<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, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6781
THE OHIO BELL TELEPHONE COMPANY
(Incorporated under the laws of the State of Ohio)
45 Erieview Plaza, Cleveland, Ohio 44114
I.R.S. Employer Identification Number 34-0436390
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, 1996, one common share was outstanding.
<PAGE>2
Part I - Financial Information
------------------------------
The following condensed financial statements have been prepared by The
Ohio 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.
CONDENSED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31
-------------
1996 1995
---- ----
Revenues................................. $ 552.7 $ 535.0
--------- ---------
Operating Expenses
Employee-related expenses.............. 105.9 116.8
Depreciation and amortization.......... 94.5 88.2
Other operating expenses............... 190.2 160.9
Restructuring credit................... -- (37.4)
Taxes other than income taxes.......... 51.0 55.7
--------- ---------
441.6 384.2
--------- ---------
Operating income......................... 111.1 150.8
Interest expense......................... 13.9 14.4
Other income, net........................ 2.9 0.6
--------- ---------
Income before income taxes............... 100.1 137.0
Income taxes............................. 32.9 46.4
--------- ---------
Net income............................... 67.2 90.6
Accumulated deficit,
beginning of period.................... (122.8) (242.0)
Less, dividends declared............. 60.4 45.7
--------- ---------
Accumulated deficit,
end of period.......................... $ (116.0) $ (197.1)
========= =========
See Notes to Condensed Financial Statements.
<PAGE>3
CONDENSED BALANCE SHEETS
(Dollars in Millions)
Mar. 31, 1996 Dec. 31, 1995
------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
- ------
Current assets
Cash and temporary cash investments......... $ 0.1 $ 0.1
Investment in Ameritech funding pool........ 45.3 134.4
_____________ _____________
45.4 134.5
Receivables, net
Customers................................. 432.3 400.9
Ameritech and affiliates.................. 0.9 25.3
Other..................................... 13.9 15.7
Material and supplies....................... 2.4 3.1
Prepaid and other........................... 17.1 23.8
--------- ---------
512.0 603.3
--------- ---------
Property, plant and equipment................ 5,821.9 5,757.0
Less, accumulated depreciation............... 3,533.6 3,463.5
--------- ---------
2,288.3 2,293.5
--------- ---------
Investments, primarily in affiliates......... 59.3 64.3
Other assets and deferred charges............ 172.1 169.6
--------- ---------
Total assets................................. $ 3,031.7 $ 3,130.7
========= =========
See Notes to Condensed Financial Statements.
<PAGE>4
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
Mar. 31, 1996 Dec. 31, 1995
------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year............ $ 0.4 $ 0.4
Accounts payable
Ameritech Services, Inc. (ASI).......... 127.7 132.6
Ameritech and affiliates................ 52.9 43.2
Other................................... 118.3 155.1
Other current liabilities................ 252.5 315.2
--------- ---------
551.8 646.5
--------- ---------
Long-term debt............................ 834.8 834.7
--------- ---------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes........ 96.9 100.7
Unamortized investment tax credits....... 41.1 43.1
Postretirement benefits
other than pensions.................... 541.2 547.5
Long-term payable to ASI................. 16.2 17.4
Other.................................... 55.6 53.5
--------- ---------
751.0 762.2
--------- ---------
Shareowner's equity
Common shares - (one share issued
and outstanding without par value)...... 1,010.1 1,010.1
Accumulated deficit....................... (116.0) (122.8)
--------- ---------
894.1 887.3
--------- ---------
Total liabilities and shareowner's equity.. $ 3,031.7 $ 3,130.7
========= =========
See Notes to Condensed Financial Statements.
