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U.S. Securities and Exchange Commission
Washington, D.C. 20549
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Form 10-Q
(Mark one)
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[x] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
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or
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[ ] Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 1-3499
Michigan Bell Telephone Company
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A Michigan Corporation
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444 Michigan Avenue
Detroit, Michigan 48226
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I.R.S. Employer Identification
Number 38-0823930
Telephone number (800) 257-0902
MICHIGAN BELL IS A WHOLLY OWNED SUBSIDIARY OF AMERITECH CORPORATION AND
MEETS THE CONDITIONS IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q.
WE ARE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT UNDER GENERAL
INSTRUCTION H(2).
We have 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, and
have been subject to those filing requirements for the past 90 days.
Yes X No
---- ----
At July 31, 1997, 120,526,415 common shares were outstanding.
TABLE OF CONTENTS
PART I
ITEM Page
- ---- ----
1. Financial Statements
Condensed Statements of Income and Accumulated Deficit for
the three and six months ended June 30, 1997 and 1996 1
Condensed Balance Sheets as of
June 30, 1997 and December 31, 1996 2-3
Condensed Statements of Cash Flows for
the six months ended June 30, 1997 and 1996 4
Notes to Condensed Financial Statements 5
2. Management's Discussion and Analysis
of Results of Operations 6-13
PART II
6. Exhibits and Reports on Form 8-K 14
Glossary 16-17
i
Part I - Financial Information
------------------------------
CONDENSED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(Dollars in Millions)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
---------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues
Local service................. $ 381.9 $ 350.6 $ 750.2 $ 687.7
Interstate network access..... 163.4 144.6 320.5 288.9
Intrastate network access..... 52.4 46.4 102.7 90.9
Long distance services........ 180.0 192.7 373.3 382.5
Other......................... 78.7 66.3 152.7 139.4
--------- --------- --------- ---------
856.4 800.6 1,699.4 1,589.4
--------- --------- --------- ---------
Operating expenses
Employee-related expenses..... 166.5 163.3 327.2 328.6
Depreciation and amortization. 127.8 131.5 260.4 258.0
Other operating expenses...... 248.9 226.7 476.8 452.0
Taxes other than income taxes. 37.1 35.1 77.7 70.3
--------- --------- --------- ---------
580.3 556.6 1,142.1 1,108.9
--------- --------- --------- ---------
Operating income................ 276.1 244.0 557.3 480.5
Interest expense................ 20.5 21.1 41.6 42.2
Other income, net............... 1.9 2.3 2.9 5.2
--------- --------- --------- ---------
Income before income taxes...... 257.5 225.2 518.6 443.5
Income taxes.................... 88.8 78.9 179.0 153.9
--------- --------- --------- ---------
Net income...................... 168.7 146.3 339.6 289.6
Accumulated deficit,
beginning of period........... (356.9) (382.7) (347.2) (418.2)
Less, dividends declared.... 131.8 136.0 312.4 243.8
--------- --------- --------- ---------
Accumulated deficit,
end of period................. $ (320.0) $ (372.4) $ (320.0) $ (372.4)
========= ========= ========= =========
See Notes to Condensed Financial Statements.
Page 1
CONDENSED BALANCE SHEETS
(Dollars in Millions)
June 30, 1997 Dec. 31, 1996
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
Current assets
Cash and temporary cash investments......... $ 0.1 $ 0.2
Investment in Ameritech funding pool........ 66.9 --
--------- ---------
67.0 0.2
Receivables, net
Customers................................. 655.0 708.5
Ameritech and affiliates.................. 12.0 9.8
Other..................................... 18.9 19.1
Material and supplies....................... 8.8 6.5
Prepaid and other........................... 15.2 11.5
--------- ---------
776.9 755.6
--------- ---------
Property, plant and equipment................ 8,199.8 8,072.6
Less, accumulated depreciation............... 5,243.7 5,031.6
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2,956.1 3,041.0
--------- ---------
Investments, primarily in affiliates......... 87.5 69.7
Other assets and deferred charges............ 276.2 271.5
--------- ---------
Total assets................................. $ 4,096.7 $ 4,137.8
========= =========
See Notes to Condensed Financial Statements.
