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, 1995
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 - (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 April 28, 1995, 120,526,415 common shares were outstanding.
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.
CONDENSED STATEMENTS OF INCOME AND REINVESTED EARNINGS (DEFICIT)
(Millions of Dollars)
(Unaudited)
Three Months Ended
March 31
1995 1994
Revenues. . . . . . . . . . . . . . . . . $ 705.3 $707.6
------- ------
Operating Expenses
Employee-related expenses . . . . . . . 163.1 171.3
Depreciation and amortization . . . . . 119.5 136.3
Other operating expenses. . . . . . . . 213.2 211.4
Restructuring (credit) charge . . . . . (72.8) 137.8
Taxes other than income taxes . . . . . 33.5 34.6
------- ------
456.5 691.4
------- ------
Operating income. . . . . . . . . . . . . 248.8 16.2
Interest expense. . . . . . . . . . . . . 22.8 23.6
Other income, net . . . . . . . . . . . . -- (0.9)
------- ------
Income (loss) before income taxes . . . . 226.0 (6.5)
Income taxes. . . . . . . . . . . . . . . 77.6 (2.0)
------- ------
Net income (loss) . . . . . . . . . . . . 148.4 (4.5)
Reinvested earnings (deficit),
beginning of period. . . . . . . . . . . (560.3) 21.4
Less, dividends . . . . . . . . . . . . 127.1 89.6
------- ------
Reinvested deficit, end of period . . . . $(539.0) $(72.7)
======= ======
See Notes to Condensed Financial Statements.
3
CONDENSED BALANCE SHEETS
(Dollars in Millions)
March 31, 1995 Dec. 31, 1994
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
Current assets
Cash and temporary cash investments. . . . . . $ 23.2 $ 14.2
Receivables, net
Customers . . . . . . . . . . . . . . . . . . 479.1 503.5
Ameritech and affiliates. . . . . . . . . . . 10.6 11.3
Other . . . . . . . . . . . . . . . . . . . . 25.9 20.8
Material and supplies. . . . . . . . . . . . . 24.1 26.7
Prepaid and other. . . . . . . . . . . . . . . 16.2 25.9
-------- --------
579.1 602.4
-------- --------
Property, plant and equipment . . . . . . . . . 7,658.4 7,576.9
Less, accumulated depreciation. . . . . . . . . 4,459.1 4,348.6
-------- --------
3,199.3 3,228.3
-------- --------
Investments, principally in affiliates. . . . . 61.8 70.9
Other assets and deferred charges . . . . . . . 207.5 132.2
-------- --------
Total assets. . . . . . . . . . . . . . . . . . $4,047.7 $4,033.8
======== ========
See Notes to Condensed Financial Statements.
4
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
March 31, 1995 Dec. 31, 1994
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech . . . . . . . . . . . . . . . . . . $ -- $ 193.6
Other . . . . . . . . . . . . . . . . . . . . 2.7 2.9
Accounts payable
Ameritech Services, Inc. (ASI). . . . . . . . 164.3 108.3
Ameritech and affiliates. . . . . . . . . . . 26.0 32.8
Other . . . . . . . . . . . . . . . . . . . . 117.8 185.7
Other current liabilities. . . . . . . . . . . 487.1 296.2
-------- --------
797.9 819.5
-------- --------
Long-term debt. . . . . . . . . . . . . . . . . 1,128.5 1,128.9
-------- --------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes. . . . . . . 102.0 81.2
Unamortized investment tax credits . . . . . . 66.3 69.8
Postretirement benefits other than pensions. . 674.1 726.0
Long-term payable to ASI . . . . . . . . . . . 21.5 22.9
Other. . . . . . . . . . . . . . . . . . . . . 56.1 5.5
-------- --------
920.0 905.4
-------- --------
Shareowner's equity
Common shares - ($14 2/7 par value;
120,810,00 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 deficit . . . . . . . . . . . . . . (539.0) (560.3)
-------- --------
1,201.3 1,180.0
-------- --------
Total liabilities and shareowner's equity . . . $4,047.7 $4,033.8
======== ========
See Notes to Condensed Financial Statements.
