UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number 1-8612
AMERITECH CORPORATION
A Delaware Corporation I.R.S. Employer No.
36-3251481
30 South Wacker Drive
Chicago, Illinois 60606
Telephone Number 1-800-257-0902
Securities registered pursuant to Section 12(b) of the Act:
Common Stock (Par Value $1.00 Per Share)
Preference Stock Purchase Rights
Exchanges on which registered:
Common Stock: New York, Chicago, Boston, Pacific and
Philadelphia
Preference Stock Purchase Rights: New York
Securities registered pursuant to Section 12(g) of the Act:
None
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in a definitive proxy statement or information
statement incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. X
Based on the average sales price, the aggregate market value
of the voting stock held by nonaffiliates of Ameritech
Corporation on February 28, 1997 was approximately
$35,142,000,000 based on the closing price of $63.75 per share.
As of that date, 551,243,884 common shares and preference stock
purchase rights were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to security
holders for the year ended December 31, 1996 (Part II, Items 5
through 8, Part IV, Item 14).
Portions of the registrant's definitive proxy statement
dated February 27, 1997 issued in connection with the annual
meeting of shareowners (Part III, Items 10 through 13).
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TABLE OF CONTENTS
PART I
Item Page
---- ----
1. Business......................................... 1
2. Properties....................................... 15
3. Legal Proceedings................................ 16
4. Submission of Matters to a Vote of Security
Holders ........................................ 17
Executive Officers............................... 17
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters............................. 18
6. Selected Financial and Operating Data............ 18
7. Management's Discussion and Analysis of
Results of Operations and
Financial Condition .......................... 18
8. Financial Statements and Supplementary Data...... 18
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 18
PART III
10. Directors and Executive Officers
of the Registrant................................ 19
11. Executive Compensation........................... 19
12. Security Ownership of Certain Beneficial Owners
and Management.................................. 19
13. Certain Relationships and Related Transactions... 19
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................... 19
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PART I
Item 1. Business.
The Company
Ameritech Corporation (Ameritech or the Company), a holding
company incorporated in 1983 under the laws of the State of
Delaware, has its principal executive offices at 30 South Wacker
Drive, Chicago, Illinois 60606 (telephone number 1-800-257-0902).
The Company provides a wide range of communications services,
including local and long distance telephone, cellular, paging,
directory advertising, security monitoring, cable TV, electronic
commerce and on-line services.
Ameritech operates its business within the framework of
customer-specific business units delivering specialized services
to various categories of customers, each with unique requirements.
The functions of the business units, which include consumer,
business, cellular, advertising and capital services, as well as
services provided to other companies in the communications
industry, overlap the legal entities which form the infrastructure
of the Company. The products and services of all the companies
are marketed under the "Ameritech" brand identity, but the
Company's five landline communications companies remain
responsible within their respective service areas for providing
telephone and other communications services, subject to regulation
by the Federal Communications Commission (FCC) and the respective
public service commissions in Illinois, Indiana, Michigan, Ohio
and Wisconsin.
The Company is one of seven regional holding companies (RHCs)
formed in connection with the court-approved divestiture of
certain assets of AT&T Corp. (AT&T), formerly American Telephone
and Telegraph Company. Effective January 1, 1984, AT&T
transferred to Ameritech its 100% ownership of the exchange
telecommunications, exchange access and printed directory
advertising portions of Illinois Bell Telephone Company; Indiana
Bell Telephone Company, Incorporated; Michigan Bell Telephone
Company; The Ohio Bell Telephone Company and Wisconsin Bell, Inc.
(referred to collectively as the "Ameritech landline
communications subsidiaries" and individually as Ameritech
Illinois, Ameritech Indiana, etc.), as well as a cellular
communications company.
The consent decree, entitled "Modification of Final Judgment"
(Consent Decree), as originally approved in 1982 by the United
States District Court for the District of Columbia (Court), placed
restrictions on the post-divestiture activities of the seven RHCs,
including Ameritech. Relief from these restrictions could be had
only upon a showing to the Court that there was no substantial
possibility that the requesting company could use its monopoly
power to impede competition in the market it sought to enter.
Over time, the Court granted waivers to the RHCs to engage in
otherwise prohibited lines of business, including the right to
offer information services. The Company sought to remove or
modify the remaining restrictions, which included prohibitions on
providing long distance services and manufacturing
telecommunications equipment. These efforts were suspended upon
the passage of the Telecommunications Act of 1996 (Telecom Act).
The Telecom Act effectively superseded future operation of the
Consent Decree. Consequently, in April 1996, the Court issued an
order terminating the Consent Decree and dismissing all pending
waiver requests.
Implementing the Telecom Act
On February 8, 1996, the first comprehensive overhaul of
telecommunications legislation in 62 years was signed into law,
removing barriers that prevented the phone, cable TV and broadcast
industries from entering each others' businesses. The Telecom Act
addresses various aspects of competition within, and regulation
of, the communications industry. Among other things, the new law
defines the conditions under which Ameritech and the other RHCs
may offer long distance service and provides certain mechanisms
intended to facilitate local exchange competition. The Act gives
the FCC the authority to determine when the incumbent local
exchange carriers have satisfied the statutory criteria required
to provide long distance service in an in-region state, including
meeting a 14-point competitive
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checklist. For the RHCs, immediate relief under the new law
included permission to provide in and out-of-region cellular long
distance, out-of-region landline long distance and certain
incidental long distance services. The law eliminates any
remaining barriers to companies wishing to compete against
providers of local phone service.
As required by the new law, in August 1996 the FCC adopted
rules to implement the local competition provisions. The rules
require local exchange carriers, among other duties, to (1)
provide interconnection to any telecommunications carrier at any
technically feasible point, equal in quality to that provided for
the local exchange carrier's own operations; (2) provide such
carriers with access to network elements on an unbundled basis;
and (3) offer for resale, at wholesale rates, any
telecommunications services that the local exchange carrier
provides at retail to subscribers who are not telecommunications
carriers. The FCC's rules address pricing for interconnection,
unbundled network elements and resale of telecommunications
services.
In October 1996, in an order entered in an appeal filed by
certain local exchange carriers, the U.S. Court of Appeals for the
Eighth Circuit stayed the portion of the FCC rules with respect to
pricing and the FCC's so-called "pick and choose" rules. The U.S.
Supreme Court declined to overturn the appeals court stay. The
stay will be in effect until the appeals court decides on the
merits of those provisions, which is likely in 1997. Although
Ameritech filed a separate lawsuit, the appeals court consolidated
all challenges to the FCC rules. In the meantime, the rest of the
FCC's interconnection rules remain in effect.
It will not be possible to determine what effect the FCC rules
will have on the Company's business until challenges to the rules
have been resolved and the state regulatory commissions have acted
on the matters within their jurisdictions.
Ameritech's Full-Service Communications Business
Landline Communications Services
Ameritech furnishes a wide variety of advanced communications
services, including local exchange and toll service, network
access and communications products, to more than 12 million
business, residential and communications company customers in an
operating area comprised of 37 Local Access and Transport Areas
(LATAs) in Illinois, Indiana, Michigan, Ohio and Wisconsin. These
LATAs are generally centered on a city or other identifiable
community of interest, and each LATA marks the boundary within
which each Ameritech landline communications company may provide
telephone service. The companies provide two basic types of
communications services. They transport communications traffic
between a subscriber's equipment and the telephone exchange
offices located within the same LATA (intraLATA service). These
services include local exchange, private line and intraLATA toll
services (including 800 and special services for data, radio and
video transport). In addition, they provide exchange access
service, which links a subscriber's telephone or other equipment
to the transmission facilities of long distance carriers, which in
turn provide communications service between LATAs (interLATA, or
long distance, service).
The Company also provides directory publishing, public
telephone and local and toll operator services, including collect
calls, third number billing, person-to-person and calling card
calls. It offers call management services, including voice mail,
Caller ID, call waiting and call forwarding, as well as digital
network services such as on-line database access and fax
messaging, document sharing functions and video conferencing for
desktop computers. A new national directory assistance service
became available in the Chicago and Detroit areas in 1996, with
plans calling for this service to be offered across the region.
Ameritech provides billing and collection services for several
companies, including billing for long distance services offered by
certain long distance carriers, some of which began billing their
own customers in 1996. In 1996, Ameritech launched the first
phase of a plan to offer a single bill for local, local toll,
cellular, paging and security monitoring services, with cable TV
and Ameritech long distance services to be added at a later date.
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Ameritech markets its local phone services on a wholesale basis
to certain carriers that resell services from the Company's
network. At year end, the Company served more than 3,000 network
and information providers, including cellular, personal
communications services (PCS) and other communications companies,
who buy services to use in their product offerings.
Local service is a growing segment of the market. Ameritech
added 647,000 customer access lines in 1996, bringing the total to
19.7 million, primarily the result of second line additions as
residential customers installed fax machines and added modems for
Internet access and data transmission. Demand for call management
services also increased as customers sought greater convenience
and control over their telephone communications. Business lines
grew by almost 7.0% to 6.6 million and residential lines increased
by 3.1% to 12.4 million. Call management subscribership increased
by 24%. At the end of 1996, the Company led its industry peers in
productivity with 392 customer lines per landline communications
company employee, a 5.1% increase in 1996. As of December 31,
1996, 83% of Ameritech's customer lines were served by digital
switches and 95% were served by fiber optic cable.
The following table sets forth the number of access lines
served by Ameritech at the end of each of the last five years:
Access lines in service
(in thousands)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Illinois.................. 6,473 6,258 5,983 5,763 5,586
Indiana................... 2,086 2,018 1,924 1,855 1,770
Michigan.................. 5,124 4,979 4,747 4,563 4,431
Ohio...................... 3,884 3,754 3,609 3,481 3,380
Wisconsin................. 2,137 2,048 1,976 1,898 1,834
Total lines............... 19,704 19,057 18,239 17,560 17,001
Percent increase over prior
year.................... 3.4 4.5 3.9 3.3 2.5
Regulatory Environment - Federal
The Ameritech landline communications subsidiaries are subject
to the jurisdiction of the FCC pursuant to applicable law. The
FCC prescribes for communications companies a uniform system of
accounts, rules for apportioning costs between regulated and
nonregulated services, and the principles and standard procedures
used to separate regulated property, plant and equipment costs,
revenues, expenses, taxes and reserves between those applicable to
interstate services under the jurisdiction of the FCC and those
applicable to intrastate services under the jurisdiction of the
respective state regulatory authorities.
The transformation of the local exchange business has been
underway for some time, even before recent federal legislation.
Ameritech's interstate revenues are now regulated by a price cap
mechanism rather than by rate-of-return regulation. The FCC's
price cap regulatory scheme sets maximum limits on the prices that
local exchange carriers can charge for interstate access as
compensation for the use of their facilities for the origination
or termination of long distance and other communications by other
carriers. The limits are adjusted each year to reflect inflation,
a productivity factor and certain other cost changes. Under price
caps, local exchange carriers have increased flexibility to change
prices of access services, as well as prices for interstate
intraLATA and video dial tone service offerings, provided they do
not exceed the allowed price cap. Under interim changes to the
price cap plan, the FCC adopted three productivity/sharing
options. Ameritech elected the 5.3% productivity factor which
allows the Company to retain all of its earnings, whereas election
of a lower factor would require earnings to be shared with
customers. The FCC has established a rulemaking proceeding to
consider permanent changes to its price cap regulation plan.
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One major regulatory uncertainty concerns access charge reform.
In December 1996, the FCC laid out its proposals in this area,
asking for comments on a number of steps it would take to
restructure the fees to make the system compatible with the pro-
competitive deregulatory framework established by the Telecom Act.
This move was the third in a trilogy of FCC actions that it has
said are designed to foster and accelerate the introduction of
efficient competition in all telecommunications markets. In
August 1996, the FCC released its Interconnection Order to
implement the local competition provisions of the Telecom Act. In
November 1996, the Federal-State Universal Service Joint Board
issued its recommendations to the FCC for reforming the existing
system of universal basic telephone service, which is the part of
access charges used, among other things, to subsidize local
service in high cost areas of the country. The goal is to
preserve and advance universal service in a manner that permits
local telephone markets to move from monopoly to competition. The
FCC's current access charge policies were adopted at the time of
the divestiture by AT&T. These policies were designed primarily
to promote competition in the interstate, interexchange market by
ensuring that all long distance companies would be able to
originate and terminate their traffic over incumbent local
exchange carrier networks at just, reasonable and
nondiscriminatory rates. Although these policies contemplated
long distance competition, they did not attempt to address the
potential effects of full competition. Final rules on access
charges are expected in May 1997. In a separate proceeding, the
FCC is working to overhaul the mechanism to determine the actual
cost of universal service and how those costs will be recovered.
As part of the process of reforming the interstate access
charge system, the FCC sought comment on the treatment of Internet
and other information service providers (sometimes referred to as
enhanced service providers) that also use the local exchange
carriers' facilities. Since the access charge system was
established in 1983, enhanced service providers have been
classified, for purposes of the access charge rules, as end users
rather than carriers and therefore are exempt from access charges.
The FCC made no specific proposals, but tentatively concluded that
enhanced service providers should not be subject to access charges
as currently constituted.
Other FCC Matters
In June 1996, the FCC adopted rules that will allow customers
to switch local exchange carriers without having to change their
phone numbers. Under the rules, by the end of 1998 the one
hundred largest metropolitan areas must have "number portability"
that meets FCC standards, and local exchange carriers are required
to offer temporary number portability, such as remote call
forwarding, immediately. The FCC has not yet decided whether
wireless carriers must offer portability. The groundwork for
number portability was already laid in Illinois in March 1996 when
the state regulatory commission approved a stipulated agreement
among Ameritech and other telecommunications carriers, the first
of its kind in the nation, to implement number portability as soon
as technically feasible in the Chicago area, as early as 1997.
In July 1996, the FCC announced that the former Bell operating
companies of AT&T (Bell Companies) providing out-of-region long
distance service through an affiliate will be regulated as
"nondominant carriers" as long as they meet three requirements.
The interim rules allow the Bell Companies nondominant carrier
status if their affiliated companies maintain accounting records
separate from those of the parent company, do not jointly own
transmission or switching equipment with the parent company and
obtain services from the parent company at tariffed rates.
Nondominant carriers do not face price cap regulation and their
tariffs take effect on one day's notice, compared with at least
two weeks for dominant carriers. The FCC plans to establish final
rules for Bell Company out-of-region services in another
rulemaking that began in March 1996.
In December 1996, the FCC issued transitional structural and
accounting rules that apply to the provision of certain services
provided by the Bell Companies including in-region long distance
services. These rules require that certain services be provided
through a separate affiliate and prohibit joint ownership of
switching and transmission facilities. In addition, they call for
nondiscrimination between the affiliate and nonaffiliate long
distance carriers, subject to certain exceptions. The FCC order
did not resolve the issue of whether Bell Company in-region long
distance affiliates will be considered nondominant.
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Regulatory Environment - State
The Ameritech landline communications subsidiaries are also
subject to regulation by state commissions with respect to certain
intrastate rates and services. Ameritech operates under price
regulation in each of the states in its region. Under some of
these regulatory regimes, in exchange for certain regulatory
freedoms the Company has agreed to certain rate reductions and
moratoriums on price increases for two to six years. Ameritech
has asked all five state commissions in its region to declare that
its statement of generally available terms and conditions for
interconnection meets the competitive checklist under the Telecom
Act.
Illinois
Advantage Illinois, approved by the Illinois Commerce
Commission (ICC) in 1994, provided a new framework for regulating
Ameritech Illinois by capping prices for noncompetitive services.
At the same time, the monthly line charge for residential
customers and residential calling rates within local calling areas
was capped at November 1994 levels for five years. In return for
these price protections, the ICC removed a ceiling on earnings to
reflect the increasingly competitive communications industry and
to create the incentive to invest in new technology, develop new
services and improve efficiency.
