<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8612
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 Number - (312) 750-5000
At October 31, 1995, 553,877,818 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>2
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
Part I - Financial Information
The following condensed consolidated 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 statement of
results for each period shown. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The
Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should
be read in conjunction with the financial statements and notes thereto
included in the Company's latest Annual Report on Form 10-K and the
quarterly reports on Form 10-Q previously filed in the current year.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues........................... $3,381.4 $3,170.0 $9,896.0 $9,388.3
-------- -------- -------- --------
Operating Expenses
Employee-related expenses.......... 962.9 925.1 2,736.3 2,708.3
Depreciation and amortization...... 537.2 561.3 1,598.7 1,671.6
Other operating expenses........... 940.1 831.6 2,732.4 2,453.2
Restructuring (credit) charge...... (10.0) 270.1 (266.3) 800.1
Taxes other than income taxes...... 148.5 149.5 443.6 436.2
-------- -------- -------- --------
2,578.7 2,737.6 7,244.7 8,069.4
-------- -------- -------- --------
Operating income................... 802.7 432.4 2,651.3 1,318.9
Interest expense................... 119.0 113.6 356.2 323.3
Other income, net.................. (112.4) (41.4) (181.0) (104.0)
-------- -------- -------- --------
Income before income taxes......... 796.1 360.2 2,476.1 1,099.6
Income taxes....................... 283.6 109.3 881.2 358.3
-------- -------- -------- --------
Net income......................... $ 512.5 $ 250.9 $1,594.9 $ 741.3
======== ======== ======== ========
Earnings per common share.......... $0.92 $0.46 $2.88 $1.35
===== ===== ===== =====
Dividends declared per common
share............................ $0.50 $0.48 $1.50 $1.44
===== ===== ===== =====
Average common shares outstanding
(millions)....................... 554.5 549.9 553.5 548.6
===== ===== ===== =====
See Notes to Condensed Consolidated Financial Statements.
<PAGE>3
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
Sept. 30, 1995 Dec. 31, 1994
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
- ------
Current assets
Cash and temporary cash investments ........ $ 266.4 $ 73.7
Receivables, net ........................... 2,566.8 2,300.0
Material and supplies ...................... 166.4 203.7
Prepaid and other .......................... 420.9 313.2
---------- ----------
3,420.5 2,890.6
---------- ----------
Property, plant and equipment ............... 30,588.9 29,545.7
Less, accumulated depreciation .............. 17,316.6 16,091.2
---------- ----------
13,272.3 13,454.5
---------- ----------
Investments, primarily international ........ 1,172.0 1,197.0
Other assets and deferred charges ........... 3,127.3 2,404.7
---------- ----------
Total assets ................................ $ 20,992.1 $19,946.8
========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
- ------------------------------------
Current liabilities
Debt maturing within one year.............. $ 1,806.4 $ 1,898.3
Accounts payable........................... 1,367.9 1,546.3
Other...................................... 1,813.1 1,711.5
---------- ----------
4,987.4 5,156.1
---------- ----------
Long-term debt .............................. 4,547.1 4,447.9
---------- ----------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes.......... 718.8 611.0
Unamortized investment tax credits......... 219.1 255.8
Postretirement benefits other than pensions 2,958.5 2,915.0
Other...................................... 602.3 505.9
---------- ----------
4,498.7 4,287.7
---------- ----------
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............ 5,592.3 5,520.9
Reinvested earnings........................ 2,089.7 1,325.3
Treasury stock, at cost (33,567,000 shares
in 1995 and 36,150,000 shares in 1994) .. (949.1) (977.0)
Deferred compensation...................... (341.2) (396.0)
Currency translation adjustment............ (25.4) (15.9)
Other, net................................. 5.0 10.2
---------- ----------
6,958.9 6,055.1
---------- ----------
Total liabilities and shareowners' equity... $20,992.1 $19,946.8
========== ==========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>4
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30
------------
1995 1994
---- ----
Cash Flows from Operating Activities
