<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 September 30, 1996
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)
444 Michigan Avenue, Detroit, Michigan 48226
I.R.S. Employer Identification Number 38-0823930
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 October 31, 1996, 120,526,415 common shares were outstanding.
<PAGE>2
Part I - Financial Information
------------------------------
The following condensed financial statements have been prepared by
Michigan Bell Telephone Company (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 reports on Form 10-Q previously filed in the current
year.
CONDENSED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Dollars in Millions)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues........................ $ 815.6 $ 748.9 $ 2,405.0 $ 2,190.6
--------- --------- --------- ---------
Operating expenses
Employee-related expenses..... 162.7 177.8 491.3 508.4
Depreciation and amortization. 131.1 125.6 389.1 364.7
Other operating expenses...... 236.6 207.8 688.6 621.5
Restructuring credit ......... -- (2.5) -- (75.3)
Taxes other than income taxes. 35.6 33.7 105.9 101.3
--------- --------- --------- ---------
566.0 542.4 1,674.9 1,520.6
--------- --------- --------- ---------
Operating income................ 249.6 206.5 730.1 670.0
Interest expense................ 21.1 23.5 63.3 68.6
Other income, net............... 2.3 0.4 7.5 1.4
--------- --------- --------- ---------
Income before income taxes...... 230.8 183.4 674.3 602.8
Income taxes.................... 81.0 61.7 234.9 204.7
--------- --------- --------- ---------
Net income...................... 149.8 121.7 439.4 398.1
Accumulated deficit,
beginning of period........... (372.4) (522.4) (418.2) (560.3)
Less, dividends declared.... 132.2 -- 376.0 238.5
--------- --------- --------- ---------
Accumulated deficit,
end of period................. $ (354.8) $ (400.7) $ (354.8) $ (400.7)
========= ========= ========= =========
See Notes to Condensed Financial Statements.
<PAGE>3
CONDENSED BALANCE SHEETS
(Dollars in Millions)
Sept. 30, 1996 Dec. 31, 1995
------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
- ------
Current assets
Cash and temporary cash investments......... $ 0.2 $ 0.1
Investment in Ameritech funding pool........ -- 17.0
--------- ---------
0.2 17.1
Receivables, net
Customers................................. 704.9 634.2
Ameritech and affiliates.................. 3.5 9.2
Other..................................... 17.7 20.7
Material and supplies....................... 5.6 7.4
Prepaid and other........................... 15.2 22.1
--------- ---------
747.1 710.7
--------- ---------
Property, plant and equipment................ 7,985.6 7,775.9
Less, accumulated depreciation............... 4,933.5 4,657.7
--------- ---------
3,052.1 3,118.2
--------- ---------
Investments, primarily in affiliates......... 68.7 68.7
Other assets and deferred charges............ 250.5 238.0
--------- ---------
Total assets................................. $ 4,118.4 $ 4,135.6
========= =========
See Notes to Condensed Financial Statements.
<PAGE>4
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
Sept. 30, 1996 Dec. 31, 1995
------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech................................ $ 204.5 $ --
Other..................................... 2.1 38.0
Accounts payable
Ameritech Services, Inc. (ASI)............ 92.5 116.8
Ameritech and affiliates.................. 35.9 31.0
Other..................................... 139.0 197.1
Other current liabilities.................. 268.1 415.5
--------- ---------
742.1 798.4
--------- ---------
Long-term debt.............................. 1,094.3 1,093.1
--------- ---------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes.......... 99.4 105.7
Unamortized investment tax credits......... 48.6 55.9
Postretirement benefits
other than pensions...................... 668.9 676.2
Long-term payable to ASI................... 20.1 21.5
Other ..................................... 59.5 62.7
--------- ---------
896.5 922.0
--------- ---------
Shareowner's equity
Common shares - ($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
Accumulated deficit........................ (354.8) (418.2)
--------- ---------
1,385.5 1,322.1
--------- ---------
Total liabilities and shareowner's equity... $ 4,118.4 $ 4,135.6
========= =========
See Notes to Condensed Financial Statements.