In April 1996, Ameritech Illinois implemented Dial 1+
capability in its local toll markets, giving customers the ability
to choose an alternate carrier for intraLATA toll calls by dialing
1 before the phone number. The ICC issued an order in June that
set rules and pricing mechanisms for interconnection, unbundled
network elements and the wholesale discount to resellers of local
services. The order was in response to an AT&T petition that
requested a wholesale price for retail services of Ameritech
Illinois and another Illinois local exchange carrier. In July
1996, the company implemented a $31 million general rate
reduction, including price cuts for residential calling, Caller ID
and other optional features and monthly line charges for business
customers statewide. This was the third consecutive year of price
reductions under the Advantage Illinois plan totaling $164
million. In November, the ICC allowed Ameritech's statement of
generally available terms and conditions for interconnection to go
into effect, subject to further review by the ICC. In February
1997, a Second Interim Order was issued by the ICC which
incorporated updates based on an interconnection agreement
recently approved by the ICC.
Indiana
In 1994, the Indiana Utility Regulatory Commission (IURC)
approved the Opportunity Indiana plan. Under the plan, market-
based pricing and flexibility was instituted for competitive
services, including Centrex, dedicated communications services,
800 service, WATS, operator services and business intraLATA toll
service. Monthly rates for basic local residential service
decreased by more than two dollars over two years and remain
capped until 1998. In addition, Ameritech Indiana is investing up
to $120 million in infrastructure to extend advanced
communications links, including two-way interactive video, to
interested schools, hospitals and major government institutions by
the year 2000.
Michigan
Ameritech Michigan is governed by the Michigan
Telecommunications Act (MTA), which is in effect until January
2001. Under the law, Ameritech Michigan is authorized to
restructure local exchange, toll and access rates to address
historical subsidies built into rates. The MTA ended rate
regulation of intraLATA toll and payphone services and streamlined
the procedures to obtain increases in local exchange rates.
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Ameritech Michigan began rebalancing its local exchange pricing
structure in February 1996. The previous structure, designed more
than 60 years ago, included subsidies that deterred competition.
Prices for basic local services were increased by a maximum of 99
cents per month for business and certain residential customers.
Some residents saved as much as 14 cents per month. This was the
company's first increase in residential prices and the second
increase in business prices since 1984.
In July 1996, as a result of a Michigan Public Service
Commission (MPSC) order requiring Ameritech Michigan to either
discount intraLATA access rates or provide dialing parity on toll
calls in over 80% of its exchanges, the company announced plans to
reduce certain access fees to long distance companies in Michigan
by 55%. Beginning January 1, 1996, consumers in certain Ameritech
Michigan exchange areas were able to use Dial 1+ capability for
intraLATA toll calls. In December 1996, the Michigan Court of
Appeals issued a stay of the MPSC orders requiring statewide
implementation of dialing parity. The stay will continue until
the Court of Appeals can hear the entire case and render a
decision. The Michigan Supreme Court declined to vacate the stay.
Ameritech Michigan already provides Dial 1+ capability to over 70%
of its access lines. More customers will be given this capability
as the company proceeds through the regulatory process to offer
interLATA long distance service.
In January 1997, Ameritech Michigan filed for commission
approval to continue the rate restructuring to better align
telecommunications prices with their costs. If approved by the
MPSC, the changes could become effective in early May 1997.
Ohio
In January 1995, Ameritech Ohio implemented its Advantage Ohio
price regulation plan following approval by the Public Utility
Commission of Ohio (PUCO). Under the plan, overall rate changes
are subject to price caps. Rates for all services were capped in
1995 and rates for basic access lines and usage were capped for an
additional five years. The plan provides for the ability to
flexibly price competitive and discretionary services. A series
of rate reductions totaling $84 million annually are being phased
in over a six-year period including reductions in the rates for
residential local usage and access lines, reductions in carrier
access charges and the deaveraging of access line rates.
Ameritech Ohio committed to meeting certain benchmarks for the
deployment of advanced technology to schools, hospitals and
libraries, funding of community computer centers, a discounted
Lifeline telephone service for low-income customers and $21
million in grants for new technology in public schools and for
economic development.
In March 1996, the Ohio Supreme Court released an opinion
reversing the PUCO's order that approved the Advantage Ohio plan
and remanding the matter to the commission. The court ruled that
the PUCO exceeded its statutory authority when it used alternative
rate-setting methods to establish basic local exchange service
rates because of the procedure followed by the company and the
commission. In June 1996, the governor of Ohio signed into law a
bill that restored the original benefits of the plan and included
$21 million in intrastate access charge reductions, as well as
additional customer benefits in the event Ameritech Ohio does not
meet prescribed levels of service.
Wisconsin
With passage of a telecommunications bill in 1994, the Public
Service Commission of Wisconsin (PSCW) regulates Ameritech
Wisconsin prices rather than earnings. Under the law, price
regulation places no limits on how much the company can earn in
Wisconsin. Ameritech Wisconsin filed tariffs to adopt pure price
regulation effective September 1, 1994. Prices were reduced by
$35 million on an annualized basis. An additional $10 million
carrier common line access charge reduction was phased in over a
two year period ending in 1996. Under the terms of the bill,
Ameritech Wisconsin committed to spending, by the year 2000, at
least $700 million on new equipment and technology, extending
fiber optics to hundreds of secondary schools, technical colleges,
universities, hospitals and libraries in the state.
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In 1995, tariffs were filed, effective January 1, 1996, which
required implementation of Dial 1+ capability. By September 1996,
all of Ameritech Wisconsin's service area had been converted to 1+
dialing.
In 1996, the PSCW referred a quality of service complaint
against Ameritech Wisconsin to the state Attorney General's office
for prosecution and appealed a county circuit court's decision
that dismissed the commission's direct civil court action against
the company. The PSCW sued Ameritech Wisconsin regarding
compliance with service standards in 1995, but the suit later was
dismissed by the county court. The Company has made a good-faith
effort to offer additional compensation to customers throughout
the region affected by past service problems and has taken steps
to ensure that customers receive excellent service, including
improving productivity, hiring additional service technicians and
upgrading internal systems for dispatching repair crews. The
Company's service problems in the summer of 1995 resulted from
severe weather that caused service disruptions, as well as
personnel shortages resulting in part from an early retirement
offer in 1994 and 1995 that proved more popular than anticipated.
In April 1997, Ameritech Wisconsin plans to introduce a flat
rate plan for local toll calls. The new rate will replace the
company's current local toll pricing structure which includes over
40 different rates.
Other State Matters
Ameritech has negotiated and secured state commission approval
of a significant number of agreements with competing local
carriers to interconnect to Ameritech's network, as provided for
under the Telecom Act. The state commissions have issued
arbitration rulings to settle negotiations between the Company and
various carriers on issues involved in opening local phone service
to competition. Final agreements based on these actions will
provide competitive carriers with the services and network
elements they seek in order to enter the local service market.
Cellular and Other Wireless Services
Ameritech provides wireless transport of voice, data and video,
plus certain call management services, to more than 2.5 million
cellular customers in Illinois, Indiana, Hawaii, Michigan,
Missouri, Ohio and Wisconsin. In 1996, the Company added
approximately 620,000 cellular customers to its base, a 33%
increase over the prior year. Commercial introduction of
ClearPath [SM], the Company's new Code Division Multiple Access
(CDMA) digital cellular service, offering improved call clarity,
longer battery life, superior privacy, fraud protection and call
management features, is planned for the Chicago area in mid-1997,
with the Detroit market to follow.
Upon passage of the Telecom Act, the Company offered long
distance service to its cellular customers in Illinois, Indiana,
Michigan, Ohio, Wisconsin and Missouri and is currently serving
more than a million customers with cellular long distance service.
Long distance calls originating within but terminating outside of
the region are carried by two long distance companies, WorldCom,
Inc. and Teleglobe Inc.
The explosion in communication connectivity has caused the
market for managing, storing, processing and using information to
grow. Consequently, the requirement of the network to transport
data, in addition to voice messages, is rapidly increasing.
Ameritech's wireless data solutions help mobile workers respond to
their customers faster by enabling them to access computer
information at the office.
Worldwide, the Company, including companies owned partially by
Ameritech, serves approximately 3.9 million cellular customers.
Ameritech has interests in strategic cellular partnerships in
Norway, China and, until recently, Poland, and has investments in
other cellular providers, discussed in the section on Ameritech's
Global Expansion.
The Company currently provides local and nationwide paging
services to customers using more than 1.1 million paging units in
Illinois, Indiana, Michigan, Minnesota, Missouri, Ohio and
Wisconsin, a 53% increase over 1995. In 1994, Ameritech won the
narrowband PCS regional license to offer two-way paging in the
Midwest. The Company
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plans to offer 2-way paging to customers regionwide beginning in
1997. The return paging channel will enable users of two-way
pagers to acknowledge a page and, eventually, to provide a
detailed response. New products and services will provide
customers with a wireless e-mail connection to the Internet,
allowing customers to receive and send e-mail anytime, anywhere.
In 1995, Ameritech acquired broadband PCS licenses in the
Cleveland and Indianapolis major trading areas and has begun
system construction in both of these markets. These licenses
cover almost 8 million potential customers and will provide an
effective complement to the Company's existing cellular and
landline networks. Ameritech is currently offering wireless
services to customers in Indianapolis and Cleveland through resale
agreements and plans to provide facility-based services beginning
in 1998.
Directories and Electronic Advertising Services
Ameritech provides directory and electronic advertising to
local, regional and national businesses throughout its five state
region. The Company publishes more than 450 Ameritech
PagesPlus[R] white and yellow pages directories in Indiana,
Wisconsin, Ohio and Michigan and, in partnership with Donnelley
Directory, in Illinois and northwestern Indiana, with a total
distribution of over 40 million.
In order to complement its existing product lines and leverage
its present content investments, Ameritech introduced its on-line
Yellow Pages in 1996. The service links Internet users to more
than 10 million businesses in the United States and thousands of
other World Wide Web information and shopping sources. The
Ameritech[SM] Internet Yellow Pages, located at yp.ameritech.net,
provides extensive national, regional and local information in the
familiar yellow pages directory format. In addition to offering
simple listings, Ameritech develops custom web sites to help
advertisers meet their promotional and business needs.
Capital Services
Ameritech offers a wide range of leasing and equipment
financing solutions for medium to large businesses and
governmental units. The Company has financed more than $2.5
billion worth of equipment and services since 1984, serving
approximately 6,000 customers in all 50 states.
Ameritech's New Services
Cable TV
Currently, Ameritech cable TV systems are in operation in 20
communities in the Chicago, Detroit, Cleveland and Columbus areas.
The Company has 35 franchise agreements representing 700,000
households and more than 1.7 million people. Ameritech, GTE
Corporation, The Walt Disney Company, BellSouth Corporation
(BellSouth), SBC Communications Inc. and Southern New England
Telecommunications Corporation (SNET) are partners in a venture
designed to develop, acquire, package and market traditional and
interactive video programming to millions of consumers nationwide.
The agreements provide that the Los Angeles-based joint venture,
named Americast, will be funded collectively by the five original
partners with $500 million over a five-year period, plus a smaller
investment from SNET. Initially, the americast [TM] package of
programming delivered by Ameritech is a comprehensive offering of
80 to 90 channels which could expand to include several hundred
channels in the next few years. The venture is developing a
navigator, software that creates an on-screen viewing environment,
to allow customers to access these services with ease.
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Security Monitoring
Ameritech is the United States' second largest provider in the
security monitoring business through the acquisitions of
SecurityLink in December 1994 and The National Guardian
Corporation in October 1995. In July 1996, the Company purchased
the security monitoring assets of Richmond, Virginia-based Circuit
City Stores, Inc. In addition, Ameritech agreed to provide
security monitoring for Circuit City's 536 U.S. stores. In
September 1996, the Company formed a strategic alliance with
FirstService Corp. by purchasing the security monitoring assets of
Pre-Alert Security Systems, Inc. and certain security monitoring
accounts of Intercon Security Ltd. Both companies are based in
Toronto, Canada. In November 1996, Ameritech formed a strategic
alliance with Toronto-based Romex Security Systems, Inc., making
the combined operations the largest security monitoring services
provider in Canada. Under the agreement, the Company's Canadian
subsidiary acquired the assets of Romex, including monitoring
contracts, its alarm monitoring station and its regional alarm
response services. Romex management will continue to oversee the
operation's strategic direction and development in coordination
with SecurityLink's Canadian management team.
SecurityLink [SM] from Ameritech offers a full array of
security products and services for homes and businesses, including
burglar and fire alarm systems, personal emergency response
service, closed circuit TV and electronic access control. The
Company currently serves approximately 367,000 residential and
business customers in all 50 states and Canada.
Long Distance Services
Under the Telecom Act, Ameritech and the other RHCs must open
their respective local markets to competition by implementing a 14-
point checklist before they can offer interLATA long distance
service to their local landline customers. The FCC will determine
whether or not an RHC has satisfied the statutory criteria,
including the competitive checklist, compliance with structural
and accounting rules and whether its entry into long distance is
consistent with the public interest. An RHC is restricted from
providing interLATA long distance service until the FCC determines
that the statutory criteria have been met. The FCC will give
substantial weight to Department of Justice recommendations in
reviewing RHC entry into the market. The FCC has 90 days to act
upon a local exchange carrier's application to provide interLATA
long distance service.
InterLATA long distance is a $9 billion market in the Ameritech
local service area. The Company expects to offer landline long
distance service within its region in 1997. Ameritech is certified
to provide long distance service in all states outside its five-
state region. Long distance carriers, WorldCom, Inc. and
Teleglobe Inc., will complete long distance calls outside the
Ameritech region on a resale basis.
Under the Telecom Act, Ameritech and the other RHCs were
allowed to provide long distance service immediately to their
cellular customers, regardless of location. Since February 1996,
more than one million of the Company's 2.5 million cellular
customers have signed up for Ameritech's long distance service.
Managed Services
Ameritech and IBM Corporation have formed an alliance that
establishes the companies as leaders in the $35 billion desktop
computing and communications market. The companies jointly market
integrated voice, data and video managed desktop services for
businesses, providing customers with a single point of contact for
managing every aspect of desktop-based communications and
computing systems, including personal computers, software,
telephones, videoconferencing, PBXs and local area networks.
Ameritech GlobalDesk is targeting major corporate clients
concerned with improving their information and telecommunications
systems in multiple locations, including employees working in
remote locations or from their homes. The business operates a 24-
hour customer service facility seven days a week to provide
technical and consulting support for these services. Through
GlobalDesk, Ameritech serves major customers throughout the United
States including Motorola, Inc., UAL Corp. and Baxter
Laboratories, Inc.
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Internet Access
The Company's dial-up Internet access service was launched in
January 1997. Ameritech.net [SM] provides easy-to-use Internet
service designed specifically for consumers and small business
owners. In addition to affordable pricing plans, users have
access to the Internet's most popular features, including the
World Wide Web, e-mail and chat and news groups. Ameritech,
BellSouth, Bell Atlantic Corporation (Bell Atlantic), Pacific
Telesis Group and SBC Communications Inc. joined in a marketing
agreement with Netscape Communications Corporation establishing
Netscape's Navigator software as the default browser for their
respective Internet services. Initially, Ameritech.net [SM] is
being offered in the Chicago, Cleveland and Detroit metropolitan
areas.
Electronic Commerce
Ameritech has invested in several businesses in the electronic
commerce market. Electronic commerce connects businesses with
customers and trading partners, linking networks, software and
content to provide paperless information access, retrieval and
processing.
CivicLink [SM] is an electronic gateway connecting business
users to public record databases. Ameritech Library Services is
the world's leading provider of library management systems and
information access solutions to national and international library
markets, serving more than 3,700 libraries in 32 countries. The
Electronic Business Exchange is a product introduced in 1996 which
provides network access for the exchange of business information
between Ameritech's customers and their suppliers. Public
finance.com is a secure private network and a shared public World
Wide Web site in one integrated package that provides governments
and public finance professionals in the U.S. and Canada with a
single source of communications and a suite of high-performance
network management tools. Ameritech also holds a $473 million
debt security of GE Information Services, Inc. (GEIS), a global
leader in the electronic commerce market. GEIS has introduced to
more than 40,000 customers worldwide a variety of Ameritech's
electronic services in the areas of healthcare, energy management
and distance learning.
Ameritech's Global Expansion
Ameritech's growing businesses reach customers in all 50 states
and more than 40 countries. International investments contributed
more than one-third of Ameritech's earnings growth in 1996 and
have an estimated value of more than $4 billion. The Company
expects to continue to pursue other opportunities in Europe, Asia
and the Pacific Rim, concentrating on expanding markets in
countries that combine substantial growth potential with a high
degree of economic and political stability. The Company has
invested in three of the world's largest privatizations, in
Belgium, Hungary and New Zealand.
