
China
In December 1997, SBC International signed a Cable and Maintenance Agreement
with China Telecom and twelve other telecommunications companies to construct a
direct undersea cable link between the United States and China. The cable is
expected to be completed by the year 2000.
South Korea
SBC also has wireless interests in South Korea where its affiliate provided
wireless service to approximately 1.1 million subscribers at the end of 1997.
Taiwan
SBC International owns a 20% interest in a consortium that formed TransAsia
Telecommunications, Inc., a new cellular service provider in Taiwan.
Offering of services commenced in January 1998.
Directory Advertising
SWBYP publishes more than 43 million books, representing approximately 347
directories, principally within the five-state area. PBD, the publisher of
Pacific Bell SMART Yellow Pages, publishes 35 million books, representing
approximately 112 directories in California and Nevada. SBC recognizes all
directory advertising revenues and expenses in the month the related directory
is published. SWBYP's nine largest revenue-producing yellow pages directories
are currently published in the second half of SBC's fiscal year, while PBD's
publishing schedule is spread throughout the year for its directories. SWBYP's
directories are printed by R.R. Donnelley & Sons and PBD's directories are
printed by World Color Press.
Customer Premises Equipment and Other Equipment Sales
In December 1996, substantially all of the operations of Telecom were moved into
the operations of SWBell. Equipment 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
As part of the changes in strategic direction of the post-merger initiatives,
SBC announced during 1997 that it is scaling back its limited direct investment
in a number of video services. Additional information on these matters is
contained in Note 3 of the 1997 SBC Annual Report to Shareowners, and is
incorporated herein by reference pursuant to General Instruction G(2). As part
of this curtailment, SBC has halted construction on the Advanced Communications
Network (ACN) in California. As part of an agreement with the ACN vendor, SBC
paid the liabilities of the ACN trust that owns and finances ACN construction
and incurred costs to shut down all construction previously conducted under the
trust and receive certain consideration from the vendor. SBC also curtailed
several other video-related activities, including its broadband network video
trials in Richardson, Texas. SBC has also substantially scaled back its
involvement in the Tele-TV joint venture.
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 1997,
these systems passed 432,000 homes and served 278,000 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 became the
general partner and retained 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 October 1997, SBC entered a
definitive agreement to sell Media Ventures' interest in the Partnership to
Prime and other investors. These transactions are expected to close during 1998.
On the same date, SBC entered into definitive agreements to sell its interests
in Prime Cable of Chicago, Inc. to Prime and other investors. A PAC subsidiary
had acquired these interests prior to the merger with SBC.
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, SNET
became a minority partner in this venture. In mid-1997, SBC Interactive Media,
Inc. (SBC Interactive), a wholly-owned subsidiary of SBC, notified the venture
of its withdrawal. On October 7, 1997 the remaining partners in the venture
attempted to initiate arbitration against SBC Interactive regarding the validity
of its withdrawal. On October 15, 1997, SBC Interactive filed a declaratory
judgement action in and sought a preliminary injunction from Delaware Chancery
Court to halt the arbitration attempt. On December 24, 1997, the Chancery Court
directed that the arbitration proceed, and on January 22, 1998, SBC appealed
that ruling. This matter is still being litigated.
In connection with the post-merger initiatives, SBC reviewed the carrying values
of certain wireless video assets and other related long-lived assets. This
review included estimating remaining useful lives and cash flows and identifying
certain assets to be abandoned. Where this review indicated impairment,
discounted cash flows related to those assets were analyzed to determine the
amount of the impairment. In 1997, SBC recognized impairments and took writeoffs
of equipment related to the wireless digital TV operations in southern
California.
GOVERNMENT REGULATION
In the in-region states, the Telephone Companies are 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
Companies are also subject to the jurisdiction of the FCC with respect to
interstate and international rates and services, including interstate access
charges. Access charges are designed to compensate the Telephone Companies for
the use of their 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
Companies is contained in the 1997 SBC Annual Report to Shareowners under the
heading "Regulatory Environment" on page 23, 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 licenses for multiple wireless carriers in each
geographic market. The cellular licenses, of which there are only two in each
geographic region have a standard duration of ten years, and upon application
and a showing of compliance with FCC use and conduct standards may be renewed.
Renewal applications were filed in the following markets during 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. Renewals for
these licenses were granted in January 1998. Renewal applications will be filed
in the following markets during 1998: Bloomington-Normal, Illinois; Glen Falls,
New York; Laredo, Texas; Little Rock-North Little Rock, Arkansas; and Pine
Bluff, 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. SBC's
licenses for Los Angeles-San Diego, California, San Francisco-San Jose,
California and Tulsa, Oklahoma expire in 2005. These licenses, upon application
and a showing of compliance with FCC use and conduct standards, may be renewed.
