<PAGE>
- ---------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
- -------------------------------------------
Form 10-Q
(Mark one)
- -------------------------------------------
[x] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
- -------------------------------------------
or
- -------------------------------------------
[ ] Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
- -------------------------------------------
Commission File Number 1-2222
Illinois Bell Telephone Company
-----------------------------
An Illinois Corporation
-----------------------------
225 W. Randolph Street
Chicago, Illinois 60606
-----------------------------
I.R.S. Employer Identification
Number 36-1253600
Telephone number (800) 257-0902
ILLINOIS BELL IS A WHOLLY OWNED SUBSIDIARY OF AMERITECH CORPORATION AND
MEETS THE CONDITIONS IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q.
WE ARE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT UNDER GENERAL
INSTRUCTION H(2).
We have 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, and
have been subject to those filing requirements for the past 90 days.
Yes X No
---- ----
At July 31, 1997, 81,938,121 common shares were outstanding.
<PAGE>
TABLE OF CONTENTS
PART I
ITEM Page
- ---- ----
1. Financial Statements
Condensed Statements of Income and Accumulated Deficit for
the three and six months ended June 30, 1997 and 1996 1
Condensed Balance Sheets as of
June 30, 1997 and December 31, 1996 3-5
Condensed Statements of Cash Flows for
the six months ended June 30, 1997 and 1996 7
Notes to Condensed Financial Statements 9
2. Management's Discussion and Analysis
of Results of Operations 10-21
PART II
6.Exhibits and Reports on Form 8-K 22
Glossary 24-26
i
<PAGE>
Part I - Financial Information
------------------------------
CONDENSED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Dollars in Millions)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
---------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues
Local service................. $ 556.3 $ 539.3 $ 1,093.5 $ 1,049.8
Interstate network access..... 212.8 194.4 408.3 385.4
Intrastate network access..... 35.6 17.0 68.3 41.5
Long distance services........ 57.2 70.9 113.7 135.0
Other......................... 112.3 97.2 218.8 204.2
--------- --------- --------- ---------
974.2 918.8 1,902.6 1,815.9
--------- --------- --------- ---------
Operating expenses
Employee-related expenses..... 204.1 198.5 404.1 402.3
Depreciation and amortization. 150.2 141.2 299.0 281.9
Other operating expenses...... 326.3 310.0 640.7 602.8
Taxes other than income taxes. 21.7 19.6 44.1 39.1
--------- --------- --------- ---------
702.3 669.3 1,387.9 1,326.1
--------- --------- --------- ---------
Operating income................ 271.9 249.5 514.7 489.8
Interest expense................ 28.1 28.5 56.8 56.6
Other income, net .............. 1.5 2.4 3.5 5.9
--------- --------- --------- ---------
Income before income taxes...... 245.3 223.4 461.4 439.1
Income taxes.................... 95.2 91.8 178.9 176.7
--------- --------- --------- ---------
Net income...................... 150.1 131.6 282.5 262.4
Accumulated deficit,
beginning of period........... (385.2) (465.3) (383.6) (465.8)
Less, dividends declared.... 117.6 145.1 251.6 275.4
--------- --------- --------- ---------
Accumulated deficit,
end of period................. $ (352.7) $ (478.8) $ (352.7) $ (478.8)
========= ========= ========= =========
See Notes to Condensed Financial Statements.
Page 1
<PAGE>
CONDENSED BALANCE SHEETS
(Dollars in Millions)
June 30, 1997 Dec. 31, 1996
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
Current assets
Cash and temporary cash investments......... $ 0.2 $ --
Receivables, net
Customers................................. 806.7 836.9
Ameritech and affiliates.................. 5.4 53.0
Other..................................... 50.9 23.4
Material and supplies....................... 11.3 18.7
Prepaid and other........................... 20.2 17.0
--------- ---------
894.7 949.0
--------- ---------
Property, plant and equipment................ 9,081.6 8,836.9
Less, accumulated depreciation............... 5,253.4 5,007.0
--------- ---------
3,828.2 3,829.9
--------- ---------
Investments, primarily in affiliates......... 107.9 85.6
Other assets and deferred charges............ 338.7 325.8
--------- ---------
Total assets................................. $ 5,169.5 $ 5,190.3
========= ========
See Notes to Condensed Financial Statements.
