Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 1995 Ptg Annual Report 38 126K
2: EX-10.DD Executive Disability and Survivor Protection Plan 13 56K
3: EX-10.KK Executive Supplemental Pension Plan 23 98K
4: EX-10.NN Ptg Mid-Career Pension Plan 16 72K
5: EX-10.OO Ptg - Outside Directors' Deferred Stock Unit Plan 7 30K
6: EX-10.PP.V Supplemental Benefit Agreement 5 16K
7: EX-10.SS Ptg Outside Directors' Retirement Plan 5 19K
8: EX-11 Computation of Earnings Per Share 1 8K
9: EX-12 Ratio of Earnings to Fixed Charges 1 7K
10: EX-21 Subsidiaries of Pacific Telesis Group 1 6K
11: EX-23 Consent of Independent Accountants 1 8K
12: EX-24 Power of Attorney 2 10K
13: EX-27 FDS for Ptg 1995 Annual Report 2 7K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
----------------------
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------------
For The Fiscal Year Ended December 31, 1995
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8609
PACIFIC TELESIS GROUP
A Nevada Corporation I.R.S. Employer Number 94-2919931
130 Kearny Street, San Francisco, California 94108
Telephone - Area Code (415) 394-3000
--------------------
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class) (Name of Each Exchange on which Registered)
Common Stock, $.10 Par Value with New York Stock Exchange
Preferred Stock Purchase Rights Pacific Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. | |
Based on the composite closing sales price on February 29, 1996, the aggregate
market value of all voting stock held by nonaffiliates was $12,048,808,190.
At February 29, 1996, 428,434,672 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Pacific Telesis Group's 1996 Proxy Statement, including Pacific
Telesis Group's 1995 Consolidated Financial Statements, are incorporated by
reference in Parts I, II and III hereof.
TABLE OF CONTENTS
Item Description Page
---- ----------- ----
PART I
1. Business ..................................................... 1
2. Properties ................................................... 15
3. Legal Proceedings ............................................ 15
4. Submission of Matters to a Vote of Security Holders .......... 15
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters ...................................................... 16
6. Selected Financial Data ...................................... 16
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 17
8. Financial Statements and Supplementary Data .................. 17
9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure..................................... 17
PART III
10. Directors and Executive Officers of Registrant ............... 18
11. Executive Compensation ....................................... 18
12. Security Ownership of Certain Beneficial Owners
and Management................................................ 18
13. Certain Relationships and Related Transactions ............... 18
PART IV
14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K .................................................. 19
PART I
Item 1. Business.
Except for historical information contained herein, this Annual Report on Form
10-K contains forward-looking statements that involve potential risks and
uncertainties. Pacific Telesis Group's (the "Corporation") actual results
could differ materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed herein and those discussed in the "Annual Financial Review" in the
Corporation's 1996 Proxy Statement. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
hereof. The Corporation undertakes no obligation to revise or update these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
GENERAL
Pacific Telesis Group was incorporated in 1983 under the laws of the State of
Nevada and has its principal executive offices at 130 Kearny Street,
San Francisco, California 94108 (telephone number (415) 394-3000).
The Corporation is one of seven regional holding companies ("RHCs") formed in
connection with the 1984 divestiture by AT&T Corp. ("AT&T") of its 22 wholly
owned operating telephone companies ("BOCs") pursuant to a consent decree
settling antitrust litigation (the "Consent Decree") approved by the United
States District Court for the District of Columbia (the "Court").
The Corporation includes a holding company, Pacific Telesis; two BOCs,
Pacific Bell and Nevada Bell (the "Telephone Companies"); and certain
diversified subsidiaries, all described more fully below. The holding company
provides financial, strategic planning, and general administrative functions
on its own behalf and on behalf of its subsidiaries.
1
THE TELEPHONE COMPANIES AND THEIR SUBSIDIARIES
Nevada Bell and Pacific Bell and its wholly owned subsidiaries, Pacific Bell
Directory, Pacific Bell Information Services, Pacific Bell Mobile Services,
Pacific Bell Internet Services, Pacific Bell Network Integration, and others,
provide a variety of communications and information services in California and
Nevada. These services include: (1) dialtone and usage services, including
local service (both exchange and private line), message toll services within a
service area, Wide Area Toll Service (WATS)/800 services within a service
area, Centrex service (a central office-based switching service) and various
special and custom calling services; (2) exchange access to interexchange
carriers and information service providers for the origination and termination
of switched and non-switched (private line) voice and data traffic;
(3) billing services for interexchange carriers and information service
providers; (4) various operator services; (5) installation and maintenance of
customer premises wiring; (6) public communications services; (7) directory
advertising; (8) selected information services, such as voice mail; (9)
Internet access; and (10) network integration services.
Pacific Bell Directory ("Directory") publishes the Pacific Bell SMART Yellow
Pages(R). It is the oldest and largest publisher of Yellow Pages in
California and is among the largest Yellow Pages publishers in the United
States. As part of its ongoing small business advocacy efforts, Directory
produces an award-winning publication in partnership with the U.S. Small
Business Administration. "Small Business Success," now in its ninth year,
addresses topics of importance to entrepreneurs.
Pacific Bell Information Services ("PBIS") provides business and residential
voice mail and other selected information services. Current products include
The Message Center for home use, Pacific Bell Voice Mail for businesses and
Pacific Bell Call Management, a service that handles incoming business calls
and connects computer databases to answer routine customer questions.
Pacific Bell Mobile Services ("PBMS") was formed in 1994 to pursue
opportunities in personal communications services ("PCS"), a new generation of
wireless services geared to the business and consumer markets. In 1995,
Pacific Telesis Mobile Services, a wholly owned subsidiary of the Corporation,
obtained two licenses to offer PCS services in California and Nevada from the
Federal Communications Commission ("FCC"). PBMS will design, construct,
manage, and market services for the network. Management expects a widespread
offering of PCS services by early 1997.
Pacific Bell Internet Services ("PBI") was formed in 1995 to provide Internet
access services to a broad range of customers in California. PBI began
providing Internet access to large businesses in the third quarter of 1995 and
plans to provide residential service in 1996.
Pacific Bell Network Integration ("PBNI") was formed in 1995 to pursue
opportunities in the network integration business. In 1995, PBNI began
offering network design, installation and maintenance, and network management
services for business data communication networks. PBNI will expand its
service offerings in 1996.
2
OTHER SUBSIDIARIES AND TELESIS FOUNDATION
Pacific Bell Communications ("PBC") was formed in 1995 to compete in the long-
distance market under the Telecommunications Act of 1996 (the
"Telecommunications Act"). Although PBC must meet certain requirements before
it can offer long-distance service, management expects to fulfill those
requirements in the first part of 1997. In March 1996, PBC filed an
application for certification to provide local and long-distance services in
California with the California Public Utilities Commission ("CPUC").
Pacific Telesis Enterprises was formed to be the holding company for certain
other subsidiaries and work groups that are pursuing entry into competitive
and/or emerging markets such as wireless, traditional and interactive video,
and Internet information and shopping services.
Pacific Telesis Enhanced Services was formed to provide support functions to
certain other subsidiaries thereby allowing these subsidiaries to focus on
service and customer development.
Pacific Telesis Interactive Media ("PTIM") will be the successor company to
ESS Ventures, the joint venture with the Los Angeles Times. PTIM was formed
to develop and offer California specific information, activity, and shopping
opportunities on the Internet.
Pacific Telesis Video Services ("PTVS") was formed to provide video services.
In July 1995, the Corporation acquired Cross Country Wireless Inc. ("CCW").
