FORM 10-Q
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
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
Telephone Number: (210) 821-4105
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
At April 30, 1998, 1,838,844,294 common shares were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SBC COMMUNICATIONS INC.
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CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
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Three months ended
March 31,
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1998 1997
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Operating Revenues
Local service:
Landline $ 2,480 $ 2,279
Wireless 776 692
Network access:
Interstate 1,094 1,038
Intrastate 454 456
Long-distance service 535 541
Directory advertising 493 470
Other 592 497
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Total operating revenues 6,424 5,973
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Operating Expenses
Cost of services and products 2,306 2,173
Selling, general and administrative 1,353 1,146
Depreciation and amortization 1,106 1,068
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Total operating expenses 4,765 4,387
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Operating Income 1,659 1,586
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Other Income (Expense)
Interest expense (233) (208)
Equity in net income of affiliates 53 27
Other income (expense) - net (38) (20)
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Total other income (expense) (218) (201)
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Income Before Income Taxes 1,441 1,385
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Income Taxes 529 528
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Net Income $ 912 $ 857
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Earnings Per Common Share $ 0.50 $ 0.47
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Earnings Per Common Share-Assuming Dilution $ 0.49 $ 0.47
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Weighted Average Number of Common
Shares Outstanding (in millions) 1,839 1,825
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Dividends Declared Per Common Share $ 0.23375 $ 0.22375
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See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
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CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
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March 31, December 31,
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1998 1997
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Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 674 $ 398
Short-term cash investments 176 320
Accounts receivable - net of allowances for
uncollectibles of $417 and $395 4,730 5,015
Prepaid expenses 509 349
Deferred income taxes 551 622
Deferred charges 77 82
Other current assets 252 276
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Total current assets 6,969 7,062
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Property, Plant and Equipment - at cost 66,228 65,286
Less: Accumulated depreciation and amortization 38,848 37,947
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Property, Plant and Equipment - Net 27,380 27,339
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Intangible Assets - Net of Accumulated
Amortization of $1,037 and $1,002 3,238 3,269
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Investments in Equity Affiliates 2,581 2,740
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Other Assets 1,946 1,722
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Total Assets $ 42,114 $ 42,132
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Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 2,661 $ 1,953
Accounts payable and accrued liabilities 6,741 7,888
Dividends payable 430 411
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Total current liabilities 9,832 10,252
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Long-Term Debt 11,758 12,019
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Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 1,922 1,639
Postemployment benefit obligation 4,820 4,929
Unamortized investment tax credits 399 417
Other noncurrent liabilities 1,954 1,984
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Total deferred credits and other noncurrent
liabilities 9,095 8,969
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Corporation-obligated mandatorily redeemable
preferred securities of subsidiary trusts* 1,000 1,000
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Shareowners' Equity
Common shares issued ($1 par value) 1,867 934
Capital in excess of par value 8,489 9,418
Retained earnings 1,629 1,146
Guaranteed obligations of employee stock (147) (183)
ownership plans
Deferred compensation - LESOP (119) (119)
Foreign currency translation adjustment (582) (574)
Treasury shares (at cost) (708) (730)
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Total shareowners' equity 10,429 9,892
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Total Liabilities and Shareowners' Equity $ 42,114 $ 42,132
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* The trusts contain $1,030 in principal amount of the Subordinated Debentures
of Pacific Telesis Group.
See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
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Three months ended
March 31,
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1998 1997
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Operating Activities
Net income $ 912 $ 857
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,106 1,068
Undistributed earnings from investments in
equity affiliates (8) (17)
Provision for uncollectible accounts 119 111
Amortization of investment tax credits (18) (19)
Deferred income tax expense 142 134
Other - net (1,167) (1,387)
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Total adjustments 174 (110)
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Net Cash Provided by Operating Activities 1,086 747
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Investing Activities
Construction and capital expenditures (1,066) (1,263)
Investments in affiliates - (10)
Purchase of short-term investments (40) (198)
Proceeds from short-term investments 184 323
Dispositions 94 329
Acquisitions - (25)
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Net Cash Used in Investing Activities (828) (844)
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Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 824 712
Issuance of other short-term borrowings 3 120
Repayment of other short-term borrowings (5) (75)
Issuance of long-term debt 392 397
Repayment of long-term debt (783) (59)
Purchase of treasury shares (71) (80)
Issuance of treasury shares 69 15
Dividends paid (411) (393)
Other - (8)
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Net Cash Provided by Financing Activities 18 629
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Net increase in cash and cash equivalents 276 532
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Cash and cash equivalents beginning of year 398 314
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Cash and Cash Equivalents End of Period $ 674 $ 846
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Cash paid during the three months ended March 31 for:
Interest $ 316 $ 278
Income taxes $ 519 $ 350
See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
1. BASIS OF PRESENTATION The consolidated financial statements have been
prepared by SBC Communications Inc. (SBC) pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and, in the
opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results for the interim
periods shown. Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to
such SEC rules and regulations. Certain reclassifications have been made to
the 1997 consolidated financial statements to conform with the 1998
presentation. The results for the interim periods are not necessarily
indicative of results for the full year. The consolidated financial
statements contained herein should be read in conjunction with the
consolidated financial statements and notes thereto included in SBC's 1997
Annual Report to Shareowners.
2. CONSOLIDATION The consolidated financial statements include the accounts of
SBC and its majority-owned subsidiaries. SBC's largest subsidiaries are
Southwestern Bell Telephone Company (SWBell), providing telecommunications
services in Texas, Missouri, Oklahoma, Kansas and Arkansas, and Pacific
Telesis Group (PAC), providing telecommunications services in California and
Nevada. PAC's subsidiaries include Pacific Bell (PacBell, which also includes
its subsidiaries) and Nevada Bell. (SWBell, PacBell and Nevada Bell are
collectively referred to as the Telephone Companies.) All significant
intercompany transactions are eliminated in the consolidation process.
Investments in partnerships, joint ventures and less than majority-owned
subsidiaries are principally accounted for under the equity method. Earnings
from foreign investments accounted for under the equity method are included
for periods ended within three months of the date of SBC's Consolidated
Statements of Income.