Page 2
<PAGE>
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
June 30, 1997 Dec. 31, 1996
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech................................. $ 622.0 $ 735.3
Other..................................... 51.2 51.5
Accounts payable
Ameritech Services, Inc. (ASI)............ 174.6 178.7
Ameritech and affiliates.................. 50.9 20.8
Other..................................... 265.5 244.1
Other current liabilities.................. 311.2 292.1
--------- ---------
1,475.4 1,522.5
--------- ---------
Long-term debt.............................. 1,011.8 1,012.3
--------- ---------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes.......... 256.5 244.9
Unamortized investment tax credits......... 45.2 49.6
Postretirement benefits
other than pensions...................... 914.4 921.1
Long-term payable to ASI................... 23.6 25.5
Other ..................................... 90.2 93.2
--------- ---------
1,329.9 1,334.3
--------- ---------
Shareowner's equity
Common shares - ($20 par value;
100,000,000 shares authorized;
81,938,121 issued and outstanding)....... 1,638.8 1,638.8
Proceeds in excess of par value............ 66.3 66.0
Accumulated deficit........................ (352.7) (383.6)
--------- ---------
1,352.4 1,321.2
--------- ---------
Total liabilities and shareowner's equity... $ 5,169.5 $ 5,190.3
========= =========
See Notes to Condensed Financial Statements.
Page 3
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Six Months Ended
June 30
-------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 282.5 $ 262.4
Adjustments to net income
Depreciation and amortization............... 299.0 281.9
Deferred income taxes, net.................. 12.7 (7.4)
Investment tax credits, net................. (4.4) (5.8)
Capitalized interest........................ (1.3) (1.8)
Change in accounts receivable, net.......... 50.3 (70.9)
Change in material and supplies............. 0.8 (0.2)
Change in certain other current assets...... (3.2) 11.3
Change in accounts payable.................. 47.4 (44.9)
Change in certain other current
liabilities................................ 19.1 33.5
Change in certain other noncurrent
assets and liabilities..................... (24.8) (29.9)
Other operating activities, net............. 7.5 4.6
-------- --------
Net cash from operating activities............ 685.6 432.8
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (293.2) (285.9)
Additional investments........................ (30.0) --
Proceeds from disposals of
property, plant and equipment................ 3.1 1.5
Other investing activities, net............... (0.2) 0.1
-------- --------
Net cash from investing activities............ (320.3) (284.3)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing, net................... (113.3) 279.2
Issuance of long-term debt.................... -- 3.0
Retirements of long-term debt................. (0.8) (1.1)
Dividend payments............................. (251.6) (429.7)
Other financing activities, net............... 0.6 --
-------- --------
Net cash from financing activities............ (365.1) (148.6)
-------- --------
Net increase/(decrease) in cash and
temporary cash investments................... 0.2 (0.1)
Cash and temporary cash investments,
beginning of period.......................... -- 0.3
-------- --------
Cash and temporary cash investments,
end of period................................ $ 0.2 $ 0.2
======== ========
See Notes to Condensed Financial Statements.
Page 4
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
June 30, 1997
NOTE 1:Preparation of Interim Financial Statements
We have prepared the unaudited condensed financial statements in this
report by following Securities and Exchange Commission rules that
permit reduced disclosure for quarterly period reports. 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. We believe these statements include all adjustments
necessary for a fair statement of results for each period shown. We
believe our disclosures are adequate to make the presented
information clear. You should read these financial statements in
conjunction with the financial statements and notes included in our
1996 Annual Report on Form 10-K and the quarterly report on Form 10-Q
previously filed in 1997.
When reading these financial statements, you should be familiar with
the terminology unique to our business. We have defined a number of
terms in the glossary on pages 24 and 26.
