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, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8612
AMERITECH CORPORATION
(Incorporated under the laws of the State of Delaware)
30 S. Wacker Drive, Chicago, Illinois 60606
I.R.S. Employer Identification Number 36-3251481
Telephone - Area Code (312) 750-5000
At July 29, 1994, 549,286,367 common shares were outstanding.
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 ___.
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Part I - Financial Information
The following financial statements have been prepared by Ameritech
Corporation ("Ameritech" or 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 presentation of results of
operations, financial position and cash flows for each period shown.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. The Company believes that the disclosures made are adequate
to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's latest annual report on Form 10-K
and the quarterly report on Form 10-Q previously filed in the current year.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
-------- -------- -------- --------
Revenues. . . . . . . . . . . $3,146.4 $2,950.8 $6,136.8 $5,747.3
-------- -------- -------- --------
Employee-related expenses . . 904.4 889.4 1,783.2 1,760.9
Depreciation and amortization 563.4 541.8 1,110.3 1,076.9
Other operating expenses. . . 795.1 725.0 1,540.1 1,367.3
Restructuring charges . . . . -- -- 530.0 --
Taxes other than income taxes 137.9 145.9 286.7 299.5
-------- -------- -------- --------
2,400.8 2,302.1 5,250.3 4,504.6
-------- -------- -------- --------
Operating income. . . . . . . 745.6 648.7 886.5 1,242.7
Interest expense. . . . . . . 110.3 118.1 215.5 237.6
Other (income) expense, net . (35.5) (27.4) (68.4) (8.1)
-------- -------- -------- --------
Income before income taxes. . 670.8 558.0 739.4 1,013.2
Income taxes. . . . . . . . . 224.2 168.4 249.0 323.6
-------- -------- -------- --------
Net income. . . . . . . . . . $ 446.6 $ 389.6 $ 490.4 $ 689.6
======== ======== ======== ========
Earnings per common share . . $0.81 $0.72* $0.89 $1.27*
===== ===== ===== =====
Dividends declared per common share $0.48 $0.46* $0.96 $0.92*
===== ===== ===== =====
Average common shares
outstanding (millions). . . 548.6 543.4* 548.0 542.5*
===== ===== ===== =====
* Restated for two-for-one stock split effective December 31, 1993.
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
June 30, 1994 Dec. 31, 1993
(Unaudited) (Derived from
Audited
Financial
ASSETS Statements)
Current assets
Cash and temporary cash investments . . . $ 86.1 $ 155.9
Receivables, net. . . . . . . . . . . . . 2,157.4 2,068.9
Material and supplies . . . . . . . . . . 152.7 133.7
Prepaid and other . . . . . . . . . . . . 246.7 268.2
--------- ---------
2,642.9 2,626.7
--------- ---------
Property, plant and equipment . . . . . . . 29,604.1 29,117.4
Less, accumulated depreciation. . . . . . 12,434.1 11,751.3
--------- ---------
17,170.0 17,366.1
--------- ---------
Investments, primarily international. . . . 1,234.8 1,219.0
Other assets and deferred charges . . . . . 2,444.4 2,215.9
--------- ---------
Total assets. . . . . . . . . . . . . . . . $23,492.1 $23,427.7
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Debt maturing within one year . . . . . . $ 2,249.4 $ 2,601.6
Accounts payable. . . . . . . . . . . . . 1,110.9 1,210.6
Other current liabilities . . . . . . . . 2,043.6 1,873.1
--------- ---------
5,403.9 5,685.3
--------- ---------
Long-term debt. . . . . . . . . . . . . . . 4,492.2 4,090.4
--------- ---------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes . . . . 1,716.8 1,889.4
Unamortized investment tax credits. . . . 327.6 354.3
Postretirement benefits
other than pensions. . . . . . . . . . . 2,671.5 2,519.7
Other . . . . . . . . . . . . . . . . . . 878.8 1,044.0
--------- ---------
5,594.7 5,807.4
--------- ---------
Shareowners' equity
Common stock, par value $1; 1.2 billion
shares authorized, 587,612,000 issued. . 587.6 587.6
Proceeds in excess of par value . . . . . 5,489.3 5,454.8
