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 September 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 October 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 reports
previously filed in the current year.
CONDENSED STATEMENTS OF INCOME AND REINVESTED EARNINGS
(Millions of Dollars)
(Unaudited)
For the 3 Months Ended For the 9 Months Ended
September September September September
30, 1994 30, 1993 30, 1994 30, 1993
Revenues $708.1 $696.2 $2,111.7 $2,047.0
Operating expenses
Depreciation and amortization 136.8 134.4 410.0 408.6
Employee-related expenses 179.6 184.3 521.2 537.0
Taxes other than income taxes 33.0 35.3 91.0 108.7
Work force restructuring 56.9 0.0 194.7 0.0
Other operating expenses 212.6 200.1 615.8 568.4
618.9 554.1 1,832.7 1,622.7
Operating income 89.2 142.1 279.0 424.3
Interest expense 25.3 26.4 73.3 79.8
Other (income), net (2.1) (1.5) (4.2) (2.2)
Income before income taxes 66.0 117.2 209.9 346.7
Income Taxes 14.6 26.6 57.7 96.2
Net income 51.4 90.6 152.2 250.5
Reinvested earnings (loss) - at
beginning of period (64.3) 5.4 21.4 2.8
Less dividends 33.9 84.4 220.4 241.7
Reinvested earnings (loss) - at
end of period $(46.8) $11.6 $(46.8) $11.6
See Notes to Condensed Financial Statements.
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XXX BEGIN PAGE 3 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
CONDENSED BALANCE SHEETS
(Millions of Dollars)
September 30, 1994 December 31, 1993
(Unaudited) (Derived from Audited
Financial statements)
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $3.0 $17.0
Receivables, net
Customers 519.4 452.9
Ameritech and affiliates 5.3 15.7
Other 19.9 27.8
Material and supplies 33.7 26.4
Prepaid and other 16.0 23.0
597.3 562.8
Telecommunications plant 7,645.7 7,559.0
Less: accumulated depreciation 3,405.2 3,176.2
4,240.5 4,382.8
Investments, principally in affiliates 68.1 68.5
Other assets and deferred charges 150.8 245.1
TOTAL ASSETS $5,056.7 $5,259.2
LIABILITIES AND SHAREOWNER'S EQUITY
CURRENT LIABILITIES
Debt maturing within one year
Ameritech $343.9 $382.9
Other 3.0 3.2
Accounts payable
Ameritech Services, Inc. 64.6 50.6
Other Ameritech affiliates 35.5 47.0
Other 186.3 168.5
Other current liabilities 256.2 322.9
889.5 975.1
LONG-TERM DEBT 1,131.1 1,132.4
DEFERRED CREDITS AND OTHER
LONG-TERM LIABILITIES
Accumulated deferred income taxes 370.5 405.7
Unamortized investment tax credits 83.2 93.7
Postretirement benefits
other than pensions 711.3 636.8
Long-term payable to affiliate (ASI)
for SFAS 106 adoption 22.9 22.9
Regulatory liability and other 154.7 230.9
1,342.6 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) (46.8) 21.4
1,693.5 1,761.7
TOTAL LIABILITIES AND SHAREOWNER'S $5,056.7 $5,259.2
EQUITY
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 9 Months Ended September 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $152.2 $250.5
Adjustments to net income:
Workforce restructuring
charge, net of tax 126.0 0.0
Depreciation and amortization 410.0 408.6
Deferred income taxes, net 15.3 ( 13.8)
Investment tax credits (10.5) ( 17.0)
Interest during construction (1.1) ( 1.1)
Provision for uncollectibles 32.3 33.0
Change in accounts receivable (80.5) (62.0)
Change in material and supplies (9.1) (19.4)
Change in certain
other current assets 7.0 (2.0)
Change in accounts payable 20.2 (5.4)
Change in accrued taxes (57.7) (33.8)
Change in certain
other current liabilities (40.2) (8.8)
Change in certain noncurrent
assets and liabilities (52.6) (10.1)
Other 1.6 (2.9)
Net cash from operating activities 512.9 515.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (268.4) (321.4)
Proceeds from disposal
of telecommunications plant 3.1 3.0
Additional equity investments in ASI 0.0 (7.8)
Net cash used in investing activities (265.3) (326.2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Inter-company financing, net (39.2) 26.5
Issuance of long-term debt .1 200.0
Retirements of long-term debt (2.1) (157.3)
Cost of refinancing long-term debt 0.0 (5.2)
Dividend payments (220.4) (241.7)
Net cash used in financing activities (261.6) (177.7)
Net increase (decrease) in cash and
temporary cash investments (14.0) 11.9
Cash and temporary cash investments
at beginning of period 17.0 0.0
Cash and temporary cash investments
at end of period $ 3.0 $11.9
See Notes to Condensed Financial Statements.