<PAGE>5
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31
-------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 67.2 $ 90.6
Adjustments to net income
Restructuring credit, net of tax............ -- (24.3)
Depreciation and amortization............... 94.5 88.2
Deferred income taxes, net.................. (2.8) (2.0)
Investment tax credits, net................. (2.0) (2.2)
Capitalized interest........................ (1.1) (0.8)
Provision for uncollectibles................ 8.4 3.9
Change in accounts receivable............... (13.7) 35.4
Change in material and supplies............. (0.8) (4.2)
Change in certain other current assets...... 6.9 4.0
Change in accounts payable.................. (32.0) (66.5)
Change in certain other current liabilities. (2.7) (7.7)
Change in certain other noncurrent
assets and liabilities.................... (7.8) 3.7
Other....................................... 5.1 7.0
-------- --------
Net cash from operating activities............. 119.2 125.1
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................... (87.6) (51.3)
Proceeds from disposals of
property, plant and equipment................. 0.9 0.1
-------- --------
Net cash from investing activities............. (86.7) (51.2)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirements of long-term debt.................. (0.1) (0.2)
Dividend payments.............................. (121.5) (27.6)
-------- --------
Net cash from financing activities............. (121.6) (27.8)
-------- --------
Net increase in cash and
temporary cash investments.................... (89.1) 46.1
Cash and temporary cash investments,
beginning of period........................... 134.5 60.5
-------- --------
Cash and temporary cash investments,
end of period................................. $ 45.4 $ 106.6
======== ========
See Notes to Condensed Financial Statements.
<PAGE>6
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
MARCH 31, 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 2,576 at the Company. As a result of the restructuring, the
Company recorded a gain of $37.4 million or $24.3 million after-tax in
the first three 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 three 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. See Management's Discussion and
Analysis below for further discussion.
NOTE 2: Reclassification
Certain reclassifications were made to the December 31, 1995 balances
to correspond to the presentation as of March 31, 1996.
<PAGE>7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(Dollars in Millions)
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 1996 as compared with the first three months of 1995.
Results of Operations
- ---------------------
Revenues
- --------
Total revenues in the first three months of 1996 were $552.7 million
and were $535.0 million for the same period in 1995. The following
paragraphs explain the components of that change.
- ----------------------------------------------------------------------
Local service
- -------------
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 319.4 $ 298.9 $ 20.5 6.9
The increase in local service revenues for the three months ended
March 31, 1996 was primarily attributable to higher network volumes,
which increased network service revenues by $24.3 million. The
increase in revenues resulted principally from growth in the number of
access lines, which increased 4.1 percent to 3,799,000 as of March 31,
1996 as compared with 3,651,000 at March 31, 1995, and greater sales
of call management services, such as Call Forwarding and Caller ID.
These increases were partially offset by rate reductions of $3.8
million.
- ----------------------------------------------------------------------
Network access
- --------------
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
- ----------
Three Months Ended $ 115.9 $ 112.3 $ 3.6 3.2
Intrastate
- ----------
Three Months Ended $ 35.8 $ 31.8 $ 4.0 12.6
The increase in interstate network access revenues for the three
months ended March 31, 1996 was due primarily to higher network usage,
which resulted in additional revenues of $9.2 million, partially
offset by net rate reductions of $6.3 million. Minutes of use related
to interstate calls increased 6.9 percent in 1996.
The increase in intrastate network access revenues for the three
months ended March 31, 1996 was primarily attributable to higher
network usage, which resulted in additional revenues of $7.7 million,
partially offset by net rate reductions of $3.7 million. Minutes of
use related to intrastate calls increased 14.0 percent in 1996.
<PAGE>8
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Long distance service
- ---------------------
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 42.1 $ 42.1 $ -- --
Long distance service revenues in the first three months of 1996 are
unchanged in comparison with the prior year period.
- ----------------------------------------------------------------------
Other
- -----
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 39.5 $ 49.9 $ (10.4) (20.8)
Other revenues include revenue derived from directory advertising,
billing and collection services, inside wire installation and
maintenance services and other miscellaneous services. The decrease
in other revenues for the three months ended March 31, 1996 is
primarily attributable to a decrease of $25.6 million in directory
advertising revenue due to a renegotiated listing and directory
services agreement with Ameritech Publishing, Inc. (API), an Ameritech
subsidiary doing business as Ameritech Advertising Services. This
decrease is partially offset by an increase of $11.8 million due to
growth in voice messaging services, sales of equipment and other
nonregulated services, as well as an increase of $3.4 million in
revenues from inside wire installation and maintenance and billing and
collections services.
