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 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
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
_________________________________
Securities registered pursuant to Section 12(b) of the Act: (See
Attached Schedule A)
Securities registered pursuant to Section 12(g) of the Act: None
THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF AMERITECH CORPORATION,
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF
FORM 10-K AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE
FORMAT PURSUANT TO GENERAL INSTRUCTION J(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___
Page 2
SCHEDULE A
Securities registered pursuant to Section 12(b) of the Act:
________________________________________________________________________
Name of each exchange
Title of each class on which registered
________________________________________________________________________
Thirty-seven year 8% Debentures,
due October 1, 2014 New York Stock Exchange
Forty year 8 1/8% Debentures,
due March 1, 2017 New York Stock Exchange
Page 3
TABLE OF CONTENTS
Item Page
PART I
1. Business 4
2. Properties 13
3. Legal proceedings 13
4. Submission of Matters to a Vote of Security Holders
(Omitted pursuant to General Instruction J(2)). --
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters (Inapplicable). --
6. Selected Financial and Operating Data 14
7. Management's Discussion and Analysis of the Results
of Operations (Abbreviated pursuant to General
Instruction J(2)) 16
8. Financial Statements and Supplementary Data 23
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 43
PART III
10. Directors and Executive Officers of Registrant
(Omitted pursuant to General Instruction J(2)) --
11. Executive Compensation (Omitted pursuant to
General Instruction J(2)) --
12. Security Ownership of Certain Beneficial Owners and
Management (Omitted pursuant to General
Instruction J(2)) --
13. Certain Relationships and Related Transactions
(Omitted pursuant to General Instruction J(2)) --
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 44
Page 4
PART I
ITEM 1. BUSINESS
General
Indiana Bell Telephone Company, Incorporated (the Company) is
incorporated under the laws of the State of Indiana and has its
principal offices at 240 North Meridian Street, Indianapolis, Indiana
46204 (telephone number 317-265-2266). The Company is a wholly owned
subsidiary of Ameritech Corporation (Ameritech), a Delaware corporation.
Ameritech is the parent of the Company, Illinois Bell Telephone Company,
Michigan Bell Telephone Company, The Ohio Bell Telephone Company and
Wisconsin Bell, Inc. (the landline telephone companies), as well as
several other communications businesses, and has its principal executive
offices at 30 South Wacker Drive, Chicago, Illinois 60606 (telephone
number 312-750-5000). The Company is managed by its sole shareholder
rather than a Board of Directors as permitted by Indiana Business
Corporation Law.
In 1993, Ameritech restructured its landline telephone companies and two
other related businesses into a structure of customer-specific business
units supported by a single, regionally coordinated network unit. The
landline telephone companies continue to function as legal entities,
owning assets in each state and continue to be regulated by the
individual state public utility commissions. Products and services are
now marketed under a single common brand identity, "Ameritech," rather
than the "Bell" name. While the Ameritech logo is now used to identify
all the Ameritech companies, the Company is sometimes regionally
identified as Ameritech Indiana.
The Company is engaged in the business of furnishing a wide variety of
advanced telecommunications services in Indiana, including local
exchange and toll service and network access services. In accordance
with the Consent Decree and resulting Plan of Reorganization (Plan)
described below, the Company provides two basic types of
telecommunications services within specified geographical areas termed
Local Access and Transport Areas (LATAs), which are generally centered
on a city or other identifiable community of interest. The first of
these services is the transporting of telecommunications traffic between
telephones and other equipment on customers' premises located within the
same LATA (intraLATA service), which can include toll service as well as
local service. The second service is providing exchange access service,
which links a customer's telephone or other equipment to the network of
transmission facilities of interexchange carriers which provide
telecommunications service between LATAs (interLATA service).
About 64% of the population and 28% of the area of Indiana is served by
the Company. The remainder of the State is served by other local
telecommunications companies. Fort Wayne and Terre Haute are the only
cities of over 50,000 population in the State in which local service is
provided by another telephone company. Other communications services
offered by the Company include data transmission, transmission of radio
and television programs and private line voice and data services.
Page 5
The following table sets forth for the Company the number of customer
lines in service at the end of each year.
Thousands
1993 1992 1991 1990 1989
Customer Lines in Service 1,855 1,770 1,711 1,670 1,619
The Company has an agreement with Ameritech Publishing, Inc. (Ameritech
Publishing), an Ameritech business unit doing business as "Ameritech
Advertising Services," under which Ameritech Publishing publishes and
distributes classified directories under a license from the Company and
provides services to the Company relating to both classified and
alphabetical directories. Ameritech Publishing pays license fees to the
Company under the agreements.
Ameritech Services, Inc. (ASI) is a company jointly owned by the Company
and the other Ameritech landline telephone companies. ASI provides to
those companies human resources, technical, marketing, regulatory
planning and real estate asset management services, purchasing and
material management support, as well as labor contract bargaining
oversight and coordination. ASI acts as a shared resource for the
Ameritech subsidiaries providing operational support for the landline
telephone companies and integrated communications and information
systems for all the business units.
Ameritech Information Systems, Inc., a subsidiary of Ameritech, sells,
installs and maintains business customer premises equipment and sells
network and central office-based services provided by the Company and
the other four landline telephone companies. It also provides expanded
marketing, product support and technical design resources to large
business customers in the Ameritech region.
In 1993, about 94% of the total operating revenues of the Company were
from telecommunications services and the remainder principally from
billing and collection services, rents, directory advertising and other
miscellaneous nonregulated operations. About 70% of the revenues from
communication services were attributable to intrastate operations.
Capital Expenditures
Capital expenditures represent the single largest use of Company funds.
The Company has been making and expects to continue to make large
capital expenditures to meet the demand for telecommunications services
and to further improve such services. The total investment in
telecommunications plant increased from about $2,717,000 at December 31,
1988, to about $2,983,000 at December 31, 1993, after giving effect to
retirements but before deducting accumulated depreciation at either
date. Capital expenditures of the Company since January 1, 1989 were
approximately as follows:
1989.....$188,700,000 1992.....$201,500,000
1990..... 200,400,000 1993..... 162,900,000
1991..... 196,300,000
Page 6
Expanding on the aggressive deployment plan began in 1992, in January
1994, Ameritech unveiled a multi-billion dollar plan for a digital
network to deliver video services. Ameritech is launching a digital
video network upgrade that by the end of the decade will enable six
million customers in its region to access interactive information and
entertainment services, as well as traditional cable TV services, from
their homes, schools, offices, libraries and hospitals. The Company,
for its part in the network upgrade, has made an initial filing with the
Federal Communications Commission (FCC) seeking approval of the program.
The filing reflects capital expenditures of approximately $49,000,000
over the next three years.
The Company may also, depending on market demand, make additional
capital expenditures under the digital video network upgrade program.
The Company anticipates that its capital expenditures for the program
will be funded without increasing its recent historical level of capital
expenditures. Capital expenditures are expected to be about
$146,000,000 in 1994. This amount excludes any capital expenditures
that may occur in 1994 related to the above described video network
upgrade program. The video network concept, along with other
competitive concerns, is discussed on page 11.
Consent Decree and Line of Business Restrictions
On August 24, 1982, the United States District Court for the District of
Columbia (Court) approved and entered a consent decree entitled
"Modification of Final Judgment" (Consent Decree), which arose out of
antitrust litigation brought by the Department of Justice (DOJ), and
which required American Telephone and Telegraph Company (AT&T) to divest
itself of ownership of those portions of its wholly owned Bell operating
communications company subsidiaries (Bell Companies) that related to
exchange telecommunications, exchange access and printed directory
advertising, as well as AT&T's cellular mobile communications business.
On August 5, 1983, the Court approved a Plan of Reorganization (Plan)
outlining the method by which AT&T would comply with the Consent Decree.
Pursuant to the Consent Decree and the Plan, effective January 1, 1984,
AT&T divested itself of, by transferring to Ameritech, one of the seven
regional holding companies (RHCs) resulting from divestiture, its
ownership of the exchange telecommunications, exchange access and
printed directory advertising portions of the Ameritech landline
telephone companies, as well as its regional cellular mobile
communications business.
The Consent Decree, as originally approved by the Court in 1982,
provided that the Company (as well as the other Bell Companies) could
not, directly or through an affiliated enterprise, provide interLATA
telecommunications services or information services, manufacture or
provide telecommunications products or provide any product or service,
except exchange telecommunications and exchange access service, that is
not a natural monopoly service actually regulated by tariff. The
Consent Decree allowed the Company and the other Bell Companies to
provide printed directory advertising and to provide, but not
manufacture, customer premises equipment.
The Consent Decree provided that the Court could grant a waiver to a
Bell Company or its affiliates upon a showing to the Court that there is
no substantial possibility that the Bell Company could use its monopoly
power to impede competition in the market it seeks to enter. The Court
has, from time to time, granted waivers to the Company and other Bell
Companies to engage in various activities.
Page 7
The Court's order approving the Consent Decree provided for periodic
reviews of the restrictions imposed by it. Following the first
triennial review, in decisions handed down in September 1987 and March
1988, the Court continued the prohibitions against Bell Company
manufacturing of telecommunications products and provision of interLATA
services. The rulings allowed limited provision of information services
by transmission of information and provision of information gateways,
but excluded generation or manipulation of information content. In
addition, the rulings eliminated the need for a waiver for entry into
non-telephone related businesses.
In April 1990, a Federal appeals court decision affirmed the Court's
decision continuing the restriction on Bell Company entry into interLATA
services and the manufacture of telecommunications equipment, but
directed the Court to review its ruling that restricted RHC involvement
in the information services business and to determine whether removal of
the information services restriction would be in the public interest.
In July 1991, the Court lifted the information services ban but stayed
the effect of the decision pending outcome of the appeals process.
Soon after the stay was lifted on appeal and in July 1993, the U.S.
Court of Appeals unanimously upheld the Court's order allowing the Bell
Companies to produce and package information for sale across business
and home phone lines. In November 1993, the U.S. Supreme Court declined
to review the lower court ruling.
Members of Congress and the White House are intensifying efforts to
enact legislative reform of telecommunications policy in order to
stimulate the development of a modern national information
infrastructure to bring the benefits of advanced communications and
information services to the American people.