Page 2
CONDENSED BALANCE SHEETS (continued)
(Dollars in Millions)
June 30, 1997 Dec. 31, 1996
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Debt maturing within one year
Ameritech................................ $ -- $ 138.3
Other.................................... 1.6 2.1
Accounts payable
Ameritech Services, Inc. (ASI)............ 145.5 114.8
Ameritech and affiliates.................. 42.9 34.8
Other..................................... 118.2 140.9
Other current liabilities.................. 342.3 276.6
--------- ---------
650.5 707.5
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Long-term debt.............................. 1,093.7 1,094.2
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Deferred credits and other long-term liabilities
Accumulated deferred income taxes.......... 129.3 134.8
Unamortized investment tax credits......... 43.2 47.5
Postretirement benefits
other than pensions...................... 675.0 675.1
Long-term payable to ASI................... 18.6 20.1
Other ..................................... 65.9 65.5
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932.0 943.0
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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............ 18.7 18.5
Accumulated deficit........................ (320.0) (347.2)
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1,420.5 1,393.1
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Total liabilities and shareowner's equity... $ 4,096.7 $ 4,137.8
========= =========
See Notes to Condensed Financial Statements.
Page 3
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Six Months Ended
June 30
-------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 339.6 $ 289.6
Adjustments to net income
Depreciation and amortization............... 260.4 258.0
Deferred income taxes, net.................. (3.8) (4.9)
Investment tax credits, net................. (4.3) (4.9)
Capitalized interest........................ (0.7) (1.0)
Change in accounts receivable, net.......... 51.5 (47.4)
Change in material and supplies............. (5.9) (4.0)
Change in certain other current assets...... (3.7) 5.9
Change in accounts payable.................. 16.1 (22.9)
Change in certain other current
liabilities................................ 63.9 54.5
Change in certain other noncurrent
assets and liabilities..................... (6.5) (11.2)
Other operating activities, net............ 6.3 --
-------- --------
Net cash from operating activities............ 712.9 511.7
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (174.6) (194.3)
Additional investments ..................... (23.2) --
Proceeds from (cost of) disposals of
property, plant and equipment................ 2.8 (1.0)
Other investing activities, net............... 0.1 0.1
-------- --------
Net cash from investing activities............ (194.9) (195.2)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany financing, net................... (138.3) 41.8
Retirements of long-term debt................. (0.6) (0.7)
Dividend payments............................. (312.4) (374.6)
Other financing activities, net............... 0.1 --
-------- --------
Net cash from financing activities............ (451.2) (333.5)
-------- --------
Net increase (decrease) in cash and
temporary cash investments................... 66.8 (17.0)
Cash and temporary cash investments,
beginning of period.......................... 0.2 17.1
-------- --------
Cash and temporary cash investments,
end of period................................ $ 67.0 $ 0.1
======== ========
See Notes to Condensed Financial Statements.
Page 4
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions)
JUNE 30, 1997
NOTE 1: Preparation of Interim Financial Statements
We have prepared the unaudited condensed financial statements in this
report by following Securities and Exchange Commission rules that
permit reduced disclosure for quarterly period reports. These
financial statements include estimates and assumptions that affect
the reported amounts of assets and liabilities and the amounts of
revenues and expenses. Actual amounts could differ from those
estimates. We believe these statements include all adjustments
necessary for a fair statement of results for each period shown. We
believe our disclosures are adequate to make the presented
information clear. You should read these financial statements in
conjunction with the financial statements and notes included in our
1996 Annual Report on Form 10-K and the quarterly report on Form 10-Q
previously filed in 1997.
When reading these financial statements, you should be familiar with
the terminology unique to our business. We have defined a number of
terms in the glossary on pages 16 and 17.
NOTE 2: Investment in Affiliate
In June 1997, our parent company, Ameritech centralized the
administration of certain liabilities on behalf of the Company and
other participating operating subsidiaries. As a result, we hold
approximately $23.2 million in preferred stock issued by an Ameritech
subsidiary.
Page 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
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 1997 as compared with the first six months of
1996.
RESULTS OF OPERATIONS
- ---------------------
Revenues
- --------
Our revenues in the first six months of 1997 were $1,699.4 million
and were $1,589.4 million for the same period in 1996, an increase of
$110.0 million. Growth in access lines and sales of call management
services, as well as increases in switched minutes of use resulting
from higher network usage volumes were the primary reasons for the
increase. Net rate reductions and decreased long distance revenues
partially offset these increases.
