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 30,1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3499
MICHIGAN BELL TELEPHONE COMPANY
(Incorporated under the laws of the State of Michigan)
I.R.S. Employer Identification Number 38-0823930
444 Michigan Avenue, Detroit, Michigan 48226
Telephone - Area Code (313) 223-9900
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 29, 1994 120,526,415 common shares were outstanding.
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XXX BEGIN PAGE 2 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
PART I - FINANCIAL INFORMATION
The following financial statements have been prepared by Michigan
Bell Telephone Company ("Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and,
in the opinion of the Company, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation
of results of operations, financial position and cash flows for each
period shown. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. The Company believes
that the disclosures made are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's latest annual report on Form 10-K and the Form 10-Q
quarterly report previously filed in the current year.
CONDENSED STATEMENTS OF INCOME AND REINVESTED EARNINGS
(Millions of Dollars)
(Unaudited)
For the 3 Months Ended For the 6 Months Ended
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
Revenues . . . . . . . . . . . . $706.0 $683.8 $1,403.6 $1,350.8
Operating expenses
Depreciation and amortization 136.9 137.7 273.2 274.2
Employee-related expenses . 170.3 176.1 341.6 352.7
Taxes other than income taxes. 23.4 35.6 58.0 73.4
Work force restructuring . . . - - 137.8 -
Other operating expenses . . 201.8 186.7 403.2 368.3
532.4 536.1 1,213.8 1,068.6
Operating income . . . . . . . . . 173.6 147.7 189.8 282.2
Interest expense . . . . . . . . 24.2 26.2 48.1 53.4
Other (income) expense, net . (0.9) (1.6) ( 2.1) ( 0.7)
Income before income taxes. . . . 150.3 123.1 143.8 229.5
Income Taxes . . . . . . . . . . 45.1 37.5 43.1 69.6
Net income . . . . . . . . . . . 105.2 85.6 100.7 159.9
Reinvested earnings (loss) - at
beginning of period . . . . . . (72.7) ( 3.4) 21.4 2.8
Less dividends . . . . . . . . 96.8 76.8 186.4 157.3
Reinvested earnings (loss) - at
end of period . . . . . . . $ (64.3) $ 5.4 $ (64.3) $ 5.4
See Notes to Condensed Financial Statements.
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XXX BEGIN PAGE 3 HERE XXX
Form 10-Q Part 1 Michigan Bell Telephone Company
CONDENSED BALANCE SHEETS
(Millions of Dollars)
June 30, 1994 December 31, 1993
(Unaudited) (Derived from Audited
Financial statements)
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 0.0 $ 17.0
Receivables, net
Customers . . . . . . . . . . . 493.9 452.9
Ameritech and affiliates. . . . . 3.3 15.7
Other . . . . . . . . . . . . . . . 24.4 27.8
Material and supplies. . . . . . . . 30.7 26.4
Prepaid and other . . . . . . . . . 15.9 23.0
568.2 562.8
Telecommunications plant . . . . . . 7,653.4 7,559.0
Less: accumulated depreciation . . 3,364.0 3,176.2
4,289.4 4,382.8
Investments, principally in affiliates . 65.2 68.5
Other assets and deferred charges . . . 162.3 245.1
TOTAL ASSETS . . . . . . . . . . . . $5,085.1 $5,259.2
LIABILITIES AND SHAREOWNER'S EQUITY
CURRENT LIABILITIES
Debt maturing within one year
Ameritech . . . . . . . . . . . $ 312.2 $ 382.9
Other . . . . . . . . . . . . 3.1 3.2
Accounts payable
Ameritech Services, Inc. . . . . 51.0 50.6
Other Ameritech affiliates . . . 30.6 47.0
Other . . . . . . . . . . . . . . 173.6 168.5
Other current liabilities . . . 381.5 322.9
952.0 975.1
LONG-TERM DEBT . . . . . . . . . . 1,131.4 1,132.4
DEFERRED CREDITS AND OTHER
LONG-TERM LIABILITIES
Accumulated deferred income taxes. . 368.4 405.7
Unamortized investment tax credits . 86.7 93.7
Postretirement benefits other
than pensions . . . . . . . . 671.9 636.8
Long-term payable to affiliate
(ASI) for SFAS No. 106 adoption 22.9 22.9
Regulatory liability and other . . 175.8 230.9
1,325.7 1,390.0
SHAREOWNER'S EQUITY
Common stock, $14 2/7 par value,
120,810,000 shares authorized,
120,526,415 issued and outstanding. 1,721.8 1,721.8
Proceeds in excess of par value . . 18.5 18.5
Reinvested earnings (deficit). . (64.3) 21.4
1,676.0 1,761.7
TOTAL LIABILITIES AND
SHAREOWNER'S EQUITY . . . . . $5,085.1 $5,259.2
See Notes to Condensed Financial Statements.