NOTE 2: Investment in Affiliate
In June 1997, our parent company, Ameritech centralized the
administration of certain benefits on behalf of the Company and other
participating operating subsidiaries. As a result, we hold
approximately $30.0 million in preferred stock issued by an Ameritech
subsidiary.
NOTE 3: Pending Acquisition
On April 8, 1997, we entered into a definitive agreement with Sprint
Corporation (Sprint) under which one of our subsidiaries will
purchase part of the assets of Sprint's local exchange business in
Illinois (Centel) for approximately $160 million. Under terms of the
agreement, the subsidiary will purchase Centel's telephone assets
used to serve approximately 136,000 residential and business customer
access lines in a small portion of Chicago and part or all of ten
Chicago suburbs. We expect to complete the transaction in 1997,
pending regulatory approval.
Page 5
<PAGE>
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 six months of 1997 as compared with the same period last year.
RESULTS OF OPERATIONS
- ---------------------
Revenues
- --------
Our revenues in the first six months of 1997 were $1,902.6 million
and were $1,815.9 million for the same period in 1996, an increase of
$86.7 million. 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 were the primary reasons for the
increase. Net rate reductions and decreased long distance revenues
partially offset these increases.
- ---------------------------------------------------------------------
Local service
- -------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $1,093.5 $1,049.8 $ 43.7 4.2
Local service revenues include basic monthly service fees and usage
charges, fees for call management services, installation and
connection charges and public phone revenues. Local service revenues
increased for the six months ended June 30, 1997 due largely to
higher network usage volumes, resulting primarily from access line
growth of 3.3 percent over the prior year period. Second line
additions by residential and small business customers contributed to
the increase in access lines, as demand for Internet access and data
transport capabilities continued to grow. Sales of call management
services increased as well because of customer demand for additional
flexibility and convenience. Rate decreases resulting from
alternative regulation partially offset these increases.
There were 6,582,000 access lines in service as of June 30, 1997
compared with 6,373,000 as of June 30, 1996.
- ---------------------------------------------------------------------
Network access
- --------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
- ----------
Six Months Ended $ 408.3 $ 385.4 $ 22.9 5.9
Intrastate
- ----------
Six Months Ended $ 68.3 $ 41.5 $ 26.8 64.6
Network access revenues are fees charged to interexchange carriers
that use our local landline communications network to connect
customers to their long distance networks. In addition, end users
pay flat rate access fees to connect to the long distance network.
These revenues result from both interstate and intrastate services.
Page 6
<PAGE>
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Network access (cont'd.)
- ------------------------
Interstate network access revenues increased for the six months ended
June 30, 1997 due primarily to an increase in 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. Rate reductions partially offset these
increases. Interstate minutes of use for the six months ended June
30, 1997 increased by 6.9 percent over the same period last year.
Intrastate network access revenues increased for the six months ended
June 30, 1997 due primarily to volume increases, largely resulting
from increased network usage by alternative providers of intraLATA
toll service. The impact of an unfavorable billing adjustment
recorded in the second quarter of 1996 related to payphone usage fees
also contributed to the 1997 increase. The volume increases were
largely offset by decreases in revenue from intraLATA long distance
service, as discussed below. Rate decreases also partially offset
the volume increases. Intrastate minutes of use for the six months
ended June 30, 1997 increased by 41.9 percent over the same period
last year.
- ---------------------------------------------------------------------
Long distance service
- ---------------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 113.7 $ 135.0 $ (21.3) (15.8)
Long distance service revenues result from customer calls to
locations outside of their local calling areas, but within the same
Local Access and Transport Area (LATA). Long distance service
revenues decreased for the six months ended June 30, 1997 due
primarily to other telecommunications carriers choosing to bill their
own customers for local toll calling. Previously, Illinois Bell
collected these revenues in exchange for the payment of access
charges to complete the calls on the carriers' networks. The revenue
decrease was substantially offset by a corresponding decrease in
access charge expenses. As discussed in intrastate network access
above, increased competition from alternative intraLATA toll
providers, resulting from the implementation of Dial 1+ capability in
Illinois, also contributed to the decrease.
