SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 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 October 31, 1994, 550,470,137 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 ___.
<PAGE>
<PAGE>
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 reports 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 Nine Months Ended
September 30 September 30
1994 1993 1994 1993
-------- -------- -------- --------
Revenues. . . . . . . . . . . $3,121.4 $2,946.8 $9,258.2 $8,694.1
-------- -------- -------- --------
Employee-related expenses . . 925.1 924.7 2,708.3 2,685.6
Depreciation and amortization 561.3 544.2 1,671.6 1,621.1
Other operating expenses. . . 783.0 706.9 2,323.1 2,074.2
Restructuring charges . . . . 270.1 -- 800.1 --
Taxes other than income taxes 149.5 150.6 436.2 450.1
-------- -------- -------- --------
2,689.0 2,326.4 7,939.3 6,831.0
-------- -------- -------- --------
Operating income. . . . . . . 432.4 620.4 1,318.9 1,863.1
Interest expense. . . . . . . 117.8 117.0 333.3 354.6
Other (income) expense, net . (45.6) (103.6) (114.0) (111.7)
-------- -------- -------- --------
Income before income taxes. . 360.2 607.0 1,099.6 1,620.2
Income taxes. . . . . . . . . 109.3 182.0 358.3 505.6
-------- -------- -------- --------
Net income. . . . . . . . . . $ 250.9 $ 425.0 $ 741.3 $1,114.6
======== ======== ======== ========
Earnings per common share . . $0.46 $0.78* $1.35 $2.05*
===== ===== ===== =====
Dividends declared per common share $0.48 $0.46* $1.44 $1.38*
===== ===== ===== =====
Average common shares
outstanding (millions). . . 549.9 544.9* 548.6 543.3*
===== ===== ===== =====
* Restated for two-for-one stock split effective December 31, 1993.
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
Sept. 30, 1994 Dec. 31, 1993
(Unaudited) (Derived from
Audited
Financial
ASSETS Statements)
Current assets
Cash and temporary cash investments . . . $ 40.0 $ 155.9
Receivables, net. . . . . . . . . . . . . 2,246.9 2,068.9
Material and supplies . . . . . . . . . . 200.4 133.7
Prepaid and other . . . . . . . . . . . . 254.9 268.2
--------- ---------
2,742.2 2,626.7
--------- ---------
Property, plant and equipment . . . . . . . 29,736.3 29,117.4
Less, accumulated depreciation. . . . . . 12,652.6 11,751.3
--------- ---------
17,083.7 17,366.1
--------- ---------
Investments, primarily international. . . . 1,232.9 1,219.0
Other assets and deferred charges . . . . . 2,459.7 2,215.9
--------- ---------
Total assets. . . . . . . . . . . . . . . . $23,518.5 $23,427.7
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Debt maturing within one year . . . . . . $ 2,036.8 $ 2,601.6
Accounts payable. . . . . . . . . . . . . 1,216.8 1,210.6
Other current liabilities . . . . . . . . 1,790.3 1,873.1
--------- ---------
5,043.9 5,685.3
--------- ---------
Long-term debt. . . . . . . . . . . . . . . 4,490.0 4,090.4
--------- ---------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes . . . . 1,708.7 1,889.4
Unamortized investment tax credits. . . . 314.3 354.3
Postretirement benefits
other than pensions. . . . . . . . . . . 2,845.0 2,519.7
Other . . . . . . . . . . . . . . . . . . 1,066.2 1,044.0
--------- ---------
5,934.2 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 . . . . . 5,506.9 5,454.8
Reinvested earnings . . . . . . . . . . . 3,405.9 3,455.3
Treasury stock, at cost (37,225,000 shares
in 1994 and 40,969,000 shares in 1993) . (1,005.8) (1,105.0)
Deferred compensation . . . . . . . . . . (416.5) (468.5)
Currency translation adjustments. . . . . (26.0) (76.3)
Unearned compensation, restricted
stock awards . . . . . . . . . . . . . . (1.7) (3.3)
--------- ---------
8,050.4 7,844.6
--------- ---------
Total liabilities and shareowners' equity . $23,518.5 $23,427.7
========= =========
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30
1994 1993
-------- --------
Cash Flows from Operating Activities
Net income. . . . . . . . . . . . . . . . $ 741.3 $1,114.6
