<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, 1996
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 - (800) 257-0902
At October 31, 1996, 549,391,095 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
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
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues........................ $ 3,722 $ 3,381 $ 11,033 $ 9,896
------- ------- ------- -------
Operating expenses
Employee-related expenses..... 952 963 2,819 2,736
Depreciation and amortization. 600 537 1,764 1,599
Other operating expenses...... 1,147 940 3,368 2,732
Restructuring credit.......... -- (10) -- (266)
Taxes other than income taxes. 150 149 441 444
------- ------- ------- -------
2,849 2,579 8,392 7,245
------- ------- ------- -------
Operating income................ 873 802 2,641 2,651
Interest expense................ 130 119 382 356
Other income, net............... 74 112 198 181
------- ------- ------- -------
Income before income taxes...... 817 795 2,457 2,476
Income taxes.................... 298 283 893 881
------- ------- ------- -------
Net income...................... $ 519 $ 512 $1,564 $1,595
======= ======= ======= =======
Earnings per common share....... $0.94 $0.92 $2.83 $2.88
===== ===== ===== =====
Dividends declared per common
share ...................... $0.53 $0.50 $1.59 $1.50
===== ===== ===== =====
Average common shares outstanding
(millions)...................... 549.8 554.5 552.6 553.5
===== ===== ===== =====
See Notes to Condensed Consolidated Financial Statements.
<PAGE>3
AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
Sept. 30, 1996 Dec. 31, 1995
------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
- ------
Current assets
Cash and temporary cash investments......... $ 214 $ 131
Receivables, net............................ 3,127 2,774
Material and supplies....................... 217 205
Prepaid and other........................... 345 342
------- -------
3,903 3,452
------- -------
Property, plant and equipment................ 31,767 30,874
Less, accumulated depreciation.............. 18,494 17,417
------- -------
13,273 13,457
------- -------
Investments, primarily international......... 2,362 1,497
Other assets and deferred charges............ 3,896 3,536
------- -------
Total assets................................. $23,434 $21,942
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current liabilities
Debt maturing within one year............... $ 3,650 $ 2,138
Accounts payable............................ 1,546 1,792
Other....................................... 1,849 1,831
------- -------
7,045 5,761
------- -------
Long-term debt............................... 4,309 4,513
------- -------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes........... 814 782
Unamortized investment tax credits.......... 180 208
Postretirement benefits
other than pensions....................... 2,968 2,967
Other....................................... 696 696
------- -------
4,658 4,653
------- -------
Shareowners' equity
Common stock, par value $1;2.4 billion
shares authorized, 588,110,000 issued in 1996
and 587,612,000 issued in 1995.......... 588 588
Proceeds in excess of par value............. 5,714 5,613
Reinvested earnings......................... 2,895 2,209
Treasury stock, at cost (38,908,000 shares
in 1996 and 33,773,000 shares in 1995).... (1,359) (986)
Deferred compensation....................... (266) (329)
Currency translation adjustment............. (157) (85)
Other, net.................................. 7 5
------- -------
7,422 7,015
------- -------
Total liabilities and shareowners' equity.... $23,434 $21,942
======= =======
See Notes to Condensed Consolidated Financial Statements.
<PAGE>4
AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30
-------------
1996 1995
---- ----
Cash Flows from Operating Activities
Net income................................... $1,564 $1,595
Adjustments to net income
Restructuring credit, net of tax........... -- (167)
Depreciation and amortization.............. 1,764 1,599
Deferred income taxes, net................. 26 43
Investment tax credits, net................ (28) (37)
Capitalized interest....................... (21) (9)
Provision for uncollectibles............... 250 132
Change in accounts receivable.............. (603) (393)
Change in material and supplies............ (35) 31
Change in certain other current assets..... (6) 13
Change in accounts payable................. (246) (180)
Change in certain other current
liabilities............................... 79 (62)
Change in certain other noncurrent
assets and liabilities................... (327) (48)
Gain on exchange of
cellular minority interests............... -- (66)
Other...................................... (34) (25)
------- -------
Net cash from operating activities........... 2,383 2,426
------- -------
Cash Flows from Investing Activities
Capital expenditures......................... (1,649) (1,338)
Additional investments....................... (887) (187)
Net proceeds from exchange
of cellular minority interests.............. -- 61
Other investing activities, net.............. 64 (72)
------- -------
Net cash from investing activities........... (2,472) (1,536)
------- -------
Cash Flows from Financing Activities
Net change in short-term debt................ 1,282 (100)
Issuance of long-term debt................... 148 194
Retirement of long-term debt................. (71) (64)
Dividend payments............................ (880) (829)
Proceeds from reissuance of treasury stock... 142 180
Repurchase of common stock................... (466) (95)
Other financing activities, net.............. 17 16
------- -------
Net cash from financing activities........... 172 (698)
------- -------
Net increase (decrease) in cash and
temporary cash investments.................. 83 192
Cash and temporary cash investments,
beginning of period......................... 131 74
------- -------
Cash and temporary cash investments,
end of period............................... $ 214 $ 266
======= =======
See Notes to Condensed Consolidated Financial Statements.