<PAGE>5
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30
-------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 439.4 $ 398.1
Adjustments to net income
Restructuring credit, net of tax............ -- (48.7)
Depreciation and amortization............... 389.1 364.7
Deferred income taxes, net.................. (5.1) 6.2
Investment tax credits, net................. (7.3) (10.7)
Capitalized interest........................ (1.5) (1.2)
Provision for uncollectibles................ 54.1 27.2
Change in accounts receivable............... (116.1) (118.3)
Change in material and supplies............. (2.9) 11.1
Change in certain other current assets...... 6.9 15.4
Change in accounts payable.................. (77.5) 17.8
Change in certain other current
liabilities................................ (17.7) (41.7)
Change in certain other noncurrent
assets and liabilities..................... (25.3) (30.9)
Other....................................... 1.3 7.7
-------- --------
Net cash from operating activities............ 637.4 596.7
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (313.3) (277.1)
Cost of disposals of
property, plant and equipment................ (1.9) (2.2)
Other investing activity...................... 0.2 0.5
-------- --------
Net cash from investing activities............ (315.0) (278.8)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing, net................... 204.5 (93.2)
Issuance of other short-term debt............. -- 1.6
Retirements of long-term debt................. (36.9) (2.0)
Dividend payments............................. (506.9) (238.5)
-------- --------
Net cash from financing activities............ (339.3) (332.1)
-------- --------
Net decrease in cash and
temporary cash investments................... (16.9) (14.2)
Cash and temporary cash investments,
beginning of period.......................... 17.1 14.2
-------- --------
Cash and temporary cash investments,
end of period................................ $ 0.2 $ --
======== ========
See Notes to Condensed Financial Statements.
<PAGE>6
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
SEPTEMBER 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 2,626 at the Company.
As a result of the restructuring, the Company recorded a gain of $75.3
million or $48.7 million after-tax in the first nine 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 nine 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 remaining accrual related to work force restructuring
charges was not significant as of September 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 September 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 nine
months of 1996 as compared with the first nine months of 1995.
Results of Operations
---------------------
Revenues
--------
Total revenues in the first nine months of 1996 were $2,405.0 million
and were $2,190.6 million for the same period in 1995. The increase
was primarily due to growth in access lines and minutes of use,
resulting in higher network usage volumes, as well as increases in
directory advertising revenue, equipment sales and other nonregulated
revenues. These increases were partially offset by net rate
decreases.
----------------------------------------------------------------------
Local service
-------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $1,042.2 $ 929.0 $ 113.2 12.2
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 in the first nine months of 1996 was primarily
attributable to higher network usage volumes, resulting principally
from growth in the number of access lines, which increased 3.7 percent
to 5,097,000 as of September 30, 1996 as compared to 4,915,000 at
September 30, 1995. Greater sales of call management services, such
as Call Forwarding, Call Waiting and Caller ID, also contributed to
the increase, as did net rate increases.
----------------------------------------------------------------------
Network access
--------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
----------
Nine Months Ended $ 438.1 $ 416.3 $ 21.8 5.2
Intrastate
----------
Nine Months Ended $ 139.1 $ 145.2 $ (6.1) (4.2)
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>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 nine months
ended September 30, 1996 was primarily due to an increase in network
minutes of use, resulting from overall growth in the volume of calls
handled for interexchange carriers. Minutes of use related to
interstate calls for the nine months ended September 30, 1996
increased by 6.6 percent over the comparable prior year period. These
increases were partially offset by net rate decreases.
The decrease in intrastate network access revenues for the nine months
ended September 30, 1996 was primarily due to rate decreases, as well
as a revenue decrease due to a reclassification of certain revenues to
the long distance category, partially offset by volume increases.
Minutes of use related to intrastate calls increased by 9.8 percent
over the comparable prior year period.
----------------------------------------------------------------------
Long distance service
---------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ 573.5 $ 537.3 $ 36.2 6.7
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 increase in long distance
service revenues for the nine months ended September 30, 1996 was due
primarily to volume and rate increases, as well as an increase due to
the reclassification of certain revenues from the intrastate network
access category.