CCW has existing wireless television operations with over 40,000 video
customers in and near Riverside, California and holds licenses and rights to
provide wireless television in Los Angeles, Orange County, and San Diego.
Pacific Telesis Wireless Broadband Services ("PTWBS") was granted licenses in
the 38 Ghz band from the FCC and has other applications pending. PTWBS is
currently evaluating its strategic options for the granted licenses.
PacTel Capital Resources ("PTCR") has issued commercial paper and medium-term
notes guaranteed by the Corporation from time to time since 1987. In the
future, PTCR may also provide funding and other forms of financial support for
its other affiliates.
PacTel Capital Funding may issue guarantees and other forms of financial
support for its affiliates and third parties.
PacTel Re Insurance Company, Inc. reinsures policies of outside insurance
companies covering workers' compensation, general liability, and auto
liability exposures of the Corporation and its subsidiaries and affiliates.
The subsidiary also issues policies of property insurance directly to the
Corporation's subsidiaries and engages in property reinsurance transactions in
insurance markets worldwide.
3
Pacific Telesis Group - Washington represents the Corporation's interests in
Washington, D.C. before the three branches of the federal government. It also
acts as a liaison with other telecommunications companies, trade associations,
government agencies, and a wide variety of interest groups.
Telesis Foundation, a private foundation organized under section 501(c)(3) of
the Internal Revenue Code, makes grants in the areas of education, health and
welfare, cultural, community, and civic activities. As of December 31, 1995,
Telesis Foundation had total assets with an estimated market value of
$56 million.
RESEARCH AND DEVELOPMENT
Bell Communications Research, Inc. ("Bellcore") furnishes the BOCs, including
the Telephone Companies, with technical and consulting assistance to support
their provision of exchange telecommunications and exchange access services.
Each of the other six RHCs or their BOCs and Pacific Bell hold one-seventh of
the voting stock of Bellcore, which serves as a central point of contact for
coordinating the efforts of the RHCs in meeting the national security and
emergency preparedness requirements of the federal government. In April 1995,
Bellcore announced a decision by its owners to pursue the sale or other
disposition of Bellcore. The owners have retained two investment banking
firms in connection with the proposed sale or other disposition. A final
decision regarding the disposition of interests and the structure of such
transaction has yet to be determined. Any transaction will be subject to
necessary approvals.
In addition, the Corporation conducts research and development through
Pacific Bell and through Telesis Technologies Laboratory Inc., a wholly owned
subsidiary of the Corporation. The Corporation spent approximately $16
million, $52 million, and $30 million in 1995, 1994, and 1993, respectively,
on research and development activities.
4
FINANCING ACTIVITIES OF THE CORPORATION
Short-term borrowings are available under a commercial paper program and
through uncommitted unused lines of credit. These lines of credit are subject
to continued review by the lending banks. At December 31, 1995, the unused
lines of credit available totaled approximately $2.7 billion.
For longer-term borrowings, as of December 31, 1995, Pacific Bell had
remaining authority from the CPUC to issue up to $1.25 billion of long- and
intermediate-term debt. The proceeds may be used only to redeem maturing debt
and to refinance other debt issues. As of December 31, 1995, Pacific Bell had
the ability to issue up to $650 million of long- and intermediate-term debt
through a shelf registration filed with the Securities and Exchange Commission
("SEC") in April 1993. In addition, PTCR may issue up to $192 million of
medium-term notes pursuant to a shelf registration on file with the SEC.
Pacific Bell and PTCR are the only subsidiaries of the Corporation with any
long- or intermediate-term publicly held debt issues outstanding as of
December 31, 1995. The holding company itself has no such publicly held debt
issues outstanding.
In February 1996, Pacific Bell issued $250 million of 5.875 percent debentures
due February 15, 2006. The debentures may not be redeemed prior to maturity.
The proceeds from the sale of the debentures were used to reduce short-term
debt incurred to retire Pacific Bell's debentures totaling approximately $500
million in December 1995. The remaining debentures retired in December 1995
were financed by commercial paper and may be refinanced under the current
remaining authorities of $1 billion and $400 million from the CPUC and SEC,
respectively, described above.
In October 1995, the Corporation and Pacific Telesis Financing I, II, and III
filed a shelf registration with the SEC to sell up to $1 billion of Trust
Originated Preferred Securities ("TOPrS") to the public. The TOPrS are
subject to a guarantee from the Corporation. An offering of $500 million in
TOPrS priced at 7.56 percent was sold in January 1996. The proceeds were used
to pay down commercial paper. Proposed changes in income tax regulations may
limit the attractiveness of future issuances.
In March 1996, Moody's Investors Services, Inc. ("Moody's") placed the senior
debt ratings of Pacific Bell (Aa3), PacTel Capital Resources (A1), and
Pacific Telesis Financing I, II, and III ((P)"al") under review for possible
downgrade. Moody's expressed concerns about external financing requirements
associated with the Corporation's Advanced Communications Network and wireless
initiatives.
See the 1996 Proxy Statement under the heading "Liquidity and Financial
Condition" on pages F-26 through F-32 and in Notes I and J to the 1995
Consolidated Financial Statements on pages F-64 through F-66 and Note N to the
1995 Consolidated Financial Statements on page F-70 for additional discussion
of the Corporation's financing activities, which is incorporated herein by
reference.
5
PRINCIPAL SERVICES
The operations of the Corporation's domestic and international cellular,
paging, and other wireless operations, which were spun off effective April 1,
1994, have been classified separately within the Corporation's financial
statements as "spun-off operations" and are excluded from the amounts of
revenues, expenses, assets, and liabilities of the Corporation's "continuing
operations." The Telephone Companies accounted for almost all of the
Corporation's operating revenues in 1995, 1994, and 1993. For these reasons,
the following discussion focuses on selected operating information for the
Telephone Companies. Additional information regarding revenues, operating
profit or loss, and assets of the Corporation, relating primarily to the
Telephone Companies, is incorporated from the 1996 Proxy Statement by
reference in "Item 8. Financial Statements and Supplementary Data" below.
Significant components of the Corporation's operating revenues are depicted in
the chart below:
% of Total Operating Revenues*
------------------------------
Revenues by Major Category 1995 1994 1993
---------------------------------------------------------------------------
Local Service
Recurring .............................. 28% 22% 22%
Other Local ............................ 15% 15% 16%
Network Access
Carrier Access Charges ................. 20% 18% 18%
End User & Other ....................... 7% 7% 7%
Toll Service
Message Toll Service ................... 12% 21% 20%
Other .................................. 1% 1% 2%
Other Service Revenues
Directory Advertising .................. 11% 11% 11%
Other .................................. 6% 5% 4%
---- ---- ----
TOTAL ...................................... 100% 100% 100%
===========================================================================
The percentages of the Corporation's operating revenues attributable to
interstate and intrastate telephone operations are displayed below:
% of Total Operating Revenues*
------------------------------
1995 1994 1993
---------------------------------------------------------------------------
Interstate telephone operations ............ 20% 17% 18%
Intrastate telephone operations ............ 80% 83% 82%
---- ---- ----
TOTAL ...................................... 100% 100% 100%
===========================================================================
* Excludes revenues of spun-off operations.
6
CONSENT DECREE
Under the terms of the Consent Decree, all territory served by the BOCs was
divided into geographical areas called "Local Access and Transport Areas"
("LATAs," also referred to as "service areas"). The Consent Decree generally
prohibited BOCs and their affiliates* from providing communications services
that cross service area boundaries; however, the networks of the BOCs
interconnect with carriers that provide such services (commonly referred to as
"interexchange carriers").