Restructuring charges, net of tax . . . . 501.0 --
Depreciation and amortization . . . . . . 1,671.6 1,621.1
Deferred income taxes, net. . . . . . . . (27.8) (27.5)
Investment tax credits, net . . . . . . . (40.0) (55.2)
Interest during construction. . . . . . . (10.0) (7.9)
Provision for uncollectibles. . . . . . . 130.1 114.0
Increase in accounts receivable . . . . . (305.9) (195.2)
Increase in material and supplies . . . . (72.0) (7.6)
Decrease in certain other current assets. 14.0 4.3
Increase (decrease) in accounts payable . 5.3 (240.6)
Decrease in accrued taxes . . . . . . . . (60.4) (37.8)
Increase (decrease) in certain
other current liabilities. . . . . . . . (50.6) 175.8
Change in certain other noncurrent
assets and liabilities . . . . . . . . . (172.4) (199.3)
Gain from sale of shares in Telecom
Corporation of New Zealand Limited . . . -- (85.7)
Other . . . . . . . . . . . . . . . . . . (0.7) 29.0
-------- --------
Net cash from operating activities. . . . 2,323.5 2,202.0
-------- --------
Cash Flows from Investing Activities
Capital expenditures. . . . . . . . . . . (1,293.8) (1,527.3)
Additional investments. . . . . . . . . . (505.4) (23.0)
Proceeds from the sale of shares in
Telecom Corporation of New Zealand Limited -- 280.6
Other investing activities, net . . . . . 74.5 7.0
-------- --------
Net cash from investing activities. . . . (1,724.7) (1,262.7)
-------- --------
Cash Flows from Financing Activities
Net change in short-term debt . . . . . . (240.3) (306.4)
Issuance of long-term debt. . . . . . . . 645.3 891.9
Issuance of preferred stock in subsidiary 85.0 --
Retirement of long-term debt. . . . . . . (560.3) (913.3)
Dividend payments . . . . . . . . . . . . (788.9) (748.4)
Proceeds from reissuance of treasury stock 147.0 185.8
Other financing activities, net . . . . . (2.5) (11.7)
-------- --------
Net cash from financing activities. . . . (714.7) (902.1)
-------- --------
Net increase (decrease) in cash and
temporary cash investments . . . . . . . (115.9) 37.2
Cash and temporary cash investments,
beginning of period. . . . . . . . . . . 155.9 92.4
-------- --------
Cash and temporary cash investments,
end of period. . . . . . . . . . . . . . $ 40.0 $ 129.6
======== ========
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 plans to reduce its existing
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 both 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 the current
contracts with the CWA and the IBEW to selected nonmanagement employees who
leave the business before the end of 1995.
The Company recorded a first quarter 1994 charge of $530.0 million or
$332.8 million after-tax to reflect the cost of restructuring. This charge
reduced the Company's prepaid pension asset by $304.7 million for pension
enhancements and curtailment losses. The charge also included a
curtailment loss of $131.5 million related to Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," and an additional severance
accrual of $93.8 million.
Employee response to the pension enhancement program and other financial
incentives being offered by the Company has exceeded the Company's initial
expectations. As a result, the Company expects its existing nonmanagement
work force to be reduced by 10,000 through next year instead of the 6,000
originally estimated in March.
The Company recorded an additional charge in the third quarter of 1994 of
$270.1 million or $168.2 million after-tax for the additional program
participants and for revised participant demographics. The third quarter
charge reflects settlement gains of $121.9 million associated with lump sum
pension payments made by the pension trust through September 30, 1994.
This $270.1 million charge reduced the Company's prepaid pension asset by
$40.7 million for pension enhancements and curtailment losses, net of the
settlement gains. The charge also included a curtailment loss of $167.5
million related to SFAS No. 106 and an additional severance accrual of
$61.9 million.
