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, 1994
or
( ) Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
Commission file number 1-6746
INDIANA BELL TELEPHONE COMPANY,
INCORPORATED
An Indiana I.R.S. Employer
Corporation No. 35-0407820
240 North Meridian Street, Indianapolis, Indiana 46204
Telephone Number 317 265-2266
_________________________________
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 29, 1994, 13,490,876 common shares were outstanding.
Page 2
PART 1 - FINANCIAL INFORMATION
The following financial statements have been prepared by the Indiana
Bell Telephone Company, Incorporated (the Company) pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC) and, in
the opinion of the Company, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of
results of operations, financial position, and cash flows 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.
CONDENSED STATEMENTS OF INCOME AND REINVESTED EARNINGS
(Dollars in Millions)
(Unaudited)
For the three months ended March 31,
1994 1993
REVENUES $ 291.5 $ 264.2
OPERATING EXPENSES
Employee-related expenses 61.8 61.9
Depreciation and amortization 52.9 54.1
Other operating expenses 83.2 64.7
Restructuring charge 68.9 0.0
Taxes other than income taxes 11.7 11.5
278.5 192.2
OPERATING INCOME 13.0 72.0
Interest expense 4.5 8.0
Other income, net (0.9) (0.7)
INCOME BEFORE INCOME TAXES 9.4 64.7
Income taxes 2.4 21.0
NET INCOME 7.0 43.7
REINVESTED EARNINGS AT BEGINNING
OF PERIOD 250.8 239.8
LESS DIVIDENDS 44.7 39.7
REINVESTED EARNINGS AT END OF PERIOD $ 213.1 $ 243.8
See Notes to Condensed Financial Statements
Page 3
CONDENSED BALANCE SHEETS
(Dollars in Millions)
March 31, 1994 December 31, 1993
(Unaudited) (Derived from
audited financial
ASSETS statements)
Current assets
Cash and temporary cash investments $ 5.7 $ 0.6
Receivables
Customers and agents (less allowance
for uncollectibles of $4.9 and $5.6,
respectively) 161.3 160.9
Ameritech and affiliates 14.9 16.6
Other 5.7 9.5
Material and supplies 4.2 6.1
Prepaid and other 11.4 12.7
203.2 206.4
Telecommunications plant 2,999.9 2,982.9
Less: Accumulated depreciation 1,362.9 1,320.6
1,637.0 1,662.3
Investments, principally in affiliates 28.7 31.1
Other assets and deferred charges 62.5 87.7
TOTAL ASSETS $ 1,931.4 $ 1,987.5
See Notes to Condensed Financial Statements.
Page 4
CONDENSED BALANCE SHEETS
(Dollars in Millions)
March 31, 1994 December 31, 1993
(Unaudited) (Derived from
audited financial
LIABILITIES AND SHAREOWNER'S EQUITY statements)
Current liabilities
Debt maturing within one year
Ameritech $ 264.5 $ 75.0
Other 0.1 220.1
Accounts payable
Ameritech Services, Inc. (ASI) 29.7 19.9
Ameritech and affiliates 17.1 13.4
Other 55.9 62.8
Other current liabilities 202.0 178.0
569.3 569.2
Long term debt 85.2 85.2
Deferred credits and other long term
liabilities
Accumulated deferred income taxes 141.8 163.1
Unamortized investment tax credits 33.2 34.5
Postretirement benefits other than
pensions 241.3 224.1
Long term payable to ASI 8.3 9.4
Other 74.2 86.2
498.8 517.3
Shareowner's equity
Common stock ($40 par value; 15,000,000
shares authorized; 13,490,876 issued
and outstanding) 539.6 539.6
Proceeds in excess of par value 25.4 25.4
Reinvested earnings 213.1 250.8
778.1 815.8
TOTAL LIABILITIES
AND SHAREOWNER'S EQUITY $ 1,931.4 $ 1,987.5
See Notes to Condensed Financial Statements.