Intrastate Rates and Regulation
The Company, in providing communications services, is subject to
regulation by the Indiana Utility Regulatory Commission (IURC) with
respect to intrastate rates and services, depreciation rates (for
intrastate services), issuance of securities and other matters. Unless
otherwise indicated, the amounts of the changes in revenues resulting
from changes in intrastate rates referred to below are stated on an
annual basis and are estimates without adjustment for subsequent changes
in volumes of business. There were no major changes in intrastate rates
in 1989. The principal changes in intrastate rates authorized since
January 1, 1990 were reductions of intrastate carrier access rates of
$11,015,000, $762,000, $1,882,000 and $5,125,000 in 1990, 1991, 1992 and
1993, respectively, in order to achieve parity with interstate rates.
As a result of an agreement on a settlement with the IURC, Touch-Tone
rates were reduced $12,832,000 in 1992 and intraLATA toll rates were
reduced $5,272,000 and $15,518,000 in 1990 and 1993, respectively.
Page 8
FCC Regulatory Jurisdiction
The Company is also subject to the jurisdiction of the Federal
Communications Commission (FCC) with respect to intraLATA interstate
services, interstate access services and other matters. The FCC
prescribes for communications companies a uniform system of accounts
apportioning costs between regulated and non-regulated services,
depreciation rates (for interstate services) and the principles and
standard procedures (separations procedures) used to separate property
costs, revenues, expenses, taxes and reserves between those applicable
to interstate services under the jurisdiction of the FCC and those
applicable to services under the jurisdiction of the respective state
regulatory authorities.
For certain companies, including the Company, interstate services
regulated by the FCC are covered by a price cap plan. The Plan creates
incentives to improve productivity over benchmark levels in order to
retain higher earnings. Price cap regulation sets maximum limits on the
prices that may be charged for telecommunications services but also
provides for a sharing of productivity gains. Earnings in excess of
12.25% will result in prospective reduction to the price ceilings on
interstate services.
In January 1994, the FCC began a scheduled fourth-year comprehensive
review of price cap regulation for local exchange companies.
Access Charge Arrangements
Interstate Access Charges
The Ameritech landline telephone companies provide access services for
the origination and termination of interstate telecommunications. The
access charges are of three types: common line, switched access and
trunking.
The common line portion of interstate revenue requirements are recovered
through monthly subscriber line charges and per minute carrier common
line charges. The carrier common line rates include recovery of
transitional and long-term support payments for distribution to other
local exchange carriers. Transitional support payments were made over a
four-year period which ended on April 1, 1993. Long-term support
payments will continue indefinitely.
Effective January 1, 1994, rates for local transport services were
restructured and a new "trunking" service category was created.
Trunking services consist of two types: those associated with the local
transport element of switched access and those associated with special
access. Trunking services associated with switched access handle the
transmission of traffic between a local exchange carrier's serving wire
center and a Company end office where local switching occurs. Trunking
services associated with special access handle the transmission of
telecommunications services between any two customer-designated premises
or between a customer-designated premise and a Company end office where
multiplexing occurs. High volume customers generally use the flat-rated
dedicated facilities associated with special access, while usage
sensitive rates apply for lower-volume customers that utilize a common
switching center.
Page 9
Local transport rate elements for switched services assess a flat
monthly rate and a mileage sensitive rate for the physical facility
between the customer's point of termination and the end office, a usage
sensitive and mileage sensitive rate assessed for the facilities between
the end office through the access tandem to the customer's serving wire
center, and a minute of use charge assessed to all local transport. The
flat rate transport rates and structure generally mirror special access
rate elements. Customers can order direct transport between the serving
wire center or end office and the access tandem and tandem switched
transport between the access tandem and the end office.
Special access charges are monthly charges assessed to customers for
access to interstate private line service. Charges are paid for local
distribution channels, interoffice mileage and optional features and
functions.
State Access Charges
Compensation arrangements required in connection with origination and
termination of intrastate communications by interexchange carriers are
subject to the jurisdiction of the state regulatory commissions. The
Ameritech landline telephone companies currently provide access services
to interexchange carriers authorized by the state regulatory commissions
to provide service between local serving areas pursuant to tariffs which
generally parallel the terms of the interstate access tariffs. In the
event interexchange carriers are authorized by the state regulatory
commissions to provide service within their local serving areas, the
Ameritech landline telephone companies intend to provide access service
under the same tariffs applicable to intrastate services provided by
such carriers between the Ameritech landline telephone companies' local
serving areas.
Separate arrangements govern compensation between Ameritech landline
telephone companies and independent telephone companies for jointly
provided communications within the five Ameritech companies' local
serving areas and associated independent telephone company exchanges.
These arrangements are subject to the jurisdiction of the FCC and the
state regulatory commissions.
Page 10
Competition
Regulatory, legislative and judicial decisions and technological
advances, as well as heightened customer interest in advanced
telecommunications services, have expanded the types of available
communications services and products and the number of companies
offering such services. Market convergence, already a reality, is
expected to intensify.
The FCC has taken a series of steps that are expanding opportunities for
companies to compete with local exchange carriers in providing services
that fall under the FCC's jurisdiction. In September 1992, the FCC
mandated that local exchange carriers provide network access for special
transmission paths to competitive access providers, interexchange
carriers and end users. In February 1993, Ameritech filed a tariff with
the FCC, which was effective in May, making possible this type of
interconnection. In August 1993, the FCC issued an order that permits
competitors to interconnect to local telephone company switches. Under
the new rules, certain telephone companies must allow all interested
parties to terminate their switched access transmission facilities at
telephone company central offices, wire centers, tandem switches and
certain remote nodes. Ameritech filed a tariff in November 1993 to
effect that change in February 1994.
Ameritech is seeking opportunities to compete on an equal footing.
Although the Company is barred from providing interLATA and nationwide
cable services, its competitors are not. Cellular telephone and other
wireless technologies are poised to bypass Ameritech's local access
network. Cable providers, who currently serve more than eighty percent
of American homes, could provide telephone service and have expressed
their desire to do so. Certain interexchange carriers and competitive
access providers have demonstrated interest in providing local exchange
service. Ameritech's plan is to facilitate competition in the local
exchange business in order to compete in the total communications
marketplace.
Customers First: Ameritech's Advanced Universal Access Plan
In 1993, Ameritech embarked on a long-range restructuring with the
intent of dramatically changing the way it serves its customers, and in
the process altered its corporate framework, expanding the nature and
scope of its services and supporting the development of a fully
competitive marketplace. In March, Ameritech filed a plan with the FCC
to change the way local telecommunications services are provided and
regulated and to furnish a policy framework for advanced universal
access to modern telecommunications services -- voice, data and video
information.
Ameritech proposes to facilitate competition in the local exchange
business by allowing other service providers to purchase components of
its network and to repackage them with their own services for resale, in
exchange for the freedom to compete in both its existing and currently
prohibited businesses. Ameritech has requested regulatory reforms to
match the competitive environment as well as support of its efforts to
remove restraints, such as the interLATA service restriction, which
currently restrict its participation in the full telecommunications
marketplace. In addition, Ameritech asks for more flexibility in
pricing new and competitive services and replacement of caps on earnings
with price regulation. Under the plan, customers would be able to
choose from competitive providers for local service as they now can
choose a provider for interexchange service.
Page 11
To demonstrate conclusively the substantial customer and economic
benefits of full competition, in December 1993, Ameritech proposed a
trial of its plan, beginning in 1995. Ameritech has petitioned the DOJ
to recommend Federal District Court approval of a waiver of the long-
distance restriction of the Consent Decree so that Ameritech can offer
interexchange service. At the same time, Ameritech would facilitate the
development of local communications markets by unbundling the local
network and integrating competitors' switches. The trial would begin in
Illinois in the first quarter of 1995 and would last indefinitely.
Other states could be added over time. If the trial is approved by the
DOJ, the request must be acted on by the Court which retains
jurisdiction over administering the terms of the Consent Decree. In
February 1994, Ameritech filed tariffs with the Illinois Commerce
Commission that propose specific rates and procedures to open the local
network in that state. Approval could take up to 11 months.
Ameritech has received broad support for the plan from Midwest elected
officials, national and Midwest business leaders, and education, health
industry, economic development and consumer leaders. The national and
local offices of the Communications Workers of America (CWA) and the
International Brotherhood of Electrical Workers (IBEW) also support the
plan.
Ameritech has alternative regulatory proposals pending with the IURC and
other state regulatory commissions in its region to support
implementation of the plan.
Ameritech's Video Network Concept
In January 1994, Ameritech filed plans with the FCC to construct a
digital video network upgrade that will enable it to reach 6 million
customers by the end of the decade. Ameritech expects to spend $4.4
billion to upgrade its network to provide video services, part of a
total of approximately $29 billion Ameritech estimates it will spend on
network improvements over the next fifteen years. Ameritech is pursuing
alliances and partnerships that will position it as a key participant in
the emerging era of interactive video experiences. Pending FCC approval
of Ameritech's plan and clearing of other regulatory hurdles, the
construction of the first phase of the network could begin as soon as
the fourth quarter of 1994. The new network, which will be separate
from Ameritech's core local communications network, will be expanded to
approximately 1 million additional Midwest customers in each of the next
five years.
Ameritech will be only one of many users of the broadband network. A
multitude of competing video information providers, businesses,
institutions, interexchange carriers and video telephone customers will
also have access to the technology.
With the new system, customers will have access to a virtually unlimited
variety of programming sources. These will include basic broadcast
services, similar to today's cable service, and advanced interactive
services such as video on demand, home healthcare, interactive
educational software, distance learning, interactive games and shopping,
and a variety of other entertainment and information services that can
be accessed from homes, offices, schools, hospitals, libraries and other
public and private institutions.
Page 12
Cable/Telco Cross Ownership Ban
In November 1993, Ameritech filed motions in two federal courts seeking
freedom from the ban on providing video services in its own service
area. Ameritech asked U.S. District Courts in Illinois and Michigan to
declare unconstitutional the provisions of the Cable Act of 1984 that
bar the RHCs from providing cable TV service in areas where they hold
monopolies on local phone service. In August 1993, a U.S. District
Court in Washington, D.C. granted a request by Bell Atlantic Corporation
for such an order, but that court denied similar requests by Ameritech
and the other RHCs.
Legislation has been introduced in Congress that would repeal the cross
ownership ban.
Employee Relations
As of December 31, 1993, the Company employed 5,077 persons, a decrease
from 5,486 at December 31, 1992. During 1993, approximately 305
employees left the payroll as a result of voluntary and involuntary
workforce programs. This amount includes 45 nonmanagement employees who
took advantage of a Supplemental Income Protection Program (SIPP)
established under labor agreements to voluntarily exit the workforce.
Additional restructuring was done by normal attrition.
