<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6746
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 April 30, 1997, 13,490,876 common shares were outstanding.
<PAGE>2
Part I - Financial Information
------------------------------
CONDENSED STATEMENTS OF INCOME AND REINVESTED EARNINGS
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31
----------------
1997 1996
---- ----
Revenues
Local service...................... $ 162.1 $ 151.1
Interstate network access.......... 68.7 62.7
Intrastate network access.......... 19.3 19.9
Long distance services............. 35.5 37.0
Other.............................. 30.8 30.9
--------- ---------
316.4 301.6
--------- ---------
Operating expenses
Employee-related expenses.......... 52.2 54.4
Depreciation and amortization...... 48.9 44.1
Other operating expenses........... 90.2 97.6
Taxes other than income taxes...... 11.6 11.4
--------- ---------
202.9 207.5
--------- ---------
Operating income..................... 113.5 94.1
Interest expense..................... 4.3 3.7
Other income, net ................... 0.6 1.0
--------- ---------
Income before income taxes........... 109.8 91.4
Income taxes......................... 41.0 33.3
--------- ---------
Net income........................... 68.8 58.1
Reinvested earnings,
beginning of period................ 93.4 66.4
Less, dividends declared......... 65.5 43.5
--------- ---------
Reinvested earnings,
end of period...................... $ 96.7 $ 81.0
========= =========
See Notes to Condensed Financial Statements.
Page 2
<PAGE>3
CONDENSED BALANCE SHEETS
(Dollars in Millions)
March 31, 1997 Dec. 31, 1996
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
Current assets
Cash and temporary cash investments......... $ 0.1 $ 0.1
Receivables, net
Customers................................. 215.6 229.1
Ameritech and affiliates.................. 0.2 0.7
Other..................................... 5.2 4.8
Material and supplies....................... 5.0 5.2
Prepaid and other........................... 7.3 5.8
--------- ---------
233.4 245.7
--------- ---------
Property, plant and equipment................ 3,220.5 3,211.7
Less, accumulated depreciation............... 2,007.8 1,996.4
--------- ---------
1,212.7 1,215.3
--------- ---------
Investments, primarily in affiliates......... 34.7 37.7
Other assets and deferred charges............ 97.6 97.0
--------- ---------
Total assets................................. $ 1,578.4 $ 1,595.7
========= =========
See Notes to Condensed Financial Statements.
Page 3
<PAGE>4
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
March 31, 1997 Dec. 31, 1996
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech................................. $ 4.1 $ 53.8
Other..................................... -- 0.2
Accounts payable
Ameritech Services, Inc. (ASI)............ 43.5 50.2
Ameritech and affiliates.................. 16.1 17.5
Other..................................... 66.7 68.7
Other current liabilities.................. 162.8 122.0
--------- ---------
293.2 312.4
--------- ---------
Long-term debt.............................. 233.9 234.0
--------- ---------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes.......... 58.3 57.3
Unamortized investment tax credits......... 17.7 18.5
Postretirement benefits
other than pensions...................... 265.2 265.7
Long-term payable to ASI................... 7.2 7.7
Other ..................................... 41.2 41.7
--------- ---------
389.6 390.9
--------- ---------
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........................ 96.7 93.4
--------- ---------
661.7 658.4
--------- ---------
Total liabilities and shareowner's equity... $ 1,578.4 $ 1,595.7
========= =========
See Notes to Condensed Financial Statements.
Page 4
<PAGE>5
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31
-------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 68.8 $ 58.1
Adjustments to net income
Depreciation and amortization............... 48.9 44.1
Deferred income taxes, net.................. 1.1 (2.4)
Investment tax credits, net................. (0.8) (0.9)
Capitalized interest........................ (0.3) (0.2)
Change in accounts receivable, net.......... 13.6 26.4
Change in material and supplies............. (1.9) (2.1)
Change in certain other current assets...... (1.5) 1.4
Change in accounts payable.................. (10.1) (16.6)
Change in certain other current
liabilities................................ 40.8 47.3
Change in certain other noncurrent
assets and liabilities..................... (2.1) (5.6)
Other operating activities, net............ 3.0 2.0
-------- --------
Net cash from operating activities............ 159.5 151.5
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (45.0) (38.6)
Proceeds from disposals of
property, plant and equipment................ 1.0 0.8
-------- --------
Net cash from investing activities............ (44.0) (37.8)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing, net................... (49.8) (11.4)
Retirements of long-term debt................. (0.2) (0.2)
Dividend payments............................. (65.5) (102.1)
-------- --------
Net cash from financing activities............ (115.5) (113.7)
-------- --------
Net decrease in cash and
temporary cash investments................... -- --
Cash and temporary cash investments,
beginning of period.......................... 0.1 0.1
-------- --------
Cash and temporary cash investments,
end of period................................ $ 0.1 $ 0.1
======== ========
See Notes to Condensed Financial Statements.
