<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
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
(Incorporated under the laws of the State of Indiana)
240 North Meridian Street, Indianapolis, Indiana 46204
I.R.S. Employer Identification Number 35-0407820
Telephone Number - (800) 257-0902
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF AMERITECH CORPORATION,
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b)
OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE
FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
---- ----
At July 31, 1996, 13,490,876 common shares were outstanding.
<PAGE>2
Part I - Financial Information
------------------------------
The following condensed financial statements have been prepared by
Indiana Bell Telephone Company, Incorporated (the Company) pursuant to
the rules and regulations of the Securities and Exchange Commission
(SEC) and, in the opinion of the Company, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
statement of results for each period shown. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such SEC rules and
regulations. The Company believes that the disclosures made are
adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's latest Annual
Report on Form 10-K and the quarterly report on Form 10-Q previously
filed in the current year.
CONDENSED STATEMENTS OF INCOME AND REINVESTED EARNINGS
(Dollars in Millions)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues........................ $ 315.1 $ 299.0 $ 616.7 $ 590.7
--------- --------- --------- ---------
Operating expenses
Employee-related expenses..... 53.7 55.5 108.1 111.4
Depreciation and amortization. 45.9 47.6 90.0 95.1
Other operating expenses...... 98.0 96.6 195.6 188.1
Restructuring credit.......... -- -- -- (36.5)
Taxes other than income taxes. 10.8 12.1 22.2 23.9
--------- --------- --------- ---------
208.4 211.8 415.9 382.0
--------- --------- --------- ---------
Operating income................ 106.7 87.2 200.8 208.7
Interest expense................ 3.4 4.7 7.1 9.0
Other income, net .............. 0.8 0.5 1.8 0.5
--------- --------- --------- ---------
Income before income taxes...... 104.1 83.0 195.5 200.2
Income taxes.................... 36.9 30.0 70.2 73.6
--------- --------- --------- ---------
Net income...................... 67.2 53.0 125.3 126.6
Reinvested earnings,
beginning of period........... 81.0 55.9 66.4 30.2
Less, dividends declared.... 49.1 52.6 92.6 100.5
--------- --------- --------- ---------
Reinvested earnings,
end of period................. $ 99.1 $ 56.3 $ 99.1 $ 56.3
========= ========= ========= =========
See Notes to Condensed Financial Statements.
<PAGE>3
CONDENSED BALANCE SHEETS
(Dollars in Millions)
June 30, 1996 Dec. 31, 1995
------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
- ------
Current assets
Cash and temporary cash investments......... $ 0.1 $ 0.1
Receivables, net
Customers................................. 229.6 214.9
Ameritech and affiliates.................. -- 17.1
Other..................................... 3.1 8.1
Material and supplies....................... 4.3 4.3
Prepaid and other........................... 8.0 11.8
--------- ---------
245.1 256.3
--------- ---------
Property, plant and equipment................ 3,130.0 3,085.0
Less, accumulated depreciation............... 1,936.7 1,892.8
--------- ---------
1,193.3 1,192.2
--------- ---------
Investments, primarily in affiliates......... 36.5 37.5
Other assets and deferred charges............ 84.4 82.2
--------- ---------
Total assets................................. $ 1,559.3 $ 1,568.2
========= =========
See Notes to Condensed Financial Statements.
<PAGE>4
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
June 30, 1996 Dec. 31, 1995
------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech................................. $ 180.2 $ 150.6
Other..................................... 0.2 0.3
Accounts payable
Ameritech Services, Inc. (ASI)............ 57.2 56.8
Ameritech and affiliates.................. 14.3 11.8
Other..................................... 57.8 78.3
Other current liabilities.................. 123.5 162.5
--------- ---------
433.2 460.3
--------- ---------
Long-term debt.............................. 85.7 85.8
--------- ---------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes.......... 40.6 46.2
Unamortized investment tax credits......... 20.1 21.8
Postretirement benefits
other than pensions...................... 264.7 269.2
Long-term payable to ASI................... 7.7 8.3
Other ..................................... 43.2 45.2
--------- ---------
376.3 390.7
--------- ---------
Shareowner's equity
Common shares - ($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........................ 99.1 66.4
--------- ---------
664.1 631.4
--------- ---------
Total liabilities and shareowner's equity... $ 1,559.3 $ 1,568.2
========= =========
See Notes to Condensed Financial Statements.