On March 25, 1994, Ameritech announced that it will reduce its
nonmanagement workforce by 6,000 employees by the end of 1995, including
approximately 780 at the Company. Under terms of agreements between
Ameritech, the CWA and the IBEW, Ameritech is implementing an
enhancement to the Ameritech pension plan by adding three years to the
age and net credited service of eligible nonmanagement employees who
leave the business during a designated period that ends in mid-1995. In
addition, Ameritech's network business unit is offering financial
incentives under the terms of its current contracts with the CWA and
IBEW to selected nonmanagement employees who leave the business before
the end of 1995.
The reduction of the workforce results from technological improvements,
consolidations and initiatives identified by management to balance its
cost structure with emerging competition.
Approximately 4,067 employees are represented by unions. Of those so
represented, about 92 percent are represented by the CWA and about 8
percent are represented by the IBEW, both of which are affiliated with
the AFL-CIO.
In July and August 1993, the Ameritech landline telephone companies and
Ameritech Services reached agreement with the two unions on a workforce
transition plan for assigning union-represented employees to the newly
established business units. The separate agreements with the CWA and
the IBEW extend existing union contracts with the landline telephone
companies and Ameritech Services to the new units. The pacts address a
number of force assignment, employment security and union representation
issues. In 1995, when union contracts are due to expire, the parties
will negotiate regional contracts.
Page 13
ITEM 2. PROPERTIES
The properties of the Company do not lend themselves to description by
character and location of principal units. At December 31, 1993,
central office equipment represented 36.6% of the Company's investment
in telecommunications plant in service; land and buildings (occupied
principally by central offices) represented 9.8%; telecommunications
instruments and related wiring and equipment, including private branch
exchanges, substantially all of which are on the premises of customers,
represented 1.4%; and connecting lines which constitute outside plant,
the majority of which are on or under public roads, highways or streets
and the remainder of which are on or under private property, represented
44.6%.
Substantially all of installations of central office equipment and
administrative offices are located in buildings owned by the Company
situated on land which it owns in fee. Many garages, administrative
offices, business offices and some installations of central office
equipment are in rented quarters.
ITEM 3. LEGAL PROCEEDINGS
Pre-divestiture Contingent Liabilities Agreement
The Plan provides for the recognition and payment of liabilities that
are attributable to pre-divestiture events (including transactions to
implement the divestiture) but that do not become certain until after
divestiture. These contingent liabilities relate principally to
litigation and other claims with respect to the former Bell System's
rates, taxes, contracts, equal employment matters, environmental matters
and torts (including business torts, such as alleged violations of the
antitrust laws).
With respect to such liabilities, AT&T and the Bell Companies, including
the Company, will share the costs of any judgment or other determination
of liability entered by a court or administrative agency, the costs of
defending the claim (including attorneys' fees and court costs) and the
cost of interest or penalties with respect to any such judgment or
determination. Except to the extent that affected parties may otherwise
agree, the general rule is that responsibility for such contingent
liabilities will be divided among AT&T and the Bell Companies on the
basis of their relative net investment (defined as total assets less
reserves for depreciation) as of the effective date of divestiture.
Different allocation rules apply to liabilities which relate exclusively
to pre-divestiture interstate or intrastate operations.
Although complete assurance cannot be given as to the outcome of any
litigation, in the opinion of the Company's management any monetary
liability or financial impact to which the Company would be subject
after final adjudication or settlement of all such liabilities would not
be material in amount to the financial position of the Company.
Page 14
PART II EXHIBIT 28
SELECTED FINANCIAL AND OPERATING DATA
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
(Dollars in Millions)
1993 1992 1991 1990 1989
Revenues
Local service $ 506.7 $ 478.7 $ 477.5 $ 462.6 $ 442.4
Interstate network access 230.6 221.3 215.2 223.8 232.0
Intrastate network access 107.6 100.3 96.3 104.1 97.8
Long distance 148.7 127.2 130.6 128.9 128.6
Other 123.0 118.0 114.3 121.0 117.1
1,116.6 1,045.5 1,033.9 1,040.4 1,017.9
Operating expenses 825.3 775.2 773.1 774.7 757.6
Operating income 291.3 270.3 260.8 265.7 260.3
Interest expense 29.0 34.5 36.8 36.0 37.4
Other income, net (6.4) (5.9) (2.6) (0.9) (2.7)
Income taxes 87.2 78.5 73.8 75.9 70.3
Income before extraordinary
item and cumulative effect
of change in accounting
principles 181.5 163.2 152.8 154.7 155.3
Extraordinary item--loss on
early extinguishment of
debt (14.7) 0.0 0.0 0.0 0.0
Income before cumulative
effect of change in
accounting principles 166.8 163.2 152.8 154.7 155.3
Cumulative effect of change
in accounting principles 0.0 (160.2) 0.0 0.0 0.0
Net income $ 166.8 $ 3.0 $ 152.8 $ 154.7 $ 155.3
Total assets $1,987.5 $2,035.2 $2,044.6 $2,037.8 $1,959.7
Telecommunications plant,
net $1,662.3 $1,715.5 $1,722.9 $1,734.4 $1,735.5
Capital expenditures $ 162.9 $ 201.5 $ 196.3 $ 200.4 $ 188.7
Long term debt $ 85.2 $ 392.8 $ 416.5 $ 416.0 $ 416.0
Debt ratio 31.8% 32.8% 33.6% 33.5% 34.4%
Pretax interest coverage 10.7 8.6 7.6 7.7 7.5
Return to average equity 20.5% 0.4% 16.7% 17.2% 17.6%
Return on average total
capital 15.7% 2.8% 13.3% 13.6% 13.7%
Page 15
SELECTED FINANCIAL AND OPERATING DATA
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
1993 1992 1991 1990 1989
Customer lines - at end of
year (000's) 1,855 1,770 1,711 1,670 1,619
% Customer lines served by
digital electronic offices 74.7% 58.7% 49.7% 41.5% 34.3%
% Customer lines served by
analog electronic offices 25.3% 41.3% 50.3% 55.8% 56.2%
% Customer lines served by
electromechanical offices 0.0% 0.0% 0.0% 2.7% 9.5%
Customer lines per employee 365 323 290 258 241
_____________________________________________________________________________
Local calls per year
(000,000's)* 6,382 6,240 5,394 5,341 5,393
Calls per customer line 3,441 3,539 3,152 3,198 3,331
_____________________________________________________________________________
Employees - at end of year 5,077 5,486 5,901 6,477 6,711
* The significant change in local calls from 1991 to 1992 was caused by
a change to the Bell Communications Research, Inc. (Bellcore) industry
standard for measuring local calls. By using this standard the Company
is now measuring local calls under the same method as its Ameritech
affiliates.
Page 16
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 Indiana Bell Telephone Company, Incorporated (the Company) for the
year ended December 31, 1993, as compared to the year ended December 31,
1992, which is based on the Statements of Income and Reinvested Earnings
on page 23. Other pertinent data are also given in the Selected
Financial and Operating Data on page 14.
Revenues
Total revenues in 1993 and 1992 were $1,116.6 and $1,045.5,
respectively, a 6.8% increase. The following paragraphs explain the
components of that change:
1993 1992 Increase % Change
Local service $506.7 $478.7 $28.0 5.8%
Local service revenue increases were primarily due to a $15.2 increase
in residence revenues, a $12.2 increase in business revenues, and a $0.3
increase in public revenues. Part of these increases were attributed to
a $10.0 credit for business and residence customers from a settlement
agreement in 1992. Business access lines increased 8.7% over the same
period last year, primarily due to sales of Centrex services and
increases in Basic Service. The residence revenue increase occurred
despite reductions in Touch-Tone rates effective July 1, 1992 and July
1, 1993. Residence access lines grew 3.0% over the same period last
year. As of December 31, 1993, the Company had 1,855,000 total access
lines versus 1,770,000 total access lines as of the same date in 1992.
1993 1992 Increase % Change
Network access
Interstate $230.6 $221.3 $9.3 4.2%
Intrastate $107.6 $100.3 $7.3 7.3%
Interstate:
Interstate access increases included end user revenues of $6.1 from rate
and volume increases and carrier common line revenues of $5.7 primarily
because of a decrease in NECA settlement payments. These increases were
partially offset by decreases in traffic sensitive revenues of $1.7 and
special access revenues of $0.8 from rate decreases and volume
decreases, respectively.
Intrastate:
Increases of $6.0 and $1.5 in traffic sensitive and end user revenues,
respectively, were offset by a decrease of $0.6 in special access
revenues. The traffic sensitive increase was due to higher volume
despite lower rates. Revenues increased $6.4 due to a 1993 change in
the intrastate settlements process, whereby access expenses are no
longer treated as a revenue offset.
Page 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
1993 1992 Increase % Change
Long distance $148.7 $127.2 $21.5 16.9%
The increase was due to $31.0 in intrastate and private line revenue
previously offset by access expense as discussed in the intrastate
network access revenue section above. This increase was offset by $10.1
due to the combined effect of a toll rate reduction effective January 1,
1993 and an increase in volume. These rate reductions also resulted in
a decrease in WATS revenue of $1.3.
1993 1992 Increase % Change
Other $123.0 $118.0 $5.0 4.2%
Other revenues increased due to increases in billing and collection
revenue of $1.7, directory advertising revenue of $1.4, and Linebacker,
Linebacker Plus, and wire maintenance sales of $3.0. In addition, a
$1.3 settlement was received in 1993 from independent companies for
directory assisted operator services. These increases were partially
offset by an increase in uncollectibles of $2.7.
Operating Expenses
Total operating expenses were $825.3 in 1993 and $775.2 in 1992. The
increase is comprised of the following:
1993 1992 Decrease % Change
Employee related expenses $245.1 $265.9 ($20.8) (7.8%)
Workforce reductions resulted in decreases in wages, payroll taxes and
benefits totaling $27.4. Offsetting the decrease was a normal wage
rate increase of $4.2, an increase in overtime of $1.5 and an increase
in employee business travel expense of $0.9. During 1993 and 1992, 73
and 326 employees, respectively, and their work functions were
transferred to Ameritech Services, Inc. (ASI), an affiliate owned by the
Company and the other four Ameritech operating companies. Although this
transfer resulted in reduced employee related expenses for the Company,
it resulted in an increase in other operating expenses as the Company
contracted the transferred services from ASI. As of December 31, 1993,
the Company had 5,077 employees versus 5,486 employees as of the same
date in 1992.
Page 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
1993 1992 Increase % Change
Depreciation and amortization $215.6 $214.0 $1.6 0.7%
The increase in depreciation was a result of plant additions and an
intrastate rate represcription in 1993.