Reinvested earnings . . . . . . . . . . . 3,419.2 3,455.3
Treasury stock, at cost (38,506,000 shares
in 1994 and 40,969,000 shares in 1993) . (1,039.9) (1,105.0)
Deferred compensation . . . . . . . . . . (416.5) (468.5)
Currency translation adjustments. . . . . (36.2) (76.3)
Unearned compensation, restricted
stock awards . . . . . . . . . . . . . . (2.2) (3.3)
--------- ---------
8,001.3 7,844.6
--------- ---------
Total liabilities and shareowners' equity . $23,492.1 $23,427.7
========= =========
See Notes to Consolidated Financial Statements
PAGE
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Six Months Ended
June 30
1994 1993
Cash Flows from Operating Activities
Net income. . . . . . . . . . . . . . . . $ 490.4 $ 689.6
Restructuring charge, net of tax. . . . . 332.8 --
Depreciation and amortization . . . . . . 1,110.3 1,076.9
Deferred income taxes, net. . . . . . . . (16.8) 5.1
Investment tax credits, net . . . . . . . (26.7) (33.9)
Interest during construction. . . . . . . (5.8) (4.8)
Provision for uncollectibles. . . . . . . 81.5 75.0
Increase in accounts receivable . . . . . (167.5) (86.0)
Increase in material and supplies . . . . (22.9) (18.7)
Decrease in certain other current assets. 20.7 5.9
Decrease in accounts payable. . . . . . . (99.8) (248.9)
Increase in accrued taxes . . . . . . . . 12.2 4.1
Increase (decrease) in certain
other current liabilities. . . . . . . . (17.6) 97.6
Change in certain other noncurrent
assets and liabilities . . . . . . . . . (97.2) (149.3)
Other . . . . . . . . . . . . . . . . . . (22.2) 3.4
-------- --------
Net cash from operating activities. . . . 1,571.4 1,416.0
-------- --------
Cash Flows from Investing Activities
Capital expenditures. . . . . . . . . . . (850.1) (1,019.2)
Additional investments. . . . . . . . . . (489.2) (16.7)
Other investing activities, net . . . . . 73.4 0.7
-------- --------
Net cash from investing activities. . . . (1,265.9) (1,035.2)
-------- --------
Cash Flows from Financing Activities
Net change in short-term debt . . . . . . (43.1) (67.1)
Issuance of long-term debt. . . . . . . . 645.3 647.9
Retirement of long-term debt. . . . . . . (543.7) (529.5)
Dividend payments . . . . . . . . . . . . (525.4) (498.1)
Proceeds from reissuance of treasury stock 97.2 130.3
Other financing activities, net . . . . . (5.6) (14.8)
-------- --------
Net cash from financing activities. . . . (375.3) (331.3)
-------- --------
Net increase (decrease) in cash and
temporary cash investments . . . . . . . (69.8) 49.5
Cash and temporary cash investments,
beginning of period. . . . . . . . . . . 155.9 92.4
-------- --------
Cash and temporary cash investments,
end of period. . . . . . . . . . . . . . $ 86.1 $ 141.9
======== ========
See Notes to Consolidated Financial Statements
PAGE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(per share amounts for 1993 have been restated to give effect to the
two-for-one stock split effective December 31, 1993)
NOTE 1: Work Force Restructuring
On March 25, 1994, Ameritech announced that it will reduce its
nonmanagement work force by 6,000 employees by the end of 1995. Under
terms of agreements between Ameritech, the Communication 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 the age and the net credited service of eligible
nonmanagement employees who leave the business during a designated period
that ends in mid-1995. In addition, certain of the Company's business
units are offering financial incentives under terms of its current
contracts with the CWA and the IBEW to selected nonmanagement employees who
leave the business before the end of 1995.
This program resulted in a first quarter 1994 charge of $530.0 million or
$332.8 million after-tax. This charge reduced the Company's prepaid
pension asset by $304.7 million for pension enhancements and curtailment
losses. The charge also includes a curtailment loss of $131.5 million
related to SFAS No. 106 ("Employers' Accounting for Postretirement Benefits
Other than Pensions") and a severance accrual of $93.8 million.