- ----------------------------------------------------------------------
Operating expenses
- ------------------
Total operating expenses for the three months ended March 31, 1996
increased by $57.4 million or 14.9 percent to $441.6 million. The
increase was primarily attributable to work force restructuring, which
resulted in a credit of $37.4 million in the first quarter of 1995
related to settlement gains previously discussed.
- ----------------------------------------------------------------------
Employee-related expenses
- -------------------------
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 105.9 $ 116.8 $ (10.9) (9.3)
The decrease in employee-related expenses for the three months ended
March 31, 1996 was due primarily to a decrease of $10.2 million due to
work force reductions and decreased overtime expenses, as well as
decreases of $6.9 million related to employee benefits and other
employee-related expenses. These decreases were partially offset by
an increase of $2.9 million due to wage rate and incentive increases,
as well as a decrease of $3.2 million in the amount of the pension
credit recorded in the first quarter of 1996 compared to the prior
year period.
There were 8,502 employees as of March 31, 1996, compared with 8,484
at March 31, 1995.
<PAGE>9
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Depreciation and
amortization
- ------------------
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 94.5 $ 88.2 $ 6.3 7.1
The increase in depreciation and amortization expense for the three
months ended March 31, 1996 was due to higher average plant balances,
which resulted in an increase of $3.5 million in depreciation expense,
as well as a $2.8 million increase resulting from the use of higher
depreciation rates in the first quarter of 1996.
- ----------------------------------------------------------------------
Other operating expenses
- ------------------------
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 190.2 $ 160.9 $ 29.3 18.2
The increase in other operating expenses for the three months ended
March 31, 1996 was due to an increase of $16.1 million in affiliated
services and switching system software, increases in advertising,
uncollectible and other expenses of $11.3 million, related to
increased sales efforts for equipment and call management services,
such as voice messaging and other nonregulated services, and cost of
sales increases of $4.0 million related to equipment sales. These
increases were partially offset by a decrease in contract and
professional services of $1.8 million.
- ----------------------------------------------------------------------
Restructuring credit
- --------------------
March 31 Percent
----------
(dollars in millions) 1996 1995 Change Change
------------------- ---- ---- -------- ------
Three Months Ended $ -- $ (37.4) $ 37.4 (100.0)
As discussed in Note 1, the Company significantly reduced its
nonmanagement work force during 1994 and 1995 by 2,576 employees. New
employees with different skills were added during this period to
accommodate growth and meet staffing requirements for new business
opportunities. As of March 31, 1995, 2,159 employees had left the
Company, with 74 leaving in the first quarter of 1995. A pretax,
noncash settlement gain of $37.4 million was recorded in the first
quarter of 1995, associated with lump-sum pension payments to former
employees. No restructuring charges or credits were recorded in the
first quarter of 1996.
<PAGE>10
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Taxes other than income taxes
- -----------------------------
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 51.0 $ 55.7 $ (4.7) (8.4)
The decrease in taxes other than income taxes for the three months
ended March 31, 1996 was due primarily to a decrease of $5.3 million
in property taxes, partially offset by an increase in gross receipts
taxes.
- ----------------------------------------------------------------------
Other Income and Expenses
- -------------------------
Interest expense
- -----------------
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 13.9 $ 14.4 $ (0.5) (3.5)
The decrease in interest expense for the three months ended March 31,
1996 is due primarily to a decrease in interest on borrowings from the
Ameritech short-term funding pool, as well as from an increase in the
amount of interest capitalized.