Net Income .................................. $ 1,594.9 $ 741.3
Adjustments to net income
Restructuring (credit) charge, net of tax.. (167.0) 501.0
Depreciation and amortization.............. 1,598.7 1,671.6
Deferred income taxes, net................. 42.7 (27.8)
Investment tax credits, net................ (36.7) (40.0)
Interest during construction............... (9.0) (10.0)
Provision for uncollectibles............... 131.9 130.1
Change in accounts receivable.............. (393.1) (305.9)
Change in material and supplies............ 31.2 (72.0)
Change in certain other current assets..... 12.7 14.0
Change in accounts payable................. (179.6) 5.3
Change in certain other current liabilities (61.5) (111.0)
Change in certain other noncurrent
assets and liabilities................... (48.4) (172.4)
Gain on exchange of cellular minority interests (65.8) --
Other...................................... (24.3) (0.7)
--------- ---------
Net cash from operating activities .......... 2,426.7 2,323.5
--------- ---------
Cash Flows from Investing Activities
Capital expenditures........................ (1,338.0) (1,293.8)
Additional investments...................... (186.9) (505.4)
Net proceeds from exchange of cellular
minority interests ........................ 60.7 --
Other investing activities, net............. (72.0) 74.5
--------- ---------
Net cash from investing activities.......... (1,536.2) (1,724.7)
--------- ---------
Cash Flows from Financing Activities
Net change in short-term debt............... (99.8) (240.3)
Issuance of long-term debt.................. 194.4 645.3
Issuance of preferred stock in subsidiary... -- 85.0
Retirement of long-term debt................ (64.5) (560.3)
Dividend payments........................... (829.2) (788.9)
Proceeds from reissuance of treasury stock.. 180.1 147.0
Repurchase of common stock.................. (95.0) (3.5)
Other financing activities, net............. 16.2 1.0
--------- ---------
Net cash from financing activities.......... (697.8) (714.7)
--------- ---------
Net increase (decrease) in cash and
temporary cash investments................ 192.7 (115.9)
Cash and temporary cash investments,
beginning of period....................... 73.7 155.9
--------- ---------
Cash and temporary cash investments,
end of period............................. $ 266.4 $ 40.0
========= =========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>5
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
------------------
NOTE 1: Work Force Restructuring
During March 1994, Ameritech announced its plan to reduce its existing
nonmanagement work force. As of September 30, 1995, 11,500 employees have
left the Company as a result of this restructuring. Under terms of
agreements between Ameritech, the Communications Workers of America (CWA)
and the International Brotherhood of Electrical Workers (IBEW), Ameritech
implemented an enhancement to the Ameritech Pension Plan by adding three
years to both the age and the net credited service of eligible
nonmanagement employees who left the business during a designated period
that corresponded to contract expiration, which was extended during
contract negotiations to the third quarter of 1995. In addition, certain
business units offered financial incentives to selected nonmanagement
employees who left the business by contract expiration under terms of the
prior contracts with the CWA and IBEW. See additional discussion in
Management's Discussion and Analysis below.
As a result of this restructuring, a pretax charge of $800.1 million, or
$501.0 million after-tax, was recorded in the first nine months of 1994.
In the first nine months 1995, a gain of $266.3 million, or $167.0 million
after-tax, was recorded resulting primarily from settlement gains from lump
sum pension payments to former employees. The cumulative gross program
cost through September 30, 1995 totaled $1,101.2 million, partially offset
by settlement gains of $639.4 million for an aggregate pretax net program
cost of $461.8 million, or $288.8 million after-tax. At September 30,
1995, the remaining severance accrual was $23.0 million.
NOTE 2: Discontinuation of FAS 71 and Reclassifications
As discussed more fully in the 1994 Annual Report to Shareowners and Annual
Report on Form 10-K, during the fourth quarter of 1994 Ameritech incurred
an extraordinary noncash after-tax charge of $2.2 billion as a result of
its decision to discontinue the application of Statement of Financial
Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of
Certain Types of Regulation." FAS 71 was followed by the Company's five
landline telephone subsidiaries.