3. COMPREHENSIVE INCOME Effective with the first quarter of 1998, SBC is
reporting comprehensive income for the three months ended March 31, 1998 and
1997. The components of SBC's comprehensive income for each period presented
include net income and the adjustment to shareowners' equity for currency
translation adjustments.
Following is SBC's comprehensive income:
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Three Months Ended March 31, 1998 1997
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Net income $ 912 $ 857
Foreign currency translation
adjustment (8) 99
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Total comprehensive income $ 904 $ 956
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4. MERGER AGREEMENT WITH AMERITECH CORPORATION As disclosed in the Form 8-K
filed on May 11, 1998, SBC announced a definitive agreement to merge an SBC
subsidiary with Ameritech Corporation (Ameritech) in a transaction in which each
share of Ameritech common stock will be converted into and exchanged for 1.316
shares of SBC common stock. After the merger, Ameritech will be a wholly-owned
subsidiary of SBC. The transaction, which has been approved by the board of
directors of each company, is intended to be accounted for as a pooling of
interests and to be a tax-free reorganization. The merger agreement is subject
to certain regulatory approvals as well as approval by the stockholders of each
company.
SBC COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Dollars in millions except per share amounts
5. MERGER AGREEMENT WITH SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
(SNET) On January 5, 1998, SBC and 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 converted into and exchanged for 1.7568 shares of SBC
common stock (equivalent to approximately 120 million shares, or 6.5% of SBC's
outstanding shares at December 31, 1997). After the merger, SNET will be a
wholly-owned subsidiary of SBC. The transaction is intended to be accounted for
as a pooling of interests and to be a tax-free reorganization. The shareowners
of SNET approved the merger on March 27, 1998; however, the merger is also
subject to certain regulatory approvals. If approvals are granted, the
transaction is expected to close by the end of 1998.
6. PACIFIC TELESIS GROUP FINANCIAL INFORMATION
The following tables present summarized financial information for PAC:
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March 31, December 31,
1998 1997
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Balance Sheets
Current assets $ 2,935 $ 2,835
Noncurrent assets 14,807 14,041
Current liabilities 4,243 4,513
Noncurrent liabilities 11,034 10,305
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Three Months Ended March 31, 1998 1997
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Income Statements
Operating revenues $ 2,793 $ 2,535
Operating income 610 701
Income before cumulative effect of
accounting changes 290 361
Net income 290 683
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SBC has not provided separate financial statements and other disclosures for
PAC as management has determined that such information is not material to the
holders of the Trust Originated Preferred Securities.
7. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic earnings per
share and diluted earnings per share for net income for the three months
ended March 31, 1998 and 1997 are shown in the table below.
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Three Months Ended March 31, 1998 1997
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Numerators
Numerator for basic earnings per share:
Net Income $ 912 $ 857
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Dilutive potential common shares:
Other stock-based compensation 1 -
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Numerator for diluted earnings
per share $ 913 $ 857
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Denominators
Denominator for basic earnings per share:
Weighted average number of common
shares outstanding (000) 1,838,595 1,824,881
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Dilutive potential common shares (000):
Stock options 19,719 9,313
Other stock-based compensation 5,235 3,882
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Denominator for diluted earnings
per share 1,863,549 1,838,076
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Basic earnings per share $ 0.50 $0.47
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Diluted earnings per share $ 0.49 $ 0.47
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8. SOFTWARE COSTS SBC currently expenses costs as incurred for software
purchased or developed for internal use, except for initial operating
software costs, which are capitalized and amortized over the lives of the
associated hardware. The American Institute of Certified Public Accountants
has issued a Statement of Position (SOP) that will require capitalization of
certain computer software expenditures beginning in 1999, with earlier
adoption permitted.
SBC did not elect to early adopt the provisions of the SOP. Management is
currently evaluating the impact of the change in accounting required by the
SOP, but is not able to quantify the effect at this time. The SOP would tend
to cause an increase in net income in the first year of adoption.
SBC COMMUNICATIONS INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Dollars in millions except per share amounts
RESULTS OF OPERATIONS
Overview Financial results for SBC Communications Inc. (SBC) for the first three
months of 1998 and 1997 are summarized as follows:
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Three-Month Period
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Percent
1998 1997 Change
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Operating revenues $ 6,424 $ 5,973 7.6%
Operating expenses $ 4,765 $ 4,387 8.6%
Net income $ 912 $ 857 6.4%
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SBC reported net income for the first quarter of 1998 of $912, or $.49 per share
assuming dilution, compared to $857, or $.47 per share assuming dilution, in the
first quarter of 1997. SBC's net income for the first quarter of 1997 includes a
$90 after-tax settlement gain at Pacific Telesis Group (PAC) associated with
lump-sum pension payments that exceeded the projected service and interest costs
for 1996 retirements. Excluding the settlement gain, SBC's net income increased
by $145, or 18.9% for the first quarter of 1998.
Excluding the settlement gain, the primary factors contributing to this increase
were growth in demand for services and products at Southwestern Bell Telephone
Company (SWBell), Pacific Bell (PacBell, which also includes its subsidiaries)
and Nevada Bell (collectively referred to as the Telephone Companies), increased
equity in net income of international investments and growth in demand at
Pacific Bell Directory (PB Directory). These increases were partially offset by
higher levels of expenses associated with Personal Communications Services (PCS)
operations in California and Nevada, merger related costs and increases in
employee compensation, including those resulting from higher force levels.