1993 1992 Increase % Change
Other operating expenses $319.8 $256.0 $63.8 24.9%
Other operating expenses consist of contracted services, services from
affiliates, materials and supplies, and miscellaneous expenses, such as
access charge expenses and advertising. The increase consists of
$18.8 in services provided by ASI and $14.4 in contracted services
which were both previously provided by Company employees, $4.3 in right-
to-use fees, $3.8 in advertising, and $32.1 in access charge expenses
which were formerly an offset to revenue. Partially offsetting the
increases were decreases of $4.0 in land and building rentals, $1.3 in
materials and supplies, and lower service charges from Ameritech
Corporation (the Company's parent) and Ameritech Information Systems,
Inc. (AIS), an affiliate of the Company, of $4.4 and $0.5, respectively.
1993 1992 Increase % Change
Taxes other than income taxes $44.8 $39.3 $5.5 14.0%
The increase is primarily comprised of an increase in property taxes of
$3.2 and gross receipts taxes of $2.5. The property tax increase is due
primarily to an estimated 6.0% rate increase and increased property.
The increase in the gross receipts taxes is due to increased revenue and
prior year adjustments.
Other Income and Expenses
1993 1992 Decrease % Change
Interest expense $29.0 $34.5 ($5.5) (15.9%)
The decrease from the same period last year resulted primarily from $5.9
in lower interest related to long term debt resulting from bond
retirements in 1992 and 1993 offset by an increase in interest paid to
the Ameritech short term funding pool. (See Notes D. and E. to the
financial statements for further information related to the bond
retirements.)
Page 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
1993 1992 Increase % Change
Other income - net $6.4 $5.9 $0.5 8.5%
Other income in 1992 included income of $6.6 from settlements with
federal and state taxing authorities, $1.5 in early extinguishment of
debt cost and a loss in ASI equity of $1.7. Other income in 1993 does
not include early extinguishment of debt costs as these charges have
been classified as an extraordinary item on the Statements of Income and
Reinvested Earnings. ASI equity in 1993 resulted in income of $3.8. In
addition, net interest income from the Ameritech short term funding pool
decreased from 1992 to 1993.
1993 1992 Increase % Change
Income taxes $87.2 $78.5 $8.7 11.1%
The increase in income taxes was due primarily to an increase in taxable
income. These increases were partially offset by an unfavorable Federal
tax audit settlement in 1992.
The effective tax rate for the years ended December 31, 1993 and 1992
was 32.5%.
Page 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
OTHER INFORMATION
Regulatory Environment
Customer demand, technology and the preferences of policy makers are all
converging to increase competition in the local exchange business. The
effects of increasing competition are apparent in the marketplace the
Company serves. Additionally, increasing volumes of intraLATA long
distance services purchased by large and medium sized business customers
are sold by carriers other than the Company.
Recognizing the trend, the Company's regulatory/public policy activities
are focused on achieving a framework that allows for expanding
competition while providing a fair opportunity for all carriers,
including the Company, to succeed. The cornerstone of this effort is
Ameritech's "Customers First Plan" that was filed with the Federal
Communications Commission (FCC) on March 1, 1993. In a subsequent
filing with the U.S. Department of Justice, Ameritech proposed that the
Customers First Plan be implemented on a trial basis beginning in
January 1995 in Illinois and other states thereafter.
The Customers First Plan proposes to open all of the local telephone
business in the Company's service area to competition. In exchange,
Ameritech has requested three regulatory changes. First, Ameritech has
requested relief from the Modification of Final Judgment (MFJ) interLATA
ban. Such relief would mean that the Company would be allowed to offer
all long distance services. Second, Ameritech has requested a number of
modifications in the FCC's price cap rules. These modifications would
apply only to Ameritech, including the Company, and would eliminate any
obligation to refund, in the form of its share of future rate
reductions, its share of interstate earnings in excess of 12.25%. The
modifications would also provide the Company increased ability to price
its interstate access services in a manner appropriate to competitive
conditions. Third, Ameritech has requested FCC authority to collect in
a competitively neutral manner, the social subsidies currently embedded
in the rates that the Company charges long distance carriers for access
to the local network.
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, under which future rate
changes for basic exchange services would be subject to a predetermined
formula reflecting changes in inflation, the Company's historic
productivity and actual service quality performance. The proposal would
give the Company the ability to set prices for services which are
classified as competitive services by the IURC, and the Company would
also be able to determine its own depreciation rates. Under the terms
of this proposal as originally filed, the Company would agree to freeze
basic exchange rates at current levels through the end of 1994, if its
proposal was adopted by the IURC.
Page 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
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. The agreement remains subject to IURC approval, and
the parties to the agreement have requested expedited action by the IURC
by April 29, 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 (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation." Under SFAS No. 71, the Company records
certain assets and liabilities because of the 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. 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 that continuing
application of SFAS No. 71 is appropriate.
Status of New Business Units
In February 1993, following a year-long examination of its business
called "Breakthrough Leadership," Ameritech announced it would
restructure its business into separate units organized around specific
customer groups -- such as residential customers, small businesses,
interexchange companies and large corporations -- and a single unit that
will run Ameritech's network in Illinois, Indiana, Michigan, Ohio and
Wisconsin. The Ameritech Bell Companies will continue to function as
legal entities owning current Bell company assets in each state. The
network unit will provide network and information technology resources
in response to the needs of the other business units. This unit will be
the source of network capabilities for products and services offered by
the other business units and will be responsible for the development and
day-to-day operation of an advanced information infrastructure.
All of the business units and the network unit are currently
operational. Ameritech has developed a new logo and is marketing all of
its products and services under the single brand name "Ameritech."
Page 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS (CONT.)
(Dollars in Millions)
Digital Video Network
In January 1994, Ameritech Corporation (Ameritech), the parent of the
Company, announced a program to launch a digital video network upgrade that
is expected, by the end of the decade, to make available interactive
information and entertainment services, as well as traditional cable TV
services, to approximately six million Ameritech customers. The Company has
filed an application with the FCC seeking approval of the program. The
application reflects capital expenditures of approximately $49.0 over the
next three years. The Company may also, depending on market demand, make
additional capital expenditures under this program. The Company
anticipates that its capital expenditures for the program will be funded
without an increase to its recent historical level of capital expenditures.
Changes in Accounting Principles
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The new accounting method is essentially a refinement of the
liability method the Company had been following and, accordingly, did not
have a material impact on the Company's financial statements upon adoption.
As more fully discussed in Note C. to the financial statements, effective
January 1, 1992, the Company adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions," and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The cumulative effect
of these accounting changes was recognized in the first quarter of 1992 as a
change in accounting principles of $160.2, net of a deferred income tax
benefit of $90.3.
Workforce Resizing
On March 25, 1994, Ameritech announced that it will reduce its nonmanagement
workforce by 6,000 employees by the end of 1995, including approximately 780
at the Company. Under terms of agreements between Ameritech, the
Communications 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 net credited
service of eligible nonmanagement employees who leave the business during a
designated period that ends in mid-1995. In addition, Ameritech's network
business unit is offering financial incentives under the terms of its
current contracts with the CWA and IBEW to selected nonmanagement employees
who leave the business before the end of 1995.
The above actions will result in a charge to first quarter 1994 earnings of
approximately $68.9, or $42.8 after-tax. A significant portion of the
program cost will be funded by Ameritech's pension plan, whereas financial
incentives to be paid from Company funds are estimated to be approximately
$18.4. Settlement gains, which result from terminated employees accepting
lump-sum payments from the pension plan, will be reflected in income as
employees leave the payroll. The Company believes this program will reduce
its employee-related costs by approximately $39.0 on an annual basis upon
completion of this program.
The reduction of the workforce results from technological improvements,
consolidations and initiatives identified by management to balance its cost
structure with emerging competition.
Page 23
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
STATEMENTS OF INCOME AND REINVESTED EARNINGS
(Dollars in Millions)
Year Ended December 31,
1993 1992 1991
REVENUES $1,116.6 $1,045.5 $1,033.9
OPERATING EXPENSES
Employee related expenses 245.1 265.9 295.8
Depreciation and amortization 215.6 214.0 209.9
Other operating expenses 319.8 256.0 232.2
Taxes other than income taxes 44.8 39.3 35.2
825.3 775.2 773.1
OPERATING INCOME 291.3 270.3 260.8
Interest expense 29.0 34.5 36.8
Other income - net (6.4) (5.9) (2.6)
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES 268.7 241.7 226.6
Income taxes 87.2 78.5 73.8
INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLES 181.5 163.2 152.8
Extraordinary item--loss on early
extinguishment of debt (less
income tax benefit of $8.8) (14.7) 0.0 0.0
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLES 166.8 163.2 152.8
Cumulative effect of change in
accounting principles 0.0 (160.2) 0.0
NET INCOME 166.8 3.0 152.8
REINVESTED EARNINGS, BEGINNING
OF YEAR 239.8 346.2 334.9
LESS DIVIDENDS 155.8 109.4 141.5
REINVESTED EARNINGS, END OF YEAR $ 250.8 $ 239.8 $ 346.2
The accompanying notes are an integral part of the financial statements.
Page 24
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
BALANCE SHEETS
(Dollars in Millions)
December 31, December 31,
1993 1992
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 0.6 $ 7.2
Investment in Ameritech funding pool 0.0 3.0
0.6 10.2
Receivables
Customers and agents (less
allowance for uncollectibles of
$5.6 and $3.1, respectively) 160.9 150.0
Ameritech and affiliates 16.6 13.6
Other 9.5 5.9
Material and supplies 6.1 8.8
Prepaid and other 12.7 21.5
206.4 210.0
TELECOMMUNICATIONS PLANT
In service 2,945.7 2,901.9
Under construction 37.2 52.1
2,982.9 2,954.0
Less: Accumulated depreciation 1,320.6 1,238.5
1,662.3 1,715.5
INVESTMENTS, principally in affiliate 31.1 25.0
OTHER ASSETS AND DEFERRED CHARGES 87.7 84.7
TOTAL ASSETS $ 1,987.5 $ 2,035.2
The accompanying notes are an integral part of the financial statements.
