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U.S. Securities and Exchange Commission
Washington, D.C. 20549
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Form 10-Q
(Mark one)
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[x] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
- -------------------------------------------
or
- -------------------------------------------
[ ] Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 1-8612
Ameritech Corporation
-----------------------------
A Delaware Corporation
-----------------------------
30 S. Wacker Drive
Chicago, Illinois 60606
-----------------------------
I.R.S. Employer Identification
Number 36-3251481
Telephone number (800) 257-0902
We have filed all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12 months, and
have been subject to those filing requirements for the past 90 days.
Yes X No
---- ----
At October 31, 1997, 547,252,049 common shares were outstanding.
<PAGE>
TABLE OF CONTENTS
PART I
ITEM Page
- ---- ----
1. Financial Statements
Condensed Consolidated Statements of Income for
the three and nine months ended
September 30, 1997 and 1996 1
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4-6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-17
PART II
6. Exhibits and Reports on Form 8-K 18
Glossary 20-21
i
<PAGE>
Part I - Financial Information
------------------------------
AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
--------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues
Local service................. $ 1,619 $ 1,515 $ 4,789 $ 4,519
Interstate network access..... 606 583 1,875 1,747
Intrastate network access..... 153 148 457 423
Long distance service ........ 335 364 1,038 1,132
Cellular, directory and other. 1,293 1,112 3,692 3,212
------- ------- ------- -------
4,006 3,722 11,851 11,033
------- ------- ------- -------
Operating expenses
Employee-related expenses..... 1,004 952 2,956 2,819
Depreciation and amortization. 621 600 1,850 1,764
Other operating expenses...... 1,271 1,147 3,677 3,368
Taxes other than income taxes. 148 150 453 441
------- ------- ------- -------
3,044 2,849 8,936 8,392
------- ------- ------- -------
Operating income................ 962 873 2,915 2,641
Interest expense................ 123 130 371 382
Other income, net............... 127 74 178 198
------- ------- ------- -------
Income before income taxes...... 966 817 2,722 2,457
Income taxes.................... 353 298 1,036 893
------- ------- ------- -------
Net income...................... $ 613 $ 519 $ 1,686 $ 1,564
======= ======= ======= =======
Earnings per common share....... $1.12 $0.94 $3.07 $2.83
===== ===== ===== =====
Dividends declared per common
share.......................... $0.565 $0.53 $1.695 $1.59
===== ===== ===== =====
Average common shares outstanding
(millions)..................... 549.0 549.8 549.8 552.6
===== ===== ===== =====
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
Current assets
Cash and temporary cash investments........ $ 848 $ 145
Receivables, net........................... 2,975 3,070
Material and supplies...................... 266 231
Prepaid and other.......................... 436 353
------- -------
4,525 3,799
------- -------
Property, plant and equipment............... 33,578 32,292
Less, accumulated depreciation............. 19,992 18,785
------- -------
13,586 13,507
------- -------
Investments, primarily international........ 1,924 2,323
Other assets and deferred charges........... 4,531 4,078
------- -------
Total assets................................ $ 24,566 $ 23,707
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Debt maturing within one year.............. $ 3,583 $ 3,155
Accounts payable........................... 1,850 1,836
Other...................................... 2,003 1,841
------- -------
7,436 6,832
------- -------
Long-term debt.............................. 4,065 4,437
------- -------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes.......... 979 900
Unamortized investment tax credits......... 148 172
Postretirement benefits
other than pensions...................... 3,000 2,984
Other...................................... 940 695
------- -------
5,067 4,751
------- -------
Shareowners' equity
Common stock, par value $1;2.4 billion
shares authorized, 588,314,000 issued in 1997
and 588,113,000 issued in 1996......... 588 588
Proceeds in excess of par value............ 5,838 5,732
Reinvested earnings........................ 3,909 3,154
Treasury stock, at cost (41,270,000 shares
in 1997 and 38,182,000 shares in 1996)... (1,674) (1,344)
Deferred compensation...................... (190) (259)
Currency translation adjustment............ (478) (188)
Other, net................................. 5 4
------- -------
7,998 7,687
------- -------
Total liabilities and shareowners' equity... $ 24,566 $ 23,707
======= =======
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Nine Months Ended
September 30
-------------
1997 1996
---- ----
Cash Flows from Operating Activities
Net income................................... $ 1,686 $ 1,564
Adjustments to net income
Depreciation and amortization.............. 1,850 1,764
Deferred income taxes, net................. 63 26
Investment tax credits, net................ (24) (28)
Capitalized interest....................... (19) (21)
Change in accounts receivable, net......... 95 (353)
Change in material and supplies............ (64) (35)
Change in certain other current assets..... (83) (6)
Change in accounts payable................. 14 (246)
Change in certain other current
liabilities............................... 160 79
Change in certain other noncurrent
assets and liabilities................... (284) (327)
Gain on sale of Sky Network Television
of New Zealand........................... (52) --
Other operating activities, net............ 18 (34)
------- -------
Net cash from operating activities........... 3,360 2,383
------- -------
Cash Flows from Investing Activities
Capital expenditures......................... (1,829) (1,649)
Additional investments....................... (101) (887)
Proceeds from New Zealand Telecom
share repurchase.......................... 118 --
Proceeds from sale of Sky Network Television
of New Zealand............................. 52 --
Other investing activities, net.............. (24) 64
------- -------
Net cash from investing activities........... (1,784) (2,472)
------- -------
Cash Flows from Financing Activities
Net change in short-term debt................ 440 1,282
Issuance of preferred stock by subsidiary.... 250 --
Issuance of long-term debt................... -- 148
Retirement of long-term debt................. (306) (71)
Dividend payments............................ (933) (880)
Proceeds from reissuance of treasury stock... 249 142
Repurchase of common stock................... (601) (466)
Other financing activities, net.............. 28 17
------- -------
Net cash from financing activities........... (873) 172
------- -------
Net increase in cash and temporary
cash investments............................ 703 83
Cash and temporary cash investments,
beginning of period......................... 145 131
------- -------
Cash and temporary cash investments,
end of period............................... $ 848 $ 214
======= =======
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1: Preparation of Interim Financial Statements
We have prepared the unaudited condensed consolidated financial
statements in this report by following Securities and Exchange
Commission rules that permit reduced disclosure for quarterly period
reports. These financial statements include estimates and
assumptions that affect the reported amounts of assets and
liabilities and the amounts of revenues and expenses. Actual amounts
could differ from those estimates. We believe these statements
include all adjustments necessary for a fair statement of results for
each period shown. We believe our disclosures are adequate to make
the presented information clear. You should read these financial
statements in conjunction with the financial statements and notes
included in our 1996 Annual Report on Form 10-K and the quarterly
reports on Form 10-Q previously filed in 1997. Several events
occurred subsequent to September 30, 1997 that are discussed in Notes
5-10 below.