Belgium
In 1996, Ameritech and its consortium partners, Tele Danmark
A/S, Singapore Telecommunications Limited (Singapore Telecom) and
several Belgian investors, paid approximately $2.5 billion to
acquire a 49.9% stake in Belgacom S.A., the national
telecommunications operator in Belgium. With 4.7 million access
lines, Belgacom provides local and long distance service in
addition to serving 400,000 cellular customers in a country of 10
million people. Belgacom is growing through the rapid
introduction of new services, such as 800 service and call
management features. Ameritech expects to play a key role in
preparing Belgacom for telecommunications deregulation and
competition now taking place throughout Europe. The consortium's
stake in Belgacom represents the largest single investment in
Belgium by an American company and the Belgacom acquisition was
Belgium's largest commercial transaction. Ameritech has a 35%
consortium share, which is approximately 17.5% of Belgacom.
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Canada
Atlantic Canada On-Line (ACOL) is a private consortium,
including Ameritech and three Canadian companies, Unisys Canada,
CCL Group and Software Kinetics, formed to establish the first
regional on-line government information service in Canada. ACOL
will utilize CivicLink, Ameritech's electronic commerce platform
mentioned earlier in the section entitled "Electronic Commerce",
to make government information available electronically in the
provinces of New Brunswick, Newfoundland, Nova Scotia and Prince
Edward Island. Ameritech is providing the CivicLink platform,
custom application development, business and marketing experience
and a variety of technical and operational support. ACOL became
operational in 1996.
The acquisition of security monitoring assets in 1996 make
Ameritech the largest security monitoring services provider in
Canada. The full scope of the Company's service offerings is
covered earlier in the section entitled "Security Monitoring."
China
In 1995, Ameritech opened an office in Beijing and announced a
25-year joint venture with China Communications System Company
Ltd. (ChinaCom), a communications systems and engineering company,
to assist the People's Republic of China in the development of its
telecommunications infrastructure. The joint venture, Ameritech's
first in China, and ChinaCom's first with a U.S. communications
company, is providing funding, advanced communications technology
and management consulting to assist China in achieving its
telecommunications development goals. The venture is building a
Global System for Mobile Communications (GSM) digital cellular
system and fixed tandem switched network for Taiyuan, the capital
of Shanxi province. The alliance expects to begin service in
1997.
Europe
Ameritech owns WLW (formerly known as Wer liefert was, or Who
supplies what?), a leading Germany-based publisher of business-to-
business directories for Germany, Austria, Switzerland, Belgium,
Luxembourg, the Netherlands, Croatia, Solenia, Slovakia and the
Czech Republic. WLW publishes product and company information on
approximately 210,000 European companies and has a current annual
circulation of over 80,000, half of which is distributed on CD-
ROM. WLW now provides complete information service on the
Internet at www.wlw.de. Further expansion plans, including
creation of an on-line catalog, are underway.
Hungary
Since 1993, Ameritech and its partner, Deutsche Telekom AG,
have had an interest in MATAV, the Hungarian telecommunications
company. MagyarCom, the alliance owned in equal shares by
Ameritech and Deutsche Telekom, owns 67% of the company. The
Hungarian government owns most of the remaining 33%. MATAV is the
principal provider of local, long distance and international
telephone service and the controlling shareowner in cellular
ventures using both analog and GSM digital technology. MATAV has
approximately 2.1 million access lines in a country of 10.5
million people and serves more than 297,000 cellular subscribers.
MATAV expects to increase the number of telephone lines in Hungary
by more than 8% annually through the year 2001.
New Zealand
In 1990, Ameritech and Bell Atlantic purchased Telecom
Corporation of New Zealand Limited (New Zealand Telecom), New
Zealand's state-owned principal supplier of domestic and
international communications services, including local, long
distance, cellular, satellite TV and directory services. After
public offerings and private sales of New Zealand Telecom stock
required by the government at the time of the acquisition,
Ameritech and Bell Atlantic
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each have a 24.8% interest in the company. New Zealand Telecom
currently serves approximately 1.8 million customer lines and
approximately 403,000 cellular customers. Since 1990, the value
of New Zealand Telecom shares has more than tripled, the average
price of international toll calls has declined by 10% and cellular
service has increased by 24%. In November 1996, New Zealand
Telecom announced plans to repurchase in 1997 a portion of its
stock. Ameritech anticipates selling to New Zealand Telecom a
portion of its shares, which will result in cash proceeds to
Ameritech of approximately $165 million (based on the December 31,
1996 exchange rate), while not materially changing its ownership
interest.
Norway
In 1992, Ameritech agreed to acquire a 25% interest in NetCom,
a start-up Norwegian cellular telephone company. Netcom began
providing GSM digital cellular service in September 1993. In
1996, a public offering of shares reduced Ameritech's ownership to
19.7%. At over 23%, Norway has the highest per capita use of
cellular telephones in the world. With nearly 283,000 current
customers, NetCom has constructed an extensive mobile
infrastructure network covering over 90% of the population.
Poland
In December 1996, Ameritech sold its interest in Centertel, an
analog cellular telephone provider in Poland, to its partners in
the joint venture. In 1991, Ameritech, France Telecom and
Telekomunikacja Polska SA, Poland's state-owned telephone company,
created Polska Telefonia Komorkowa to build the nationwide
cellular system. Initially, Telekomunikacja Polska owned 51% of
the joint venture, with Ameritech and France Telecom holding equal
shares of the remainder. In connection with the disposition of
Ameritech's interest in the joint venture, the Company settled its
arbitration claim against the Polish government which alleged
breach of contract over the government's failure to award a GSM
digital cellular system license to Centertel.
Worldwide
In 1994, Ameritech made a debt investment in GE Information
Services, Inc., a global leader in electronic commerce services.
Ameritech Library Services provides advanced management systems
and information access solutions to national and international
library markets. These businesses are mentioned earlier in the
section entitled "Electronic Commerce."
Ameritech's European Headquarters
An Ameritech Europe office opened in October 1996 in Brussels,
Belgium, establishing a headquarters for Ameritech's European
operations and an expansion center for possible new business
ventures. Located in the heart of Europe and home to numerous
multinational corporations, Belgium is an international trading
center and headquarters for the European Commission and the North
Atlantic Treaty Organization (NATO).
Other Business Interests
Ameritech, in an arrangement with Household International, Inc.
(Household), offers a no fee, dual-purpose credit card and calling
card, the Ameritech Complete[R] Card. The Complete Card is
offered as either a Visa or MasterCard. Consumers may use the
card to charge telephone calls as well as goods and services. The
Complete Card has no annual fee and competitive interest rates, a
10% cash back offer from Household for certain Ameritech Calling
Card calls and a second cash back feature on credit card
purchases. Under the arrangement between the companies, Household
owns and finances the credit card receivables and Ameritech funds
certain marketing expenses. Since its introduction in 1991, the
Complete Card has attracted over one million cardholders.
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In November 1996, the RHCs announced the sale of their jointly-
owned research arm, Bell Communications Research, Inc. (Bellcore),
to a California-based defense contractor, Science Applications
International Corp. (SAIC). Ameritech and each other RHC owns an
equal one-seventh interest in Bellcore. The Board of Directors of
Bellcore decided to sell the company as a result of changing
developments in the communications industry and the owners'
diverging strategies and business plans. Bellcore has furnished
the RHCs with technical support, such as applied research, network
planning, engineering and software development, and has served as
a central point of contact for coordinating the efforts of the
RHCs in meeting national security and emergency preparedness
requirements of the federal government. The transaction is
expected to be concluded around January 1, 1998, subject to
obtaining necessary regulatory approvals.
Bellcore, based in Morristown, New Jersey, has approximately
5,800 employees and annual revenue of $1 billion. SAIC, which
derives most of its business from government contracts, primarily
from consulting, is expected to utilize Bellcore's considerable
software and programming talent. Under terms of the sale, SAIC
would honor contractual obligations to provide Bellcore's current
owners with technical support and basic research and software
assistance. Bellcore's current national security functions will
be handled by a new organization to be funded initially by the
RHCs. The new organization, the National Telecommunications
Alliance, will ensure the national security and emergency
preparedness requirements are met.
Competition - Evolution of the Industry
Because of the Telecom Act, the communications landscape is
rapidly changing. One objective of the new law was to foster
local exchange competition by establishing a regulatory framework
to govern the provision of local and long distance
telecommunications services. It permits the RHCs to provide
interLATA long distance services only after satisfying the
conditions of the new law for opening local markets to competition
and demonstrating to the FCC that such provision is in the public
interest. For the first time in more than 60 years, all
communications companies are governed by a new set of rules that
call for competition and open markets, not regulatory management,
as the basic business environment. This public policy change
opens a host of business opportunities for providers of all forms
of communications, enabling them to become full-service providers
of voice, video, data, local and long distance services for their
customers. As a result of the new law, consumers can expect to
see more choices and receive greater value for these services.
With the passage of the Telecom Act, Ameritech's local service
markets are being opened to competition from long distance
carriers, cable TV providers and other nontraditional local
service providers. Interconnection agreements with these
providers and the applicable regulations require the Company to
allow access to network elements at cost-based rates or to provide
services for resale at discounted, wholesale rates. Competitive
entry by these providers may result in some downward pressure on
local service revenues as a portion of the Company's revenues
shifts from local service at retail rates to network access at
wholesale rates.
Until 1996, the U.S. cellular market had been established as a
series of duopolies: the local telephone company and one other
provider for each cellular market of the country. With PCS, each
market will add at least two new wireless services providers.
Paging, invigorated by the popularity of cellular service, is a
highly competitive business with five to seven providers in each
market. Competitors of Ameritech's directory publishing business
include other directory publishers, other traditional advertising
media, including television, radio, direct mail, magazines and
newspapers, as well as providers of new technology such as on-line
services, including the Internet. Over time, competition in all
segments of the Company's business, as well as the technological
innovations rapidly spawned by each unique unit, will accelerate
growth.
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Public policy changes are beginning to open communications
markets to competition internationally. In pursuit of business
opportunities in and outside of the United States, Ameritech faces
competition from other RHCs, long distance service providers,
cable TV companies and Internet and wireless service providers, as
well as a variety of foreign entities and other entrants from
adjacent segments of the communications and information services
industries.
Although telecom reform was the most dramatic change affecting
the communications industry in 1996, another industry trend that
intensified was the number of mergers, alliances and joint
ventures. As the Company expands and diversifies, the number,
variety and size of competitors will shift to challenge
Ameritech's evolving business interests. Much of the competition
will be from companies with substantial capital, technological and
marketing resources and wide-ranging service offerings.
It is impossible to predict the specific impact of the Telecom
Act and other changes in the industry on Ameritech's business or
financial condition. Notwithstanding the potential for an adverse
effect on many revenue streams, Ameritech expects to capture a
major share of the expected growth in the communications
marketplace. Building on its strengths, the Company plans to
branch into new services that are a logical extension of its
business, and to export its expertise to customers around the
world. Ameritech's competitive strategy includes positioning
itself to take advantage of future opportunities by refining its
processes to continue to be the most efficient communications
provider in the market.
Patents, Trademarks and Licenses
Ameritech and its affiliates own, have licenses to use, and
license others to use various patents, copyrights, trademarks and
other intellectual property which are necessary for them to
conduct their present business operations. It is not anticipated
that any such intellectual property will be subject to expiration
or nonrenewal of rights which would materially and adversely
affect Ameritech or its affiliates.
Ameritech's Human Resources
As of December 31, 1996, the Ameritech companies employed
66,128 persons, an increase from 65,345 as of December 31, 1995,
primarily attributable to growth in the cellular, security
monitoring, long distance and cable TV businesses. In 1996, the
Company commenced a ten-year agreement with Integrated Systems
Solutions Corporation (ISSC), a subsidiary of IBM, to perform
certain information technology services formerly performed by
Ameritech and to assume responsibility for consolidation of
Ameritech's data centers. Approximately 400 management employees
were offered and accepted employment with ISSC.
The Communications Workers of America (CWA) and the
International Brotherhood of Electrical Workers (IBEW) represent
more than 41,000 of Ameritech's employees. Of those so
represented, about 70% are represented by the CWA and about 30%
are represented by the IBEW, both of which are affiliated with the
AFL-CIO. Current three-year contracts expire in the summer of
1998.
In January 1997, a three-year agreement between Ameritech's
advertising services unit and the CWA was ratified. Terms of the
agreement were retroactive to August 11, 1996, the expiration date
of the prior contract. The CWA represents approximately 1,000 of
advertising service's 1,900 employees.
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Item 2. Properties.
The properties of the Company do not lend themselves to
description by character and location of principal units. As of
December 31, 1996, the Company's investment in property, plant and
equipment consisted of the following:
Land and buildings.................................. 10%
Central office equipment............................ 38
Cable, wiring and conduit........................... 40
Other............................................... 10
Under construction.................................. 2
---
100%
Central office equipment includes analog and digital switching
equipment, transmission equipment and related facilities.
Buildings are principally central offices. Cable, wiring and
conduit constitute outside plant which includes poles, as well as
cable, conduit and wiring primarily above or under public roads,
highways or streets or above or under private property.
Substantially all of the installations of central office equipment
and administrative offices are located in buildings owned by the
Ameritech landline communications subsidiaries and situated on
property they own. Many garages and business offices and some
installations of central office equipment and administrative
offices are in leased quarters.
Capital expenditures, the single largest use of Company funds,
were as follows for the last five years:
(Dollars in Millions)
1992.............................................. $2,267
1993.............................................. 2,108
1994.............................................. 1,955
1995.............................................. 2,176
1996.............................................. 2,476
Management believes that investment in the Company's core
communications business, which is comprised of local phone,
wireless, advertising and capital services, will facilitate
introduction of new products and services, enhance responsiveness
to ever-increasing competitive challenges and increase the
operating efficiency and productivity of the network. Capital
spending is being deployed based on customer needs and the
Company's business plans. Investments in technologies that will
enable the Company to provide customers with new products and
services represents a high priority. Capital spending in the
landline communications subsidiaries increased by $350 million in
1996 due to access line growth and strong demand for custom
calling features. Modernization of the landline communications
network continued throughout 1996.
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Item 3. Legal Proceedings.
Pre-Divestiture Contingent Liabilities Agreement
The Court-approved Plan of Reorganization signed in connection
with AT&T's divestiture, effective January 1, 1984, provides for
the recognition and payment of liabilities that are attributable
to pre-divestiture events (including transactions to implement the
divestiture) but that do not become certain until after the
divestiture. These contingent liabilities relate principally to
litigation and other claims with respect to the former Bell
Companies' rates, taxes, contracts, equal employment matters,
environmental matters and torts (including business torts, such as
alleged violations of the antitrust laws).
With respect to such liabilities, under agreements entered into
at divestiture, AT&T and the Bell Companies will share the costs
of any judgment or other determination of liability entered by a
court or administrative agency, the costs of defending the claim
(including attorneys' fees and court costs) and the cost of
interest or penalties with respect to any such judgment or
determination. Except to the extent that affected parties may
otherwise agree, the general rule is that responsibility for such
contingent liabilities will be divided among AT&T and the Bell
Companies on the basis of their relative net investment (defined
as total assets less reserves for depreciation) as of the
effective date of divestiture. Different allocation rules apply
to liabilities which relate exclusively to pre-divestiture
interstate or intrastate operations.
In January 1995, Ameritech and the other RHCs agreed to
terminate the sharing arrangement among the Bell Companies with
respect to pre-divestiture contingent liabilities for certain
matters. AT&T did not enter into the agreement and, accordingly,
the sharing arrangement remains in effect with respect to AT&T's
pre-divestiture liabilities and AT&T's share of Bell Company pre-
divestiture liabilities.
Although complete assurance cannot be given as to the outcome
of any litigation, in the opinion of the Company's management, any
monetary liability or financial impact to which the Company would
be subject after final adjudication of all of the foregoing
actions would not be material in amount to the Company.
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Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders in the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE COMPANY (AS OF MARCH 1, 1997)
The following table sets forth, as to the executive officers of
Ameritech, their ages, their offices with Ameritech and the period
during which they have held such offices.