NOTE 2: Preferred Stock Issuance by Subsidiary
Ameritech New Zealand Funding Corporation ("New Zealand Funding"), a wholly
owned subsidiary of the Company, issued, through a private placement,
850,000 shares of Series A Preferred Stock on September 29, 1994 for $85.0
million. Dividends accrue on the Series A Preferred Stock at the annual
rate of 7.04%, payable quarterly and cumulative from the date of issuance.
The shares are subject to mandatory redemption on August 1, 2001 at $100
per share and are subject to earlier redemption at a premium, beginning in
1999, at the option of New Zealand Funding. The preferred stock is
included in Deferred credits and other long-term liabilities - Other in the
accompanying Consolidated Balance Sheets.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994 vs.
NINE MONTHS ENDED SEPTEMBER 30, 1993
RESULTS OF OPERATIONS
For the three months ended September 30, 1994, net income was $250.9
million or $0.46 per common share on 549.9 million average common shares
outstanding. This represented a 41.0 percent decrease in both net income
and earnings per common share from the comparable prior year period for
which net income was $425.0 million or $0.78 per common share on 544.9
million average common shares outstanding.
For the nine months ended September 30, 1994, net income was $741.3 million
or $1.35 per common share on 548.6 million average common shares
outstanding. This represented a decrease of 33.5 percent in net income and
34.1 percent in earnings per common share from the comparable prior year
period. For the nine months ended September 30, 1993, net income was
$1,114.6 million or $2.05 per common share on 543.3 million average common
shares outstanding.
Results in the third quarter of 1994 included an after-tax restructuring
charge of $168.2 million or $0.30 per share for the Company's planned
reduction in its existing nonmanagement work force. The charge was
recorded in the third quarter to reflect acceptance of the previously
announced plan by an additional 4,000 employees for a total of 10,000
employees. Results in the third quarter of 1993 included an after-tax gain
of $61.7 million or $0.11 per share resulting from the sale of shares in
Telecom Corporation of New Zealand Limited ("New Zealand Telecom"), in
which the Company owns a 24.8 percent interest.
Results for the nine months ended September 30, 1994 included after-tax
charges of $501.0 million or $0.91 per share for the restructuring that
will reduce the Company's existing work force by 10,000 employees. Results
for the nine months ended September 30, 1993 included an after-tax
restructuring charge of $37.3 million or $0.07 per common share related to
the Company's investment in New Zealand Telecom, as well as a $61.7 million
after-tax gain resulting from the sale of shares by the Company in New
Zealand Telecom. These New Zealand Telecom related transactions have been
classified in Other (income) expense, net in the accompanying Consolidated
Statements of Income.
Excluding the above noted significant items in both years, income for the
three months ended September 30, 1994 and 1993 would have been $419.1
million and $363.3 million, respectively, an increase of 15.4 percent, and
earnings per share would have been $0.76 and $0.67 per common share,
respectively, an increase of 13.4 percent. Income for the nine month
periods ended September 30, 1994 and 1993 would have been $1,242.3 million
and $1,090.2 million, respectively, an increase of 14.0 percent, and
earnings per common share would have been $2.26 and $2.01 per common share,
respectively, an increase of 12.4 percent.
Revenues
Total revenues for the three and nine months ended September 30, 1994
increased 5.9 percent and 6.5 percent, respectively, over the comparable
prior year periods to $3,121.4 million and $9,258.2 million. The increases
were primarily attributable to higher network usage resulting from access
line growth and volume-related increases at the cellular operation due to
cellular line growth. Also contributing to the increases were increases in
switched access minutes of use and toll messages. Rate reductions at the
landline telephone operations, primarily in the network access revenue
categories, partially offset these increases.
___________________________________________________________________________
Local service
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $1,348.8 $1,283.6 $ 65.2 5.1
Nine Months Ended 3,989.3 3,781.3 208.0 5.5
The increases in local service revenues for the three and nine months ended
September 30, 1994 were primarily attributable to higher network usage,
which increased revenues by $54.9 million and $181.5 million, respectively.