<PAGE>5
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Six Months Ended
June 30
-------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 125.3 $ 126.6
Adjustments to net income
Restructuring credit, net of tax............ -- (22.9)
Depreciation and amortization............... 90.0 95.1
Deferred income taxes, net.................. (4.8) (2.0)
Investment tax credits, net................. (1.7) (2.7)
Capitalized interest........................ (0.4) (0.2)
Provision for uncollectibles................ 13.4 7.1
Change in accounts receivable............... (6.0) 15.9
Change in material and supplies............. (3.2) (0.6)
Change in certain other current assets...... 3.9 6.8
Change in accounts payable.................. (17.6) (25.6)
Change in certain other current
liabilities ............................... 18.8 (5.2)
Change in certain other noncurrent
assets and liabilities..................... (9.5) (8.1)
Other....................................... 0.8 (1.4)
-------- --------
Net cash from operating activities............ 209.0 182.8
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (88.5) (65.4)
Proceeds from disposals of
property, plant and equipment................ 1.2 2.8
Other investing activity...................... 0.1 0.2
-------- --------
Net cash from investing activities............ (87.2) (62.4)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing, net................... 29.6 (72.7)
Retirements of long-term debt................. (0.2) (0.2)
Dividend payments............................. (151.2) (48.0)
-------- --------
Net cash from financing activities............ (121.8) (120.9)
-------- --------
Net decrease in cash and
temporary cash investments................... -- (0.5)
Cash and temporary cash investments,
beginning of period.......................... 0.1 0.5
-------- --------
Cash and temporary cash investments,
end of period................................ $ 0.1 $ --
======== ========
See Notes to Condensed Financial Statements.
<PAGE>6
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
JUNE 30, 1996
NOTE 1: Work Force Restructuring
As announced in March 1994, the Company's parent, Ameritech
Corporation, restructured its existing nonmanagement work force,
reducing the work force by 11,500 employees during 1994 and 1995,
including 1,344 at the Company. As a result of the restructuring, the
Company recorded a gain of $36.5 million or $22.9 million after-tax in
the first six months of 1995, resulting primarily from settlement
gains from lump sum pension payments from the Ameritech Pension Plan
to former employees. No restructuring charges or credits were recorded
in the first six months of 1996.
The Company recorded additional restructuring charges in the fourth
quarter of 1995, primarily for the consolidation of data centers and
additional work force reductions. The total accrual amount remaining
related to work force restructuring charges was not significant as of
June 30, 1996. See further discussion in Management's Discussion and
Analysis below.
NOTE 2: Reclassifications
Certain reclassifications were made to the December 31, 1995 balances
to correspond to the presentation as of June 30, 1996.
<PAGE>7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The following is a discussion and analysis of the changes in revenues,
operating expenses and other income and expenses for the first six
months of 1996 as compared with the first six months of 1995.
Results of Operations
---------------------
Revenues
--------
Total revenues in the first six months of 1996 were $616.7 million and
were $590.7 million for the same period in 1995. The following
paragraphs explain the components of that change.
----------------------------------------------------------------------
Local service
-------------
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 310.2 $ 277.1 $ 33.1 11.9
The increase in local service revenues for the six months ended June
30, 1996 was due primarily to volume increases, resulting in increased
revenues of $31.3 million, as well as rate increases of $1.8 million.
The increased network usage volumes resulted principally from growth
in the number of access lines, which increased 5.0 percent to
2,063,000 as of June 30, 1996, compared to 1,965,000 at June 30, 1995,
and increased sales of call management services, such as Call
Forwarding and Caller ID.
<PAGE>8
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Network access
--------------
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
----------
Six Months Ended $ 125.9 $ 123.4 $ 2.5 2.0
Intrastate
----------
Six Months Ended $ 40.4 $ 44.3 $ (3.9) (8.8)
The increase in interstate network access revenues for the six months
ended June 30, 1996 was due primarily to higher network usage, which
resulted in additional revenues of $11.1 million, partially offset by
price decreases of $7.2 million, as well as an increase in National
Exchange Carrier Association common line support payments. Minutes of
use related to interstate calls increased 9.2 percent in the first six
months of 1996 compared to the prior year period.
The decrease in intrastate network access revenues for the six months
ended June 30, 1996 was due primarily to rate decreases of $7.7
million, partially offset by volume increases due to higher network
usage of $3.8 million. Minutes of use related to intrastate calls
increased 17.2 percent in the first six months of 1996 compared to the
prior year period.
------------------------------------------------------------------
Long distance service
---------------------
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 78.9 $ 77.1 $ 1.8 2.3
The increase in long distance service revenues for the six months
ended June 30, 1996 was due primarily to one-time favorable
adjustments of $5.2 million related to credit card and third number
billings, as well as rate increases of $0.7 million, partially offset
by volume decreases of $4.1 million.