<PAGE>5
AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1: Work Force Restructuring
As announced in March 1994, Ameritech restructured its existing
nonmanagement work force, reducing the work force by 11,500 employees
during 1994 and 1995. As a result of the restructuring, a gain of
$266 million or $167 million after-tax was recorded in the first nine
months of 1995, resulting primarily from settlement gains from lump
sum pension payments from the Ameritech Pension Plan to former
employees. No restructuring charges or credits were recorded in the
first nine months of 1996.
The Company recorded additional restructuring charges in the fourth
quarter of 1995, primarily for the consolidation of data centers and
additional work force reductions. The total amount remaining accrued
for restructuring charges as of September 30, 1996 was approximately
$50 million. See further discussion in Management's Discussion and
Analysis below.
<PAGE>6
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 vs.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
RESULTS OF OPERATIONS
---------------------
For the three months ended September 30, 1996, net income was $519
million or $0.94 per common share on 549.8 million average common
shares outstanding. This represented a 1.4 percent increase in net
income and a 2.2 percent increase in earnings per common share from
the comparable prior year period, for which net income was $512
million or $0.92 per common share on 554.5 million average common
shares outstanding.
For the nine months ended September 30, 1996, net income decreased 1.9
percent to $1,564 million from $1,595 million in the comparable prior
year period. Earnings per common share were $2.83 on 552.6 million
common shares outstanding, a decrease of 1.7 percent from the prior
year period, when earnings per common share were $2.88 on 553.5
million average common shares outstanding.
Results for the three and nine months ended September 30, 1995
included after-tax restructuring gains of $7 million or $0.01 per
common share and $167 million or $0.29 per common share, respectively,
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. Third quarter 1995 results also
included an after-tax gain of $41 million or $0.07 per common share
resulting from the exchange of minority interests in certain cellular
partnerships.
Excluding the gains from work force restructuring and the exchange of
cellular minority interests, net income for the three months ended
September 30, 1996 increased 11.9 percent to $519 million from $464
million for the three months ended September 30, 1995. Earnings per
common share were $0.94 and $0.84, respectively, an increase of 11.9
percent. Net income for the nine months ended September 30, 1996,
excluding one-time gains, increased 12.8 percent to $1,564 million
from $1,387 million in the comparable prior year period, and earnings
per common share rose 12.8 percent to $2.83 from $2.51 in the
comparable prior year period.
----------------------------------------------------------------------
Revenues
--------
Total revenues for the three months ended September 30, 1996 increased
10.1 percent over the comparable prior year period to $3,722 million.
The increase was primarily attributable to increases in the number of
cellular and paging subscribers, growth in access lines resulting in
higher network usage volumes and increased security monitoring
revenues resulting from the October 1995 acquisition of The National
Guardian Corporation. Rate reductions at the landline communications
subsidiaries partially offset these increases.
<PAGE>7
AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Local service
-------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,515 $1,431 $ 84 5.9
Nine Months Ended 4,519 4,159 360 8.7
Local service revenues include basic monthly service fees and usage
charges, fees for call management services, installation and
connection charges and public phone revenues. The increases in local
service revenues for the three and nine months ended September 30,
1996 were primarily attributable to higher network usage volumes
resulting from growth in the number of access lines, which increased
3.7 percent or 706,000 lines to 19,552,000 from 18,846,000 as of
September 30, 1995. Greater sales of call management services, such
as Call Forwarding, Call Waiting and Caller ID, also contributed to
the increases. Net rate reductions, related primarily to alternative
regulation in Illinois and Ohio, partially offset these increases.