Page 5
<PAGE>6
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
MARCH 31, 1997
NOTE 1: Preparation of Interim Financial Statements
The condensed financial statements of Indiana Bell Telephone Company,
Incorporated (Indiana Bell or the Company) have been prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission (SEC). These financial statements include
estimates and assumptions that affect the reported amounts of assets
and liabilities and the amounts of revenues and expenses. Actual
amounts could differ from those estimates. In the Company's opinion,
these statements include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of results for
each period shown. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such SEC rules and regulations. The Company
believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's latest Annual Report on Form 10-K.
Page 6
<PAGE>7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The following is a discussion and analysis of the changes in
revenues, operating expenses and other income and expenses for the
first three months of 1997 as compared with the first three months of
1996.
Results of Operations
- ---------------------
Revenues
- --------
Total revenues in the first three months of 1997 were $316.4 million
and were $301.6 million for the same period in 1996. The increase
was primarily attributable to growth in access lines and sales of
call management services, as well as increases in switched minutes of
use resulting from higher network usage volumes. These increases
were partially offset by net rate reductions.
- ---------------------------------------------------------------------
Local service
- -------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 162.1 $ 151.1 $ 11.0 7.3
Local service revenues include basic monthly service fees and usage
charges, fees for call management services, installation and
connection charges and public phone revenues. The increase in local
service revenues for the three months ended March 31, 1997 was due
largely to higher network usage volumes, resulting primarily from
access line growth of 3.4 percent over the prior year period. Second
line additions by residential and small business customers
contributed to the increase in access lines, as demand for Internet
access and data transport capabilities continues to grow. Sales of
call management services, such as Call Forwarding, Call Waiting and
Caller ID also increased, fueled by customer demand for additional
flexibility and convenience.
There were 2,113,000 access lines in service as of March 31, 1997
compared with 2,044,000 as of March 31, 1996.
- ---------------------------------------------------------------------
Network access
- --------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
- ----------
Three Months Ended $ 68.7 $ 62.7 $ 6.0 9.6
Intrastate
- ----------
Three Months Ended $ 19.3 $ 19.9 $ (0.6) (3.0)
Network access revenues are fees charged to interexchange carriers
that use the Company's local landline communications network to
connect customers to their long distance network. In addition, end
users pay flat rate access fees to connect to the long distance
network. These revenues are generated from both interstate and
intrastate services.
Page 7
<PAGE>8
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Network access (cont'd.)
- ------------------------
The increase in interstate network access revenues for the three
months ended March 31, 1997 was due primarily to an increase in
network minutes of use, resulting from overall growth in the volume
of calls handled for interexchange carriers, partially offset by rate
decreases. Greater demand for dedicated services by Internet service
providers and other high-capacity users also contributed to the
increase. Minutes of use related to interstate calls increased 4.1
percent in the first three months of 1997 compared with the prior
year period.
The decrease in intrastate network access revenues for the three
months ended March 31, 1997 was due primarily to rate decreases,
partially offset by volume increases resulting from higher network
usage. Minutes of use related to intrastate calls increased 2.7
percent in the first three months of 1997 over the comparable prior
year period.
- ---------------------------------------------------------------------
Long distance service
- ---------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 35.5 $ 37.0 $ (1.5) (4.1)
Long distance service revenues are derived from customer calls to
locations outside of their local calling areas, but within the same
Local Access and Transport Area (LATA). The decrease in long
distance service revenues for the three months ended March 31, 1997
was due primarily to decreased network usage.
