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 June 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 July 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 report 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 Six Months Ended
June 30 June 30
1995 1994 1995 1994
Revenues $ 736.4 $ 717.0 $1,441.7 $1,424.6
--------- --------- -------- --------
Operating Expenses
Employee-related expenses 167.5 170.3 330.6 341.6
Depreciation and amortization 119.6 136.9 239.1 273.2
Other operating expenses 200.5 212.8 413.7 424.2
Restructuring (credit) charge -- -- (72.8) 137.8
Taxes other than income taxes 34.1 23.4 67.6 58.0
--------- --------- -------- --------
521.7 543.4 978.2 1,234.8
--------- --------- -------- --------
Operating income 214.7 173.6 463.5 189.8
Interest expense 22.3 23.8 45.1 47.4
Other income, net (1.0) (0.5) (1.0) (1.4)
--------- --------- -------- --------
Income before income taxes 193.4 150.3 419.4 143.8
Income taxes 65.4 45.1 143.0 43.1
--------- --------- -------- --------
Net income 128.0 105.2 276.4 100.7
Reinvested earnings (deficit),
beginning of period (539.0) (72.7) (560.3) 21.4
Less, dividends 111.4 96.8 238.5 186.4
--------- --------- -------- --------
Reinvested (deficit),
end of period $ (522.4) $ (64.3) $ (522.4) $ (64.3)
========= ======== ======== ========
See Notes to Condensed Financial Statements.
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Form 10-Q Part I Michigan Bell Telephone Company
CONDENSED BALANCE SHEETS
(Dollars in Millions)
June 30, 1995 Dec. 31, 1994
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
Current assets
Cash and temporary cash investments $ -- $ 14.2
Receivables, net
Customers 529.2 503.5
Ameritech and affiliates 10.0 11.3
Other 25.9 20.8
Material and supplies 26.3 26.7
Prepaid and other 38.5 25.9
-------- --------
629.9 602.4
-------- --------
Property, plant and equipment 7,676.1 7,576.9
Less, accumulated depreciation 4,513.0 4,348.6
-------- --------
3,163.1 3,228.3
-------- --------
Investments, principally in affiliates 64.4 70.9
Other assets and deferred charges 216.1 132.2
-------- --------
Total assets $4,073.5 $4,033.8
======== ========
See Notes to Condensed Financial Statements.
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Form 10-Q Part I Michigan Bell Telephone Company
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
June 30, 1995 Dec. 31, 1994
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech $ 41.3 $ 193.6
Other 2.2 2.9
Accounts payable
Ameritech Services, Inc. (ASI) 110.7 108.3
Ameritech and affiliates 28.9 32.8
Other 139.6 185.7
Other current liabilities 487.2 296.2
-------- --------
809.9 819.5
-------- --------
Long-term debt 1,128.3 1,128.9
-------- --------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes 102.1 81.2
Unamortized investment tax credits 62.7 69.8
Postretirement benefits other than pensions 676.5 726.0
Long-term payable to ASI 21.5 22.9
Other 54.6 5.5
-------- --------
917.4 905.4
-------- --------
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 (522.4) (560.3)
-------- --------
1,217.9 1,180.0
-------- --------
Total liabilities and shareowner's equity $4,073.5 $4,033.8
======== ========
See Notes to Condensed Financial Statements.
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Form 10-Q Part I Michigan Bell Telephone Company
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Six Months Ended
June 30
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 276.4 $ 100.7
Adjustments to net income
Restructuring (credit) charge, net of tax (47.1) 89.2
Depreciation and amortization 239.1 273.2
Deferred income taxes, net 0.8 10.6
Investment tax credits, net (7.1) (7.0)
Interest during construction (0.8) (0.7)
Provision for uncollectibles 16.4 21.0
Change in accounts receivable (45.9) (46.2)
Change in material and supplies (0.7) (5.6)
Change in certain other current assets (12.7) 7.1
Change in accounts payable (47.6) (10.8)
Change in certain other current liabilities 86.7 20.5
Change in certain other noncurrent
assets and liabilities (26.2) (36.4)
Other 5.9 4.6
--------- --------
Net cash from operating activities 437.2 420.2
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (170.6) (181.6)
Proceeds from (cost of) disposals of
property, plant and equipment (0.6) 3.1
Other investments 0.4 --
--------- --------
Net cash from investing activities (170.8) (178.5)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing, net (152.3) (70.8)
Issuance of long-term debt -- 0.1
Retirements of long-term debt (1.3) (1.6)
Dividend payments (127.0) (186.4)
--------- --------
Net cash from financing activities (280.6) (258.7)
--------- --------
Net decrease in cash and
temporary cash investments (14.2) (17.0)
Cash and temporary cash investments
at beginning of period 14.2 17.0
-------- --------
Cash and temporary cash investments
at end of period $ -- $ --
======== ========
See Notes to Condensed Financial Statements.
