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: November 14, 1996
SBC COMMUNICATIONS INC.
A Delaware Corporation
Commission File No. 1-8610
IRS Employer No. 43-1301883
175 E. Houston, San Antonio, Texas 78205
Telephone Number (210) 821-4105
Item 7. Financial Statements and Exhibits
SBC Communications Inc. (SBC) hereby incorporates by
reference herein Pacific Telesis Group's (PAC) Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996
as filed with the Securities and Exchange Commission (File
No. 1-8609). SBC also presents herein unaudited pro forma
combined condensed financial statements of SBC and PAC to
reflect the proposed business combination of SBC and PAC as
of and for the nine months ended September 30, 1996.
(a)UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS OF SBC COMMUNICATIONS INC. AND PACIFIC TELESIS
GROUP
The following unaudited pro forma combined condensed
financial statements and notes thereto are presented
assuming the merger will be accounted for as a "pooling
of interests." Under this method of accounting, SBC
will restate its consolidated financial statements to
include the assets, liabilities, shareowners' equity and
results of operations of PAC.
The following unaudited pro forma combined condensed
financial statements have been prepared using an assumed
exchange ratio of 0.733. The actual exchange ratio is
subject to change under the terms of the merger
agreement.
The unaudited pro forma combined condensed income
statements reflect the combination of the historical
operating results of SBC and PAC for the nine months
ended September 30, 1996. The unaudited pro forma
combined condensed balance sheets reflect the
combination of the historical balance sheets of SBC and
PAC at September 30, 1996. The information set forth in
the pro forma financial statements below should be read
in conjunction with the annual financial statements and
notes thereto included in (a) SBC's 1995 Annual Report
to Shareowners, which is incorporated by reference into
SBC's Annual Report on Form 10-K for 1995, and (b) PAC's
1996 Proxy Statement, which is incorporated by reference
into SBC's registration statement on Form S-4, dated
June 3, 1996 (File No. 333-02587).
The unaudited pro forma combined condensed financial
statements are not necessarily indicative of the results
of operations or financial position that actually would
have occurred had the merger been consummated on the
dates indicated or that may be obtained in the future.
These unaudited pro forma combined condensed financial
statements should be read in conjunction with the
related historical financial statements and notes
thereto of SBC and PAC noted above, and (a) SBC's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, and (b) PAC's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
Unaudited Pro Forma Combined Condensed Balance Sheet
As of September 30, 1996
Historical Pro Forma
SBC PAC Adjustments Combined
(in millions)
Assets
Current Assets
Cash and cash equivalents $ 690 $ 81 $ - $ 771
Accounts receivable - net 2,371 1,598 - 3,969
Other current assets 1,163 1,004 (53)2a 2,114
Total current assets 4,224 2,683 (53) 6,854
Property, Plant and 13,509 11,660 - 25,169
Equipment - Net
Intangible Assets - Net 2,564 1,027 - 3,591
Other Assets 2,845 855 (477)2a 3,223
Total Assets $ 23,142 $ 16,225 $ (530) $ 38,837
Liabilities and
Shareowners' Equity
Current Liabilities
Debt maturing within one $ 1,975 $ 484 $ - $ 2,459
year
Other current liabilities 3,597 2,784 (53)2a 6,328
Total current liabilities 5,572 3,268 (53) 8,787
Long-term debt 5,482 5,424 - 10,906
Postemployment benefit 2,739 2,424 - 5,163
obligation
Other noncurrent 2,509 1,486 (477)2a 3,518
liabilities
Corporation-obligated
mandatorily redeemable - 1,000 - 1,000
preferred securities of
subsidiary trusts*
Shareowners' Equity
Common shares 621 43 271 2b 935
Capital in excess of par 6,317 3,502 (402)2b 9,417
value
Retained earnings 1,453 (619) - 834
(deficit)
Guaranteed obligations of (242) - - (242)
ESOPs
Deferred compensation- - (172) - (172)
LESOP trust
Foreign currency (602) - - (602)
translation adjustment
Treasury shares (707) (131) 131 2b (707)
Total shareowners' equity 6,840 2,623 - 9,463
Total Liabilities and $ 23,142 $ 16,225 $ (530) $ 38,837
Shareowners' Equity
* The trusts contain an asset of $1,030 million in principal amount of
the Subordinated Debentures of PAC.
The accompanying notes are an integral part of these pro forma
combined condensed financial statements.