When reading these financial statements, you should be familiar with
the terminology unique to our business. We have defined a number of
terms in the glossary on pages 20 and 21.
Note 2: Significant Accounting Policies
Derivative Financial Instruments - We occasionally enter into forward
contracts and swap agreements to hedge exposures to foreign currency
exchange and interest rate risks. We include gains and losses on
foreign currency forward contracts used for hedging purposes in net
income in the period in which the contract matures or is terminated.
We record gains and losses that hedge an investment in a foreign
company as a component of shareowners' equity until such time as we
reduce our interest in the company. Gains and losses on interest
rate swaps are recorded as adjustments to interest expense.
We use derivatives in a limited way for the following purposes:
- - to manage financial risk;
- - to hedge assets and obligations that we already hold; and
- - to protect our cash flows.
We do not use derivatives to generate income or engage in speculative
activity and we never use leveraged derivatives.
4
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Note 3: Preferred Stock Issued by Subsidiary
In June 1997, one of our subsidiaries issued $250 million of
preferred stock in a private placement, using the proceeds to pay
down long-term and short-term debt balances. Our subsidiary may
redeem the stock at any time, but we will have to pay certain call
premiums if we redeem the preferred stock before December 31, 2002.
The holders of the preferred stock may require our subsidiary to
redeem the shares at any time after May 20, 2004. Holders of the
preferred shares will receive quarterly dividends beginning December
31, 1997 based on a rolling three-month London Interbank Borrowing
Rate (LIBOR). The dividend rate for the December 31, 1997 payment is
6.85 percent. This preferred stock is included in other long-term
liabilities on the consolidated balance sheet as of September 30,
1997.
Note 4: Additional Investments
We acquired certain assets from other companies during the nine
months ended September 30, 1997. We issued a total of 1,504,801
common shares with a total dollar value of approximately $100 million
for the assets of certain companies, principally those engaged in
security services. Consideration for these assets also included cash
payments, which are reflected as additional investments in the
consolidated statement of cash flows. Of the shares we issued,
653,309 were registered with the SEC and are freely tradable. The
remaining 851,492 shares were issued without registration and are
subject to trading restrictions for one year from the date of issue.
Note 5: Strategic Partnership with Tele Danmark A/S
On October 27, 1997, we agreed to invest $3.2 billion as a strategic
partner in Tele Danmark, the national communications provider in
Denmark. Through a two-step transaction, we will acquire
approximately 42 percent of Tele Danmark's stock and nominate six
directors to Tele Danmark's 12-member board of directors. In the
first step, we will purchase 4.5 million "A" shares of Tele Danmark
stock for $3.2 billion from the Kingdom of Denmark (equivalent to 45
million "B" shares), representing a 34.4 percent stake in the
company. Following this investment, Tele Danmark intends to buy back
and retire all of the remaining shares from the Kingdom, raising our
investment stake to more than 40 percent of the outstanding capital
stock. We expect these transactions to be finalized in the first
quarter of 1998, pending the approvals of the Danish government, the
European Union and Tele Danmark's shareowners. We plan to fund this
investment using available cash and short-term debt.
Note 6: Acquisitions of Security Monitoring Assets
In October 1997, we acquired the security monitoring assets of
Rollins Protective Services, a subsidiary of Rollins, Inc., and the
security monitoring assets of Republic Security Company Holdings, a
subsidiary of Republic Industries, Inc. The total purchase price for
these two transactions was approximately $800 million. We will
account for these transactions as purchases. Revenues of these
businesses in 1996 were approximately $150 million. We now have
nearly one million customers served by our security monitoring
subsidiary, SecurityLink from Ameritech.
5
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Note 7: Issuances of Long-Term Debt
In October 1997, we issued $650 million of long-term debt in three
separate tranches through our funding subsidiary, Ameritech Capital
Funding Corporation. Details of the issuances are as follows:
- - $200 million of 6.125% notes due October 15, 2001;
- - $250 million of 6.30% notes due October 15, 2004; and
- - $200 million of 6.875% debentures due October 15, 2027.
Following these issuances, we had $350 million remaining available
for issuance of unsecured debt securities under a shelf registration
statement filed with the SEC by our funding subsidiary. In October
1997, our Board of Directors authorized a shelf registration
statement for up to an additional $3 billion of debt securities.
