SBC Announces Second-quarter Results
Strong Growth in Wireless Customers, Business Access Lines
EPS Up 3.4 Percent to $0.90 Before Special Charges
San Antonio, Texas, July 31, 1997SBC Communications Inc. (NYSE: SBC), today announced financial and operating results for the second quarter ended June 30, 1997, the first quarter following the completion of its merger with Pacific Telesis on April 1.
Earnings for the quarter increased 2.6 percent, from $803 million in the second quarter of 1996 to $824 million before special charges. Earnings per share were 90 cents before the special charges, compared with 87 cents a year ago.
Second-quarter revenues on a comparable basis were up 6.7 percent to $6.1 billion as SBC's wireline and wireless businesses continued to show solid growth. Annual access line growth was 4.1 percent, driven by 6.2 percent growth in business lines, and 14.5 percent growth in residential additional lines. Wireless subscribers increased 24.4 percent over the last 12 months to nearly five million subscribers, with the addition of 275,000 subscribers during the quarter, one of SBC's strongest quarterly gains ever.
"Our businesses continued to show strong growth trends, adding a total of about 543,000 customer lines during the second quarter and more than 2.2 million over the past 12 months," said Edward E. Whitacre Jr., chairman of the board and chief executive officer.
As previously announced, SBC's second-quarter 1997 results included one-time charges to net income of $1.6 billion, reflecting a set of strategic decisions resulting from a comprehensive operational review of the merged company, as well as the financial impact of several recent federal and state regulatory rulings. Including these charges, SBC reported a net loss in the second quarter of 1997 of $787 million, or a loss of $0.86 per share. SBC said it expects additional charges associated with implementing these strategic decisions of $300 million to $500 million in the remainder of 1997.
SBC also earlier announced that the revenue growth and cost saving opportunities identified during the merger integration process have the potential to add $1 billion to net income annually by the year 2000.
"We are more convinced than ever before that the merger will be extremely positive for our customers and shareowners, and we're working hard to unlock the full value of the merger as quickly as possible," Whitacre said.
Highlights of the second quarter included:
Telephone Company Operations
Whitacre noted that the local network operations of Southwestern Bell and Pacific Bell reflected continued strong access line growth and demand for vertical services and data-related services.
Revenues before special charges for SBC's Southwestern Bell Telephone operations were $2.6 billion. This represents an increase of 6.6 percent over comparable revenues posted in the second quarter of 1996, which did not include certain equipment sales revenues from businesses merged into Southwestern Bell Telephone in late 1996. The growth was driven by strong access line sales and marketing of vertical services.
Southwestern Bell added 147,000 access lines in the second quarter and 714,000 access lines in the past year. Access lines totaled 15.3 million at the end of the quarter. Southwestern Bell continued to extend its record of success in marketing vertical services, with vertical services revenues up 22 percent. Southwestern Bell has almost 4.5 million Caller ID customers, with industry-leading 44 percent residential penetration.
Pacific Bell and subsidiaries' total revenues on a comparable basis increased
4.4 percent to $2.5 billion, from $2.4 billion a year ago. It added 123,000
lines during the quarter and 542,000 over the past year, ending the quarter with
a total of 16.4 million access lines.
"We continued to achieve strong growth in our established wireless markets, and the response to our PCS offering in California and Nevada has been outstanding," Whitacre said. "Our Southwestern Bell and Cellular One wireless businesses added 177,000 subscribers in the quarter, and 849,000 over the past year, for an annual growth rate of 21.3 percent. We ended the quarter with 4.8 million customers."
Whitacre noted that Pacific Bell's PCS rollout is ahead of plan, with 97,000 net subscribers added during the quarter, for a total of 123,000.
"PCS is an important component of our full-service strategy in our Pacific Bell markets. We launched service in San Francisco during the quarter, and the reception has been excellent. In early July, we inaugurated service in Los Angeles, our largest PCS market, and we're seeing excellent response there as well. We are now offering digital service in markets across California and Nevada with a population of nearly 29 million," Whitacre said.
"The response to our PCS offering has led us to increase our end-of-year subscriber target to 325,000 subscribers from 250,000. In all, we're targeting nearly one million net new subscribers in our traditional cellular and new PCS markets during 1997," Whitacre added.
In addition, Whitacre said, SBC continued to add long-distance wireless
customers at a rapid rate. "We now have 2.7 million wireless long-distance
customers, for a penetration rate of 55 percent - all of which we've gained
since February 1996."
Entrance into Long-Distance Market
In early July, following the FCC's rejection of the company's application to provide long-distance service to its customers in Oklahoma, SBC filed a federal lawsuit challenging the constitutionality of those provisions of the Telecommunications Act that bar the company and a handful of other local carriers from competing in long-distance, electronic publishing and other lines of business. "The FCC denied our long-distance application, despite a clear message from Oklahoma regulators that we had indeed opened our local market, and that our entry into long-distance would not only serve the public interest, but would spur further competition for local service," said Whitacre.