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
Unaudited Pro Forma Combined Condensed Statement of Income
For the Nine Months Ended September 30, 1996
Historical Pro Forma
SBC PAC Adjustments Combined
(in millions, except per share amounts)
Total operating revenues $ 10,130 $ 7,145 $ $ 17,275
Total operating expenses 7,505 5,385 12,890
Operating Income 2,625 1,760 4,385
Interest expense 353 265 618
Other income (expense) - net 165 (38) 127
Income Before Income Taxes 2,437 1,457 3,894
Income Taxes 879 592 1,471
Net Income $ 1,558 $ 865 $ $ 2,423
Earnings Per Common Share: $ 2.56 $ 2.02 $ $ 2.63
Weighted Average Number of
Common Shares Outstanding 609.0 428.4 (114.4)2c 923.0
The accompanying notes are an integral part of these pro forma
combined condensed financial statements.
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited pro forma combined condensed financial
statements are presented for illustrative purposes only and do
not give effect to any cost savings which may result from the
integration of SBC's and PAC's operations. Additionally, the
unaudited pro forma combined condensed financial statements do
not include any future transaction costs relating to the merger
(which are estimated to be approximately $55 million), nor do
they consider any reorganization or regulatory costs that might
occur as a result of the merger. Differences in accounting
policies do not have a material effect on either the pro forma
financial position or pro forma results of operations and have
not been reflected in the unaudited pro forma combined condensed
financial statements. The unaudited pro forma combined condensed
balance sheets reflect the merger as if it had occurred on
September 30, 1996. The unaudited pro forma combined condensed
statements of income reflect the merger as if it had been in
effect on January 1, 1996.
The unaudited pro forma combined condensed financial statements
are not necessarily indicative of the results of operations or
financial position that actually would have occurred had the
merger been consummated on the dates indicated or that may be
obtained in the future. These unaudited pro forma combined
condensed financial statements should be read in conjunction with
the related historical financial statements and notes thereto
included in (a) SBC's 1995 Annual Report to Shareowners, which is
incorporated by reference into SBC's Annual Report on Form 10-K
for 1995, and (b) PAC's 1996 Proxy Statement, which is
incorporated by reference into SBC's registration statement on
Form S-4, dated June 3, 1996 (File No. 333-02587), and (c) SBC's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, and (d) PAC's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.
Note 2 - Pro Forma Adjustments
a. Deferred income taxes - Deferred income taxes were
reclassified to present a net asset or liability for both current
and non-current amounts.
b. Shareowners' Equity - The shareowners' equity accounts of
PAC have been adjusted to reflect the assumed issuance of
approximately 314 million shares of SBC Common Stock in exchange
for all of the issued and outstanding PAC Common Stock (assuming
an Exchange Ratio of 0.733 of a share of SBC Common Stock for
each share of PAC Common Stock; the exchange ratio is subject to
change under the terms of the merger agreement). The actual
number of shares of SBC Common Stock to be issued in connection
with the merger will be based upon the number of shares of PAC
Common stock issued and outstanding immediately prior to the
consummation of the merger and the exchange ratio determined as
of the effective date of the merger.
c. Earnings per Common Share - Pro forma combined earnings per
common share information for the nine months ended September 30,
1996 is based on the combined weighted average shares outstanding
for the nine months ended September 30, 1996 after conversion of
PAC's weighted average shares outstanding at a ratio of 0.733
shares of SBC Common Stock for each share of PAC Common Stock.
The actual ratio is subject to change under the terms of the
merger agreement.
d. Intercompany transactions - There are no significant
intercompany transactions between SBC and PAC.
e. Effective with the dividend for the second quarter of 1996,
PAC's quarterly dividend per share will not exceed 0.733
multiplied by SBC's quarterly dividend per share. Dividends per
share of the combined company are expected to be equivalent to
the dividend per share of SBC Common Stock.
Note 3 - Federal Income Tax Consequences of the Merger
The unaudited pro forma combined condensed financial statements
assume that the merger qualifies as a tax-free reorganization for
federal income tax purposes.
(b) Exhibits
Exhibit 15 Letter regarding unaudited interim financial
information.
Exhibit 99 Pacific Telesis Group's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996
(File No. 1-8609) is incorporated herein by reference.
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.
SBC Communications Inc.
/s/ Donald E. Kiernan
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
November 14, 1996