1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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 October 31, 1995, 120,526,415 common shares were outstanding.
2
Form 10-Q Part I Michigan Bell Telephone Company
Part I - Financial Information
------------------------------
The following condensed financial statements have been prepared by Michigan
Bell Telephone Company (the Company) pursuant to the rules and regulations
of the Securities and Exchange Commission (SEC) and, in the opinion of the
Company, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of results for each period
shown. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC
rules and regulations. The Company believes that the disclosures made are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's latest Annual Report on Form 10-K
and the quarterly reports on Form 10-Q previously filed in the current
year.
CONDENSED STATEMENTS OF INCOME AND REINVESTED EARNINGS (DEFICIT)
(Millions of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues............................ $ 748.9 $ 719.4 $2,190.6 $2,144.0
-------- -------- -------- --------
Operating Expenses
Employee-related expenses ........ 177.8 179.6 508.4 521.2
Depreciation and amortization .... 125.6 136.8 364.7 410.0
Other operating expenses ......... 207.8 223.9 621.5 648.1
Restructuring (credit) charge .... (2.5) 56.9 (75.3) 194.7
Taxes other than income taxes .... 33.7 33.0 101.3 91.0
-------- -------- -------- --------
542.4 630.2 1,520.6 1,865.0
-------- -------- -------- --------
Operating income.................... 206.5 89.2 670.0 279.0
Interest expense.................... 23.5 24.8 68.6 72.2
Other income, net................... (0.4) (1.7) (1.4) (3.1)
-------- -------- -------- --------
Income before income taxes.......... 183.4 66.1 602.8 209.9
Income taxes........................ 61.7 14.6 204.7 57.7
-------- -------- -------- --------
Net income.......................... 121.7 51.5 398.1 152.2
Reinvested earnings (deficit)
beginning of period .............. (522.4) (64.3) (560.3) 21.4
Less, dividends ................ -- 34.0 238.5 220.4
-------- -------- -------- --------
Reinvested deficit,
end of period .................... $ (400.7) $ (46.8)$ (400.7) $ (46.8)
======== ======== ======== ========
See Notes to Condensed Financial Statements.
3
Form 10-Q Part I Michigan Bell Telephone Company
CONDENSED BALANCE SHEETS
(Dollars in Millions)
Sept. 30, 1995 Dec. 31, 1994
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
Current assets
Cash and temporary cash investments ........ $ -- $ --
Investment in Ameritech funding pool ....... -- 14.2
--------- ---------
-- 14.2
Receivables, net
Customers ................................ 593.0 503.5
Ameritech and affiliates ................. 9.4 11.3
Other .................................... 24.3 20.8
Material and supplies ...................... 13.9 26.7
Prepaid and other .......................... 40.7 25.9
--------- ---------
681.3 602.4
--------- ---------
Property, plant and equipment................ 7,745.6 7,576.9
Less, accumulated depreciation............... 4,603.0 4,348.6
--------- ---------
3,142.6 3,228.3
--------- ---------
Investments, primarily in affiliates......... 66.6 70.9
Other assets and deferred charges............ 228.6 132.2
--------- ---------
Total assets................................. $ 4,119.1 $4,033.8
========= =========
See Notes to Condensed Financial Statements.
4
Form 10-Q Part I Michigan Bell Telephone Company
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
Sept. 30, 1995 Dec. 31, 1994
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech ............................... $ 100.4 $ 193.6
Other ................................... 38.4 2.9
Accounts payable
Ameritech Services, Inc. (ASI) .......... 148.8 108.3
Ameritech and affiliates ................ 50.1 32.8
Other ................................... 145.7 185.7
Other current liabilities ................ 284.8 296.2
--------- ---------
768.2 819.5
--------- ---------
Long-term debt............................. 1,093.2 1,128.9
--------- ---------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes......... 102.9 81.2
Unamortized investment tax credits........ 59.1 69.8
Postretirement benefits other than pensions 677.2 678.2
Long-term payable to ASI.................. 21.5 22.9
Other..................................... 57.4 53.3
--------- ---------
918.1 905.4
--------- ---------
Shareowner's equity
Common shares - ($14 2/7 par value;
120,810,000 shares authorized;
120,526,415 issued and outstanding) .... 1,721.8 1,721.8
Proceeds in excess of par value .......... 18.5 18.5
Reinvested deficit........................ (400.7) (560.3)
--------- ---------
1,339.6 1,180.0
--------- ---------
Total liabilities and shareowner's equity.. $ 4,119.1 $ 4,033.8
========= =========
See Notes to Condensed Financial Statements.