- ---------------------------------------------------------------------
Local service
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June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 750.2 $ 687.7 $ 62.5 9.1
Local service revenues include basic monthly service fees and usage
charges, fees for call management services, installation and
connection charges and public phone revenues. Local service revenues
increased for the six months ended June 30, 1997 due largely to
higher network usage volumes, resulting primarily from access line
growth of 2.9 percent over the prior year period. Second line
additions by residential and small business customers contributed to
the increase in access lines, as demand for Internet access and data
transport capabilities continued to grow. Sales of call management
services increased as well because of customer demand for additional
flexibility and convenience. Rate increases also contributed to the
revenue increase.
There were 5,206,000 access lines in service as of June 30, 1997,
compared with 5,062,000 as of June 30, 1996.
- ---------------------------------------------------------------------
Network access
- --------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
- ----------
Six Months Ended $ 320.5 $ 288.9 $ 31.6 10.9
Intrastate
- ----------
Six Months Ended $ 102.7 $ 90.9 $ 11.8 13.0
Network access revenues are fees charged to interexchange carriers
that use our local landline communications network to connect
customers to their long distance networks. In addition, end users
pay flat rate access fees to connect to the long distance network.
These revenues result from both interstate and intrastate services.
Page 6
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Network access (cont'd.)
- ------------------------
Interstate network access revenues increased for the six months ended
June 30, 1997 primarily due to an increase in minutes of use,
resulting from overall growth in the volume of calls handled for
interexchange carriers. Greater demand for dedicated services by
Internet service providers and other high-capacity users also
contributed to the increase. Interstate minutes of use for the six
months ended June 30, 1997 increased by 3.9 percent over the same
period last year.
Intrastate network access revenues increased for the six months ended
June 30, 1997 due primarily to volume increases, partially offset by
rate decreases. Intrastate minutes of use for the six months ended
June 30, 1997 increased by 11.7 percent over the same period last
year.
- ---------------------------------------------------------------------
Long distance service
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June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 373.3 $ 382.5 $ (9.2) (2.4)
Long distance service revenues result from customer calls to
locations outside of their local calling areas, but within the same
Local Access and Transport Area (LATA). Long distance service
revenues decreased for the six months ended June 30, 1997 due
primarily to volume decreases, resulting largely from increased
competition from alternative intraLATA toll providers. We have
implemented Dial 1+ capability on over 70 percent of our access
lines.
- ---------------------------------------------------------------------
Other
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June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 152.7 $ 139.4 $ 13.3 9.5
Other revenues include revenues derived from directory advertising,
billing and collection services, inside wire installation and
maintenance services and other miscellaneous services. Other
revenues increased for the six months ended June 30, 1997 due
primarily to increases in inside wire installation and maintenance
and directory advertising revenues. Decreased sales of equipment and
other nonregulated services, such as voice messaging, partially
offset these increases.
We have entered into a new agreement with Ameritech Publishing, Inc.
(API), a wholly-owned Ameritech subsidiary, for the publishing and
distribution of directories. This agreement, which is effective July
1, 1997, will reduce our revenues from directory services by
approximately $77.2 million on an annual basis, or $38.6 million in
1997. For a complete discussion of the new directory agreement, see
the section entitled "Other Matters - Directory Publishing
Agreement."
Page 7
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Operating expenses
- ------------------
Total operating expenses for the six months ended June 30, 1997
increased $33.2 million, or 3.0 percent to $1,142.1 million.
Increases in other operating expenses and depreciation and
amortization were the primary reasons for the increase. Decreased
employee-related expenses partially offset these increases, as
discussed below.
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Employee-related expenses
- -------------------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 327.2 $ 328.6 $ (1.4) (0.4)
Employee-related expenses decreased for the six months ended June 30,
1997 due primarily to lower force levels and decreased overtime and
bonus expenses. Wage rate increases and increased benefit expenses
partially offset these decreases.
We employed 12,274 employees as of June 30, 1997, compared with
12,691 as of June 30, 1996.
- ---------------------------------------------------------------------
Depreciation and
amortization
- ------------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 260.4 $ 258.0 $ 2.4 0.9
Depreciation and amortization expense increased for the six months
ended June 30, 1997 due primarily to higher property, plant and
equipment balances. Higher depreciation rates on certain asset
categories also contributed to the increase as we used shorter
depreciable lives for newer technologies.
- ---------------------------------------------------------------------
Other operating expenses
- ------------------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 476.8 $ 452.0 $ 24.8 5.5
Other operating expenses increased for the six months ended June 30,
1997 due to increases in uncollectible and other expenses related to
increased sales efforts, as well as increases in contract and
affiliated services costs related to systems programming and data
center management. Access charges paid to other communications
carriers for calls completed on their networks also increased. A
decrease in cost of sales for customer equipment partially offset
these increases.