Interest on the notes and debentures is due semiannually on April 15
and October 15, and payment of interest and principal is
unconditionally guaranteed by Ameritech Corporation. Proceeds from
the issuances were used to pay down short-term debt incurred in the
acquisitions of security monitoring assets discussed in Note 6.
Note 8: Registration of Common Stock
In October 1997, we registered 7,139,670 shares of our common stock
with the SEC for future issuance. We may issue these shares from
time to time for the completion of acquisitions, for the payment of
dividends or for any other corporate purposes.
Note 9: Acquisition of Central Telephone Company of Illinois
Effective November 1, 1997, following regulatory approval, one of our
subsidiaries completed the purchase from Sprint Corporation (Sprint)
of the assets of Sprint's local exchange business in suburban Chicago
(Central Telephone Company of Illinois or Centel). Centel served
approximately 136,000 residential and business customers in a small
portion of Chicago and part or all of ten Chicago suburbs. We funded
the $160 million purchase using short-term debt. We will account for
this acquisition as a purchase.
Note 10: Inside Wire Maintenance Service Settlement
In November 1997, we reached an agreement in principle to settle
class action lawsuits regarding our inside wire maintenance and
Linebacker services, subject to court approval. Those customers who
subscribe to these services pay a monthly fee to cover repairs to
inside telephone wiring and jacks. They thereby avoid charges for
labor and material at the time of repair.
The lawsuits charged unfair sales practices and violations of the
antitrust laws allegedly arising from our sales and marketing
practices. The settlement consists of, among other things, free
calling card and pay-per-use services over specified time periods, as
well as billing credits. Although the value to class members is much
greater, we expect to record a pretax charge of approximately $69
million ($42 million after-tax) in the fourth quarter of 1997 based
on the negotiated settlement terms.
6
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 vs.
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
- ---------------------
Results of operations for the three and nine months ended September
30, 1997, compared with the prior year periods, were as follows
(dollars in millions, except per share amounts):
Three Months Ended September 30 Increase Percent
- -------------------------------
1997 1996 (Decrease) Change
---- ---- -------- ------
Income before one-time items $ 576 $ 519 $ 57 11.0
EPS before one-time items 1.05 0.94 0.11 11.7
Net income 613 519 94 18.1
Earnings per share $ 1.12 $ 0.94 $ 0.18 19.1
Average common shares
(millions) 549.0 549.8 (0.8) (0.1)
Nine Months Ended September 30 Increase Percent
- ------------------------------
1997 1996 (Decrease) Change
---- ---- -------- ------
Income before one-time items $1,736 $1,564 $ 172 11.0
EPS before one-time items 3.16 2.83 0.33 11.7
Net income 1,686 1,564 122 7.8
Earnings per share $ 3.07 $ 2.83 $ 0.24 8.5
Average common shares
(millions) 549.8 552.6 (2.8) (0.5)
Results for the three and nine months ended September 30, 1997
included a one-time pretax gain of $52 million ($37 million after-tax
or $0.07 a share) resulting from the sale of our 12.5 percent
interest in Sky Network Television of New Zealand.
Results for the nine months ended September 30, 1997 also included a
one-time after-tax charge of $87 million, or $0.16 a share, related
to our share of the costs of a work force restructuring at Belgacom,
the national communications company in Belgium. We are a 17.5
percent owner and strategic partner in Belgacom.
- ---------------------------------------------------------------------
Revenues
- --------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $4,006 $3,722 $ 284 7.6
Nine Months Ended 11,851 11,033 818 7.4
Revenues increased for the three and nine months ended September 30,
1997 primarily due to increases in the number of cellular and paging
subscribers, higher network usage volumes and increased revenues from
call management services. Decreased revenues from long distance
services partially offset these increases, as discussed below.
7
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Local service
- -------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,619 $1,515 $ 104 6.9
Nine Months Ended 4,789 4,519 270 6.0
Local service revenues include basic monthly service fees and usage
charges, fees for call management services, installation and
connection charges and public phone revenues. Local service revenues
increased for the three and nine months ended September 30, 1997 due
largely to increased sales of call management services. These
increases resulted from growth in the number of features in service,
as well as increases in usage of services on a pay-per-use basis.
Higher network usage volumes, resulting primarily from access line
growth, also contributed to the increases. Second line additions by
residential and small business customers contributed to access line
growth, due to continuing demand for Internet access and data
transport capabilities.
There were 20,204,000 access lines in service as of September 30,
1997 compared with 19,552,000 as of September 30, 1996.
- ---------------------------------------------------------------------
Network access
- --------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
- ----------
Three Months Ended $ 606 $ 583 $ 23 3.9
Nine Months Ended 1,875 1,747 128 7.3
Intrastate
- ----------
Three Months Ended $ 153 $ 148 $ 5 3.4
Nine Months Ended 457 423 34 8.0
Network access revenues include fees charged to interexchange carriers
that use our local landline communications network to connect customers
to their long distance networks. In addition, end users pay flat rate
access fees to connect to the long distance networks. These revenues
result from both interstate and intrastate services.
Interstate network access revenues increased for the three and nine
months ended September 30, 1997 due primarily to volume increases.
Growth in the volume of calls handled for interexchange carriers and
greater demand for dedicated services by Internet service providers
and other high-capacity users contributed to the increases. These
revenue increases were partially offset by rate reductions.
Interstate minutes of use increased by 8.2 percent for the three
months and 6.3 percent for the nine months ended September 30, 1997
compared with the same periods last year.
Intrastate network access revenues increased for the three and nine
months ended September 30, 1997 due primarily to volume increases.