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XXX BEGIN PAGE 4 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
CONDENSED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
For the 6 Months Ended June 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . $100.7 $159.9
Adjustments to net income:
Workforce restructuring charge, net of tax . 89.2 0.0
Depreciation and amortization . . . . . . . 273.2 274.2
Deferred income taxes, net . . . . . . . 10.6 ( 2.7)
Investment tax credits . . . . . . . . . . (7.0) ( 8.4)
Interest during construction . . . . . . . (0.7) ( 0.7)
Provision for uncollectibles . . . . . . . 21.0 22.5
Increase in accounts receivable . . . . . (46.2) (29.6)
Increase in material and supplies . . . . ( 5.6) (11.5)
Decrease (increase) in certain other
current assets . . . . . . . . . . . . 7.1 ( 6.3)
Decrease in accounts payable . . . . . . (10.8) (24.4)
Increase in accrued taxes . . . . . . . . 22.4 54.5
Decrease in certain other current liabilities. (1.9) (12.3)
Change in certain noncurrent
assets and liabilities . . . . . . . . . (36.4) (12.4)
Other . . . . . . . . . . . . . . . . . . 4.6 ( 0.4)
Net cash from operating activities . . . . . . 420.2 402.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . (181.6) (216.4)
Proceeds from disposal
of telecommunications plant . . . . . . . 3.1 1.8
Net cash used in investing activities . . . . (178.5) (214.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Inter-company financing, net . . . . . . . (70.8) (69.0)
Issuance of long-term debt . . . . . . . . . 0.1 200.0
Retirements of long-term debt . . . . . . . . ( 1.6) (156.3)
Cost of refinancing long-term debt . . . . . . 0.0 ( 5.2)
Dividend payments . . . . . . . . . . . . . . (186.4) (157.3)
Net cash used in financing activities . . . . (258.7) (187.8)
Net increase (decrease) in cash and
temporary cash investments . . . . . . . . . (17.0) 0.0
Cash and temporary cash investments
at beginning of period . . . . . . . . . . 17.0 0.0
Cash and temporary cash investments
at end of period . . . . . . . . . . . . $ 0.0 $ 0.0
See Notes to Condensed Financial Statements.
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XXX BEGIN PAGE 5 HERE XXX
NOTES TO CONDENSED FINANCIAL STATEMENTS
(A) WORK FORCE RESTRUCTURING
On March 25, 1994, the Company's parent (Ameritech
Corporation) announced that it will reduce its nonmanagement
work force by 6,000 employees by the end of 1995.
Under terms of agreements between the Company and the
Communications Workers of America ("CWA"),
Ameritech implemented an enhancement to the Ameritech pension
plan by adding three years to the age and the net credited
service of eligible nonmanagement employees who leave the
business during a designated period that ends in mid-1995.
In addition, certain of the Company's business units are
offering financial incentives under terms of its current
contract with the CWA to selected nonmanagement
employees who leave the business before the end of 1995.
This program resulted in a charge in the first quarter of 1994
of $137.8 or $89.2 after tax. This charge reduced the Company's prepaid
pension assets by $79.2 for pension enhancements and
curtailment losses. The charge also includes a curtailment loss
of $34.2 related to SFAS No. 106 ("Employers Accounting for
Postretirement Benefits Other than Pensions") and a severance
accrual of $24.4.
