01—Abstract
Summary
Summary of the 10-K filed March 18, 1994. Cited figures are marked; the original filing is the authoritative source.
Southwestern Bell Corporation, a communications holding company, reported 1993 operating revenues of $10.69 billiona, up from $10.02 billion in 1992, and operating income of $2.38 billion.
Its largest subsidiary, Southwestern Bell Telephone Company, provided 76 percent of 1993 operating revenues through about 13.2 million access lines in Arkansas, Kansas, Missouri, Oklahoma and Texas. Income before extraordinary loss and accounting changes rose 10.3 percent to $1.44 billionb, or $2.39 per share, but the company posted a net loss of $845.2 million, or $1.41 per share, after a $2.13 billion charge for accounting changes (postretirement benefits, postemployment benefits and income taxes) and a $153.2 million extraordinary loss on debt refinancing. Growth was driven mainly by Mobile Systems' cellular business, where customers rose to 2,049,000 from 1,413,000, and by higher equity income from its Telmex stake, which was $249.7 million in 1993.
The company sold its Metromedia Paging subsidiary in December 1993 and bought two cable systems in Maryland and Virginia for $650 millionc in January 1994. It also signed a non-binding memorandum with Cox Cable Communications for a $4.9 billion cable partnership, in which the company would hold a 40 percent interest and contribute $1.6 billion. Management expects 1994 capital expenditures of $2.2 billion to $2.4 billion, funded from operations, and the dividend was $1.51 per share.
The filing also flags regulatory risk. Missouri regulators ordered annual rate reductions of $84.6 milliond starting in 1994, which the company is contesting, and an Oklahoma order could cut annual revenues by $100.6 million. Competition is growing from competitive access providers, cable companies and interexchange carriers, and the company remains restricted under the Modification of Final Judgment from providing interexchange services and manufacturing telecommunications equipment.
02—Key points
Key Highlights
- Operating revenues rose 6.7 percent to $10.69 billion in 1993, and operating income reached $2.38 billion.
- Net loss of $845.2 million ($1.41 per share) reflected a $2.13 billion cumulative effect of accounting changes and a $153.2 million extraordinary loss, while income before those items was $1.44 billion ($2.39 per share).
- Wireless revenues grew 36.3 percent to $1.28 billion, with cellular customers up to 2,049,000 from 1,413,000.
- Equity income from the Telmex investment was $249.7 million, up from $208.0 million in 1992.
- Capital expenditures were $2.22 billion in 1993, and 1994 capital expenditures are expected to be $2.2 billion to $2.4 billion.
- Dividends declared were $1.51 per share, totaling $905.3 million.
- Pending deals include a $4.9 billion cable partnership with Cox (the company's share is $1.6 billion) and a $680 million stock purchase of Associated Communications' cellular business.
03—Questions
Frequently Asked Questions
Why did the company report a net loss in 1993 when income before special items grew?
The net loss of $845.2 million resulted from a $2,127.2 million charge for changes in accounting principles, mainly the adoption of Statement No. 106 on postretirement benefits, which accounted for $1,847.8 million, along with a $153.2 million extraordinary loss on early debt extinguishment. Income before these items rose 10.3 percent to $1,435.2 million.
What drove growth in the business in 1993?
The filing cites growing demand at Mobile Systems and the Telephone Company, lower license fees for switching system software, and higher equity income from Telmex. Cellular customers grew 45.0 percent, and wireless revenues increased 36.3 percent.
What regulatory risks could affect future earnings?
In Missouri, the commission ordered $84.6 million in annual rate reductions starting in 1994, which the company is contesting, and the final impact cannot yet be determined. In Oklahoma, an order would reduce annual revenues by $100.6 million and could require refunds of $148.4 million, though management expects the refund to be overturned. The filing also notes that a Statement No. 71 write-off could be material if the company stopped qualifying for regulatory accounting.
How is the company expanding beyond its core landline business?
It is expanding its cellular footprint through pending purchases in New York and its $650 million purchase of cable systems in Maryland and Virginia. It also has a planned $4.9 billion cable partnership with Cox, and it owns interests in cable and directory businesses in the United Kingdom, Israel and Australia.
What is the company's dividend and capital return profile?
Dividends declared were $905.3 million, or $1.51 per share, in 1993, up from $1.46 in 1992. The board authorized repurchases of up to 30 million shares, but as of December 31, 1993, none had been repurchased under that authorization.
04—Continue