In June, the Company completed the first phase of its restructuring plan,
having solicited volunteers to leave the Company. The response to date is
exceeding expectations. Management is in the process of evaluating the
specific job functions and locations of the employees who have requested to
leave under the plan to ensure that service to customers will not be
adversely affected. The task is complex as the intended 6,000 employee
force reduction represents approximately twelve percent of the
nonmanagement work force. Accordingly, insufficient information currently
exists to adjust the restructuring accrual. The Company expects to
complete this process in the third quarter and to increase its
restructuring accrual to the appropriate level. The adjustment could be
material.
NOTE 2: Investment in General Electric Company subsidiary
On May 2, 1994, Ameritech concluded its agreement to invest $472.5 million
in a newly formed subsidiary of General Electric Company. The new
subsidiary received a contribution from the General Electric Company of the
principal net assets of its General Electric Information Services division
in exchange for all of the voting common stock. Ameritech's investment is
in the form of a four-year interest bearing convertible debenture which, if
legal restrictions are removed, converts into a 30 percent equity interest
in the new company. The debenture has been guaranteed as to repayment by
the General Electric Company. Ameritech may extend the term of the
debenture by one year under certain circumstances. The debenture has been
classified in "other assets and deferred charges" in the accompanying
consolidated balance sheet.
The Company's investment was funded principally by the issuance of $450.0
million of new unsecured noncallable debt by Ameritech Capital Funding
Corporation, guaranteed by the Company. The debt is due in 1997 and 1998
with interest tied to LIBOR. This debt was issued from an existing SEC
shelf registration statement which has a remaining capacity of $192.2
million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994 vs.
SIX MONTHS ENDED JUNE 30, 1993
RESULTS OF OPERATIONS
For the three months ended June 30, 1994, net income was $446.6 million or
$0.81 per common share on 548.6 million average common shares outstanding.
This represented a 14.6 percent increase in net income and a 12.5 percent
increase in earnings per common share from the comparable prior year period
for which net income was $389.6 million or $0.72 per common share on 543.4
million average common shares outstanding.
For the six months ended June 30, 1994, net income was $490.4 million or
$0.89 per common share on 548.0 million average common shares outstanding.
For the six months ended June 30, 1993 net income was $689.6 million or
$1.27 per common share on 542.5 million average common shares outstanding.
Results in the first quarter of 1994 included an after-tax charge of $332.8
million or $0.61 per common share for work force restructuring related to
the Company's plan to reduce its nonmanagement work force by 6,000
employees by the end of 1995. Results in the first quarter of 1993
included an after-tax restructuring charge of $37.3 million or $0.07 per
common share related to the Company's investment in Telecom Corporation of
New Zealand Limited (New Zealand Telecom), in which the Company owns a 24.8
percent interest.
Excluding the above noted significant items in both years, net income for
the six month periods ended June 30, 1994 and 1993 would have been $823.2
million and $726.9 million, respectively, an increase of 13.2 percent, and
earnings per common share would have been $1.50 and $1.34 per common share,
respectively, an increase of 11.9 percent.
___________________________________________________________________________
Revenues
Total revenues for the three and six months ended June 30, 1994 increased
6.6 percent and 6.8 percent, respectively, over the comparable prior year
periods to $3,146.4 million and $6,136.8 million. The increases were
primarily attributable to higher network usage due to access line growth,
and volume-related increases at the cellular operation due to cellular line
growth. Rate reductions at the landline telephone operations primarily in
the interstate and intrastate network access revenue categories partially
offset these increases.
___________________________________________________________________________
Local service
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $1,332.6 $1,266.3 $66.3 5.2
Six Months Ended 2,640.5 2,497.7 142.8 5.7
The increases in local service revenues for the three and six months ended
June 30, 1994 were primarily attributable to higher network usage which
increased revenues by $56.4 million and $124.0 million, respectively. The
increased network usage resulted principally from growth in number of
access lines, which increased 3.5 percent or 600,000 lines to 17,875,000
from 17,275,000 as of June 30, 1993 as well as greater sales of special
calling features (e.g., Call Forwarding, Caller ID, etc.) and second line
additions.