In June, Ameritech completed the first phase of its restructuring
plan, having solicited volunteers to leave the Company. The
response to date is exceeding expectations. Ameritech management
is in the process of evaluating the specific job functions and
locations of the employees who have requested to leave under the plan
to ensure that service to customers will not be adversely affected.
The task is complex as the intended 6,000 employee force reduction
represents approximately twelve percent of the nonmanagement work
force. Accordingly, insufficient information currently exists to
adjust the restructuring accrual. Ameritech expects to complete
this process in the third quarter and the Company will increase its
restructuring accrual to the appropriate level. The adjustment
could be material.
(B) CONTINGENCIES
The Company has disputed the manner of assessment of its
property taxes in Michigan. In June of 1994, the Michigan
Supreme Court (the "Court") resolved an open issue involving
taxation of intangible property for the 1984-1986 tax years.
The net impact of this decision is that the Company is entitled
to a refund for those tax years, but at a smaller amount than if
intangible property were excluded. In July 1994, the Company
filed a petition for reconsideration with the Court on the
intangible property issue, but in August 1994 that petition was
denied. The Company may now seek review by the U.S.
Supreme Court. Additionally, several other issues relating to
years beyond 1986 are pending at the Michigan Tax Tribunal.
If the Company is successful in its arguments before the
Tribunal, it will receive a refund of overpayment of property
taxes. If unsuccessful, the Company may be subject to an
additional, and possibly substantial, tax liability. Management
of the Company believes that the ultimate resolution of these
matters will not have a material adverse effect on the
Company's financial position or results of operations.
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XXX BEGIN PAGE 6 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1994
VS. THE SIX MONTHS ENDED JUNE 30, 1993
(Dollars in Millions)
Following is a discussion and analysis of operations of the Company
for the six months ended June 30, 1994 and for the six months ended
June 30, 1993 which is based on the Statements of Income and
Reinvested Earnings on page 2. Results for the six months ended June
30, 1994 are not necessarily indicative of the results for the full year.
REVENUES
Revenues increased $52.8 or 3.9% due to the following:
Increase
1994 1993 (Decrease) %Change
Local service $572.6 $536.4 $36.2 6.7
Higher calling volumes increased local service revenues by
approximately $34.8. These volume increases were primarily the result
of gains in central office custom calling features, local messages, and
directory assistance charges. The volume increases also resulted from
expansion of the number of customer lines, which increased 3.6% to
4,654,827 lines from 4,495,159 as of June 30, 1993. An additional
$1.1 increase was the net effect of rate changes in various local service
offerings.
Increase
1994 1993 (Decrease) %Change
Access service
Interstate access $269.9 $247.1 $22.8 9.2
Intrastate access $107.5 $ 98.6 $ 8.9 9.0
Interstate access increased $22.8 due mainly to a volume of business
increase of $17.7 and a $4.9 reduction in long-term support payments
made to the National Exchange Carrier Association.
Intrastate access increased $8.9 due primarily to an $11.2 volume of
business increase. In addition, a $3.8 increase resulted from
adjustments and settlements with other carriers. These increases were
partially offset by a $6.1 reduction in rates.
Increase
1994 1993 (Decrease) %Change
Long distance services $351.0 $351.5 ($ 0.5) (0.1)
The decrease in long distance services of $0.5 is primarily the result of
a $1.1 reduction resulting from rate decreases partially offset by
volume increases of $0.7. While toll message volumes have grown by
approximately 9% over the same period last year, revenues have not
significantly increased. This is largely because a greater portion of
those messages were made under the Company's discounted toll calling
plans at a reduced average price per message. In addition, the average
number of minutes per message has decreased overall.
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XXX BEGIN PAGE 7 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
Increase
1994 1993 (Decrease) %Change
Other $102.6 $117.2 ($14.6) (12.4)
The reduction in this category is the result of an $18.0 decrease in
directory and license fee revenues as a result of a new publishing
services contract with Ameritech Publishing, Inc. ("API"), effective
April 1, 1994. Under the terms of the new contract, API will assume
full responsibility for publishing White Pages Directories and incur all
associated expenses, and will retain all revenues from the sale of
White Pages listings and advertising to business customers. Partially
offsetting this decrease are increases of $2.8 in nonregulated revenues
(primarily inside wiring services) and $1.5 in uncollectibles resulting
from decreased write-off activity.