Revenues Components of operating revenues for the first quarters of 1998 and
1997 are as follows:
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Three-Month Period
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Percent
1998 1997 Change
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Local service:
Landline $ 2,480 $ 2,279 8.8%
Wireless 776 692 12.1
Network access:
Interstate 1,094 1,038 5.4
Intrastate 454 456 (0.4)
Long-distance service 535 541 (1.1)
Directory advertising 493 470 4.9
Other 592 497 19.1
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Total $ 6,424 $ 5,973 7.6%
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Local Service Landline local service revenues increased in the first
quarter of 1998 due primarily to increases in demand, including increases
in access lines and vertical services revenues. The number of access lines
increased by 5.1% since March 31, 1997, of which 49% was due to growth in
California and 35% was due to growth in Texas. Approximately 34% of
SBC COMMUNICATIONS INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Dollars in millions except per share amounts
RESULTS OF OPERATIONS - Continued
SBC's access line growth was due to sales of additional access lines to
existing residential customers. Vertical services revenues for the first
quarter, which include custom calling services, call control options,
Caller ID and other services, increased by more than 16%. Additionally,
Federal payphone deregulation implemented in April 1997 increased local
service and decreased long-distance service, interstate network access and
other operating revenues; the overall impact was a slight increase in
total operating revenues.
Wireless local service revenues increased in the first quarter of 1998 due
primarily to growth in the number of customers of 19.6%, partially offset
by declines in average revenue per customer. Wireless local service
revenues increases included the expansion of PCS operations in California,
Nevada and Oklahoma. At March 31, 1998, SBC had 5,090,000 traditional
cellular customers, 69,000 resale customers and 446,000 PCS customers.
Network Access Interstate network access revenues increased in the first
quarter of 1998 due to increases in demand for access services by
interexchange carriers and growth in revenues from end-user charges
attributable to an increasing access line base. Also contributing to the
increase was the absence of the 1997 revenue offset required for net
payments for long-term support which were designed to subsidize universal
service. This change is discussed further in Cost of Services and Products
below. Partially offsetting these increases were the effects of 1997 rate
reductions related to the Federal productivity factor adjustment, as
discussed in the 1997 Annual Report to Shareowners, and payphone
deregulation referred to above in Local Service.
Intrastate network access revenues decreased slightly in the first quarter
of 1998 due to state regulatory rate orders and the implementation of the
February 1997 California high cost fund. These decreases were partially
offset by intrastate carrier usage.
Long-Distance Service revenues decreased in the first quarter of 1998 due
to the effect of price competition from alternative intraLATA toll
carriers, Federal payphone deregulation referred to in Local Service,
regulatory rate orders and the introduction and deployment of extended
area local service plans at SWBell. These decreases were somewhat offset
by growth in wireless revenues and increased demand resulting from
California's growing economy.
Directory Advertising revenues increased in the first quarter of 1998 due
mainly to increased demand at PB Directory.
Other operating revenues increased in the first quarter of 1998 due to
increased wireless and Caller ID equipment sales and revenues from other
business initiatives, primarily voice messaging services and Internet
services. Increased demand for PacBell and SWBell nonregulated services
and products also contributed to the increase. These increases were
slightly offset by payphone deregulation referred to in Local Service.
Expenses Components of operating expenses for the first quarters of 1998 and
1997 are as follows:
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Three-Month Period
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Percent
1998 1997 Change
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Cost of services and products $ 2,306 $ 2,173 6.1%
Selling, general and administrative 1,353 1,146 18.1
Depreciation and amortization 1,106 1,068 3.6
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Total $ 4,765 $ 4,387 8.6%
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Cost of services and products for the first quarter of 1998 increased
$133, or 6.1% over the first quarter of 1997. The most significant factor
for the increase was higher levels of expenses associated with PCS
operations in California and Nevada. Another major factor contributing to
the increase resulted from the January 1, 1998 implementation of the
Federal Universal Service Fund which replaced the 1997 net payments for
long-term support which were accounted for as an offset against Interstate
Network Access Revenues. Also increasing expenses were the continuing
costs of local number portability implementation of $27, increased
employee compensation, including force additions, network expansion and
maintenance, and interconnection costs at the Telephone Companies. These
increases were partially offset by net reductions in costs related to
benefits, contract labor, and right-to-use fees.
Selling, general and administrative expense for the first quarter of 1997
reflects a $152 PAC settlement gain associated with lump-sum pension
payments that exceeded the projected service and interest costs for 1996
retirements. Excluding the settlement gain, selling, general and
administrative costs would have increased $55, or 4.2%. This increase was
due to costs associated with higher PCS related expenses, costs of merger
implementation and other costs associated with the consolidation of
operations since the merger. These increases were partially offset by a
decrease in contract labor.
Depreciation and amortization for the first quarter of 1998 increased $38,
or 3.6% over the first quarter of 1997. The increase was due primarily to
the launch of PCS services in California and Nevada that resulted in
higher plant levels and the amortization of PCS licenses. Other items
affecting the increase included overall higher plant levels at the
Telephone Companies and Southwestern Bell Mobile Systems, and slight
increases in effective composite rate of depreciation at SWBell. These
increases were partially offset by reduced depreciation at PacBell related
to analog switching equipment and reductions in the composite depreciation
rate.
Interest expense increased by $25 or 12.0% compared with the first quarter of
1997 primarily as a result of lower capitalization of interest during
construction. SBC capitalized interest on its PCS licenses prior to beginning
operations. SBC now provides service in all major markets covered under its
licenses. Higher average level of debt also contributed to the increase.
Equity in net income of affiliates increased $26 in the first quarter of 1998
due to SBC's May 1997 investment in Telkom SA Limited (Telkom) of South Africa
and writeoffs in the first quarter of 1997 taken by Telefonos de Mexico, S.A. de
C.V. (Telmex). Results also reflect expenses in new international investments
including long-distance in France, Switzerland and Israel, and cellular
communications in Taiwan.
Other income (expense) -net was a net expense of $38 for the first quarter of
1998, $18 higher than the first quarter of 1997. During the first quarter of
1998, various offsetting transactions impacted other income and expense. SBC
recognized other expense related to a write-down of an international investment
and a video investment of $133, the market valuation adjustment on the SBC debt
redeemable either in cash or Telmex L shares, and call premiums and unamortized
discount on early redemption of debt by SWBell and PacBell. These were offset by
income related to a special one-time dividend of $158 received from an affiliate
and gains on sales of Telmex L shares. The additional increase in net other
expense primarily resulted from lower interest income and higher minority
interest expenses.