___________________________________________________________________________
Network access
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Interstate
Three Months Ended $ 554.6 $ 527.8 $26.8 5.1
Six Months Ended 1,098.8 1,028.0 70.8 6.9
Intrastate
Three Months Ended $ 160.1 $ 156.7 $ 3.4 2.2
Six Months Ended 319.2 306.5 12.7 4.1
The increase in interstate network access revenues for the three months
ended June 30, 1994 was primarily attributable to higher network usage,
which resulted in additional revenues of $39.8 million. Partially
offsetting this increase was a net rate reduction of $16.1 million.
Revenue sharing accrual differences contributed $5.0 million to the 1994
revenue increase.
The increase in interstate network access revenues for the six months ended
June 30, 1994 was primarily attributable to higher network usage, which
resulted in additional revenues of $69.5 million and a reduction in common
line pool support payments of $17.8 million. Partially offsetting these
increases were net rate reductions of $33.8 million. Revenue sharing
accrual differences contributed $14.8 million to the 1994 revenue increase.
Minutes of use related to interstate calls for the three and six months
ended June 30, 1994 increased 6.0 percent and 6.3 percent, respectively.
The increases in intrastate network access revenues for the three and six
months ended June 30, 1994 were primarily attributable to higher network
usage which resulted in additional revenues of $15.0 million and $36.4
million, respectively. Partially offsetting these increases were net rate
reductions of $13.8 million and $29.2 million, respectively. Minutes of
use related to intrastate calls for the three and six months ended June 30,
1994 increased 12.8 percent and 15.4 percent, respectively.
___________________________________________________________________________
Long distance service
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $362.7 $352.8 $ 9.9 2.8
Six Months Ended 726.9 702.6 24.3 3.5
The increases in long distance service revenues for the three and six
months ended June 30, 1994 were primarily attributable to a change in the
method in which independent company settlements were recorded at Illinois
Bell and Indiana Bell (accounting for $8.5 million and $24.3 million,
respectively, of the increase) and volume related increases of $8.0 million
and $11.4 million, respectively. Partially offsetting these increases was
a negative impact from the Extended Community Calling Plan (ECC) in
Wisconsin which reclassified long distance usage to lower-priced local
service usage. The ECC impact lowered long distance revenues by $4.2
million and $7.1 million, respectively.
___________________________________________________________________________
Directory and other
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 736.4 $ 647.2 $89.2 13.8
Six Months Ended 1,351.4 1,212.5 138.9 11.5
The increases in directory and other revenue for the three and six months
ended June 30, 1994 were primarily attributable to cellular subscriber line
growth of 48.9 percent to 1,039,000 lines from 698,000 lines at June 30,
1993. Also contributing to the increase was growth in other nonregulated
activities, such as inside wire maintenance at the landline telephone
operations.
___________________________________________________________________________
Operating expenses
Total operating expenses for the three and six months ended June 30, 1994
increased by $98.7 million or 4.3 percent and $745.7 million or 16.6
percent, respectively. The six month increase was primarily attributable
to a $530.0 million charge related to a work force restructuring plan
announced in March 1994 under which the Company plans to significantly
reduce its nonmanagement work force. Also contributing to the increase in
both periods were higher advertising expenses, access expenses, contract
and professional services together with growth-related and other increases
in cellular operations.
___________________________________________________________________________
Employee-related expenses
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 904.4 $ 889.4 $15.0 1.7
Six Months Ended 1,783.2 1,760.9 22.3 1.3
The increases in employee-related expenses for the three and six months
ended June 30, 1994 were primarily attributable to the effect of higher
wage rates, increased incentive accruals and the costs of postretirement
benefits. Partially offsetting these increases were the effects of work
force reductions over the past year, decreased overtime payments and
increased pension credits.
There were 66,593 employees at June 30, 1994, compared with 69,541 at
June 30, 1993. Work force downsizing at the landline telephone operations
accounted for the majority of the reduction.