5
Form 10-Q Part I Michigan Bell Telephone Company
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30
------------
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 398.1 $ 152.2
Adjustments to net income
Restructuring (credit) charge, net of tax ...... (48.7) 126.0
Depreciation and amortization .................. 364.7 410.0
Deferred income taxes, net ..................... 6.2 15.3
Investment tax credits, net .................... (10.7) (10.5)
Interest during construction ................... (1.2) (1.1)
Provision for uncollectibles ................... 27.2 32.3
Change in accounts receivable .................. (118.3) (80.5)
Change in material and supplies ................ 11.1 (9.1)
Change in certain other current assets ......... 15.4 7.0
Change in accounts payable ..................... 17.8 20.2
Change in certain other current liabilities .... (41.7) (97.9)
Change in certain other noncurrent
assets and liabilities........................ (30.9) (52.6)
Other .......................................... 7.7 1.6
-------- --------
Net cash from operating activities............... 596.7 512.9
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. (277.1) (268.4)
(Cost of) proceeds from disposals of
property, plant and equipment ................. (2.2) 3.1
Other investing activities, net ................. 0.5 --
-------- --------
Net cash from investing activities............... (278.8) (265.3)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing, net...................... (93.2) (39.2)
Issuance of other short-term debt................ 1.6 --
Issuance of long-term debt....................... -- 0.1
Retirements of long-term debt.................... (2.0) (2.1)
Dividend payments................................ (238.5) (220.4)
-------- --------
Net cash from financing activities............... (332.1) (261.6)
-------- --------
Net decrease in cash and
temporary cash investments .................... (14.2) (14.0)
Cash and temporary cash investments
at beginning of period ........................ 14.2 17.0
-------- --------
Cash and temporary cash investments
at end of period .............................. $ -- $ 3.0
======== ========
See Notes to Condensed Financial Statements.
6
Form 10-Q Part I Michigan Bell Telephone Company
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
SEPTEMBER 30, 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. As of
September 30, 1995, 2,626 employees have left the Company as a result of
the restructuring. 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 left the business
during a designated period, which expired in the third quarter of 1995. In
addition, certain business units offered financial incentives to selected
nonmanagement employees. See additional discussion in Management's
Discussion and Analysis below.
As a result of the restructuring, a pretax charge of $194.7, or $126.0
after-tax, was recorded in the first nine months of 1994. In the first
nine months of 1995, a gain of $75.3 or $48.7 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 cost through September 30, 1995 totaled $245.1, partially offset by
settlement gains of $146.0 for an aggregate pretax net program cost of
$99.1 or $64.2 after-tax. At September 30, 1995, the remaining severance
accrual was $7.8.
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 prescribed by regulators 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 likely increase as the effects of shorter lives on plant
assets and future plant additions offset the discontinuation of
depreciation of analog switches.
Certain additional financial statement impacts occurred as a result of the
discontinuance of FAS 71, including the reclassification of the provision
for uncollectibles, previously shown as a reduction in other revenues, to
other operating expenses.
7
Form 10-Q Part I Michigan Bell Telephone Company
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
SEPTEMBER 30, 1995
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
Form 10-Q Part I Michigan Bell Telephone Company
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 nine months
of 1995 as compared with the first nine months of 1994:
Results of Operations
- ---------------------
Revenues
- --------
Total revenues in the first nine months of 1995 were $2,190.6 and were
$2,144.0 for the same period in 1994. The following paragraphs explain the
components of that change.
- ---------------------------------------------------------------------------
Local Service
- -------------
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Nine Months Ended $ 929.0 $ 867.2 $ 61.8 7.1
The increase in local service revenues in the first nine months of 1995 was
primarily attributable to higher network usage volumes which increased
local service revenues by $48.7. The increased network usage volumes
resulted principally from growth in the number of access lines, which
increased 4.6 percent to 4,915,151 as of September 30, 1995 as compared
with 4,700,018 at September 30, 1994, and greater sales of special calling
features, such as Call Forwarding and Caller ID. Also contributing to the
increase were rate increases of $13.1.
9
Form 10-Q Part I Michigan Bell Telephone Company
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Network access
- --------------
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Interstate
- ----------
Nine Months Ended $ 416.3 $ 407.4 $ 8.9 2.2
Intrastate
- ----------
Nine Months Ended $ 145.2 $ 155.6 $ (10.4) (6.7)
The increase in interstate network access revenues for the nine months
ended September 30, 1995 was primarily due to higher network usage, which
resulted in additional revenues of $24.2, and a reduction in National
Exchange Carrier Association common line pool support payments of $6.8.
Partially offsetting these revenue increases were net rate reductions of
$17.3. Minutes of use related to interstate calls increased 8.4 percent in
1995. See additional discussion below regarding Ameritech's interstate
access rate reductions.
The decrease in intrastate network access revenues for the nine months
ended September 30, 1995 was primarily due to rate reductions of $17.0.