Page 8
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Taxes other than income taxes
- -----------------------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 77.7 $ 70.3 $ 7.4 10.5
Taxes other than income taxes consist of property taxes, gross
receipts taxes and other taxes not directly related to earnings.
Increases in property taxes, resulting from higher assessed valuation
and property tax rates, as well as an increase in use taxes resulting
from higher revenues contributed to the increase.
- ---------------------------------------------------------------------
Other income and expenses
- -------------------------
Interest expense
- ----------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 41.6 $ 42.2 $ (0.6) (1.4)
The change in interest expense for the six months ended June 30, 1997
as compared with the same period last year was not significant.
- ---------------------------------------------------------------------
Other income, net
- -----------------
Change
June 30 Income Percent
------------
(dollars in millions) 1997 1996 (Expense) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 2.9 $ 5.2 $ (2.3) (44.2)
Other income, net includes equity in earnings of affiliates, interest
income and other nonoperating items. Other income decreased for the
six months ended June 30, 1997 due primarily to decreased equity
earnings from Ameritech Services, Inc. (ASI). Higher nonoperating
expenses also contributed to the decrease, partially offset by
increased interest income.
- ---------------------------------------------------------------------
Income taxes
- ------------
June 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Six Months Ended $ 179.0 $ 153.9 $ 25.1 16.3
Income taxes increased for the six months ended June 30, 1997 due
primarily to the increase in pretax earnings discussed above.
- ---------------------------------------------------------------------
Ratio of earnings to fixed charges
- ----------------------------------
The ratio of earnings to fixed charges for the six months ended June
30, was 12.23 in 1997 and 10.36 in 1996.
Page 9
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters
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Recent FCC Orders
- -----------------
On May 7, 1997, the FCC issued three closely-related orders
addressing revisions to the price cap plan for local exchange
carriers (LECs), interstate access charge reform and funding for
universal service. In its access charge reform order, the FCC
adopted changes to its tariff structure requiring LECs to use rates
that reflect the type of costs incurred. In general, the order ruled
that:
- - only costs incurred on a minute-of-use basis should be included in
per-minute access charges;
- - costs not incurred on a minute-of-use basis should be recovered
through flat-rate charges; and
- - LECs may not assess interstate access charges on Internet service
providers.
The new price cap rules will reduce access charges by increasing the
price cap productivity offset factor to 6.5 percent from the current
5.3 percent and by applying this factor uniformly to all access
providers. The new rates were effective July 1, 1997 and LECs were
to compute the new rates as if the 6.5 percent productivity factor
had been in effect since July 1, 1996.
The new rules also create a multi-billion-dollar "universal service"
fund for linking schools and libraries to the Internet and
subsidizing low-income consumers and rural health care providers.
Telecommunications service providers will pay into the universal
service fund starting January 1, 1998, but regulators have not yet
determined the size of the fund. The FCC intends to develop suitable
forward-looking cost studies for determining the level of universal
service support in a separate proceeding later in 1997. State
commissions may elect to use the FCC's cost methodology or their own
forward-looking mechanism. They will have until August 15, 1997 to
indicate which mechanism they intend to use. The FCC expects to
select a mechanism for determining support for nonrural carriers by
the end of this year. Subsidies to low-income and rural customers
will be available by January 1, 1998, and funds for linking schools
and libraries to the Internet will be available as needed.
We do not expect these reforms to have a material impact on our
revenue streams; however, the nature and timing of these reforms may
evolve as the FCC considers input from state commissions, potential
legal challenges and the ongoing implementation of other provisions
of the Telecommunications Act of 1996.
Competition and the Telecommunications Act of 1996
- --------------------------------------------------
As a result of our plan to capture the full potential of the
communications industry and the supporting provisions of the
Telecommunications Act of 1996 (the 1996 Act), we have taken several
key steps toward fostering a fully competitive market. We have made
our network available for use by our competitors at unbundled cost-
based prices and at bundled prices representing discounts from
established retail levels. Additionally, we have entered into
numerous interconnection agreements with our local communications
carriers, indicating a growing wholesale business. As a fully
competitive communications market continues to develop, regulatory
bodies will periodically need to review interaction among industry
members.
Page 10
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters (cont'd.)
- ----------------------
Competition and the Telecommunications Act of 1996 (Cont'd.)