----------------------------------------------------------------------
Other
-----
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ 212.1 $ 162.8 $ 49.3 30.3
Other revenues include revenues derived from directory advertising,
billing and collection services, inside wire installation and
maintenance services and other miscellaneous services. The increase
in other revenues for the nine months ended September 30, 1996 was due
primarily to growth in voice messaging and sales of equipment and
other nonregulated services, as well as increases in directory
advertising and inside wire installation and maintenance revenues.
These increases were partially offset by a decrease in billing and
collection revenues, as certain long distance carriers began direct
billing of their own customers in 1996.
----------------------------------------------------------------------
Operating expenses
------------------
Total operating expenses for the nine months ended September 30, 1996
increased $154.3 million, or 10.1 percent to $1,674.9 million. The
increase was partially attributable to the work force restructuring,
which resulted in a credit of $75.3 million in the first nine months
of 1995 related to noncash settlement gains from the pension plan, as
well as increases in depreciation expense and other operating
expenses, such as advertising and cost of sales, as discussed below.
<PAGE>9
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Employee-related expenses
-------------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ 491.3 $ 508.4 $ (17.1) (3.4)
The decrease in employee-related expenses for the nine months ended
September 30, 1996 was due primarily to decreases in benefits and
other employee-related expenses, largely resulting from renegotiated
health-care contracts, as well as wage rate and overtime expense
decreases. These decreases were partially offset by increased force
costs resulting from higher average employee levels, as well as higher
payroll taxes.
There were 12,211 employees at September 30, 1996, compared with
12,359 at September 30, 1995.
----------------------------------------------------------------------
Depreciation and
amortization
------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ 389.1 $ 364.7 $ 24.4 6.7
The increase in depreciation and amortization expense for the nine
months ended September 30, 1996 was due to higher average plant
balances and the use of higher depreciation rates in the first nine
months of 1996 due to shorter depreciable lives established in 1994.
----------------------------------------------------------------------
Other operating expenses
------------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ 688.6 $ 621.5 $ 67.1 10.8
The increase in other operating expenses for the nine months ended
September 30, 1996 was due to increases in uncollectible and other
expenses related to increased sales efforts for equipment and call
management services and cost of sales increases primarily related to
equipment sales. Increased affiliated services expenses, related
primarily to systems programming and reengineering, also contributed
to the increase. These increases were partially offset by a decrease
in contract and professional services, as well as decreases in right-
to-use fees for switching system software and access charges paid to
other communications carriers for calls completed on their networks.
Reduced advertising expenses, due primarily to the timing of planned
marketing campaigns, also partially offset the increases.
<PAGE>10
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Restructuring credit
--------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ -- $ (75.3) $ 75.3 n/a
As discussed in Note 1, the Company significantly reduced its
nonmanagement work force during 1994 and 1995 by 2,626 employees. New
employees with different skills were added during this period to
accommodate growth and meet staffing requirements for new business
opportunities. As of September 30, 1995, all 2,626 employees had left
the Company, with 548 leaving in the first nine months of 1995. A
pretax, noncash settlement gain of $75.3 million was recorded in the
first nine months of 1995, associated with lump-sum pension payments
to former employees. No restructuring credits were recorded in the
first nine months of 1996.
----------------------------------------------------------------------
Taxes other than income taxes
-----------------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ 105.9 $ 101.3 $ 4.6 4.5
Taxes other than income taxes consist of property taxes, gross
receipts taxes and other nonincome based taxes. The increase in taxes
other than income taxes for the nine months ended September 30, 1996
was due primarily to increases in property taxes, resulting from
higher assessed valuation and property tax rates, as well as an
increase in the Michigan single business tax resulting from higher
revenues.
----------------------------------------------------------------------
Other Income and Expenses
-------------------------
Interest expense
-----------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ 63.3 $ 68.6 $ (5.3) (7.7)
The decrease in interest expense for the nine months ended September
30, 1996 was due primarily to lower interest on borrowings from the
Ameritech short-term funding pool, reflecting lower average short-term
debt balances, as well as lower miscellaneous interest charges.
