<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6589
WISCONSIN BELL, INC.
(Incorporated under the laws of the State of Wisconsin)
722 North Broadway, Milwaukee, Wisconsin 53202
I.R.S. Employer Identification Number 39-0716650
Telephone Number - (800) 257-0902
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF AMERITECH CORPORATION,
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b)
OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE
FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
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
---- ----
At April 30, 1997, 31,960,395 common shares were outstanding.
<PAGE>2
Part I - Financial Information
------------------------------
CONDENSED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31
----------------
1997 1996
---- ----
Revenues
Local service........................... $ 156.2 $ 147.2
Interstate network access.......... 70.0 64.7
Intrastate network access.......... 14.7 15.2
Long distance services............. 35.6 43.6
Other.............................. 26.1 26.0
--------- ---------
302.6 296.7
--------- ---------
Operating expenses
Employee-related expenses.......... 52.5 54.2
Depreciation and amortization...... 44.3 43.7
Other operating expenses........... 95.4 97.1
Taxes other than income taxes...... 16.9 14.8
--------- ---------
209.1 209.8
--------- ---------
Operating income..................... 93.5 86.9
Interest expense..................... 7.4 6.8
Other income, net.................... 0.8 0.8
--------- ---------
Income before income taxes........... 86.9 80.9
Income taxes......................... 34.1 30.8
--------- ---------
Net income........................... 52.8 50.1
Accumulated deficit,
beginning of period................ (116.2) (126.9)
Less, dividends declared ......... 51.8 45.1
--------- ---------
Accumulated deficit,
end of period...................... $ (115.2) $ (121.9)
========= =========
See Notes to Condensed Financial Statements.
Page 2
<PAGE>3
CONDENSED BALANCE SHEETS
(Dollars in Millions)
March 31, 1997 Dec. 31, 1996
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
Current assets
Cash and temporary cash investments......... $ 0.1 $ 0.1
Investment in Ameritech funding pool........ 10.5 --
--------- ---------
10.6 0.1
Receivables, net
Customers................................. 233.6 243.6
Other..................................... 5.8 5.6
Material and supplies....................... 3.5 2.9
Prepaid and other........................... 7.6 7.4
--------- ---------
261.1 259.6
--------- ---------
Property, plant and equipment................ 2,945.3 2,914.9
Less, accumulated depreciation............... 1,770.5 1,739.2
--------- ---------
1,174.8 1,175.7
--------- ---------
Investments, primarily in affiliates......... 24.4 27.4
Other assets and deferred charges............ 106.6 106.0
--------- ---------
Total assets................................. $ 1,566.9 $ 1,568.7
========= =========
See Notes to Condensed Financial Statements.
Page 3
<PAGE>4
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
March 31, 1997 Dec. 31, 1996
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech................................. $ -- $ 19.2
Accounts payable
Ameritech Services, Inc. (ASI)............ 50.7 53.3
Ameritech and affiliates.................. 17.0 21.3
Other..................................... 57.5 67.8
Other current liabilities.................. 90.1 52.3
--------- ---------
215.3 213.9
--------- ---------
Long-term debt.............................. 430.0 430.0
--------- ---------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes.......... 64.7 65.2
Unamortized investment tax credits......... 19.9 21.0
Postretirement benefits
other than pensions...................... 262.4 262.7
Long-term payable to ASI................... 7.2 7.7
Other ..................................... 31.0 32.8
--------- ---------
385.2 389.4
--------- ---------
Shareowner's equity
Common shares - ($20 par value;
31,995,000 shares authorized;
31,960,395 issued and outstanding)....... 639.2 639.2
Proceeds in excess of par value............ 12.4 12.4
Accumulated deficit........................ (115.2) (116.2)
--------- ---------
536.4 535.4
--------- ---------
Total liabilities and shareowner's equity... $ 1,566.9 $ 1,568.7
========= =========
See Notes to Condensed Financial Statements.