OPERATING EXPENSES
Operating expenses increased $145.2 or 13.6% due to the following:
Increase
1994 1993 (Decrease) %Change
Depreciation and
amortization $273.2 $274.2 ($ 1.0) (0.4)
Depreciation expense decreased $5.6 due mainly to the expiration of
FCC-authorized amortization schedules at the end of June 1993.
Partially offsetting this decrease was a $4.6 increase resulting from the
continued expansion of the plant investment base.
Increase
1994 1993 (Decrease) %Change
Employee-related
expenses $341.6 $352.7 ($11.1) (3.1)
The $11.1 decrease in employee-related expenses was due to a $7.3
reduction in wages and salaries resulting primarily from the net effect
of a $11.0 decrease attributed to lower force levels, a $4.6 reduction in
overtime payments, and a $7.7 increase in basic wage rates. The total
employee count was 14,041 as of June 30, 1994, compared to 15,203 at
June 30, 1993. In addition, other employee-related expenses decreased
$3.9 due primarily to a one-time pension fund true-up.
Increase
1994 1993 (Decrease) %Change
Taxes other than
income taxes $ 58.0 $ 73.4 ($15.4) (21.0)
The decrease in taxes other than income taxes was due to a decrease in
the provision for property taxes to recognize the impact of new state
legislation enacted in December 1993 which lowers property tax
millage rates in Michigan.
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XXX BEGIN PAGE 8 XXX
Form 10-Q Part I Michigan Bell Telephone Company
Increase
1994 1993 (Decrease) %Change
Work force restructuring
charges $137.8 $0.0 $137.8 NM
As discussed more fully in Note (A) to the Financial Statements,
Ameritech announced on March 25, 1994, that it will reduce its
nonmanagement work force by 6,000 employees by the
end of 1995, including approximately 1,560 at the Company.
Reduction of the work force results from technological improvements,
consolidations, and initiatives identified by management to balance its
cost structure with emerging competition.
This program resulted in a first quarter 1994 charge of $137.8 ($89.2
on an after tax basis). A significant portion of the program's cost
will be funded by the Ameritech Pension Plan, whereas financial
incentives to be paid by the Company will require Company funds of
approximately $38.7. Settlement gains of an estimated $50.0, which
result from lump-sum payments from the Ameritech Pension Plan, will be
reflected in income as payments are made by the Ameritech Pension Plan
(none recorded as of June 30, 1994). Settlement gains are noncash in
nature and result from the funded status of the Ameritech Pension Plan.
Ameritech originally advised the Company that it expected approximately
two-thirds of the 1,560 employees would leave the payroll in 1994 with
the balance departing by the end of the third quarter of 1995. 396
employees left the payroll in the second quarter of 1994 under this
plan. As previously discussed in Note (A), the program has generated
more requests to leave the payroll than originally planned requiring
revision to the expected number and timing of employees leaving the
payroll which should be quantifiable in the third quarter of 1994.
Ameritech will manage the departure of all employees to minimize
disruption within its business and to its customers. Cash requirements
of the Company to fund the financial incentives (principally contractual
termination payments) will be met as prescribed by applicable collective
bargaining agreements. Certain of these collective bargaining
agreements required contractual termination payments to be paid to
employees in a manner other than lump-sum, thus requiring cash payments
beyond an employee's termination date.
The Company believes this program will reduce its employee-related costs
by approximately $50,000 per terminated employee on an annual basis.
However, these anticipated savings may be partially offset by growth in
new businesses and the cost of adding other employees with different skills.
Increase
1994 1993 (Decrease) %Change
Other operating
expenses $403.2 $368.3 $34.9 9.5
The growth reported in this category was due to increases of $25.8 in
payments for services provided by affiliated companies due in part to a
transfer of certain work functions to Ameritech Services, Inc., $7.5 in
access charges paid to other carriers for access services, $5.9 in higher
advertising costs, and $2.2 in engineering overhead costs. Partially
offsetting these increases was a $5.6 decrease in contracted services
fees.