Page 7
<PAGE>
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other
- -----
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 218.8 $ 204.2 $ 14.6 7.1
Other revenues include revenues from directory advertising, billing
and collection services, inside wire installation and maintenance
services and other miscellaneous services. Other revenues increased
for the six months ended June 30, 1997 due primarily to increases in
revenues from inside wiring installation and maintenance and billing
and collection services. Decreases in equipment sales and
miscellaneous operating revenues partially offset these increases.
- ---------------------------------------------------------------------
Operating expenses
- ------------------
Total operating expenses for the six months ended June 30, 1997
increased by $61.8 million or 4.7 percent to $1,387.9 million. The
increase was due primarily to increases in other operating expenses,
such as uncollectibles and contract services, as well as increased
depreciation expense, as discussed below.
- ---------------------------------------------------------------------
Employee-related expenses
- -------------------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 404.1 $ 402.3 $ 1.8 0.4
Employee-related expenses increased for the six months ended June 30,
1997 primarily due to increases in medical benefit expenses and other
employee benefit expenses. Wage expenses were lower than in the same
period last year, reflecting lower overtime and force levels,
partially offset by higher wage and team incentive rates.
We employed 14,967 employees as of June 30, 1997, compared with
15,190 as of June 30, 1996.
- ---------------------------------------------------------------------
Depreciation and
amortization
- ------------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 299.0 $ 281.9 $ 17.1 6.1
Depreciation and amortization expense increased for the six months
ended June 30, 1997 due primarily to higher property, plant and
equipment balances. Higher depreciation rates on certain asset
categories also contributed to the increase as we used shorter
depreciable lives for newer technologies.
Page 8
<PAGE>
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other operating expenses
- ------------------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 640.7 $ 602.8 $ 37.9 6.3
Other operating expenses increased for the six months ended June 30,
1997 due primarily to increases in uncollectibles and other expenses
related to increased sales efforts. Higher contract and affiliated
services expenses related primarily to systems programming and
reengineering also contributed to the increase. Lower cost of sales
and advertising expenses, due to the timing of marketing campaigns,
partially offset these increases.
- ---------------------------------------------------------------------
Taxes other than income taxes
- -----------------------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 44.1 $ 39.1 $ 5.0 12.8
Taxes other than income taxes consist of property taxes, gross
receipts taxes and other taxes not directly related to earnings.
Taxes other than income taxes increased for the six months ended June
30, 1997 primarily due to higher capital stock taxes resulting from a
higher taxable base. Property taxes also increased over the same
period last year, due to an increase in assessed valuation.
- ---------------------------------------------------------------------
Other income and expenses
- -------------------------
Interest expense
- ----------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 56.8 $ 56.6 $ 0.2 0.4
The change in interest expense for the six months ended June 30, 1997
compared with the same period last year was not significant.
Page 9
<PAGE>
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other income, net
- -----------------
Change
June 30 Income Percent
------------
(dollars in millions) 1997 1996 (Expense) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 3.5 $ 5.9 $ (2.4) (40.7)
Other income, net includes equity in earnings of affiliates, interest
income and other nonoperating items. Other income decreased for the
six months ended June 30, 1997 due primarily to decreased equity
earnings from Ameritech Services, Inc. (ASI), as well as an increase
in nonoperating expenses. Higher interest income partially offset
these items.
- ---------------------------------------------------------------------
Income taxes
- ------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 178.9 $ 176.7 $ 2.2 1.2
Income taxes increased for the six months ended June 30, 1997 due
primarily to the increase in pretax earnings discussed above. The
effect of additional deferred taxes recorded in the first quarter of
1996, resulting from the Company's discontinuance of regulatory
accounting, partially offset this increase.
- ---------------------------------------------------------------------
Ratio of earnings to fixed charges
- ----------------------------------
The ratio of earnings to fixed charges for the six months ended June
30 was 8.11 in 1997 and 7.99 in 1996.