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Form 10-Q Part I Michigan Bell Telephone Company
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
JUNE 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.
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 corresponds to contract expiration in 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. Settlement gains were not recorded in the second
quarter of 1995 as they were not significant. The cumulative gross program
costs through June 30, 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 June 30, 1995, the remaining severance accrual was $12.0.
As of June 30, 1995, 2,322 employees have left the Company as a result of
the restructuring, with 399 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.
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.
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Form 10-Q Part I Michigan Bell Telephone Company
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 six months
of 1995 as compared with the first six months of 1994:
Results of Operations
Revenues
Total revenues in the first six months of 1995 were $1,441.7 and were
$1,424.6 for the same period in 1994. The following paragraphs explain the
components of that change.
Local service
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $608.6 $572.6 $ 36.0 6.3
The increase in local service revenues in the first six months of 1995 was
primarily attributable to higher network usage volumes which increased
local service revenues by $26.2. The increased network usage volumes
resulted principally from growth in the number of access lines, which
increased 4.2 percent to 4,851,371 as of June 30, 1995 as compared with
June 30, 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 $9.8.
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Form 10-Q Part I Michigan Bell Telephone Company
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Network access
June 30 Increase Percent
1995 1994 (Decrease) Change
Interstate
Six Months Ended $ 278.6 $269.9 $ 8.7 3.2
Intrastate
Six Months Ended $ 97.3 $107.5 $(10.2) (9.5)
The increase in interstate network access revenues for the six months ended
June 30, 1995 was primarily due to higher network usage, which resulted in
additional revenues of $14.0, and a reduction in NECA common line pool
support payments of $7.0. Partially offsetting these revenue increases
were net rate percent reductions of $12.3. Minutes of use related to
interstate calls increased 7.5 percent in 1995. See additional discussion
below regarding Ameritech's interstate access rate reductions.
The decrease in intrastate network access revenues for the six months ended
June 30, 1995 was primarily due to rate reductions of $11.5. Also
contributing to the decrease is the effect of a prior year nonrecurring
adjustments of $5.5 and settlements with other carriers. Higher network
usage resulted in additional revenues of $6.8 which partially offset these
decreases. Minutes of use related to intrastate calls increased 13.2
percent in 1995.
___________________________________________________________________________
Long distance service
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $350.9 $351.0 $ (0.1) --
The decrease in long distance service revenues for the six months ended
June 30, 1995 was primarily attributable to a decrease in usage volumes of
$7.5, partially offset by rate increases.
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Form 10-Q Part I Michigan Bell Telephone Company
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $106.3 $123.6 $(17.3) (14.0)
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 $19.0 of the decrease. Rent revenues also decreased $3.4 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 $4.2 and increases in nonregulated service
revenues of $2.4.
___________________________________________________________________________
Operating expenses
Total operating expenses for the six months ended June 30, 1995 decreased
by $256.6 or 20.8 percent to $978.2. The decrease was largely attributable
to the 1994 work force restructuring, which resulted in a credit of $72.8
in the first quarter of 1995 related to the net settlement gains previously
discussed compared with a first quarter 1994 charge of $137.8.
___________________________________________________________________________
Employee-related expenses
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $330.6 $341.6 $(11.0) (3.2)
The decrease in employee-related expenses for the six months ended
June 30, 1995 was attributable primarily to the effect of work force
restructuring over the past year of $29.4 as well as reduced bonus accruals
and other benefits of $10.1. Partially offsetting these decreases were the
effects of increased overtime payments and medical, dental and
postretirement benefits of $28.5.
There were 12,434 employees at June 30, 1995, compared with 14,041 at
June 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
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $239.1 $273.2 $(34.1) (12.5)
The decrease in depreciation and amortization expense for the six months
ended June 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.