5
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . $148.4 $ (4.5)
Adjustments to net income (loss):
Restructuring (credit) charge, net of tax . . (47.1) 89.2
Depreciation and amortization . . . . . . . . 119.5 136.3
Deferred income taxes, net. . . . . . . . . . 0.5 4.6
Investment tax credits, net . . . . . . . . . (3.5) (3.5)
Interest during construction. . . . . . . . . (0.4) (0.3)
Provision for uncollectibles. . . . . . . . . 9.4 10.0
Change in accounts receivable . . . . . . . . 10.6 (4.7)
Change in material and supplies . . . . . . . 1.5 (0.4)
Change in certain other current assets. . . . 9.8 1.2
Change in accounts payable. . . . . . . . . . (18.7) (18.5)
Change in certain other current liabilities . 71.2 52.5
Change in certain other noncurrent
assets and liabilities . . . . . . . . . . . (17.9) (20.7)
Other . . . . . . . . . . . . . . . . . . . . 9.4 6.9
------ ------
Net cash from operating activities. . . . . . . 292.7 248.1
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . (89.3) (84.7)
Proceeds from (cost of) disposals of
property, plant and equipment. . . . . . . . . (0.2) 0.3
------ ------
Net cash from investing activities. . . . . . . (89.5) (84.4)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing, net . . . . . . . . . . (193.6) (90.4)
Issuance of long-term debt. . . . . . . . . . . -- 0.1
Retirements of long-term debt . . . . . . . . . (0.6) (0.8)
Dividend payments . . . . . . . . . . . . . . . -- (89.6)
------ ------
Net cash from financing activities. . . . . . . (194.2) (180.7)
------ ------
Net increase (decrease) in cash and
temporary cash investments . . . . . . . . . . 9.0 (17.0)
Cash and temporary cash investments at
beginning of period. . . . . . . . . . . . . . 14.2 17.0
------ ------
Cash and temporary cash investments at
end of period. . . . . . . . . . . . . . . . . $ 23.2 $ --
====== ======
See Notes to Condensed Financial Statements.
6
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
MARCH 31, 1995
NOTE 1: Work Force Restructuring
During March 1994, the Company's parent, Ameritech Corporation, announced
its plan to restructure its existing nonmanagement work force.
Approximately 11,500 employees are expected to leave under this program,
including 2,721 employees of the Company. Under terms of agreements
between Ameritech, the Communications Workers of America (CWA) and the
International Brotherhood of Electrical Workers (IBEW), 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 business units are offering
financial incentives under terms of the current contracts with the CWA and
IBEW to selected nonmanagement employees who leave the business before the
end of 1995. See additional discussion in Management's Discussion and
Analysis below.
As a result of the restructuring, a pretax charge of $137.8, or $89.2
after-tax, was recorded in the first quarter 1994. In the first quarter
1995, a gain of $72.8 or $47.1 after-tax, was recorded resulting primarily
from settlement gains from lump-sum pension payments from the Ameritech
pension plan to former employees. The cumulative gross program costs
through March 31, 1995 totaled $244.7, partially offset by settlement gains
of $143.1 for an aggregate pretax net program cost of $101.6, or $65.8
after-tax. At March 31, 1995, the remaining severance accrual was $12.9.
As of March 31, 1995, 2,138 employees have left the Company as a result of
the restructuring, with 583 expected to leave later in 1995.
NOTE 2: Discontinuation of FAS 71 and Reclassifications
As discussed more fully in the 1994 Annual Report on Form 10-K, during the
fourth quarter of 1994, the Company incurred an extraordinary noncash
after-tax charge of $599.1 as a result of its decision to discontinue the
application of Statement of Financial Accounting Standards No. 71 (FAS 71),
"Accounting for the Effects of Certain Types of Regulation."
The principal component of the above charge related to a determination that
telephone plant asset lives were too long and analog switches were
obsolete. The net effect of this determination is causing 1995
depreciation expense to decrease. Long-term, depreciation expense will
increase as the effects of shorter lives on plant assets and future plant
additions offset the discontinuation of depreciation of analog switches.