The principal component of the above charge related to a determination that
telephone plant asset lives prescribed by regulators were too long and,
based on current technology, analog switches were obsolete. For 1995, the
net effect of this determination is a decrease in depreciation expense at
the landline telephone subsidiaries. Long-term, depreciation expense will
likely increase as the effects of shorter lives on plant assets and future
plant additions offset the discontinuation of depreciation of analog
switches.
Certain additional financial statement impacts occurred as a result of the
discontinuation of FAS 71, including the reclassification of the provision
for uncollectibles, previously shown as a reduction in directory, cellular
and other revenues, to other operating expenses.
<PAGE>6
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 vs.
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1994
RESULTS OF OPERATIONS
- ---------------------
For the three months ended September 30, 1995, net income was $512.5
million or $0.92 per common share on 554.5 million average common shares
outstanding. This represented a 104.3 percent increase in net income and a
100.0 percent increase in earnings per common share from the comparable
prior year period for which net income was $250.9 million or $0.46 per
common share on 549.9 million average common shares outstanding.
For the nine months ended September 30, 1995, net income was $1,594.9
million or $2.88 per common share on 553.5 million average common shares
outstanding. This represented a 115.1 percent increase in net income and a
113.3 percent increase in earnings per common share from the comparable
prior year period for which net income was $741.3 million or $1.35 per
common share on 548.6 million average common shares outstanding.
Results for the third quarter of 1995 included an after-tax restructuring
credit of $6.9 million or $0.01 per common share for net settlement gains
associated with lump-sum pension payments from the nonmanagement pension
plan to former employees pursuant to the work force restructuring program.
Third quarter 1995 results also included an after-tax gain of $41.3 million
or $0.07 per common share resulting from the exchange of minority interests
in certain cellular partnerships in Indianapolis, Cleveland and Rockford
for cash and additional interests in the Ameritech Detroit/Flint cellular
partnership. Because of the Company's successful bid for personal
communications services (PCS) licenses in Indianapolis and Cleveland, the
Company was required to dispose of its cellular interests in these two
markets. Results for the third quarter of 1994 included an after-tax
restructuring charge of $168.2 million or $0.30 per common share for the
planned reduction in its nonmanagement work force. The third quarter 1994
charge was recorded to reflect acceptance of the previously announced plan
by an additional 4,000 employees over the original estimate.
Results for the nine months ended September 30, 1995 included after-tax
restructuring credits of $167.0 million or $0.30 per common share related
to net settlement gains associated with lump-sum payments from the
nonmanagement pension plan to former employees pursuant to the work force
restructuring program, as well as the after-tax gain of $41.3 million or
$0.07 per common share resulting from the exchange of minority cellular
interests discussed above. Results for the nine months ended September 30,
1994 included after-tax charges of $501.0 million or $0.91 per common share
for the restructuring.
Excluding the above noted significant items in both years, income for the
three months ended September 30, 1995 and 1994 would have been $464.3
million and $419.1 million, respectively, an increase of 10.8 percent.
<PAGE>7
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
RESULTS OF OPERATIONS (cont'd.)
- -------------------------------
Earnings per common share would have been $0.84 and $0.76 per common share,
respectively, an increase of 10.5 percent. Income for the nine month
periods ended September 30, 1995 and 1994 would have been $1,386.6 million
and $1,242.3 million, respectively, an increase of 11.6 percent. Earnings
per common share would have been $2.51 and $2.26 per common share,
respectively, an increase of 11.1 percent.
Revenues
- --------
Total revenues for the three and nine months ended September 30, 1995
increased 6.7 percent and 5.4 percent, respectively, over the comparable
prior year periods to $3,381.4 million and $9,896.0 million. The increases
were primarily attributable to higher network usage volumes due to access
line growth, as well as volume increases in cellular services due to
cellular subscriber growth. Rate reductions at the landline telephone
operations partially offset these increases.