----------------------------------------------------------------------
Network access
--------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
----------
Three Months Ended $ 583 $ 556 $ 27 4.9
Nine Months Ended 1,747 1,694 53 3.1
Intrastate
----------
Three Months Ended $ 148 $ 138 $ 10 7.2
Nine Months Ended 423 419 4 1.0
Network access revenues are fees charged to interexchange carriers
that use the Company's local landline communications network to
connect customers to their long distance network. In addition, end
users pay flat rate access fees to connect to the long distance
network. These revenues are generated from both interstate and
intrastate services.
The increases in network access revenues for the three and nine months
ended September 30, 1996 were due primarily to increases in network
minutes of use, resulting from overall growth in the volume of calls
handled for interexchange carriers. Interstate minutes of use for the
three and nine months ended September 30, 1996 increased by 4.7
percent and 7.1 percent, respectively, over the comparable prior year
periods, and intrastate minutes of use for the three and nine months
ended September 30, 1996 increased by 14.1 percent and 13.5 percent,
respectively. These revenue increases were partially offset by rate
reductions.
<PAGE>8
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Long distance service
---------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 364 $ 374 $ (10) (2.7)
Nine Months Ended 1,132 1,086 46 4.2
Long distance service revenues are derived from customer calls to
locations outside of their local calling areas but within the same
local access and transport area (LATA).
The decrease in long distance service revenues for the three months
ended September 30, 1996 was primarily attributable to increased
efforts on the part of other telecommunications carriers to bill their
own customers for local toll calling. Previously, these carriers had
allowed Ameritech to collect these revenues in exchange for the
payment of access charges to complete the calls on the carriers'
networks. As a result, this revenue decrease was substantially offset
by a corresponding decrease in access charge expenses.
The increase in long distance service revenues for the nine months
ended September 30, 1996 was primarily attributable to volume
increases due to higher network usage.
----------------------------------------------------------------------
Cellular, directory and other
-----------------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,112 $ 882 $ 230 26.1
Nine Months Ended 3,212 2,538 674 26.6
Cellular, directory and other revenues include revenues derived from
cellular communications, paging services, telephone directory
publishing, lease financing, billing and collection services,
telephone equipment sales and installation and security monitoring
services.
The increases in cellular, directory and other revenues for the three
and nine months ended September 30, 1996 were largely attributable to
cellular revenue growth resulting from a 37.0 percent increase in
subscribers from 1,674,000 at September 30, 1995 to 2,293,000 at
September 30, 1996. Paging revenues also increased as a result of a
45.0 percent increase in subscribers from 722,000 at September 30,
1995 to 1,047,000 at September 30, 1996. Higher revenues from
security monitoring, lease financing services, equipment sales and
other nonregulated services, such as inside wire installation and
maintenance and advanced data services, also contributed to the
increases. Increased security monitoring revenues resulted primarily
from the October 1995 acquisition of The National Guardian Corporation.
<PAGE>9
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Operating expenses
------------------
Total operating expenses for the three and nine months ended September
30, 1996 increased by 10.5 percent and 15.8 percent, respectively, to
$2,849 million and $8,392 million. The increases were largely
attributable to increased cost of sales in growth-related businesses,
such as cellular and security monitoring services, and to increases in
other operating expenses related to costs for emerging businesses,
such as long distance, personal communications service (PCS) and cable
TV. Operating expenses also increased in 1996 due to pretax gains of
$10 million ($7 million after-tax) and $266 million ($167 million
after-tax), respectively, in the three and nine months ended September
30, 1995 related to settlement gains associated with lump-sum pension
payments to former employees.
----------------------------------------------------------------------
Employee-related expenses
-------------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 952 $ 963 $ (11) (1.1)
Nine Months Ended 2,819 2,736 83 3.0
The decrease in employee-related expenses for the three months ended
September 30, 1996 was primarily attributable to lower medical benefit
expenses and overtime levels, as well as the effects of union contract
signing bonuses earned in the third quarter of 1995, at the landline
communications subsidiaries. Lower benefit expenses were due
primarily to renegotiated contracts with health care providers. These
decreases were offset by higher wage and benefit expenses due to
increased employee levels at emerging and growth related businesses,
such as long distance, PCS, cellular and security monitoring, as well
as higher wages at the landline communications subsidiaries.