The increased network usage principally resulted from growth in the number
of access lines, including second line additions, which increased 3.7
percent or 638,000 lines to 18,054,000 from 17,416,000 as of September 30,
1993, as well as greater sales of special calling features (e.g., Call
Forwarding, Caller ID, etc.). The increases were also attributable to a
change in the method in which independent company settlements were recorded
at Illinois Bell (accounting for $5.5 million and $15.5 million,
respectively, of the increase) as well as impacts of $4.0 million and $7.3
million, respectively, from the new Extended Community Calling plan ("ECC")
in Wisconsin, which reclassifies portions of long distance usage to local
service usage.
___________________________________________________________________________
Network access
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Interstate
Three Months Ended $ 560.6 $ 527.8 $32.8 6.2
Nine Months Ended 1,659.4 1,555.8 103.6 6.7
Intrastate
Three Months Ended $ 149.1 $ 159.7 ($10.6) (6.6)
Nine Months Ended 468.3 466.2 2.1 0.5
The increases in interstate network access revenues for the three and nine
months ended September 30, 1994 were primarily attributable to higher
network usage, which resulted in additional revenues of $39.9 million and
$110.2 million, respectively, as well as reductions in National Exchange
Carrier Association ("NECA") support payments of $13.6 million and $31.3
million for the three and nine months ended September 30, 1994. Revenue
sharing accrual differences contributed $10.4 million and $25.3 million to
the 1994 revenue increases. Partially offsetting these increases were net
rate reductions of $30.1 million and $64.5 million, respectively.
Minutes of use related to interstate calls for the three and nine months
ended September 30, 1994 increased 7.0 percent and 6.5 percent,
respectively.
The changes in intrastate network access revenues for the three and nine
months ended September 30, 1994 were primarily attributable to net rate
reductions of $15.4 million and $46.8 million, respectively. Partially
offsetting these net rate reductions were increases in intrastate network
access revenues primarily attributable to higher network usage which
resulted in additional revenues of $8.0 million and $46.7 million,
respectively. Minutes of use related to intrastate calls for the three and
nine months ended September 30, 1994 increased 10.5 percent and 13.7
percent, respectively.
___________________________________________________________________________
Long distance service
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 369.6 $ 353.6 $16.0 4.5
Nine Months Ended 1,096.5 1,056.2 40.3 3.8
The increases in long distance service revenues for the three and nine
months ended September 30, 1994 were primarily attributable to a change in
the method by which independent company settlements were recorded at
Illinois Bell (accounting for $16.9 million and $43.1 million,
respectively, of the increases) and volume related increases of $8.3
million and $20.0 million, respectively. Partially offsetting these
increases was an impact from the ECC plan in Wisconsin (previously
discussed) which reclassified certain long distance usage to lower-priced
local service usage. The ECC plan effectively lowered long distance
revenues by $11.4 million and $19.9 million, respectively.
___________________________________________________________________________
Directory, cellular and other
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 693.3 $ 622.1 $ 71.2 11.4
Nine Months Ended 2,044.7 1,834.6 210.1 11.5
The increases in directory, cellular and other revenue for the three and
nine months ended September 30, 1994 were primarily attributable to
cellular subscriber line growth of 51.0 percent to 1,140,000 lines at
September 30, 1994 from 755,000 lines at September 30, 1993. Also
contributing to the increases were demand growth and price increases in
other nonregulated activities, such as inside wire maintenance at the
landline telephone operations. Modest revenue growth in the directory
operation contributed to the increases.
___________________________________________________________________________
Operating expenses
Total operating expenses for the three and nine months ended September 30,
1994 increased by $362.6 million or 15.6 percent and $1,108.3 million or
16.2 percent, respectively. These results include restructuring charges of
$270.1 million and $800.1 million for the three and nine months ended
September 30, 1994. Also contributing to the increases in both periods
were higher advertising expenses, access expenses and contract and
professional services, together with growth-related and other increases in
the cellular operations.
___________________________________________________________________________
Employee-related expenses
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 925.1 $ 924.7 $ 0.4 --
Nine Months Ended 2,708.3 2,685.6 22.7 0.8
The modest increases in employee-related expenses for the three and nine
months ended September 30, 1994 were primarily attributable to the effects
of higher wage rates, increased overtime payments and increased incentive
accruals. Partially offsetting these increases were the effects of work
force reductions over the past year and increased pension credits.