Page 25
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
BALANCE SHEETS
(Dollars in Millions)
December 31, December 31,
1993 1992
LIABILITIES AND SHAREOWNER'S EQUITY
CURRENT LIABILITIES
Debt maturing within one year
Ameritech $ 75.0 $ 0.0
Other 220.1 0.1
Accounts payable
Ameritech Services, Inc. 19.9 21.9
Ameritech and affiliates 13.4 10.7
Other 62.8 79.5
Other current liabilities 178.0 170.7
569.2 282.9
LONG TERM DEBT 85.2 392.8
DEFERRED CREDITS AND OTHER LONG TERM LIABILITIES
Accumulated deferred income taxes 163.1 169.7
Unamortized investment tax credits 34.5 41.2
Postretirement benefits other than pensions 224.1 230.8
Long term payable to Ameritech Services, Inc. 9.4 9.9
Other 86.2 103.1
517.3 554.7
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 250.8 239.8
815.8 804.8
TOTAL LIABILITIES AND SHAREOWNER'S EQUITY $ 1,987.5 $ 2,035.2
The accompanying notes are an integral part of the financial statements.
Page 26
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
STATEMENTS OF CASH FLOWS
(Dollars in Millions)
Year Ended December 31,
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 166.8 $ 3.0 $ 152.8
Adjustments to net income
Extraordinary item--loss on early
extinguishment of debt 14.7 0.0 0.0
Cumulative effect of change in
accounting principles 0.0 160.2 0.0
Depreciation and amortization 215.6 214.0 209.9
Deferred income taxes, net (14.4) (14.7) (13.7)
Investment tax credits, net (6.7) (6.3) (8.9)
Interest during construction (0.7) (0.5) (0.7)
Provision for uncollectibles 7.6 4.9 7.2
Change in accounts receivable (25.7) (1.6) (18.8)
Change in materials and supplies 1.2 (1.0) (0.4)
Change in prepaid expenses and certain
other current assets 1.3 (9.9) (2.9)
Change in accounts payable (16.0) 21.3 (13.1)
Change in accrued taxes 6.3 (0.3) 7.5
Change in certain other current
liabilities 10.8 18.6 34.9
Net change in certain noncurrent
assets and liabilities (13.1) (4.2) (20.8)
Other (10.4) 2.0 (0.2)
Net cash from operating activities 337.3 385.5 332.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (162.2) (199.6) (195.6)
Proceeds from (cost of) disposals of
telecommunications plant 2.0 (1.6) (1.2)
Additional investments in ASI
(affiliate), principally equity (3.0) (4.0) 0.0
Proceeds from sales of investments 0.0 0.0 1.6
Net cash from investing activities (163.2) (205.2) (195.2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short term debt 0.0 0.0 (36.0)
Intercompany financing - net 75.0 (43.5) 43.5
Retirements of long term debt (100.0) (24.5) (0.8)
Cost of refinancing long term debt (2.9) (1.4) 0.0
Dividend payments (155.8) (109.4) (141.5)
Net cash from financing activities (183.7) (178.8) (134.8)
The accompanying notes are an integral part of the financial statements.
Page 27
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
STATEMENTS OF CASH FLOWS
(Dollars in Millions)
Year Ended December 31,
1993 1992 1991
Net (decrease) increase in cash and
temporary cash investments (9.6) 1.5 2.8
Cash and temporary cash investments
at beginning of year 10.2 8.7 5.9
Cash and temporary cash investments
at end of year $ 0.6 $ 10.2 $ 8.7
The accompanying notes are an integral part of the financial statements.
Page 28
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(Dollars in Millions)
Indiana Bell Telephone Company, Incorporated (the Company), is a wholly
owned subsidiary of Ameritech Corporation (Ameritech).
A. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The financial statements have been prepared in
accordance with generally accepted accounting principles. In compliance
with Statement of Financial Accounting Standards No. 71, "Accounting for
the Effects of Certain Types of Regulation" (SFAS No. 71), the Company
recognizes the actions of regulators where appropriate. Such actions
can provide reasonable assurance of the existence of an asset, reduce or
eliminate the value of an asset, or impose a liability. Actions of a
regulator can also eliminate a liability previously imposed by the
regulator.
Transactions with Affiliates - The Company has various agreements with
affiliated companies. Below is a description of the significant
arrangements followed by a table of the amounts involved.
1. Ameritech Services, Inc. (ASI) - The Company has a 10% ownership
in ASI, an Ameritech controlled affiliate, that provides
consolidated planning, development, management, and support
services to all of the Ameritech Bell companies. The Company
also provides certain services, such as loaned employees, to ASI.
1993 1992 1991
Purchases of materials from ASI $ 87.2 $ 81.0 $ 78.8
Charges for purchases of services
from ASI 121.8 100.6 86.8
Recovery of costs for services 12.3 9.2 6.1
provided to ASI
2. Ameritech (the Company's parent) - Ameritech provides various
administrative, planning, financial and other services to the
Company. These services are billed to the Company at cost.
1993 1992 1991
Charges incurred for services $12.1 $11.5 $13.4
Page 29
3. Ameritech Publishing, Inc. (API) - The Company has an agreement
under which payments are made to the Company by API for license
fees and billing and collection services provided by the Company.
The Company also purchases directory services from API under the
same agreement.
1993 1992 1991
Fees paid to the Company by API $47.8 $46.8 $42.5
Purchases by the Company from API 8.6 8.5 7.5
4. Ameritech Information Systems, Inc. (AIS) - The Company has an
agreement whereby the Company reimburses AIS for costs incurred by
AIS in connection with the sale of network services by AIS
employees.
1993 1992 1991
Charges incurred for services $3.7 $4.4 $5.8
5. Bell Communication Research, Inc. (Bellcore) - Bellcore provides
research and technical support to the Company. ASI has a one-
seventh interest in Bellcore and bills the Company for the costs.
1993 1992 1991
Charges incurred for services $13.0 $16.0 $15.5
Telecommunications Plant - Telecommunications plant is stated at
original cost. The original cost of telecommunications plant acquired
from ASI includes a return on investment to ASI.
The provision for depreciation and amortization is based principally on
the straight-line remaining life and the straight-line equal life group
methods of depreciation applied to individual categories of
telecommunications plant with similar characteristics.
Generally, when depreciable plant is retired, the amount at which such
plant has been carried in telecommunications plant in service is charged
to accumulated depreciation.
The cost of maintenance and repairs of plant is charged to expense.
Investments - The Company's investment in ASI (10% ownership and $26.6
and $22.0 at December 31, 1993 and 1992, respectively) is reflected in
the financial statements using the equity method of accounting. All
other investments are carried at cost.
Material and Supplies - Inventories of new and reusable material and
supplies are stated at the lower of cost or market with cost determined
generally on an average cost basis.
Page 30
Interest During Construction - Regulatory authorities allow the Company
to accrue interest as a cost of constructing certain plant and as an
item of income, i.e., allowance for debt and equity funds used to
finance construction. Such income is not realized in cash currently but
will be realized over the service life of the plant as the resulting
higher depreciation expense is recovered in the form of increased
revenues.
Income Taxes - The Company is included in the consolidated Federal
income tax return filed by Ameritech and its subsidiaries. Effective
January 1, 1993 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." The new
accounting method is essentially a refinement of the liability method
already followed by the Company and, accordingly, did not have a
significant impact on the Company's financial statements upon adoption.
Consolidated income tax currently payable has been allocated to the
Company based on the Company's contribution to consolidated taxable
income and tax credits.
Deferred tax assets and liabilities are based on differences between the
financial statement bases of assets and liabilities and the tax bases of
those same assets and liabilities. Under the liability method, deferred
tax assets and liabilities at the end of each period are determined
using the statutory tax rates in effect when these temporary differences
are expected to reverse. Deferred income tax expense is measured by the
change in the net deferred income tax asset or liability during the
year. In addition, for regulated companies, SFAS No. 109 requires that
all deferred regulatory liabilities be recognized at the revenue
requirement level. It further requires that a deferred tax liability be
recorded to reflect the amount of cumulative tax benefits previously
flowed through to ratepayers and that a long-term deferred asset be
recorded to reflect the revenue to be recovered in telephone rates when
the related taxes become payable in future years.
The Company uses the deferral method of accounting for investment tax
credits. Therefore, credits earned prior to the repeal of investment
tax credits by the Tax Reform Act of 1986 and also certain transitional
credits earned after the repeal are being amortized as reductions in the
tax expense over the life of the plant which gave rise to the credits.
Temporary Cash Investments - Temporary cash investments are stated at
cost which approximates market. The Company considers all highly
liquid, short term investments with an original maturity of three months
or less to be cash equivalents.
Short Term Financing Arrangement - During 1991, Ameritech entered into
an arrangement with its subsidiaries, including the Company, for the
provision of short term financing and cash management services.
Ameritech issues commercial paper and notes and secures bank loans to
fund the working capital requirements of its subsidiaries and invests
short term, excess funds on their behalf. See Notes D. and H.
Page 31
B. INCOME TAXES
The components of income tax expense follow:
1993 1992 1991
Federal
Current $ 100.8 $ 91.5 $ 84.5
Deferred, net (14.9) (16.0) (15.1)
Investment tax credits, net (6.7) (6.3) (8.9)
Total 79.2 69.2 60.5
State and Local
Current 7.5 8.0 11.9
Deferred, net 0.5 1.3 1.4
Total 8.0 9.3 13.3
Total income tax expense $ 87.2 $ 78.5 $ 73.8
Deferred income tax expense (credit) results principally from temporary
differences caused by the change in the book and tax bases of property,
plant, and equipment due to the use of different depreciation methods
and lives for financial reporting and income tax purposes. Total income
taxes paid were $114.2, $102.7, and $95.2 in 1993, 1992, and 1991,
respectively.
The following is a reconciliation between the statutory federal income
tax rate for each of the last three years and the Company's effective
tax rate:
1993 1992 1991
Statutory tax rate 35.0% 34.0% 34.0%
State income taxes, net of federal
benefit 1.9 2.5 3.9
Reduction in tax expense due to
amortization of investment
tax credits (2.5) (2.6) (3.9)
Effect of adjusting deferred income tax
balances due to tax law changes (0.9) 0.0 0.0
Benefit of tax rate differential
applied to reversing temporary
differences (2.2) (2.9) (2.9)
Other 1.2 1.5 1.5
Effective tax rate 32.5% 32.5% 32.6%
Page 32
The Revenue Reconciliation Act of 1993, enacted in August of 1993,
increased the statutory Federal income tax rate for 1993 to 35%. In
accordance with the liability method of accounting, the Company
adjusted, on the enactment date, its deferred income tax balances not
subject to regulatory accounting prescribed by SFAS No. 71 (see Note A).
The result was a reduction in deferred income tax expense of $2.4
million, primarily from increasing the deferred tax assets associated
with SFAS Nos. 106 and 112 (see Note C.)