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. A number of SBC subsidiaries hold FCC channel licenses for wireless
video services. These subsidiaries also have numerous leases with Instructional
Television Fixed Service (ITFS) channel licensees to use their excess channel
capacity. The channels under these licenses and leases are primarily in southern
California.
MAJOR CUSTOMER
No customer accounted for more than 10% of SBC's consolidated revenues in 1997,
1996 or 1995.
COMPETITION
Communication Services
Information relating to competition in the communications industry is contained
in SBC's Annual Report to Shareowners for 1997 under the heading "Competitive
Environment" beginning on page 25, 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 1997 under the heading "International" on page 28, and
is incorporated herein by reference pursuant to General Instruction G(2).
Directory Advertising and Publishing
Both SWBYP and PBD face competition from over 100 publishers of printed
directories in their operating areas. Direct and indirect competition also exist
from other advertising media, including newspapers, radio, television, and
direct mail providers, as well as from directories offered over the Internet.
Customer Premises Equipment and Other Equipment Sales
SBC faces significant competition from numerous companies in marketing its
telecommunications equipment.
RESEARCH AND DEVELOPMENT
Certain company-sponsored basic and applied research was conducted at Bell
Communications Research, Inc. (Bellcore). The Telephone Companies owned a
two-seventh interest in Bellcore, with the remainder owned by the other four
remaining RHCs. In November 1997, the sale of Bellcore was completed. The RHCs
have retained the activities of Bellcore that coordinate the Federal
Government's telecommunications requirements for national security and emergency
preparedness.
Applied research is also conducted at SBC Technology Resources, Inc. (TRI), a
subsidiary of SBC. TRI provides research, technology planning and evaluation
services to SBC and its subsidiaries.
EMPLOYEES
As of December 31, 1997, SBC and its subsidiaries employed 118,340 persons.
Approximately 67% of the employees are represented by the Communications Workers
of America (CWA). Contracts covering an estimated 73,000 employees between the
CWA and the Telephone Companies end in August 1998. New contracts are scheduled
to be negotiated in 1998. A three-year contract (which covers an estimated 2,000
employees) was negotiated between the CWA and SWBYP, which became effective in
December 1995. A new contract is scheduled to be negotiated in 1998. In 1995,
PBD negotiated two new three-year contracts with the International Brotherhood
of Electrical Workers (IBEW), covering approximately 1,600 employees in northern
and southern California. PBD also is scheduled to negotiate new contracts with
the IBEW in 1998. The CWA also represents an estimated 2,000 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, 1997, 94% of the property, plant
and equipment of SBC was owned by the Telephone Companies. Network access lines
represented 42% of the Telephone Companies' investment in telephone plant;
central office equipment represented 39%; land and buildings represented 10%;
other miscellaneous property, comprised principally of furniture and office
equipment and vehicles and other work equipment, represented 6%; and information
origination/termination equipment represented 4%.
ITEM 3. LEGAL PROCEEDINGS
Six putative class actions in Texas, Missouri, Oklahoma, and Kansas that
involved the provision by SWBell of maintenance and trouble diagnosis services
relating to telephone inside wire located on customer premises have been
settled. These actions alleged that SWBell's sales practices in connection with
these services violated antitrust, fraud and/or deceptive trade practices
statutes. The trial court has approved the settlement, which is not expected to
materially affect the financial results of SBC.
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. 56 Chairman and Chief Executive Officer 1-90
John H. Atterbury III 49 Senior Vice President - International 6-97
Operations
Royce S. Caldwell 59 President - SBC Operations 7-95
Cassandra C. Carr 53 Senior Vice President - Human Resources 5-94
William E. Dreyer 60 Senior Executive Vice President - 7-93
External Affairs
James D. Ellis 54 Senior Executive Vice President and 3-89
General Counsel
Charles E. Foster 61 Group President - SBC 7-95
James S. Kahan 50 Senior Vice President - Corporate 7-93
Development
Donald E. Kiernan 57 Senior Vice President, Treasurer and 7-93
Chief Financial Officer
Stanley T. Sigman 50 President and Chief Executive Officer 4-97
SBC Wireless Inc.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The number of shareowners of record as of December 31, 1997 and 1996 were
1,059,158 and 800,465. Other information required by this Item is included in
the SBC Annual Report to Shareowners for the fiscal year ended December 31, 1997
under the headings "Quarterly Financial Information" on page 45, "Selected
Financial and Operating Data" on page 18, and "Stock Trading Information" on the
inside of back cover, which are incorporated herein by reference pursuant to
General Instruction G(2).