<PAGE>11
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other income, net
-----------------
Change
September 30 Income Percent
------------
(dollars in millions) 1996 1995 (Expense) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ 7.5 $ 1.4 $ 6.1 n/m
Other income, net includes equity in earnings of affiliates, interest
income and other nonoperating items. The increase in other income,
net for the nine months ended September 30, 1996 is due primarily to
increases in interest income, largely due to higher average balances
invested in the Ameritech short-term funding pool, and increased
equity earnings from Ameritech Services, Inc. (ASI).
----------------------------------------------------------------------
Income taxes
------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Nine Months Ended $ 234.9 $ 204.7 $ 30.2 14.8
The increase in income taxes in the nine months ended September 30,
1996 as compared with the prior year period was primarily attributable
to an increase in pretax earnings, partially offset by the tax effect
($14.7 million) associated with the work force restructuring credit
recorded in the first nine 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 nine months ended
September 30, was 10.41 in 1996 and 8.89 in 1995. The ratio in 1995
was favorably affected by a pretax credit of $75.3 million for work
force restructuring (see prior discussion of this item).
<PAGE>12
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters
--------------
Telecommunications Act of 1996
------------------------------
The Telecommunications Act of 1996 (the 1996 Act) was enacted 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,
provides the framework for additional competition in the Company's
traditional local exchange markets.
On August 8, 1996, the Federal Communications Commission (FCC) adopted
rules to implement the local competition provisions of the 1996 Act.
Among other things, the rules require local exchange carriers to
provide interconnection to any requesting telecommunications carrier at
any technically feasible point and equal in quality to that provided
for the local exchange carriers' own operations. The rules also
require each local exchange carrier to provide these other carriers
access to network elements on an unbundled basis, and to offer for
resale any telecommunications services that it provides at retail to
subscribers who are not telecommunications carriers. The FCC's rules
address mechanisms for pricing of interconnection, unbundled network
elements and reselling of telecommunications services and prescribe
that the individual state regulatory authorities develop specific rates
and procedures consistent with general rules and guidelines established
by the FCC.
In September 1996, several local exchange carriers, including
Ameritech, filed appeals of the FCC interconnection order in the U.S.
Court of Appeals for the District of Columbia. In their appeals, the
local exchange carriers argue, among other things, that the FCC
exceeded its authority over state regulatory commissions, that the
rules setting national pricing standards violate the 1996 Act, and that
the order will force local exchange carriers to sell elements of their
networks below cost. Several companies also requested a stay of the
FCC's order pending the outcome of the appeals, while others, including
Ameritech, opposed the stay and requested only an expedited review of
the order.
Following the FCC's denial of the requests for a stay, a motion for a
stay was filed by certain parties in the U.S. Court of Appeals for the
Eighth Circuit (the Court) in St. Louis, which had been selected to
hear the challenges to the FCC's order. On September 27, 1996, the
Court ordered a temporary stay of the new rules pending the hearing of
oral arguments from local exchange carriers and the FCC. On October
15, 1996, after hearing the oral arguments, the Court issued a partial
stay of the FCC's order, saying that the pricing provisions and the
"pick and choose" rule related to unbundled network elements could not
take effect until the Court conducts a full review of the order and
rules on the merits of the case. On November 1, 1996, the Court lifted
the stay on three aspects of the pricing rules that apply primarily to
cellular service providers. The FCC has indicated that it will appeal
the Court's decision to the U.S. Supreme Court.
It will not be possible to determine what effect the 1996 Act and the
FCC rules implementing it will have on the Company's results of
operations until the challenges to the rules have been resolved and the
Michigan Public Service Commission (MPSC or Commission) has acted on
the matter within its jurisdiction under the 1996 Act.
<PAGE>13
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Dial 1+
-------
On May 1, 1996, AT&T Corp. and MCI Communications Corp. filed a joint
motion with the MPSC seeking unconditional implementation of intraLATA
Dial 1+, or the ability to place an intraLATA long distance call with
an alternate long distance carrier by dialing 1 before the regular
phone number, throughout Michigan on and after May 2, 1996 and related
relief, including access charge discounts for late implementation. On
May 9, Ameritech filed a brief opposing the relief sought in the
motion.