The following is a summary of average lives of property, plant and
equipment after the discontinuation of FAS 71:
7
Asset Category Average Life
Central office equipment
Digital switching. . . . . . . . . . . . . . . . 7
Analog switching . . . . . . . . . . . . . . . . obsolete
Circuit accounts . . . . . . . . . . . . . . . . 7
Copper and fiber cable and wire facilities . . . . 15
All other. . . . . . . . . . . . . . . . . . . . . various
Certain additional financial statement impacts occur as a result of no
longer following FAS 71, including the provision for uncollectibles,
previously shown as a reduction in other revenues, has been reclassified to
other operating expenses.
NOTE 3: Contingencies
The Company has disputed the manner in which property taxes are assessed in
Michigan. In 1994, the Michigan Supreme Court let stand a lower court
decision that awarded the Company a refund of taxes paid for the tax years
1984-1986. However, there are certain outstanding issues before the
Michigan Tax Tribunal for taxes paid by the Company in 1987 and beyond
which could result in a significant tax liability or refund to the Company
for such years. The Company has not recorded the court reward pending
clearer resolution of the issues in 1987 and beyond. Management of the
Company believes that the ultimate resolution of how property taxes are
paid by the Company for the period 1987 through 1994 will not have a
material adverse effect on the Company's financial statements.
8
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 1995 as compared with the first three months of 1994:
Results of Operations
Revenues
Total revenues in the first three months of 1995 were $705.3 and were
$707.6 for the same period in 1994. The following paragraphs explain the
components of that change.
Local service
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $298.2 $281.7 $16.5 5.9
The increase in local service revenues in the first quarter 1995 was
primarily attributable to higher network volumes which increased local
service revenues by $11.9. The increased network volumes resulted
principally from growth in the number of access lines, which increased 4.1
percent to 4,800,426 as of March 31, 1995 as compared with March 31, 1994,
as well as increased volumes and greater sales of special calling features,
such as Call Forwarding and Caller ID. Also contributing to the increase
were rate increases of $5.0.
9
Network access
March 31 Increase Percent
1995 1994 (Decrease) Change
Interstate
Three Months Ended $137.4 $132.2 $ 5.2 3.9
Intrastate
Three Months Ended $ 46.1 $ 50.2 $(4.1) (8.2)
The increase in interstate network access revenues for the three months
ended March 31, 1995 was primarily due to higher network usage, which
resulted in additional revenues of $7.6, and a reduction in NECA common
line pool support payments of $3.6. Partially offsetting these increases
were net rate reductions of $5.4. Minutes of use related to interstate
calls increased 6.9 percent in 1995. See additional discussion below
regarding Ameritech's interstate access price cap filing.
The decrease in intrastate network access revenues for the three months
ended March 31, 1995 was primarily due to rate reductions of $5.4. Higher
network usage resulted in additional revenues of $1.4 which partially
offset these decreases. Minutes of use related to intrastate calls
increased 12.4 percent in 1995.
___________________________________________________________________________
Long distance service
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $171.0 $174.6 $(3.6) (2.1)
The decrease in long distance service revenues for the three months ended
March 31, 1995 was primarily attributable to a net decrease of $5.5 in
usage revenues, partially offset by rate increases of $1.9.
10
Other
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $52.6 $68.9 $(16.3) (23.7)
Other revenues include revenues derived from directory advertising, billing
and collection services, inside wire installation and maintenance services
and other miscellaneous services. The decrease in other revenues was
primarily due to a renegotiated directory and license fee contract with
Ameritech Publishing, Inc. (API). The renegotiated contract accounted for
approximately $19.1 of the decrease. Intercompany rent revenues also
decreased $0.7 due to a change in methodology in the way the Company
accounts for these revenues. In 1995, these revenues were reflected as
credits to expense, whereas in 1994, such amounts were included in other
revenues. Partially offsetting these decreases were rate increases for
inside wire installation and maintenance services of $2.1 and increases in
nonregulated services and nonaffiliated rent revenues of $2.1.
___________________________________________________________________________
Operating expenses
Total operating expenses for the three months ended March 31, 1995
decreased by $234.9 or 34.0 percent to $456.5. The decrease was almost
entirely attributable to the 1994 work force restructuring, which resulted
in a credit of $72.8 in the first quarter of 1995 related to the settlement
gains previously discussed compared with a first quarter 1994 charge of
$137.8.