There were 65,146 employees at September 30, 1994, compared with 68,434 at
September 30, 1993. Work force restructuring at the landline telephone
operations accounted for the decrease.
___________________________________________________________________________
Depreciation and
amortization expense
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 561.3 $ 544.2 $17.1 3.1
Nine Months Ended 1,671.6 1,621.1 50.5 3.1
The increases in depreciation and amortization expense for the three and
nine months ended September 30, 1994 were primarily attributable to
increases in the landline plant investment base, which increased related
depreciation expense by $5.0 million and $25.0 million, respectively, and
growth-related increases at the Company's cellular operation of $5.0
million and $18.0 million, respectively. Depreciation expense also
increased by $4.3 million and $14.2 million for the three months and nine
months ended September 30, 1994, respectively, due to increased interstate
depreciation rates prescribed by the Federal Communications Commission in
Illinois, retroactive to January 1, 1994. Partially offsetting the
increase for the year-to-date period was the completion in 1993 of FCC-
authorized amortization schedules in Michigan of $5.6 million.
___________________________________________________________________________
Other operating expenses
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 783.0 $ 706.9 $ 76.1 10.8
Nine Months Ended 2,323.1 2,074.2 248.9 12.0
The increases in other operating expenses for the three and nine months
ended September 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 at the cellular and information
systems sales operations. Also contributing to the increase for the nine
months ended September 30, 1994 was the effect of a first quarter 1993 net
credit to this expense category of $13.6 million related to a management
work force separation program. The credit resulted from settlement and
curtailment gains from the pension plan, net of special termination
benefits.
___________________________________________________________________________
Restructuring charges
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $270.1 $-- $270.1 n/a
Nine Months Ended $800.1 $-- $800.1 n/a
As discussed more fully in Note 1, the Company announced on March 25, 1994
that it would reduce its existing 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. The
Company now expects its existing nonmanagement work force to be reduced by
10,000 employees through next year instead of the 6,000 originally
estimated in March. A charge for 6,000 employees was recorded in the first
quarter and an additional charge was recorded in the third quarter to
reflect acceptance of the plan by a total of 10,000 employees.
This program resulted in a first quarter 1994 charge of $530.0 million
($332.8 million on an after-tax basis) and an additional charge of $270.1
million ($168.2 million on an after-tax basis) in the third quarter of 1994
for a total charge of $800.1 million ($501.0 million on an after-tax
basis). The additional charge of $270.1 million includes the effect of
$121.9 million in settlement gains associated with lump-sum pension
payments through September 30, 1994.
The Company originally estimated that, of the 6,000 employees expected to
leave under the program approximately 3,700 employees would leave the
payroll in 1994 and approximately 2,300 in 1995. The Company currently
estimates that, including the additional 4,000 employees, approximately
7,800 will leave under the program in 1994 and 2,200 in 1995. These
employee reductions by quarter are as follows: 1,595 (actual) in the
second quarter of 1994, 2,281 (actual) in the third quarter of 1994, 3,900
(estimated) in the fourth quarter of 1994, 200 (estimated) in the first
quarter of 1995, 900 (estimated) in the second quarter of 1995, and 1,100
(estimated) in the third quarter of 1995. As previously discussed in
Note 1, the program has generated more employee requests to accept the
incentives offered than originally planned, requiring revision to the
expected number and timing of employees terminating employment. The
Company is managing the departure of all employees to minimize disruption
within its business and to its customers, while still accommodating the
individual employee's acceptance of the program. Cash requirements of the
Company to fund the financial incentives (principally contractual
termination payments totalling approximately $200 million) 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 departing employee on an annual basis. The
projected savings will be partially offset by the hiring of new employees
to accommodate growth and ensure high quality customer service, and to meet
staffing requirements for new business opportunities.