The increase in employee-related expenses for the nine months ended
September 30, 1996 was primarily attributable to increased employee
levels at emerging and growth related businesses, combined with higher
wage rates, commissions and bonus accruals, partially offset by lower
force levels at the landline communications subsidiaries.
There were 65,790 employees at September 30, 1996, compared with
62,252 at September 30, 1995. The majority of the increase resulted
from growth and acquisitions in the security monitoring business.
<PAGE>10
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) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 600 $ 537 $ 63 11.7
Nine Months Ended 1,764 1,599 165 10.3
The increases in depreciation and amortization expense for the three
and nine months ended September 30, 1996 were primarily due to higher
plant balances, as well as higher depreciation rates on certain asset
categories due to shorter depreciable lives established in 1994.
Increased amortization of intangibles, due primarily to the
acquisition of The National Guardian Corporation (National Guardian)
in October 1995, also contributed to the increases.
----------------------------------------------------------------------
Other operating expenses
------------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,147 $ 940 $ 207 22.0
Nine Months Ended 3,368 2,732 636 23.3
The increases in other operating expenses for the three and nine
months ended September 30, 1996 were largely attributable to growth-
related cost of sales and customer increases at the cellular and
security monitoring operations, as well as cost of sales increases
related to increased equipment sales. Also contributing to the
increases were higher costs in the emerging long distance and PCS
businesses, increased contract services costs for systems development
and data center management, and higher uncollectibles and advertising
expenses related to increased marketing and sales efforts.
----------------------------------------------------------------------
Restructuring credit
--------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ -- $ (10) $ 10 n/a
Nine Months Ended -- (266) 266 n/a
As discussed in Note 1, the Company significantly reduced its
nonmanagement work force during 1994 and 1995 by 11,500 employees.
New employees with different skills were added during this period to
accommodate growth and meet staffing requirements for new business
opportunities. As of September 30, 1995, all 11,500 employees had
left the Company, with 1,202 leaving in the third quarter of 1995 and
2,385 leaving in the first nine months of 1995. Pretax, noncash
settlement gains of $10 million and $266 million, respectively, were
recorded in the third quarter and first nine months of 1995,
associated with lump-sum pension payments to former employees. No
restructuring charges or credits were recorded in the first three
quarters of 1996.
<PAGE>11
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Taxes other than income taxes
-----------------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 150 $ 149 $ 1 0.7
Nine Months Ended 441 444 (3) (0.7)
Taxes other than income taxes, which consist of property taxes, gross
receipts taxes and other non-income based taxes, have not changed
significantly in the quarter or year to date compared with the
comparable prior year periods. Increases in capital stock and gross
receipts taxes, resulting primarily from business growth and the
acquisition of National Guardian, were partially or more than offset
by property tax decreases for the three and nine-month periods,
respectively. The decrease in property taxes resulted largely from
favorable tax legislation, primarily in Ohio.
----------------------------------------------------------------------
Other Income and Expenses
-------------------------
Interest expense
-----------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 130 $ 119 $ 11 9.2
Nine Months Ended 382 356 26 7.3
The increases in interest expense for the three and nine months ended
September 30, 1996 were primarily attributable to higher interest on
short-term debt due to higher average balances, largely to fund the
Company's investment in its 17.5% consortium share of Belgacom S.A.,
the Belgian national telecommunications company, in March 1996. Short
term debt also increased in order to meet working capital needs
resulting from revenue growth, increased capital expenditures and
higher costs related to new and emerging businesses, and to fund the
Company's acquisition of its own common stock. Interest rate
fluctuations resulted in a slight increase in interest expense for the
three months ended September 30, 1996 compared with the prior year
period and in a decrease in interest expense for the nine months ended
September 30, 1996 compared with the prior year period.
<PAGE>12
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other income, net
-----------------
Change
September 30 Income Percent
------------
(dollars in millions) 1996 1995 (Expense) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 74 $ 112 $ (38) (33.9)
Nine Months Ended 198 181 17 9.4
Other income, net includes equity earnings from unconsolidated
affiliates, interest income and other nonoperating income and expense
items. Other income, net decreased for the three months ended
September 30, 1996 largely due to a $66 million pretax gain ($41
million after-tax) recorded in the third quarter of 1995 resulting
from the exchange of minority interests in certain cellular
partnerships. This decrease was offset by an increase in equity
earnings from international investments, primarily Belgacom and Matav
in Hungary.