___________________________________________________________________________
Employee-related expenses
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $163.1 $171.3 $(8.2) (4.8)
The decrease in employee-related expenses for the three months ended
March 31, 1995 was attributable primarily to the effect of work force
restructuring over the past year of $15.4, as well as reduced bonus
accruals and pensions and other benefits of $9.0. Partially offsetting
these decreases were the effects of higher wage rates, increased overtime
payments and other benefits and employee-related expenses of $16.1.
There were 12,544 employees at March 31, 1995, compared with 14,359 at
March 31, 1994.
11
Depreciation and
amortization expense
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $119.5 $136.3 $(16.8) (12.3)
The decrease in depreciation and amortization expense for the three months
ended March 31, 1995 was primarily due to the cessation of depreciation of
analog switches determined to be obsolete in connection with the
discontinuance of Statement of Financial Accounting Standards No. 71
(FAS 71), "Accounting for the Effects of Certain Types of Regulation," in
the fourth quarter of 1994. This decrease was partially offset by the
change in depreciation rates as a result of shortening telephone plant
lives following the discontinuation of FAS 71.
___________________________________________________________________________
Other operating expenses
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $213.2 $211.4 $1.8 0.9
The increase in other operating expenses for the three months ended
March 31, 1995 was primarily attributable to higher affiliate services
expenses of $21.2, resulting from increased billings from Ameritech
Services, Inc. (ASI) as business unit expenses, primarily for contract and
professional services, have shifted to that entity, as well as advertising
expenses of $2.0, resulting from increased marketing efforts. These
increases were offset by a net decrease of $18.1 in expenses for material
and supplies, access charges with independent telephone companies as a
result of renegotiated rates, contract and professional services, as
discussed above, bad debt expense and other miscellaneous expenses.
12
Restructuring (credit) charge
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $(72.8) $137.8 $(210.6) n/a
As discussed in Note 1, Ameritech announced in March 1994 that it intended
to reduce its nonmanagement work force by 6,000 employees (1,560 at the
Company) by the end of 1995. Restructuring of the work force results from
the Company's implementation of technological improvements, consolidations
and initiatives to balance the cost structure with emerging competition.
Ameritech now expects its nonmanagement work force to be reduced by about
11,500 employees through 1995 instead of the 6,000 originally estimated in
March, including 2,721 at the Company. A pretax charge of $137.8 related
to the original estimated work force reduction was recorded in the first
quarter of 1994, with additional charges later in 1994. A net noncash
settlement gain of $72.8 was recorded in the first quarter of 1995
associated with lump-sum pension payments to former employees. Future
settlement gains (estimated at $19.0) are anticipated.
Actual employee reductions by quarter were: 396 in the second quarter of
1994, 570 in the third quarter of 1994, 1,112 in the fourth quarter of 1994
and 60 in the first quarter of 1995. Estimates for the remainder of 1995
are 289 in the second quarter and 294 in the third quarter. Cash
requirements to fund the financial incentives (principally contractual
termination payments totaling approximately $50.1) are being met as
prescribed by applicable collective bargaining agreements. Certain of
these collective bargaining agreements require contractual termination
payments to be paid in a manner other than lump-sum, thus requiring cash
payments beyond an employee's termination date.
The restructuring will reduce annual employee-related costs by
approximately $50 thousand per departing employee. The projected savings
may be partially offset by the hiring of new employees to accommodate
growth, ensure high quality customer service and meet staffing requirements
for new business opportunities.
13
Taxes other than income taxes
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $33.5 $34.6 $(1.1) (3.2)
The decrease in taxes other than income taxes for the three months ended
March 31, 1995 was primarily attributable 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.
The Company had disputed the manner in which property taxes are assessed in
Michigan as discussed more fully in Note 3 to the financial statements.
Management believes the ultimate outcome will not adversely affect future
cash flows or the Company's financial statements.
___________________________________________________________________________
Other Income and Expenses
Interest expense
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $22.8 $23.6 $(0.8) (3.4)
The decrease in interest expense for the three months ended March 31, 1995
was primarily due to lower average debt balances, partially offset by the
increase in short-term interest rates. Partially offsetting this decrease
were increased costs related to the corporate-owned life insurance program.