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1997 under the heading
"Selected Financial and Operating Data" on page 18 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, 1997 on page 19 through page
30, which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative Information about Market Risk
--------------------------------------------------------------------------------
Foreign Exchange Risk Sensitivity Analysis
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
December 31, US Dollar Value Net Underlying Net Exposed Foreign Exchange
1997 of Net Foreign Foreign Long/Short Loss from a 10%
(millions of $) Exchange Currency Currency Depreciation of
Contracts Transaction Position the US dollar
Exposures
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Swiss Franc $ 14 $ 14 $ 0 $0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Japanese Yen 142 142 0 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Exposure $ 156 $156 $0 $0
--------------------------------------------------------------------------------
The preceding table describes the effects of a change in the value of the Swiss
franc and Japanese yen. Since the identified exposure is fully covered with
forward contracts, changes in the value of the US dollar which affect the value
of the underlying foreign currency commitment are fully offset by changes in the
value of the foreign currency contract. Were the underlying currency transaction
exposure to change, the resulting mismatch would expose the company to currency
risk of the foreign exchange contract. For this reason, all contracts are
related to firm commitments and matched by maturity and currency.
--------------------------------------------------------------------------------
Equity Price Risk Sensitivity Analysis
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
December 31, 1997 Net Value of Net Loss from a 40%
(millions of $) Appreciated Underlying Exposed Increase in the
Value of Employee Long/Short price of AirTouch
Equity Swap Stock Option Equity Common
Contract Exposures Position
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AirTouch $12 $14 $2 $(.8)
Communications
Inc. (AirTouch)
Common
--------------------------------------------------------------------------------
The table above describes the effects of an appreciation in the price of
AirTouch common used in settlement of employee stock options. At December 31,
1997 the notional value of an equity swap contract entered in 1994 had
appreciated by $12 million, while the value of the underlying options for
AirTouch common had increased to $14 million, a difference of $2 million. If the
obligations under the options granted were left exposed to a 40 percent rise in
the value of the stock, the result would have been an $800,000 loss. Since 1995
the average yearly rate of change in the price of AirTouch common stock has
ranged from 25%-40%. The equity swap contract expires April 1999.
The above table describes the results of entering an interest rate swap for the
purpose of providing variable rate payment streams to pay a floating rate note,
in exchange for fixed rate payments. As a result of interest rate fluctuations
if SBC were to terminate the contract it would be required to pay $1.5 million
to replace the fixed rate flow. SBC does not intend to terminate the contract as
it is linked to a bond issued by SBC.
Qualitative Information about Market Risk
Foreign Exchange Risk
SBC has operations in ten countries. From time to time SBC is required to make
investments, receive dividends, or borrow funds in foreign currency. To maintain
the dollar cost of the investment or limit the dollar cost of the funding, SBC
will enter into forward foreign exchange contracts. The contracts are used to
provide currency at a fixed rate. SBC's policy is to measure the risk of adverse
currency fluctuations by calculating the potential dollar losses resulting from
changes in exchange rates that have a reasonable probability of occurring.
Changes that exceed acceptable loss limits require that SBC cover the exposure.
SBC does not speculate in foreign exchange markets, and does not hedge all
foreign exchange exposures due to uncertainty in foreign exchange cash flows.
Equity Risk
PAC entered into an equity swap contract to hedge exposure to risk of market
changes related to its recorded liability for outstanding employee stock options
for common stock of AirTouch (spun-off operations). PAC plans to make open
market purchases of the stock of spun-off operations to satisfy its obligation
for options that are exercised. Off-balance-sheet risk exists to the extent the
market price of AirTouch rises in value. The equity swap was entered into to
hedge this exposure and minimize the impact of market fluctuations. The contract
entitles PAC to receive settlement payments to the extent the price of the
common stock of spun-off operations rises above the notional value of $23.74 per
share, but imposes an obligation to make payments to the extent the price
declines below this level. The swap also obligates PAC to make a monthly payment
of a fee based on LIBOR. The additional cost of AirTouch shares is offset by the
gain in the value of the shares obtained by proportionate sales of the swap. SBC
does not seek to profit from changes in the value of the swap. For this reason
the swap transactions are matched to exercise activity as closely as possible.