OTHER INCOME AND EXPENSES
Increase
1994 1993 (Decrease) %Change
Interest expense $48.1 $ 53.4 ($ 5.3) (9.9)
The decrease in interest expense is attributable to a $5.4 decrease in
interest related to long-term debt resulting from refinancing activity in
1993, offset partially by $2.2 in higher short-term interest from
borrowings needed to fund the redemption as well as higher interest
rates. In addition, interest not related to debt decreased $1.9 due
primarily to $1.4 in adjustments made in first six months of 1993 to
recognize the interest component of the Company's liability under the
1990 incentive regulation plan.
(Increase)
1994 1993 Decrease %Change
Other (income),
expense, net $(2.1) $(0.7) ($ 1.4) NM
The increase in other income, net was mainly the result of higher
subsidiary (Ameritech Services, Inc.) earnings.
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XXX BEGIN PAGE 9 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
Increase
1994 1993 (Decrease) %Change
Income taxes $43.1 $69.6 ($26.5) (38.1)
Income taxes decreased approximately $48.6 due to the $137.8 work
force restructuring charge discussed above. Partially offsetting this
decrease was an increase of $22.1, primarily related to higher 1994
pre-tax income (excluding the restructuring charge).
OTHER INFORMATION
Effects of Regulatory Accounting
The Company presently gives accounting recognition to the actions of
regulators where appropriate, as prescribed by Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS No. 71). Under SFAS No. 71, the
Company records certain assets and liabilities because of actions of
regulators. Further, amounts previously charged to operations for
depreciation expense reflect estimated useful lives and methods
prescribed by regulators rather than those that might otherwise apply
to unregulated enterprises. The Company cannot presently quantify,
without a complete historical assessment of its competitive and
regulatory environments, what the financial statement impact would
have been had depreciation expense been determined absent regulation.
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 would likely 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.
New Michigan sales tax rate
Through the passage of a statewide ballot proposal, the sales tax in
Michigan was increased from 4% to 6% effective May 1, 1994. The
effect of this legislation was to increase the sales tax the Company will
pay in the last eight months of 1994 by approximately $5.1. However,
the income statement effect for 1994 is expected to be approximately
30% of this amount, or $1.5 (before income tax effects). This is
because an estimated 70% of the Company's purchases subject to
Michigan sales tax are for telecommunications plant materials, and the
corresponding sales tax is recognized in the same plant account as the
materials purchased.
IntraLATA Long Distance Service Order
On July 31, 1992, MCI Telecommunications Corporation ("MCI") filed
a complaint with the MPSC seeking "1+" intraLATA dialing parity for
all toll competitors of the Company, alleging that current dialing
arrangements violated the Michigan Telecommunications Act. Callers
in Michigan must currently dial "10" plus a three digit access code to
use the services of the Company's intraLATA toll competitors.
The MPSC dismissed MCI's complaint finding no statutory violations.
However, as a result of subsequent proceedings in the case, on
February 24, 1994, the MPSC issued an order requiring the
implementation of "1+" intraLATA toll dialing parity in Michigan.
The MPSC order requires dialing parity to be implemented
concurrently with the termination of prohibitions against the
Company's ability to offer interLATA service, but in no event later
than January 1, 1996.
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XXX BEGIN PAGE 10 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
On March 25, 1994, the Company filed a petition for a rehearing with
the MPSC, requesting that the MPSC eliminate the January 1, 1996
deadline, or at least extend it to January 1, 1998. On July 19, 1994,
the MPSC issued an order denying the Company's petition. The
Company intends to seek a reversal of the February 24, 1994 MPSC
order at the Michigan Court of Appeals. A Claim of Appeal will be
filed at the Court of Appeals on or before the August 18, 1994 due
date.
In 1993 the Company recorded $695.8 of long distance revenue, of
which approximately $634.0 resulted from intraLATA message and
unidirectional long distance services. Customer response to dialing
parity and the effect on the Company's intraLATA long distance
revenue is uncertain. However, it is estimated that approximately 50%
of any long distance revenue lost, which could be significant, would be
offset by additional access revenue.