___________________________________________________________________________
Other income, net
March 31 (Increase) Percent
1995 1994 Decrease Change
Three Months Ended $ -- $(0.9) $0.9 n/a
Other income, net includes equity earnings in affiliates, interest income
and other nonoperating items. The change in other income, net results
primarily from decreased equity earnings from ASI.
14
Income taxes
March 31 Increase Percent
1995 1994 (Decrease) Change
Three Months Ended $77.6 $(2.0) $79.6 n/a
The increase in income taxes for the three months ended March 31, 1995 was
due primarily to the change in pretax income as a result of the net work
force restructuring credit of $72.8 ($47.1 after-tax) in the first quarter
of 1995 as compared to the work force restructuring charge of $137.8 ($89.2
after-tax) in the first quarter of 1994. Excluding these items, income
taxes increased in line with the earnings in the business.
___________________________________________________________________________
Ratio of earnings to fixed charges
The ratio of earnings to fixed charges for the three months ended March 31
was 9.97 in 1995 and 1.03 in 1994. The ratio in 1995 was favorably
affected by a credit of $72.8 for work force restructuring (see prior
discussion of this item). The ratio in 1994 was adversely affected by a
$137.8 charge for work force restructuring. The work force restructuring
program has largely been funded by the Ameritech Pension Plan. After
adjustment to remove the effects of the work force restructuring, the ratio
is indicative of the Company's ability to meet its debt funding
requirements.
___________________________________________________________________________
Interstate Access Price Cap Filing
On May 9, 1995 in its annual interstate access price cap filing, Ameritech
elected the 5.3 productivity factor with no earnings sharing as allowed
under the new price cap rules of the Federal Communications Commission
(FCC). That selection, together with other index changes required by the
FCC's rules, results in annual rate reductions to the Company's customers
totaling approximately $15.7 effective August 1, 1995.
Ameritech filed a waiver request with the FCC to make an additional
downward adjustment of its indices that would have the effect of applying
the 5.3 productivity factor retroactively back to January 1, 1995. The
result would be an additional annual rate reduction for the Company's
customers of $6.3 effective August 1, 1995. In return, Ameritech would be
relieved of all sharing obligations for the entire 1995 calendar year.
15
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
Three Months Ended March 31, 1995 and March 31, 1994.
(b) Reports on Form 8-K
No Form 8-K was filed by the registrant during the quarter for
which this report is filed.
16
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: May 9, 1995 /s/ Richard A. Kuzmar
Richard A. Kuzmar
Vice President and Comptroller
(Principal Financial Officer)
17
EXHIBIT 12
MICHIGAN BELL TELEPHONE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Three Months Ended
March 31
1995 1994
1. EARNINGS
a) Income before interest cost
and income taxes . . . . . . . $249.2 $17.4
b) Single Business Tax (2) . . . . 7.2 7.3
c) Portion of rental expense
representative of the
interest factor (1) (2). . . . 2.8 3.2
------ -----
Total 1(a) through 1(c) . . . . . . $259.2 $27.9
------ -----
2. FIXED CHARGES
a) Total interest cost including
capital lease obligations. . . $ 23.2 $23.9
b) Portion of rental expense
representative of the
interest factor (1). . . . . . 2.8 3.2
------ -----
Total 2(a) through 2(b) . . . . . . $ 26.0 $27.1
------ -----
3. RATIO OF EARNINGS TO FIXED CHARGES. 9.97 1.03
==== ====
_______________
(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 quarter of 1995 reflect a $72.8 pretax
credit primarily from settlement gains resulting from lump-sum pension
payments from the pension plan to former employees associated with the
nonmanagement work force restructuring. Results for the first quarter
1994 reflect a $137.8 pretax charge associated with the nonmanagement
work force restructuring. Costs of the work force restructuring
program have largely been funded from the Ameritech Pension Plan.
(4) Interest cost includes capitalized interest expense.
(5) Earnings have not been adjusted to reflect the timing of dividends
received and equity in earnings of unconsolidated affiliates as the
effect on an annual basis has been insignificant.