Income taxes for 1997 included taxes on the pension settlement gain discussed in
Selling, General and Administrative expense and on conforming accounting changes
between SBC and PAC. These items reflected a higher composite federal and state
tax rate than for SBC as a whole. Excluding these items, income taxes were
higher in 1998 primarily due to higher income before income tax.
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
COMPETITIVE AND REGULATORY ENVIRONMENT
Long-distance Applications - SBC continues to seek entry into interLATA
long-distance through the courts and by approval from the Federal Communications
Commission. SBC has section 271 applications pending to provide interLATA
long-distance service in Arkansas, California, Kansas, Oklahoma and Texas, and
applications are expected to be filed soon in Nevada and Missouri.
OTHER BUSINESS MATTERS
Acquisitions and Dispositions - In April 1998, SBC reached an agreement to sell
its interest in MTN, a South African national cellular company, to the remaining
shareholders of MTN. This agreement will fulfill SBC's obligation to divest MTN
as part of the acquisition of Telkom. MTN competes with Telkom in wireless
services. The transaction is expected to close in the third quarter of 1998.
SBC's 40% owned Swiss affiliate, diAx, has been awarded a wireless license by
the Swiss government. The target date for commencement of wireless services by
diAx in Switzerland is the fourth quarter of 1998.
Employees - Tentative labor agreements were reached on April 7, 1998 between the
Telephone Companies and the Communications Workers of America (CWA) to replace
contracts that would expire on August 8, 1998. The new agreements are subject to
ratification by CWA membership and cover approximately 75,000 employees of the
Telephone Companies through April 1, 2001. Among other items, the agreements
specify an 11% increase in wages over the life of the contracts.
SBC COMMUNICATIONS INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Dollars in millions except per share amounts
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS - Continued
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1998, as in 1997, SBC's primary source of funds
continued to be cash provided by operating activities. Additionally, SBC had
$674 in cash and cash equivalents available at March 31, 1998. SBC has entered
into agreements with several banks for lines of credit totaling $2,475, all of
which may be used to support commercial paper borrowings. SBC had no borrowings
outstanding under these lines of credit as of March 31, 1998. Commercial paper
borrowings as of March 31, 1998 totaled $2,091.
In February 1998, SBC called $630 of long-term debt for retirement, including
$175 at PacBell and $425 at SWBell, and issued $200 in notes due February 2008
at PacBell and $200 in debentures due March 2048 at SWBell.
SBC COMMUNICATIONS INC.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the first quarter of 1998, the Company sold shares of common stock to
non-employee directors pursuant to the Company's Non-Employee Director Stock and
Deferral Plan. Under the plan, a director may make an annual election to receive
all or part of his annual retainer or fees in the form of SBC shares or deferred
stock units ("DSUs") that are convertible into SBC shares. During this period,
an aggregate of 4,936 SBC shares and DSUs were purchased by non-employee
directors at prices ranging from $36.625 to $43.25, in each case the fair market
value of the shares on the date of purchase. The issuances of shares and DSUs
were exempt from registration pursuant to Section 4(2) of the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Shareowners
(a) The annual meeting of the shareowners of SBC Communications Inc. (SBC)
was held on April 24, 1998, in San Antonio, Texas. Shareowners
representing 747,966,783 shares of common stock as of the February 23,
1998 record date (prior to the two-for- one stock split) were present in
person or were represented at the meeting by proxy.
(b) At the meeting, holders of common shares voted as indicated below to
elect the following persons to the Board of Directors for a three-year
term:
SHARES SHARES
DIRECTOR FOR WITHHELD*
-------- --- ---------
August A. Busch III 729,525,991 18,440,792
Royce S. Caldwell 730,249,885 17,716,898
Herman E. Gallegos 729,442,349 18,524,434
Jess T. Hay 729,301,229 18,665,554
Bobby R. Inman 728,505,779 19,461,004
S. Donley Ritchey 730,026,713 17,940,070
*Includes shares represented at the meeting by proxy where the
shareowner withheld authority to vote for the indicated director or
directors, as well as shares present at the meeting which were not voted
for such director or directors.
(c) Shareowners ratified the appointment of Ernst & Young LLP as independent
auditors of SBC for the year ended December 31, 1998. The vote was
739,859,021 FOR and 4,087,602 AGAINST, with 4,020,160 shares ABSTAINING.
(d) Shareowners approved the amendment of the restated certificate of
incorporation to increase the number of authorized common shares to
7,000,000,000. The vote was 566,236,874 FOR and 169,530,360 AGAINST, with
6,450,272 shares ABSTAINING.
(e) Shareowners voted not to adopt a shareowner proposal to require shareowner
approval of certain political contributions. The vote was 59,146,696 FOR
and 566,984,273 AGAINST, with 33,917,758 shares ABSTAINING.
(f) Shareowners voted not to adopt a shareowner proposal to limit certain
existing pension benefits for outside directors. The vote was 200,196,053
FOR and 439,860,974 AGAINST, with 19,991,700 shares ABSTAINING.
SBC COMMUNICATIONS INC.
PART II - OTHER INFORMATION - CONTINUED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3-a Restated Certificate of Incorporation, filed with the
Secretary of State of Delaware on April 28, 1998.
Exhibit 12 Computation of Ratios of Earnings to Fixed Charges.
Exhibit 27a Financial Data Schedule - March 31, 1996
Exhibit 27b Financial Data Schedule - June 30, 1996
Exhibit 27c Financial Data Schedule - September 30, 1996
Exhibit 27d Financial Data Schedule - December 31, 1996
Exhibit 27e Financial Data Schedule - March 31, 1997
Exhibit 27f Financial Data Schedule - June 30, 1997
Exhibit 27g Financial Data Schedule - September 30, 1997
Exhibit 27h Financial Data Schedule - March 31, 1998
(b) Reports on Form 8-K
On February 5, 1998, SBC filed a report on Form 8-K filing certain
financial statement information included in a January 28, 1998 press
release and filing exhibit 3-b, its Bylaws dated January 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SBC Communications Inc.
May 11, 1998 /s/ Donald E. Kiernan
-----------------------
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
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
Telephone Number: (210) 821-4105
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
At April 30, 1998, 1,838,844,294 common shares were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SBC COMMUNICATIONS INC.