The increase in other income, net for the nine months ended September
30, 1996 was due primarily to increased equity earnings from
international investments, partially offset by the effects of the 1995
gain on the exchange of minority interests in certain cellular
partnerships.
----------------------------------------------------------------------
Income taxes
------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 298 $ 283 $ 15 5.3
Nine Months Ended 893 881 12 1.4
The increases in income tax expense for the three and nine months
ended September 30, 1996 were impacted by the tax effects associated
with the work force restructuring credits and the gain on the exchange
of minority interests in certain cellular partnerships in 1995. The
tax effects of the work force restructuring credits were $3 million
and $99 million, respectively, in the three and nine months ended
September 31, 1995, and the tax effect of the gain on exchange of
cellular minority interests was $25 million in the three months ended
September 30, 1995. Excluding the effects of these items, income
taxes increased in line with the earnings of the business.
<PAGE>13
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) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 657 $ 564 $ 93 16.5
Nine Months Ended 1,679 1,369 310 22.6
The increases in capital expenditures for the three and nine months
ended September 30, 1996 related primarily to higher capital
expenditures at the landline communications subsidiaries to
accommodate growth. During the nine-month period, the increase was
also attributable to increased capital expenditures at the cable TV
unit, which had comparable capital expenditures in the current quarter
to that of the corresponding quarter in the prior year.
----------------------------------------------------------------------
Dividends declared
-------------------
September 30 Increase Percent
------------
(dollars in millions) 1996 1995 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 291 $ 277 $ 14 5.1
Nine Months Ended 878 831 47 5.7
On September 18, 1996, the Board of Directors declared a quarterly
dividend of $0.53 per common share, a 6.0 percent increase over the
$0.50 per common share declared in the same quarter in the prior year.
The weighted average number of common shares outstanding decreased to
549.8 million shares in the three months ended September 30, 1996 from
554.5 million shares in the comparable prior year period as a result
of the Company's stock buy-back program.
----------------------------------------------------------------------
Debt ratio
----------
The debt ratio was 51.7 percent as of September 30, 1996, compared
with 48.7 percent as of December 31, 1995. The increase is largely
attributable to an increase in short-term debt used to finance the
Company's investment in Belgacom, to fund the Company's acquisition of
its own common stock and to meet additional working capital needs
related to business growth.
----------------------------------------------------------------------
Ratio of earnings to fixed charges
----------------------------------
The ratio of earnings to fixed charges for the nine months ended
September 30 was 6.18 in 1996 and 6.87 in 1995. The ratio in 1995 was
favorably affected by a pretax credit of $266 million for work force
restructuring and a gain of $66 million resulting from the exchange of
minority interests in certain cellular partnerships.
<PAGE>14
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other Matters
--------------
Telecommunications Act of 1996
------------------------------
The Telecommunications Act of 1996 (the 1996 Act) was enacted on
February 8, 1996. This legislation defines the conditions under which
Ameritech will be permitted to offer interLATA long distance service
and provides certain mechanisms intended to facilitate local exchange
competition. This legislation, in addition to allowing Ameritech to
offer interLATA long distance services, provides the framework for
additional competition in the Company's traditional local exchange
markets.
On August 8, 1996, the Federal Communications Commission (FCC) adopted
rules to implement the local competition provisions of the 1996 Act.
Among other things, the rules require local exchange carriers to
provide interconnection to any requesting telecommunications carrier at
any technically feasible point and equal in quality to that provided
for the local exchange carriers' own operations. The rules also
require each local exchange carrier to provide other carriers access to
network elements on an unbundled basis and to offer for resale any
telecommunications services that it provides at retail to subscribers
who are not telecommunications carriers. The FCC's rules address
mechanisms for pricing of interconnection, unbundled network elements
and reselling of telecommunications services and prescribe that the
individual state regulatory authorities develop specific rates and
procedures consistent with general rules and guidelines established by
the FCC.
In September 1996, several local exchange carriers, including the
Company, filed appeals of the FCC interconnection order in the U.S.