Page 5
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the three months ended March 31,
1994 1993
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 7.0 $ 43.7
Adjustments to net income
Restructuring charge, net of tax 42.8 0.0
Depreciation and amortization 52.9 54.1
Deferred income taxes, net 3.2 (0.6)
Investment tax credits, net (1.2) (1.8)
Interest during construction (0.2) (0.1)
Provision for uncollectibles 1.5 2.0
(Increase) decrease in accounts receivable 3.5 (2.9)
Decrease in materials and supplies 2.0 0.3
Decrease in certain other current assets 1.3 0.3
Increase (decrease) in accounts payable 14.4 (29.3)
Increase in accrued taxes 13.2 24.7
Decrease in certain other current
liabilities (17.9) (1.1)
Increase (decrease) in certain other
noncurrent assets and liabilities (17.3) 4.7
Other 11.4 (3.7)
Net cash provided by operating activities 116.6 90.3
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (28.0) (32.0)
Proceeds from (cost of) disposals of
telecommunications plant 0.4 (0.4)
Net cash used in investing activities (27.6) (32.4)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Intercompany financing - net 189.5 0.0
Retirements of long term debt (220.0) 0.0
Cost of refinancing long term debt (8.7) 0.0
Dividend payments (44.7) (39.7)
Net cash used in financing activities (83.9) (39.7)
Net increase in cash and temporary
cash investments 5.1 18.2
Cash and temporary cash investments
at beginning of period 0.6 10.2
Cash and temporary cash investments
at end of period $ 5.7 $ 28.4
See Notes to Condensed Financial Statements.
Page 6
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1994
(Dollars in Millions)
A. Work Force Restructuring
On March 25, 1994, the Company's parent (Ameritech Corporation)
announced that it will reduce its nonmanagement work force by 6,000
employees by the end of 1995, including approximately 780 at the
Company. Under terms of agreements between the Company, the
Communication Workers of America (CWA) and the International Brotherhood
of Electrical Workers (IBEW), Ameritech is implementing an enhancement
to the Ameritech Pension Plan by adding three years to the age and the
net credited service of eligible nonmanagement employees who leave the
business during a designated period that ends in mid-1995. In addition,
the Company is offering financial incentives under terms of its current
contracts with the CWA and the IBEW to selected nonmanagement employees
who leave the business before the end of 1995.
This program resulted in a first quarter charge of $68.9, or $42.8
after-tax. The charge reduced the Company's prepaid pension asset by
$39.6 for pension enhancements and curtailment losses. The charge also
includes a curtailment loss of $17.1 related to SFAS No. 106
("Employers' Accounting for Postretirement Benefits Other than
Pensions") and an increase in a severance accrual of $12.2.
Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(Dollars in Millions)
The following is a discussion and analysis of the results of operations
of the Company for the three-month period ended March 31, 1994, as
compared to the same period in the prior year.
Revenues
Total revenues in the first three months of 1994 were $291.5 and were
$264.2 for the same period in 1993. The following paragraphs explain
the components of that change:
1994 1993 Increase % Change
Local service $132.4 $123.8 $8.6 6.9%
Local service revenue increases were led by a $4.0 increase in business
revenues and a $5.5 increase in residence revenues. These increases
were offset by a $0.9 decrease in public revenues. Business access
lines increased 7.6% over the same period last year, while residence
access lines increased 2.7%.
1994 1993 Increase % Change
Network access
Interstate $60.4 $53.1 $7.3 13.7%
Intrastate $28.3 $25.6 $2.7 10.5%
Interstate:
Interstate access included increases in end user revenues of $1.8,
traffic sensitive revenues of $2.0, carrier common line of $1.3 and
special access of $0.2. In addition, National Exchange Carrier
Association (NECA) net settlement payments decreased $1.9 from 1993 to
1994. The end user increase resulted primarily from an increase in
access lines. The traffic sensitive increase resulted from an increase
in local transport minutes, partially offset by a decrease in rates.
Intrastate:
Increases of $0.9 and $0.5 in carrier common line and traffic sensitive
revenues, respectively, were due to increased volume partially offset by
rate decreases. An increase of $0.9 in intrastate access is
attributable to a March 1993 change in the intrastate settlements
process, whereby access expenses are no longer treated as a revenue
offset. An increase of $0.5 in end user revenue was caused by an
increase in access lines.
Page 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
1994 1993 Increase % Change
Long distance $37.9 $33.5 $4.4 13.1%
The increase was caused mainly by an increase of $4.1 in settlement
revenue previously offset by access expense as discussed in the
intrastate network access revenue section above. Long distance messages
increased 1.9% over the same period last year.
1994 1993 Increase % Change
Other $32.5 $28.2 $4.3 15.2%
Nonregulated revenue increased $1.7 due primarily to an increase in
rates. Carrier billing and collection revenue increased $0.4. In July
1993, the Company began billing for late payment charges, resulting in
increased revenue of $1.4. In addition, uncollectibles decreased $0.5.