The Consent Decree provided that the RHCs shall not engage in certain lines of
business. The Consent Decree provided that the Court might waive the line of
business restrictions (i.e., grant a "Waiver") upon a showing that there was
no substantial possibility that the RHCs could use monopoly power to impede
competition in the market they sought to enter. The Court placed certain
conditions on the Waivers it granted.
Under the Consent Decree, the principal restrictions initially prohibited the
provision of interexchange telecommunications, information services, and
telecommunications equipment and the manufacturing of telecommunications and
customer premises equipment ("CPE"). The telecommunications businesses
originally permitted by the Consent Decree included the provision of exchange
telecommunications** and exchange access services, CPE, and printed directory
advertising. The information services prohibition was lifted in 1991. On
December 3, 1987, the Court interpreted the manufacturing restriction to mean
that the RHCs were prohibited from designing and developing telecommunications
equipment and CPE as well as from fabricating them. In March 1995, the Court
granted a Waiver that allowed the RHCs to provide telecommunications equipment
to unaffiliated parties. In March 1995, the Court also granted a Waiver to
allow the Corporation to own and operate certain facilities to receive video
programming and to provide limited interexchange video services.
On February 8, 1996, President Clinton signed into law the Telecommunications
Act. The Telecommunications Act provides that any conduct or activity
previously subject to the Consent Decree that occurs after February 8, 1996
will be subject to the Communications Act of 1934 (the "Communications Act"),
not the Consent Decree. See discussion under "Telecommunications Act" below.
------------------
* The terms of the Consent Decree, with certain exceptions, applied
generally to all BOCs and their affiliates.
** "Exchange Telecommunications" under the Consent Decree included toll
services within a service area as well as local service.
7
STATE REGULATION
As a provider of telecommunications services in California, Pacific Bell is
subject to regulation by the CPUC with respect to intrastate prices and
services, intrastate depreciation rates, the issuance of securities, and other
matters. The Public Service Commission of Nevada ("PSCN") regulates Nevada
Bell on similar issues.
The CPUC adopted a new regulatory framework ("NRF"), which is a form of "price
cap" regulation, for Pacific Bell in October 1989. In June 1994, the CPUC
reduced Pacific Bell's benchmark rate of return from 13.0 percent to
11.5 percent. Earnings between 11.5 percent and 15.0 percent will be shared
equally between Pacific Bell and its customers. Earnings above 15.0 percent
will be shared 70.0 percent and 30.0 percent between Pacific Bell and its
customers, respectively.
Under "price cap" regulation, the CPUC requires Pacific Bell to submit an
annual price cap filing to determine prices for categories of services for
each new year. Price adjustments reflect the effects of any change in
inflation less a productivity factor as well as adjustments for certain
exogenous cost changes. In December 1995, the CPUC issued an order in Phase I
of its second review of the NRF. The order suspended use of the "inflation
minus productivity" component of the price cap formula for 1996 through 1998.
This action freezes the price caps on most of Pacific Bell's regulated
services for three years except for adjustments due to exogenous cost changes
or price changes approved through the CPUC's application process.
Phase II of the CPUC's second review was scheduled to begin in January 1996.
The review was to consider the continued applicability of earnings caps,
sharing, and other items. In February 1996, an Assigned Commissioner's Ruling
suggested that this phase be deferred until the next review scheduled for
1998. Comments on the ruling were filed in March 1996. Pacific Bell has
asked that certain of these issues be reviewed in 1996.
On April 24, 1995, the PSCN issued a rule redesigning telecommunications
regulation in the State of Nevada. This rule includes many reforms initiated
by an industry coalition which includes Nevada Bell, Nevada interexchange
carriers ("IECs"), and other Nevada local exchange carriers ("LECs"). The
rule includes compromises reached with other parties, including the cable
industry and the state Office of Consumer Advocate. The new rule will remove
barriers to toll and local competition in Nevada but will also allow Nevada
Bell to keep any productivity gains by eliminating the current customer
sharing provision. The new plan is optional and will require a rate case to
determine initial pricing. After adoption, pricing flexibility is based on
the nature and competitive environment of the service. Prices for basic
service are capped during a three- or five-year period at Nevada Bell's
election. The plan does not prohibit or require presubscription and allows
interconnection where technologically feasible. Management anticipates a
complete rate redesign as part of a rate case which was filed in March 1996
for rates effective January 1, 1997. Management cannot predict the outcome of
the proceeding but believes that competition and increased productivity will
result in price reductions for some customers.
8
See the 1996 Proxy Statement under the headings "CPUC Revenue Rebalancing
Shortfall," "CPUC Regulatory Framework Review," "PSCN Regulatory Review,"
"Local Services Competition," and "Universal Service" on pages F-10 through F-
12 for additional information on the regulation of the Telephone Companies by
the CPUC and PSCN, which is incorporated herein by reference.
See the 1996 Proxy Statement under the headings "Uniform Systems of Account
("USOA") Turnaround Adjustment," "Revenues Subject to Refund," and "Property
Tax Investigation" on pages F-32 through F-33, "Change in Accounting for
Postretirement and Postemployment Costs" in Note A to the 1995 Consolidated
Financial Statements on page F-49 and "Revenues Subject to Refund" and
"Property Tax Investigation" in Note O to the 1995 Consolidated Financial
Statements on pages F-71 through F-72 for a discussion of other CPUC
proceedings, including the application of the USOA Turnaround Adjustment,
regulatory and ratemaking treatment for postretirement benefits in connection
with the adoption of Statement of Financial Accounting Standards No. 106, and
the regulatory and ratemaking treatment of certain property tax savings, which
is incorporated herein by reference.
FEDERAL REGULATION
The Telephone Companies are subject to the jurisdiction of the FCC with
respect to interstate access charges and other matters. The FCC prescribes a
Uniform System of Accounts and interstate depreciation rates for operating
telephone companies. The FCC also prescribes "separations procedures," which
are used to separate plant investment, expenses, taxes, and reserves between
interstate services under the jurisdiction of the FCC and intrastate services
under the jurisdiction of state regulatory authorities. The Telephone
Companies are also required to file tariffs with the FCC for the services they
provide. In addition, the FCC establishes procedures for allocating costs and
revenues between regulated and unregulated activities.
Beginning in 1991, the FCC adopted a price cap system of incentive-based
regulation for LECs. Pacific Bell's access rates were retargeted to a new
11.25 percent rate-of-return on rate base assets. The FCC's price cap system
provides a formula for adjusting rates annually for changes in inflation less
a productivity factor and changes in certain costs that are triggered by
administrative, legislative, or judicial action beyond the control of the
LECs.
In March 1995, the FCC adopted new interim price cap rules that govern the
prices that the larger LECs, including the Telephone Companies, charge IECs
for access to local telephone networks. The interim rules require LECs to
adjust their maximum prices for changes in inflation, productivity, and
certain costs beyond the control of the LEC. Under the interim plan, LECs may
choose from three productivity factors: 4.0, 4.7, or 5.3 percent. Election
of the 5.3 percent productivity factor permits the LEC to retain all of its
earnings, whereas election of the lower productivity factors requires earnings
above certain thresholds to be shared with customers. The Telephone Companies
have chosen the 5.3 percent productivity factor, which enables them to retain
all of their earnings after July 1, 1995.
See the 1996 Proxy Statement under the heading "FCC Regulatory Framework
Review" on page F-9 for additional information on the regulation of the
Telephone Companies by the FCC, which is incorporated herein by reference.
9
TELECOMMUNICATIONS ACT
The Telecommunications Act became effective on February 8, 1996. The
Telecommunications Act is the broadest reform of the telecommunications
industry since the Communications Act. The Telecommunications Act essentially
opens all telecommunications markets and prohibits the states from continuing
or establishing any barriers to entry. Once the new law is fully implemented,
consumers will have many new options for their local telephone, long-distance,
and cable television services. The Telecommunications Act will affect the
Corporation as described below.