Page 4
<PAGE>5
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31
-------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 52.8 $ 50.1
Adjustments to net income
Depreciation and amortization............... 44.3 43.7
Deferred income taxes, net.................. (0.4) (1.1)
Investment tax credits, net................. (1.1) (1.3)
Capitalized interest........................ (0.2) (0.2)
Change in accounts receivable, net.......... 9.8 4.3
Change in material and supplies............. (1.9) (1.4)
Change in certain other current assets...... (0.3) 0.7
Change in accounts payable.................. (17.2) (20.0)
Change in certain other current
liabilities................................ 37.7 33.7
Change in certain other noncurrent
assets and liabilities..................... (3.3) (5.8)
Other operating activities, net............ 3.2 2.8
-------- --------
Net cash from operating activities............ 123.4 105.5
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (44.2) (28.7)
Proceeds from disposals of
property, plant and equipment................ 2.3 1.9
-------- --------
Net cash from investing activities............ (41.9) (26.8)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing, net................... (19.2) 13.1
Retirements of long-term debt................. -- (0.1)
Dividend payments............................. (51.8) (91.7)
-------- --------
Net cash from financing activities............ (71.0) (78.7)
-------- --------
Net change in cash and
temporary cash investments................... 10.5 --
Cash and temporary cash investments,
beginning of period.......................... 0.1 0.1
-------- --------
Cash and temporary cash investments,
end of period................................ $ 10.6 $ 0.1
======== ========
See Notes to Condensed Financial Statements.
Page 5
<PAGE>6
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
MARCH 31, 1997
NOTE 1: Preparation of Interim Financial Statements
The condensed financial statements of Wisconsin Bell, Inc. (Wisconsin
Bell or the Company) have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission (SEC).
These financial statements include estimates and assumptions that
affect the reported amounts of assets and liabilities and the amounts
of revenues and expenses. Actual amounts could differ from those
estimates. In the Company's opinion, these statements include all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of results for each period shown.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
SEC rules and regulations. The Company believes that the disclosures
made are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-K.
Page 6
<PAGE>7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The following is a discussion and analysis of the changes in
revenues, operating expenses and other income and expenses for the
first three months of 1997 as compared with the first three months of
1996.
Results of Operations
- ---------------------
Revenues
- --------
Total revenues in the first three months of 1997 were $302.6 million
and were $296.7 million for the same period in 1996, an increase of
$5.9 million. The increase was primarily attributable to growth in
access lines and sales of call management services, as well as
increases in switched minutes of use resulting from higher network
usage volumes. These increases were partially offset by net rate
reductions.
- ---------------------------------------------------------------------
Local service
- -------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 156.2 $ 147.2 $ 9.0 6.1
Local service revenues include basic monthly service fees and usage
charges, fees for call management services, installation and
connection charges and public phone revenues. The increase in local
service revenues for the three months ended March 31, 1997 was due
largely to higher network usage volumes, resulting primarily from
access line growth of 4.3 percent over the prior year period. Second
line additions by residential and small business customers
contributed to the increase in access lines. Sales of call
management services, such as Call Forwarding, Call Waiting and Caller
ID continued to grow as well, fueled by customer demand for
additional flexibility and convenience.
There were 2,158,000 access lines in service as of March 31, 1997
compared with 2,068,000 as of March 31, 1996.
- ---------------------------------------------------------------------
Network access
- --------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
- ----------
Three Months Ended $ 70.0 $ 64.7 $ 5.3 8.2
Intrastate
- ----------
Three Months Ended $ 14.7 $ 15.2 $ (0.5) (3.3)
Network access revenues are fees charged to interexchange carriers
that use the Company's local landline communications network to
connect customers to their long distance network. In addition, end
users pay flat rate access fees to connect to the long distance
network. These revenues are generated from both interstate and
intrastate services.
Page 7
<PAGE>8
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Network access (cont'd.)
- ------------------------
The increase in interstate network access revenues for the three
months ended March 31, 1997 was due primarily to an increase in
network minutes of use, resulting from overall growth in the volume
of calls handled for interexchange carriers. Greater demand for
dedicated services by Internet service providers and other high-
capacity users also contributed to the increase. These revenue
increases were partially offset by rate reductions. Interstate
minutes of use for the three months ended March 31, 1997 increased by
3.4 percent over the comparable prior year period.
The decrease in intrastate network access revenues for the three
months ended March 31, 1997 was primarily attributable to rate
reductions, which were mostly offset by volume increases. Minutes of
use related to intrastate calls increased 4.6 percent in the first
three months of 1997 over the comparable prior year period.
- ---------------------------------------------------------------------
Long distance service
- ---------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 35.6 $ 43.6 $ (8.0) (18.3)
Long distance service revenues are derived from customer calls to
locations outside of their local calling areas, but within the same
Local Access and Transport Area (LATA). The decrease in long
distance service revenues for the three months ended March 31, 1997
was primarily attributable to decreased volumes resulting from
increased competition from alternative providers of intraLATA toll
service. As of September 1, 1996, all of the Company's service
territory had been opened to Dial 1+ competition.