- ---------------------------------------------------------------------
Other
- -----
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 30.8 $ 30.9 $ (0.1) (0.3)
Other revenues include revenues derived from directory advertising,
billing and collection services, inside wire installation and
maintenance services and other miscellaneous services. The change in
other revenues for the three months ended March 31, 1997 compared
with the prior year period was not significant.
- ---------------------------------------------------------------------
Operating expenses
- ------------------
Total operating expenses for the three months ended March 31, 1997
decreased $4.6 million, or 2.2 percent to $202.9 million. The
decrease was primarily attributable to decreases in employee-related
expenses and other operating expenses, partially offset by an
increase in depreciation expense, as discussed below.
Page 8
<PAGE>9
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Employee-related expenses
- -------------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 52.2 $ 54.4 $ (2.2) (4.0)
The decrease in employee-related expenses for the three months ended
March 31, 1997 was due primarily to decreased wage and salary
expenses and overtime expenses resulting from lower work force
levels. Wage rate increases partially offset the decrease resulting
from force level changes.
There were 3,993 employees as of March 31, 1997, compared with 4,142
as of March 31, 1996.
- ---------------------------------------------------------------------
Depreciation and
amortization
- ------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 48.9 $ 44.1 $ 4.8 10.9
The increase in depreciation and amortization for the three months
ended March 31, 1997 was primarily attributable to higher plant
balances, as well as higher depreciation rates on certain asset
categories due to the use of shorter depreciable lives for newer
technologies.
- ---------------------------------------------------------------------
Other operating expenses
- ------------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 90.2 $ 97.6 $ (7.4) (7.6)
The decrease in other operating expenses for the three months ended
March 31, 1997 was due primarily to cost of sales decreases related
to equipment sales, as well as decreases in contract services. Lower
advertising expenses, due primarily to the timing of planned
marketing campaigns, also contributed to the decrease. These
decreases were partially offset by an increase in uncollectibles.
- ---------------------------------------------------------------------
Taxes other than income taxes
- -----------------------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 11.6 $ 11.4 $ 0.2 1.8
Taxes other than income taxes consist of property taxes, gross
receipts taxes and other taxes not directly related to earnings. The
increase in taxes other than income taxes for the three months ended
March 31, 1997 was due primarily to an increase in gross receipts
taxes due to a higher taxable base for these taxes, partially offset
by decreases in property taxes resulting from successful appeals of
1996 assessed valuations.
Page 9
<PAGE>10
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Income and Expenses
- -------------------------
Interest expense
- ----------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 4.3 $ 3.7 $ 0.6 16.2
The increase in interest expense for the three months ended March 31,
1997 was due primarily to an increase in interest on long-term debt
following the Company's issuance of $150 million of long-term debt in
August 1996. This increase was partially offset by decreased
interest on balances in the Ameritech short-term funding pool,
reflecting lower average pool balances.
- ---------------------------------------------------------------------
Other income, net
- -----------------
Change
March 31 Income Percent
------------
(dollars in millions) 1997 1996 (Expense) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 0.6 $ 1.0 $ (0.4) (40.0)
Other income, net includes equity in earnings of affiliates, interest
income and other nonoperating items. The decrease in other income,
net for the three months ended March 31, 1997 was due primarily to
decreased equity earnings from Ameritech Services, Inc. (ASI).
- ---------------------------------------------------------------------
Income taxes
- ------------
March 31 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 41.0 $ 33.3 $ 7.7 23.1
The increase in income taxes for the three months ended March 31,
1997 was due primarily to the increase in pretax earnings as
discussed in the revenue and expense items above.
- ---------------------------------------------------------------------
Ratio of earnings to fixed charges
- ----------------------------------
The ratio of earnings to fixed charges for the three months ended
March 31 was 23.06 in 1997 and 21.37 in 1996.
Page 10
<PAGE>11
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters
- --------------
Competition and the Telecommunications Act of 1996
- --------------------------------------------------
The Company's local service markets have been opened to competition
from interexchange carriers and other local service providers, as
required by the Telecommunications Act of 1996 (the 1996 Act).
Interconnection agreements that the Company has signed require it to
allow access to network elements at cost-based rates or services at
discounted, wholesale rates. These agreements may result in some
downward pressure on local service revenues, as a portion of the
Company's revenue shifts from local service at retail rates to
network access at wholesale rates.