As of December 31, 1993, the Company had a regulatory asset of $46.3
million (reflected in Other Assets and Deferred Charges) related to the
cumulative amount of income taxes on temporary differences previously
flowed through to ratepayers. In addition, on that date, the Company
had a regulatory liability of $67.4 million (reflected in Other Deferred
Credits) related to the reduction of deferred taxes resulting from the
change in the Federal statutory income tax rate to 35% and deferred
taxes provided on unamortized investment tax credits. These amounts
will be amortized over the regulatory lives of the related depreciable
assets concurrent with recovery in rates. The accounting for and the
impact on future net income of these amounts will depend on the
ratemaking treatment authorized in future regulatory proceedings.
As of December 31, 1993 and 1992, the components of long term
accumulated deferred income taxes were as follows:
1993 1992
Deferred tax assets
Postretirement and
postemployment benefits $ 96.2 $ 90.7
SFAS No. 71 accounting 9.8 42.7
Other, net 6.8 8.4
112.8 141.8
Deferred tax liabilities
Accelerated depreciation 271.3 289.5
Other 4.6 22.0
275.9 311.5
Net deferred tax liability $ 163.1 $ 169.7
Deferred income taxes in current assets and liabilities are not shown as
they are not significant.
Page 33
C. EMPLOYEE BENEFIT PLANS
Pension Plans
Ameritech maintains non-contributory defined pension and death benefit
plans covering substantially all of the Company's management and non-
management employees. The pension benefit formula used in the
determination of pension cost is based on the average compensation
earned during the five highest consecutive years of the last ten years
of employment for the management plan and a flat dollar amount per year
of service for the non-management plan. Pension credits are allocated
to subsidiaries based on the percentage of compensation for the
management plan and per employee for the non-management plan. The
Company's funding policy is to contribute annually an amount up to the
maximum amount that can be deducted for federal income tax purposes.
However, due to the funded status of the plans, no contributions have
been made for the years reported below. The following data provides
information on the Company's credits for the Ameritech plans:
1993 1992 1991
Pension credits $ (9.5) $ (10.0) $ (6.5)
Current year credits as a
percentage of salaries and wages (4.5)% (4.3)% (2.7)%
Pension credits were determined using the projected unit credit
actuarial method in accordance with Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions." The resulting
pension credits are primarily attributable to favorable investment
performance and the funded status of the plans.
Certain disclosures are required to be made of the components of pension
costs and the funded status of the plans, including the actuarial
present value of accumulated plan benefits, accumulated projected
benefit obligation and the fair value of plan assets. Such disclosures
are not presented for the Company because the structure of the Ameritech
plans does not permit the plans' data to be readily disaggregated.
The assets of the Ameritech plans consist principally of debt and equity
securities, fixed income securities and real estate. As of December 31,
1993, the fair value of plan assets available for the plan benefits
exceeded the projected benefit obligation (calculated using a discount
rate of 5.8% as of December 31, 1993 and 1992). The assumed long-term
rate of return on plan assets used in determining pension cost was 7.25%
for 1993, 1992 and 1991. The assumed increase in future compensation
levels, also used in the determination of the projected obligation, was
4.5% in 1993 and 1992.
Page 34
Postretirement Benefits Other Than Pensions - Effective January 1, 1992,
Ameritech adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS No. 106). SFAS No. 106 requires the cost of postretirement
benefits granted to employees to be accrued as expense over the period
in which the employee renders service and becomes eligible to receive
benefits. The cost of health care and postretirement life insurance
benefits for current and future retirees was recognized as determined
under the projected unit credit actuarial method.
In adopting SFAS No. 106, the Company elected to immediately recognize,
effective January 1, 1992, the transition benefit obligation for current
and future retirees. The unrecognized obligation was $231.8 million
less deferred income taxes of $85.7 million or $146.1 million, net. To
this amount, is added the Company's 10% share of ASI's transition
obligation of $6.2 million for a total charge of $152.3 million.
As defined by SFAS No. 71, a regulatory asset and any corresponding
regulatory liability associated with the recognition of the transition
obligation was not recorded because of uncertainties as to the timing
and extent of recovery in the rate-making process.
Substantially all current and future retirees are covered under
postretirement benefit plans sponsored by Ameritech. Such benefits
include medical, dental, and group life insurance. Ameritech has been
prefunding (including cash received from the Company) certain of these
benefits through Voluntary Employee Benefit Association trust funds
(VEBAs) and Retirement Funding Accounts (RFAs). The associated plan
assets (primarily corporate securities and bonds) were considered in
determining the transition obligation under SFAS No. 106. Ameritech
intends to continue to fund its obligations appropriately and is
exploring other available funding and cost containment alternatives.
Ameritech allocates its retiree healthcare cost on a per participant
basis, whereas group life insurance is allocated based on compensation
levels.
SFAS No. 106 requires certain disclosures as to the components of
postretirement benefit costs and the funded status of the plans. Such
disclosures are not presented for the Company as the structure of the
Ameritech plans does not permit the data to be readily disaggregated.
However, the Company has been advised by Ameritech as to the following
assumptions used in determining its SFAS No. 106 costs.
As of December 31, 1993 the accumulated postretirement benefit
obligation exceeded the fair value of plan assets available for plan
benefits. The assumed discount rate used to measure the accumulated
postretirement benefit obligation was 7.0% as of December 31, 1993 and
7.5% as of December 31, 1992. The assumed rate of future increases in
compensation level was 4.5% as of December 31, 1993 and December 31,
1992. The expected long term rate of return on plan assets was 7.25% in
1993 and 1992 on VEBAs and 8.0% in 1993 and 1992 on RFAs. The assumed
healthcare cost trend rate in 1993 was 9.6% and 10% in 1992, and is
assumed to decrease gradually to 4.0% in 2007 and remain at that level.
The assumed increase in healthcare cost is 9.2% for 1994. The
healthcare cost trend rates have a significant effect on the amounts
Page 35
reported for costs each year. Specifically, increasing the assumed
healthcare cost trend rate by one percentage point in each year would
increase the 1993 annual expense by approximately 18.0%.
Postretirement benefit cost under SFAS No. 106 for 1993 and 1992 was
$23.5 and $21.8, respectively. During 1991, the cost of postretirement
healthcare benefits for retirees was $21.5.
As of December 31, 1993, the Company had approximately 4,584 retirees
eligible to receive health care and group life insurance benefits.
Postemployment Benefits - Effective January 1, 1992, Ameritech adopted
Statement of Financial Accounting Standards No. 112, "Employers
Accounting for Postemployment Benefits" (SFAS No. 112). SFAS No. 112
requires employers to accrue the future cost of certain benefits such as
workers compensation, disability benefits and health care continuation
coverage. A one-time charge related to adoption of this statement was
recognized as a change in accounting principle, effective as of January
1, 1992. The charge was $12.3, less deferred taxes of $4.6 for a net of
$7.7. To this amount, is added the Company's 10% share of ASI's one-
time charge of $0.2 for a total charge of $7.9. Previously the Company
used the cash method to account for such costs. Current expense levels
are dependent upon actual claim experience, but are not materially
different than prior charges to income.
Workforce Reductions - During 1993, 305 employees left the Company
through voluntary early retirement programs and involuntary
terminations. The net cost of this effort including termination
benefits, settlement and curtailment gains from the pension plan, was a
credit to expense of $1.4. The involuntary termination plan remains in
effect until June 30, 1994.
During 1992, 210 employees left the Company through voluntary early
retirement programs and involuntary terminations. The net cost of this
effort including termination benefits, settlement and curtailment gains
from the pension plan, was a credit to expense of $0.2.
During 1991, the Company offered most of its management employees an
early retirement program. The net cost of this program, including
termination benefits and a settlement gain from the pension plan, was
$0.8.
Page 36
D. DEBT MATURING WITHIN ONE YEAR
Debt maturing within one year is included as debt in the computation of
debt ratios and consists of the following at December 31:
Weighted
Average
Amounts Interest Rates*
1993 1992 1991 1993 1992 1991
Notes payable
Bank Loans
Parent (Ameritech) $ 75.0 $ 0.0 $ 43.5 - - 5.07%
Other
Long term debt maturing
within one year 220.1 0.1 0.1
Total $ 295.1 $ 0.1 $ 43.6
Average notes payable
outstanding during
the year $ 32.8 $ 2.2 $ 18.4 3.15% 4.78% 6.26%
Maximum notes payable
at any month end
during the year $ 92.5 $ 6.5 $ 44.5
In December 1993, the Company called $90.0 of 8.000% debentures due in
2014 and $130.0 of 8.125% debentures due in 2017. This debt had been
included in Other Debt Maturing Within One Year as of December 31, 1993.
These debentures were redeemed in 1994 with an advance from Ameritech.
During 1991, Ameritech consolidated the short-term financing of its
subsidiaries at Ameritech Corporate. See Note A. - Short Term Financing
Arrangement.
* Computed by dividing the average daily face amount of notes payable
into the aggregate related interest expense.
Page 37
E. LONG TERM DEBT
Long term debt consists principally of mortgage bonds and debentures
issued by the Company.
The following table sets forth interest rates and other information on
long term debt outstanding at December 31:
Interest Maturities 1993 1992
4.375% 40 year bonds due June 1, 2003 $ 20.0 $ 20.0
4.750% 40 year bonds due October 1, 2005 25.0 25.0
5.500% 40 year bonds due April 1, 2007 40.0 40.0
8.125% 40 year bonds due August 1, 2011 0.0 100.0
8.125% 40 year bonds due March 1, 2017 0.0 130.0
8.000% 37 year bonds due October 1, 2014 0.0 90.0
85.0 405.0
Capital lease obligations 0.1 0.2
Unamortized premium (discount)-net 0.1 (12.4)
Total $ 85.2 $ 392.8
In June 1993, the Company redeemed $100.0 of 8.125% debentures due in
2011 using funds obtained from short term borrowings and internal
sources. In December 1993, the Company called $90.0 of 8.000%
debentures due in 2014 and $130.0 of 8.125% debentures due in 2017.
This debt has been included in Other Debt Maturing Within One Year as of
December 31, 1993. The $90.0 and $130.0 debentures were redeemed in
1994. The Company has filed a registration statement with the
Securities and Exchange Commission for issuance of up to $225.0 in
unsecured debt securities for general corporate purposes. As of
January 28, 1994, none of these securities had been issued.
Early extinguishment of debt costs (including call premiums and write-
offs of unamortized deferred costs) in 1993 were $23.5 and have been
classified as an extraordinary item on the Statements of Income and
Reinvested Earnings. In 1992, the costs were $1.4 and are included in
other income.