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XXX BEGIN PAGE 5 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
NOTES TO CONDENSED FINANCIAL STATEMENTS
(A) WORK FORCE RESTRUCTURING
On March 25, 1994, the Company's parent, Ameritech, announced
plans to reduce its existing nonmanagement work force
by 6,000 employees by the end of 1995, including 1,560 at the
Company. Under terms of agreements between Ameritech
and the Communication Workers of America (CWA), Ameritech
implemented an enhancement to the Ameritech Pension Plan by
adding three years to both 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 the current contract
with the CWA to selected nonmanagement employees who leave the
business before the end of 1995.
The Company recorded a first quarter 1994 charge of $137.8
or $89.2 after-tax to reflect the cost of restructuring. This
charge reduced the Company's prepaid pension asset by
$79.2 for pension enhancements and curtailment losses.
The charge also included a curtailment loss of $34.2 related
to Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions," and an additional severance accrual of $24.4.
Employee response to the pension enhancement program and other
financial incentives being offered by the Company has exceeded
the Company's initial expectations. As a result, the Company
expects its existing nonmanagement workforce to be reduced by
2,475 through next year instead of the 1,560 originally estimated
in March.
The Company recorded an additional charge in the third quarter
of 1994 of $56.9 or $36.8 after-tax for the additional program
participants and for revised participant demographics. The
third quarter charge reflects settlement gains of $30.2
associated with lump sum pension payments made by the
pension trust through September 30, 1994. This $56.9 charge
reduced the Company's prepaid pension asset by $6.3 for
pension enhancements and curtailment losses, net of the
settlement gains. The charge also included a $39.8
curtailment loss related to SFAS No. 106 and an additional
severance accrual of $10.8.
(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 is seeking 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 NINE MONTHS ENDED SEPTEMBER 30, 1994
VS. THE NINE MONTHS ENDED SEPTEMBER 30, 1993
(Dollars in Millions)
Following is a discussion and analysis of operations of the Company
for the nine months ended September 30, 1994 and for the nine months
ended September 30, 1993 which is based on the Statements of Income
and Reinvested Earnings on page 2. Results for the nine months
ended September 30, 1994 are not necessarily indicative of the results
for the full year. Results for the nine months ended September 30,
1994 include after-tax charges of $126.0 for work force restructuring
for 2,475 employees.
REVENUES
Revenues increased $64.7 or 3.2% due to the following:
Increase
1994 1993 (Decrease) %Change
Local service $867.2 $814.3 $52.9 6.5
Higher calling volumes increased local service revenues by
approximately $46.3. 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 4.2% to 4,700,000 lines from 4,511,000 as of September
30, 1993. An additional $6.6 increase was the net effect of rate
changes in various local service offerings.
Increase
1994 1993 (Decrease) %Change
Access service
Interstate access $407.4 $377.3 $30.1 8.0
Intrastate access $155.6 $151.7 $3.9 2.6
Interstate access increased $30.1 due mainly to a volume of
business increase of $29.7 and an $8.5 reduction in long-term
support payments made to the National Exchange Carrier Association.
These increases were partially offset by a $10.9 reduction in
rates.
Intrastate access increased $3.9 due primarily to an $15.1 volume
of business increase. In addition, a $2.8 increase resulted from
adjustments and settlements with other carriers. These increases
were partially offset by a $12.9 reduction in rates.
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XXX BEGIN PAGE 7 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
Increase
1994 1993 (Decrease) %Change
Long distance services $533.0 $524.3 $8.7 1.7
The increase in long distance services of $8.7 is primarily the
result of volume increases of $8.4. While toll message volumes
have grown by approximately 10% 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.
Increase
1994 1993 (Decrease) %Change
Other $148.5 $179.4 (30.9) (17.2)
The reduction in this category is the result of a $36.9 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 assumes full responsibility for publishing White
Pages Directories and incurs all associated expenses, and
retains all revenues from the sale of White Pages listings and
advertising to business customers. Partially offsetting this
decrease is an increase of $5.6 in nonregulated revenues (primarily
inside wiring services).