- ---------------------------------------------------------------------------
Local service
- -------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 1,431.4 $ 1,348.8 $ 82.6 6.1
Nine Months Ended 4,159.2 3,989.3 169.9 4.3
The increases in local service revenues for the three and nine months ended
September 30, 1995 were primarily attributable to higher network usage
volumes which increased revenues by $95.5 million and $223.2 million,
respectively. The increased network usage volume resulted principally from
growth in the number of access lines, which increased 4.4 percent or
792,000 lines to 18,846,000 from 18,054,000 as of September 30, 1994 and
greater sales of special calling features such as Call Forwarding and
Caller ID. These increases were partially offset by net rate reductions of
$13.4 million and $59.7 million in the three and nine month periods,
respectively, primarily resulting from 1994 regulatory proceedings in
Illinois, Indiana and Ohio and legislation in Wisconsin which adopted price
regulation in place of rate-of-return regulation and removed limits on
intrastate earnings.
<PAGE>8
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Network access
- --------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Interstate
- ----------
Three Months Ended $ 555.8 $ 560.6 $ (4.8) (0.9)
Nine Months Ended 1,693.5 1,659.4 34.1 2.1
Intrastate
- ----------
Three Months Ended $ 137.7 $ 149.1 $ (11.4) (7.6)
Nine Months Ended 419.3 468.3 (49.0) (10.5)
The decrease in interstate network access revenues for the three months
ended September 30, 1995 was primarily attributable to net rate reductions
of $21.5 million, as well as one-time billing adjustments.These decreases
were partially offset by increases of $32.8 million resulting from higher
network usage, as well as reductions in revenue sharing accruals of $2.0
million and National Exchange Carrier Association (NECA) common line support
payments of $1.6 million.
The increase in interstate network access revenues for the nine months
ended September 30, 1995 was primarily due to higher network usage, which
resulted in additional revenues of $105.9 million, as well as a reduction
of $25.1 million in NECA common line support payments. Partially
offsetting these revenue increases were net rate reductions of $74.4
million and one-time billing adjustments.
Minutes of use related to interstate calls for the three and nine months
ended September 30, 1995 increased 7.7 percent and 6.8 percent,
respectively, over the comparable prior year periods.
The decreases in intrastate network access revenues for the three and nine
months ended September 30, 1995 were primarily due to rate reductions of
$21.1 million and $68.3 million, respectively, largely resulting from
regulatory proceedings or legislation in four states as previously discussed.
The nine month period also includes one-time billing adjustments. Higher
network usage resulted in additional revenues of $17.6 million and $36.5
million, respectively, which partially offset these decreases. Minutes of
use related to intrastate calls for the three and nine months ended September
30, 1995 increased 11.2 percent and 11.3 percent, respectively, over the
comparable prior year periods.
- ---------------------------------------------------------------------------
Long distance service
- ---------------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 374.2 $ 369.6 $ 4.6 1.2
Nine Months Ended 1,086.4 1,096.5 (10.1) (0.9)
The increase in long distance service revenues for the three months ended
September 30, 1995 was primarily attributable to net rate increases of $3.7
million and increases of $0.6 million resulting from higher network usage.
<PAGE>9
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Long distance service (cont'd)
- ------------------------------
The decrease in long distance service revenues for the nine months ended
September 30, 1995 was primarily attributable to volume decreases of $9.9
million and the impact of the Extended Community Calling plan in Wisconsin,
which reclassified portions of long distance usage to local service usage
and effectively lowered long distance service revenues by $16.2 million.
These decreases were partially offset by net rate increases of $12.7
million.
- ---------------------------------------------------------------------------
Directory, cellular and other
- -----------------------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 882.3 $ 741.9 $ 140.4 18.9
Nine Months Ended 2,537.6 2,174.8 362.8 16.7
The increases in directory, cellular and other revenues for the three and
nine months ended September 30, 1995 were attributable to cellular revenue
growth resulting from a 46.8 percent increase in subscribers from 1,140,000
at September 30, 1994, to 1,674,000 at September 30, 1995. Paging
revenues also increased as a result of an 18.4 percent increase in
subscribers from 610,000 at September 30, 1994 to 722,000 at September 30,
1995. Nonregulated service revenues, such as from inside wire maintenance,
telephone set sales and PBX and system sales, as well as revenues of the
security monitoring services subsidiary, acquired in December 1994, also
contributed to the increases.