- ---------------------------------------------------------------------
Other
- -----
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 26.1 $ 26.0 $ 0.1 0.4
Other revenues include revenues derived from directory advertising,
billing and collection services, inside wire installation and
maintenance services and other miscellaneous services. The increase
in other revenues for the three months ended March 31, 1997 was not
significant in comparison with the prior year period. Increases in
inside wire installation and maintenance revenues were substantially
offset by a decrease in revenues from other nonregulated services.
- ---------------------------------------------------------------------
Operating expenses
- ------------------
Total operating expenses for the three months ended March 31, 1997
decreased by $0.7 million or 0.3 percent to $209.1 million. See
below for a discussion of operating expense items.
Page 8
<PAGE>9
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Employee-related expenses
- -------------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 52.5 $ 54.2 $ (1.7) (3.1)
The decrease in employee-related expenses for the three months ended
March 31, 1997 was due primarily to lower wage expenses resulting
from decreased force levels and overtime and bonus expenses,
partially offset by wage rate increases.
There were 4,132 employees as of March 31, 1997, compared with 4,346
as of March 31, 1996.
- ---------------------------------------------------------------------
Depreciation and
amortization
- ------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 44.3 $ 43.7 $ 0.6 1.4
The increase in depreciation and amortization expense for the three
months ended March 31, 1997 is primarily due to an increase in
depreciable plant balances, as well as an increase in depreciation
rates used for certain asset categories due to the use of shorter
depreciable lives for newer technologies.
- ---------------------------------------------------------------------
Other operating expenses
- ------------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 95.4 $ 97.1 $ (1.7) (1.8)
The decrease in other operating expenses for the three months ended
March 31, 1997 was due to decreases in cost of sales, related to
equipment sales, as well as decreased contract services and access
charge expenses. These decreases were partially offset by an
increase in affiliated services expenses, due primarily to systems
programming and reengineering efforts, and increased uncollectibles.
- ---------------------------------------------------------------------
Taxes other than income taxes
- -----------------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 16.9 $ 14.8 $ 2.1 14.2
Taxes other than income taxes consist of property taxes, gross
receipts taxes and other nonincome based taxes. The increase in
taxes other than income taxes for the three months ended March 31,
1997 was due to increased gross receipts taxes over the prior year
period, largely due to state tax reforms.
Page 9
<PAGE>10
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Income and Expenses
- -------------------------
Interest expense
- ----------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 7.4 $ 6.8 $ 0.6 8.8
The increase in interest expense for the three months ended March 31,
1997 was due primarily to a increased interest on long-term debt
following the Company's issuance of $125 million of long-term debt in
November 1996. This increase was partially offset by decreased
interest on balances in the Ameritech short-term funding pool,
reflecting lower average pool balances.
- ---------------------------------------------------------------------
Other income, net
- -----------------
Change
March 31 Income Percent
------------
(dollars in millions) 1997 1996 (Expense) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 0.8 $ 0.8 $ -- --
Other income, net includes equity in earnings of affiliates, interest
income and other nonoperating items. There was no change in other
income net for the first three months of 1997 as compared with the
prior year period.
- ---------------------------------------------------------------------
Income taxes
- ------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 34.1 $ 30.8 $ 3.3 10.7
The increase in income taxes for the three months ended March 31,
1997 was due primarily to increased pretax earnings resulting from
the revenue and expense items discussed above.
- ---------------------------------------------------------------------
Ratio of earnings to fixed charges
- ----------------------------------
The ratio of earnings to fixed charges for the three months ended
March 31 was 11.43 in 1997 and 11.40 in 1996.
Page 10
<PAGE>11
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters
- --------------
Competition and the Telecommunications Act of 1996
- --------------------------------------------------
The Company's local service markets have been opened to competition
from interexchange carriers and other local service providers, as
required by the Telecommunications Act of 1996 (the 1996 Act).
Interconnection agreements that the Company has signed require it to
allow access to network elements at cost-based rates or services at
discounted, wholesale rates. These agreements may result in some
downward pressure on local service revenues, as a portion of the
Company's revenue shifts from local service at retail rates to
network access at wholesale rates.