Also contributing to the decrease is the effect of a prior year
nonrecurring adjustment of $6.5 and settlements with other carriers.
Higher network usage resulted in additional revenues of $13.1 which
partially offset these decreases. Minutes of use related to intrastate
calls increased 11.9 percent in 1995.
- ---------------------------------------------------------------------------
Long distance service
- ---------------------
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Nine Months Ended $ 537.3 $ 533.0 $ 4.3 0.8
The increase in long distance service revenues for the nine months ended
September 30, 1995 was primarily attributable to rate increases of $8.5,
partially offset by a decrease in usage volumes of $7.5.
10
Form 10-Q Part I Michigan Bell Telephone Company
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other
- -----
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Nine Months Ended $ 162.8 $ 180.8 $ (18.0) (10.0)
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 $18.3 of the decrease. Rent revenues also decreased $4.6 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. Billing and
collection services and other miscellaneous revenues decreased by $4.0.
Partially offsetting these decreases were rate increases for inside wire
installation and maintenance services of $5.7 and increases in other
nonregulated service revenues of $3.2.
- ---------------------------------------------------------------------------
Operating expenses
- ------------------
Total operating expenses for the nine months ended September 30, 1995
decreased by $344.4 or 18.5 percent to $1,520.6. The decrease was largely
attributable to the 1994 work force restructuring, which resulted in a
credit of $75.3 in the first nine months of 1995 related primarily to the
net settlement gains previously discussed in Note 1, compared with a charge
of $194.7 in the first nine months of 1994.
- ---------------------------------------------------------------------------
Employee-related expenses
- -------------------------
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Nine Months Ended $ 508.4 $ 521.2 $ (12.8) (2.5)
The decrease in employee-related expenses for the nine months ended
September 30, 1995 was attributable primarily to the effect of work force
restructuring over the past year of $40.4 as well as reduced bonus accruals
of $2.4. Partially offsetting these decreases were the effects of
increased overtime payments and medical, and dental and other employee
related expenses of $30.0.
During September 1995, a union agreement was ratified by the Communications
Workers of America (CWA). The new contract and wage increases were
retroactive to August 6, 1995. The contract includes basic wage increases
of 10.9 percent (compounded) over three years. In addition, the contract
provided for a signing bonus of $500 to each eligible employee upon
ratification. The contract addresses wages, benefits, pensions, employment
security, training and retraining and other conditions of employment. Most
of the Company's nonmanagement work force (about 85 percent of total
employees) is represented by the CWA.
There were 12,359 employees at September 30, 1995, compared with 13,497 at
September 30, 1994.
11
Form 10-Q Part I Michigan Bell Telephone Company
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Depreciation and
amortization
- ----------------
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Nine Months Ended $ 364.7 $ 410.0 $ (45.3) (11.0)
The decrease in depreciation and amortization expense for the nine months
ended September 30, 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. See Note 2 for further details.
- ---------------------------------------------------------------------------
Other operating expenses
- ------------------------
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Nine Months Ended $ 621.5 $ 648.1 $ (26.6) (4.1)
The decrease in other operating expenses for the nine months ended
September 30, 1995 was primarily attributable to a net decrease of $42.5 in
expenses for contract and professional services, access charges with
independent telephone companies, as a result of renegotiated contracts,
switching system software, bad debt expense and other miscellaneous
expenses. These decreases were partially offset by higher affiliated
service expenses of $14.3 resulting from increased project billings, as
well as higher advertising expenses of $1.6 resulting from increased
marketing and sales efforts.
12
Form 10-Q Part I Michigan Bell Telephone Company
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Restructuring (credit) charge
- -----------------------------
September 30
------------ Percent
1995 1994 Change Change
---- ---- ------ ------
Nine Months Ended $ (75.3)$ 194.7 $ (270.0) n/a
As discussed in Note 1, Ameritech announced in March 1994 that it intended
to restructure its nonmanagement work 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 Company's cost
structure with emerging competition. Pretax charges of $194.7 related to
the anticipated work force restructuring were recorded in the first nine
months of 1994. Noncash net settlement gains of $75.3 were recorded in the
first nine months of 1995 primarily associated with lump-sum pension
payments to former employees. Future settlement gains (estimated at $1.4)
are anticipated.
Actual employees who left due to work force restructuring 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, 60 in the first quarter of 1995, 184 in the
second quarter of 1995 and 304 in the third quarter of 1995, for a total of
2,626. Cash requirements to fund the financial incentives (principally
contractual termination payments totaling approximately $51.8) are being
met as prescribed by applicable collective bargaining agreements. Certain
of these collective bargaining agreements required 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 reduced annual employee-related costs by approximately
$50 thousand per departing employee. The savings are being 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
Form 10-Q Part I Michigan Bell Telephone Company
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Taxes other than income taxes
- -----------------------------
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Nine Months Ended $ 101.3 $ 91.0 $ 10.3 11.3
The increase in taxes other than income taxes for the nine months ended
September 30, 1995 was primarily attributable to a decrease in the prior
year period in the provision for property taxes to recognize the impact of
state legislation enacted in December 1993 which lowered property tax
millage rates in Michigan.