- ----------------------------------------------------------------------
Other income, net
- -----------------
Change
March 31 Income Percent
----------
(dollars in millions) 1996 1995 (Expense) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 2.9 $ 0.6 $ 2.3 383.3
Other income, net includes equity earnings in affiliates, interest
income and other nonoperating items. The increase in other income,
net for the three months ended March 31, 1996 was primarily due to an
increase in equity earnings from ASI and an increase in interest
income resulting from higher balances deposited in the Ameritech short-
term funding pool.
- ----------------------------------------------------------------------
Income taxes
- ------------
March 31 Increase Percent
----------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 32.9 $ 46.4 $ (13.5) (29.1)
The decrease in income taxes in the three months ended March 31, 1996
as compared to the prior year period was primarily attributable to the
decrease in pretax earnings, related to the revenue and expense items
previously discussed.
<PAGE>11
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters
- --------------
Telecommunications Act of 1996
- ------------------------------
The Telecommunications Act of 1996 was signed into law by the
President on February 8, 1996. This legislation defines the
conditions under which Ameritech 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, will
allow competitors into the Company's traditional local exchange
markets. Management believes the legislation gives the Company an
opportunity to expand its revenue base by providing long distance
services, while retaining lower-margin access revenues as other local
service providers, acting as resellers, continue to use Ameritech's
network facilities.
On April 19, 1996 the Federal Communications Commission (FCC) issued a
notice of proposed rulemaking seeking comment on proposed rules
opening local telephone markets to competition. The FCC has until
August 8, 1996 to issue the new rules.
- ----------------------------------------------------------------------
Regulatory Environment
__________________________
On March 5, 1996, the Ohio Supreme Court released an opinion reversing
the order of the Public Utilities Commission of Ohio (PUCO or the
Commission) that approved the Advantage Ohio alternative regulation
plan and remanding the matter to the Commission. The court ruled that
the Commission exceeded its statutory authority when it used
alternative rate-setting methods to establish the Company's basic
local exchange service rates in the context of a rate decrease
application. The remanded Commission order also dealt with a
complaint filed by the Office of Consumers' Counsel alleging that the
Company's rates were excessive. Advantage Ohio, originally adopted by
the PUCO in November 1994, granted the Company relief from rate-of-
return regulation in Ohio and replaced such regulation with a price
cap formula. The Company implemented certain rate reductions
beginning January 9, 1995 as a result of Advantage Ohio and began
making agreed-upon grants to public schools and other community
infrastructure enhancements. The outcome of the court's opinion on
alternative regulation and rates, and other aspects of the remanded
Advantage Ohio plan, cannot be determined at this time.
<PAGE>12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
--------
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No Form 8-K was filed by the registrant during the quarter
which this report is filed.
<PAGE>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.
THE OHIO BELL TELEPHONE COMPANY
-------------------------------
(Registrant)
Date: May 10, 1996 /s/ Laurie L. Streling
----------------------
Laurie L. Streling
Comptroller
State Finance Organization
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
OHIO BELL TELEPHONE COMPANY'S MARCH 31, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 45,400
<SECURITIES> 0<F1>
<RECEIVABLES> 469,300
<ALLOWANCES> 22,200
<INVENTORY> 2,400
<CURRENT-ASSETS> 512,000
<PP&E> 5,821,900
<DEPRECIATION> 3,533,600
<TOTAL-ASSETS> 3,031,700
<CURRENT-LIABILITIES> 551,800
<BONDS> 834,800
0
0
<COMMON> 1,010,100
<OTHER-SE> (116,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,031,700
<SALES> 0<F2>
<TOTAL-REVENUES> 552,700
<CGS> 0<F3>
<TOTAL-COSTS> 441,600
<OTHER-EXPENSES> (2,900)
<LOSS-PROVISION> 8,400
<INTEREST-EXPENSE> 13,900
<INCOME-PRETAX> 100,100
<INCOME-TAX> 32,900
<INCOME-CONTINUING> 67,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,200
<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>