----------------------------------------------------------------------
Other
-----
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 61.3 $ 68.8 $ (7.5) (10.9)
Other revenues include revenues derived from directory advertising,
billing and collection services, inside wire installation and
maintenance services and other miscellaneous services. The decrease
in other revenues for the six months ended June 30, 1996 is largely
attributable to a decrease in directory advertising revenues due to a
renegotiated listing and directory services agreement with Ameritech
Publishing, Inc. (API), an Ameritech subsidiary doing business as
Ameritech Advertising Services. The renegotiated agreement resulted
in a revenue decrease of $27.2 million. Billing and collection
revenues also decreased, as certain long distance carriers began
billing their own customers in 1996. These decreases were partially
offset by growth in voice messaging, sales of equipment and other
nonregulated services of $15.2 million, as well as increases in inside
wire installation and services revenues of $4.6 million.
<PAGE>9
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Operating expenses
------------------
Total operating expenses for the six months ended June 30, 1996
increased $33.9 million, or 8.9 percent to $415.9 million. The
increase was primarily attributable to work force restructuring, which
resulted in a credit of $36.5 million in the first six months of 1995
related to noncash settlement gains from the pension plan.
----------------------------------------------------------------------
Employee-related expenses
-------------------------
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 108.1 $ 111.4 $ (3.3) (3.0)
The decrease in employee-related expenses for the six months ended
June 30, 1996 was due primarily to decreases in benefits, payroll
taxes and other employee-related expenses of $4.4 million, as well as
decreases in work force levels and overtime. These decreases were
partially offset by wage rate and incentive increases.
There were 4,160 employees at June 30, 1996, compared with 4,237 at
June 30, 1995.
----------------------------------------------------------------------
Depreciation and
amortization
------------------
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 90.0 $ 95.1 $ (5.1) (5.4)
The decrease in depreciation and amortization in the six months ended
June 30, 1996 was primarily attributable to two major asset categories
becoming fully depreciated in 1995 requiring no further depreciation
accruals in 1996, which resulted in a decrease of $12.6 million in
depreciation expense in the first six months of 1996. This decrease
was partially offset by depreciation on higher average plant balances
for the other asset categories, as well as the effect of higher
depreciation rates in certain asset categories related to new
technologies.
<PAGE>10
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other operating expenses
------------------------
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 195.6 $ 188.1 $ 7.5 4.0
The increase in other operating expenses for the six months ended June
30, 1996 was due primarily to $11.2 million in cost of sales increases
related to equipment and increases in uncollectibles and other
expenses related to increased sales efforts for equipment and call
management services, such as voice messaging and other nonregulated
services. These increases were partially offset by a decrease in
contract and professional services of $3.7 million.
----------------------------------------------------------------------
Restructuring credit
--------------------
June 30 Percent
----------
(dollars in millions) 1996 1995 Change Change
------------------- ---- ---- -------- ------
Six Months Ended $ -- $ (36.5) $ 36.5 n/a
As discussed in Note 1, the Company significantly reduced its
nonmanagement work force during 1994 and 1995 by 1,344 employees. New
employees with different skills were added during this period to
accommodate growth and meet staffing requirements for new business
opportunities. As of June 30, 1995, 1,207 employees had left the
Company, with 112 leaving in the first six months of 1995. A pretax,
noncash settlement gain of $36.5 million was recorded in the first six
months of 1995, associated with lump-sum pension payments to former
employees. No restructuring charges or credits were recorded in the
first six months of 1996.
----------------------------------------------------------------------
Taxes other than income taxes
-----------------------------
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 22.2 $ 23.9 $ (1.7) (7.1)
The decrease in taxes other than income taxes for the six months ended
June 30, 1996 was due primarily to decreases in property taxes and
other taxes, partially offset by an increase in gross receipts taxes.
<PAGE>11
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Income and Expenses
-------------------------
Interest expense
-----------------
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 7.1 $ 9.0 $ (1.9) (21.1)
The decrease in interest expense for the six months ended June 30,
1996 is due primarily to a decrease in interest on borrowings from the
Ameritech short-term funding pool.
----------------------------------------------------------------------
Other income, net
-----------------
Change
June 30 Income Percent
----------
(dollars in millions) 1996 1995 (Expense) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 1.8 $ 0.5 $ 1.3 n/m
Other income, net includes equity in earnings of affiliates, interest
income and other nonoperating items. The increase in other income,
net in the six months ended June 30, 1996 was due primarily to
increased equity earnings from ASI and increased interest income.
----------------------------------------------------------------------
Income taxes
------------
June 30 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 70.2 $ 73.6 $ (3.4) (4.6)
The decrease in income taxes for the six months ended June 30, 1996
was due primarily to the tax effect ($13.6 million) associated with
the work force restructuring credit recorded in the first six months
of 1995. Excluding the effects of this item, income taxes increased
in line with earnings of the business.