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CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
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Three months ended
March 31,
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1998 1997
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Operating Revenues
Local service:
Landline $ 2,480 $ 2,279
Wireless 776 692
Network access:
Interstate 1,094 1,038
Intrastate 454 456
Long-distance service 535 541
Directory advertising 493 470
Other 592 497
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Total operating revenues 6,424 5,973
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Operating Expenses
Cost of services and products 2,306 2,173
Selling, general and administrative 1,353 1,146
Depreciation and amortization 1,106 1,068
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Total operating expenses 4,765 4,387
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Operating Income 1,659 1,586
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Other Income (Expense)
Interest expense (233) (208)
Equity in net income of affiliates 53 27
Other income (expense) - net (38) (20)
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Total other income (expense) (218) (201)
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Income Before Income Taxes 1,441 1,385
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Income Taxes 529 528
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Net Income $ 912 $ 857
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Earnings Per Common Share $ 0.50 $ 0.47
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Earnings Per Common Share-Assuming Dilution $ 0.49 $ 0.47
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Weighted Average Number of Common
Shares Outstanding (in millions) 1,839 1,825
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Dividends Declared Per Common Share $ 0.23375 $ 0.22375
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See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
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CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
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March 31, December 31,
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1998 1997
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Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 674 $ 398
Short-term cash investments 176 320
Accounts receivable - net of allowances for
uncollectibles of $417 and $395 4,730 5,015
Prepaid expenses 509 349
Deferred income taxes 551 622
Deferred charges 77 82
Other current assets 252 276
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Total current assets 6,969 7,062
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Property, Plant and Equipment - at cost 66,228 65,286
Less: Accumulated depreciation and amortization 38,848 37,947
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Property, Plant and Equipment - Net 27,380 27,339
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Intangible Assets - Net of Accumulated
Amortization of $1,037 and $1,002 3,238 3,269
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Investments in Equity Affiliates 2,581 2,740
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Other Assets 1,946 1,722
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Total Assets $ 42,114 $ 42,132
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Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 2,661 $ 1,953
Accounts payable and accrued liabilities 6,741 7,888
Dividends payable 430 411
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Total current liabilities 9,832 10,252
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Long-Term Debt 11,758 12,019
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Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 1,922 1,639
Postemployment benefit obligation 4,820 4,929
Unamortized investment tax credits 399 417
Other noncurrent liabilities 1,954 1,984
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Total deferred credits and other noncurrent
liabilities 9,095 8,969
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Corporation-obligated mandatorily redeemable
preferred securities of subsidiary trusts* 1,000 1,000
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Shareowners' Equity
Common shares issued ($1 par value) 1,867 934
Capital in excess of par value 8,489 9,418
Retained earnings 1,629 1,146
Guaranteed obligations of employee stock (147) (183)
ownership plans
Deferred compensation - LESOP (119) (119)
Foreign currency translation adjustment (582) (574)
Treasury shares (at cost) (708) (730)
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Total shareowners' equity 10,429 9,892
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Total Liabilities and Shareowners' Equity $ 42,114 $ 42,132
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* The trusts contain $1,030 in principal amount of the Subordinated Debentures
of Pacific Telesis Group.
See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions, increase (decrease) in cash and cash equivalents
(Unaudited)
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Three months ended
March 31,
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1998 1997
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Operating Activities
Net income $ 912 $ 857
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,106 1,068
Undistributed earnings from investments in
equity affiliates (8) (17)
Provision for uncollectible accounts 119 111
Amortization of investment tax credits (18) (19)
Deferred income tax expense 142 134
Other - net (1,167) (1,387)
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Total adjustments 174 (110)
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Net Cash Provided by Operating Activities 1,086 747
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Investing Activities
Construction and capital expenditures (1,066) (1,263)
Investments in affiliates - (10)
Purchase of short-term investments (40) (198)
Proceeds from short-term investments 184 323
Dispositions 94 329
Acquisitions - (25)
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Net Cash Used in Investing Activities (828) (844)
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Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 824 712
Issuance of other short-term borrowings 3 120
Repayment of other short-term borrowings (5) (75)
Issuance of long-term debt 392 397
Repayment of long-term debt (783) (59)
Purchase of treasury shares (71) (80)
Issuance of treasury shares 69 15
Dividends paid (411) (393)
Other - (8)
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Net Cash Provided by Financing Activities 18 629
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Net increase in cash and cash equivalents 276 532
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Cash and cash equivalents beginning of year 398 314
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Cash and Cash Equivalents End of Period $ 674 $ 846
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Cash paid during the three months ended March 31 for:
Interest $ 316 $ 278
Income taxes $ 519 $ 350
See Notes to Consolidated Financial Statements.
SBC COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
1. BASIS OF PRESENTATION The consolidated financial statements have been
prepared by SBC Communications Inc. (SBC) pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and, in the
opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results for the interim
periods shown. Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to
such SEC rules and regulations. Certain reclassifications have been made to
the 1997 consolidated financial statements to conform with the 1998
presentation. The results for the interim periods are not necessarily
indicative of results for the full year. The consolidated financial
statements contained herein should be read in conjunction with the
consolidated financial statements and notes thereto included in SBC's 1997
Annual Report to Shareowners.
2. CONSOLIDATION The consolidated financial statements include the accounts of
SBC and its majority-owned subsidiaries. SBC's largest subsidiaries are
Southwestern Bell Telephone Company (SWBell), providing telecommunications
services in Texas, Missouri, Oklahoma, Kansas and Arkansas, and Pacific
Telesis Group (PAC), providing telecommunications services in California and
Nevada. PAC's subsidiaries include Pacific Bell (PacBell, which also includes
its subsidiaries) and Nevada Bell. (SWBell, PacBell and Nevada Bell are
collectively referred to as the Telephone Companies.) All significant
intercompany transactions are eliminated in the consolidation process.
Investments in partnerships, joint ventures and less than majority-owned
subsidiaries are principally accounted for under the equity method. Earnings
from foreign investments accounted for under the equity method are included
for periods ended within three months of the date of SBC's Consolidated
Statements of Income.