Operating Expenses
- ------------------
Total operating expenses for the three months ended September 30, 1995
decreased by $158.9 million or 5.8 percent from the prior year. The
decrease was largely attributable to the work force restructuring which
resulted in a credit of $10.0 million ($6.9 million after-tax) in the third
quarter of 1995 related to the settlement gains previously discussed
compared with the third quarter 1994 charge of $270.1 million ($168.2
million after-tax). Total operating expenses for the nine months ended
September 30, 1995 decreased $824.7 million or 10.2 percent from the prior
year. The decrease was largely attributable to the work force
restructuring which resulted in a net credit of $266.3 million ($167.0 million
after-tax) in the first nine months of 1995 related to the settlement gains
previously discussed compared with the 1994 charge of $800.1 million
($501.0 million after-tax) in the nine months ended September 30, 1994.
<PAGE>10
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Employee-related expenses
- -------------------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 962.9 $ 925.1 $ 37.8 4.1
Nine Months Ended 2,736.3 2,708.3 28.0 1.0
The increase in employee-related expenses for the three months ended
September 30, 1995 was primarily attributable to higher overtime payments
resulting from restructuring and wage and bonus increases of $41.7 million.
The Company also incurred $20.0 million related to union signing bonuses as
discussed below. Also contributing to the increase were additional salaries
and wages of $24.8 million for new employees in other business units, such
as the cellular operation and security monitoring subsidiary, as well as an
increase in medical, dental and postretirement benefits expenses of $17.6
million. These increases were partially offset by expense savings from the
effects of work force reductions of $44.4 million at the landline telephone
subsidiaries, as well as a decrease of $21.9 million in other employee-
related expenses, reflecting the decrease in personnel.
The increase in employee-related expenses for the nine months ended
September 30, 1995 when compared to the prior year period was primarily
attributable to higher overtime payments due to restructuring and
wage and bonus increases of $84.8 million. Also contributing to the
increase were additional salaries and wages of $61.5 million for new
employees in other business units, such as the cellular operation and
security monitoring subsidiary, as well as increased medical, dental and
postretirement benefit expenses of $58.5 million. These increases were
partially offset by expense savings from work force reductions of $162.4
million at the landline telephone subsidiaries, as well as a decrease of
$14.4 million in other employee-related expenses, reflecting
the decrease in personnel.
During September 1995, union agreements were ratified by the Communications
Workers of America (CWA) and the International Brotherhood of Electrical
Workers (IBEW). The new contracts and wage increases were retroactive to
June 25, 1995 for the IBEW and August 6, 1995 for the CWA. The contracts
include basic wage increases of 10.9 percent (compounded) over three years.
In addition, the contracts included a signing bonus of $500 to each
eligible employee upon ratification. Both contracts address wages,
benefits, employment security, training and retraining and other conditions
of employment. Most of the Company's nonmanagement work force (about 65
percent of total employees) is represented by the two unions.
There were 62,252 employees at September 30, 1995, compared with 65,146 at
September 30, 1994.
<PAGE>11
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Depreciation and
amortization
- ----------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 537.2 $ 561.3 $ (24.1) (4.3)
Nine Months Ended 1,598.7 1,671.6 (72.9) (4.4)
The decreases in depreciation and amortization expense for the three and
nine months ended September 30, 1995 were primarily due to the cessation,
in the fourth quarter of 1994, of depreciation of analog switches at the
landline telephone subsidiaries in connection with the discontinuation of
FAS 71 (see Note 2). These decreases were partially offset by the effects
of shortened telephone plant lives, as well as increased depreciation and
amortization in the Company's other business units.
- ---------------------------------------------------------------------------
Other operating expenses
- ------------------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 940.1 $ 831.6 $ 108.5 13.0
Nine Months Ended 2,732.4 2,453.2 279.2 11.4
The increases in other operating expenses for the three and nine months
ended September 30, 1995 were largely attributable to increased contract
and professional services of $39.8 million and $172.3 million,
respectively, primarily for systems development and process reengineering
projects. Growth-related cost of sales increases at the cellular
operation, as well as cost of sales increases related to increased
telephone set sales, PBX and system sales, also contributed to the
increases by $32.9 million and $82.6 million, in the three and nine months
ended September 30, 1995, when compared to the prior year periods.
