-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, rg1+ye9/lEG3HbJ6saugjhaJO6NuHhxvXUEHt5Mg3wP4y51MnDPYK2RjO6iD2JlJ 9An/xsAdHmzot+wvVbzH/A== 0000065622-94-000027.txt : 19941111 0000065622-94-000027.hdr.sgml : 19941111 ACCESSION NUMBER: 0000065622-94-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICHIGAN BELL TELEPHONE CO CENTRAL INDEX KEY: 0000065622 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 380823930 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03499 FILM NUMBER: 94558821 BUSINESS ADDRESS: STREET 1: 444 MICHIGAN AVE CITY: DETROIT STATE: MI ZIP: 48226 BUSINESS PHONE: 3132239900 10-Q 1 THIRD QTR 1994 10-Q 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. 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. 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. 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. 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. 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. 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. 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. 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 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 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. 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 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 EX-12 2 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. EX-27 3 ART.5 FDS FOR 3RD QUARTER 10-Q
5 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. 1,000 DEC-31-1994 SEP-30-1994 9-MOS 3,000 0 590,700 46,100 33,700 597,300 7,645,700 3,405,200 5,056,700 889,500 1,131,100 1,721,800 0 0 (28,300) 5,056,700 0 2,111,700 0 1,832,700 (4,200) 32,300 73,300 209,900 57,700 152,200 0 0 0 152,200 0.00 0.00 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. 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).
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