___________________________________________________________________________
Depreciation and
amortization expense
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 563.4 $ 541.8 $21.6 4.0
Six Months Ended 1,110.3 1,076.9 33.4 3.1
The increases in depreciation and amortization expense for the three and
six months ended June 30, 1994 were primarily attributable to increases in
the landline plant investment base, which increased related depreciation
expense by $9.0 million and $17.0 million, respectively, and growth-related
increases at the Company's cellular operation of $6.0 million and $13.0
million, respectively. Also contributing to the increase was a second
quarter 1994 accrual of $10.0 million, retroactive to January 1, 1994,
related to a Federal Communications Commission (FCC) depreciation
represcription in Illinois. Partially offsetting the increase was the
completion in 1993 of FCC-authorized depreciation represcriptions in
Michigan of $2.8 million and $5.6 million, respectively.
___________________________________________________________________________
Other operating expenses
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 795.1 $ 725.0 $ 70.1 9.7
Six Months Ended 1,540.1 1,367.3 172.8 12.6
The increases in other operating expenses for the three and six months
ended June 30, 1994 were primarily attributable to increased contract and
professional services, a change in the method in which access expenses are
recorded with independent telephone companies, increased advertising
expenses at the cellular and landline telephone operations and other
growth-related cost of sales increases of the cellular and information
systems sales operations. Also contributing to the increase for the six
months ended June 30, 1994, was a first quarter 1993 net credit to this
expense category of $13.6 million related to a voluntary and involuntary
management work force separation program which ended March 31, 1993. The
credit resulted from settlement and curtailment gains from the pension
plan, net of special termination benefits.
___________________________________________________________________________
Restructuring charge
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ -- $-- $ -- --
Six Months Ended $530.0 $-- $530.0 --
As discussed more fully in Note 1, the Company announced on March 25, 1994
that it will reduce its nonmanagement work force by 6,000 employees by the
end of 1995. Reduction of the work force results from technological
improvements, consolidations, and initiatives identified by management to
balance its cost structure with emerging competition.
This program resulted in a first quarter 1994 charge of $530.0 million
($332.8 million on an after-tax basis). A significant portion of the
program's cost will be funded by the Ameritech Pension Plan, whereas
financial incentives to be paid by the Company will require Company funds
of approximately $140 million. Settlement gains (estimated to exceed $200
million), which result from lump-sum payments from the Ameritech Pension
Plan, will be reflected in income as payments are made by the Ameritech
Pension Plan (none recorded as of June 30, 1994). Settlement gains are
noncash in nature and result from the funded status of the Ameritech
Pension Plan.
The Company originally estimated that of the 6,000 expected to leave
approximately 3,700 employees would leave the payroll in 1994 and
approximately 2,300 in 1995. The original anticipated timing of employees
leaving the payroll was: 500 in the second quarter of 1994 (actual
employees leaving was 1,595), 1,500 in the third quarter of 1994, 1,700 in
the fourth quarter of 1994, 1,400 in the first quarter of 1995, 800 in
second quarter of 1995 and 100 in the third quarter of 1995. As previously
discussed in Note 1, the program has generated more requests to leave the
payroll than originally planned requiring revision to the expected number
and timing of employees leaving the payroll which should be quantifiable in
the third quarter of 1994. The Company will manage the departure of all
employees to minimize disruption within its business and to its customers.
Cash requirements of the Company to fund the financial incentives
(principally contractual termination payments) will be met as prescribed by
applicable collective bargaining agreements. Certain of these collective
bargaining agreements require contractual termination payments to be paid
to employees in a manner other than lump-sum, thus requiring cash payments
beyond an employee's termination date.
The Company believes this program will reduce its employee-related costs by
approximately $50,000 per terminated employee on an annual basis. However,
these anticipated savings may be partially offset by growth in new
businesses and the cost of adding other employees with different skills.
___________________________________________________________________________
Taxes other than income taxes
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $137.9 $145.9 $ (8.0) (5.5)
Six Months Ended 286.7 299.5 (12.8) (4.3)
The decreases in taxes other than income taxes for the three and six months
ended June 30, 1994 were primarily attributable to a decrease in property
taxes at Michigan Bell as a result of new state legislation enacted in
December 1993 which reduced the property valuation upon which the Company
is taxed.
___________________________________________________________________________
OTHER INCOME AND EXPENSES
Interest expense
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $110.3 $118.1 $ (7.8) (6.6)
Six Months Ended 215.5 237.6 (22.1) (9.3)
The decreases in interest expense for the three and six months ended
June 30, 1994 were primarily attributable to the calling of certain long-
term debt in 1993. This called debt was refinanced in part at lower long-
term interest rates and by instruments with lower short-term interest rates
as compared to the original called debt. Also contributing to the decrease
was the application of proceeds from the sale of New Zealand Telecom shares
in July 1993 and lower costs related to the corporate-owned life insurance
programs. Partially offsetting these decreases were increases related to
the funding of the Company's investment of $437.5 million in the Hungarian
telephone company, MATAV, on December 22, 1993, and the Company's May 2,
1994 investment of $472.5 million in a newly formed subsidiary of General
Electric Company (see Note 2 to the Consolidated Financial Statements).
___________________________________________________________________________
Other (income) expense, net
Change:
June 30 (Income) Percent
(dollars in millions) 1994 1993 Expense Change
Three Months Ended $(35.5) $(27.4) $ (8.1) 29.6
Six Months Ended (68.4) (8.1) (60.3) --
Other (income) expense, net includes equity earnings in affiliates,
interest during construction, interest income, costs associated with the
early retirement of debt (including call premiums and write-offs of
unamortized deferred costs) and other nonoperating items.
The following is an analysis of the major components of other (income)
expense, net for the respective periods:
Three Months Ended Change:
June 30 (Income)
1994 1993 Expense
Equity earnings in affiliates
(primarily related to
Investment in New
Zealand Telecom) $(17.8) $(13.5) $(4.3)
Interest income on company
owned life insurance and
other related programs (14.7) (14.1) (0.6)
Interest during construction (3.0) (2.6) (0.4)
Call premiums on long-term debt -- 3.7 (3.7)
Other -- (0.9) 0.9
------ ------ -----
Total other (income) expense, net $(35.5) $(27.4) $(8.1)
====== ====== =====
Six Months Ended Change:
June 30 (Income)
1994 1993 Expense
Equity earnings in affiliates
(primarily related to
Investment in New
Zealand Telecom) $(35.2) $11.8 $(47.0)
Interest income on company
owned life insurance and
other related programs (28.2) (29.3) 1.1
Interest during construction (5.8) (4.8) (1.0)
Call premiums on long-term debt -- 13.2 (13.2)
Other 0.8 1.0 (0.2)
------ ----- ------
Total other (income) expense, net $(68.4) $(8.1) $(60.3)
====== ===== ======
The principal reason for the increase in equity earnings in affiliates for
the six month period is primarily due to a $42.3 million New Zealand
Telecom restructuring charge in the first quarter of 1993. The 1993 call
premium charges related to a Ohio Bell first quarter charge of $9.5 million
and a second quarter Indiana Bell charge of $3.7 million.
___________________________________________________________________________
Income taxes
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $224.2 $168.4 $ 55.8 33.1
Six Months Ended 249.0 323.6 (74.6) (23.1)
The increase in income taxes for the three months ended June 30, 1994 was
primarily attributable to higher pretax income and the effect of a second
quarter 1993 realization of previously unrecognized tax benefits on prior
year asset write-downs.
The decrease in income taxes for the six months ended June 30, 1994 was
primarily attributable to lower pretax income as a result of the first
quarter 1994 work force restructuring charge of $530.0 million (or $332.8
million after-tax). Excluding the effect of the restructuring charge and
the above mentioned tax effect on asset write-downs, income taxes generally
increased in line with increased earnings.
___________________________________________________________________________
FINANCIAL CONDITION
Capital expenditures
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $456.7 $ 538.3 $ (81.6) (15.2)
Six Months Ended 894.2 1,029.3 (135.1) (13.1)
Capital expenditures include cash payments to acquire property, plant and
equipment and noncash items such as capitalized leases and interest during
construction.
The decreases in capital expenditures for the three and six months ended
June 30, 1994 relate primarily to lower planned capital expenditures at the
landline telephone operations and delayed expenditures at the cellular
operation.