The Company has 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
- ----------------
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Nine Months Ended $ 68.6 $ 72.2 $ (3.6) (5.0)
The decrease in interest expense for the nine months ended September 30,
1995 is primarily due to lower short-term interest on borrowings from the
Ameritech short-term funding pool resulting from lower average short-term
debt balances, partially offset by higher average short-term interest rates
as compared to the prior year period.
- ---------------------------------------------------------------------------
Other income, net
- -----------------
September 30 Change
------------ (Income) Percent
1995 1994 Expense Change
---- ---- ------- ------
Nine Months Ended $ (1.4)$ (3.1) $ 1.7 (54.8)
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 Ameritech Services, Inc.
(ASI).
14
Form 10-Q Part I Michigan Bell Telephone Company
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Income taxes
- ------------
September 30
------------ Increase Percent
1995 1994 (Decrease) Change
---- ---- ---------- ------
Nine Months Ended $ 204.7 $ 57.7 $ 147.0 254.8
The increase in income taxes for the nine months ended September 30, 1995
was due primarily to the change in pretax income as a result of the work
force restructuring credit of $75.3 ($48.7 after-tax) in the first nine
months of 1995 as compared to the work force restructuring charge of $194.7
($126.0 after-tax) in the first nine months of 1994. Excluding these
items, income taxes changed in line with the earnings of the business.
- ---------------------------------------------------------------------------
Ratio of earnings to fixed charges
- ----------------------------------
The ratio of earnings to fixed charges for the nine months ended September
30, was 8.85 in 1995 and 3.84 in 1994. The ratio in 1995 was favorably
affected by a credit of $75.3 for work force restructuring (see prior
discussion of this item). The ratio in 1994 was adversely affected by a
$194.7 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 more indicative of the Company's ability to meet its debt funding
requirements.
- ---------------------------------------------------------------------------
Interstate access rate reduction
- --------------------------------
On July 18, 1995, the Federal Communications Commission (FCC) approved
Ameritech's request for price regulation without sharing of earnings
effective January 1, 1995. As a result, the total annual reduction in
prices that the Company charges long distance companies for local
connections increased to $23.8 effective August 1, 1995. The current year
impact is expected to be a reduction in interstate access revenues of
$10.2, which represents an increase of $3.6 over the 1995 reduction
otherwise required under the FCC's interim price cap rules.
15
Form 10-Q Part II Michigan Bell Telephone Company
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
--------
12 Computation of Ratio of Earnings to Fixed Charges for the
Nine Months Ended September 30, 1995 and September 30, 1994.
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.
16
Form 10-Q Part II 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
-------------------------------
(Registrant)
Date: November 13, 1995 /s/ Cheryl K. Wooley
--------------------
Cheryl K. Wooley
Vice President
State Finance Organizations
(Principal Financial Officer)
17
EXHIBIT 12
MICHIGAN BELL TELEPHONE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Nine Months Ended
September 30
------------
1995 1994
---- ----
1. EARNINGS
--------
a) Income before interest cost
and income taxes....................... $ 672.6 $ 283.2
b) Single Business Tax (2)................. 22.9 22.1
c) Portion of rental expense
representative of the
interest factor (1) (2)................ 9.9 8.3
-------- --------
Total 1(a) through 1(c) ................... $ 705.4 $ 313.6
-------- --------
2. FIXED CHARGES
a) Total interest cost including
capital lease obligations.............. $ 69.8 $ 73.3
b) Portion of rental expense
representative of the
interest factor (1).................... 9.9 8.3
-------- --------
Total 2(a) through 2(b) ................... $ 77.6 $ 81.6
-------- --------
3. RATIO OF EARNINGS TO FIXED CHARGES ........ 8.85 3.84
==== ====
- ---------------
(1) One-third of rental expense is considered to be the amount
representing return on capital.
(2) Earnings are income before income taxes and fixed charges. Since the
Single Business Tax (the Tax) and rental expense have already been
deducted, the Tax and the one-third portion of rental expense
considered to be fixed charges are added back.
(3) The results for the first nine months of 1995 reflect a $75.3 pretax
credit primarily from settlement gains resulting from lump sum pension
payments from the pension plan to former employees who left the
business in the nonmanagement work force restructuring. Results for
the first nine months of 1994 reflect a $194.7 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 since the
effect on an annual basis has been insignificant.