Held
Name Age Officer Since
-----
- ---- --- ------
Management Committee
Richard C. Notebaert* 49 Chairman, President and Chief 1994
Executive Officer
Barry K. Allen 48 Executive Vice President-- Consumer 1997
and Business Services
W. Patrick Campbell 50 Executive Vice President -- Corporate 1994
Strategy and Business Development
Walter M. Oliver 51 Senior Vice President -- Human 1994
Resources
Thomas E. Richards 42 Executive Vice President -- 1997
Communications and Information
Products
Oren G. Shaffer 54 Executive Vice President and Chief 1994
Financial Officer
Joan H. Walker 49 Senior Vice President -- Corporate 1996
Communications
Kelly R. Welsh 44 Executive Vice President and General 1996
Counsel
Other Corporate
Officers
Walter S. Catlow 51 President -- International 1996
Bruce B. Howat 52 Secretary 1983
Barbara A. Klein 42 Vice President and Comptroller 1996
Gary R. Lytle 52 Vice President -- Federal Relations 1994
Sari L. Macrie 39 Vice President -- Investor Relations 1994
Richard W. Pehlke 42 Vice President and Treasurer 1994
Thomas J. Reiman 48 Senior Vice President -- State and 1997
Government Affairs
Lawrence E. Strickling 44 Vice President -- Public Policy 1993
John E. Vaughn 50 Vice President -- Business Unit 1996
Development and Strategy
* Member of the Board of Directors and Chairman of the Executive Committee
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The following officers of Ameritech have for at least the past
five years held high level management or executive positions with
Ameritech or its subsidiaries: Mr. Notebaert, Mr. Catlow, Mr.
Lytle, Mr. Pehlke, Mr. Reiman, Mr. Strickling, Mr. Vaughn and Mr.
Howat.
Before joining Ameritech, Mr. Welsh was Corporation Counsel of
the City of Chicago from 1989 to 1993 and, prior to that, was a
partner with Mayer, Brown & Platt, a Chicago-based law firm. Mr.
Campbell was President and Chief Executive Officer of Columbia
TriStar Home Video, a Sony Pictures Entertainment Company, from
1989 to 1994. Previously, Mr. Campbell held a variety of
management positions at Norelco, SCM Corporation and McGraw
Edison. Mr. Shaffer served as President of Virgo Cap Inc., a
private investment firm, from 1992 to 1994. Previously, Mr.
Shaffer was Chief Financial Officer, a member of the Board of
Directors and held various operations positions at Goodyear Tire &
Rubber Co. from 1968 to 1992. Mr. Oliver was Vice President -
Human Resources at Johnson Controls from 1989 to 1994 and served
in various operations positions at Johnson Controls, Hoover
Universal, Kaiser Aluminum and Chemical Corp. from 1973 to 1989.
From 1990 to 1994, Ms. Macrie served as Vice President and
Director of Research for Christensen & Associates. Prior to that
position, she was with Control Data Corporation and American
Security Bank as management information consultant and securities
analyst, respectively. Mr. Allen started his career with
Ameritech in 1974, serving as President of Ameritech Publishing
from 1987 to 1989, President of Wisconsin Bell, Inc. from 1989 to
1993 and President of Illinois Bell Telephone Company in 1993. He
left Ameritech in 1993 to become President and Chief Operating
Officer of Marquette Electronics, Inc. and served in this capacity
until July 1995, when he rejoined Ameritech as President of
Ameritech's enhanced business services unit. Ms. Walker was named
a partner of Bozell Sawyer Miller Group in 1996 after joining
Bozell Public Relations as President and CEO in 1993 and,
previously, held various senior-level positions in New Jersey
government, the telecommunications industry and communications
consulting. Ms. Klein previously was Vice President and
Controller of The Pillsbury Co., a unit of Grand Metropolitan PLC.
Prior to joining Pillsbury, she held a variety of management and
executive positions with G.D. Searle & Co. and Sears, Roebuck and
Co. Mr. Richards served as President of Ameritech Network
Services from 1995 to 1997. From 1991 to 1995, he served as Vice
President - Network Operations at Bell Atlantic and held various
management and marketing positions from 1976 to 1990.
Officers are elected annually, but may be removed at any time
at the discretion of the Board of Directors.
PART II
Items 5 Through 8.
There were 837,544 owners of record of Ameritech Common Stock
as of December 31, 1996. Ameritech Common Stock is listed on the
New York, Boston, Chicago, Pacific, Philadelphia, London, Tokyo,
Amsterdam, Basel, Geneva and Zurich stock exchanges. The rest of
the information required by these items is included in the
Financial section on pages 26 through 35, pages 38 through 51, and
on page 57 of the Company's annual report to security holders for
the year ended December 31, 1996 and is incorporated by reference
pursuant to General Instruction G(2).
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
No disagreements with accountants on any matter of accounting
principles or practices, financial statement disclosure or
auditing scope or procedure occurred during the period covered by
this annual report.
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PART III
Items 10 Through 13.
Information regarding executive officers required by Item 401
of Regulation S-K is furnished in a separate disclosure in Part I
of this report since the Company did not furnish such information
in its definitive proxy statement dated February 27, 1997,
prepared in accordance with Schedule 14A.
The other information required by these items is included in
the Company's definitive proxy statement on pages 2 through 5, in
the section on Officer and Director Stock Ownership on page 6, in
the section on Compensation of Directors on page 7, and in the
section on Executive Compensation on pages 11 through 20, and is
incorporated herein by reference pursuant to General Instruction
G(3).
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as part of the report:
(1) Financial Statements:
Pages
----
Selected Financial and Operating Data.................... *26
Report of Management.............................. *36
Report of Independent Public Accountants................. *37
Consolidated Statements of Income........................ *38
Consolidated Balance Sheets.............................. *39
Consolidated Statements of Shareowners' Equity........... *40
Consolidated Statements of Cash Flows.................... *41
Notes to Consolidated Financial Statements...............*42-51
(2) Financial Statement Schedule:
Report of Independent Public Accountants................. 26
II -- Valuation and Qualifying Accounts.................. 27
*Incorporated herein by reference to the appropriate portions
of the Company's annual report to security holders for the
year ended December 31, 1996
Financial statement schedules other than the one listed above
have been omitted because the required information is contained
in the financial statements and notes thereto, or because such
schedules are not required or applicable. Separate financial
statements of subsidiaries not consolidated and 50% or less owned
persons are omitted since no such entity constitutes a
"significant subsidiary" pursuant to the provisions of Regulation
S-X, Article 3-09.
19
<PAGE>
Exhibits identified in parentheses below, on file with the SEC,
are incorporated herein by reference as exhibits hereto.
Exhibit
Number
------
3a - Certificate of Incorporation of the Company as amended
on April 30, 1996 (Exhibit 3a to Form 10-Q for the
quarter ended March 31, 1996, File No. 1-8612)
3b - By-Laws of the Company, as amended on April 15, 1992
(Exhibit 3b to Form 10-K for 1992, File No. 1-8612).
4b - No instrument which defines the rights of holders of
long and intermediate term debt of the Company and all
of its consolidated subsidiaries is filed herewith
pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this regulation, the Company hereby agrees
to furnish a copy of any such instrument to the SEC
upon request.
10a - Reorganization and Divestiture Agreement between
American Telephone and Telegraph Company and the
Company and Affiliates, dated as of November 1, 1983
(Exhibit 10a to Form 10-K for 1983, File No. 1-8612).
10b - Agreement Concerning Contingent Liabilities, Tax
Matters and Termination of Certain Agreements, among
American Telephone and Telegraph Company, Bell System
Operating Companies, Regional Holding Companies and
Affiliates dated as of November 1, 1983 (Exhibit 10j to
Form 10-K for 1983, File No. 1-8612).
10c - Ameritech Senior Management Short Term Incentive Plan
as amended and restated effective as of January 1, 1992
(Exhibit 10aa to Form 10-K for 1991, File No. 1-8612).
10d - Ameritech Long Term Incentive Plan as amended and
restated effective as of January 1, 1992 (Exhibit 10bb
to Form 10-K for 1991, File No. 1-8612).
10d-1 - First Amendment to Ameritech Long Term Incentive Plan
(Exhibit 10bb-1 to Form 10-K for 1993, File No. 1-
8612).
10d-2 - Resolution concerning the exercisability of stock
options granted under the Ameritech Long Term Incentive
Plan, approved on January 17, 1995 (Exhibit 10d-2 to
Form 10-K for 1995, File No. 1-8612).
10e - Ameritech Stock Retirement Plan for Non-Employee
Directors (Exhibit 10ll to Form 10-K for 1986, File No.
1-8612).
10e-1 - First Amendment of Ameritech Stock Retirement Plan for
Non-Employee Directors (Exhibit 10ll-1 to Form 10-K for
1988, File No. 1-8612).
10e-2 - Second Amendment of Ameritech Stock Retirement Plan for
Non-Employee Directors (Exhibit 10ll-2 to Form 10-K for
1989, File No. 1-8612).
10f - Ameritech Senior Management Life Insurance Plan
Agreements (Exhibit 10cc to Form 10-K for 1990, File
No. 1-8612).
10g - Ameritech Perquisite Program (Exhibit 10ff to Form 10-K
for 1991, File No. 1-8612).
10h - Ameritech Deferred Compensation Plan for Non-Employee
Directors (Exhibit 10gg to Form 10-K for 1985, File No.
1-8612).
10h-1 - First Amendment of Deferred Compensation Plan for Non-
Employee Directors (Exhibit 10gg-1 to Form 10-K for
1986, File No. 1-8612).
20
<PAGE>
10h-2 - First Amendment of American Information Technologies
Corporation Deferred Compensation Plan for Non-Employee
Directors effective as of January 1, 1989 (Exhibit
10gg-2 to Form 10-K for 1988, File No. 1-8612).
10h-3 - Second Amendment of American Information Technologies
Corporation Deferred Compensation Plan for Non-Employee
Directors (Exhibit 10gg-3 to Form 10-K for 1990, File
No. 1-8612).
10h-4 - Third Amendment of American Information Technologies
Corporation Deferred Compensation Plan for Non-Employee
Directors (Exhibit 10gg-4 to Form 10-K for 1990, File
No. 1-8612).
10h-5 - Fourth Amendment of American Information Technologies
Corporation Deferred Compensation Plan for Non-Employee
Directors (Exhibit 10gg-5 to Form 10-K for 1992, File
No. 1-8612).
10i - Ameritech Plan for Non-Employee Directors' Travel
Accident Insurance (Exhibit 10hh to Registration
Statement No. 2-87838).
10j - Ameritech Management Supplemental Pension Plan as
amended through the Seventh Amendment (Exhibit 10ii to
Form 10-K for 1991, File No. 1-8612).
10j-1 - Eighth Amendment of Ameritech Management Supplemental
Pension Plan (Exhibit 10ii-1 to Form 10-K for 1991,
File No. 1-8612).
10j-2 - Ninth Amendment of Ameritech Management Supplemental
Pension Plan (Exhibit 10ii-2 to Form 10-K for 1991,
File No. 1-8612).
10j-3 - Tenth Amendment to Ameritech Management Supplemental
Pension Plan (Exhibit 10ii-3 to Form 10-K for 1993,
File No. 1-8612).
10j-4 - Eleventh Amendment to Ameritech Management Supplemental
Pension Plan (Exhibit 10ii-4 to Form 10-K for 1993,
File No. 1-8612).
10j-5 - Twelfth Amendment to Ameritech Management Supplemental
Pension Plan (Exhibit 10ii-5 to Form 10-K for 1993,
File No. 1-8612).
10j-6 - Thirteenth Amendment to Ameritech Management
Supplemental Pension Plan (Exhibit 10j-6 to Form 10-K
for 1994, File No. 1-8612).
10k - Ameritech 1989 Long Term Incentive Plan as amended and
restated effective as of January 1, 1992 (Exhibit 10oo
to Form 10-K for 1991, File No. 1-8612).
10k-1 - First Amendment to 1989 Long Term Incentive Plan
(Exhibit 10oo-1 to Form 10-K for 1993, File No. 1-
8612).
10k-2 - Resolution concerning the exercisability of stock
options granted under the Ameritech 1989 Long Term
Incentive Plan, approved on January 17, 1995 (Exhibit
10k-2 to Form 10-K for 1995, File No. 1-8612).
10l - Ameritech (Subsidiary) Senior Management Short Term
Incentive Plan as amended and restated effective
January 1, 1992 (Exhibit 10pp to Form 10-K for 1991,
File No. 1-8612).
10m - Ameritech Management Employees Benefit Protection Trust
as amended through the First Amendment (Exhibit 10uu to
Form 10-K for 1991, File No. 1-8612).
10m-1 - Second Amendment to Ameritech Management Employees
Benefit Protection Trust (Exhibit 10uu-1 to Form 10-K
for 1991, File No. 1-8612).
10n - Ameritech Senior Management Severance Pay Trust as
amended through the First Amendment (Exhibit 10tt to
Form 10-K for 1991, File No. 1-8612).
10n-1 - Second Amendment to Ameritech Senior Management
Severance Pay Trust (Exhibit 10tt-1 to Form 10-K for
1991, File No. 1-8612).
10o - Ameritech Mid-Career Pension Plan (Exhibit 10ff to Form
10-K for 1994, File No. 1-8612).
10o-1 - First Amendment to Ameritech Mid-Career Pension Plan
(Exhibit 10ff-1 to Form 10-K for 1994, File No. 1-
8612).
21
<PAGE>
10o-2 - Second Amendment to Ameritech Mid-Career Pension Plan
(Exhibit 10ff-2 to Form 10-K for 1994, File No. 1-
8612).
10o-3 - Third Amendment to Ameritech Mid-Career Pension Plan
(Exhibit 10ff-3 to Form 10-K for 1994, File No. 1-
8612).
10o-4 - Fourth Amendment to Ameritech Mid-Career Pension Plan
(Exhibit 10ff-4 to Form 10-K for 1994, File No. 1-
8612).
10o-5 - Fifth Amendment to Ameritech Mid-Career Pension Plan
(Exhibit 10ff-5 to Form 10-K for 1994, File No. 1-
8612).
10j-6 - Sixth Amendment to Ameritech Mid-Career Pension Plan
(Exhibit 10ff-6 to Form 10-K for 1994, File No. 1-
8612).
10o-7 - Seventh Amendment to Ameritech Mid-Career Pension Plan
(Exhibit 10ff-7 to Form 10-K for 1994, File No. 1-
8612).
10o-8 - Eighth Amendment to Ameritech Mid-Career Pension Plan
(Exhibit 10ff-8 to Form 10-K for 1994, File No. 1-
8612).
10j-9 Ninth Amendment to Ameritech Mid-Career Pension Plan
(Exhibit 10o-9 to Form 10-K for 1995, File No. 1-8612).
10p - Agreement Regarding Change in Control dated as of
January 19, 1994 between the Company and Richard C.
Notebaert, together with a schedule identifying other
documents (Exhibit 10mm to Form 10-K for 1993, File No.
1-8612).
10q - Agreement Regarding Change in Control dated as of
September 9, 1994 between the Company and W. Patrick
Campbell (Exhibit 10z to Form 10-K for 1994, File No. 1-
8612).
10r - Agreement Regarding Change in Control dated as of
September 9, 1994 between the Company and Walter M.
Oliver (Exhibit 10aa to Form 10-K for 1994, File No. 1-
8612).
10s - Agreement Regarding Change in Control dated as of
January 1, 1995 between the Company and Oren G. Shaffer
(Exhibit 10bb to Form 10-K for 1994, File No. 1-8612).
10t - Agreement Regarding Change in Control dated as of
December 1, 1995 between the Company and Barry K.
Allen. (Exhibit 10v to Form 10-K for 1995, File No. 1-
8612).
10u - Agreement Regarding Change in Control dated as of
August 1, 1996 between the Company and Joan H. Walker.
10v - Agreement Regarding Change in Control dated as of
December 20, 1996 between the Company and Kelly R.
Welsh.
10w - Agreement Regarding Change in Control dated as of
January 20, 1997 between the Company and Thomas E.
Richards.
10x - Ameritech Key Management Life Insurance Plan as amended
and restated effective as of December 1, 1995 (Exhibit
10x to Form 10-K for 1995, File No. 1-8612).
10x-1 - First Administrative Amendment to Ameritech Key
Management Life Insurance Plan.