Interest Rate Risk
SBC issues debt in fixed and floating rate instruments. Interest rate swaps are
used for the purpose of controlling interest expense by fixing the interest rate
of floating rate debt. When market conditions favor issuing debt in floating
rate instruments, and SBC prefers not to take the risk of floating rates, SBC
will enter interest rate swap contracts to obtain floating rate payments to
service the debt in exchange for paying a fixed rate. SBC does not seek to make
a profit from changes in interest rates. In order to maintain flexibility in
funding amounts, it is necessary to accept exposure to volatile interest rates.
SBC manages interest rate sensitivity by measuring potential increases in
interest expense that would result from a probable change in interest rates.
When the potential increase in interest expense exceeds an acceptable limit, SBC
reduces risk through fixed rate instruments and derivatives.
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, 1997 on page 31 through page
45, 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 THE REGISTRANT
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, 1998, 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, 1998, under the headings "Compensation of
Directors" from page 11 through page 12, and "Compensation Committee Interlocks
and Insider Participation", "Executive Compensation", "Pension Plans", and
"Contracts with Management" from page 20 through page 31, 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, 1998, under the heading "Common Stock Ownership
of Directors and Officers" on page 13, which is incorporated herein by reference
pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1998, under the heading "Compensation of
Directors" from page 11 through page 12 and "Contracts with Management" from
page 30 through 31, which are incorporated herein by reference pursuant to
General Instruction G(3).
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, 1997. (See Part II.)
Page
---
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts.................. 26
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.)
2-b Agreement and Plan of Merger, among Southern New England
Telecommunications Corporation, SBC Communications Inc., and SBC
(CT), dated as of January 4, 1998. (Exhibit 2 to Form 8-K, dated
January 4, 1998.)
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 Certificate of Designation, filed with the Secretary of State of
Delaware on March 31, 1997.
3-c Bylaws dated January 30, 1998. (Exhibit to SBC Communications Inc.
(SBC) Form 8-K dated February 5, 1998.)
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 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.)
4-g Resolutions guaranteeing certain obligations of Pacific Telesis
Group.
10-a Short Term Incentive Plan.
10-b Senior Management Long Term Incentive Plan. (Exhibit 10-b to
Form 10-K for 1992.)
10-c Supplemental Life Insurance Plan.
10-d Supplemental Retirement Income Plan.
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 Salary and Incentive Award Deferral Plan.
10-i Financial Counseling Program.
10-j Supplemental Health Plan.
10-k Retirement Plan for Non-Employee Directors.
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Exhibit 10-p to Form
10-K for 1988.)
10-n Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Approved November 21,
1997).
10-o Stock Savings Plan.
10-p 1992 Stock Option Plan.
10-q Officer Retirement Savings Plan.
10-r 1996 Stock and Incentive Plan.
10-s Non-Employee Director Stock and Deferral Plan.
10-t Agreement with Philip J. Quigley dated March 28, 1997 (Exhibit 10pp
(vii) to Form 10-K for 1996 of Pacific Telesis Group (Reg. 1-8609))
10-u Agreement with Philip J. Quigley, dated October 24, 1998.
10-v Pacific Telesis Group Deferred Compensation Plan for Nonemployee
Directors. (Exhibit 10gg to Form 10-K for 1996 of Pacific
Telesis Group (Reg. 1-8609).)
10-v(i) Resolutions amending the Plan, effective November 21, 1997.
10-w Pacific Telesis Group Outside Directors' Deferred Stock Unit Plan.
(Exhibit 10oo to Form 10-K for 1995 of Pacific Telesis Group (Reg.
1-8609).)
10-x Pacific Telesis Group 1996 Directors' Deferred Compensation Plan.
(Exhibit 10qq to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-x(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-y Pacific Telesis Group Executive Supplemental Cash Balance Pension
Plan. (Exhibit 10kk to Form 10-K for 1996 of Pacific Telesis Group
(Reg. 1-8609).)
10-z Pacific Telesis Group Executive Deferral Plan. (Exhibit 10ll to Form
10-K for 1995 of Pacific Telesis Group (Reg. 1-8609).)
10-aa Pacific Telesis Group 1996 Executive Deferred Compensation Plan.
(Exhibit 10nn to Form 10-K for 1996 of Pacific Telesis Group
(Reg. 1-8609).)
10-aa(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-bb Pacific Telesis Group 1994 Stock Incentive Plan. (Attachment A to
Pacific Telesis Group's 1994 Proxy Statement filed March 11, 1994,
and amended March 14 and March 25, 1994.)
10-bb(i) Resolutions amending the Plan, effective January 1, 1995.
(Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, filed March 13, 1995.)