Advertising and distributor commission expenses also increased, reflecting
increased marketing and sales efforts. Partially offsetting these
increases were reduced access charges paid to independent telephone
companies, primarily due to renegotiated contracts, as well as lower
switching system software and other expenses totaling $11.3 million and
$60.8 million, respectively, for the three and nine month periods.
- ---------------------------------------------------------------------------
Restructuring (credit) charge
- -----------------------------
September 30
------------ Percent
1995 1994 Change Change
---- ---- ------ ------
Three Months Ended $ (10.0)$ 270.1 $ (280.1) n/a
Nine Months Ended (266.3) 800.1 (1,066.4) n/a
As discussed in Note 1, the Company announced in March 1994 that it
intended to significantly reduce its nonmanagement work force by the end of
1995. Reduction of the work force results from implementation of
<PAGE>12
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Restructuring (credit) charge (cont'd.)
- ---------------------------------------
technological improvements, consolidations and initiatives to balance the
Company's cost structure with emerging competition. The Company's
nonmanagement work force has been reduced by 11,500 employees through
September 30, 1995, although new employees have been added with different
skills to accomodate growth, ensure high quality customer service and meet
staffing requirements for new business opportunities. Pretax charges
totaling $800.1 million ($501.0 million after-tax) related to the work force
reductions were recorded in the first nine months of 1994 including $270.1
million in the third quarter of 1994. Noncash net settlement gains of
$266.3 million ($167.0 million after-tax) were recorded in the first nine
months of 1995 associated primarily with lump-sum pension payments to former
employees. Future settlement gains (estimated at $6.0 million) are
anticipated, in the fourth quarter of 1995.
Actual employee reductions by quarter were: 1,595 in the second quarter of
1994, 2,281 in the third quarter of 1994, 5,239 in the fourth quarter of
1994, 313 in the first quarter of 1995, 870 in the second quarter of 1995
and 1,202 in the third quarter of 1995, for a total of 11,500. Cash
requirements to fund the financial incentives (principally contractual
termination payments totaling approximately $239.9 million) were met as
prescribed by applicable collective bargaining agreements. Certain of
these collective bargaining agreements required contractual termination
payments to be paid in a manner other than lump-sum, thus requiring cash
payments beyond an employee's termination date.
This program reduced annual employee-related costs by approximately $50,000
per departing employee. The projected savings are being partially offset
by the hiring of new employees as discussed above.
- ---------------------------------------------------------------------------
Taxes other than income taxes
- -----------------------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 148.5 $ 149.5 $ (1.0) (0.7)
Nine Months Ended 443.6 436.2 7.4 1.7
The decrease in taxes other than income taxes for the three months ended
September 30, 1995 was primarily attributable to lower sales taxes in Ohio
resulting from a change in the method of assessing the tax, as well as a
decrease in capital stock tax in Illinois. These decreases were partially
offset by higher property taxes.
The increase in taxes other than income taxes for the nine months ended
September 30, 1995 was primarily attributable to higher property taxes,
partially offset by a decrease in capital stock tax in Illinois and lower
sales taxes in Ohio as previously discussed.
<PAGE>13
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other Income and Expenses
- -------------------------
Interest expense
- ----------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 119.0 $ 113.6 $ 5.4 4.8
Nine Months Ended 356.2 323.3 32.9 10.2
The increase in interest expense for the three months ended September 30,
1995 was attributable to higher interest of $3.2 million on long-term debt
reflecting higher debt levels. Also contributing to the increase was an
increase related to corporate life insurance and other programs. These
increases were partially offset by a net decrease of $1.6 million in short-
term interest expense reflecting lower average short-term debt levels,
partially offset by higher average short-term interest rates.
The increase in interest expense for the nine months ended September 30,
1995 was attributable to higher interest of $17.2 million on long-term debt
reflecting higher debt levels, as well as a net increase of $6.3 million in
short-term interest expenses reflecting higher average interest rates,
partially offset by lower average short-term debt levels. Also
contributing to the increase was an increase related to corporate life
insurance and other programs.