10y - Ameritech Estate Preservation Plan as amended and
restated effective as of December 1, 1995. (Exhibit 10y
to Form 10-K for 1995, File No. 1-8612).
10z - Ameritech Corporate Resource Long Term Disability Plan
as amended and restated effective as of December 1,
1995 (Exhibit 10z to Form 10-K for 1995, File No. 1-
8612).
10aa - Ameritech Corporate Resource Transfer Program as
amended and restated effective as of December 1, 1995.
22
<PAGE>
10bb - Ameritech Corporate Resource Supplemental Pension Plan
as amended and restated effective as of December 1,
1995 (Exhibit 10bb to Form 10-K for 1995, File No. 1-
8612).
10cc - Ameritech Corporate Resource Supplemental Pension Trust
as amended and restated effective as of May 1, 1996.
10dd - Ameritech Corporate Resource Deferral Plan as amended
and restated effective as of December 1, 1995 (Exhibit
10cc to Form 10-K for 1995, File No. 1-8612).
10dd-1 - First Administrative Amendment to Ameritech Corporate
Resource Deferral Plan.
10dd-2 - Second Administrative Amendment to Ameritech Corporate
Resource Deferral Plan.
10dd-3 - Third Administrative Amendment to Ameritech Corporate
Resource Deferral Plan.
10ee - Ameritech Corporate Resource Severance Pay Plan as
amended and restated effective as of December 1, 1995
(Exhibit 10dd to Form 10-K for 1995, File No. 1-8612).
10ff - Ameritech Management Committee Short Term Incentive
Plan (Exhibit 10ee to Form 10-K for 1995, File No. 1-
8612).
10gg - Ameritech Senior Management Retirement and Survivor
Protection Trust dated as of November 30, 1988 (Exhibit
10ff to Form 10-K for 1995, File No. 1-8612).
10gg-1 - First Amendment to Ameritech Senior Management
Retirement and Survivor Protection Trust (Exhibit 10ff-
1 to Form 10-K for 1995, File No. 1-8612).
10gg-2 - Second Amendment to Ameritech Senior Management
Retirement and Survivor Protection Trust (Exhibit 10ff-
2 to Form 10-K for 1995, File No. 1-8612).
10gg-3 - Third Amendment to Ameritech Senior Management
Retirement and Survivor Protection Trust (Exhibit 10ff-
3 to Form 10-K for 1995, File No. 1-8612).
11a - Statement re: computation of primary earnings per
share.
11b - Statement re: computation of fully diluted earnings per
share.
12 - Computation of ratio of earnings to fixed charges for
the five years ended December 31, 1996.
13 - Portions of Ameritech's annual report to security
holders for the year ended December 31, 1996.
21 - Subsidiaries of the Company.
23 - Consent of Arthur Andersen LLP.
24 - Powers of Attorney.
27 - Financial Data Schedule for the year ended December 31,
1996.
99a - Form 11-K Annual Report for the fiscal year ended
December 31, 1996 of the Ameritech Savings Plan for
Salaried Employees, to be filed by amendment.
99b - Form 11-K Annual Report for the fiscal year ended
December 31, 1996 of the Ameritech Savings and Security
Plan (Non-Salaried Employees), to be filed by
amendment.
99c - Form 11-K Annual Report for the fiscal year ended
December 31, 1996 of the DonTech Profit Participation
Plan, to be filed by amendment.
Ameritech will furnish, without charge, to a security holder
upon request a copy of the annual report to security holders and
the proxy statement, portions of which are incorporated by
reference, and will furnish any other exhibit at cost.
23
<PAGE>
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated January 13, 1997 was filed
under Item 5, Other Events, to report Ameritech's earnings for the
fourth quarter and year ended December 31, 1996.
24
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Barbara A. Klein
-----------------------------
Barbara A. Klein,
Vice President and Comptroller
March 11, 1997
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
Principal Executive Officer:
R. C. Notebaert*
Chairman, President and
Chief Executive Officer
Principal Financial Officer:
O. G. Shaffer*
Executive Vice President
and Chief Financial Officer
Principal Accounting Officer:
B. A. Klein /s/ Barbara A. Klein
-----------------------------
Vice President and Comptroller (*Barbara A. Klein,
for herself and as
Attorney-in-Fact)
March 11, 1997
Directors:
D. C. Clark*
H. H. Gray*
J. A. Henderson*
S. B. Lubar*
A. C. Martinez*
J. B. McCoy*
R. C. Notebaert*
J. D. Ong*
A. B. Rand*
J. A. Unruh*
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Ameritech Corporation
We have audited in accordance with generally accepted auditing
standards the financial statements included in Ameritech
Corporation's annual report to shareowners for the year ended
December 31, 1996 incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 13, 1997. Our audits
were made for the purpose of forming an opinion on those financial
statements taken as a whole. The financial statement schedule
listed in Item 14(a)(2) is the responsibility of the Company's
management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Chicago, Illinois
January 13, 1997
26
<PAGE>
AMERITECH CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLES
(Dollars in Millions)
COL. A COL. B COL. C COL. D COL. E
------ ------ ----------------- ------ ------
Additions
-----------------
Balance at Charged Charged Balance
Beginning to to Other at End of
of Period Expense (a) Accounts (b) Deductions (c) Period
--------- ---------- ----------- ------------- ------
Year 1996...........$ 166 $ 421 $368 $ 635 $ 320
Year 1995........... 147 205 231 417 166
Year 1994........... 134 171 178 337 147
----------------------
(a)Excludes direct charges and credits to expense on the statements of
income and reinvested earnings related to interexchange carrier
receivables.
(b)Includes principally amounts previously written off which were
credited directly to this account when recovered and amounts related
to long distance carrier receivables which are being billed by the
Company, as well as a reclassification in 1996 of $42 million from
current liabilities to more accurately state the allowance.
(c)Amounts written off as uncollectible.
27
AGREEMENT REGARDING
CHANGE IN CONTROL
This Agreement entered into as of the 1st day of August,
1996, by and between Ameritech Corporation, a Delaware
corporation (the "Company"), and Joan H. Walker (the
"Executive"),
WITNESSETH THAT:
WHEREAS, the Company wishes to induce the Executive
to remain in its employ, to provide fair and equitable treatment
and a competitive compensation package to the Executive, and to
assure continued attention of the Executive to her duties without
any distraction arising out of uncertain personal circumstances
in a change in control environment; and
WHEREAS, the Company recognizes that in the event of a
change in control of the Company it is likely that the
Executive's authorities, duties and responsibilities would be
substantially altered; and
WHEREAS, the Company and the Executive accordingly desire to
enter into this Agreement on the terms and conditions set forth
below;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, it is hereby agreed by and between
the parties as follows:
1. Term of Agreement. The "Term" of this Agreement shall
commence on the date hereof and shall continue through December
31, 1996; provided, however, that on such date and on each
December 31 thereafter, the Term of this Agreement shall
automatically be extended for one additional year (but not beyond
the Executive's attainment of age 65) unless, not later than the
preceding November 1 the Company shall have given notice that it
does not wish to extend the Term; and provided, further, that if
a Change in Control (as defined in paragraph 2 below) shall have
occurred during the original or any extended Term of this
Agreement, the Term of this Agreement shall continue for a period
of twenty-four months beyond the month in which such Change in
Control occurs, but not beyond the Executive's attainment of age
65.
2. Change in Control. For purposes of this Agreement, the
term "Change in Control" means a change in the beneficial
ownership of the Company's voting stock or a change in the
composition of the Company's Board of Directors which occurs as
follows:
(a) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other
than:
(i) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or
(ii) the Executive or any person acting in concert with
the Executive
is or becomes a beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of stock of the Company
representing 20% or more of the total voting power of
the Company's then outstanding stock; provided,
however, that this subparagraph (a) shall not apply to
any tender offer made pursuant to an agreement with the
Company approved by the Company's Board of Directors
and entered into before the offeror has become a
beneficial owner of stock of the Company representing
5% or more of the combined voting power of the
Company's then outstanding stock;
(b) a tender offer is made for the stock of the Company,
and the person making the offer owns or has accepted
for payment stock of the Company representing 20% or
more of the total voting power of the Company's then
outstanding stock; provided, however, that this
subparagraph (b) shall not apply to any tender offer
made pursuant to an agreement with the Company approved
by the Company's Board of Directors and entered into
before the offeror has become a beneficial owner of
stock of the Company representing 5% or more of the
combined voting power of the Company's then outstanding
stock;
(c) during any period of 24 consecutive months there shall
cease to be a majority of the Board of Directors
comprised as follows: individuals who at the beginning
of such period constitute the Board of Directors and
any new director(s) whose election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-
third (2/3) of the directors then still in office who
either were directors at the beginning of the period or
whose election or nomination for election was
previously so approved; or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with any other company
other than:
(i) a merger or consolidation which would result in
the Company's voting stock outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting stock of the surviving entity) more than
70% of the combined voting power of the Company's
or such surviving entity's outstanding voting
stock immediately after such merger or
consolidation; or
(ii) a merger or consolidation which would result in
the directors of the Company who were directors
immediately prior thereto continuing to constitute
at least 50% of the directors of the surviving
entity immediately after such merger or
consolidation.
For purposes of subparagraph (d) above, the phrase "surviving
entity" shall mean only an entity in which all of the Company's
stockholders who are stockholders immediately before the merger
or consolidation (other than stockholders exercising dissenter
rights) become stockholders by the terms of the merger or
consolidation, and the phrase "directors of the Company who were
directors immediately prior thereto" shall not include (A) any
director of the Company who was designated by a person who has
entered into an agreement with the Company to effect a
transaction described in subparagraph (a) or subparagraph (d)
above, or (B) any director who was not a director at the
beginning of the 24-consecutive-month period preceding the date
of such merger or consolidation, unless her election by the Board
of Directors or nomination for election by the Company's stock
holders was approved by a vote of at least two-thirds (2/3) of
the directors who were directors before the beginning of such
period.
3. Compensation After a Change in Control. During any
period in which the Executive is employed by the Company after a
Change in Control, there shall be no reduction in the base
salary, long and short term incentives and bonuses, employee
benefits (including medical insurance, disability income
protection, and life insurance and death benefits), fringe
benefits and perquisites to which the Executive was entitled
prior to the Change in Control.
4. Severance Payments. Subject to the provisions
of paragraphs 5 and 6 below, in the event that (i) the
Executive's employment with the Company is involuntarily
terminated by the Company for any reason other than death,
Disability (as defined below) or Just Cause (as defined below)
during the twenty-four month period following a Change in Control
or (ii) the Executive's employment with the Company is terminated
by the Executive for any reason during the thirty-day period
beginning on the first anniversary of a Change in Control, the
Executive shall continue to receive all medical insurance,
disability income protection, life insurance coverage and death
benefits, fringe benefits and perquisites to which the Executive
was entitled prior to the Change in Control for a period of not
less than the 24 consecutive months immediately following the
date of her termination of employment, and shall be entitled to a
lump sum payment in cash no later than ten business days and no
earlier than two business days after the date of termination
equal to the sum of:
(a) an amount equal to 2.99 (or, if less, the number of
years remaining until the Executive's attainment of age
65) times the Executive's annual salary rate in effect
immediately prior to the Change in Control;
(b) an amount equal to 2.99 (or, if less, the number of
years remaining until the Executive's attainment of age
65) times the Executive's short term incentive award
and other bonuses payable for the calendar year
preceding the Change in Control; and
(c) the actuarial equivalent of the additional
pension benefits which the Executive would have accrued
under the terms of the Ameritech Management Pension
Plan, the Ameritech Senior Management Retirement and
Survivor Protection Plan and each other tax-qualified
or nonqualified defined benefit pension plan maintained
by the Company (determined without regard to any
termination or any amendment adversely affecting the
Executive which is adopted on or after a Change in
Control or in contemplation of a Change in Control) if,
on the date of Termination, the Executive had been
credited with two additional years of service and two
additional years of compensation at her annual base
salary rate and target short term incentive award in
effect on the date of the Change in Control for benefit
accrual purposes and were two years older than her
actual age on such date; provided, however, that the
additional service, compensation and age credits under
this paragraph (c) shall be proportionately reduced if
the Executive is at least age 63 on the date of termi
nation and eliminated if the Executive is age 65 or
older on such date. For purposes of this subparagraph
(c), actuarial equivalence shall be determined in
accordance with the terms of the Ameritech Senior
Management Retirement and Survivor Protection Plan for
purposes of lump sum payments under that plan, but
without regard to any amendment of that plan adopted on
or after a Change in Control or in contemplation of a
Change in Control which would reduce the amount of such
lump sum payment.
For purposes of this Agreement, the Executive's employment with
the Company shall be deemed to have been involuntarily terminated
by the Company if the Executive's duties and responsibilities are
significantly diminished by the Company without the Executive's
consent. For purposes of this Agreement, the term "Disability"
means an incapacity, due to physical injury or illness or mental
illness, causing a Participant to be unable to perform her duties
for the Company on a full-time basis for a period of at least six
consecutive months and the term "Just Cause" means willful
misconduct, dishonesty, conviction of a felony or excessive
absenteeism not related to illness or disability.
5. Tax Limitations. If any payments under this Agreement,
after taking in account all other payments to which the Executive
is entitled from the Company, or any affiliate thereof, are more
likely than not to result in a loss of a deduction to the Company
by reason of section 280G of the Internal Revenue Code of 1986 or
any successor provision to that section, such payments shall be
reduced by the least amount required to avoid such loss of
deduction. If the Executive and the Company shall disagree as to
whether a payment under this Agreement is more likely than not to
result in the loss of a deduction, the matter shall be resolved
by an opinion of tax counsel chosen by the Company's independent
auditors. The Company shall pay the fees and expenses of such
counsel, and shall make available such information as may be
reasonably requested by such counsel to prepare the opinion. If,
by reason of the limitations of this paragraph 5, the maximum
amount payable to the Executive under paragraph 4 above cannot be
determined prior to the due date for such payment, the Company
shall pay on the due date the minimum amount which it in good
faith determines to be payable and shall pay the remaining
amount, with interest calculated at the rate prescribed by
section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as
soon as such remaining amount is determined in accordance with
this paragraph 5.
6. Source of Payments and Withholding. Any amount payable
under the terms of this Agreement shall be paid from the general
assets of the Company or from one or more trusts, the assets of
which are subject to the claims of the Company's general
creditors. All payments to the Executive under this Agreement
will be subject to all applicable withholding of state and
federal taxes.
7. Arbitration of All Disputes. Any controversy or claim
arising out of or relating to this Agreement or the breach
thereof shall be settled by arbitration in the City of Chicago,
in accordance with the laws of the State of Illinois, by three
arbitrators, one of whom shall be appointed by the Company, one
by the Executive and third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree
on the appointment of a third arbitrator, then the third
arbitrator shall be appointed by the Chief Judge of the United
States Court of Appeals for the Seventh Circuit. The arbitration
shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of
arbitrators which shall be as provided in this paragraph 11.
Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event
that it shall be necessary or desirable for the Executive to
retain legal counsel or incur other costs and expenses in
connection with enforcement of her rights under this Agreement,
the Company shall pay (or the Executive shall be entitled to
recover from the Company, as the case may be) her reasonable
attorneys' fees and costs and expenses in connection with
enforcement of her rights (including the enforcement of any
arbitration award in court). Payments shall be made to the
Executive at the time such fees, costs and expenses are incurred.
If, however, the arbitrators shall determine that, under the
circumstances, payment by the Company of all or a part of any
such fees and costs and expenses would be unjust, the Executive
shall repay such amounts to the Company in accordance with the
order of the arbitrators.
8. Mitigation and Set-Off. The Executive shall not be
required to mitigate the amount of any payment provided for in
this Agreement by seeking other employment or otherwise. The
Company shall not be entitled to set off against the amounts
payable to the Executive under this Agreement any amounts owed to
the Company by the Executive, any amounts earned by the Executive
in other employment after termination of her employment with the
Company, or any amounts which might have been earned by the
Executive in other employment had she sought such other
employment.
9. Severance Pay Plan. During the Term of this Agreement,
the Executive shall not participate in or have any rights under
either the Ameritech Senior Management Severance Pay Plan or the
Ameritech Management Employees Severance Pay Plan.