The Telephone Companies may provide out-of-region interLATA service and
certain incidental interLATA services immediately. Before they can provide
interLATA service that originates in California or Nevada, each Telephone
Company must open its local markets to competition, unbundle its network to
other competitors, and comply with the terms and conditions of a "competitive
checklist" specified in the Telecommunications Act. The Telephone Companies
must individually request authority to offer in-region interLATA service from
the FCC. This service must initially be offered through a separate affiliate.
The separate affiliate requirement expires three years after approval, unless
extended by the FCC.
The Telephone Companies may only engage in electronic publishing through a
separate affiliate, teaming arrangement, or joint venture. Joint marketing of
electronic publishing services by the electronic publishing affiliate and the
Telephone Company is prohibited, with the exception of nonexclusive inbound
telemarketing. The restrictions on electronic publishing expire in early
2000.
The Telecommunications Act allows for the continued provision by the Telephone
Companies of intraLATA information services, other than electronic publishing,
and intraLATA Internet access. The Telecommunications Act also allows for the
provision by the Telephone Companies of interLATA information storage and
retrieval services provided by a separate affiliate to and from the
Corporation's databases. Full interLATA information services and interLATA
Internet access may be provided through a separate affiliate once the
Telephone Companies obtain authority to provide interLATA services originating
in their states. Some Internet services are also electronic publishing
services and are subject to the electronic publishing restrictions.
The Telephone Companies may provide a variety of video programming services
directly to subscribers in their service areas under regulations that will
vary according to the type of services that are provided. The Telephone
Companies may provide video services over wireless cable, as a common carrier,
as a cable system operator, as "interactive on-demand services," or as an
"open video system." Interactive on-demand services would allow unscheduled,
point-to-point video programming over the Telephone Companies' switched
networks on an on-demand basis. An "open video system" would allow the
Telephone Companies to select programming for a certain number of channels if
demand exceeds capacity. An "open video system" approved by the FCC would be
subject to reduced regulatory burdens.
10
The Telecommunications Act allows the Telephone Companies to collaborate with
manufacturers of telecommunications and customer premises equipment during the
design and development phases. The Telephone Companies may also engage in
research and enter into royalty agreements in connection with the
manufacturing of telecommunications and customer premises equipment. The
Telephone Companies may manufacture telecommunications and customer premises
equipment, subject to certain restrictions, once they have obtained authority
to provide interLATA services originating in their states.
CHANGING INDUSTRY ENVIRONMENT
With increasing competition for existing services and the introduction of
local services competition in California effective January 1, 1996, the
Telephone Companies face an increasingly competitive marketplace. In response
to the competitive challenge, management has developed three key strategies
intended to provide a consistent, integrated focus for management's decisions
and actions. These overarching strategies are to strengthen the Corporation's
core telecommunications business, develop new markets, and promote public
policy reform.
A strong core business provides the essential foundation to pursue future-
oriented opportunities. To strengthen the core telecommunications business,
management will continue to improve customer service and reduce costs, upgrade
network and systems capability, and retain and expand existing markets through
product and channel innovation. See the 1996 Proxy Statement under the
heading "Strengthen Core Business" on pages F-3 through F-7 for additional
information, which is incorporated herein by reference.
As competition becomes more fierce in its core telecommunications business,
the Corporation will rely increasingly on developing new markets to create new
revenue sources. Toward that end, the Corporation is actively pursuing
opportunities in long-distance, video services, PCS, wireless digital
television, Internet access, home entertainment, and other information
services. See the 1996 Proxy Statement under the heading "Develop New
Markets" on pages F-7 through F-8 for additional information, which is
incorporated herein by reference.
Telecommunications policy reform has been, and will continue to be, the
subject of much debate in Congress, the California Legislature, the courts,
the FCC, the CPUC, and the PSCN. Management supports public policy reform
that promotes fair competition and ensures that responsibility for universal
service is shared by all who seek to provide telecommunications services.
Competition will bring great benefits to customers by giving them the
opportunity to choose among service providers for their telecommunications
needs. See the 1996 Proxy Statement under the heading "Promote Public Policy
Reform" on pages F-9 through F-12 for additional information, which is
incorporated herein by reference.
11
COMPETITION
Regulatory, legislative, and judicial actions, as well as advances in
technology, have expanded the types of available communications products and
services and the number of companies offering such services. Various forms of
competition, including price and service competition, are growing steadily and
are already having an effect on the Telephone Companies' earnings. An
increasing amount of this competition is from large companies with substantial
capital, technological, and marketing resources. Currently, competitors
primarily consist of interexchange carriers, competitive access providers, and
wireless companies. The Telephone Companies also face competition from cable
television companies and others. The Corporation will face significant
competition in its provision of telephone and new services. However,
management believes that the Corporation has a reputation for high quality
services.
Telephone Services Competition
See the 1996 Proxy Statement under the headings "Local Services Competition"
on page F-11 and "Competitive Risk" on pages F-12 through F-14 for information
on current developments in telephone services competition that the Telephone
Companies face, which is incorporated herein by reference.
Directory Advertising
Other producers of printed directories offer products that compete with
certain Pacific Bell Directory SMART Yellow Pages products. Competition is
not limited to other printed directories, but includes newspapers, radio,
television, and, increasingly, direct mail and directories offered over the
Internet. In addition, new advertising and information products may compete
directly or indirectly with the SMART Yellow Pages. With the introduction of
local exchange competition, Pacific Bell Directory will have to acquire
listings from other providers for its products, and competing directory
publishers may ally themselves with other telecommunications providers.
Video Services and Wireless Digital Television
The Corporation will face competition in the provision of video services and
wireless digital television from existing cable television and satellite
providers, and wireless, long-distance, and other telephone companies.
Internet Access
The Corporation faces competition in the provision of Internet access from
established Internet access providers, cable television, long-distance, and
other telephone companies.
Network Integration
The Corporation will face competition in the provision of network integration
services primarily from value added distributors with professional services
and network management capability, including large telecommunication services
providers.
12
PCS
The Corporation will face significant competition in the provision of PCS
services from the holders of the other licenses in such areas. In addition,
the Corporation must compete with established providers of cellular service.
Long Distance
The Corporation will face competition in the long-distance market from
established long-distance service providers including AT&T, MCI Communications
Corporation, and Sprint Corporation. In addition, the Corporation will face
competition from competitive access providers, cable television, wireless,
long-distance, and other telephone companies.
EMPLOYEES
As of December 31, 1995, the Corporation and its subsidiaries employed
48,889 persons. About 66 percent of the employees of the Corporation are
represented by unions. In August 1995, the Telephone Companies reached a
tentative three year agreement with Communications Workers of America, which
represented about 32,000 employees at December 31, 1995. The agreement was
ratified by the union membership in September 1995. The agreement features a
10.5 percent wage increase over three years, a 14 percent pension increase, a
$16 million training and retraining program, a new voluntary early retirement
option, employment security, and improved health benefits. Agreements were
also reached with two other unions. Management estimates that the agreements
will result in increased costs of approximately $550 million over three years.
This estimate does not include savings which may result from the continued
force reduction programs. In October 1995, the Corporation began offering the
new voluntary early retirement option to certain non-management employees.
As a result of its efforts to restructure and reengineer its processes,
Pacific Bell, excluding subsidiaries, reduced net force by about 3,100
employees during 1995.
13
EXECUTIVE OFFICERS OF THE REGISTRANT
The list below gives the names of executive officers as of February 29, 1996,
their present titles and the dates they were elected to these positions.