- ---------------------------------------------------------------------------
Other income, net
- -----------------
September 30 Change
------------ (Income) Percent
(dollars in millions) 1995 1994 Expense Change
- --------------------- ---- ---- ------- ------
Three Months Ended $ (112.4)$ (41.4) $ (71.0) 171.5
Nine Months Ended (181.0) (104.0) (77.0) 74.0
Other income, net includes equity earnings, interest income and other
nonoperating items. Other income, net for the three and nine months ended
September 30, 1995 increased over the prior year due primarily to a gain of
$65.8 million ($41.3 million after-tax) from the previously discussed
exchange of minority interests in certain cellular partnerships.
- ---------------------------------------------------------------------------
Income taxes
- ------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 283.6 $ 109.3 $ 174.3 159.5
Nine Months Ended 881.2 358.3 522.9 145.9
The increase in income taxes in each period was primarily attributable to
the previously discussed increases in pretax earnings.
<PAGE>14
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
FINANCIAL CONDITION AND OTHER MATTERS
- -------------------------------------
Capital expenditures
- --------------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 563.6 $ 448.6 $ 115.0 25.6
Nine Months Ended 1,368.7 1,342.8 25.9 1.9
The increases in capital expenditures for the three and nine months ended
September 30, 1995 relate primarily to higher capital expenditures at the
landline telephone subsidiaries to accommodate growth, as well as at the
security monitoring services subsidiary and in cable television and long
distance operations.
- ---------------------------------------------------------------------------
Dividends declared
- -------------------
September 30
------------ Increase Percent
(dollars in millions) 1995 1994 (Decrease) Change
- --------------------- ---- ---- ---------- ------
Three Months Ended $ 277.1 $ 264.2 $ 12.9 4.9
Nine Months Ended 830.5 790.7 39.8 5.0
On September 20, 1995, the Board of Directors declared a quarterly dividend
of $0.50 per common share, a 4.2 percent increase over the $0.48 per
average common share declared in the same quarter in the prior year.
- ---------------------------------------------------------------------------
Debt ratio
- ----------
The debt ratio was 47.7 percent as of September 30, 1995, compared with
51.2 percent as of December 31, 1994. The decrease can be attributed
primarily to increased reinvested earnings.
- ---------------------------------------------------------------------------
Ratio of earnings to fixed charges
- ----------------------------------
The ratio of earnings to fixed charges for the nine months ended September
30 was 7.01 in 1995 and 3.97 in 1994. The ratio in 1995 was favorably
affected by a credit of $266.3 million for work force restructuring, as
well as a gain of $65.8 million related to the exchange of certain cellular
minority interests (see prior discussion of these items). The ratio in
1994 was adversely affected by a $800.1 million charge for work force
restructuring. The work force restructuring program has largely been
funded by the Ameritech Pension Plan. After adjustment to remove these
effects, the ratio is more indicative of the Company's ability to meet its
debt funding requirements.
<PAGE>15
Form 10-Q Part I
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Interstate access rate reduction
- --------------------------------
On July 18, 1995, the Federal Communications Commission (FCC) approved
Ameritech's request for price regulation without sharing of earnings
effective January 1, 1995. As a result, the total annual reduction in
prices that Ameritech charges long distance companies for local network
connections increased to $100.4 million effective August 1, 1995. The
current year impact is expected to be a reduction in interstate access
revenues of $42.7 million, which represents an increase of $15.1 million
over the 1995 reduction otherwise required under the FCC's interim price
cap rules.
- ---------------------------------------------------------------------------
Security monitoring company acquisition
- ----------------------------------------
In October 1995, the Company completed the acquisition of The National
Guardian Corporation, a security monitoring business with 1994 revenues of
about $215 million.
- ---------------------------------------------------------------------------
New accounting pronouncement
- ----------------------------
The Financial Accounting Standards Board issued FAS 123, "Accounting for
Stock-Based Compensation," on October 23, 1995. The new accounting
standard will require the Company to value all stock-based compensation
based on the estimated fair market value at the grant date and spread the
deemed cost over the vesting period. The standard permits a choice of
whether to charge operations or disclose the calculated cost as proforma
information. The new standard requires disclosure, beginning in 1996, of
the deemed cost effective with 1995 grants. The Company has not yet
quantified its cost or determined its method of adoption under the new
standard.