10. Non-Alienation. The Executive shall not have any right
to pledge, hypothecate, anticipate or in any way create a lien
upon any amounts provided under this Agreement; and no benefits
payable hereunder shall be assignable in anticipation of payment
either by voluntary or involuntary acts, or by operation of law.
Nothing in this paragraph shall limit the Executive's rights or
powers to dispose of her property by will or limit any rights or
powers which her executor or administrator would otherwise have.
11. Governing Law. The provisions of this Agreement shall
be construed in accordance with the laws of the State of
Illinois.
12. Amendment. This Agreement may be amended or canceled
by mutual agreement of the parties in writing without the consent
of any other person and, so long as the Executive lives, no
person, other than the parties hereto, shall have any rights
under or interest in this Agreement or the subject matter hereof.
13. Successors to the Company. This Agreement shall be
binding upon and inure to the benefit of the Company and any
successor of the Company. The Company will require any successor
(whether director or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no succession had
taken place.
14. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full
force and effect.
15. Counterparts. This Agreement may be executed in two or
more counterparts, any one of which shall be deemed the original
without reference to the others.
IN WITNESS WHEREOF, the Executive has hereunto set her hand
and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name
and on its behalf, and its corporate seal to be hereunto affixed
and attested by its Secretary, all as of the date and year first
above written.
/s/ Joan H. Walker
Executive
Ameritech Corporation
By /s/ Bruce B. Howat
Its Secretary
ATTEST:
/s/ Marilyn S. Spracker
Assistant Secretary
AGREEMENT REGARDING
CHANGE IN CONTROL
This Agreement entered into as of the 1st day of December,
1996, by and between Ameritech Corporation, a Delaware
corporation (the "Company"), and Kelly R. Welsh (the
"Executive"),
WITNESSETH THAT:
WHEREAS, the Company wishes to induce the Executive
to remain in its employ, to provide fair and equitable treatment
and a competitive compensation package to the Executive, and to
assure continued attention of the Executive to his duties without
any distraction arising out of uncertain personal circumstances
in a change in control environment; and
WHEREAS, the Company recognizes that in the event of a
change in control of the Company it is likely that the
Executive's authorities, duties and responsibilities would be
substantially altered; and
WHEREAS, the Company and the Executive accordingly desire to
enter into this Agreement on the terms and conditions set forth
below;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, it is hereby agreed by and between
the parties as follows:
1. Term of Agreement. The "Term" of this Agreement shall
commence on the date hereof and shall continue through December
31, 1997; provided, however, that on such date and on each
December 31 thereafter, the Term of this Agreement shall
automatically be extended for one additional year (but not beyond
the Executive's attainment of age 65) unless, not later than the
preceding November 1 the Company shall have given notice that it
does not wish to extend the Term; and provided, further, that if
a Change in Control (as defined in paragraph 2 below) shall have
occurred during the original or any extended Term of this Agree
ment, the Term of this Agreement shall continue for a period of
twenty-four months beyond the month in which such Change in
Control occurs, but not beyond the Executive's attainment of age
65.
2. Change in Control. For purposes of this Agreement, the
term "Change in Control" means a change in the beneficial
ownership of the Company's voting stock or a change in the
composition of the Company's Board of Directors which occurs as
follows:
(a) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other
than:
(i) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or
(ii) the Executive or any person acting in concert with
the Executive
is or becomes a beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of stock of the Company
representing 20% or more of the total voting power of
the Company's then outstanding stock; provided,
however, that this subparagraph (a) shall not apply to
any tender offer made pursuant to an agreement with the
Company approved by the Company's Board of Directors
and entered into before the offeror has become a
beneficial owner of stock of the Company representing
5% or more of the combined voting power of the
Company's then outstanding stock;
(b) a tender offer is made for the stock of the Company,
and the person making the offer owns or has accepted
for payment stock of the Company representing 20% or
more of the total voting power of the Company's then
outstanding stock; provided, however, that this
subparagraph (b) shall not apply to any tender offer
made pursuant to an agreement with the Company approved
by the Company's Board of Directors and entered into
before the offeror has become a beneficial owner of
stock of the Company representing 5% or more of the
combined voting power of the Company's then outstanding
stock;
(c) during any period of 24 consecutive months there shall
cease to be a majority of the Board of Directors
comprised as follows: individuals who at the beginning
of such period constitute the Board of Directors and
any new director(s) whose election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-
third (2/3) of the directors then still in office who
either were directors at the beginning of the period or
whose election or nomination for election was
previously so approved; or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with any other company
other than:
(i) a merger or consolidation which would result in
the Company's voting stock outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting stock of the surviving entity) more than
70% of the combined voting power of the Company's
or such surviving entity's outstanding voting
stock immediately after such merger or
consolidation; or
(ii) a merger or consolidation which would result in
the directors of the Company who were directors
immediately prior thereto continuing to constitute
at least 50% of the directors of the surviving
entity immediately after such merger or
consolidation.
For purposes of subparagraph (d) above, the phrase "surviving
entity" shall mean only an entity in which all of the Company's
stockholders who are stockholders immediately before the merger
or consolidation (other than stockholders exercising dissenter
rights) become stockholders by the terms of the merger or
consolidation, and the phrase "directors of the Company who were
directors immediately prior thereto" shall not include (A) any
director of the Company who was designated by a person who has
entered into an agreement with the Company to effect a
transaction described in subparagraph (a) or subparagraph (d)
above, or (B) any director who was not a director at the
beginning of the 24-consecutive-month period preceding the date
of such merger or consolidation, unless his election by the Board
of Directors or nomination for election by the Company's stock
holders was approved by a vote of at least two-thirds (2/3) of
the directors who were directors before the beginning of such
period.
3. Compensation After a Change in Control. During any
period in which the Executive is employed by the Company after a
Change in Control, there shall be no reduction in the base
salary, long and short term incentives and bonuses, employee
benefits (including medical insurance, disability income
protection, and life insurance and death benefits), fringe
benefits and perquisites to which the Executive was entitled
prior to the Change in Control.
4. Severance Payments. Subject to the provisions
of paragraphs 5 and 6 below, in the event that (i) the
Executive's employment with the Company is involuntarily
terminated by the Company for any reason other than death,
Disability (as defined below) or Just Cause (as defined below)
during the twenty-four month period following a Change in Control
or (ii) the Executive's employment with the Company is terminated
by the Executive for any reason during the thirty-day period
beginning on the first anniversary of a Change in Control, the
Executive shall continue to receive all medical insurance,
disability income protection, life insurance coverage and death
benefits, fringe benefits and perquisites to which the Executive
was entitled prior to the Change in Control for a period of not
less than the 24 consecutive months immediately following the
date of his termination of employment, and shall be entitled to a
lump sum payment in cash no later than ten business days and no
earlier than two business days after the date of termination
equal to the sum of:
(a) an amount equal to 2.99 (or, if less, the number of
years remaining until the Executive's attainment of age
65) times the Executive's annual salary rate in effect
immediately prior to the Change in Control;
(b) an amount equal to 2.99 (or, if less, the number of
years remaining until the Executive's attainment of age
65) times the Executive's short term incentive award
and other bonuses payable for the calendar year
preceding the Change in Control; and
(c) the actuarial equivalent of the additional
pension benefits which the Executive would have accrued
under the terms of the Ameritech Management Pension
Plan, the Ameritech Senior Management Retirement and
Survivor Protection Plan and each other tax-qualified
or nonqualified defined benefit pension plan maintained
by the Company (determined without regard to any
termination or any amendment adversely affecting the
Executive which is adopted on or after a Change in
Control or in contemplation of a Change in Control) if,
on the date of Termination, the Executive had been
credited with two additional years of service and two
additional years of compensation at his annual base
salary rate and target short term incentive award in
effect on the date of the Change in Control for benefit
accrual purposes and were two years older than his
actual age on such date; provided, however, that the
additional service, compensation and age credits under
this paragraph (c) shall be proportionately reduced if
the Executive is at least age 63 on the date of termi
nation and eliminated if the Executive is age 65 or
older on such date. For purposes of this subparagraph
(c), actuarial equivalence shall be determined in
accordance with the terms of the Ameritech Senior
Management Retirement and Survivor Protection Plan for
purposes of lump sum payments under that plan, but
without regard to any amendment of that plan adopted on
or after a Change in Control or in contemplation of a
Change in Control which would reduce the amount of such
lump sum payment.
For purposes of this Agreement, the Executive's employment with
the Company shall be deemed to have been involuntarily terminated
by the Company if the Executive's duties and responsibilities are
significantly diminished by the Company without the Executive's
consent. For purposes of this Agreement, the term "Disability"
means an incapacity, due to physical injury or illness or mental
illness, causing the Executive to be unable to perform his duties
for the Company on a full-time basis for a period of at least six
consecutive months and the term "Just Cause" means willful
misconduct, dishonesty, conviction of a felony or excessive
absenteeism not related to illness or disability.
5. Tax Limitations. If any payments under this Agreement,
after taking in account all other payments to which the Executive
is entitled from the Company, or any affiliate thereof, are more
likely than not to result in a loss of a deduction to the Company
by reason of section 280G of the Internal Revenue Code of 1986 or
any successor provision to that section, such payments shall be
reduced by the least amount required to avoid such loss of
deduction. If the Executive and the Company shall disagree as to
whether a payment under this Agreement is more likely than not to
result in the loss of a deduction, the matter shall be resolved
by an opinion of tax counsel chosen by the Company's independent
auditors. The Company shall pay the fees and expenses of such
counsel, and shall make available such information as may be
reasonably requested by such counsel to prepare the opinion. If,
by reason of the limitations of this paragraph 5, the maximum
amount payable to the Executive under paragraph 4 above cannot be
determined prior to the due date for such payment, the Company
shall pay on the due date the minimum amount which it in good
faith determines to be payable and shall pay the remaining
amount, with interest calculated at the rate prescribed by
section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as
soon as such remaining amount is determined in accordance with
this paragraph 5.
6. Source of Payments and Withholding. Any amount payable
under the terms of this Agreement shall be paid from the general
assets of the Company or from one or more trusts, the assets of
which are subject to the claims of the Company's general
creditors. All payments to the Executive under this Agreement
will be subject to all applicable withholding of state and
federal taxes.
7. Arbitration of All Disputes. Any controversy or claim
arising out of or relating to this Agreement or the breach
thereof shall be settled by arbitration in the City of Chicago,
in accordance with the laws of the State of Illinois, by three
arbitrators, one of whom shall be appointed by the Company, one
by the Executive and third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree
on the appointment of a third arbitrator, then the third
arbitrator shall be appointed by the Chief Judge of the United
States Court of Appeals for the Seventh Circuit. The arbitration
shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of
arbitrators which shall be as provided in this paragraph 11.
Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event
that it shall be necessary or desirable for the Executive to
retain legal counsel or incur other costs and expenses in
connection with enforcement of his rights under this Agreement,
the Company shall pay (or the Executive shall be entitled to
recover from the Company, as the case may be) his reasonable
attorneys' fees and costs and expenses in connection with
enforcement of his rights (including the enforcement of any
arbitration award in court). Payments shall be made to the
Executive at the time such fees, costs and expenses are incurred.
If, however, the arbitrators shall determine that, under the
circumstances, payment by the Company of all or a part of any
such fees and costs and expenses would be unjust, the Executive
shall repay such amounts to the Company in accordance with the
order of the arbitrators.
8. Mitigation and Set-Off. The Executive shall not be
required to mitigate the amount of any payment provided for in
this Agreement by seeking other employment or otherwise. The
Company shall not be entitled to set off against the amounts
payable to the Executive under this Agreement any amounts owed to
the Company by the Executive, any amounts earned by the Executive
in other employment after termination of his employment with the
Company, or any amounts which might have been earned by the
Executive in other employment had she sought such other
employment.
9. Severance Pay Plan. During the Term of this Agreement,
the Executive shall not participate in or have any rights under
either the Ameritech Senior Management Severance Pay Plan or the
Ameritech Management Employees Severance Pay Plan.
10. Non-Alienation. The Executive shall not have any right
to pledge, hypothecate, anticipate or in any way create a lien
upon any amounts provided under this Agreement; and no benefits
payable hereunder shall be assignable in anticipation of payment
either by voluntary or involuntary acts, or by operation of law.
Nothing in this paragraph shall limit the Executive's rights or
powers to dispose of his property by will or limit any rights or
powers which his executor or administrator would otherwise have.
11. Governing Law. The provisions of this Agreement shall
be construed in accordance with the laws of the State of
Illinois.
12. Amendment. This Agreement may be amended or canceled
by mutual agreement of the parties in writing without the consent
of any other person and, so long as the Executive lives, no
person, other than the parties hereto, shall have any rights
under or interest in this Agreement or the subject matter hereof.
13. Successors to the Company. This Agreement shall be
binding upon and inure to the benefit of the Company and any
successor of the Company. The Company will require any successor
(whether director or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no succession had
taken place.
14. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full
force and effect.
15. Counterparts. This Agreement may be executed in two or
more counterparts, any one of which shall be deemed the original
without reference to the others.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name
and on its behalf, and its corporate seal to be hereunto affixed
and attested by its Assistant Secretary, all as of the date and
year first above written.
/s/ Kelly R. Welsh
Executive
Ameritech Corporation
By /s/ Bruce B. Howat
Its Secretary
ATTEST:
s/s Marilyn S. Spracker
Assistant Secretary
AGREEMENT REGARDING
CHANGE IN CONTROL
This Agreement entered into as of the 20th day of January,
1997, by and between Ameritech Corporation, a Delaware
corporation (the "Company"), and Thomas E. Richards (the
"Executive"),
WITNESSETH THAT:
WHEREAS, the Company wishes to induce the Executive
to remain in its employ, to provide fair and equitable treatment
and a competitive compensation package to the Executive, and to
assure continued attention of the Executive to his duties without
any distraction arising out of uncertain personal circumstances
in a change in control environment; and
WHEREAS, the Company recognizes that in the event of a
change in control of the Company it is likely that the
Executive's authorities, duties and responsibilities would be
substantially altered; and
WHEREAS, the Company and the Executive accordingly desire to
enter into this Agreement on the terms and conditions set forth
below;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, it is hereby agreed by and between
the parties as follows:
1. Term of Agreement. The "Term" of this Agreement shall
commence on the date hereof and shall continue through December
31, 1997; provided, however, that on such date and on each
December 31 thereafter, the Term of this Agreement shall
automatically be extended for one additional year (but not beyond
the Executive's attainment of age 65) unless, not later than the
preceding November 1 the Company shall have given notice that it
does not wish to extend the Term; and provided, further, that if
a Change in Control (as defined in paragraph 2 below) shall have
occurred during the original or any extended Term of this Agree
ment, the Term of this Agreement shall continue for a period of
twenty-four months beyond the month in which such Change in
Control occurs, but not beyond the Executive's attainment of age
65.
2. Change in Control. For purposes of this Agreement, the
term "Change in Control" means a change in the beneficial
ownership of the Company's voting stock or a change in the
composition of the Company's Board of Directors which occurs as
follows:
(a) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other
than:
(i) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or
(ii) the Executive or any person acting in concert with
the Executive
is or becomes a beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of stock of the Company
representing 20% or more of the total voting power of
the Company's then outstanding stock; provided,
however, that this subparagraph (a) shall not apply to
any tender offer made pursuant to an agreement with the
Company approved by the Company's Board of Directors
and entered into before the offeror has become a
beneficial owner of stock of the Company representing
5% or more of the combined voting power of the
Company's then outstanding stock;
(b) a tender offer is made for the stock of the Company,
and the person making the offer owns or has accepted
for payment stock of the Company representing 20% or
more of the total voting power of the Company's then
outstanding stock; provided, however, that this
subparagraph (b) shall not apply to any tender offer
made pursuant to an agreement with the Company approved
by the Company's Board of Directors and entered into
before the offeror has become a beneficial owner of
stock of the Company representing 5% or more of the
combined voting power of the Company's then outstanding
stock;
(c) during any period of 24 consecutive months there shall
cease to be a majority of the Board of Directors
comprised as follows: individuals who at the beginning
of such period constitute the Board of Directors and
any new director(s) whose election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-
third (2/3) of the directors then still in office who
either were directors at the beginning of the period or
whose election or nomination for election was
previously so approved; or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with any other company
other than:
(i) a merger or consolidation which would result in
the Company's voting stock outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting stock of the surviving entity) more than
70% of the combined voting power of the Company's
or such surviving entity's outstanding voting
stock immediately after such merger or
consolidation; or
(ii) a merger or consolidation which would result in
the directors of the Company who were directors
immediately prior thereto continuing to constitute
at least 50% of the directors of the surviving
entity immediately after such merger or
consolidation.