3. COMPREHENSIVE INCOME Effective with the first quarter of 1998, SBC is
reporting comprehensive income for the three months ended March 31, 1998 and
1997. The components of SBC's comprehensive income for each period presented
include net income and the adjustment to shareowners' equity for currency
translation adjustments.
Following is SBC's comprehensive income:
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Three Months Ended March 31, 1998 1997
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Net income $ 912 $ 857
Foreign currency translation
adjustment (8) 99
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Total comprehensive income $ 904 $ 956
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4. MERGER AGREEMENT WITH AMERITECH CORPORATION As disclosed in the Form 8-K
filed on May 11, 1998, SBC announced a definitive agreement to merge an SBC
subsidiary with Ameritech Corporation (Ameritech) in a transaction in which each
share of Ameritech common stock will be converted into and exchanged for 1.316
shares of SBC common stock. After the merger, Ameritech will be a wholly-owned
subsidiary of SBC. The transaction, which has been approved by the board of
directors of each company, is intended to be accounted for as a pooling of
interests and to be a tax-free reorganization. The merger agreement is subject
to certain regulatory approvals as well as approval by the stockholders of each
company.
SBC COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Dollars in millions except per share amounts
5. MERGER AGREEMENT WITH SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
(SNET) On January 5, 1998, SBC and 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 converted into and exchanged for 1.7568 shares of SBC
common stock (equivalent to approximately 120 million shares, or 6.5% of SBC's
outstanding shares at December 31, 1997). After the merger, SNET will be a
wholly-owned subsidiary of SBC. The transaction is intended to be accounted for
as a pooling of interests and to be a tax-free reorganization. The shareowners
of SNET approved the merger on March 27, 1998; however, the merger is also
subject to certain regulatory approvals. If approvals are granted, the
transaction is expected to close by the end of 1998.
6. PACIFIC TELESIS GROUP FINANCIAL INFORMATION
The following tables present summarized financial information for PAC:
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March 31, December 31,
1998 1997
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Balance Sheets
Current assets $ 2,935 $ 2,835
Noncurrent assets 14,807 14,041
Current liabilities 4,243 4,513
Noncurrent liabilities 11,034 10,305
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Three Months Ended March 31, 1998 1997
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Income Statements
Operating revenues $ 2,793 $ 2,535
Operating income 610 701
Income before cumulative effect of
accounting changes 290 361
Net income 290 683
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SBC has not provided separate financial statements and other disclosures for
PAC as management has determined that such information is not material to the
holders of the Trust Originated Preferred Securities.
7. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic earnings per
share and diluted earnings per share for net income for the three months
ended March 31, 1998 and 1997 are shown in the table below.
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Three Months Ended March 31, 1998 1997
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Numerators
Numerator for basic earnings per share:
Net Income $ 912 $ 857
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Dilutive potential common shares:
Other stock-based compensation 1 -
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Numerator for diluted earnings
per share $ 913 $ 857
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Denominators
Denominator for basic earnings per share:
Weighted average number of common
shares outstanding (000) 1,838,595 1,824,881
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Dilutive potential common shares (000):
Stock options 19,719 9,313
Other stock-based compensation 5,235 3,882
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Denominator for diluted earnings
per share 1,863,549 1,838,076
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Basic earnings per share $ 0.50 $0.47
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Diluted earnings per share $ 0.49 $ 0.47
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8. SOFTWARE COSTS SBC currently expenses costs as incurred for software
purchased or developed for internal use, except for initial operating
software costs, which are capitalized and amortized over the lives of the
associated hardware. The American Institute of Certified Public Accountants
has issued a Statement of Position (SOP) that will require capitalization of
certain computer software expenditures beginning in 1999, with earlier
adoption permitted.
SBC did not elect to early adopt the provisions of the SOP. Management is
currently evaluating the impact of the change in accounting required by the
SOP, but is not able to quantify the effect at this time. The SOP would tend
to cause an increase in net income in the first year of adoption.
SBC COMMUNICATIONS INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Dollars in millions except per share amounts
RESULTS OF OPERATIONS
Overview Financial results for SBC Communications Inc. (SBC) for the first three
months of 1998 and 1997 are summarized as follows:
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Three-Month Period
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Percent
1998 1997 Change
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Operating revenues $ 6,424 $ 5,973 7.6%
Operating expenses $ 4,765 $ 4,387 8.6%
Net income $ 912 $ 857 6.4%
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SBC reported net income for the first quarter of 1998 of $912, or $.49 per share
assuming dilution, compared to $857, or $.47 per share assuming dilution, in the
first quarter of 1997. SBC's net income for the first quarter of 1997 includes a
$90 after-tax settlement gain at Pacific Telesis Group (PAC) associated with
lump-sum pension payments that exceeded the projected service and interest costs
for 1996 retirements. Excluding the settlement gain, SBC's net income increased
by $145, or 18.9% for the first quarter of 1998.
Excluding the settlement gain, the primary factors contributing to this increase
were growth in demand for services and products at Southwestern Bell Telephone
Company (SWBell), Pacific Bell (PacBell, which also includes its subsidiaries)
and Nevada Bell (collectively referred to as the Telephone Companies), increased
equity in net income of international investments and growth in demand at
Pacific Bell Directory (PB Directory). These increases were partially offset by
higher levels of expenses associated with Personal Communications Services (PCS)
operations in California and Nevada, merger related costs and increases in
employee compensation, including those resulting from higher force levels.