Court of Appeals for the District of Columbia. In their appeals, the
local exchange carriers argue, among other things, that the FCC
exceeded its authority over state regulatory commissions, that the
rules setting national pricing standards violate the 1996 Act and that
the order will force local exchange carriers to sell elements of their
networks below cost. Several companies also requested a stay of the
FCC's order pending the outcome of the appeals, while others, including
the Company, opposed the stay and requested only an expedited review of
the order.
Following the FCC's denial of the requests for a stay, a motion for a
stay was filed by certain parties in the U.S. Court of Appeals for the
Eighth Circuit (the Court) in St. Louis, which had been selected to
hear the challenges to the FCC's order. On September 27, 1996, the
Court ordered a temporary stay of the new rules pending the hearing of
oral arguments from local exchange carriers and the FCC. On October
15, 1996, after hearing the oral arguments, the Court issued a partial
stay of the FCC's order, saying that the pricing provisions and the
"pick and choose" rule related to unbundled network elements could not
take effect until the Court conducts a full review of the order and
rules on the merits of the case. On November 1, 1996, the Court lifted
the stay on three aspects of the pricing rules that apply primarily to
cellular service providers. The FCC has indicated that it will appeal
the Court's decision to the U.S. Supreme Court.
It will not be possible to determine what effect the 1996 Act and the
FCC rules implementing it will have on the Company's results of
operations until the challenges to the rules have been resolved and the
state regulatory commissions have acted on the matter within their
jurisdiction under the 1996 Act.
<PAGE>15
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other Matters (cont'd)
----------------------
New Accounting Pronouncement
------------------------------
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This statement establishes standards of accounting for
transfers of assets in which the transferor has some continuing
involvement with the assets transferred or with the transferee. It
also clarifies the accounting for arrangements whereby assets are set
aside for the extinguishment of a liability.
The statement was to be effective for transactions occurring after
December 31, 1996, with early or retroactive application prohibited.
However on October 16, 1996 the FASB agreed to consider a deferral of
the effective date of paragraphs 9 through 12 and 15 of FAS No. 125 for
repurchase agreements, dollar rolls, securities loans and similar
transactions, including related transfers of collateral, to allow more
time for accounting systems to be put in place. The proposed effective
date for the provisions of these paragraphs is for transactions
occurring after December 31, 1997. The Company does not expect
adoption of this standard will have a material impact on the financial
statements.
<PAGE>16
AMERITECH CORPORATION AND SUBSIDIARIES
Part II - Other Information
---------------------------
Item 6 Exhibits and Reports on Form 8-K.
------ ---------------------------------
(a) Exhibits
--------
3(i) Certificate of Incorporation of the Company as amended on
July 31, 1996.
11a Statement re: Computation of primary earnings per share
of the three months ended September 30, 1996 and 1995.
11b Statement re: Computation of fully diluted earnings per
share for the three months ended September 30, 1996 and
1995.
11c Statement re: Computation of primary earnings per share
for the nine months ended September 30, 1996.
11d Statement re: Computation of fully diluted earnings per
share for the nine months ended September 30, 1996.
12 Computation of ratio of earnings to fixed charges for the
nine months ended September 30, 1996 and September 30,
1995.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
A Current Report on Form 8-K dated October 15, 1996 was filed
under Item 5, Other Events, to report Ameritech's earnings for
the third quarter of 1996.
<PAGE>17
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 7, 1996 By /s/ Barbara A. Klein
------------------------
Barbara A. Klein
Vice President and Comptroller
(Principal Accounting Officer)
EXHIBIT 11a
AMERITECH CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months Ended
September 30,
-------------
1996 1995
---- ----
Net Income $518,575,000 $512,457,000
============ ============
Weighted average number of
shares outstanding 549,830,266 554,512,788
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 3,984,070 7,988,683
------------ ------------
Weighted average shares outstanding
on which primary earnings per share
are based 553,814,336 562,501,471
============ ============
Primary earnings per share $0.94 $0.91
============ ============
This calculation is submitted in accordance with Regulation S-K,
Item 601(b)11, although not required by footnote 2 to paragraph 14 of
Accounting Principles Board Opinion No. 15 because it results in dilution
of less than three percent.