For purposes of subparagraph (d) above, the phrase "surviving
entity" shall mean only an entity in which all of the Company's
stockholders who are stockholders immediately before the merger
or consolidation (other than stockholders exercising dissenter
rights) become stockholders by the terms of the merger or
consolidation, and the phrase "directors of the Company who were
directors immediately prior thereto" shall not include (A) any
director of the Company who was designated by a person who has
entered into an agreement with the Company to effect a
transaction described in subparagraph (a) or subparagraph (d)
above, or (B) any director who was not a director at the
beginning of the 24-consecutive-month period preceding the date
of such merger or consolidation, unless his election by the Board
of Directors or nomination for election by the Company's stock
holders was approved by a vote of at least two-thirds (2/3) of
the directors who were directors before the beginning of such
period.
3. Compensation After a Change in Control. During any
period in which the Executive is employed by the Company after a
Change in Control, there shall be no reduction in the base
salary, long and short term incentives and bonuses, employee
benefits (including medical insurance, disability income
protection, and life insurance and death benefits), fringe
benefits and perquisites to which the Executive was entitled
prior to the Change in Control.
4. Severance Payments. Subject to the provisions
of paragraphs 5 and 6 below, in the event that (i) the
Executive's employment with the Company is involuntarily
terminated by the Company for any reason other than death,
Disability (as defined below) or Just Cause (as defined below)
during the twenty-four month period following a Change in Control
or (ii) the Executive's employment with the Company is terminated
by the Executive for any reason during the thirty-day period
beginning on the first anniversary of a Change in Control, the
Executive shall continue to receive all medical insurance,
disability income protection, life insurance coverage and death
benefits, fringe benefits and perquisites to which the Executive
was entitled prior to the Change in Control for a period of not
less than the 24 consecutive months immediately following the
date of his termination of employment, and shall be entitled to a
lump sum payment in cash no later than ten business days and no
earlier than two business days after the date of termination
equal to the sum of:
(a) an amount equal to 2.99 (or, if less, the number of
years remaining until the Executive's attainment of age
65) times the Executive's annual salary rate in effect
immediately prior to the Change in Control;
(b) an amount equal to 2.99 (or, if less, the number of
years remaining until the Executive's attainment of age
65) times the Executive's short term incentive award
and other bonuses payable for the calendar year
preceding the Change in Control; and
(c) the actuarial equivalent of the additional
pension benefits which the Executive would have accrued
under the terms of the Ameritech Management Pension
Plan, the Ameritech Senior Management Retirement and
Survivor Protection Plan and each other tax-qualified
or nonqualified defined benefit pension plan maintained
by the Company (determined without regard to any
termination or any amendment adversely affecting the
Executive which is adopted on or after a Change in
Control or in contemplation of a Change in Control) if,
on the date of Termination, the Executive had been
credited with two additional years of service and two
additional years of compensation at his annual base
salary rate and target short term incentive award in
effect on the date of the Change in Control for benefit
accrual purposes and were two years older than his
actual age on such date; provided, however, that the
additional service, compensation and age credits under
this paragraph (c) shall be proportionately reduced if
the Executive is at least age 63 on the date of termi
nation and eliminated if the Executive is age 65 or
older on such date. For purposes of this subparagraph
(c), actuarial equivalence shall be determined in
accordance with the terms of the Ameritech Senior
Management Retirement and Survivor Protection Plan for
purposes of lump sum payments under that plan, but
without regard to any amendment of that plan adopted on
or after a Change in Control or in contemplation of a
Change in Control which would reduce the amount of such
lump sum payment.
For purposes of this Agreement, the Executive's employment with
the Company shall be deemed to have been involuntarily terminated
by the Company if the Executive's duties and responsibilities are
significantly diminished by the Company without the Executive's
consent. For purposes of this Agreement, the term "Disability"
means an incapacity, due to physical injury or illness or mental
illness, causing the Executive to be unable to perform his duties
for the Company on a full-time basis for a period of at least six
consecutive months and the term "Just Cause" means willful
misconduct, dishonesty, conviction of a felony or excessive
absenteeism not related to illness or disability.
5. Tax Limitations. If any payments under this Agreement,
after taking in account all other payments to which the Executive
is entitled from the Company, or any affiliate thereof, are more
likely than not to result in a loss of a deduction to the Company
by reason of section 280G of the Internal Revenue Code of 1986 or
any successor provision to that section, such payments shall be
reduced by the least amount required to avoid such loss of
deduction. If the Executive and the Company shall disagree as to
whether a payment under this Agreement is more likely than not to
result in the loss of a deduction, the matter shall be resolved
by an opinion of tax counsel chosen by the Company's independent
auditors. The Company shall pay the fees and expenses of such
counsel, and shall make available such information as may be
reasonably requested by such counsel to prepare the opinion. If,
by reason of the limitations of this paragraph 5, the maximum
amount payable to the Executive under paragraph 4 above cannot be
determined prior to the due date for such payment, the Company
shall pay on the due date the minimum amount which it in good
faith determines to be payable and shall pay the remaining
amount, with interest calculated at the rate prescribed by
section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as
soon as such remaining amount is determined in accordance with
this paragraph 5.
6. Source of Payments and Withholding. Any amount payable
under the terms of this Agreement shall be paid from the general
assets of the Company or from one or more trusts, the assets of
which are subject to the claims of the Company's general
creditors. All payments to the Executive under this Agreement
will be subject to all applicable withholding of state and
federal taxes.
7. Arbitration of All Disputes. Any controversy or claim
arising out of or relating to this Agreement or the breach
thereof shall be settled by arbitration in the City of Chicago,
in accordance with the laws of the State of Illinois, by three
arbitrators, one of whom shall be appointed by the Company, one
by the Executive and third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree
on the appointment of a third arbitrator, then the third
arbitrator shall be appointed by the Chief Judge of the United
States Court of Appeals for the Seventh Circuit. The arbitration
shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of
arbitrators which shall be as provided in this paragraph 11.
Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event
that it shall be necessary or desirable for the Executive to
retain legal counsel or incur other costs and expenses in
connection with enforcement of his rights under this Agreement,
the Company shall pay (or the Executive shall be entitled to
recover from the Company, as the case may be) his reasonable
attorneys' fees and costs and expenses in connection with
enforcement of his rights (including the enforcement of any
arbitration award in court). Payments shall be made to the
Executive at the time such fees, costs and expenses are incurred.
If, however, the arbitrators shall determine that, under the
circumstances, payment by the Company of all or a part of any
such fees and costs and expenses would be unjust, the Executive
shall repay such amounts to the Company in accordance with the
order of the arbitrators.
8. Mitigation and Set-Off. The Executive shall not be
required to mitigate the amount of any payment provided for in
this Agreement by seeking other employment or otherwise. The
Company shall not be entitled to set off against the amounts
payable to the Executive under this Agreement any amounts owed to
the Company by the Executive, any amounts earned by the Executive
in other employment after termination of his employment with the
Company, or any amounts which might have been earned by the
Executive in other employment had she sought such other
employment.
9. Severance Pay Plan. During the Term of this Agreement,
the Executive shall not participate in or have any rights under
either the Ameritech Senior Management Severance Pay Plan or the
Ameritech Management Employees Severance Pay Plan.
10. Non-Alienation. The Executive shall not have any right
to pledge, hypothecate, anticipate or in any way create a lien
upon any amounts provided under this Agreement; and no benefits
payable hereunder shall be assignable in anticipation of payment
either by voluntary or involuntary acts, or by operation of law.
Nothing in this paragraph shall limit the Executive's rights or
powers to dispose of his property by will or limit any rights or
powers which his executor or administrator would otherwise have.
11. Governing Law. The provisions of this Agreement shall
be construed in accordance with the laws of the State of
Illinois.
12. Amendment. This Agreement may be amended or canceled
by mutual agreement of the parties in writing without the consent
of any other person and, so long as the Executive lives, no
person, other than the parties hereto, shall have any rights
under or interest in this Agreement or the subject matter hereof.
13. Successors to the Company. This Agreement shall be
binding upon and inure to the benefit of the Company and any
successor of the Company. The Company will require any successor
(whether director or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no succession had
taken place.
14. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full
force and effect.
15. Counterparts. This Agreement may be executed in two or
more counterparts, any one of which shall be deemed the original
without reference to the others.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name
and on its behalf, and its corporate seal to be hereunto affixed
and attested by its Assistant Secretary, all as of the date and
year first above written.
/S/ Thomas E. Richards
Executive
Ameritech Corporation
By /s/ Bruce B. Howat
Its Secretary
ATTEST:
/s/Marilyn S. Spracker
Assistant Secretary
FIRST ADMINISTRATIVE AMENDMENT
TO
AMERITECH KEY MANAGEMENT LIFE INSURANCE PLAN
Pursuant to authority reserved to Ameritech Corporation
(the "Company") by the provisions of the Ameritech Key
Management Life Insurance Plan (Effective as of December 1,
1995) (the "Plan"), the Plan is hereby amended effective as
of July 1, 1996 as follows:
To delete subsection 3.2 of the Plan in its entirety
and to substitute the following therefor:
"3.2 Automatic Increases in Policy Coverage. The
total amount described in subsection 2.1 payable as a death
benefit (based upon the Participant's market rate and target
bonus award at the time he purchases the Policy) under a
Policy shall be indexed a the rate of a) seven percent (7%)
for each Policy Year (following the initial Policy Year)
that begins while he remains employed by the Company or an
Employer, and rounded to the next higher $1,000, for any
Participant who has a Policy Effective Date of July 1, 1996
or earlier, and b) at a rate to be established from time to
time by the Plan Administrator for each Policy Year
(following the initial Policy Year) that begins while he
remains employed by the Company or an Employer, and rounded
to the next higher $1,000, for any Participant who has a
Policy Effective Date of January 1, 1997 or later; provided
that i) the rate established by the Plan Administrator shall
be no less than five percent (5%) and no greater than seven
percent (7%), and ii) the rate established for any Policy
purchased by the Plan Administrator with a Policy Effective
Date of January 1, 1997 or later shall be subject to
Committee approval."
Dated: June 25, 1996
AMERITECH CORPORATION
By: /s/ Walter M. Oliver
Senior Vice President -
Human Resources
Concur:
/s/ T.P. Hester
Executive Vice President and
General Counsel
11/1/95
AMERITECH CORPORATE RESOURCE
TRANSFER PROGRAM
PURPOSE
To mitigate the economic impact associated with a job
transfer.
COST
Paid by the participant's company.
ELIGIBILITY
You are eligible to participate in this Plan if you are a
Corporate Resource Manager. For purposes of this Plan,
Corporate Resource Managers are defined as Management
Committee members and managers in market grades CR5 through
CR9.
RESIDENCE RELOCATION DIFFERENTIAL
A residence relocation differential is available to
participants who:
1.Are transferred at the Company's direction;
2.Are eligible for reimbursement under the Company's
Relocation Plan; and
3.Move to a new residence within twelve months of the date
of transfer.
The residence relocation differential is payable over a 36
month period which begins on the effective date of transfer.
The amount payable is calculated as follows:
First Twelve Months - The greater of 10% of base salary on
the effective date of transfer or 8% of market rate on the
effective date of transfer
Next Twelve Months - 80% of the residence relocation
differential payable during the first twelve months
Final Twelve Months - 60% of the residence relocation
differential payable during the first twelve months
Payments under this Plan shall be made only after the
employee has moved to a new residence. Any amounts withheld
shall be paid out in a lump sum or in a series of monthly
installments not exceeding twelve.
HOME PURCHASE DIFFERENTIAL
A home purchase differential may be available to
participants who:
1.Are transferred at the Company's direction from a Company
located in one of Ameritech's regional headquarters
cities to Chicago; and
2.Purchase a new residence within twelve months of the date
of transfer.
The amount of the home purchase differential is based upon
the individual's market grade and the regional city from
which the employee is relocating. (See Attachment A for
current rates). The differential, if any, for all other
locations will be determined on a case-by-case basis.
The home purchase differential is grossed up at the maximum
tax rates and is paid in a lump sum as soon as practicable
after the closing on the new residence.
Attachment A
CORPORATE RESOURCE
HOME PURCHASE DIFFERENTIAL AMOUNTS
EFFECTIVE 1-1-94
All amounts are paid for transfers to the Chicago
metropolitan area:
Corporate Resource
5 - 9 Managers and
City Management Committee Members
Cleveland $19,400
Detroit $14,300
Indianapolis $21,600
Milwaukee $16,500
No differential payments between other cities.
AMERITECH CORPORATE RESOURCE
SUPPLEMENTAL PENSION TRUST
(AS AMENDED AND RESTATED EFFECTIVE AS OF MAY 1, 1996)
TABLE OF CONTENTS
SECTION 1. ESTABLISHMENT, NAME AND ADMINISTRATION 4
1.1 NAME 4
1.2 DEFINITIONS 4
1.3 PLAN 4
1.4 PLAN AND TRUST ADMINISTRATION 4
SECTION 2. MANAGEMENT AND CONTROL AND TRUST FUND ASSETS 5
21. THE TRUST FUND 5
2.2 TRUST CONTRIBUTIONS 5
2.3 INVESTMENT GUIDELINES AND INVESTMENT FUNDS 5
2.4 EXERCISE OF TRUSTEE'S DUTIES 5
2.5 GENERAL POWERS 6
2.6 ADMINISTRATIVE POWERS 15
2.7 PROXIES 16
SECTION 3. APPOINTMENT OF INVESTMENT MANAGERS 16
3.1 INVESTMENT MANAGERS 16
3.2 INVESTMENT MANAGER ACCOUNT CASH 17
3.3 DIRECTIONS 17
3.4 NOTICE 18
SECTION 4. ESTABLISHMENT OF COMPANY INVESTMENT ACCOUNT 19
SECTION 4. ESTABLISHMENT OF COMPANY INVESTMENT ACCOUNT 19
4.1 COMPANY INVESTMENT ACCOUNTS 19
SECTION 5. ACCOUNTING AND DISTRIBUTION OF TRUST ASSETS 20
2.8 COMMON FUND 20
5.3 TRUSTEE RECORDS AND ACCOUNTS 21
5.4 BENEFIT PAYMENTS 22
5.5 CHANGE IN CONTROL 23
SECTION 6. TRUSTEE COMPENSATION AND EXPENSES 25
6.1 COMPENSATION AND EXPENSES 25
SECTION 7. INDEMNIFICATION OF TRUSTEE 27
7.1 INDEMNIFICATION OF TRUSTEE 27
3SECTION 8. TRUST FUND ASSETS 28
8.1 REVERSION TO COMPANY 28
8.2 CLAIMS OF CREDITORS 29
8.3 CLAIMS OF PARTICIPANTS 30
SECTION 9. ADOPTION BY SUBSIDIARIES 31
SECTION 10. TAX MATTERS 31
10.1 NATURE OF TRUST 31
10.2 FEDERAL AND STATE REPORTING REQUIREMENTS 32
10.3 TAX MATTERS 32
SECTION 11. CHANGE OF TRUSTEE 32
11.1 RESIGNATION 32
11.2 REMOVAL OF TRUSTEE 33
11.3 DUTIES OF RESIGNING OR REMOVED TRUSTEE AND SUCCESSOR
TRUSTEE 33
SECTION 12. AMENDMENT, REVOCATION AND TERMINATION 36
12.1 AMENDMENT AND REVOCATION 36
12.2 TREATMENT 36
SECTION 13. MISCELLANEOUS 37
13.1 DISAGREEMENT AS TO ACTS 37
13.2 PERSONS DEALING WITH TRUSTEE 37
13.3 EVIDENCE 37
13.4 WAIVER OF NOTICE 37
13.5 COUNTERPARTS 37
13.6 GOVERNING LAWS 37
13.7 SUCCESSORS, ETC. 38
13.8 SERVICE OF LEGAL PROCESS 38
13.9 SEVERABILITY 38
13.10 GENDER AND NUMBERS 39
13.11 HEADINGS 39
13.12 ACTION BY COMPANY AND SUBSIDIARIES 39
13.13 NONALIENATION OF BENEFITS 39
AMERITECH CORPORATE RESOURCE
SUPPLEMENTAL PENSION TRUST
As Amended and Restated Effective as of May 1, 1996
THIS TRUST AGREEMENT, made this 29th day of April,1996, by
Ameritech Corporation, a Delaware corporation (the
"Company") on behalf of itself and such of its subsidiaries
and affiliates which have employees and former employees
who may receive benefits from the Trust (the
"Subsidiaries"), and State Street Bank and Trust Company, a
trust company organized under the laws of the Commonwealth
of Massachusetts, as trustee (the "Trustee"),
WITNESSETH THAT:
WHEREAS, the Company maintains the Ameritech Corporate
Resource Supplemental Pension Plan (formerly known as the
Ameritech Senior Management Retirement and Survivor
Protection Plan) (the "Plan") to provide retirement and
survivor benefits to or on account of certain current and
former employees of the Company and the Subsidiaries; and
WHEREAS, effective since December 30, 1988, the Company
and the Subsidiaries have maintained a grantor trust (as
described in section 671 of the Internal Revenue Code of
1986, as amended (the "Code")) formerly known as the
Ameritech Senior Management Retirement and Survivor
Protection Trust and renamed the Ameritech Corporate
Resource Supplemented Pension Trust effective as of December
1, 1995, to provide for the payment of certain benefits
under the Plan; and
WHEREAS, the Company and the Subsidiaries now wish to
amend and restate this Trust in its entirety effective as of
May 1, 1996; and
NOW, THEREFORE, in consideration of the provisions and
mutual convenants in this Trust, is it agreed by and between
the Company on behalf of itself and the Subsidiaries and the
Trustee as follows:
Section 1. Establishment, Name and Administration
1.1 Name. The Company and the Trustee hereby
amend and restate in its entirety the Ameritech Corporate
Resource Supplemental Pension Trust (the or this "Trust")
effective as of May 1, 1996.