Name Age Title Since
P. J. Quigley.......... 53 Chairman of the Board, President and
Chief Executive Officer .......... 4/94
D. W. Dorman* ......... 42 Chairman of the Board, President
and Chief Executive Officer
- Pacific Bell ................... 2/96
W. E. Downing*......... 56 Executive Vice President, Chief
Financial Officer and Treasurer... 4/94
M. J. Fitzpatrick*..... 47 President and Chief Executive Officer
- Pacific Telesis Enterprises .... 7/94
J. R. Moberg* ......... 60 Executive Vice President, Human
Resources ........................ 9/87
R. W. Odgers* ......... 59 Executive Vice President, General
Counsel, External Affairs,
and Secretary..................... 3/88
R. L. Barada .......... 51 Vice President - Corporate Strategy
and Development.................... 1/95
Messrs. Quigley, Downing, Moberg, Odgers, and Barada have held responsible
managerial positions with the Corporation or one of its subsidiaries for at
least the past five years.
Mr. Dorman joined the Corporation as Group President and Pacific Bell as
President and Chief Executive Officer in July 1994. In February 1996,
Mr. Dorman was elected Chairman of the Board of Pacific Bell. Prior to
joining the Corporation, Mr. Dorman was employed at Sprint Corporation since
1981. Beginning in 1984, he held a series of leadership positions at Sprint
Corporation, culminating as President, Business Services from 1993 to 1994.
Mr. Fitzpatrick joined Pacific Bell as Executive Vice President in August
1993. In July 1994, Mr. Fitzpatrick became an Executive Vice President of the
Corporation. Prior to joining Pacific Bell, Mr. Fitzpatrick was at Network
Systems Corporation, a computer networking firm, where he became President in
October 1991 and Chief Executive Officer in April 1992.
Officers are not elected for a fixed term, but serve at the discretion of the
Corporation's Board of Directors.
------------------
* Also executive officers of Pacific Bell. Messrs. Dorman and Fitzpatrick
are Group President and Executive Vice President, respectively, of the
Corporation.
14
Item 2. Properties.
As of December 31, 1995, the properties of the Telephone Companies represented
substantially all plant, property, and equipment of the Corporation.
The properties of the Telephone Companies do not lend themselves to
description by character and location of principal units. At
December 31, 1995, the percentage distribution of total telephone plant by
major category for the Telephone Companies was as follows:
Pacific Nevada
Telecommunications Property, Plant and Equipment Bell Bell
----------------------------------------------------------------------------
Land and buildings (occupied principally
by central offices) ............................... 10% 8%
Cable and conduit ................................... 41% 53%
Central office equipment ............................ 35% 33%
Other ............................................... 14% 6%
------- -------
Total ............................................... 100% 100%
============================================================================
At December 31, 1995, the percent utilization of central office equipment
capacity for Pacific Bell and Nevada Bell was approximately 93 percent and
95 percent, respectively.
Substantially all of the installations of central office equipment and
administrative offices are in buildings and on land owned by the Corporation.
Many garages, business offices, and telephone service centers are in rented
quarters.
As of December 31, 1995, about 25 percent of the network access lines of
Pacific Bell were in Los Angeles and vicinity and about 25 percent were in
San Francisco and vicinity. On that date, about 86 percent of Nevada Bell's
network access lines were in Reno and vicinity. The Telephone Companies
provided approximately 77 percent and 29 percent of the total access lines in
California and Nevada, respectively, on December 31, 1995. The Telephone
Companies do not furnish local service in certain sizeable areas of California
and Nevada which are served by nonaffiliated telephone companies.
Item 3. Legal Proceedings.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted for a vote of security holders during the fourth
quarter of the year covered by this report.
15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
DESCRIPTION OF COMMON STOCK, DIVIDEND AND MARKET INFORMATION
All shares of common stock, par value $0.10 per share ("Common Stock"), of the
Corporation are entitled to participate equally in dividends. Each shareowner
has one vote for each share registered in the shareowner's name. All shares of
Common Stock would rank equally on liquidation. Owners of shares of Common
Stock have no preemptive or cumulative voting rights.
At February 29, 1996, there were 718,202 holders of record of the
Corporation's Common Stock. At February 29, 1996, the high and low sales
price for the Corporation's Common Stock based on New York Stock Exchange
Composite Transactions was $28.625 and $28.125, respectively.
The markets for trading in the Common Stock are the New York, Pacific,
Chicago, Swiss, and London Stock Exchanges.
The Corporation from time to time purchases shares of its Common Stock on the
open market or through privately negotiated purchases and holds these shares
as treasury stock.
All shares of Common Stock are fully paid and nonassessable.
Information regarding dividends paid on the Common Stock for 1995 and 1994 and
the quarterly high and low sales prices of the Common Stock during 1995 and
1994 are included in the 1996 Proxy Statement under the heading "Stock Trading
Activity and Dividends Paid" on page F-1, which is incorporated herein by
reference pursuant to General Instruction G(2).
The declaration and timing of all dividends are at the discretion of the
Corporation's Board of Directors and are dependent upon the Corporation's
earnings and financial requirements, general business conditions, and other
factors; there can be no assurances as to the amount or frequency of any
future dividends on the Common Stock.
Item 6. Selected Financial Data.
The information required by this Item is included in the 1996 Proxy Statement
under the heading "Selected Financial and Operating Data" on pages F-34
through F-35, which is incorporated herein by reference pursuant to General
Instruction G(2).
16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this Item is included in the 1996 Proxy Statement
under the heading "Management's Discussion and Analysis of Results of
Operations and Financial Condition" on pages F-3 through F-33, which is
incorporated herein by reference pursuant to General Instruction G(2).
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Pacific Telesis Group
and Subsidiaries has been incorporated by reference in this Form 10-K from
page F-38 of the 1996 Proxy Statement of Pacific Telesis Group and
Subsidiaries. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in Item 14
on page 19 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 22, 1996
All other information required by this Item is included in the 1996 Proxy
Statement on pages F-36 through F-37 (entire text under the heading "Report of
Management"), and on pages F-39 through F-76 (all text and data through Note Q
on such pages, comprising the Corporation's consolidated financial
statements), which is incorporated herein by reference pursuant to General
Instruction G(2).
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
No disagreements with the Corporation's independent accountants on any
accounting or financial disclosure occurred during the period covered by this
report.
17
PART III
Item 10. Directors and Executive Officers of Registrant.
For information with respect to executive officers of the Corporation, see
"Executive Officers of the Registrant" at the end of Part I of this report,
which is incorporated herein by reference. For information with respect to
the directors of the Corporation, see "Election of Directors" on pages 4
through 6 of the 1996 Proxy Statement, which is incorporated herein by
reference pursuant to General Instruction G(3). For information with respect
to compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, see "Section 16 Reporting" on page 10 of the 1996 Proxy Statement,
which is incorporated herein by reference pursuant to General Instruction
G(3).
Item 11. Executive Compensation.
For information with respect to executive compensation, see "Report of the
Compensation and Personnel Committee," "Compensation and Personnel Committee
Interlocks and Insider Participation," "Executive Compensation," "Pension
Plans," and "Employment Contracts and Termination of Employment or Change in
Control Arrangements" on pages 11 through 23 of the 1996 Proxy Statement,
which is incorporated herein by reference pursuant to General Instruction
G(3). For information with respect to director compensation, see "Director
Compensation and Related Transactions" on pages 7 through 9 of the 1996 Proxy
Statement, which is incorporated herein by reference pursuant to General
Instruction G(3).
Item 12. Security Ownership of Certain Beneficial Owners and Management.