The primary reason for these increases was growth in network usage by
alternative providers of intraLATA toll service in Illinois, Michigan
and Wisconsin. Rate decreases partially offset the volume increases.
Intrastate minutes of use increased by 18.9 percent for the three
months ended and 16.4 percent for the nine months ended September 30,
1997 compared with the same periods last year.
8
<PAGE>
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) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 335 $ 364 $ (29) (8.0)
Nine Months Ended 1,038 1,132 (94) (8.3)
Long distance service revenues result from customer calls to
locations outside of their local calling areas but within the same
local access and transport area (LATA).
Long distance service revenues decreased for the three and nine
months ended September 30, 1997, due primarily to volume decreases.
The volume decreases resulted largely from implementation of Dial 1+
capability in Illinois, Michigan and Wisconsin, which introduced
competition to these intraLATA toll markets. Efforts by other
telecommunications carriers to bill their own customers for local
toll calling, especially in Illinois and Ohio, also contributed to
the decreases. Previously, Ameritech collected these revenues in
exchange for the payment of access charges to complete the calls on
the carriers' networks. The revenue decreases resulting from this
change were largely offset by corresponding decreases in access
charge expenses reflected in other operating expenses.
- ---------------------------------------------------------------------
Cellular, directory and other
- -----------------------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,293 $1,112 $ 181 16.3
Nine Months Ended 3,692 3,212 480 14.9
Cellular, directory and other revenues include revenues from cellular
communications services, paging services, telephone directory
publishing, lease financing and billing and collection services,
telephone equipment sales and installation, and security services.
Cellular, directory and other revenues increased for the three and
nine months ended September 30, 1997, due to the following factors:
- -30 percent annual growth in cellular subscribers to 2,970,000 as of
September 30, 1997;
- -34 percent annual growth in paging subscribers to 1,401,000 as of
September 30, 1997;
- -Increases in security and cable TV customers, as those businesses
continued to expand; and
- -Higher revenues from directory advertising, lease financing services
and other nonregulated services, such as inside wire installation
and maintenance and advanced data services.
9
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Operating expenses
- ------------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $3,044 $2,849 $ 195 6.8
Nine Months Ended 8,936 8,392 544 6.5
Operating expenses increased for the three and nine months ended
September 30, 1997 largely due to higher operating costs in growing
businesses such as cellular and security services, and increased
depreciation expense. Higher employee-related expenses and other
operating expenses at emerging businesses, such as long distance,
personal communication services and cable TV, also contributed to the
increases.
- ---------------------------------------------------------------------
Employee-related expenses
- -------------------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,004 $ 952 $ 52 5.5
Nine Months Ended 2,956 2,819 137 4.9
Employee-related expenses increased for the three and nine months
ended September 30, 1997, due primarily to higher wage rates at the
landline communications subsidiaries and higher employee levels at
emerging and growth-related businesses. Lower overtime expenses and
force levels at the landline communications subsidiaries partially
offset these increases.
We employed 69,056 people as of September 30, 1997, compared with
65,790 as of September 30, 1996.
- ---------------------------------------------------------------------
Depreciation and
amortization
- ------------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 621 $ 600 $ 21 3.5
Nine Months Ended 1,850 1,764 86 4.9
Depreciation and amortization expense increased for the three and
nine months ended September 30, 1997 due primarily to higher
property, plant and equipment balances. Higher depreciation rates on
certain asset categories also contributed to the increases, as we
used shorter depreciable lives for newer technologies.
10
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other operating expenses
- ------------------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,271 $1,147 $ 124 10.8
Nine Months Ended 3,677 3,368 309 9.2
Other operating expenses increased for the three and nine months
ended September 30, 1997 due mostly to the following factors:
- - increased costs for systems development and data center
management;
- - higher costs in the emerging cable TV and long distance
businesses;
- - growth-related cost of sales and customer increases at the
cellular and security monitoring operations;
- - higher advertising expenses and uncollectibles related to
increased marketing and sales efforts; and
- - cost of sales increases due to higher sales of customer premises
equipment.
- ---------------------------------------------------------------------
Taxes other than income taxes
- -----------------------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 148 $ 150 $ (2) (1.3)
Nine Months Ended 453 441 12 2.7
Taxes other than income taxes consist of property taxes, gross
receipts taxes and other taxes not directly related to earnings.
Taxes other than income taxes decreased for the three months ended
September 30, 1997 primarily as a result of lower property taxes in
Ohio due to property tax reform. Taxes other than income taxes
increased for the nine months ended September 30, 1997, due primarily
to increased use taxes in Michigan. Increases in capital stock and
gross receipts taxes, resulting primarily from business growth, also
contributed to the increases.
- ---------------------------------------------------------------------
Other income and expenses
- -------------------------
Interest expense
- -----------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 123 $ 130 $ (7) (5.4)
Nine Months Ended 371 382 (11) (2.9)
Interest expense decreased for the three and nine months ended
September 30, 1997, due primarily to decreased interest on short-term
debt, reflecting lower average debt balances partially offset by
higher short-term interest rates. Increased interest on long-term
debt, due to higher average long-term debt balances, partially offset
these decreases.
11
<PAGE>
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) 1997 1996 Expense Change
------------------- ---- ---- -------- ------
Three Months Ended $ 127 $ 74 $ 53 n/a
Nine Months Ended 178 198 (20) n/a
Other income includes earnings related to Ameritech's investments
accounted for using the equity method, interest income and other
nonoperating items. Other income increased for the three months
ended September 30, 1997 due primarily to the effects of a $52
million pretax gain resulting from the sale of our interest in Sky
Network Television of New Zealand.
Other income decreased for the nine months ended September 30, 1997
due primarily to the effects of a one-time charge of $87 million
related to Ameritech's share of the costs of a workforce
restructuring at Belgacom, partially offset by the gain from our sale
of Sky TV, as discussed above. Ameritech is a 17.5 percent owner and
a strategic partner in Belgacom, the national communications company
in Belgium. In May 1997, Belgacom offered certain of its 27,000
employees financial incentives to voluntarily leave the work force by
the end of 1998. Approximately 6,300 employees accepted the offer.
We derive a large portion of our equity earnings from overseas
investments. Although these investments continue to generate strong
earnings, the effects of a stronger U.S. dollar versus foreign
currencies moderated these earnings in the first nine months of 1997.
- ---------------------------------------------------------------------
Income taxes
- ------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 353 $ 298 $ 55 18.5
Nine Months Ended 1,036 893 143 16.0
Income tax expense increased for the three and nine months ended
September 30, 1997, due primarily to the increases in pretax earnings
discussed above. Our effective tax rate increased slightly over the
same period last year, largely due to the Belgacom restructuring
discussed above, as well as a decrease in the amortization of
investment tax credits relative to pretax income.
12
<PAGE>
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) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 652 $ 657 $ (5) (0.8)
Nine Months Ended 1,829 1,679 150 8.9
Capital expenditures decreased for the three months ended September
30, 1997, due primarily to decreased spending at the landline
communications subsidiaries, resulting from the timing of planned
capital projects. This decrease was partially offset by increased
expenditures at the cellular, cable TV and capital services
subsidiaries.
Capital expenditures increased for the nine months ended September
30, 1997, due primarily to higher capital expenditures at the
cellular, cable TV and capital services subsidiaries to accommodate
growth. Capital expenditures also increased at the landline
communications subsidiaries due to access line growth and higher
demand for advanced data services.
- ---------------------------------------------------------------------
Dividends declared
- -------------------
September 30 Increase Percent
------------
(dollars in millions) 1997 1996 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 309 $ 291 $ 18 6.2
Nine Months Ended 931 878 53 6.0
On September 15, 1997, our Board of Directors declared a quarterly
dividend of $0.565 per common share, a 6.6 percent increase over the
$0.53 per common share declared in the third quarter of 1996.
- ---------------------------------------------------------------------
Company stock repurchase program
- --------------------------------
Our Board of Directors has periodically authorized management to
repurchase shares of Ameritech stock in the open market. During the
nine months ended September 30, 1997, we purchased 9.4 million shares
of stock for $601 million. Management has authority to repurchase
3.7 million additional shares through December 31, 1997.
- ---------------------------------------------------------------------
Debt ratio
- ----------
The debt ratio was 48.9 percent as of September 30, 1997, compared
with 49.7 percent as of December 31, 1996. The decrease resulted
from a decrease in debt balances, due primarily to an improvement in
cash flow from operations, combined with an increase in equity due to
higher cumulative earnings. The sale of preferred stock by a
subsidiary described in Note 3 also favorably impacted our ratio.
- ---------------------------------------------------------------------
Ratio of earnings to fixed charges
- ----------------------------------
The ratio of earnings to fixed charges for the three and nine months
ended September 30 was 6.93 in 1997 and 6.18 in 1996.
13
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other Matters
- -------------
Recent FCC Orders
- -----------------
On May 7, 1997, the FCC issued three closely-related orders
addressing revisions to the price cap plan for local exchange
carriers (LECs), interstate access charge reform and funding for
universal service. In its access charge reform order, the FCC
adopted changes to its tariff structure requiring LECs to use rates
that reflect the type of costs incurred. In general, the order
provides that:
- - only costs incurred on a minute-of-use basis should be included in
per-minute access charges;
- - costs not incurred on a minute-of-use basis should be recovered
through flat-rate charges; and
- - LECs may not assess interstate access charges on Internet service
providers.
The new price cap rules will reduce access charges by increasing the
price cap productivity offset factor to 6.5 percent from the current
5.3 percent and by applying this factor uniformly to all access
providers. The new rates were effective July 1, 1997 and LECs were
required to compute the new rates as if the 6.5 percent productivity
factor had been in effect since July 1, 1996.
The new rules also create a multi-billion-dollar interstate
"universal service" fund for linking schools and libraries to the
Internet and subsidizing low-income consumers and rural health care
providers. Telecommunications service providers will pay into the
universal service fund starting January 1, 1998, but regulators have
not yet determined the size of the fund. The FCC intends to develop
suitable forward-looking cost studies for determining the level of
universal service support in a separate proceeding later in 1997.
State commissions may elect to use the FCC's cost methodology or
their own forward-looking mechanism. The FCC expects to select a
mechanism for determining support for nonrural carriers by the end of
this year. Subsidies to low-income and rural customers will be
available by January 1, 1998, and funds for linking schools and
libraries to the Internet will be available as needed.
We do not expect these reforms to have a material impact on our
revenue streams; however, the nature and timing of these reforms may
evolve as the FCC considers input from state commissions, potential
legal challenges and the ongoing implementation of other provisions
of the Telecommunications Act of 1996.
14
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other Matters (cont'd)
- ----------------------
Competition and the Telecommunications Act of 1996
- --------------------------------------------------
As a result of our plan to capture the full potential of the
communications industry and the supporting provisions of the
Telecommunications Act of 1996 (the 1996 Act), we have taken several
key steps toward fostering a fully competitive market. We have made
our network available for use by Ameritech's competitors at unbundled
cost-based prices and at bundled prices representing discounts from
established retail levels. Additionally, we have entered into nearly
150 interconnection agreements with other local communications
carriers, indicating a growing wholesale business. These efforts and
the growing presence of competition in our region provided the basis
for our request to enter the interLATA long distance market in
Michigan.
In August 1997, the FCC denied our application to provide long
distance service in Michigan, stating in its order that we failed to
meet three of the requirements included in the 14-point competitive
checklist contained in the 1996 Act. The order set forth various
actions that we must take in order to demonstrate compliance with the
checklist, and we are working with the FCC and the Michigan Public
Service Commission to determine the technical feasibility of these
requirements. We are currently unable to determine the timing of our
next filing for interLATA authority, but we continue to make progress
toward bringing the benefits of full service to our customers.
In July 1997, the Federal Circuit Court of Appeals in St. Louis
struck down several provisions of an August 1996 FCC order designed
to implement the interconnection provisions of the 1996 Act. The
Court ruled that:
- - the FCC's pricing guidelines intrude upon the rights of state
commissions to implement key elements of the 1996 Act;
- - the FCC lacks jurisdiction to review state commission decisions
regarding interconnection agreements between incumbent LECs and
their competitors;
- - the FCC's rule that would allow requesting carriers to pick and
choose among individual provisions of other interconnection
agreements does not promote negotiated agreements and is
unreasonable;
- - LECs must provide unbundled network elements in a manner that
allows competing carriers to combine them, but LECs need not
actually combine the elements; and,
- - the 1996 Act does not require incumbent LECs to provide
competitors with superior quality connections.
The Court upheld the FCC's interpretation of "network element" to
include operations support systems (OSS) and certain other services.
It did not rule on the LECs' claims regarding infringement of
intellectual property rights and Fifth Amendment confiscation.
In October 1997, the Circuit Court overturned an FCC ruling that
required Ameritech and other incumbent local exchange carriers to
resell bundled network services at unbundled discounted rates. As a
result of the Court's decision, if new entrants to the local exchange
market wish to purchase network elements at unbundled discounted
prices, they must recombine the elements themselves. We anticipate
that a number of appeals will be sought regarding the July and
October rulings. We do not believe that these appeals will result in
delays to our entry into the long distance market.
15
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other Matters (cont'd)
- ----------------------
New Zealand Share Repurchase
- ----------------------------
In November 1996, Telecom Corporation of New Zealand Limited (New
Zealand Telecom) announced plans to repurchase a portion of its stock
during 1997. We have a 24.95% ownership interest in New Zealand
Telecom. The New Zealand government prohibits foreign companies from
owning more than 49.9% of New Zealand Telecom's stock. As a result,
Ameritech and Bell Atlantic Corporation, which also has a 24.95%
interest, are selling a pro rata portion of their shares to New
Zealand Telecom when New Zealand Telecom buys shares on the open
market. During the first nine months of 1997, we received proceeds of
approximately $118 million as a result of this repurchase program.
We expect to receive approximately $50 million in additional proceeds
during the fourth quarter of 1997. This repurchase program will not
materially change our percentage ownership in New Zealand Telecom.
Effects of Foreign Currency Fluctuations
- ----------------------------------------
Our foreign operations and investments in international ventures are
subject to certain risks related to fluctuation in foreign currency
exchange rates. In the three and nine months ended September 30,
1997, due to a strengthening U.S. dollar, we recognized some foreign
exchange transaction losses and currency translation adjustments
related to these investments. Foreign exchange transaction losses
incurred by wholly owned subsidiaries adversely impacted operating
income. Transaction losses incurred by other international ventures
(primarily equity method investments) had a negative impact on other
income, net. Translation adjustments resulted in a decrease in the
investment balance and a corresponding reduction in shareowners'
equity on the consolidated balance sheet. While future fluctuations
in currency exchange rates could impact results of operations or
financial position, foreign operations continue to provide strong
financial results and earnings growth.
Year 2000 Software Compliance
- -----------------------------
We currently operate numerous date-sensitive computer applications
and systems throughout our business. As the century change
approaches, it will be essential for us to ensure that these systems
properly recognize the year 2000 and continue to process critical
operational and financial information. We have initiated a project
to determine the scope of system changes that may be required and to
ensure that our systems continue to meet our operational needs and
those of our customers. Although we have not yet determined a final
cost estimate for this project, we will incur a substantial portion
of the costs over the next two years.
New Accounting Pronouncements
- -----------------------------
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (FAS) No. 128,
"Earnings Per Share". This statement specifies the computation,
presentation and disclosure requirements for earnings per share
(EPS) previously found in Accounting Principles Board (APB)
Opinion No. 15. It replaces "primary" EPS with "basic" EPS, and
requires dual presentation of "basic" and "diluted" EPS on the
face of
16
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other Matters (cont'd)
- ----------------------
New Accounting Pronouncements (cont'd.)
- ---------------------------------------
the income statement for all companies with dilutive securities,
such as options, warrants or securities convertible into common
stock. The statement is effective for financial statements issued
for periods ending after December 15, 1997, and earlier
application is not permitted. We do not expect adoption of this
standard to have a material effect on our financial statements,
since dilutive potential common shares historically have not
resulted in EPS dilution over three percent.
In June 1997, the FASB issued FAS No. 130, "Reporting
Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and requires that
all components of comprehensive income be reported in a financial
statement having the same prominence as other financial
statements. For us, FAS No. 130 is effective next year, and it
requires reclassification of prior period financial statements
provided for comparative purposes. Adoption of this standard
should have little effect on our financial statements, since the
new requirements primarily involve modifications to the way that
existing information is displayed.