- ------------------------------------------------------------
In July 1997, the Federal Circuit Court in St. Louis struck down
several provisions of an August 1996 FCC order designed to implement
the interconnection provisions of the 1996 Act. The Court ruled
that:
- - the FCC's pricing guidelines intrude upon the rights of state
commissions to implement key elements of the 1996 Act;
- - the FCC lacks jurisdiction to review state commission decisions
regarding interconnection agreements between incumbent LECs and
their competitors;
- - the FCC's rule that would allow requesting carriers to pick and
choose among individual provisions of other interconnection
agreements does not promote negotiated agreements and is
unreasonable;
- - LECs must provide unbundled network elements in a manner that
allows competing carriers to combine them, but LECs need not
actually combine the elements; and,
- - the 1996 Act does not require incumbent LECs to provide
competitors with superior quality connections.
The Court upheld the FCC's interpretation of "network element" to
include operations support systems (OSS) and certain other services.
It did not rule on the LECs' claims regarding infringement of
intellectual property rights and Fifth Amendment confiscation.
The FCC has indicated that it may appeal this Circuit Court's ruling
to the U.S. Supreme Court. We do not believe that any such appeal
would itself delay Ameritech's entry into the long distance market.
However, FCC rules require that interLATA long distance service be
offered by a separate subsidiary of Ameritech. Accordingly,
Ameritech's entry into this market will not generate long distance
revenues for Michigan Bell. As a result, the potential revenue
decline brought by local service competition will not be offset at
the Company by gains in long distance revenue.
Due in part to the recent Circuit Court ruling, uncertainty over the
implementation of the 1996 Act continues. We are unable to predict
the impact that this ruling and related subsequent litigation may
have on our existing interconnection agreements. Although the
potential for an adverse effect on our revenue streams exists, we
will continue to pursue growth opportunities in our local exchange
business.
Dial 1+
- -------
On March 24, 1997, AT&T and MCI filed a joint motion with the
Michigan Court of Appeals seeking a determination that on July 1,
1997, we must implement intraLATA dialing parity in the rest of
Michigan. We already provide Dial 1+ capability to over 70 percent
of our access lines. On April 1, 1997, we filed a responsive brief,
arguing that the Court of Appeals' December 4, 1996 order staying the
Michigan Public Service Commission's dialing parity orders precluded
further implementation of dialing parity until that Court decided the
merits of our appeal. On April 10, 1997, the Court of Appeals denied
AT&T's and MCI's joint motion and left the December 4, 1996 order in
effect.
Page 11
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters (cont'd.)
- ----------------------
Dial 1+ (cont'd.)
- ----------------------
On March 24, 1997, AT&T and MCI filed a similar joint motion with the
Commission. The Commission has not held any hearings or issued a
decision on that motion.
On July 15, 1997, AT&T and MCI filed a Motion to Vacate Stay with the
Court of Appeals. On July 21, 1997, the Attorney General filed a
Brief supporting the Motion. On July 22, 1997, we filed a responsive
brief, arguing that the Motion was without merit and the Court of
Appeals had already rejected the arguments in denying the March 24,
1997 joint motion. The Court of Appeals has not yet issued a
decision.
Directory Publishing Agreement
- ------------------------------------------------------------------
We had an agreement with Ameritech Publishing, Inc. (API), a wholly-
owned Ameritech subsidiary doing business as Ameritech Advertising
Services, under which API published and distributed classified
directories under our license and provided services to us relating to
both classified and alphabetical directories. API paid license fees
to us under the agreement. That agreement terminated effective June
30, 1997. We have entered into a subsequent agreement with API
effective July 1, 1997 under which we will furnish to API certain
services and data to be used by them in publishing and distributing
classified and alphabetical directories. In exchange, we will
receive compensation for the services and data.
New Accounting Pronouncements
- -----------------------------
In June 1997, the FASB issued Statement of Financial Accounting
Standards (FAS) No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of
comprehensive income and requires that all components of
comprehensive income be reported in a financial statement having the
same prominence as other financial statements. FAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and it
requires reclassification of prior period financial statements
provided for comparative purposes. Adoption of this standard should
have little effect on our financial statements, since the new
requirements primarily involve modifications to the way that existing
information is displayed.
Also in June 1997, the FASB issued FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement
supersedes FAS No. 14, "Financial Reporting of Segments of a Business
Enterprise," by establishing new standards for the way that a public
business enterprise reports operating segment information in its
annual and interim financial statements. In general, FAS No. 131
requires reporting of financial information as it is used by senior
company management for evaluating performance and deciding how to
allocate resources. The statement is effective in 1998, but need not
be applied to interim financial statements in that year. Comparative
information for earlier years must be restated. We expect adoption
of this standard to have little effect on our financial statements.