"Meanwhile, major long-distance companies are moving very slowly into the markets we have opened to them, hoping to delay our entry into their long-distance markets. We are asking the Court to move quickly to strike down the parts of the Act that keep us out of long-distance, because we believe it's the best way to speed up the transition to a marketplace in which consumers reap the benefits of full competition for all telecommunications services."
Whitacre noted that while SBC continues to be disappointed with the manner in which federal regulators are attempting to implement the Telecommunications Act of 1996, it is gratified by the recent Eighth Circuit Court decision overturning much of the Federal Communication Commission's interconnection order. "The Telecommunications Act clearly envisioned that state regulators would play the primary role in overseeing the transition to a competitive marketplace. We're pleased that the Court forcefully upheld that role, particularly in the area of the pricing of local interconnection, unbundled network elements and resale rates," Whitacre said.
Whitacre emphasized that SBC remains committed to opening its local networks
to all competitors. By the end of this year, SBC will have incurred significant
expense and committed 4,000 employees to meeting that goal, as required by the
In addition to its United States businesses, SBC's international investments involve it in every aspect of the telecommunications industry, including local service, domestic and international long distance, wireless, video and directory publishing. SBC has investments in telecommunications businesses in Mexico, France, South Africa, Israel, Chile, South Korea, the United Kingdom, Taiwan and, most recently, Switzerland.
During the second quarter, SBC became the telecommunications operating partner in Diax, a joint venture with Switzerland's six largest electric utilities. The $10 billion Swiss telecommunications market generates the highest annual revenues per telephone line anywhere in the world and ranks second in the per capita telephone rate. Switzerland's market opens to competition January 1, 1998.
SBC Communications Inc. is an international leader in the telecommunications industry, with more than 32 million access lines and nearly five million wireless customers across the United States, as well as investments in telecommunications businesses in nine countries. Under the Southwestern Bell, Pacific Bell, Nevada Bell and Cellular One brands, the company, through its subsidiaries, offers a wide range of innovative services, including local and long-distance telephone service, wireless communications, paging, Internet access, cable TV and messaging, as well as telecommunications equipment, and directory advertising and publishing. SBC (www.sbc.com) has approximately 118,000 employees. SBC and Pacific Telesis Group reported combined 1996 revenues of $23.5 billion.SBC Communications Inc. Financial Summary and Comparisons (dollars in millions, except per share amounts) (unaudited)
|BEFORE SPECIAL CHARGES|
|Net income||$ 824||$ 803||2.6%|
|Earnings per share||$ 0.90||$ 0.87||3.4%|
|Net income (loss)||($ 787)||$ 803||--|
|Earnings (loss) per share||($ .86)||$ .87||--|
common shares outstanding
|BEFORE 2Q SPECIAL CHARGES|
|Operating expenses||$ 9,042||$ 8,365||8.1%|
|Net income before 2Q special
charges and cumulative
effect of accounting change
|Per share||$ 1.84||$ 1.73||6.4%|
|One-time settlement gain associated
with 1Q lump-sum pension payments,
net of tax
|Earnings before 2Q special charges,
cumulative effect of accounting change
and one- time pension settlement gain
|Per share||$ 1.74||$ 1.73||0.6%|
|SPECIAL CHARGES (net of tax)||($1,611)||-||-|
|Operating Expense||$11,274||$ 8,365||34.8%|
|Earnings before cumulative
effect of accounting change
|$ 70||$ 1,601||-|
|Per share||$0.08||$ 1.73||-|
|Cumulative effect of change in
accounting for directory
operations, net of tax
|Net income (loss)||$ 70||$ 1,691||-|
|Per share||$0.08||$ 1.83||-|
During the second quarter of 1997, SBC recorded a number of special charges
related to strategic decisions resulting from a comprehensive review of company
operations following its merger with Pacific Telesis and to the financial impact
of several recent federal and state regulatory rulings. Those charges, which
were publicly announced on June 19, 1997, totaled $1.6 billion and are
|Category||Charge to Net Income|
|Merger Integration Initiatives:
Post-employment benefits and costs associated with closing down duplicate operations
|Asset write-downs and impairments related to southern California wireless digital TV operations, certain analog switching equipment in California, certain rural and other telecommunications equipment in Nevada, selected wireless equipment and intrabuilding cable in California||$667 million|
|Curtailment of Video and Hybrid Fiber-Coaxial Initiatives:
Discontinuance of broadband video trial in Richardson, halt construction of hybrid fiber-coaxial network in San Jose and San Diego, scale back Tele-TV, and redefine Americast joint venture
Present value of amounts to be returned to California and Nevada ratepayers as a condition of the merger and expenses for investment banker and professional fees
|Recent regulatory rulings, primarily involving interstate access charges and revenue sharing||$101 million|
|Costs associated with implementation of local number portability||$ 16 million|