The 1996 Act was also designed to bring renewed scrutiny of the
current universal service funding policy. Historically, network
access charges have been used to help local exchange carriers ensure
universal basic telephone service to all customers. The FCC is
expected to review and possibly modify this policy during 1997. Any
modifications by the FCC may result in changes to the Company's
revenue stream related to network access charges.
The Company has signed a significant number of interconnection and
resale agreements with competitors, paving the way for entry into
the interLATA long distance market. However, FCC rules require that
interLATA long distance service be offered by a separate subsidiary
of Ameritech. Accordingly, Ameritech's entry into this market will
not generate long distance revenues for Wisconsin Bell. As a
result, the potential revenue decline brought by local service
competition will not be offset at the Company by gains in long
distance revenue.
It is impossible to predict the specific impact of the Telecom Act
and other changes in the industry on Wisconsin Bell's business or
financial condition. Notwithstanding the potential for an adverse
effect on its revenue streams, the Company intends to pursue growth
opportunities in its local exchange business.
Private Securities Litigation Reform Act Safe Harbor Statement
- ------------------------------------------------------------------
Except for historical information contained herein, the above
discussion contains certain forward-looking statements that involve
potential risks and uncertainties. The Company's future results
could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not
limited to, changes in economic and market conditions, effects of
state and federal regulation and the impact of new technologies.
Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to revise or update these forward-
looking statements to reflect events or circumstances that arise
after the date hereof or to reflect the occurrence of unanticipated
events.
Page 11
<PAGE>12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
--------
12 Computation of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 1997 and March 31, 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No Form 8-K was filed by the registrant during the quarter for
which this report is filed.
Page 12
<PAGE>13
SIGNATURES
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.
WISCONSIN BELL, INC.
------------------
(Registrant)
Date: May 6, 1997 /s/ Ronald G. Pippin
--------------------------
Ronald G. Pippin
Comptroller
Page 13
EXHIBIT 12
WISCONSIN BELL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Three Months Ended
March 31
---------------
1997 1996
---- ----
1. EARNINGS
a) Income before interest expense,
income taxes and undistributed
equity earnings .................... $ 97.3 $ 90.2
b) Portion of rental expense
representative of the
interest factor (1)................. 1.0 1.0
-------- --------
Total 1(a) and 1(b) ................. $ 98.3 $ 91.2
-------- --------
2. FIXED CHARGES
a) Total interest expense including
capital lease obligations........... $ 7.4 $ 6.8
b) Capitalized interest ........... 0.2 0.2
c) Portion of rental expense
representative of the
interest factor (1)................. 1.0 1.0
-------- --------
Total 2(a) through 2(c)................. $ 8.6 $ 8.0
-------- --------
3. RATIO OF EARNINGS TO FIXED CHARGES....... 11.43 11.40
===== =====
(1) One-third of rental expense is considered to be the amount
representing return on capital.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
WISCONSIN BELL, INC.'S MARCH 31, 1997 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,600
<SECURITIES> 0<F1>
<RECEIVABLES> 263,100
<ALLOWANCES> (23,700)
<INVENTORY> 3,500
<CURRENT-ASSETS> 261,100
<PP&E> 2,945,300
<DEPRECIATION> 1,770,500
<TOTAL-ASSETS> 1,566,900
<CURRENT-LIABILITIES> 215,300
<BONDS> 430,000
0
0
<COMMON> 639,200
<OTHER-SE> (102,800)
<TOTAL-LIABILITY-AND-EQUITY> 1,566,900
<SALES> 0<F2>
<TOTAL-REVENUES> 302,600
<CGS> 0<F3>
<TOTAL-COSTS> 209,100
<OTHER-EXPENSES> (800)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,400
<INCOME-PRETAX> 86,900
<INCOME-TAX> 34,100
<INCOME-CONTINUING> 52,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,800
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>SECURITIES ARE NOT MATERIAL AND THEREFORE HAVE NOT BEEN STATED SEPARATELY
IN THE FINANCIAL STATEMENTS. THIS AMOUNT IS INCLUDED IN THE CASH TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL REVENUES AND
THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL STATEMENTS
PURSUANT TO REGULATION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN THE
"TOTAL REVENUES" TAG.
<F3>COST OF TANGIBLE GOODS SOLD IS INCLUDED IN COST OF SERVICE AND
PRODUCTS IN THE FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO
REGULATION S-X, RULE 5-03(B).
</FN>
</TABLE>