Also in June 1997, the FASB issued FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement
supersedes FAS No. 14, "Financial Reporting of Segments of a
Business Enterprise," by establishing new standards for the way
that a public business enterprise reports operating segment
information in its annual and interim financial statements. In
general, FAS No. 131 requires reporting of financial information
as it is used by senior company management for evaluating
performance and deciding how to allocate resources. The statement
is effective for 1998, but need not be applied to interim
financial statements in that year. Comparative information for
earlier years must be restated. We expect adoption of this
standard to have little effect on our financial statements.
Private Securities Litigation Reform Act Safe Harbor Statement
- --------------------------------------------------------------
The above discussion contains certain forward-looking statements
that involve potential risks and uncertainties. Our future
results could differ materially from those discussed here. Some
of the factors that could cause or contribute to such differences
include:
- - changes in economic and market conditions;
- - effects of state and federal regulation;
- - risks inherent in international operations; and
- - the impact of new technologies.
You should not place undue reliance on these forward-looking
statements, which are applicable only as of November 12, 1997. We
have no obligation to revise or update these forward-looking
statements to reflect events or circumstances that arise after
November 12, 1997 or to reflect the occurrence of unanticipated
events.
17
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
Part II - Other Information
- ---------------------------
Item 6 Exhibits and Reports on Form 8-K.
- ------ ---------------------------------
(a) Exhibits
--------
11a Statement re: Computation of primary earnings per share
for the three months ended September 30, 1997 and 1996.
11b Statement re: Computation of fully diluted earnings per
share for the three months ended September 30, 1997 and
1996.
11c Statement re: Computation of primary earnings per share
for the nine months ended September 30, 1997 and 1996.
11d Statement re: Computation of fully diluted earnings per
share for the nine months ended September 30, 1997 and
1996.
12 Computation of ratio of earnings to fixed charges for
the nine months ended September 30, 1997 and 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
We filed a Current Report on Form 8-K dated October 14, 1997
under Item 5, Other Events, to report our earnings for the
third quarter of 1997.
18
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, an
authorized company official has signed this report on our behalf.
Ameritech Corporation
Date: November 12, 1997 By /s/ Barbara A. Klein
------------------------
Barbara A. Klein
Vice President and Comptroller
(Principal Accounting Officer)
19
<PAGE>
GLOSSARY
Access charges -
- --------------
fees that local phone companies charge to long distance carriers for
the handling of long distance calls on our local network.
Access line -
- -----------
a telephone line for voice, data or video reaching from a local phone
company to a home or business.
Advanced data services -
- ----------------------
services that use advanced technology to allow faster network access
to the Internet and other multimedia and data services.
Call management services -
- ------------------------
services that add value and convenience for phone customers, such as
Call Waiting, Call Forwarding and Caller ID. These services are sold
to customers individually or in "packages".
Customer premises equipment (CPE) -
- ---------------------------------
communications equipment owned by customers, including telephones,
faxes and switches.
Dial 1 + -
- --------
a feature that allows local phone customers to designate a carrier
other than the local service provider for toll calls within their
calling area by simply dialing 1 plus the telephone number.
Digital -
- -------
an alternative to traditional analog communications, digital systems
transport information in computer code for improved clarity and
quality.
Federal Communications Commission (FCC) -
- ---------------------------------------
the federal agency responsible for regulating the interstate aspects
of telecommunications activities.
Financial Accounting Standards Board (FASB) -
- -------------------------------------------
the independent body responsible for setting accounting and financial
reporting standards to be followed by U.S. business enterprises.
Gross receipts taxes -
- --------------------
state and local taxes based upon the gross operating revenues earned
in a particular jurisdiction. These taxes may be imposed on general
businesses or public utilities in lieu of other taxes.
Interconnection -
- ---------------
allowing a competitive local service provider to use the local phone
company's network, or elements of the network, to provide local phone
service to its customers.
Interexchange carriers (IXCs) -
- -----------------------------
those companies primarily involved in providing long distance voice
and data transmission services, such as AT&T, MCI and Sprint.
Internet -
- --------
the global web of networks that connects computers around the world,
providing rapid access to information from multiple sources.
Internet service providers (ISPs) -
- ---------------------------------
those companies providing access to the Internet and other computer-
based information networks.
Intrastate revenues -
- -------------------
that portion of revenues regulated by state rather than federal
authorities.
Landline communication subsidiaries -
- -----------------------------------
the subsidiaries of Ameritech engaged primarily in providing local
phone service and network access in the states of Illinois, Indiana,
Michigan, Ohio and Wisconsin.
20
<PAGE>
GLOSSARY (cont'd.)
Local access and transport area (LATA) -
- --------------------------------------
the boundary within which a local telephone company may provide phone
service. It is usually centered around a city or other identifiable
community of interest.
Local exchange carriers (LECs) -
- --------------------------------------
those companies primarily involved in providing local phone service
and access to the local phone network, including Ameritech's landline
communications subsidiaries in Illinois, Indiana, Michigan, Ohio and
Wisconsin.
Operations support systems (OSS) -
- --------------------------------
the databases and information used to support the provision of
telephone service to end users.
Personal communications services (PCS) -
- --------------------------------------
wireless services, such as cellular phone service and two-way paging,
that use digital technology to provide enhanced call security, longer
battery life and other convenience features.
Price caps -
- ----------
a form of regulation that sets maximum limits on the prices that LECs
can charge for access services instead of limits on rate of return or
profits.
Productivity factor -
- -------------------
a portion of the interstate price cap formula that requires LECs to
reduce the price cap based on an assumed increase in productivity.
Securities and Exchange Commission (SEC) -
- ----------------------------------------
the federal agency that regulates the issuance and trading of public
debt and equity securities in the United States and monitors
compliance with these regulations.