For information with respect to the security ownership of the directors and
officers of the Corporation and beneficial owners of more than five percent of
the Corporation's Common Stock, see "Stock Ownership" on pages 9 through 10 of
the 1996 Proxy Statement, which is incorporated herein by reference pursuant
to General Instruction G(3).
Item 13. Certain Relationships and Related Transactions.
For information with respect to certain relationships and related
transactions, see "Director Compensation and Related Transactions" on pages 7
through 9 and "Compensation and Personnel Committee Interlocks and Insider
Participation" on page 13 of the 1996 Proxy Statement, which is incorporated
herein by reference pursuant to General Instruction G(3).
18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of the report:
(1) Financial Statements: Page
Report of Management ............................... *
Report of Independent Accountants .................. *
Financial Statements:
Consolidated Statements of Income ............. *
Consolidated Balance Sheets ................... *
Consolidated Statements of Shareowners'
Equity ...................................... *
Consolidated Statements of Cash Flows ......... *
Notes to Consolidated Financial
Statements .................................. *
Quarterly Financial Data ...................... *
(2) Financial Statement Schedule:
II - Valuation and Qualifying Accounts ............ 26
Financial statement schedules other than listed above have been
omitted either because the required information is contained in
the Consolidated Financial Statements and the notes thereto or
because such schedules are not required or applicable.
* Incorporated herein by reference to the appropriate portions of the 1996
Proxy Statement (File No. 1-8609). (See Part II.)
19
(3) Exhibits:
Exhibits identified in parentheses below as on file with the
SEC are incorporated herein by reference as exhibits hereto.
Unless otherwise indicated, all exhibits so incorporated are
from File No. 1-8609. All management contracts or compensatory
plans or arrangements required to be filed as exhibits to this
Form 10-K pursuant to Item 14(c) are filed as Exhibits 10aa
through 10vv.
Exhibit
Number Description
------- -----------
3a Articles of Incorporation of Pacific Telesis
Group, as amended to June 17, 1988 (Exhibit 3a
to Registration Statement No. 33-24765).
3b By-Laws of Pacific Telesis Group, as amended to
September 24, 1993 (Exhibit 3b to Registration
Statement No. 33-50897, filed November 2, 1993).
4a Rights Agreement, dated as of September 22,
1989, between Pacific Telesis Group and The
First National Bank of Boston, as successor
Rights Agent, which includes as Exhibit B
thereto the form of Rights Certificate
(Exhibits 1 and 2 to Form SE filed September 25,
1989 as part of Form 8-A).
4b No instrument which defines the rights of
holders of long- and intermediate-term debt of
Pacific Telesis Group and its subsidiaries is
filed herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this regulation,
Pacific Telesis Group hereby agrees to furnish a
copy of any such instrument to the SEC upon
request.
10e Separation Agreement by and between the
Corporation and PacTel Corporation dated as of
October 7, 1993, and amended November 2, 1993
and March 25, 1994 (Exhibit 10e to Form 10-K for
1993).
10e(i) Amendment No. 3 to Separation
Agreement effective as of April 1,
1994 (Exhibit 10e(i) to Form 10-K for
1994).
10aa Pacific Telesis Group Senior Management Short
Term Incentive Plan (Attachment A to Pacific
Telesis Group's 1995 Proxy Statement, including
Pacific Telesis Group's 1994 Consolidated
Financial Statements filed March 13, 1995).
20
10bb Pacific Telesis Group Senior Management Long
Term Incentive Plan (Attachment A to Pacific
Telesis Group's 1995 Proxy Statement, including
Pacific Telesis Group's 1994 Consolidated
Financial Statements filed March 13, 1995).
10cc Pacific Telesis Group Executive Life Insurance
Plan (Exhibit 10cc to Form SE filed March 27,
1987 in connection with the Corporation's Form
10-K for 1986).
10cc(i) Resolutions amending the Plan,
effective April 1, 1994 (Exhibit
10cc(i) to Form 10-K for 1993).
10dd Pacific Telesis Group Executive Disability and
Survivor Protection Plan, as amended and
restated effective July 1, 1995.
10ee Pacific Telesis Group Senior Management Transfer
Program (Exhibit 10ee to Registration Statement
No. 2-87852).
10ff Pacific Telesis Group Senior Management
Financial Counseling Program (Exhibit 10ff to
Registration Statement No. 2-87852).
10gg Pacific Telesis Group Deferred Compensation Plan
for Nonemployee Directors (Exhibit 10gg to Form
SE filed April 1, 1991 in connection with the
Corporation's Form 10-K for 1990).
10gg(i) Resolutions amending the Plan
effective December 21, 1990, November
20, 1992 and December 18, 1992
(Exhibit 10gg(i) to Form SE filed
March 26, 1993 in connection with the
Corporation's Form 10-K for 1992).
10gg(ii) Resolutions amending the Plan,
effective April 1, 1994 (Exhibit
10gg(ii) to Form 10-K for 1993).
10hh Description of Pacific Telesis Group Directors'
and Officers' Liability Insurance Program
(Exhibit 10hh to Form 10-K for 1993).
10ii Description of Pacific Telesis Group Plan for
Nonemployee Directors' Travel Accident Insurance
(Exhibit 10ii to Form SE filed March 26, 1990 in
connection with the Corporation's Form 10-K for
1989).
21
10jj Pacific Telesis Group 1994 Stock Incentive Plan
(Attachment A to Pacific Telesis Group's 1994
Proxy Statement, including Pacific Telesis
Group's 1993 Consolidated Financial Statements
filed March 11, 1994, and amended March 14 and
March 25, 1994).
10jj(i) Resolutions amending the Plan,
effective January 1, 1995 (Attachment
A to Pacific Telesis Group's 1995
Proxy Statement including Pacific
Telesis Group 1994 Consolidated
Financial Statements filed March 13,
1995).
10kk Pacific Telesis Group Executive Supplemental
Pension Plan.
10kk(i) Trust Agreement No. 3 between Pacific
Telesis Group and Bankers Trust
Company in connection with the
Corporation's executive supplemental
pension benefits (Exhibit 10kk(iv) to
Form 10-K for 1993).
10ll Pacific Telesis Group Executive Deferral Plan
(Exhibit 10ll to Form 10-K for 1994).
10mm Description of Pacific Telesis Group Personal
Umbrella Liability Insurance (Exhibit 10mm to
Form 10-K for 1994).
10nn Pacific Telesis Group Mid-Career Pension Plan,
as amended and restated effective July 1, 1995.
10nn(i) Trust Agreement No. 3 between Pacific
Telesis Group and Bankers Trust
Company in connection with the
Corporation's executive supplemental
pension benefits (Exhibit 10kk(iv) to
Form 10-K for 1993).
10oo Pacific Telesis Group Outside Directors'
Deferred Stock Unit Plan.
10pp Employment Contracts for Certain Senior Officers
of Pacific Telesis Group (Exhibit 10pp to Form
SE filed March 23, 1989 in connection with the
Corporation's Form 10-K for 1988).
10pp(i) Schedule to Exhibit 10pp (Exhibit
10pp(i) to Form 10-K for 1993).
22
10pp(ii) Employment contracts for certain
senior officers of Pacific Telesis
Group (Exhibit 10pp(ii) to Form 10-K
for 1993).
10pp(iii) Employment contract for senior officer
of Pacific Telesis Group (Exhibit
10pp(iii) to Form 10-Q for the quarter
ended September 30, 1994).
10pp(iv) Employment contract for certain senior
officers of Pacific Telesis Group
(Exhibit 10pp(iv) to Form 10-K for
1994).
10pp(v) Supplemental Benefit Agreement for
senior officer of Pacific Telesis
Group.
10rr Executive supplemental benefit agreement
(Exhibit 10rr to Form 10-K for 1993).