Operating Expenses
Total operating expenses were $278.5 in the first quarter of 1994 and
$192.2 in the first quarter of 1993. The increase is comprised of the
following:
1994 1993 Decrease % Change
Employee-related expenses $61.8 $61.9 ($0.1) (0.2%)
Workforce reductions resulted in decreases in wages, payroll taxes, and
benefits totaling $3.5. Increases in normal wages of $2.2 and an
increase in the ongoing expense for SFAS No. 106 of $1.2 offset most of
the decrease.
1994 1993 Decrease % Change
Depreciation and amortization $52.9 $54.1 ($1.2) (2.2%)
Most of the decrease over the same period last year was caused by an
accrual of $1.8 made in the first quarter of 1993 in anticipation of
favorable rate represcription results. A majority of this accrual was
reversed in the third and fourth quarters of 1993. The remaining
difference is due to a change in plant balances.
Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
1994 1993 Increase % Change
Other operating expenses $83.2 $64.7 $18.5 28.6%
Other operating expenses consist of contracted services, services from
affiliates, materials and supplies, and miscellaneous expenses including
access charge expenses and advertising. The increase consists of $7.1
in access charges which, prior to March 1993, were an offset to revenue,
$3.8 in services contracted from Ameritech Services, Inc. (ASI), an
affiliate, $2.0 in nonaffiliated contracted services, $0.7 in
advertising and $2.3 in other miscellaneous expenses. The increase in
expenses for services contracted from ASI was caused by the
consolidation of services previously performed by the Company, while the
increase in nonaffiliated contracted services is due to work force
reductions. An increase in materials and supplies expense accounted for
an additional increase of $1.6.
1994 1993 Increase % Change
Restructuring charge $68.9 $0.0 $68.9 100.0%
As more fully discussed in the Notes to the Financial Statements,
Ameritech (the Company's parent) announced on March 25, 1994, that it
will reduce its nonmanagement work force by 6,000 employees by the end
of 1995, including approximately 780 at the Company. Reduction of the
work force results from technological improvements, consolidations, and
initiatives identified by management to balance its cost structure with
emerging competition.
This program resulted in a first quarter 1994 charge of $68.9 or $42.8
after-tax. A significant portion of the program's cost will be funded
by the Ameritech Pension Plan, whereas financial incentives to be paid
by the Company will require Company funds of approximately $15.7.
Settlement gains of an estimated $25.0, which result from lump-sum
payments from the Ameritech Pension Plan, will be reflected in income as
payments are made by the Ameritech Pension Plan. Settlement gains are
noncash in nature and result from the funded status of the Ameritech
Pension Plan.
Ameritech advised the Company that it expects that approximately two-
thirds of the 780 employees will leave the payroll in 1994 with the
balance by the end of the third quarter of 1995. Ameritech will manage
the departure of all 6,000 employees to minimize disruption within its
business (including its entire five-state region) and to its customers.
Cash requirements of the Company to fund the financial incentives
(principally contractual termination payments) will be met as prescribed
by applicable collective bargaining agreements. Certain of these
collective bargaining agreements may require contractual termination
payments to be paid to employees in a manner other than lump-sum, thus
requiring cash payments beyond an employee's termination date.
Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
The Company believes this program will reduce its employee-related costs
by approximately $39.0 on an annual basis upon completion of the
program. However, these anticipated savings may be partially offset by
growth in new businesses and the cost of adding other employees with
different skills.
1994 1993 Increase % Change
Taxes other than income taxes $11.7 $11.5 $0.2 1.7%
The increase is mostly comprised of an increase in gross receipts tax of
$0.3 due to increased revenue.
Other Income and Expenses
1994 1993 Increase % Change
Other income - net $0.9 $0.7 $0.2 28.6%
The increase in other income is primarily due to an increase in ASI
earnings offset by a decrease in interest income.
1994 1993 Decrease % Change
Interest expense $4.5 $8.0 ($3.5) (43.8%)
The decrease was due primarily to a decrease of $5.4 in long term debt
interest expense from the bond retirements in late 1993, partially
offset by an increase in interest paid to the Ameritech short term
funding pool of $1.7.
Income Taxes
1994 1993 Decrease % Change
Income taxes $2.4 $21.0 ($18.6) (88.6%)
The decrease was caused by the restructuring charge in 1994, partially
offset by the increase in pretax income excluding the restructuring
charge.