Page 12
Management's Discussion and Analysis
of Results of Operations (cont'd.)
Other Matters (cont'd)
- ----------------------
Private Securities Litigation Reform Act Safe Harbor Statement
- --------------------------------------------------------------
The above discussion contains certain forward-looking statements that
involve potential risks and uncertainties. Our future results could
differ materially from those discussed here. Some of the factors
that could cause or contribute to such differences include:
- - changes in economic and market conditions;
- - effects of state and federal regulation;
- - the impact of new technologies.
You should not place undue reliance on these forward-looking
statements, which are applicable only as of August 12, 1997. We have
no obligation to revise or update these forward-looking statements to
reflect events or circumstances that arise after August 12, 1997 or
to reflect the occurrence of unanticipated events.
Page 13
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, 1997 and June 30, 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
We did not file a Form 8-K during the quarter ended June
30, 1997.
Page 14
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, an
authorized company official has signed this report on our behalf.
MICHIGAN BELL TELEPHONE COMPANY
-------------------------------
(Registrant)
Date: August 12, 1997 /s/ Ronald G. Pippin
----------------------
Ronald G. Pippin
Vice President and Comptroller
(Principal Accounting Officer)
Page 15
GLOSSARY
Access charges -
- --------------
fees that local phone companies charge to long distance carriers for
the handling of long distance calls on our local network.
Access line -
- -----------
a telephone line for voice, data or video reaching from a local phone
company to a home or business.
Call management services -
- ------------------------
services that add value and convenience for phone customers, such as
Call Waiting, Call Forwarding and Caller ID. These services are sold
to customers individually or in "packages".
Customer premises equipment (CPE) -
- ---------------------------------
communications equipment owned by customers, including telephones,
faxes and switches.
Dial 1 + -
- --------
a feature that allows local phone customers to designate a carrier
other than the local service provider for toll calls within their
calling area by simply dialing 1 plus the telephone number.
Digital -
- -------
an alternative to traditional analog communications, digital systems
transport information in computer code for improved clarity and
quality.
Federal Communications Commission (FCC) -
- ---------------------------------------
the federal agency responsible for regulating the interstate aspects
of telecommunications activities.
Financial Accounting Standards Board (FASB) -
- -------------------------------------------
the independent body responsible for setting accounting and financial
reporting standards to be followed by U.S. business enterprises.
Gross receipts taxes -
- --------------------
state and local taxes based upon the gross operating revenues earned
in a particular jurisdiction. These taxes may be imposed on general
businesses or public utilities in lieu of other taxes.
Interconnection -
- ---------------
allowing a competitive local service provider to use the local phone
company's network, or elements of the network, to provide local phone
service to its customers.
Interexchange carriers (IXCs) -
- -----------------------------
those companies primarily involved in providing long distance voice
and data transmission services, such as AT&T, MCI and Sprint.
Internet -
- --------
the global web of networks that connects computers around the world,
providing rapid access to information from multiple sources.
Internet service providers (ISPs) -
- ---------------------------------
those companies providing access to the Internet and other computer-
based information networks.
Intrastate revenues -
- -------------------
that portion of revenues regulated by state rather than federal
authorities.
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GLOSSARY (cont'd.)
Local access and transport area (LATA) -
- --------------------------------------
the boundary within which a local telephone company may provide phone
service. It is usually centered around a city or other identifiable
community of interest.
Local exchange carriers (LECs) -
- ------------------------------
those companies primarily involved in providing local phone service
and access to the local phone network, including Ameritech's landline
communications subsidiaries in Illinois, Indiana, Michigan, Ohio and
Wisconsin.
Operations support systems (OSS) -
- --------------------------------
the databases and information used to support the provision of
telephone service to end users.
Price caps -
- ----------
a form of regulation that sets maximum limits on the prices that LECs
can charge for access services instead of limits on rate of return or
profits.
Productivity factor -
- -------------------
a portion of the interstate price cap formula that requires LECs to
reduce the price cap based on an assumed increase in productivity.
Securities and Exchange Commission (SEC) -
- ----------------------------------------
the federal agency that regulates the issuance and trading of public
debt and equity securities in the United States and monitors
compliance with these regulations.
Universal service -
- -----------------
a concept designed to ensure access to the telecommunications network
in rural and low-income areas at affordable prices. Funding
typically comes from urban telecommunication operators.
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