Page 10
<PAGE>
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters
- -------------
Recent FCC Orders
- -----------------
On May 7, 1997, the FCC issued three closely-related orders
addressing revisions to the price cap plan for local exchange
carriers (LECs), interstate access charge reform and funding for
universal service. In its access charge reform order, the FCC
adopted changes to its tariff structure requiring LECs to use rates
that reflect the type of costs incurred. In general, the order ruled
that:
- - only costs incurred on a minute-of-use basis should be included in
per-minute access charges;
- - costs not incurred on a minute-of-use basis should be recovered
through flat-rate charges; and
- - LECs may not assess interstate access charges on Internet service
providers.
The new price cap rules will reduce access charges by increasing the
price cap productivity offset factor to 6.5 percent from the current
5.3 percent and by applying this factor uniformly to all access
providers. The new rates were effective July 1, 1997 and LECs were
to compute the new rates as if the 6.5 percent productivity factor
had been in effect since July 1, 1996.
The new rules also create a multi-billion-dollar "universal service"
fund for linking schools and libraries to the Internet and
subsidizing low-income consumers and rural health care providers.
Telecommunications service providers will pay into the universal
service fund starting January 1, 1998, but regulators have not yet
determined the size of the fund. The FCC intends to develop suitable
forward-looking cost studies for determining the level of universal
service support in a separate proceeding later in 1997. State
commissions may elect to use the FCC's cost methodology or their own
forward-looking mechanism. They will have until August 15, 1997 to
indicate which mechanism they intend to use. The FCC expects to
select a mechanism for determining support for nonrural carriers by
the end of this year. Subsidies to low-income and rural customers
will be available by January 1, 1998, and funds for linking schools
and libraries to the Internet will be available as needed.
We do not expect these reforms to have a material impact on our
revenue streams; however, the nature and timing of these reforms may
evolve as the FCC considers input from state commissions, potential
legal challenges and the ongoing implementation of other provisions
of the Telecommunications Act of 1996.
Competition and the Telecommunications Act of 1996
- --------------------------------------------------
As a result of our plan to capture the full potential of the
communications industry and the supporting provisions of the
Telecommunications Act of 1996 (the 1996 Act), we have taken several
key steps toward fostering a fully competitive market. We have made
our network available for use by our competitors at unbundled cost-
based prices and at bundled prices representing discounts from
established retail levels. Additionally, we have entered into
numerous interconnection agreements with other local communications
carriers, indicating a growing wholesale business. As a fully
competitive communications market continues to develop, regulatory
bodies will periodically need to review interaction among industry
members.
Page 11
<PAGE>
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters (cont'd.)
- ----------------------
Competition and the Telecommunications Act of 1996 (Cont'd.)
- ------------------------------------------------------------
In July 1997, the Federal Circuit Court in St. Louis struck down
several provisions of an August 1996 FCC order designed to implement
the interconnection provisions of the 1996 Act. The Court ruled
that:
- - the FCC's pricing guidelines intrude upon the rights of state
commissions to implement key elements of the 1996 Act;
- - the FCC lacks jurisdiction to review state commission decisions
regarding interconnection agreements between incumbent LECs and
their competitors;
- - the FCC's rule that would allow requesting carriers to pick and
choose among individual provisions of other interconnection
agreements does not promote negotiated agreements and is
unreasonable;
- - LECs must provide unbundled network elements in a manner that
allows competing carriers to combine them, but LECs need not
actually combine the elements; and,
- - the 1996 Act does not require incumbent LECs to provide
competitors with superior quality connections.
The Court upheld the FCC's interpretation of "network element" to
include operations support systems (OSS) and certain other services.
It did not rule on the LECs' claims regarding infringement of
intellectual property rights and Fifth Amendment confiscation.
The FCC has indicated that it may appeal this Circuit Court's ruling
to the U.S. Supreme Court. We do not believe that any such appeal
would itself delay Ameritech's entry into the 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 Illinois 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.