Page 38
F. LEASE COMMITMENTS
The Company leases certain facilities and equipment used in its
operations under both operating and capital leases. Rental expense
under operating leases was $26.0, $14.9, and $21.3 million for 1993,
1992, and 1991, respectively. At December 31, 1993, the aggregate
minimum rental commitments under noncancelable leases were approximately
as follows:
Years Operating Capital
1994 $ 0.5 $ 0.1
1995 0.3 0.1
1996 0.2 0.1
1997 0.1 0.0
1998 0.1 0.0
Thereafter 0.1 0.0
Total minimum rental commitments $ 1.3 0.3
Less: amount representing interest costs 0.1
Present value of minimum lease payments $ 0.2
Page 39
G. FINANCIAL INSTRUMENTS
The following table presents the estimated fair value of the Company's
financial instruments as of December 31, 1993 and 1992:
1993
Carrying Fair
Value Value
Cash and short term investments $ 0.6 $ 0.6
Debt 395.1 381.1
Long-term payable to ASI (for
postretirement benefits) 9.4 9.4
Other assets 8.1 8.1
Other liabilities 9.8 9.8
1992
Carrying Fair
Value Value
Cash and short term investments $ 10.2 $ 10.2
Debt 402.2 395.5
Long-term payable to ASI (for
postretirement benefits) 10.2 10.2
Other assets 2.6 2.6
Other liabilities 8.8 8.8
The following methods and assumptions were used to estimate the fair
value of financial instruments:
Cash and Short Term Investments - Carrying value approximates fair value
because of short term maturity of these instruments.
Debt - The carrying amount (including accrued interest) of the Company's
debt maturing within one year approximates fair value because of the
short term maturities involved. The fair value of the Company's long
term debt was estimated based on the year end quoted market price for
the same or similar issues.
Other Assets and Liabilities - These financial instruments consist
primarily of long term receivables, other investments, and customer
deposits. The fair values of these items are based on expected cash
flows or, if available, quoted market prices.
Long term Payable to ASI (for Postretirement Benefits) - Carrying value
approximates fair value.
Page 40
H. ADDITIONAL FINANCIAL INFORMATION
December 31, December 31,
1993 1992
Balance Sheets
Other current liabilities:
Accrued payroll $ 6.3 $ 6.6
Accrued taxes 63.6 58.6
Income taxes deferred one year (19.0) (25.3)
Advance billings and customer deposits 73.7 70.5
Accrued interest 12.7 15.1
Compensated absences 18.0 17.7
Other 22.7 27.5
Total $ 178.0 $ 170.7
1993 1992 1991
Statements of Income
Interest expense:
Interest on long term debt $ 26.0 $ 31.9 $ 33.1
Interest on notes payable -
Ameritech 1.0 0.1 0.9
Other 2.0 2.5 2.8
Total $ 29.0 $ 34.5 $ 36.8
Interest paid was $29.8, $32.9, and $34.7 million in 1993, 1992 and
1991, respectively.
1993 1992 1991
Taxes other than income taxes:
Property $ 29.1 $ 25.8 $ 24.3
Gross receipts 14.3 11.8 9.5
Other 1.4 1.7 1.4
Total $ 44.8 $ 39.3 $ 35.2
Maintenance and repair expense $ 173.4 $ 170.4 $ 167.8
Depreciation-Percentage of average
depreciable telecommunications
plant in service 7.4% 7.5% 7.6%
Revenues from AT&T, consisting principally of interstate network access
and billing and collection service revenues, comprised approximately
11.6%, 13.2%, and 13.6% of total revenues in 1993, 1992, and 1991,
respectively. No other customer accounted for more than 10% of total
revenues.
Page 41
I. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Calendar Operating Net Income
Quarter Revenues Income (Loss)
1993
1st $ 264.2 $ 72.0 $ 43.7
2nd 280.1 73.6 42.8
3rd 282.4 68.9 43.4
4th 289.9 76.8 36.9
Total $1,116.6 $ 291.3 $ 166.8
1992
1st $ 260.5 $ 68.5 $ (114.6)
2nd 258.6 67.8 38.2
3rd 261.6 65.5 39.8
4th 264.8 68.5 39.6
Total $1,045.5 $ 270.3 $ 3.0
The fourth quarters of 1993 and 1992 were affected by several income and
expense items. The fourth quarter of 1993 was affected by gains from
workforce resizing and charges for the early retirement of debt. The
fourth quarter of 1992 was affected by higher costs and charges
resulting from market realignment efforts and increased advertising.
These costs were offset by gains from workforce resizing and higher than
expected pension credits.
Certain reclassifications have been made in the second quarter of 1993
to reflect $2.3 as an extraordinary loss arising from early
extinguishment of debt costs, resulting in $45.1 of ordinary income with
no effect on previously reported net income. These reclassifications
were required because in the fourth quarter of 1993 an additional charge
for early extinguishment of debt costs of $19.8, or $12.4 after tax, was
made. These charges were considered material, necessitating
classification of all 1993 early extinguishment of debt costs as an
extraordinary item.
First quarter 1992 results reflect charges related to the adoption of
SFAS Nos. 106 and 112 for postretirement and postemployment benefits, as
discussed previously in Note C. above. The charges totaled $160.2.
All adjustments necessary for a fair statement of results for each
period have been included.
Page 42
J. CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges of the Company for the years
ended December 31, 1993, 1992, 1991, 1990 and 1989 was 8.13, 7.13, 6.29,
6.47 and 6.56, respectively.
For the purpose of calculating this ratio, (i) earnings have been
calculated by adding to income before interest expense, extraordinary
items and accounting changes, the amount of related taxes on income and
the portion of rentals representative of the interest factor, (ii) the
Company considers one-third of rental expense to be the amount
representing return on capital, and (iii) fixed charges comprise total
interest expense and such portion of rentals.
K. INTRASTATE RATE SETTLEMENT
On March 27, 1992, the Company reached an agreement with the Office of
the Utility Consumer Counselor regarding its investigation into the
Company's rates and charges. The agreement provided a one-time credit
to all subscribers as well as a reduction in toll and Touch-Tone rates.
Part of the one-time credit was applied in June of 1992 for $7.0 with
the $3.0 remainder accrued in 1992 for application in January of 1993.
The Touch-Tone rate reduction, effective July 1, 1992, reduced revenues
by $6.0 during the last 6 months of 1992 and by $12.8 during 1993. The
toll rate reduction went into effect on January 1, 1993 and reduced 1993
revenue by $15.5.
L. PRIOR YEAR RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform with current year presentation. These
reclassifications have no effect on previously reported net income.
M. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
On March 25, 1994, Ameritech announced it would reduce its nonmanagement
workforce resulting in an after-tax charge to the Company of $42.8. The
charge will be recorded in the first quarter of 1994.
Page 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No changes in nor disagreements with accountants on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure occurred during the period covered by this
annual report.
Page 44
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
Selected Financial and Operating Data 14
Statements of Income and Reinvested Earnings 23
Balance Sheets 24
Statements of Cash Flows 26
Notes to Financial Statements 28
Report of Independent Public Accountants 47
(2) Financial Statement Schedules:
V - Telecommunications Plant 48
VI - Accumulated Depreciation 52
VIII - Allowance for Uncollectibles 56
Financial statement schedules other than those listed above have been
omitted because the required information is contained in the financial
statements and notes thereto, or because such schedules are not required
or applicable.
Page 45
(3) Exhibits:
Exhibits identified in parentheses below, on file with the
SEC, are incorporated herein by reference as exhibits hereto.
Exhibit
Number
3a Articles of Incorporation of the registrant as amended May,
1990, (Exhibit (3)a to Form 10-K for the year ended December
31, 1990, File No. 1-6746).
3b By-laws of the registrant as amended April 7, 1990 (Exhibit
(3)b to Form 10-K for the year ended December 31, 1990, File
No. 1-6746).
4 No instrument which defines the rights of holders of long
term debt of the registrant is filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, the registrant hereby agrees to furnish a copy
of any such instrument to the SEC upon request.
10a Reorganization and Divestiture Agreement among American
Telephone and Telegraph Company, American Information
Technologies Corporation (n/k/a/ Ameritech Corporation) and
Affiliates dated November 1, 1983 (Exhibit (10)a to Form
10-K for 1983 for American Information Technologies
Corporation, File No. 1-8612).
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges
(b) Reports of Form 8-K:
No report on Form 8-K was filed by the registrant during the last
quarter of the year covered by this report.
Page 46
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.
Indiana Bell Telephone Company, Incorporated
By: /s/ Cheryl K. Wooley
Cheryl K. Wooley
Vice President - Comptroller
March 30, 1994
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 on the date indicated.
Principal Executive Officer:
By: /s/Thomas J. Reiman
Thomas J. Reiman
President
Principal Financial and Accounting Officer:
By: /s/ Cheryl K. Wooley
Cheryl K. Wooley
Vice President - Comptroller
Ameritech Corporation
By: /s/ Richard H. Brown
Richard H. Brown
Vice Chairman
the sole shareholder of the registrant,
which has elected under the laws of
Indiana to be managed by the shareholder
rather than by a board of directors
Page 47
Report of Independent Public Accountants
To the Shareholder of
Indiana Bell Telephone Company, Incorporated:
We have audited the accompanying balance sheets of INDIANA BELL
TELEPHONE COMPANY, INCORPORATED (an Indiana corporation) as of December
31, 1993 and 1992, and the related statements of income and reinvested
earnings and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Indiana Bell
Telephone Company, Incorporated as of December 31, 1993 and 1992, and
the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note (C) to the financial statements, the Company
changed its method of accounting for certain postretirement and
postemployment benefits in 1992.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement
schedules listed in Item 14(a)(2) are presented for purposes of
complying with the Securities and Exchange Commission's rules and are
not a required part of the basic financial statements. These schedules
have been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Indianapolis, Indiana,
January 28, 1994.