On June 26, 1996, the Commission ordered the Company to either
implement (1) intraLATA dialing parity in an additional 72% of its
exchanges by July 26, 1996, and another 17% of its exchanges by
December 7, 1996, or (2) implement a 55% discount on intraLATA access
charges for interexchange carriers whose customers must use an access
code to place an intraLATA toll call in exchanges where there was no
implementation of dialing parity. On July 9, 1996, the Company filed
Motions for Rehearing, Reopening, and Stay of Order. On July 26,
1996, Ameritech implemented the 55% discount in access charges pending
further legal developments. The discount represents approximately
$14.3 million of annual revenue.
On October 7, 1996, the Commission denied the Company's Motions for
Rehearing, Reopening, and Stay of Order. On October 11, 1996, the
Company filed a lawsuit and a Motion for Preliminary Injunction in the
United States District Court for the Western District of Michigan,
alleging that the Commission's June 26, 1996 Order violated sections
of the 1996 Act and the Michigan Telecommunications Act, as amended,
and Ameritech's federally protected rights. A hearing on the Motion
for Preliminary Injunction was held on October 18, 1996. On November
4, 1996, the Federal Court abstained as it found that this case is
based upon a state law issue. The Company filed a Claim of Appeal
with the Michigan Court on November 5, 1996.
<PAGE>14
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
Nine Months ended September 30, 1996 and September 30,
1995.
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>15
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
-------------------------------
(Registrant)
Date: November 7, 1996 /s/ Laurie L. Streling
------------------------
Laurie L. Streling
Comptroller
State Finance Organization
(Principal Accounting Officer)
EXHIBIT 12
MICHIGAN BELL TELEPHONE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Nine Months Ended
September 30
-------------
1996 1995
---- ----
1. EARNINGS
a) Income before interest expense,
income taxes and undistributed
equity earnings (3)................. $ 738.2 $ 675.8
b) Single Business Tax (2).............. 24.0 22.9
c) Portion of rental expense
representative of the
interest factor (1)(2).............. 9.3 9.9
-------- --------
Total 1(a) through 1(c)................. $ 771.5 $ 708.6
-------- --------
2. FIXED CHARGES
a) Total interest expense including
capital lease obligations ......... $ 63.3 $ 68.6
b) Capitalized interest................ 1.5 1.2
c) Portion of rental expense
representative of the
interest factor (1)................ 9.3 9.9
-------- --------
Total 2(a) through 2(c)................ $ 74.1 $ 79.7
-------- --------
3. RATIO OF EARNINGS TO FIXED CHARGES...... 10.41 8.89
===== ====
(1) One-third of rental expense is considered to be the amount
representing return on capital.
(2) Earnings are income before income taxes and fixed charges. Since
the Single Business Tax (the Tax) and rental expense have already
been deducted, the Tax and the one-third portion of rental
expense considered to be fixed charges are added back.
(3) The results for the first nine months of 1995 reflect a $75.3
million pretax credit primarily from settlement gains resulting
from 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 SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MICHIGAN BELL TELEPHONE COMPANY'S SEPT. 30, 1996 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 200
<SECURITIES> 0<F1>
<RECEIVABLES> 765,000
<ALLOWANCES> (38,900)
<INVENTORY> 5,600
<CURRENT-ASSETS> 747,100
<PP&E> 7,985,600
<DEPRECIATION> 4,933,500
<TOTAL-ASSETS> 4,118,400
<CURRENT-LIABILITIES> 742,100
<BONDS> 1,094,300
0
0
<COMMON> 1,721,800
<OTHER-SE> (336,300)
<TOTAL-LIABILITY-AND-EQUITY> 4,118,400
<SALES> 0<F2>
<TOTAL-REVENUES> 2,405,000
<CGS> 0<F3>
<TOTAL-COSTS> 1,674,900
<OTHER-EXPENSES> (7,500)
<LOSS-PROVISION> 54,100
<INTEREST-EXPENSE> 63,300
<INCOME-PRETAX> 674,300
<INCOME-TAX> 234,900
<INCOME-CONTINUING> 439,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 439,400
<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>