Revenues Components of operating revenues for the first quarters of 1998 and
1997 are as follows:
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Three-Month Period
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Percent
1998 1997 Change
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Local service:
Landline $ 2,480 $ 2,279 8.8%
Wireless 776 692 12.1
Network access:
Interstate 1,094 1,038 5.4
Intrastate 454 456 (0.4)
Long-distance service 535 541 (1.1)
Directory advertising 493 470 4.9
Other 592 497 19.1
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Total $ 6,424 $ 5,973 7.6%
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Local Service Landline local service revenues increased in the first
quarter of 1998 due primarily to increases in demand, including increases
in access lines and vertical services revenues. The number of access lines
increased by 5.1% since March 31, 1997, of which 49% was due to growth in
California and 35% was due to growth in Texas. Approximately 34% of
SBC COMMUNICATIONS INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Dollars in millions except per share amounts
RESULTS OF OPERATIONS - Continued
SBC's access line growth was due to sales of additional access lines to
existing residential customers. Vertical services revenues for the first
quarter, which include custom calling services, call control options,
Caller ID and other services, increased by more than 16%. Additionally,
Federal payphone deregulation implemented in April 1997 increased local
service and decreased long-distance service, interstate network access and
other operating revenues; the overall impact was a slight increase in
total operating revenues.
Wireless local service revenues increased in the first quarter of 1998 due
primarily to growth in the number of customers of 19.6%, partially offset
by declines in average revenue per customer. Wireless local service
revenues increases included the expansion of PCS operations in California,
Nevada and Oklahoma. At March 31, 1998, SBC had 5,090,000 traditional
cellular customers, 69,000 resale customers and 446,000 PCS customers.
Network Access Interstate network access revenues increased in the first
quarter of 1998 due to increases in demand for access services by
interexchange carriers and growth in revenues from end-user charges
attributable to an increasing access line base. Also contributing to the
increase was the absence of the 1997 revenue offset required for net
payments for long-term support which were designed to subsidize universal
service. This change is discussed further in Cost of Services and Products
below. Partially offsetting these increases were the effects of 1997 rate
reductions related to the Federal productivity factor adjustment, as
discussed in the 1997 Annual Report to Shareowners, and payphone
deregulation referred to above in Local Service.
Intrastate network access revenues decreased slightly in the first quarter
of 1998 due to state regulatory rate orders and the implementation of the
February 1997 California high cost fund. These decreases were partially
offset by intrastate carrier usage.
Long-Distance Service revenues decreased in the first quarter of 1998 due
to the effect of price competition from alternative intraLATA toll
carriers, Federal payphone deregulation referred to in Local Service,
regulatory rate orders and the introduction and deployment of extended
area local service plans at SWBell. These decreases were somewhat offset
by growth in wireless revenues and increased demand resulting from
California's growing economy.
Directory Advertising revenues increased in the first quarter of 1998 due
mainly to increased demand at PB Directory.
Other operating revenues increased in the first quarter of 1998 due to
increased wireless and Caller ID equipment sales and revenues from other
business initiatives, primarily voice messaging services and Internet
services. Increased demand for PacBell and SWBell nonregulated services
and products also contributed to the increase. These increases were
slightly offset by payphone deregulation referred to in Local Service.
Expenses Components of operating expenses for the first quarters of 1998 and
1997 are as follows:
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Three-Month Period
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Percent
1998 1997 Change
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Cost of services and products $ 2,306 $ 2,173 6.1%
Selling, general and administrative 1,353 1,146 18.1
Depreciation and amortization 1,106 1,068 3.6
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Total $ 4,765 $ 4,387 8.6%
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Cost of services and products for the first quarter of 1998 increased
$133, or 6.1% over the first quarter of 1997. The most significant factor
for the increase was higher levels of expenses associated with PCS
operations in California and Nevada. Another major factor contributing to
the increase resulted from the January 1, 1998 implementation of the
Federal Universal Service Fund which replaced the 1997 net payments for
long-term support which were accounted for as an offset against Interstate
Network Access Revenues. Also increasing expenses were the continuing
costs of local number portability implementation of $27, increased
employee compensation, including force additions, network expansion and
maintenance, and interconnection costs at the Telephone Companies. These
increases were partially offset by net reductions in costs related to
benefits, contract labor, and right-to-use fees.
Selling, general and administrative expense for the first quarter of 1997
reflects a $152 PAC settlement gain associated with lump-sum pension
payments that exceeded the projected service and interest costs for 1996
retirements. Excluding the settlement gain, selling, general and
administrative costs would have increased $55, or 4.2%. This increase was
due to costs associated with higher PCS related expenses, costs of merger
implementation and other costs associated with the consolidation of
operations since the merger. These increases were partially offset by a
decrease in contract labor.
Depreciation and amortization for the first quarter of 1998 increased $38,
or 3.6% over the first quarter of 1997. The increase was due primarily to
the launch of PCS services in California and Nevada that resulted in
higher plant levels and the amortization of PCS licenses. Other items
affecting the increase included overall higher plant levels at the
Telephone Companies and Southwestern Bell Mobile Systems, and slight
increases in effective composite rate of depreciation at SWBell. These
increases were partially offset by reduced depreciation at PacBell related
to analog switching equipment and reductions in the composite depreciation
rate.
Interest expense increased by $25 or 12.0% compared with the first quarter of
1997 primarily as a result of lower capitalization of interest during
construction. SBC capitalized interest on its PCS licenses prior to beginning
operations. SBC now provides service in all major markets covered under its
licenses. Higher average level of debt also contributed to the increase.
Equity in net income of affiliates increased $26 in the first quarter of 1998
due to SBC's May 1997 investment in Telkom SA Limited (Telkom) of South Africa
and writeoffs in the first quarter of 1997 taken by Telefonos de Mexico, S.A. de
C.V. (Telmex). Results also reflect expenses in new international investments
including long-distance in France, Switzerland and Israel, and cellular
communications in Taiwan.
Other income (expense) -net was a net expense of $38 for the first quarter of
1998, $18 higher than the first quarter of 1997. During the first quarter of
1998, various offsetting transactions impacted other income and expense. SBC
recognized other expense related to a write-down of an international investment
and a video investment of $133, the market valuation adjustment on the SBC debt
redeemable either in cash or Telmex L shares, and call premiums and unamortized
discount on early redemption of debt by SWBell and PacBell. These were offset by
income related to a special one-time dividend of $158 received from an affiliate
and gains on sales of Telmex L shares. The additional increase in net other
expense primarily resulted from lower interest income and higher minority
interest expenses.