Pay telephone and directory assistance rate changes
In February 1993, the Company filed an application with the MPSC for
approval to increase the local message charge for calls from public and
semi-public coin telephones from 20 cents to 25 cents per call.
In May 1993, the MPSC declined approval of the Company's proposal,
finding that there was unsatisfactory resolution of the issues
concerning the size of the local calling area for customer-owned
customer operated coin phones and the charges for directory assistance
calls made from those phones. The MPSC directed the Company to
initiate a contested case proceeding under Section 203 of MTA. On
August 6, 1993, the Company complied by resubmitting its February
16, 1993 application.
In an order dated June 30, 1994, the MPSC approved the Company's
proposal to increase the coin rate to 25 cents for local telephone calls,
while declining to review the issues of local calling area and directory.
assistance. The order was effective upon the Company's filing of
revised tariff sheets with the MPSC on July 7, 1994. The Company
estimates the annual revenue impact of the order to be an increase of
approximately $5.6 after a 90-day period required to convert all coin
phones to the new rate.
In February 1993, the Company also filed an application to change the
way it charges for directory assistance service. In May 1993, the
MPSC issued an order related to directory assistance service approving
portions of the Company's proposal but only under the condition that
the effects of the changes be revenue neutral. Specifically, the MPSC
approved the first phase of the Company's proposal which called for an
increase of the per call charge from 22 cents to 35 cents and a
reduction in the free call allowance from twenty to eight. The
Company implemented this phase on July 1, 1993, after receiving
approval of its revenue neutral plan which reduced rates in other areas,
primarily access charges.
The MPSC also approved a second phase of a directory assistance
increase to begin six months after the first phase which increases the
per call charge to 45 cents and reduces the free call allowance from
eight to five per month. The Company implemented this second phase
on July 1, 1994, after receiving approval of its revenue neutral plan
which reduced rates in other areas, primarily access charges.
Ratio of earnings to fixed charges
The Company's ratio of earnings to fixed charges for the six months
ended June 30 was 3.96 in 1994 and 5.05 in 1993. The ratio in 1994
was adversely affected by a first quarter pre-tax charge of $137.8 for
work force restructuring (see prior discussion of this charge). This
charge will be primarily funded from the Ameritech Pension Plan. The
Company believes its ratio in 1994 is not indicative of a significant
change in its ability to fund its debt.
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XXX BEGIN PAGE 11 HERE XXX
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits identified below, on file with the SEC, are
incorporated herein by reference as exhibits hereto.
12 Computation of Ratio of Earnings to Fixed
Charges for the six months ended June 30,
1994 and June 30, 1993.
(b) Reports on Form 8-K
No Form 8-K was filed by the registrant during the
quarter for which this report was filed
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XXX BEGIN PAGE 12 HERE XXX
SIGNATURE
Form 10-Q Michigan Bell Telephone Company
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.
Michigan Bell Telephone Company
Date August 12, 1994
J. W. Trunk
J. W. Trunk
Vice President - Comptroller
Exhibit 12
MICHIGAN BELL TELEPHONE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
Six Months Six Months
Ended Ended
June 30, June 30,
1994 1993
1. Earnings
(a) Income before interest
expense, income taxes
and cumulative effect of
change in accounting
principles $191,894 $282,932
(b) Single Business Tax 14,700 13,740
(c) Portion of rental expense
representative of the
interest factor (1) (2) 5,416 6,685
Total 1.(a) through (c) $212,010 $303,357
2. Fixed Charges
(a) Total interest deductions $48,101 $53,356
(c) Portion of rental expense
representative of the
interest factor (1) (2) 5,416 6,685
Total 2.(a) and (b) $53,517 $60,041
3. Ratio (1. divided by 2.) 3.96 5.05
(1)) 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.
(2) Earnings are income before income taxes and fixed charges.
Since the Single Business Tax and rental expense have
already been deducted, the Tax and the 1/3 portion of
rental expense considered to be fixed charges are
added back.