Due in part to the recent Circuit Court ruling, uncertainty over the
implementation of the 1996 Act continues. We are unable to predict
the impact that this ruling and related subsequent litigation may
have on our existing interconnection agreements. Although the
potential for an adverse effect on our revenue streams exists, we
will continue to pursue growth opportunities in our local exchange
business.
Illinois Rate Reductions
- ------------------------
Effective July 10, 1997, we reduced rates by $54.0 million annually
under the adjustment process of a price regulation plan approved by
the Illinois Commerce Commission in October 1994. These rate
reductions will primarily impact local service revenues.
Page 12
<PAGE>
Management's Discussion and Analysis
of Results of Operations (cont'd.)
New Accounting Pronouncements
- -----------------------------
In June 1997, the FASB issued Statement of Financial Accounting
Standards (FAS) No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of
comprehensive income and requires that all components of
comprehensive income be reported in a financial statement having the
same prominence as other financial statements. FAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and it
requires reclassification of prior period financial statements
provided for comparative purposes. Adoption of this standard should
have little effect on our financial statements, since the new
requirements primarily involve modifications to the way that existing
information is displayed.
Also in June 1997, the FASB issued FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement
supersedes FAS No. 14, "Financial Reporting of Segments of a Business
Enterprise," by establishing new standards for the way that a public
business enterprise reports operating segment information in its
annual and interim financial statements. In general, FAS No. 131
requires reporting of financial information as it is used by senior
company management for evaluating performance and deciding how to
allocate resources. The statement is effective in 1998, but need not
be applied to interim financial statements in that year. Comparative
information for earlier years must be restated. We expect adoption
of this standard to have little effect on our financial statements.
Private Securities Litigation Reform Act Safe Harbor Statement
- --------------------------------------------------------------
The above discussion contains certain forward-looking statements that
involve potential risks and uncertainties. Our future results could
differ materially from those discussed here. Some of the factors
that could cause or contribute to such differences include:
- - changes in economic and market conditions;
- - effects of state and federal regulation;
- - the impact of new technologies.
You should not place undue reliance on these forward-looking
statements, which are applicable only as of August 12, 1997. We have
no obligation to revise or update these forward-looking statements to
reflect events or circumstances that arise after August 12, 1997 or
to reflect the occurrence of unanticipated events.
Page 13
<PAGE>
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 six months ended June 30, 1997 and June 30, 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
We did not file a Form 8-K during the quarter ended June
30, 1997.
Page 14
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, an
authorized company official has signed this report on our behalf.
ILLINOIS BELL TELEPHONE COMPANY
-------------------------------
(Registrant)
Date: August 12, 1997 /s/ Ronald G. Pippin
----------------------
Ronald G. Pippin
Vice President and Comptroller
(Principal Accounting Officer)
Page 15
<PAGE>
GLOSSARY
Access charges -
- --------------
fees that local phone companies charge to long distance carriers for
the handling of long distance calls on our local network.
Access line -
- -----------
a telephone line for voice, data or video reaching from a local
phone company to a home or business.
Call management services -
- ------------------------
services that add value and convenience for phone customers, such as
Call Waiting, Call Forwarding and Caller ID. These services are
sold to customers individually or in "packages".
Customer premises equipment (CPE) -
- ---------------------------------
communications equipment owned by customers, including telephones,
faxes and switches.
Dial 1 + -
- --------
a feature that allows local phone customers to designate a carrier
other than the local service provider for toll calls within their
calling area by simply dialing 1 plus the telephone number.
Digital -
- -------
an alternative to traditional analog communications, digital systems
transport information in computer code for improved clarity and
quality.
Federal Communications Commission (FCC) -
- ---------------------------------------
the federal agency responsible for regulating the interstate aspects
of telecommunications activities.
Financial Accounting Standards Board (FASB) -
- -------------------------------------------
the independent body responsible for setting accounting and
financial reporting standards to be followed by U.S. business
enterprises.