___________________________________________________________________________
Taxes other than income taxes
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $149.5 $150.6 $ (1.1) (0.7)
Nine Months Ended 436.2 450.1 (13.9) (3.1)
The decrease in taxes other than income taxes for the nine months ended
September 30, 1994 was primarily attributable to decreases 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
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $117.8 $117.0 $ (0.8) (0.7)
Nine Months Ended 333.3 354.6 (21.3) (6.0)
The decrease in interest expense for the nine months ended September 30,
1994 was 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
telecommunications company, MATAV, on December 22, 1993, and the Company's
second quarter 1994 investment of $472.5 million in a newly formed
subsidiary of General Electric Company.
___________________________________________________________________________
Other (income) expense, net
Change
September 30 (Income) Percent
(dollars in millions) 1994 1993 Expense Change
Three Months Ended $ (45.6) $(103.6) $ 58.0 n/a
Nine Months Ended (114.0) (111.7) (2.3) n/a
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
September 30 (Income)
1994 1993 Expense
-------- -------- ---------
Gain from sale of shares
in New Zealand Telecom $ -- $ (85.7) $85.7
Equity earnings in affiliates
(primarily related to
Investment in New
Zealand Telecom) (20.9) (12.9) (8.0)
Interest income on company
owned life insurance and
other related programs (14.0) (15.8) 1.8
Interest during construction (3.9) (3.0) (0.9)
Call premiums on long-term debt -- 15.6 (15.6)
All other (6.8) (1.8) (5.0)
------ ------- -----
Total other (income) expense, net $(45.6) $(103.6) $58.0
====== ======= =====
Nine Months Ended Change
September 30 (Income)
1994 1993 Expense
-------- -------- ---------
Gain from sale of shares
in New Zealand Telecom $ -- $ (85.7) $85.7
Equity earnings in affiliates,
including a restructuring
charge in 1993 of $42.3 million
at New Zealand Telecom (56.1) (1.1) (55.0)
Interest income on company
owned life insurance and
other related programs (42.2) (45.1) 2.9
Interest during construction (10.0) (7.9) (2.1)
Call premiums on long-term debt -- 28.8 (28.8)
All other (5.7) (0.7) (5.0)
------- ------- -----
Total other (income) expense, net $(114.0) $(111.7) $(2.3)
======= ======= =====
The 1993 call premium charges related to an Ohio Bell first quarter charge
of $9.5 million, a second quarter Indiana Bell charge of $3.7 million, and
two third quarter charges of $10.7 million and $4.9 million at Illinois
Bell and Wisconsin Bell, respectively.
___________________________________________________________________________
Income taxes
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $109.3 $182.0 $ (72.7) (39.9)
Nine Months Ended 358.3 505.6 (147.3) (29.1)
The decrease in income taxes for the three months ended September 30, 1994
was primarily attributable to lower pretax income as a result of the third
quarter 1994 work force restructuring charge of $270.1 million ($168.2
million after-tax).
The decrease in income taxes for the nine months ended September 30, 1994
was primarily attributable to lower pretax income as a result of the 1994
work force restructuring charges of $800.1 million ($501.1 million after-
tax). Excluding the effects of previously noted unusual items in both
years, principally the restructuring charges, income taxes generally
increased in line with increased earnings.
___________________________________________________________________________
FINANCIAL CONDITION
Capital expenditures
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $ 448.6 $ 513.6 $ (65.0) (12.7)
Nine Months Ended 1,342.8 1,542.9 (200.1) (13.0)
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 nine months ended
September 30, 1994 relate primarily to lower planned capital expenditures
at the landline telephone operations and delayed expenditures at the
cellular operation.
___________________________________________________________________________
Dividends declared
September 30 Increase Percent
(dollars in millions) 1994 1993 (Decrease) Change
Three Months Ended $264.2 $251.0 $13.2 5.3
Nine Months Ended 790.7 750.9 39.8 5.3
On September 21, 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 the same rate of
increase as in the first two quarters of 1994 when compared to 1993.
___________________________________________________________________________
Debt ratio
The Company's debt ratio was 44.8 percent as of September 30, 1994 compared
with 46.0 percent as of December 31, 1993. The change in the debt ratio is
primarily attributed to an overall lower debt level as a result of the
reduced construction program mentioned above.