10ss Pacific Telesis Group Outside Directors'
Retirement Plan, as amended and restated
effective January 26, 1996.
10tt Representative Indemnity Agreement between
Pacific Telesis Group and certain of its
officers and each of its directors (Exhibit 10tt
to Form SE filed March 29, 1988 in connection
with the Corporation's Form 10-K for 1987).
10uu Trust Agreement between Pacific Telesis Group
and Bankers Trust Company, as successor Trustee,
in connection with the Pacific Telesis Group
Executive Deferral Plan (Exhibit 10uu to Form SE
filed March 23, 1989 in connection with the
Corporation's Form 10-K for 1988).
10uu(i) Amendment to Trust Agreement No. 1
effective December 11, 1992 (Exhibit
10uu(i) to Form SE filed March 26,
1993 in connection with the
Corporation's Form 10-K for 1992).
10uu(ii) Amendment to Trust Agreement No. 1,
effective May 28, 1993 (Exhibit
10uu(ii) to Form 10-K for 1993).
10uu(iii) Amendment to Trust Agreement No. 1,
effective November 15, 1993 (Exhibit
10uu(iii) to Form 10-K for 1993).
23
10vv Trust Agreement between Pacific Telesis Group
and Bankers Trust Company, as successor Trustee,
in connection with the Pacific Telesis Group
Deferred Compensation Plan for the Nonemployee
Directors (Exhibit 10vv to Form SE filed
March 23, 1989 in connection with the
Corporation's Form 10-K for 1988).
10vv(i) Amendment to Trust Agreement No. 2
effective December 11, 1992 (Exhibit
10vv(i) to Form SE filed March 26,
1993 in connection with the
Corporation's Form 10-K for 1992).
10vv(ii) Amendment to Trust Agreement No. 2,
effective May 28, 1993 (Exhibit
10vv(ii) to Form 10-K for 1993).
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed
Charges.
21 Subsidiaries of Pacific Telesis Group.
23 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney executed by Directors and
Officers who signed this Form 10-K.
27 Financial Data Schedule.
99a Pacific Telesis Group's 1996 Proxy Statement,
including Pacific Telesis Group's 1995
Consolidated Financial Statements (Filed March
4, 1996).
99b Annual Report on Form 11-K for the Pacific
Telesis Group Supplemental Retirement and
Savings Plan for Salaried Employees for the year
1995 (To be filed as an amendment within 180
days).
99c Annual Report on Form 11-K for the Pacific
Telesis Group Supplemental Retirement and
Savings Plan for Nonsalaried Employees for the
year 1995 (To be filed as an amendment within
180 days).
24
The Corporation will furnish to a security holder upon request a copy of
any exhibit at cost.
(b) Reports on Form 8-K:
Form 8-K, Date of Report November 17, 1995, was filed with the SEC
under Item 5 describing a class action complaint.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 TELESIS GROUP
BY /s/ William E. Downing
-------------------------
William E. Downing,
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
DATE: March 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Philip J. Quigley,* Chairman of the Board, President and
Chief Executive Officer
/s/ William E. Downing, Executive Vice President,
Chief Financial Officer and Treasurer
Gilbert F. Amelio,* Director Lewis E. Platt,* Director
William P. Clark,* Director Toni Rembe,* Director
Herman E. Gallegos,* Director S. Donley Ritchey,* Director
Frank C. Herringer,* Director Richard M. Rosenberg,* Director
Mary S. Metz,* Director
*BY /s/ William E. Downing
------------------------------------
William E. Downing, attorney-in-fact
DATE: March 22, 1996
26
Sheet 1 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
---------------------------------------------------------------------------
Allowance for Doubtful Accounts
-------------------------------
Additions
--------------------
(1) (2)
Charged to Charged
Balance at Costs and to Other Balance at
End of Prior Expenses Accounts Deductions End of
Period (a) (b) (c) Period
---------------------------------------------------------------------------
Year 1995 $134 $167 $147 $316 $132
Year 1994 $138 $151 $143 $298 $134
Year 1993 $130 $163 $140 $295 $138
===========================================================================
Reserve for Discontinuing Real Estate Operations
------------------------------------------------
Additions
--------------------
(1) (2)
Charged to Charged
Balance at Costs and to Other Balance at
End of Prior Expenses Accounts Deductions End of
Period (d) Period
---------------------------------------------------------------------------
Year 1995 $ 51 $ 0 $0 $ 19 $ 32
Year 1994 $338 $ 0 $0 $287 $ 51
Year 1993 $ 33 $347 $0 $ 42 $338
===========================================================================
See accompanying notes on Sheet 3 of 3.
27
Sheet 2 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
---------------------------------------------------------------------------
Reserve for Restructuring
-------------------------
Additions
--------------------
(1) (2)
Charged to Charged
Balance at Costs and to Other Balance at
End of Prior Expenses Accounts Deductions End of
Period (e) (f) (g) Period
---------------------------------------------------------------------------
Year 1995 $ 819 $ 0 $ 0 $591 $ 228
Year 1994 $1,097 $ 0 $ 0 $278 $ 819
Year 1993 $ 101 $977 $43 $ 24 $1,097
===========================================================================
Various Other Reserves
----------------------
Additions
---------------------
(1) (2)
Balance at Charged to Charged Balance at
End of Prior Costs and to Other End of
Period Expenses Accounts Deductions Period
---------------------------------------------------------------------------
Year 1995 $68 $ 0 $0 $ 2 $66
Year 1994 $90 $ 0 $0 $22 $68
Year 1993 $27 $107 $0 $44 $90
===========================================================================
See accompanying notes on Sheet 3 of 3.
28
Sheet 3 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
--------------------
(a) Provision for uncollectibles includes certain direct write-off items
which are not reflected in this account.
(b) Amounts in this column reflect items of uncollectible interstate and
intrastate accounts receivable purchased from and billed for AT&T and
other interexchange carriers under contract arrangements.
(c) Amounts in this column reflect items written off, net of amounts
previously written off but subsequently recovered.
(d) Costs and expenses for 1993 reflect an additional pre-tax loss reserve
of $347 million to cover potential future losses on real estate sales
and estimated operating losses of the Corporation's wholly owned real
estate subsidiary during the planned sales period.
(e) Pacific Bell recorded pre-tax restructuring charges to recognize the
incremental cost of force reductions.
(f) Amounts in this column reflect items capitalized to construction.
(g) The 1995 and 1994 amounts reflect $219 and $62 million of costs,
respectively, for enhanced retirement benefits paid from pension fund
assets which do not require current outlays of the Corporation's funds.
--------------------
29
TELESIS(R) is a registered trademark of Pacific Telesis Group.
30
EXHIBIT INDEX
Exhibits identified in parentheses below as on file with the SEC are
incorporated herein by reference as exhibits hereto. Unless otherwise
indicated, all exhibits so incorporated are from File No. 1-8609. All
management contracts or compensatory plans or arrangements required to be
filed as exhibits to this Form 10-K pursuant to Item 14(c) are filed as
Exhibits 10aa through 10vv.
Exhibit
Number Description
------- -----------
3a Articles of Incorporation of Pacific Telesis Group, as
amended to June 17, 1988 (Exhibit 3a to Registration
Statement No. 33-24765).
3b By-Laws of Pacific Telesis Group, as amended to September 24,
1993 (Exhibit 3b to Registration Statement No. 33-50897,
filed November 2, 1993).
4a Rights Agreement, dated as of September 22, 1989, between
Pacific Telesis Group and The First National Bank of Boston,
as successor Rights Agent, which includes as Exhibit B
thereto the form of Rights Certificate (Exhibits 1 and 2 to
Form SE filed September 25, 1989 as part of Form 8-A).