___________________________________________________________________________
Dividends declared
June 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $263.6 $250.3 $13.3 5.3
Six Months Ended 526.6 499.9 26.7 5.3
On June 15, 1994 the Board of Directors declared a quarterly dividend of
$.48 per common share, a 4.3 percent increase over the $.46 per common
share declared in the same quarter in the prior year and is the same rate
of increase as in the first quarter of 1994 when compared to 1993.
___________________________________________________________________________
Debt ratio
The Company's debt ratio was 45.7 percent as of June 30, 1994 compared with
46.0 percent as of December 31, 1993. This relatively constant debt ratio
is primarily attributed to similar debt and equity levels.
___________________________________________________________________________
OTHER INFORMATION
Effects of Regulatory Accounting
The Company presently gives accounting recognition to the actions of
regulators where appropriate, as prescribed by Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types
of Regulation" (SFAS No. 71). Under SFAS No. 71, the Company records
certain assets and liabilities because of actions of regulators. Further,
amounts charged to operations for depreciation expense reflect estimated
useful lives and methods prescribed by regulators rather than those that
might otherwise apply to unregulated enterprises. The Company cannot
presently quantify, without a complete historical assessment of its
competitive and regulatory environments, what the financial statement
impact would have been had depreciation expense been determined absent
regulation.
In the event the Company determines that it no longer meets the criteria
for following SFAS No. 71, the accounting impact to the Company would be an
extraordinary noncash charge to operations of an amount which would likely
be material. Criteria that give rise to the discontinuance of SFAS No. 71
include (1) increasing competition which restricts the Company's ability to
establish prices to recover specific costs, and (2) a significant change in
the manner in which rates are set by regulators from cost-based regulation
to another form of regulation. The Company periodically reviews these
criteria to ensure the continuing application of SFAS No. 71 is still
appropriate.
___________________________________________________________________________
Changes in Regulatory Environment
The Company continues to seek various forms of regulatory relief in the
five states in which it operates. Michigan has been under essentially
price-based regulation since 1992, and in Indiana and Wisconsin price-based
regulation was approved in the summer of 1994. The effort in Illinois and
Ohio continues. As part of the alternative regulation plans, the Company
agreed to reduce or "freeze" certain of its prices for a period of time,
and also agreed to fund educational programs and ensure certain capital
expenditures are made by the Company. The effect of the price reductions
in connection with the alternative regulation plans on the Company's near-
term earnings is not expected to be material.
___________________________________________________________________________
Ratio of earnings to fixed charges
The Company's ratio of earnings to fixed charges for the six months ended
June 30 was 4.14 in 1994 and 4.84 in 1993. The ratio in 1994 was adversely
affected by a first quarter charge of $530.0 million for work force
restructuring (see prior discussion of this charge). This charge will be
primarily funded from the Ameritech Pension Plan. The Company believes its
ratio in 1994 is not indicative of a significant change in its ability to
fund its debt.
PAGE
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Part II - Other Information
(a) Exhibits:
12 Computation of ratio of earnings to fixed charges for the six
months ended June 30, 1994 and June 30, 1993.
(b) Reports on Form 8-K:
Form 8-K dated July 20, 1994, was filed on July 22, 1994, under
Item 7, Financial Statements and Exhibits, to report Ameritech's
second quarter earnings.
PAGE
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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.
Ameritech Corporation
Date: August 12, 1994 By /s/ Betty F. Elliott
Betty F. Elliott
Vice President and Comptroller
(Principal Accounting Officer)
PAGE
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EXHIBIT 12
AMERITECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
(Unaudited)
Six Months Ended
June 30
1994 1993
EARNINGS
Income before interest and income taxes $954.9 $1,250.8
Portion of rent expense representing
interest expense 24.3 30.1
Michigan Single Business tax 14.7 13.7
------ --------
Total earnings $993.9 $1,294.6
------ --------
FIXED CHARGES
Interest expense $215.5 $237.6
Portion of rent expense representing
interest expense 24.3 30.1
------ ------
Total fixed charges $239.8 $267.7
------ ------
Ratio of earnings to fixed charges 4.14 4.84
==== ====
(1) The results for the first quarter of 1994 reflect a $530 million
pretax charge for work force restructuring (see MD&A discussion of
this charge). This charge will be funded primarily from the Ameritech
Pension Plan.
(2) 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.