----------------------------------------------------------------------
Ratio of earnings to fixed charges
----------------------------------
The ratio of earnings to fixed charges for the six months ended June
30 was 23.07 in 1996 and 20.11 in 1995. The ratio in 1995 was
favorably affected by a credit of $36.5 million for work force
restructuring (see prior discussion of this item). The work force
restructuring program has largely been funded by the Ameritech Pension
Plan.
<PAGE>12
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters
--------------
Telecommunications Act of 1996
------------------------------
The Telecommunications Act of 1996 was signed into law on February 8,
1996. This legislation defines the conditions under which Ameritech,
including the Company, will be permitted to offer interLATA long
distance service and provides certain mechanisms intended to
facilitate local exchange competition. This legislation, in addition
to allowing Ameritech to offer interLATA long distance services
through an affiliate, will allow competitors into the Company's
traditional local exchange markets. Management believes the
legislation gives Ameritech an opportunity to expand its revenue base
by providing long distance services, while retaining lower-margin
access revenues as other local service providers, acting as resellers,
continue to use the Company's network facilities.
On August 1, 1996 the Federal Communications Commission adopted rules
by which competitors will connect to local network facilities. The
rules address, among other things, unbundling of network elements,
pricing for interconnection and unbundled elements, and resale of
network services. The Company has not yet determined the impact of
the new rules.
<PAGE>13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
--------
12 Computation of Ratio of Earnings to Fixed Charges for the
six months ended June 30, 1996 and June 30, 1995.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No Form 8-K was filed by the registrant during the quarter
which this report is filed.
<PAGE>14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
----------------------------------------
(Registrant)
Date: August 7, 1996 /s/ Laurie L. Streling
--------------------------
Laurie L. Streling
Comptroller
State Finance Organization
(Principal Accounting Officer)
EXHIBIT 12
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Six Months Ended
June 30
-------------
1996 1995
---- ----
1. EARNINGS
a) Income before interest expense,
income taxes and undistributed
equity earnings (2)................. $ 203.9 $ 211.8
b) Portion of rental expense
representative of the
interest factor (1)................. 1.4 1.4
-------- --------
Total 1(a) through 1(b)................. $ 205.3 $ 213.2
-------- --------
2. FIXED CHARGES
a) Total interest expense including
capital lease obligations........... $ 7.1 $ 9.0
b) Capitalized interest ........... 0.4 0.2
c) Portion of rental expense
representative of the
interest factor (1)................. 1.4 1.4
-------- --------
Total 2(a) through 2(c)................. $ 8.9 $ 10.6
-------- --------
3. RATIO OF EARNINGS TO FIXED CHARGES....... 23.07 20.11
===== =====
(1) One-third of rental expense is considered to be the amount
representing return on capital.
(2) The results for the first six months of 1995 reflect a $36.5
million pretax credit primarily from settlement gains resulting
form lump sum pension payments from the pension plan to former
employees who left the business in the nonmanagement work force
restructuring.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INDIANA
BELL TELEPHONE COMPANY, INCORPORATED'S JUNE 30, 1996 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 100
<SECURITIES> 0<F1>
<RECEIVABLES> 232,700
<ALLOWANCES> 0
<INVENTORY> 4,300
<CURRENT-ASSETS> 245,100
<PP&E> 3,130,000
<DEPRECIATION> 1,936,700
<TOTAL-ASSETS> 1,559,300
<CURRENT-LIABILITIES> 433,200
<BONDS> 85,700
0
0
<COMMON> 539,600
<OTHER-SE> 124,500
<TOTAL-LIABILITY-AND-EQUITY> 1,559,300
<SALES> 0<F2>
<TOTAL-REVENUES> 616,700
<CGS> 0<F3>
<TOTAL-COSTS> 415,900
<OTHER-EXPENSES> (1,800)
<LOSS-PROVISION> 13,400
<INTEREST-EXPENSE> 7,100
<INCOME-PRETAX> 195,500
<INCOME-TAX> 70,200
<INCOME-CONTINUING> 125,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,300
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>SECURITIES ARE NOT MATERIAL AND THEREFORE HAVE NOT BEEN STATED SEPARATELY
IN THE FINANCIAL STATEMENTS. THIS AMOUNT IS INCLUDED IN THE CASH TAG.
<F2>NET SALES OF TANGILBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGULATION S-X, RULE 5-03(B). THIS AMOUNT IS
INCLUDED IN THE "TOTAL REVENUES" TAG.
<F3>COST OF TANGIBLE GOODS SOLD IS INCLUDED IN COST OF SERVICE AND PRODUCTS
IN THE FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO REGULATION
S-X, RULE 5-03(B).
</FN>
</TABLE>