Income taxes for 1997 included taxes on the pension settlement gain discussed in
Selling, General and Administrative expense and on conforming accounting changes
between SBC and PAC. These items reflected a higher composite federal and state
tax rate than for SBC as a whole. Excluding these items, income taxes were
higher in 1998 primarily due to higher income before income tax.
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
COMPETITIVE AND REGULATORY ENVIRONMENT
Long-distance Applications - SBC continues to seek entry into interLATA
long-distance through the courts and by approval from the Federal Communications
Commission. SBC has section 271 applications pending to provide interLATA
long-distance service in Arkansas, California, Kansas, Oklahoma and Texas, and
applications are expected to be filed soon in Nevada and Missouri.
OTHER BUSINESS MATTERS
Acquisitions and Dispositions - In April 1998, SBC reached an agreement to sell
its interest in MTN, a South African national cellular company, to the remaining
shareholders of MTN. This agreement will fulfill SBC's obligation to divest MTN
as part of the acquisition of Telkom. MTN competes with Telkom in wireless
services. The transaction is expected to close in the third quarter of 1998.
SBC's 40% owned Swiss affiliate, diAx, has been awarded a wireless license by
the Swiss government. The target date for commencement of wireless services by
diAx in Switzerland is the fourth quarter of 1998.
Employees - Tentative labor agreements were reached on April 7, 1998 between the
Telephone Companies and the Communications Workers of America (CWA) to replace
contracts that would expire on August 8, 1998. The new agreements are subject to
ratification by CWA membership and cover approximately 75,000 employees of the
Telephone Companies through April 1, 2001. Among other items, the agreements
specify an 11% increase in wages over the life of the contracts.
SBC COMMUNICATIONS INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Dollars in millions except per share amounts
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS - Continued
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1998, as in 1997, SBC's primary source of funds
continued to be cash provided by operating activities. Additionally, SBC had
$674 in cash and cash equivalents available at March 31, 1998. SBC has entered
into agreements with several banks for lines of credit totaling $2,475, all of
which may be used to support commercial paper borrowings. SBC had no borrowings
outstanding under these lines of credit as of March 31, 1998. Commercial paper
borrowings as of March 31, 1998 totaled $2,091.
In February 1998, SBC called $630 of long-term debt for retirement, including
$175 at PacBell and $425 at SWBell, and issued $200 in notes due February 2008
at PacBell and $200 in debentures due March 2048 at SWBell.
SBC COMMUNICATIONS INC.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the first quarter of 1998, the Company sold shares of common stock to
non-employee directors pursuant to the Company's Non-Employee Director Stock and
Deferral Plan. Under the plan, a director may make an annual election to receive
all or part of his annual retainer or fees in the form of SBC shares or deferred
stock units ("DSUs") that are convertible into SBC shares. During this period,
an aggregate of 4,936 SBC shares and DSUs were purchased by non-employee
directors at prices ranging from $36.625 to $43.25, in each case the fair market
value of the shares on the date of purchase. The issuances of shares and DSUs
were exempt from registration pursuant to Section 4(2) of the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Shareowners
(a) The annual meeting of the shareowners of SBC Communications Inc. (SBC)
was held on April 24, 1998, in San Antonio, Texas. Shareowners
representing 747,966,783 shares of common stock as of the February 23,
1998 record date (prior to the two-for- one stock split) were present in
person or were represented at the meeting by proxy.
(b) At the meeting, holders of common shares voted as indicated below to
elect the following persons to the Board of Directors for a three-year
term:
SHARES SHARES
DIRECTOR FOR WITHHELD*
-------- --- ---------
August A. Busch III 729,525,991 18,440,792
Royce S. Caldwell 730,249,885 17,716,898
Herman E. Gallegos 729,442,349 18,524,434
Jess T. Hay 729,301,229 18,665,554
Bobby R. Inman 728,505,779 19,461,004
S. Donley Ritchey 730,026,713 17,940,070
*Includes shares represented at the meeting by proxy where the
shareowner withheld authority to vote for the indicated director or
directors, as well as shares present at the meeting which were not voted
for such director or directors.
(c) Shareowners ratified the appointment of Ernst & Young LLP as independent
auditors of SBC for the year ended December 31, 1998. The vote was
739,859,021 FOR and 4,087,602 AGAINST, with 4,020,160 shares ABSTAINING.
(d) Shareowners approved the amendment of the restated certificate of
incorporation to increase the number of authorized common shares to
7,000,000,000. The vote was 566,236,874 FOR and 169,530,360 AGAINST, with
6,450,272 shares ABSTAINING.
(e) Shareowners voted not to adopt a shareowner proposal to require shareowner
approval of certain political contributions. The vote was 59,146,696 FOR
and 566,984,273 AGAINST, with 33,917,758 shares ABSTAINING.
(f) Shareowners voted not to adopt a shareowner proposal to limit certain
existing pension benefits for outside directors. The vote was 200,196,053
FOR and 439,860,974 AGAINST, with 19,991,700 shares ABSTAINING.
SBC COMMUNICATIONS INC.
PART II - OTHER INFORMATION - CONTINUED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3-a Restated Certificate of Incorporation, filed with the
Secretary of State of Delaware on April 28, 1998.
Exhibit 12 Computation of Ratios of Earnings to Fixed Charges.
Exhibit 27a Financial Data Schedule - March 31, 1996
Exhibit 27b Financial Data Schedule - June 30, 1996
Exhibit 27c Financial Data Schedule - September 30, 1996
Exhibit 27d Financial Data Schedule - December 31, 1996
Exhibit 27e Financial Data Schedule - March 31, 1997
Exhibit 27f Financial Data Schedule - June 30, 1997
Exhibit 27g Financial Data Schedule - September 30, 1997
Exhibit 27h Financial Data Schedule - March 31, 1998
(b) Reports on Form 8-K
On February 5, 1998, SBC filed a report on Form 8-K filing certain
financial statement information included in a January 28, 1998 press
release and filing exhibit 3-b, its Bylaws dated January 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SBC Communications Inc.
May 11, 1998 /s/ Donald E. Kiernan
-----------------------
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer