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, 1994
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)
I.R.S. Employer Identification Number 34-0436390
45 Erieview Plaza, Cleveland, Ohio 44114
Telephone Number 216-822-9700
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, 1994, one common share was outstanding.
Form 10-Q Part I THE OHIO BELL TELEPHONE COMPANY
PART I - FINANCIAL INFORMATION
The following financial statements have been prepared by The Ohio 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.
CONDENSED STATEMENTS OF INCOME AND REINVESTED EARNINGS
(Dollars in Millions)
(Unaudited)
For the 3 Months
Ended March 31
1994 1993
Revenues . . . . . . . . . . . . . . . . . . . $532.9 $512.4
Operating expenses
Depreciation and amortization . . . . . . . . 95.8 96.7
Employee-related expenses . . . . . . . . . . 119.7 116.7
Other operating expenses . . . . . . . . . . 139.3 136.6
Taxes other than income taxes . . . . . . . . 57.6 56.1
Work force restructuring . . . . . . . . . . 132.5 -
544.9 406.1
Operating income (loss) . . . . . . . . . . . . (12.0) 106.3
Interest expense . . . . . . . . . . . . . . . 15.3 15.4
Other expense (income) - net. . . . . . . . . . (3.4) 6.7
Income (loss) before income taxes . . . . . . . (23.9) 84.2
Income taxes . . . . . . . . . . . . . . . . . (6.7) 22.3
Net income (loss). . . . . . . . . . . . . . . (17.2) 61.9
Reinvested earnings - at beginning of period . 236.8 216.7
Less dividends . . . . . . . . . . . . . . . . 66.4 61.8
Reinvested earnings - at end of period . . . . $153.2 $216.8
<FN>
See Note to Condensed Financial Statements.
2
Form 10-Q Part I THE OHIO BELL TELEPHONE COMPANY
CONDENSED BALANCE SHEETS
(Dollars in Millions)
March 31, 1994 December 31, 1993
(Unaudited) (Derived from
audited financial
statements)
ASSETS
Current assets
Cash . . . . . . . . . . . . . . . . . . $ - $ -
Receivables - net
Customers and agents 292.4 287.1
Ameritech and affiliates . . . . . . . 22.4 28.1
Other . . . . . . . . . . . . . . . . 19.1 17.5
Material and supplies . . . . . . . . . 5.4 14.2
Prepaid and other . . . . . . . . . . . 30.9 30.0
370.2 376.9
Telecommunications plant . . . . . . . . . 5,611.1 5,602.0
Less: accumulated depreciation . . . . 2,447.0 2,410.5
3,164.1 3,191.5
Investments, principally in affiliates . . 58.1 63.2
Other assets and deferred charges . . . . 97.5 161.4
Total assets . . . . . . . . . . . . . $3,689.9 $3,793.0
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech . . . . . . . . . . . . . . $ 26.6 $ 35.5
Other . . . . . . . . . . . . . . . . 11.3 11.3
Accounts payable
Ameritech and affiliates . . . . . . . 75.6 83.2
Other . . . . . . . . . . . . . . . . 92.3 107.1
Other current liabilities. . . . . . . . 416.0 373.9
621.8 611.0
Long-term debt . . . . . . . . . . . . . . 837.1 837.1
Deferred credits and other long-term liabilities
Accumulated deferred income taxes . . . 293.6 342.7
Unamortized investment tax credits . . . 70.2 72.9
Postretirement benefits other than pensions 494.2 461.0
Long-term payable to Ameritech Services, Inc. 18.5 19.7
Other . . . . . . . . . . . . . . . . . 191.2 201.7
1,067.7 1,098.0
Shareowner's equity
Common stock - one share issued and
outstanding, without par value . . . . 1,010.1 1,010.1
Reinvested earnings . . . . . . . . . . 153.2 236.8
1,163.3 1,246.9
Total liabilities and shareowner's equity $3,689.9 $3,793.0
<FN>
See Note to Condensed Financial Statements.
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Form 10-Q Part I THE OHIO BELL TELEPHONE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For The 3 Months Ended March 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . $ (17.2) $ 61.9
Adjustments to net income (loss):
Restructuring charge - net of tax. . . . . 86.1 -
Depreciation and amortization. . . . . . . 95.8 96.7
Deferred income taxes - net . . . . . . . (10.1) (2.5)
Investment tax credits - net . . . . . . . (2.7) (4.2)
Interest during construction . . . . . . . (.9) (.8)
Provision for uncollectibles . . . . . . . 4.5 2.7
(Increase) decrease in accounts
receivable . . . . . . . . . . . . . . . (5.8) 2.9
(Increase) decrease in materials and
supplies . . . . . . . . . . . . . . . . .6 (2.0)
Decrease in prepaid expenses and certain
other current assets . . . . . . . . . . 3.4 1.6
(Decrease) in accounts payable . . . . . . (22.5) (49.3)
Increase (decrease) in accrued taxes . . . .1 (20.9)
Increase in certain other current
liabilities. . . . . . . . . . . . . . . 5.5 8.4
Change in certain other noncurrent assets
and liabilities. . . . . . . . . . . . . (.6) (14.2)
Other . . . . . . . . . . . . . . . . . . (3.8) 4.3
Net cash from operating activities 132.4 84.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - net . . . . . . . . . (60.7) (74.3)
Proceeds from (cost of) disposal
of telecommunications plant. . . . . . . . 2.9 (.5)
Net cash from investing activities . . . . . (57.8) (74.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing - net . . . . . . . . (8.8) (8.2)
Retirements of long-term debt. . . . . . . . (.1) (.2)
Costs of refinancing long-term debt. . . . . - (.1)
Dividend payments. . . . . . . . . . . . . . (65.7) -
Net cash from financing activities . . . . . (74.6) (8.5)
Net increase (decrease) in cash . . . . . . - 1.3
Cash at beginning of period. . . . . . . . . - -
Cash at end of period. . . . . . . . . . . . $ - $ 1.3
<FN>
See Note to Condensed Financial Statements.
4
Form 10-Q Part I THE OHIO BELL TELEPHONE COMPANY
NOTE TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
WORK FORCE RESTRUCTURING
On March 25, 1994, the Company's parent (Ameritech Corporation) announced that
it will reduce its nonmanagement work force by 6,000 employees by the end of
1995, including approximately 1,500 at the Company. Under terms of agreements
between Ameritech, the Communications Workers of America (CWA) and the
International Brotherhood of Electrical Workers (IBEW), Ameritech is
implementing an enhancement to the Ameritech Pension Plan by adding three
years to 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, the Company is offering financial incentives under
terms of its current contract with the CWA to selected nonmanagement employees
who leave the business before the end of 1995.
This program resulted in a first quarter charge of $132.5 million or $86.1
million after-tax. The charge reduced the Company's prepaid pension asset by
$76.2 million for pension enhancements and curtailment losses. The charge
also includes a curtailment loss of $32.9 million related to SFAS No. 106
"Employers Accounting for Postretirement Benefits Other than Pensions" and
an increase in a severance accrual of $23.4 million.
5
Form 10-Q Part I THE OHIO BELL TELEPHONE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The following is a discussion and analysis of the results of operations of the
Company for the three month period ended March 31, 1994, and for the same
period in the prior year.
REVENUES
Total revenues were $532.9 million in the three months ended March 31, 1994,
and $512.4 million in the three months ended March 31, 1993. The increase was
due primarily to higher local call volumes and access usage, lower payments to
an interstate pool and growth in access lines. Lower access and toll rates
and higher uncollectible revenues partially offset the above increases.
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Local service $294.8 $279.4 $15.4 5.5
The $15.4 million increase in local service revenues was due mainly to higher
call volumes, growth in access lines and increased usage of custom calling
features.
Customer lines increased from 3,415,249 at March 31, 1993, to 3,522,379 at
March 31, 1994.
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Network access:
Interstate $109.9 $103.8 $6.1 5.9
Intrastate $35.5 $34.5 $1.0 2.9
The increase of $6.1 million in interstate access revenues was due principally
to higher volumes and lower payments to an interstate pool, partially offset
by lower rates. Network access revenues from intrastate services increased
$1.0 million due principally to higher volumes, partially offset by lower
rates.
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Long distance $47.2 $48.7 $(1.5) (3.1)
Lower intralata long distance rates effective December 1, 1993 were the major
contributor to the decrease in long distance revenue.
6
Form 10-Q Part I THE OHIO BELL TELEPHONE COMPANY
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Other $45.5 $46.0 $(.5) (1.1)
The decrease was due primarily to higher uncollectible revenues, partially
offset by higher revenues from inside wire maintenance and installation
services.
OPERATING EXPENSES
Total operating expenses were $544.9 million in the three months ended
March 31, 1994, and $406.1 million in the three months ended March 31, 1993.
The increase was due primarily to a work force restructuring charge and higher
contracted services. The increases were partially offset by lower salaries,
wages and related payments and lower benefit expense.
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Employee-related expenses $119.7 $116.7 $3.0 2.6
The increase in employee related expenses was due primarily to higher
postretirement benefits expense and higher incentive compensation expense.
These increases were partially offset by lower salaries and wages as a result
of lower employee levels and lower overtime charges.
At March 31, 1994, the Company had 9,960 employees compared to 10,469 at
March 31, 1993. The reduction of 509 employees included approximately 270
employees leaving the Company through force reduction programs.
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Other operating expenses $139.3 $136.6 $2.7 2.0
The increase in other operating expenses was due principally to increased
costs and expenses for contracted services. The increase in contracted
services includes higher charges from Ameritech Services, Inc., for services
provided. Lower materials and supplies expense, access expense and
advertising expense partially offset the above increase.
7
Form 10-Q Part I THE OHIO BELL TELEPHONE COMPANY
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Depreciation and amortization $95.8 $96.7 $(.9) (.9)
Depreciation expense decreased slightly due to a lower average composite
depreciation rate offset by higher plant investment.
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Taxes other than income taxes $57.6 $56.1 $1.5 2.7
Taxes other than income taxes increased due to higher property tax expense
reflecting an increase in property tax rates.
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Restructuring charge $132.5 - $132.5 -
As more fully discussed in the Notes to the Financial Statements, Ameritech
(the Company's parent) announced on March 25, 1994, that it will reduce its
nonmanagement work force by 6,000 employees by the end of 1995, including
approximately 1,500 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.
This program resulted in a first quarter 1994 charge of $132.5 million or
$86.1 million after-tax. A significant portion of the program's cost will be
funded by the Ameritech Pension Plan, whereas financial incentives to be paid
by the Company will require Company funds of approximately $35.9 million.
Settlement gains of an estimated $50.0 million, which result from lump-sum
payments from the Ameritech Pension Plan, will be reflected in income as
payments are made by the Ameritech Pension Plan. Settlement gains are noncash
in nature and result from the funded status of the Ameritech Pension Plan.
Ameritech advised the Company that it expects that approximately two-thirds of
the 1,500 employees will leave the payroll in 1994 with the balance by the end
of the third quarter of 1995. Ameritech will manage the departure of all
6,000 employees to minimize disruption within its business (including its
entire five-state region) and to its customers. Cash requirements of the
Company to fund the financial incentives (principally contractual termination
payments) will be met as prescribed by applicable collective bargaining
agreements. Certain of these collective bargaining agreements may 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 $75.0 million on an annual basis upon completion of the program.
However, these anticipated savings may be partially offset by growth in new
businesses and the cost of adding other employees with different skills.
8
Form 10-Q Part I THE OHIO BELL TELEPHONE COMPANY
INTEREST EXPENSE, OTHER EXPENSES AND INCOME TAXES
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Interest expense $15.3 $15.4 $(.1) (.6)
In the first quarter of 1994 higher average long-term debt was offset by lower
average short-term debt as compared to the first quarter of 1993. The average
interest rate on long-term and short-term debt remained about the same for the
first quarter of 1994.
Three months ended March 31
Increase
(Dollars in millions) 1994 1993 (Decrease) % Change
Other expense (income) - net $(3.4) $6.7 $(10.1) -
Other expense (income)-net decreased by $10.1 million due principally to 1993
costs and expenses of $9.5 million related to the redemption of the Company's
debentures.
Three months ended March 31
Increase
(Dollars in Millions) 1994 1993 (Decrease) % Change
Income taxes $(6.7) $22.3 $(29.0) -
Federal income taxes decreased $29.0 million due principally to decreased
taxable income as a result of the 1994 work force 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 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.
9
Form 10-Q Part I THE OHIO BELL TELEPHONE COMPANY
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 could 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 periodically reviews these criteria
to ensure the continuing application of SFAS No. 71 is still appropriate.
Regulatory Proceedings
Hearings are scheduled to begin on June 6, 1994, with the Public Utilities
Commission of Ohio on the Company's alternative regulation proposal, called
Advantage Ohio, and on the Office of the Consumers' Counsel complaint alleging
that the Company is earning in excess of its authorized rate of return.
10
Form 10-Q Part II THE OHIO BELL TELEPHONE COMPANY
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K.
No Form 8-K was filed by the registrant during the quarter for which this
report is filed.
11
Form 10-Q THE OHIO 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.
The Ohio Bell Telephone Company
Date: May 12, 1994 /s/ R. A. Brown
Richard A. Brown
Vice President and Comptroller
(Principal Accounting Officer)
12