10-cc Pacific Telesis Group Nonemployee Director Stock Option Plan.
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990.)
10-cc(i) Resolutions amending the Plan, effective April 1, 1994.
(Exhibit 10xx(i) to Form 10-K for 1996 of Pacific Telesis
Group (Reg. 1-8609).)
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, 1997. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23-a Consent of Ernst & Young LLP.
23-b Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1997 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 1997 to be filed under Form 10-K/A.
99-c Report of Independent Auditors Coopers & Lybrand L.L.P.
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:
None.
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, 1998.
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*
August A. Busch III*
Royce S. Caldwell* March 11, 1998
Ruben R. Cardenas*
William P. Clark*
Martin K. Eby, Jr.*
Herman E. Gallegos*
Jess T. Hay*
Bobby R. Inman*
Charles F. Knight*
Mary S. Metz*
Haskell M. Monroe, Jr.*
Toni Rembe*
S. Donley Ritchey*
Richard M. Rosenberg*
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.)
2-b Agreement and Plan of Merger, among Southern New England
Telecommunications Corporation, SBC Communications Inc., and SBC
(CT), dated as of January 4, 1998. (Exhibit 2 to Form 8-K, dated
January 4, 1998.)
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 Certificate of Designation, filed with the Secretary of State of
Delaware on March 31, 1997.
3-c Bylaws dated January 30, 1998. (Exhibit to SBC Communications Inc.
(SBC) Form 8-K dated February 5, 1998.)
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 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.)
4-g Resolutions guaranteeing certain obligations of Pacific Telesis
Group.
10-a Short Term Incentive Plan.
10-b Senior Management Long Term Incentive Plan. (Exhibit 10-b to Form
10-K for 1992.)
10-c Supplemental Life Insurance Plan.
10-d Supplemental Retirement Income Plan.
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 Salary and Incentive Award Deferral Plan.
10-i Financial Counseling Program.
10-j Supplemental Health Plan.
10-k Retirement Plan for Non-Employee Directors.
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Exhibit 10-p to Form
10-K for 1988.)
10-n Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Approved November 21,
1997).
10-o Stock Savings Plan.
10-p 1992 Stock Option Plan.
10-q Officer Retirement Savings Plan.
10-r 1996 Stock and Incentive Plan.
10-s Non-Employee Director Stock and Deferral Plan.
10-t Agreement with Philip J. Quigley, dated March 28, 1997 (Exhibit 10pp
(vii) to Form 10-K for 1996 of Pacific Telesis Group (Reg. 1-8609))
10-u Agreement with Philip J. Quigley, dated October 24, 1998.
10-v Pacific Telesis Group Deferred Compensation Plan for Nonemployee
Directors. (Exhibit 10gg to Form 10-K for 1996 of Pacific Telesis
Group (Reg. 1-8609).)
10-v(i) Resolutions amending the Plan, effective November 21, 1997.
10-w Pacific Telesis Group Outside Directors' Deferred Stock Unit Plan.
(Exhibit 10oo to Form 10-K for 1995 of Pacific Telesis Group (Reg.
1-8609).)
10-x Pacific Telesis Group 1996 Directors' Deferred Compensation Plan.
(Exhibit 10qq to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-x(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-y Pacific Telesis Group Executive Supplemental Cash Balance Pension
Plan. (Exhibit 10kk to Form 10-K for 1996 of Pacific Telesis Group
(Reg. 1-8609).)
10-z Pacific Telesis Group Executive Deferral Plan. (Exhibit 10ll to Form
10-K for 1995 of Pacific Telesis Group (Reg. 1-8609).)
10-aa Pacific Telesis Group 1996 Executive Deferred Compensation Plan.
(Exhibit 10nn to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-aa(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-bb Pacific Telesis Group 1994 Stock Incentive Plan. (Attachment A to
Pacific Telesis Group's 1994 Proxy Statement filed March 11, 1994,
and amended March 14 and March 25, 1994.)
10-bb(i) Resolutions amending the Plan, effective January 1, 1995.
(Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, filed March 13, 1995.)
10-cc Pacific Telesis Group Nonemployee Director Stock Option Plan.
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990.)
10-cc(i) Resolutions amending the Plan, effective April 1, 1994.
(Exhibit 10xx(i) to Form 10-K for 1996 of Pacific Telesis
Group (Reg. 1-8609).)
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, 1997. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23-a Consent of Ernst & Young LLP.
23-b Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1997 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 1997 to be filed under Form 10-K/A.
99-c Report of Independent Auditors Coopers & Lybrand L.L.P.