Gross receipts taxes -
- --------------------
state and local taxes based upon the gross operating revenues earned
in a particular jurisdiction. These taxes may be imposed on general
businesses or public utilities in lieu of other taxes.
Interconnection -
- ---------------
allowing a competitive local service provider to use the local phone
company's network, or elements of the network, to provide local
phone service to its customers.
Interexchange carriers (IXCs) -
- -----------------------------
those companies primarily involved in providing long distance voice
and data transmission services, such as AT&T, MCI and Sprint.
Internet -
- --------
the global web of networks that connects computers around the world,
providing rapid access to information from multiple sources.
Internet service providers (ISPs) -
- ---------------------------------
those companies providing access to the Internet and other computer-
based information networks.
Intrastate revenues -
- -------------------
that portion of revenues regulated by state rather than federal
authorities.
Page 16
<PAGE>
GLOSSARY (cont'd.)
Local access and transport area (LATA) -
- --------------------------------------
the boundary within which a local telephone company may provide
phone service. It is usually centered around a city or other
identifiable community of interest.
Local exchange carriers (LECs) -
- ------------------------------
those companies primarily involved in providing local phone service
and access to the local phone network, including Ameritech's
landline communications subsidiaries in Illinois, Indiana, Michigan,
Ohio and Wisconsin.
Operations support systems (OSS) -
- --------------------------------
the databases and information used to support the provision of
telephone service to end users.
Price caps -
- ----------
a form of regulation that sets maximum limits on the prices that
LECs can charge for access services instead of limits on rate of
return or profits.
Productivity factor -
- -------------------
a portion of the interstate price cap formula that requires LECs to
reduce the price cap based on an assumed increase in productivity.
Securities and Exchange Commission (SEC) -
- ----------------------------------------
the federal agency that regulates the issuance and trading of public
debt and equity securities in the United States and monitors
compliance with these regulations.
Universal service -
- -----------------
a concept designed to ensure access to the telecommunications
network in rural and low-income areas at affordable prices. Funding
typically comes from urban telecommunication operators.
Page 17
EXHIBIT 12
ILLINOIS BELL TELEPHONE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Dollars in Millions)
Six Months Ended
June 30
---------------
1997 1996
---- ----
1. EARNINGS
a) Income before interest expense,
income taxes and undistributed
equity earnings .................... $ 525.7 $ 500.0
b) Portion of rental expense
representative of the
interest factor (1)................. 7.7 4.8
-------- --------
Total 1(a) and 1(b)..................... $ 533.4 $ 504.8
-------- --------
2. FIXED CHARGES
a) Total interest expense including
capital lease obligations........... $ 56.8 $ 56.6
b) Capitalized interest................. 1.3 1.8
c) Portion of rental expense
representative of the
interest factor (1)................. 7.7 4.8
-------- --------
Total 2(a) through 2(c)................. $ 65.8 $ 63.2
-------- --------
3. RATIO OF EARNINGS TO FIXED CHARGES....... 8.11 7.99
===== =====
(1) We consider one third of total rental expense to represent return on
capital.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ILLINOIS BELL TELEPHONE COMPANY'S JUNE 30, 1997 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 200
<SECURITIES> 0<F1>
<RECEIVABLES> 938,700
<ALLOWANCES> (75,700)
<INVENTORY> 11,300
<CURRENT-ASSETS> 894,700
<PP&E> 9,081,600
<DEPRECIATION> 5,253,400
<TOTAL-ASSETS> 5,169,500
<CURRENT-LIABILITIES> 1,475,400
<BONDS> 1,011,800
0
0
<COMMON> 1,638,800
<OTHER-SE> (286,400)
<TOTAL-LIABILITY-AND-EQUITY> 5,169,500
<SALES> 0<F2>
<TOTAL-REVENUES> 1,902,600
<CGS> 0<F3>
<TOTAL-COSTS> 1,387,900
<OTHER-EXPENSES> (3,500)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,800
<INCOME-PRETAX> 461,400
<INCOME-TAX> 178,900
<INCOME-CONTINUING> 282,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 282,500
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<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 OPERATING
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>