Page 48
Schedule V - Sheet 1
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
SCHEDULE V - TELECOMMUNICATIONS PLANT
(Millions of Dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
Balance Additions Other Balance
Beginning at Cost Retirements Changes End of
Classification of Period Note (a) Note (b) Note (c) Period
Year 1993
Land 11.9 0.0 0.0 0.0 11.9
Buildings 272.1 7.4 2.4 0.6 277.7
Computers and Other
Office Equipment 168.6 7.2 10.6 (1.2) 164.0
Vehicles and Other
Work Equipment 55.3 6.1 3.9 0.3 57.8
Central Office Equipment 1,082.4 99.6 103.6 (1.8) 1,076.6
Information Origination/
Termination Equipment 38.7 2.7 0.3 (0.1) 41.0
Cable and Wire
Facilities 1,267.6 58.6 14.8 0.0 1,311.4
Capitalized Lease Assets 0.9 0.0 0.0 0.0 0.9
Miscellaneous Other
Property 4.4 0.0 0.0 0.0 4.4
Total Telecommunications
Plant In Service (d) 2,901.9 181.6 135.6 (2.2) 2,945.7
Telecommunications Plant
Under Construction 52.1 (17.3) 0.0 2.4 37.2
Total Telecommunications
Plant $2,954.0 $ 164.3 $ 135.6 $ 0.2 $2,982.9
The notes on page 51 are an integral part of this Schedule.
Page 49
Schedule V - Sheet 2
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
SCHEDULE V - TELECOMMUNICATIONS PLANT
(Millions of Dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
Balance Additions Other Balance
Beginning at Cost Retirements Changes End of
Classification of Period Note (a) Note (b) Note (c) Period
Year 1992
Land 11.6 0.3 0.0 0.0 11.9
Buildings 262.3 11.1 1.4 0.1 272.1
Computers and Other
Office Equipment 167.3 14.0 12.2 (0.5) 168.6
Vehicles and Other
Work Equipment 54.2 6.8 5.9 0.2 55.3
Central Office Equipment 1,063.9 82.3 64.4 0.6 1,082.4
Information Origination/
Termination Equipment 35.7 5.4 2.4 0.0 38.7
Cable and Wire
Facilities 1,224.0 58.9 15.3 0.0 1,267.6
Capitalized Lease Assets 2.7 0.0 1.8 0.0 0.9
Miscellaneous Other
Property 4.2 0.0 0.0 0.2 4.4
Total Telecommunications
Plant In Service (d) 2,825.9 178.8 103.4 0.6 2,901.9
Telecommunications Plant
Under Construction 28.1 24.6 0.0 (0.6) 52.1
Total Telecommunications
Plant $2,854.0 $ 203.4 $ 103.4 $ 0.0 $2,954.0
The notes on page 51 are an integral part of this Schedule.
Page 50
Schedule V - Sheet 3
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
SCHEDULE V - TELECOMMUNICATIONS PLANT
(Millions of Dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
Balance Additions Other Balance
Beginning at Cost Retirements Changes End of
Classification of Period Note (a) Note (b) Note (c) Period
Year 1991
Land 11.7 0.0 0.0 (0.1) 11.6
Buildings 255.7 9.2 2.6 0.0 262.3
Computers and Other
Office Equipment 161.3 14.9 9.5 0.6 167.3
Vehicles and Other
Work Equipment 52.2 6.1 4.2 0.1 54.2
Central Office Equipment 1,032.6 100.4 68.5 (0.6) 1,063.9
Information Origination/
Termination Equipment 33.5 3.0 0.8 0.0 35.7
Cable and Wire
Facilities 1,170.5 69.0 15.8 0.3 1,224.0
Capitalized Lease Assets 3.4 0.1 0.9 0.1 2.7
Miscellaneous Other
Property 3.0 0.0 0.0 1.2 4.2
Total Telecommunications
Plant In Service (d) 2,723.9 202.7 102.3 1.6 2,825.9
Telecommunications Plant
Under Construction 33.8 (4.7) 0.0 (1.0) 28.1
Total Telecommunications
Plant $2,757.7 $ 198.0 $ 102.3 $ 0.6 $2,854.0
The notes on page 51 are an integral part of this Schedule.
Page 51
Schedule V - Sheet 4
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
NOTES TO SCHEDULE V - TELECOMMUNICATIONS PLANT
(a) These additions, other than additions to Buildings, include
material purchased from Ameritech Services, Inc., a centralized
procurement subsidiary in which the Company has a 10 percent
ownership interest. (See Note (A) to Financial Statements.)
Additions shown also include (1) the original cost (estimated if
not known) of reused material, which is concurrently credited to
material and supplies, and (2) interest during construction.
Transfers between the classifications listed are included in
Column E.
(b) Items of telecommunications plant when retired or sold are
deducted from the property accounts at the amounts at which they
are included therein or are estimated if not known.
(c) Comprised, principally, of reclassifications among plant
categories.
(d) The Company's provision for depreciation is based principally on
the straight-line remaining life and the straight-line equal life
group methods of depreciation applied to individual categories of
plant with similar characteristics. The Company is allowed by
regulatory authorities to use reserve deficiency amortization in
conjunction with the remaining life method. For the years, 1993,
1992, and 1991, depreciation expressed as a percentage of average
depreciable plant was 7.4%, 7.5%, and 7.6%, respectively.
Page 52
Schedule VI - Sheet 1
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
SCHEDULE VI - ACCUMULATED DEPRECIATION
(Millions of Dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
Balance Additions Other Balance
Beginning at Cost Changes End of
Classification of Period Note (a) Retirements Note (b) Period
Year 1993
Buildings 67.3 6.5 3.2 0.0 70.6
Computers and Other
Office Equipment 120.8 16.5 10.5 0.0 126.8
Vehicles and Other
Work Equipment 28.1 4.1 3.1 0.0 29.1
Central Office Equipment 474.2 114.8 98.9 0.0 490.1
Information Origination/
Termination Equipment 33.8 2.5 0.3 0.0 36.1
Cable and Wire Facilities 513.4 71.2 17.5 0.0 567.1
Capitalized Lease Assets 0.6 0.1 0.0 0.0 0.7
Miscellaneous Other
Property 0.3 0.0 0.0 0.0 0.3
Total Accumulated
Depreciation $1,238.5 $ 215.6 $ 133.5 $ 0.0 $1,320.6
The notes on page 55 are an integral part of this Schedule.
Page 53
Schedule VI - Sheet 2
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
SCHEDULE VI - ACCUMULATED DEPRECIATION
(Millions of Dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
Balance Additions Other Balance
Beginning at Cost Changes End of
Classification of Period Note (a) Retirements Note (b) Period
Year 1992
Buildings 61.8 7.8 2.3 0.0 67.3
Computers and Other
Office Equipment 108.0 24.5 11.7 0.0 120.8
Vehicles and Other
Work Equipment 27.0 6.1 5.0 0.0 28.1
Central Office Equipment 432.3 105.9 64.0 0.0 474.2
Information Origination/
Termination Equipment 32.8 3.3 2.3 0.0 33.8
Cable and Wire Facilities 466.5 64.8 17.9 0.0 513.4
Capitalized Lease Assets 2.4 0.1 1.9 0.0 0.6
Miscellaneous Other
Property 0.3 0.0 0.0 0.0 0.3
Total Accumulated
Depreciation $1,131.1 $ 212.5 $ 105.1 $ 0.0 $1,238.5
The notes on page 55 are an integral part of this Schedule.
Page 54
Schedule VI - Sheet 3
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
SCHEDULE VI - ACCUMULATED DEPRECIATION
(Millions of Dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
Balance Additions Other Balance
Beginning at Cost Changes End of
Classification of Period Note (a) Retirements Note (b) Period
Year 1991
Buildings 57.8 7.8 3.6 (0.2) 61.8
Computers and Other
Office Equipment 91.9 25.3 9.2 0.0 108.0
Vehicles and Other
Work Equipment 24.3 6.3 3.6 0.0 27.0
Central Office Equipment 395.7 104.1 67.3 (0.2) 432.3
Information Origination/
Termination Equipment 28.9 4.3 0.8 0.4 32.8
Cable and Wire Facilities 421.5 63.3 18.3 0.0 466.5
Capitalized Lease Assets 2.9 0.4 0.9 0.0 2.4
Miscellaneous Other
Property 0.3 0.0 0.0 0.0 0.3
Total Accumulated
Depreciation $1,023.3 $ 211.5 $ 103.7 $ 0.0 $1,131.1
The notes on page 55 are an integral part of this Schedule.
Page 55
Schedule VI - Sheet 4
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
NOTES TO SCHEDULE VI - ACCUMULATED DEPRECIATION
(a) Excludes certain minor amounts which are amortized directly to
depreciation expense as stated in the Statements of Income and
Reinvested Earnings.
(b) Comprises, principally, the depreciation provision for vehicles
and other work equipment charged initially to clearing accounts
and apportioned to Telecommunications Plant on the basis of the
usage of such equipment.
Page 56
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
SCHEDULE VIII - ALLOWANCE FOR UNCOLLECTIBLES
(Millions of Dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
Charged
Balance to Other Balance
Beginning Charged to Accounts Deductions End of
Descriptions of Period Expense Note (a) Note (b) Period
Year 1993 $ 3.1 $ 7.6 $ 20.7 $ 25.8 $ 5.6
Year 1992 $ 5.7 $ 4.9 $ 9.8 $ 17.3 $ 3.1
Year 1991 $ 4.9 $ 7.2 $ 8.4 $ 14.8 $ 5.7
(a) Includes principally amounts previously written off which were
credited directly to this account when recovered and amounts
related to interexchange carrier receivables which are being
billed by the Company.
(b) Amounts written off as uncollectible.
Page 57
EXHIBIT 12
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
Year ended December 31,
1993 1992 1991 1990 1989
1. Earnings
(a) Income before interest
expense, income taxes,
extraordinary item and
cumulative effect of
change in accounting
principles $297,738 $276,246 $263,380 $266,511 $262,946
(b) Portion of rental
expense representative
of the interest
factor (i) 8,662 4,974 6,060 6,172 3,138
Total $306,400 $281,220 $269,440 $272,683 $266,084
2. Fixed Charges
(a) Total interest
deductions $ 29,021 $ 34,465 $ 36,767 $ 35,981 $ 37,430
(b) Portion of rental
expense representative
of the interest
factor (ii) 8,662 4,974 6,060 6,172 3,138
Total $ 37,683 $ 39,439 $ 42,827 $ 42,153 $ 40,568
3. Ratio (1. divided by 2.) 8.13 7.13 6.29 6.47 6.56
(i) Earnings are income before income taxes and fixed charges. Since
the rental expense has already been deducted, the 1/3 portion of rental
expense considered to be fixed charges are added back.
(ii) 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: For the purpose of calculating this ratio, (i) earnings have been
calculated by adding to income before interest expense, extraordinary
items and accounting changes, the amount of related taxes on income and
the portion of rentals representative of the interest factor, (ii) the
Company considers one-third of rental expense to be the amount
representing return on capital, and (iii) fixed charges comprise total
interest expense and such portion of rentals.