OPERATING EXPENSES
Total operating expenses for the nine months ended September 30,
1994 increased by $210 or 12.9 percent. These results include
restructuring charges of $194.7 for the nine months ended September
30, 1994.
Increase
1994 1993 (Decrease) %Change
Depreciation and
amortization $410.0 $408.6 $1.4 0.3
Depreciation expense increased $1.4 due to a $7.3 increase
resulting from the continued expansion of the plant investment base
offset by a decrease of $5.8 due mainly to the expiration of FCC-
authorized amortization schedules at the end of June 1993.
Increase
1994 1993 (Decrease) %Change
Employee-related
expenses $521.2 $537.0 $(15.8) (2.9)
The $15.8 decrease in employee-related expenses was due to a $9.9
reduction in wages and salaries resulting primarily from the net
effect of a $22.0 decrease attributed to lower force levels and a $2.1
reduction in overtime payments, offset by a $l7.0 increase in basic
wage rates. The total employee count was 13,497 as of September
30, 1994, compared to 14,969 at September 30, 1993. In addition,
other employee-related expenses decreased $7.4 due primarily to a
one-time pension fund true-up and revised pension costs.
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XXX BEGIN PAGE 8 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
Increase
1994 1993 (Decrease) %Change
Taxes other than
income taxes $ 91.0 $108.7 $(17.7) (16.3)
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.
Increase
1994 1993 (Decrease) %Change
Work force restructuring
charges $194.7 $0.0 $194.7 NM
As discussed more fully in Note A, the Company's parent, Ameritech
announced on March 25, 1994 that it would reduce its existing
nonmanagement work force by 6,000 employees by the end of 1995,
including 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. The Company now expects its nonmanagement
work force to be reduced by 2,475 employees through next year instead
of the 1,560 originally estimated in March. A charge for 1,560 employees
was recorded in the first quarter and an additional charge was
recorded in the third quarter to reflect acceptance of the plan by a
total 2,475 employees.
This program resulted in a first quarter 1994 charge of $137.8
($89.2 on an after-tax basis) and an additional charge of $56.9
($36.8 on an after-tax basis) in the third quarter of 1994 for a
total charge of $194.7 ($126.0 on an after-tax basis). The
additional charge of $56.9 includes the effect of $30.2 in
settlement gains associated with lump-sum pension payments through
September 30, 1994.
The Company originally estimated that 1,560 employees were expected
to leave under the program. The Company currently estimates that,
including the additional 915 employees, approximately 1,803 will
leave under the program in 1994 and 672 in 1995. These employee
reductions by quarter are as follows: 396 (actual) in the second
quarter of 1994, 570 (actual) in the third quarter of 1994, 837
(estimated) in the fourth quarter of 1994, 65 (estimated) in the first
quarter of 1995, 330 (estimated) in the second quarter of 1995,
and 277 (estimated) in the third quarter of 1995. As previously
discussed in Note A, the program has generated more employee requests
to accept the incentives offered than originally planned, requiring
revision to the expected number and timing of employees terminating
employment. The Company is managing the departure of all employees to
minimize disruption within its business and to its customers, while
still accommodating the individual employee's acceptance of the program.
Cash requirements of the Company to fund the financial incentives
(principally contractual termination payments totalling approximately
$50.0) will be met as prescribed by applicable collective bargaining
agreements. Certain of these collective bargaining agreements
require contractual termination payments to be paid to employees in
a manner other than lump-sum, thus requiring cash payments beyond an
employee's termination date.
The Company believes this program will reduce its employee-related
costs by approximately $50,000 per departing employee on an annual
basis. The projected savings will be partially offset by the hiring
of new employees to accommodate growth and ensure high quality
customer service and to meet staffing requirements for new business
opportunities.
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XXX BEGIN PAGE 9 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
Increase
1994 1993 (Decrease) %Change
Other operating
expenses $615.8 $568.4 $47.4 8.3
The growth reported in this category was due to increases of $52.2
in payments for services provided by affiliated companies due in
part to a transfer of certain work functions to Ameritech Services,
Inc., $5.3 in access charges paid to other carriers for access
services, $9.5 in higher advertising costs, and $2.9 in engineering
overhead costs. Partially offsetting these increases was a $11.7
decrease in contracted services fees and a $10.5 decrease in
materials and supplies.
OTHER INCOME AND EXPENSES
Increase
1994 1993 (Decrease) %Change
Interest expense $73.3 $ 79.8 ($6.5) (8.2)
The decrease in interest expense is attributable to a $8.5 decrease
in interest related to long-term debt resulting from refinancing
activity in 1993, offset partially by $4.2 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 $1.6 in adjustments made in the
first nine 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 $(4.2) $(2.2) ($2.0) NM
The increase in other income, net was mainly the result of higher
earnings of an affiliate (Ameritech Services, Inc.), which is owned
jointly by the Company and the other four Ameritech state telephone
companies.
Increase
1994 1993 (Decrease) %Change
Income taxes $57.7 $96.2 ($38.5) (40.0)
Income taxes decreased approximately $68.6 due to the $194.7 work
force restructuring charge discussed above. Partially offsetting
this decrease was an increase of $20.2, 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 charged to operations for
depreciation expense reflect estimated useful lives and methods
prescribed by regulators rather than those that might
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XXX BEGIN PAGE 10 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
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 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 is currently reviewing
these criteria in light of the changes in its regulatory
environment and increasing competition to ensure that the
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.
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.
On August 17, 1994 the Company filed an appeal with the Michigan
Court of Appeals. On October 19, 1994 the Court of Appeals denied
the Company's Motion for Peremptory Reversal, stating that the
Court wanted to receive the benefit of full appellate briefing by
all parties before deciding the issues.
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
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XXX BEGIN PAGE 11 HERE XXX
Form 10-Q Part I Michigan Bell Telephone Company
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. 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 nine
months ended September 30 was 3.84 in 1994 and 5.08 in 1993. The
ratio in 1994 is adversely affected by charges of $194.7 for work
force restructuring (see prior discussion of these charges). 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 12 HERE XXX
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits identified below are incorporated
herein by reference as exhibits hereto.
12 Computation of Ratio of Earnings to Fixed
Charges for the nine months ended September 30,
1994 and September 30, 1993.
27 Financial Data Schedule for the nine months
ended September 30, 1994.
(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 13 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 November 10, 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)
Nine Months Nine Months
Ended Ended
September 30, September 30,
1994 1993
1. Earnings
(a) Income before interest
expense and income taxes. $283,235 $426,546
(b) Single Business Tax 22,050 20,610
(c) Portion of rental expense
representative of the
interest factor (1) (2) 8,263 10,154
Total 1.(a) through (c) $313,548 $457,310
2. Fixed Charges
(a) Total interest deductions $73,380 $79,813
(c) Portion of rental expense
representative of the
interest factor (1) (2) 8,263 10,154
Total 2.(a) and (b) $81,643 $89,967
3. Ratio (1. divided by 2.) (3) 3.84 5.08
(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.
(3) The results for the first nine months of 1994 reflect $194.7
in pre-tax changes for work force restructuring (see MD&A
discussion of these charges). Such charges will be funded
primarily from the Ameritech Pension Plan.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MICHIGAN BELL TELEPHONE COMPANY'S SEPTEMBER 30, 1994 FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<PERIOD-TYPE> 9-MOS
<CASH> 3,000
<SECURITIES> 0
<RECEIVABLES> 590,700
<ALLOWANCES> 46,100
<INVENTORY> 33,700
<CURRENT-ASSETS> 597,300
<PP&E> 7,645,700
<DEPRECIATION> 3,405,200
<TOTAL-ASSETS> 5,056,700
<CURRENT-LIABILITIES> 889,500
<BONDS> 1,131,100
<COMMON> 1,721,800
0
0
<OTHER-SE> (28,300)
<TOTAL-LIABILITY-AND-EQUITY> 5,056,700
<SALES> 0<F1>
<TOTAL-REVENUES> 2,111,700
<CGS> 0<F2>
<TOTAL-COSTS> 1,832,700
<OTHER-EXPENSES> (4,200)
<LOSS-PROVISION> 32,300
<INTEREST-EXPENSE> 73,300
<INCOME-PRETAX> 209,900
<INCOME-TAX> 57,700
<INCOME-CONTINUING> 152,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,200
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<FN>
<F1>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.
<F2>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>