<PAGE>16
Form 10-Q Part II
AMERITECH CORPORATION AND SUBSIDIARIES
Part II - Other Information
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a) Exhibits:
--------
12 Computation of ratio of earnings to fixed charges
for the nine months ended September 30, 1995 and 1994.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
--------------------
On October 17, 1995, a Current Report on Form 8-K dated
October 16, 1995 was filed under Item 5, Other Events, to report
Ameritech's earnings for the third quarter 1995.
<PAGE>17
Form 10-Q Part II
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 13, 1995 By /s/ Betty F. Elliott
----------------------
Betty F. Elliott
Vice President and Comptroller
(Principal Accounting Officer)
<PAGE>18
EXHIBIT 12
AMERITECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Nine Months Ended
September 30
1995 1994
EARNINGS
- --------
Income before interest and income taxes.......... $ 2,841.3 $ 1,432.9
Preferred dividends of subsidiary (4)............ 7.0 --
Portion of rent expense representing
interest..................................... 44.4 44.0
Michigan Single Business tax..................... 29.7 22.1
--------- ---------
Total earnings (1) (2) (3) ....................... $ 2,922.4 $ 1,499.0
--------- ---------
FIXED CHARGES
- -------------
Interest cost.................................... $ 365.2 $ 333.3
Preferred dividends of subsidiary................ 7.0 --
Portion of rent expense representing
interest expense............................. 44.4 44.0
--------- ---------
Total fixed charges.............................. $ 416.6 $ 377.3
--------- ---------
Ratio of earnings to fixed charges............... 7.01 3.97
==== ====
- ------------------
(1) The results for the first nine months of 1995 reflect a $266.3 million
pretax credit primarily from settlement gains resulting from lump sum
pension payments to former employees who left the business in the
nonmanagement work force restructuring, as well as a gain of $65.8
million related to the exchange of certain cellular minority
interests. Results for the first nine months of 1994 reflect a $800.1
million pretax charge associated with the nonmanagement work force
restructuring. Costs of the work force restructuring program have
largely been funded from the Ameritech Pension Plan.
(2) Earnings represent income before income taxes and fixed charges.
Since the Michigan Single Business Tax (the Tax) and rental expense
have been deducted to arrive at income before interest and income
taxes, the Tax and the one-third portion of rental expense considered
to be fixed charges are added back.
(3) Earnings have not been adjusted to reflect the timing of dividends
received and equity in earnings of unconsolidated affiliates since the
effect on an annual basis is not significant.
(4) For purposes of the above computation, the preferred stock dividend
requirement of a subsidiary has been increased to an amount
representing the pretax earnings which would be required to cover the
dividend requirements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S SEPTEMBER 30, 1995 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-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 266,400
<SECURITIES> 0<F1>
<RECEIVABLES> 2,732,100
<ALLOWANCES> 165,300
<INVENTORY> 166,400
<CURRENT-ASSETS> 3,420,500
<PP&E> 30,588,900
<DEPRECIATION> 17,316,600
<TOTAL-ASSETS> 20,992,100
<CURRENT-LIABILITIES> 4,987,400
<BONDS> 4,547,100
<COMMON> 587,600
0
0
<OTHER-SE> 6,371,300
<TOTAL-LIABILITY-AND-EQUITY> 20,992,100
<SALES> 0<F2>
<TOTAL-REVENUES> 9,896,000
<CGS> 0<F3>
<TOTAL-COSTS> 7,244,700
<OTHER-EXPENSES> (181,000)
<LOSS-PROVISION> 131,900
<INTEREST-EXPENSE> 356,200
<INCOME-PRETAX> 2,476,100
<INCOME-TAX> 881,200
<INCOME-CONTINUING> 1,594,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,594,900
<EPS-PRIMARY> 2.88
<EPS-DILUTED> 2.88
<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>