Page 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
OTHER INFORMATION
Opportunity Indiana
On May 4, 1993, the Company filed an alternative regulation proposal
with the Indiana Utility Regulatory Commission (the IURC). Under the
proposal, traditional rate of return regulation would be eliminated and
replaced by a price regulation mechanism. The proposal would give the
Company the ability to set prices for competitive services and the
ability to determine its own depreciation rates. The Company would
agree to freeze basic exchange rates at current levels through the end
of 1994, if its proposal is adopted by the IURC.
On February 21, 1994, the Company entered into a settlement agreement
in connection with the proposal with the Office of the Utility Consumer
Counselor and other consumer representatives. Under the agreement,
the Company agreed to rate reductions totaling $57.5 between May 1994
and June 1996 ($27.7, $13.5 and $16.3 for 1994, 1995 and 1996,
respectively), and to price ceilings for basic local service until
January 1, 1998 in return for the implementation of its alternative
regulation proposal. In addition, the Company also agreed to spend
$120.0 in infrastructure investment over the next six years to provide
an advanced communications system for schools, hospitals, and major
government centers and to contribute an additional $30.0 during that
period for equipment and training for schools to take advantage of the
advanced system.
On May 3, 1994, long distance companies entered into a separate
agreement with the Company and withdrew their opposition to the
aforementioned agreement with consumer representatives. The agreement
with the long distance companies does not directly affect the Company's
rates, but provides for instant mirroring of intrastate access rates
with interstate rates and removes resale restrictions on all services
except flat rate basic local service and Centrex. All parties who
actively opposed Opportunity Indiana have now agreed to the proposal.
The agreements must be approved by the IURC. Additional hearings on
the proposal began on May 9, 1994.
Effects of Regulatory Accounting
The Company presently gives accounting recognition to the actions of
regulators where appropriate, as prescribed by Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS No. 71). Under SFAS No. 71, the Company
records certain assets and liabilities because of actions of regulators.
Further, amounts charged to operations for depreciation expense reflect
estimated useful lives and methods prescribed by regulators rather than
those that might otherwise apply to unregulated enterprises. The
Company cannot presently quantify, without a complete historical
assessment of its competitive and regulatory environments, what the
financial statement impact would have been had depreciation expense been
determined absent regulation.
Page 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
In the event the Company determines that it no longer meets the criteria
for following SFAS No. 71, the accounting impact to the Company would be
an extraordinary noncash charge to operations of an amount which could
be material. Criteria that give rise to the discontinuance of SFAS No.
71 include (1) increasing competition which restricts the Company's
ability to establish prices to recover specific costs, and (2) a
significant change in the manner in which rates are set by regulators
from cost-based regulation to another form of regulation. The Company
periodically reviews these criteria to ensure the continuing application
of SFAS No. 71 is still appropriate.
Ratio of Earnings to Fixed Charges
The Company's ratio of earnings to fixed charges for the three months
ended March 31 was 2.94 in 1994 and 7.56 in 1993. The ratio in 1994 was
adversely affected by a first quarter pretax charge of $68.9 for work
force restructuring (see prior discussion of this charge). This charge
will be primarily funded from the Ameritech Pension Plan. The Company
believes its ratio in 1994 is not indicative of a significant change in
its ability to fund its debt.
Page 13
PART 2 - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
12 Statement re: Computation of Ratios
(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 14
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.
Indiana Bell Telephone Company, Incorporated
Date: May 12, 1994 By: /s/ Cheryl K. Wooley
Cheryl K. Wooley
Vice President - Comptroller
(Principal Financial Officer)
Page 15
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
Three months ended March 31,
1994 1993
1. Earnings
(a) Income before interest expense
and income taxes $ 13,833 $ 72,708
(b) Portion of rental expense
representative of the
interest factor (i) 383 1,832
Total 14,216 74,540
2. Fixed Charges
(a) Total interest deductions 4,452 8,031
(b) Portion of rental expense
representative of the
interest factor (i) 383 1,832
Total $ 4,835 $ 9,863
3. Ratio (1. divided by 2.) 2.94 7.56
(i) The Company considers 1/3 of rental expense to be the amount
representing return on capital and, therefore, it must be included in
fixed charges.
NOTE 1: The results for the first quarter of 1994 reflect a $68.9
pretax charge for work force restructuring (see Management's Discussion
and Analysis of Results of Operations for a discussion of this charge).
This charge will be funded primarily from the Ameritech Pension Plan.