EXHIBIT 11b
AMERITECH CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
Three Months Ended
September 30,
-------------
1996 1995
---- ----
Net Income $518,575,000 $512,457,000
============ ============
Weighted average number of
shares outstanding 549,830,266 554,512,788
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 3,984,070 8,867,022
------------ ------------
Weighted average shares outstanding
on which fully diluted earnings
per share are based 553,814,336 563,379,810
============ ============
Fully diluted earnings per share $0.94 $0.91
============ ============
This calculation is submitted in accordance with Regulation S-K,
Item 601(b)11, although not required by footnote 2 to paragraph 14 of
Accounting Principles Board Opinion No. 15 because it results in dilution
of less than three percent.
EXHIBIT 11c
AMERITECH CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Nine Months Ended
September 30,
-------------
1996 1995
---- ----
Net Income $1,563,559,000 $1,594,902,000
============== ==============
Weighted average number of
shares outstanding 552,574,789 553,508,584
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 3,984,070 7,988,683
------------ ------------
Weighted average shares outstanding
on which primary earnings per share
are based 556,558,859 561,497,267
============ ============
Primary earnings per share $2.81 $2.84
============ ============
This calculation is submitted in accordance with Regulation S-K,
Item 601(b)11, although not required by footnote 2 to paragraph 14 of
Accounting Principles Board Opinion No. 15 because it results in dilution
of less than three percent.
EXHIBIT 11d
AMERITECH CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
Nine Months Ended
September 30,
-------------
1996 1995
---- ----
Net Income $1,563,559,000 $1,594,902,000
============== ==============
Weighted average number of
shares outstanding 552,574,789 553,508,584
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 3,984,070 8,867,022
------------ ------------
Weighted average shares outstanding
on which fully diluted earnings
per share are based 556,558,859 562,375,606
============ ============
Fully diluted earnings per share $2.81 $2.84
============ ============
This calculation is submitted in accordance with Regulation S-K,
Item 601(b)11, although not required by footnote 2 to paragraph 14 of
Accounting Principles Board Opinion No. 15 because it results in dilution
of less than three percent.
EXHIBIT 12
AMERITECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Nine Months Ended
September 30
--------------
1996 1995
---- ----
EARNINGS
- --------
Income before interest, income taxes
and undistributed equity earnings.......... $2,760 $2,777
Preferred dividends of subsidiary (3)....... 10 7
Portion of rent expense
representing interest...................... 48 44
Michigan Single Business tax................ 33 30
------ ------
Total earnings (1) (2)...................... $2,851 $2,858
------ ------
FIXED CHARGES
- -------------
Interest expense............................ $ 382 $ 356
Preferred dividends of subsidiary........... 10 7
Capitalized interest........................ 21 9
Portion of rent expense representing
interest expense........................... 48 44
------ ------
Total fixed charges......................... $ 461 $ 416
------ ------
Ratio of earnings to fixed charges.......... 6.18 6.87
===== =====
(1) The results for the first nine months of 1995 reflect a $266
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 $66 million related to the exchange of minority
interests in certain cellular partnerships.
(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) 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 SEPT.30, 1996 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 214,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,366,000
<ALLOWANCES> (239,000)
<INVENTORY> 217,000
<CURRENT-ASSETS> 3,903,000
<PP&E> 31,767,000
<DEPRECIATION> 18,494,000
<TOTAL-ASSETS> 23,434,000
<CURRENT-LIABILITIES> 7,045,000
<BONDS> 4,309,000
0
0
<COMMON> 588,000
<OTHER-SE> 6,834,000
<TOTAL-LIABILITY-AND-EQUITY> 23,434,000
<SALES> 0<F2>
<TOTAL-REVENUES> 11,033,000
<CGS> 0
<TOTAL-COSTS> 8,392,000<F3>
<OTHER-EXPENSES> (198,000)
<LOSS-PROVISION> 250,000
<INTEREST-EXPENSE> 382,000
<INCOME-PRETAX> 2,457,000
<INCOME-TAX> 893,000
<INCOME-CONTINUING> 1,564,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,564,000
<EPS-PRIMARY> 2.83<F4>
<EPS-DILUTED> 2.83<F4>
<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).
<F4>REPORTED EPS ASSUMES A SIMPLE CAPITAL STRUCTURE BECAUSE INCLUSION OF
COMMON STOCK EQUIVALENTS RESULTS IN A DILUTION OF LESS THAN THREE PERCENT.
</FN>
</TABLE>