___________________________________________________________________________
OTHER INFORMATION
Effects of Regulatory Accounting
The Company presently gives accounting recognition to the actions of
regulators where appropriate, as prescribed by SFAS No. 71, "Accounting for
the Effects of Certain Types of Regulation". 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 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 is currently reviewing these
criteria in light of the changes in the regulatory environment discussed
below 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 price-based regulation was approved
in Indiana and Wisconsin in the summer of 1994. Price-based regulation was
approved in Illinois on October 11, 1994. The Company's petition for
reconsideration of the amount of rate reductions was denied and the Company
filed an appeal with the Illinois appellate court. The effort to obtain
price-based regulation in 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 that 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 nine months ended
September 30 was 3.97 in 1994 and 5.07 in 1993. The ratio in 1994 was
adversely affected by charges totalling $800.1 million for work force
restructuring (see prior discussion of these charges). These charges 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>
<PAGE>
Part II - Other Information
(a) Exhibits:
12 Computation of ratio of earnings to fixed charges for the nine
months ended September 30, 1994 and September 30, 1993.
27 Financial data schedule for the nine months ended
September 30, 1994.
(b) Reports on Form 8-K:
Form 8-K dated October 19, 1994, was filed on October 20, 1994,
under Item 7, Financial Statements and Exhibits, to report
Ameritech's third quarter earnings.
<PAGE>
<PAGE>
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: November 10, 1994 By /s/ Betty F. Elliott
Betty F. Elliott
Vice President and Comptroller
(Principal Accounting Officer)
<PAGE>
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30
1994 1993
-------- --------
EARNINGS
Income before interest and income taxes $1,432.9 $1,974.8
Portion of rent expense representing
interest expense 44.0 48.5
Michigan Single Business tax 22.1 20.6
-------- --------
Total earnings $1,499.0 $2,043.9
-------- --------
FIXED CHARGES
Interest expense $333.3 $354.6
Portion of rent expense representing
interest expense 44.0 48.5
------ ------
Total fixed charges $377.3 $403.1
------ ------
Ratio of earnings to fixed charges 3.97 5.07
==== ====
(1) The results for the first nine months of 1994 reflect $800.1 million
in pretax charges for work force restructuring (see MD&A discussion of
these charges). Such charges 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S SEPTEMBER 30, 1994 CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 40,000
<SECURITIES> 0<F1>
<RECEIVABLES> 2,397,900
<ALLOWANCES> 151,000
<INVENTORY> 200,400
<CURRENT-ASSETS> 2,742,200
<PP&E> 29,736,300
<DEPRECIATION> 12,652,600
<TOTAL-ASSETS> 23,518,500
<CURRENT-LIABILITIES> 5,043,900
<BONDS> 4,490,000
<COMMON> 587,600
0
0
<OTHER-SE> 7,462,800
<TOTAL-LIABILITY-AND-EQUITY> 23,518,500
<SALES> 0<F2>
<TOTAL-REVENUES> 9,258,200
<CGS> 0<F3>
<TOTAL-COSTS> 7,939,300
<OTHER-EXPENSES> (114,000)
<LOSS-PROVISION> 130,100
<INTEREST-EXPENSE> 333,300
<INCOME-PRETAX> 1,099,600
<INCOME-TAX> 358,300
<INCOME-CONTINUING> 741,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 741,300
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
<FN>
<F1>SECURITIES ARE NOT MATERIAL AND THEREFORE HAVE NOT BEEN STATED SEPARATELY
IN THE FINANCIAL STATEMENTS. THIS AMOUNT IS INCLUDED IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL
STATEMENTS PURSUANT TO REGULATION S-X, RULE 5-03(B). THIS AMOUNT IS
INCLUDED IN THE "TOTAL REVENUES" TAG.
<F3>COST OF TANGIBLE GOODS SOLD IS INCLUDED IN COST OF SERVICE AND PRODUCTS
IN THE FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PURSUANT TO
REGULATION S-X, RULE 5-03(B).
</FN>
</TABLE>