4b No instrument which defines the rights of holders of long-
and intermediate-term debt of Pacific Telesis Group and its
subsidiaries is filed herewith pursuant to Regulation S-K,
Item 601(b)(4)(iii)(A). Pursuant to this regulation, Pacific
Telesis Group hereby agrees to furnish a copy of any such
instrument to the SEC upon request.
10e Separation Agreement by and between the Corporation and
PacTel Corporation dated as of October 7, 1993, and amended
November 2, 1993 and March 25, 1994 (Exhibit 10e to Form 10-K
for 1993).
10e(i) Amendment No. 3 to Separation Agreement effective as
of April 1, 1994 (Exhibit 10e(i) to Form 10-K for
1994).
10aa Pacific Telesis Group Senior Management Short Term Incentive
Plan (Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, including Pacific Telesis Group's 1994
Consolidated Financial Statements filed March 13, 1995).
10bb Pacific Telesis Group Senior Management Long Term Incentive
Plan (Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, including Pacific Telesis Group's 1994
Consolidated Financial Statements filed March 13, 1995).
31
10cc Pacific Telesis Group Executive Life Insurance Plan (Exhibit
10cc to Form SE filed March 27, 1987 in connection with the
Corporation's Form 10-K for 1986).
10cc(i) Resolutions amending the Plan, effective April 1,
1994 (Exhibit 10cc(i) to Form 10-K for 1993).
10dd Pacific Telesis Group Executive Disability and Survivor
Protection Plan, as amended and restated effective July 1,
1995.
10ee Pacific Telesis Group Senior Management Transfer Program
(Exhibit 10ee to Registration Statement No. 2-87852).
10ff Pacific Telesis Group Senior Management Financial Counseling
Program (Exhibit 10ff to Registration Statement No. 2-87852).
10gg Pacific Telesis Group Deferred Compensation Plan for
Nonemployee Directors (Exhibit 10gg to Form SE filed April 1,
1991 in connection with the Corporation's Form 10-K for
1990).
10gg(i) Resolutions amending the Plan effective
December 21, 1990, November 20, 1992 and
December 18, 1992 (Exhibit 10gg(i) to Form SE filed
March 26, 1993 in connection with the Corporation's
Form 10-K for 1992).
10gg(ii) Resolutions amending the Plan, effective April 1,
1994 (Exhibit 10gg(ii) to Form 10-K for 1993).
10hh Description of Pacific Telesis Group Directors' and Officers'
Liability Insurance Program (Exhibit 10hh to Form 10-K for
1993).
10ii Description of Pacific Telesis Group Plan for Nonemployee
Directors' Travel Accident Insurance (Exhibit 10ii to Form SE
filed March 26, 1990 in connection with the Corporation's
Form 10-K for 1989).
10jj Pacific Telesis Group 1994 Stock Incentive Plan (Attachment A
to Pacific Telesis Group's 1994 Proxy Statement, including
Pacific Telesis Group's 1993 Consolidated Financial
Statements filed March 11, 1994, and amended March 14 and
March 25, 1994).
10jj(i) Resolutions amending the Plan, effective January 1,
1995 (Attachment A to Pacific Telesis Group's 1995
Proxy Statement including Pacific Telesis Group
1994 Consolidated Financial Statements filed
March 13, 1995).
32
10kk Pacific Telesis Group Executive Supplemental Pension Plan.
10kk(i) Trust Agreement No. 3 between Pacific Telesis Group
and Bankers Trust Company in connection with the
Corporation's executive supplemental pension
benefits (Exhibit 10kk(iv) to Form 10-K for 1993).
10ll Pacific Telesis Group Executive Deferral Plan (Exhibit 10ll
to Form 10-K for 1994).
10mm Description of Pacific Telesis Group Personal Umbrella
Liability Insurance (Exhibit 10mm to Form 10-K for 1994).
10nn Pacific Telesis Group Mid-Career Pension Plan, as amended and
restated effective July 1, 1995.
10nn(i) Trust Agreement No. 3 between Pacific Telesis Group
and Bankers Trust Company in connection with the
Corporation's executive supplemental pension
benefits (Exhibit 10kk(iv) to Form 10-K for 1993).
10oo Pacific Telesis Group Outside Directors' Deferred Stock Unit
Plan.
10pp Employment Contracts for Certain Senior Officers of Pacific
Telesis Group (Exhibit 10pp to Form SE filed March 23, 1989
in connection with the Corporation's Form 10-K for 1988).
10pp(i) Schedule to Exhibit 10pp (Exhibit 10pp(i) to Form
10-K for 1993).
10pp(ii) Employment contracts for certain senior officers of
Pacific Telesis Group (Exhibit 10pp(ii) to Form
10-K for 1993).
10pp(iii) Employment contract for senior officer of Pacific
Telesis Group (Exhibit 10pp(iii) to Form 10-Q for
the quarter ended September 30, 1994).
10pp(iv) Employment contract for certain senior officers of
Pacific Telesis Group (Exhibit 10pp(iv) to Form
10-K for 1994).
10pp(v) Supplemental Benefit Agreement for senior officer
of Pacific Telesis Group.
10rr Executive supplemental benefit agreement (Exhibit 10rr to
Form 10-K for 1993).
10ss Pacific Telesis Group Outside Directors' Retirement Plan, as
amended and restated effective January 26, 1996.
33
10tt Representative Indemnity Agreement between Pacific Telesis
Group and certain of its officers and each of its directors
(Exhibit 10tt to Form SE filed March 29, 1988 in connection
with the Corporation's Form 10-K for 1987).
10uu Trust Agreement between Pacific Telesis Group and Bankers
Trust Company, as successor Trustee, in connection with the
Pacific Telesis Group Executive Deferral Plan (Exhibit 10uu
to Form SE filed March 23, 1989 in connection with the
Corporation's Form 10-K for 1988).
10uu(i) Amendment to Trust Agreement No. 1 effective
December 11, 1992 (Exhibit 10uu(i) to Form SE filed
March 26, 1993 in connection with the Corporation's
Form 10-K for 1992).
10uu(ii) Amendment to Trust Agreement No. 1, effective
May 28, 1993 (Exhibit 10uu(ii) to Form 10-K for
1993).
10uu(iii) Amendment to Trust Agreement No. 1, effective
November 15, 1993 (Exhibit 10uu(iii) to Form 10-K
for 1993).
10vv Trust Agreement between Pacific Telesis Group and Bankers
Trust Company, as successor Trustee, in connection with the
Pacific Telesis Group Deferred Compensation Plan for the
Nonemployee Directors (Exhibit 10vv to Form SE filed
March 23, 1989 in connection with the Corporation's Form 10-K
for 1988).
10vv(i) Amendment to Trust Agreement No. 2 effective
December 11, 1992 (Exhibit 10vv(i) to Form SE filed
March 26, 1993 in connection with the Corporation's
Form 10-K for 1992).
10vv(ii) Amendment to Trust Agreement No. 2, effective
May 28, 1993 (Exhibit 10vv(ii) to Form 10-K for
1993).
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Pacific Telesis Group.
23 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney executed by Directors and Officers who
signed this Form 10-K.
27 Financial Data Schedule.
34
99a Pacific Telesis Group's 1996 Proxy Statement, including
Pacific Telesis Group's 1995 Consolidated Financial
Statements (Filed March 4, 1996).
99b Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Salaried
Employees for the year 1995 (To be filed as an amendment
within 180 days).
99c Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Nonsalaried
Employees for the year 1995 (To be filed as an amendment
within 180 days).
35
Dates Referenced Herein and Documents Incorporated by Reference
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