The 1996 Act was also designed to bring renewed scrutiny of the
current universal service funding policy. Historically, network
access charges have been used to help local exchange carriers ensure
universal basic telephone service to all customers. The FCC is
expected to review and possibly modify this policy during 1997. Any
modifications by the FCC may result in changes to the Company's
revenue stream related to network access charges.
The Company has signed interconnection and resale agreements with
competitors, paving the way for entry into the interLATA long
distance market. However, FCC rules require that interLATA long
distance service be offered by a separate subsidiary of Ameritech.
Accordingly, Ameritech's entry into this market will not generate
long distance revenues for Indiana Bell. As a result, the potential
revenue decline brought by local service competition will not be
offset at the Company by gains in long distance revenue.
It is impossible to predict the specific impact of the Telecom Act
and other changes in the industry on Indiana Bell's business or
financial condition. Notwithstanding the potential for an adverse
effect on its revenue streams, the Company intends to pursue growth
opportunities in its local exchange business.
Private Securities Litigation Reform Act Safe Harbor Statement
- --------------------------------------------------------------
Except for historical information contained herein, the above
discussion contains certain forward-looking statements that
involve potential risks and uncertainties. The Company's future
results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences
include, but are not limited to, changes in economic and market
conditions, effects of state and federal regulation and the impact
of new technologies. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to
revise or update these forward-looking statements to reflect
events or circumstances that arise after the date hereof or to
reflect the occurrence of unanticipated events.
Page 11
<PAGE>12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
--------
12 Computation of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 1997 and March 31, 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No Form 8-K was filed by the registrant during the quarter for
which this report is filed.
Page 12
<PAGE>13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
--------------------------------------------
(Registrant)
Date: May 6, 1997 /s/ Ronald G. Pippin
--------------------------
Ronald G. Pippin
Comptroller
Page 13
EXHIBIT 12
INDIANA BELL TELEPHONE COMPANY, INCORPORATED
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Three Months Ended
March 31
---------------
1997 1996
---- ----
1. EARNINGS
a) Income before interest expense,
income taxes and undistributed
equity earnings .................... $ 117.1 $ 97.6
b) Portion of rental expense
representative of the
interest factor (1)................. 0.5 0.7
-------- --------
Total 1(a) and 1(b) ................. $ 117.6 $ 98.3
-------- --------
2. FIXED CHARGES
a) Total interest expense including
capital lease obligations........... $ 4.3 $ 3.7
b) Capitalized interest ........... 0.3 0.2
c) Portion of rental expense
representative of the
interest factor (1)................. 0.5 0.7
-------- --------
Total 2(a) through 2(c)................. $ 5.1 $ 4.6
-------- --------
3. RATIO OF EARNINGS TO FIXED CHARGES....... 23.06 21.37
======== ========
(1) One-third of rental expense is considered to be the amount
representing return on capital.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INDIANA BELL TELEPHONE COMPANY, INCORPORATED'S MARCH 31, 1997
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 100
<SECURITIES> 0<F1>
<RECEIVABLES> 240,100
<ALLOWANCES> (19,100)
<INVENTORY> 5,000
<CURRENT-ASSETS> 233,400
<PP&E> 3,220,500
<DEPRECIATION> 2,007,800
<TOTAL-ASSETS> 1,578,400
<CURRENT-LIABILITIES> 293,200
<BONDS> 233,900
0
0
<COMMON> 539,600
<OTHER-SE> 122,100
<TOTAL-LIABILITY-AND-EQUITY> 1,578,400
<SALES> 0<F2>
<TOTAL-REVENUES> 316,400
<CGS> 0<F3>
<TOTAL-COSTS> 202,900
<OTHER-EXPENSES> (600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,300
<INCOME-PRETAX> 109,800
<INCOME-TAX> 41,000
<INCOME-CONTINUING> 68,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,800
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>SECURITIES ARE NOT MATERIAL AND THEREFORE HAVE NOT BEEN STATED SEPARATELY
IN THE FINANCIAL STATEMENTS. THIS AMOUNT IS INCLUDED IN THE CASH TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL 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>
