UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: March 31, 1998 PACIFIC BELL A California Corporation Commission File No. 1-1414 IRS Employer No. 94-0745535 140 New Montgomery Street, San Francisco, California 94105 Telephone Number (415) 542-9000 Item 5. Other Events On March 31, 1998, Pacific Bell, a wholly owned subsidiary of Pacific Telesis Group (PTG), effected the distribution of Pacific Bell Directory, Pacific Bell Mobile Services, Pacific Bell Internet Services and PB Comm Switches, Inc. to PTG. Both Pacific Bell and PTG are wholly owned subsidiaries of SBC Communications Inc. (SBC). This distribution has been accounted for by Pacific Bell as a change in reporting entity, and will be reported by restating the financial statements of prior periods in order to show financial information for the new reporting entity for all periods. SBC will continue to provide financial support to Pacific Bell to insure that the distribution will not adversely affect Pacific Bell's creditworthiness. Following is certain unaudited financial information for Pacific Bell, as restated (dollars in millions): PACIFIC BELL AND SUBSIDIARIES - ----------------------------------------------------------------------------------------- STATEMENTS OF INCOME Dollars in millions (Unaudited) Three Months Ended YTD - ------------------------------------------------------------------------------------------ 3/31/97 6/30/97 9/30/97 12/31/97 12/31/97 - ------------------------------------------------------------------------------------------ Operating Revenues Local service $ 1,027 $ 1,066 $ 1,108 $ 1,131 $ 4,332 Network access 645 556 650 654 2,505 Long-distance service 305 293 299 279 1,176 Other 162 178 164 209 713 - ----------------------------------------------------------------------------------------- Total operating revenues 2,139 2,093 2,221 2,273 8,726 - ----------------------------------------------------------------------------------------- Operating Expenses Cost of services and products 821 815 822 973 3,431 Selling, general and administrative 285 1,500 473 631 2,889 - ----------------------------------------------------------------------------------------- EBITDA* 1,033 (222) 926 669 2,406 - ----------------------------------------------------------------------------------------- Depreciation and amortization 469 567 441 446 1,923 - ----------------------------------------------------------------------------------------- Total operating expenses 1,575 2,882 1,736 2,050 8,243 - ----------------------------------------------------------------------------------------- Operating Income (Loss) 564 (789) 485 223 483 - ----------------------------------------------------------------------------------------- Interest expense (102) (124) (116) (118) (460) - ----------------------------------------------------------------------------------------- Other income (expense) - net 4 (32) 12 27 11 - ----------------------------------------------------------------------------------------- Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Changes 466 (945) 381 132 34 - ----------------------------------------------------------------------------------------- Income Taxes 185 (340) 150 39 34 - ----------------------------------------------------------------------------------------- Income (Loss) Before Cumulative Effect of Accounting Changes 281 (605) 231 93 - - ----------------------------------------------------------------------------------------- Cumulative Effect of Accounting Changes, net of tax 345 - - - 345 - ----------------------------------------------------------------------------------------- Net Income (Loss) $ 626 $ (605) $ 231 $ 93 $ 345 - ----------------------------------------------------------------------------------------- <FN> *EBITDA=Earnings Before Interest, Taxes, Depreciation and Amortization </FN> PACIFIC BELL AND SUBSIDIARIES - ----------------------------------------------------------------------------------------- STATEMENTS OF INCOME Dollars in millions (Unaudited) Three Months Ended YTD - ----------------------------------------------------------------------------------------- 3/31/96 6/30/96 9/30/96 12/31/96 12/31/96 - ----------------------------------------------------------------------------------------- Operating Revenues Local service $ 967 $ 1,004 $ 1,016 $ 1,003 $ 3,920 Network access 622 631 625 647 2,525 Long-distance service 312 317 324 321 1,274 Other 137 152 158 211 658 - ----------------------------------------------------------------------------------------- Total operating revenues 2,038 2,104 2,123 2,182 8,447 - ----------------------------------------------------------------------------------------- Operating Expenses Cost of services and products 757 711 779 791 3,038 Selling, general and administrative 357 418 408 479 1,662 - ----------------------------------------------------------------------------------------- EBITDA* 924 975 936 912 3,747 - ----------------------------------------------------------------------------------------- Depreciation and amortization 445 449 455 455 1,804 - ----------------------------------------------------------------------------------------- Total operating expenses 1,559 1,578 1,642 1,725 6,504 - ----------------------------------------------------------------------------------------- Operating Income 479 526 481 457 1,943 - ----------------------------------------------------------------------------------------- Interest expense (90) (97) (97) (95) (379) - ----------------------------------------------------------------------------------------- Other income (expense) - net 3 (2) 2 1 4 - ----------------------------------------------------------------------------------------- Income Before Income Taxes 392 427 386 363 1,568 - ----------------------------------------------------------------------------------------- Income Taxes 158 175 156 130 619 - ----------------------------------------------------------------------------------------- Net Income $ 234 $ 252 $ 230 $ 233 $ 949 - ----------------------------------------------------------------------------------------- <FN> *EBITDA=Earnings Before Interest, Taxes, Depreciation and Amortization. </FN> PACIFIC BELL AND SUBSIDIARIES - -------------------------------------------------------------------------------- BALANCE SHEETS Dollars in millions - -------------------------------------------------------------------------------- (Unaudited) December 31, - -------------------------------------------------------------------------------- 1997 1996 Assets Current Assets Cash and cash equivalents $ 43 $ 57 Accounts receivable - net of allowances for Uncollectibles 1,782 1,971 Prepaid expenses 53 34 Deferred income taxes 415 175 Other current assets 44 35 - -------------------------------------------------------------------------------- Total current assets 2,337 2,272 - -------------------------------------------------------------------------------- Property, Plant and Equipment - at cost 28,695 27,605 Less: Accumulated depreciation and amortization 17,442 16,602 - -------------------------------------------------------------------------------- Property, Plant and Equipment - Net 11,253 11,003 - -------------------------------------------------------------------------------- Other Assets 749 504 - -------------------------------------------------------------------------------- Total Assets $ 14,339 $ 13,779 - -------------------------------------------------------------------------------- Liabilities and Shareowner's Equity Current Liabilities Debt maturing within one year $ 546 $ 668 Accrued taxes 334 99 Accounts payable and accrued liabilities 2,719 2,303 - -------------------------------------------------------------------------------- Total current liabilities 3,599 3,070 - -------------------------------------------------------------------------------- Long-Term Debt 5,358 5,103 - -------------------------------------------------------------------------------- Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 957 541 Postemployment benefit obligation 881 644 Unamortized investment tax credits 188 235 Other noncurrent liabilities 569 1,100 - -------------------------------------------------------------------------------- Total deferred credits and other noncurrent liabilities 2,595 2,520 - -------------------------------------------------------------------------------- Shareowner's Equity Common shares 225 225 Capital in excess of par value 4,814 5,458 Retained earnings (deficit) (2,252) (2,597) - -------------------------------------------------------------------------------- Total shareowner's equity 2,787 3,086 - -------------------------------------------------------------------------------- Total Liabilities and Shareowner's Equity $ 14,339 $ 13,779 - -------------------------------------------------------------------------------- PACIFIC BELL AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in millions, increase (decrease) in cash and cash equivalents (Unaudited) - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Operating Activities Net income $ 345 $ 949 Adjustments to reconcile net income to net cash Provided by operating activities: Depreciation and amortization 1,923 1,804 Provision for uncollectible accounts 184 130 Amortization of investment tax credits (48) (47) Deferred income taxes 49 257 Cumulative effect of accounting change, net of tax (345) - Changes in operating assets and liabilities: Accounts receivable 5 (460) Other current assets (28) 21 Accounts payable and accrued liabilities 651 (76) Other - net (242) (401) - -------------------------------------------------------------------------------- Total adjustments 2,149 1,228 - -------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 2,494 2,177 - -------------------------------------------------------------------------------- Investing Activities Construction and capital expenditures (2,045) (1,911) Dispositions 65 - Other (14) (22) - -------------------------------------------------------------------------------- Net Cash Used in Investing Activities (1,994) (1,933) - -------------------------------------------------------------------------------- Financing Activities Net change in short-term borrowings with original Maturities of three months or less (122) (280) Issuance of other short-term borrowings 610 - Repayment of other short-term borrowings (610) - Issuance of long-term debt 252 495 Repayment of long-term debt - (4) Equity received from parent 49 388 Dividends paid (693) (879) Other - 33 - -------------------------------------------------------------------------------- Net Cash Used in Financing Activities (514) (247) - -------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (14) (3) - -------------------------------------------------------------------------------- Cash and cash equivalents beginning of year 57 60 - -------------------------------------------------------------------------------- Cash and Cash Equivalents End of Period $ 43 $ 57 - -------------------------------------------------------------------------------- Item 7. Financial Statements and Exhibits Pacific Bell is filing herewith the following exhibits: (c) Exhibits. Exhibit Number Description 27-a Financial Data Schedule, December 31, 1997 27-b Financial Data Schedule, September 30, 1997 27-c Financial Data Schedule, June 30, 1997 27-d Financial Data Schedule, March 31, 1997 27-e Financial Data Schedule, December 31, 1996 27-f Financial Data Schedule, September 30, 1996 27-g Financial Data Schedule, June 30, 1996 27-h Financial Data Schedule, March 31, 1996 27-i Financial Data Schedule, December 31, 1995 SIGNATURE 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. Pacific Bell By: /s/ Robert B. Pickering Robert B. Pickering Vice President and Chief Financial Officer April 15, 1998