Security services -
- -----------------
services that help secure people and property, including burglar and
fire alarm systems, closed circuit cameras and electronic card
access. Most of our revenue is from the installation and monitoring
of alarm systems.
Switched Minutes of Use -
- -----------------------
the measure of time used to bill IXC's for access to our public
switched network.
Universal service -
- -----------------
a concept designed to ensure access to the telecommunications network
in rural and low-income areas at affordable prices. Funding
typically comes from urban telecommunication operators.
21
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EXHIBIT 11a
AMERITECH CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(Unaudited)
Three Months Ended
September 30
-------------
1997 1996
---- ----
Net income $613,298,000 $518,575,000
============ ============
Weighted average number of
shares outstanding 549,035,348 549,830,266
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 1,909,517 2,425,548
------------ ------------
Weighted average shares outstanding
on which primary earnings per share
are based 550,944,865 552,255,814
============ ============
Primary earnings per share $1.11 $0.94
============ ============
We submit this calculation in accordance with Regulation S-K,Item 601(b)11.
It is 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.
We have restated amounts for the prior year to include the windfall tax
benefit in our determination of the dilutive effect of outstanding options.
EXHIBIT 11b
AMERITECH CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(Unaudited)
Three Months Ended
September 30
-------------
1997 1996
---- ----
Net income $613,298,000 $518,575,000
============ ============
Weighted average number of
shares outstanding 549,035,348 549,830,266
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 2,228,963 2,760,246
------------ ------------
Weighted average shares outstanding
on which fully diluted earnings
per share are based 551,264,311 552,590,512
============ ============
Fully diluted earnings per share $1.11 $0.94
============ ============
We submit this calculation in accordance with Regulation S-K,Item 601(b)11.
It is 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.
We have restated amounts for the prior year to include the windfall tax
benefit in our determination of the dilutive effect of outstanding options.
EXHIBIT 11c
AMERITECH CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(Unaudited)
Nine Months Ended
September 30
-------------
1997 1996
---- ----
Net income $1,686,304,000 $1,563,559,000
============== ==============
Weighted average number of
shares outstanding 549,840,024 552,574,789
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 1,909,517 2,425,548
------------ ------------
Weighted average shares outstanding
on which primary earnings per share
are based 551,749,541 555,000,337
============== ==============
Primary earnings per share $3.06 $2.82
============== ==============
We submit this calculation in accordance with Regulation S-K,Item 601(b)11.
It is 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.
We have restated amounts for the prior year to include the windfall tax
benefit in our determination of the dilutive effect of outstanding options.
EXHIBIT 11d
AMERITECH CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(Unaudited)
Nine Months Ended
September 30
-------------
1997 1996
---- ----
Net income $1,686,304,000 $1,563,559,000
============== ==============
Weighted average number of
shares outstanding 549,840,024 552,574,789
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 2,228,963 2,760,246
------------ ------------
Weighted average shares outstanding
on which fully diluted earnings
per share are based 552,068,987 555,335,035
============== ==============
Fully diluted earnings per share $3.05 $2.82
============== ==============
We submit this calculation in accordance with Regulation S-K,Item 601(b)11.
It is 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.
We have restated amounts for the prior year to include the windfall tax
benefit in our determination of the dilutive effect of outstanding options.
EXHIBIT 12
AMERITECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Dollars in Millions)
Nine Months Ended
September 30
--------------
1997 1996
---- ----
EARNINGS
- --------
Income before interest, income taxes
and undistributed equity earnings.......... $3,070 $2,760
Portion of rent expense
representing interest...................... 55 48
Michigan Single Business tax................ 44 33
Preferred dividends of subsidiaries (2)..... 14 10
------ ------
Total earnings (1)......................... $3,183 $2,851
------ ------
FIXED CHARGES
- -------------
Interest expense............................ $ 371 $ 382
Capitalized interest........................ 19 21
Portion of rent expense representing
interest expense........................... 55 48
Preferred dividends of subsidiaries......... 14 10
------ ------
Total fixed charges......................... $ 459 $ 461
------ ------
Ratio of earnings to fixed charges.......... 6.93 6.18
====== ======
(1) Earnings represent income before income taxes and fixed charges.
Since we have already deducted the Michigan Single Business Tax
(the Tax) and rental expense 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 to arrive at
total earnings.
(2) As required by SEC rules, we have grossed up the preferred stock
dividends to an amount representing the pretax earnings needed to
cover the dividend requirements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S SEPTEMBER 30, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 848,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,295,000
<ALLOWANCES> (320,000)
<INVENTORY> 266,000
<CURRENT-ASSETS> 4,525,000
<PP&E> 33,578,000
<DEPRECIATION> 19,992,000
<TOTAL-ASSETS> 24,566,000
<CURRENT-LIABILITIES> 7,436,000
<BONDS> 4,065,000
0
0
<COMMON> 588,000
<OTHER-SE> 7,410,000
<TOTAL-LIABILITY-AND-EQUITY> 24,566,000
<SALES> 0<F2>
<TOTAL-REVENUES> 11,851,000
<CGS> 0<F3>
<TOTAL-COSTS> 8,936,000
<OTHER-EXPENSES> (178,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 371,000
<INCOME-PRETAX> 2,722,000
<INCOME-TAX> 1,036,000
<INCOME-CONTINUING> 1,686,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,686,000
<EPS-PRIMARY> 3.07
<EPS-DILUTED> 3.07
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE CASH TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN COST OF SERVICE AND
PRODUCTS IN THE FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
</FN>
</TABLE>