___________________________________________________________________________
Other operating expenses
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $413.7 $424.2 $(10.5) (2.5)
The decrease in other operating expenses for the six months ended June 30,
1995 was primarily attributable to a net decrease of $44.0 in expenses for
access charges with independent telephone companies, as a result of
renegotiated contracts, contract and professional services, as discussed
below, switching system software, bad debt expense and other miscellaneous
expenses. These decreases were partially offset by higher affiliated
service expenses of $31.6, resulting from increased billings from Ameritech
Services, Inc. (ASI), primarily for contract and professional services, as
well as advertising expenses resulting from increased marketing 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
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $(72.8) $137.8 $(210.6) n/a
As discussed in Note 1, Ameritech announced in March 1994 that it intended
to restructure 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 currently expects its nonmanagement work force to
be reduced by about 11,500 employees through 1995 instead of the 6,000
originally estimated in March 1994, including 2,721 at the Company. A
pretax charge of $137.8 related to the original estimated work force
restructuring was recorded in the first quarter of 1994, with additional
charges later in 1994. A 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 $12.0) 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 and 184 in
the second quarter of 1995. The Company expects that 399 employees will
leave in the third quarter of 1995. 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 approx-
imately $50 thousand per departing employee. The projected 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
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $ 67.6 $ 58.0 $ 9.6 16.6
The increase in taxes other than income taxes for the six months ended June
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
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $ 45.1 $ 47.4 $ (2.3) (4.9)
The decrease in interest expense for the six months ended June 30, 1995 is
primarily due to lower average debt balances, partially offset by the
increase in short-term interest rates.
___________________________________________________________________________
Other income, net
June 30 (Increase) Percent
1995 1994 Decrease Change
Six Months Ended $ (1.0) $ (1.4) $ 0.4 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
Form 10-Q Part I Michigan Bell Telephone Company
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Income taxes
June 30 Increase Percent
1995 1994 (Decrease) Change
Six Months Ended $143.0 $ 43.1 $ 99.9 n/a
The increase in income taxes for the six months ended June 30, 1995 was due
primarily to the change in pretax income as a result of the 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 changed in line with the earnings in the business.
___________________________________________________________________________
Ratio of earnings to fixed charges
The ratio of earnings to fixed charges for the six months ended June 30,
was 9.31 in 1995 and 3.96 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 require-
ments.
___________________________________________________________________________
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. By receiving FCC approval of Ameritech's waiver
request effective January 1, 1995, 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.
___________________________________________________________________________
Labor negotiations
The Company's nonmanagement workforce (about 85 percent of total employees)
is represented by the Communications Workers of America whose contract was
set to expire on August 5, 1995, but has been extended indefinitely. The
extension may be canceled by either the Company or the CWA with 24 hour
notice. Membership of the union has authorized a work stoppage.
Negotiations with the union continue and management believes a
satisfactory resolution will be achieved.
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
Six Months Ended June 30, 1995 and June 30, 1994.
27 Financial Data Schedule.
(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
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: August 7, 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)
Six Months Ended
June 30
1995 1994
1. EARNINGS
a) Income before interest cost
and income taxes $465.3 $191.9
b) Single Business Tax (2) 16.7 14.7
c) Portion of rental expense
representative of the
interest factor (1) (2) 6.6 5.4
------ ------
Total 1(a) through 1(c) $488.6 $212.0
------ ------
2. FIXED CHARGES
a) Total interest cost including
capital lease obligations $ 45.9 $ 48.1
b) Portion of rental expense
representative of the
interest factor (1) 6.6 5.4
------ ------
Total 2(a) through 2(b) $ 52.5 $ 53.5
------ ------
3. RATIO OF EARNINGS TO FIXED CHARGES 9.31 3.96
________________ ==== ====
(1) One-third of rental expense is considered to be the amount repres
enting 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 ded
ucted, the Tax and the one-third portion of rental expense considered to be
fixed charges are added back.
(3) The results for the first six months of 1995 reflect a first quarter
1995 $72.8 pretax credit primarily from settlement gains resulting from
lump sum pension payments from the pension plan to former employees as
sociated with the nonmanagement work force restructuring. Results for the
first six months of 1994 reflect a first quarter 1994 $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.