1.2 Definitions. Unless the context clearly requires
otherwise, any word, term or phrase used in the Trust shall
have the same meaning as is assigned to it under the terms
of the Plan.
1.3 Plan. The Trust has been established,
subject to the provisions of Section 8, to provide benefits
to the Participants under the terms of the Plan. The
Company shall deliver to the Trustee a certified or executed
copy of the Plan and of any amendments thereto for
convenience of reference, but the rights, powers and duties
of the Trustee shall be governed solely by the terms of this
Trust. A payment under the Trust to a Participant shall,
for purposes of the Plan, be deemed a payment under the Plan
by the Company or the Subsidiary responsible for such
payment under the Plan .
1.4 Plan and Trust Administration. The
authority to control and manage the operation of the Plan,
as applied to the Company or any Subsidiary, is vested in
the Benefit Plan Committee which administers the Ameritech
Management Pension Plan; however, all directions to the
Trustee with respect to investments under this Trust shall
be made by the Company's Director-Compensation and Benefits
or his duly authorized delegates, and all notices from the
Trustee shall be made to such Director or his delegate. All
directions to the Trustee with respect to the payment of
benefits or expenses from the Trust shall be made by the
Company's Director-Compensation and Benefits or by the
Company's Manager-Senior Management Benefit Planning and
Compensation Administration (or their duly authorized
delegate). The Company will provide to the Trustee specimen
signatures of the persons who are, from time to time,
authorized to direct the Trustee.
Section 2. Management and Control of Trust Fund Assets
2.1 The Trust Fund. The term "Trust Fund" means all
property of any kind held by the Trustee from time to time
pursuant to this Trust.
2.2. Trust Contributions. The Company and the
Subsidiaries may, from time to time, contribute amounts to
the Trustee to be held, invested and distributed in
accordance with the provisions of this Trust.
2.3 Investment Guidelines and Investment Funds.
The Ameritech Director - Compensation and Benefits or his
duly authorized delegate shall have the power to direct the
Trustee with respect to the investment, retention,
disposition and reinvestment of the assets of the Trust Fund
by writing filed with the Trustee.
2.4 Exercise of Trustee's Duties. Subject to the
provisions of Section 8, the Trustee shall discharge its
duties hereunder solely in the interest of the Participants
and other persons entitled to benefits under the Plan, and:
(a) for the exclusive purpose of:
(i) providing benefits to or on account of the
Participants and other persons entitled thereto
under the Plan; and
(ii) defraying the reasonable expenses of
administering the Trust; and
(b) with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with
such matters would use in the conduct of an
enterprise of a like character and with like aims.
2.5 General Powers. Subject to subsection 2.4
and Sections 3 and 4, with respect to the Trust Fund, the
Trustee shall have the following powers, rights and duties
in addition to those provided elsewhere in this Trust or by
law:
(a) to receive and hold all contributions paid to it by
the Company or any Subsidiary; provided, however,
that the Trustee shall have no duty to require any
contributions to be made, or to determine that any
of the contributions received comply with the
conditions and limitations of the Plan.
(b) to apply for, pay premiums on and maintain in force
on the lives of Participants individual or group
ordinary, term or universal life insurance policies
for the benefit of the Participants on whose lives
the policies are issued; to acquire such a policy
from the Company or a Subsidiary or from the
Participant on whose life the policy is issued, but
only if the Trustee pays, transfers or otherwise
exchanges for the policy no more than the cash
surrender value of the policy and the policy is not
subject to a mortgage or similar lien which the
Trustee would be required to assume; to dispose of
any such policy including a disposition to the
Company or a Subsidiary or Participant, provided
that, upon such disposition, the Trustee receives
an amount which is not less than the cash surrender
value of the policy; and to have with respect to
such policies all of the rights, powers, options,
privileges and benefits usually comprised in the
term "incidents of ownership" and normally vested
in an insured or owner of such policies.
(c) To invest the Trust Fund in bonds, notes,
debentures, certificates or other governmental,
corporate, partnership, trust or personal
obligations or evidences of indebtedness,
mortgages, equipment trust certificates,
certificates of deposit, money market securities,
investment trust certificates, forward contracts,
options, index options, warrants, rights, shares in
mutual funds, commodities, derivative securities or
instruments, futures contracts, preferred or
common stocks (including securities of the
Company), insurance and annuity contracts,
investment contracts or other investment
arrangements with insurance companies, banks or
other financial institutions, common, group or
collective trust funds, partnerships, shares of
limited liability companies or in such other
property, real or personal or any interest therein.
(d) To purchase, retain, manage, sell, contract to
purchase or sell, grant options to purchase or
sell, convert, redeem, convey, exchange, transfer,
abandon, improve, repair, insure, lease for any
term even though commencing in the future or
extending beyond the term of the Trust, and
otherwise deal with all property, real or personal,
(including selling short securities, futures,
derivatives or other similar investments) on such
terms and conditions as appropriate, and no person
dealing with the Trustee shall be required to see
to the application of any money or property
delivered to the Trustee or to inquire into the
validity or propriety of any transaction with the
Trustee; and to acquire, hold or dispose of
property, real or personal, in any form or manner
including, without limitation, directly or
indirectly through general or limited partnerships,
corporations, trusts, participating or convertible
mortgages or any other form.
(e) Subject to the provisions of subsection 2.7, to
have and exercise, with respect to the Trust Fund,
all of the rights of an individual owner, including
but not limited to the power to give proxies, to
participate or oppose participation in voting
trusts, mergers, consolidations, foreclosures,
reorganizations or liquidations, to tender
securities pursuant to tender offers, to exercise,
buy or sell any stock subscription or conversion
rights or privileges available in connection with
any securities or other property and to deposit any
property with any protective, reorganization or
similar committee or with depositories designated
thereby, to delegate power thereto, and to pay or
agree to pay part of the expenses and compensation
of any such committee and any assessments levied
with respect to property so deposited.
(f) To hold any securities or other property in the
name of the Trustee or its nominee, or in such form
as appropriate, with or without disclosing the
trust relationship and to hold any securities in
bearer form.
(g) To engage in the lending of securities to banks,
broker-dealers and other borrowers pursuant to any
applicable regulatory authority and in accordance
with a written agreement entered into with the
Company containing any guidelines and directions
provided by the Company, and to receive and invest
collateral provided by the borrower.
(h) To deposit securities with a clearing corporation
as defined in Article 8 of the Massachusetts
Uniform Commercial Code and to deposit or pledge
securities or other property with any broker-dealer
or other person (including the Trustee). The
certificates representing securities, including
those in bearer form, may be held in bulk form
with, and may be merged into, certificates of the
same class of the same issuer which constitute
assets of other accounts or owners, without
certification as to the ownership attached.
Utilization of a book-entry system may be made for
the transfer or pledge of securities held by the
Trustee or by a clearing corporation. The Trustee
shall at all times, however, maintain a separate
and distinct record of the securities owned by the
Trust Fund.
(i) To participate in and use the Federal Book-entry
Account System, a service provided by the Federal
Reserve Bank for its member banks for deposit of
Treasury securities.
(j) To purchase, sell, hold and generally deal in any
manner in and with interest rate, stock index,
commodity, currency or other futures contracts and
to close any open futures contracts positions prior
to or in the contract's delivery month.
(k) To grant, purchase, sell, exercise, permit to
exercise, permit to be held in escrow and otherwise
to acquire, dispose of, hold and generally deal in
any manner with or in all forms of options,
including index options and over-the-counter
options, in any combination.
(l) To enter into and engage in any form of swap
transaction.
(m) To purchase, sell and otherwise acquire, dispose
of, hold and generally deal in any manner with or
in domestic or international currency or currency
contracts, including transactions entered into with
the Trustee, its agents or sub-custodians.
(n) To manage, administer, operate, lease for any
number of years, develop, improve, repair, alter,
demolish, mortgage, pledge, grant options or
easements with respect to, or otherwise deal with
real property or any interest therein.
(o) To renew or extend or participate in the renewal or
extension of any mortgage, upon such terms as may
be deemed advisable and to agree to a reduction in
the rate of interest on any mortgage or to any
other modification or change in the terms of any
mortgage or to any guarantee pertaining thereto in
any manner and to any extent that may be deemed
advisable for the protection of the Trust or the
preservation of the value of the investment; to
waive any default, whether in the performance of
any covenant or condition of any mortgage or in the
performance of any guarantee, or to enforce any
such default in such manner and to such extent as
may be deemed advisable; to exercise and enforce
any and all rights of foreclosure, to bid on
property in foreclosure, to take a deed in lieu of
foreclosure with or without paying a consideration
therefor and in connection therewith to release the
obligation on the bond secured by such mortgage,
and to exercise and enforce in any action, suit or
proceeding at law or in equity any rights or
remedies with respect to any such mortgage or
guarantee.
(p) To invest all or any portion of the assets of the
Trust Fund in any collective, combined, common or
group investment trust or fund, including any such
trust or fund maintained by the Trustee.
(q) Subject to such directions as the Company provides
(which may be either standing directions in the
form of a written agreement with the Trustee or a
separate letter of direction) to retain or invest
any reasonable portion of the Trust Fund (including
cash balances held from time to time as part of an
Investment Manager or Company Investment Account
as described in Sections 3 and 4) in cash or cash
equivalents (pending other investment, reinvestment
or payment of expenses or benefits), including, but
not limited to, savings accounts, certificates of
deposit, repurchase agreements (including savings
accounts, certificates of deposit and repurchase
agreements with the Trustee in its banking capacity
or its affiliates, so long as such investments bear
a reasonable rate of interest), United States
Treasury bills, commercial paper and similar types
of securities and any collective trust or mutual
fund maintained by the Trustee for the management
of cash or cash equivalents; and to sell any such
cash equivalent instruments.
(r) To borrow money to cover any overdraft; to borrow
or lend money or otherwise extend credit from time
to time, with or without security, from or to any
legally permissible source in the best interest of
the Trust Fund; to mortgage, encumber or pledge any
part of the Trust Fund to secure repayment of any
indebtedness resulting from such borrowing; to
provide guarantees with respect to the extension of
credit or other benefits by any entity; to assume
liens on property acquired by the Trust and to
acquire property subject to liens.
(s) To convert any monies into any currency through
foreign exchange transactions (which may be
effected with the Trustee or an affiliate of the
Trustee).
(t) To form corporations and limited liability
companies and to create partnerships or trusts to
acquire, dispose of or hold title to any securities
or other property of the Trust.
(u) To settle, compromise, contest, submit to
arbitration or abandon any claims, debts, damages
or demands by or against the Trust Fund; to
commence, maintain or defend suits or legal
proceedings and to represent the Trust in all suits
or legal proceedings; provided that the Trustee
shall not settle, compromise or abandon any such
matter without the Company's written consent.
(v) To retain any funds or property subject to any
dispute without liability for payment of interest
to any third party, and to withhold payment or
delivery thereof until final adjudication of the
dispute by a court of competent jurisdiction.
(w) To make payments from the Trust Fund in accordance
with subsection 5.3 and to pay out of or withhold
from any benefit distributable from the Trust Fund
any estate, inheritance, income or other tax,
charge or assessment attributable thereto, subject
to the provisions of subsection 6.1 and to require
such release or other documents from any lawful
taxing authority and such indemnity from the
intended payee as may be necessary for the
protection of the Trust, the Company, the
Subsidiaries or the Trustee.
(x) To employ agents, experts, custodians (including
but not limited to affiliates of the Trustee), sub-
custodians and counsel (which may be counsel to the
Company) and to delegate discretionary powers to,
and reasonably rely upon information and advice
furnished by, such agents, experts, custodians, sub-
custodians and counsel.
(y) To appoint trustees, sub-trustees, custodians or
sub-custodians to hold title to property of the
Trust in those jurisdictions in which the Trustee
is not authorized to do business or as may
otherwise be reasonable and necessary to carry out
the purposes of the Trust and, subject to the
provisions of this Trust, to define the scope of
the responsibilities of each such trustee, sub-
trustee, custodian and sub-custodian.
(z) To grant powers of attorney to such individuals or
organizations as may be necessary or appropriate.
(aa) To perform any and all other acts in its
judgment necessary or appropriate for the proper
and advantageous management, investment, and
distribution of the Trust Fund or to carry out any
of the foregoing powers and the purposes of the
Trust.
The Trustee shall transmit promptly to the Company
or an Investment Manager , as the case may be, all
notices of conversion, redemption, tender,
exchange, subscription, class action, claim in
insolvency proceedings or other rights or powers
relating to any of the securities in a Company
Investment Account or an Investment Manager Account
managed by the Company or such Investment Manager ,
which notices are received by the Trustee from its
agents or custodians, from issuers of the
securities in question and from the party (or its
agents) extending such rights. On a monthly basis
(or at such other periodic intervals as the Company
and the Trustee may agree upon), the Trustee shall
transmit to the Company a summary of information
regarding all class actions or claim in insolvency
proceedings received by the Trustee in the
preceding month (or other agreed-upon period),
regardless of whether the Company or an Investment
Manager is responsible for the securities in the
Company Investment Account or Investment Manager
Account to which such actions or proceedings
relate. The Company may from time to time direct
the Trustee to cease transmitting such reports if
the Company determines they are not necessary at
that time. The Trustee shall have no obligation to
determine the existence of any conversion,
redemption, tender, exchange, subscription, class
action, claim in insolvency proceedings or other
right or power relating to any of the securities in
the Trust Fund of which notice was given prior to
the purchase of such securities by the Trust Fund,
and shall have no obligation to exercise any such
right or power unless the Trustee is informed of
the existence of the right or power.
The Trustee shall not be liable for any untimely
exercise or assertion of such rights or powers
described in the paragraph immediately above in
connection with securities held in a Company
Investment Account or an Investment Manager Account
managed by the Company or an Investment Manager
unless (i) the Trustee or its agents or custodians
are in actual possession of such securities and
(ii) the Trustee receives directions to exercise
any such rights or powers from the Company or the
Investment Manager , as the case may be, and both
(i) and (ii) occur at least three business days
prior to the date on which such rights or powers
are to be exercised; provided, however, that the
Trustee shall not be relieved from liability under
this paragraph for the untimely assertion of such
rights or powers due to failure to timely receive
direction with respect to any securities held in a
Investment Manager Account for which the Trustee
has been named the Investment Manager .
2.6 Administrative Powers. Notwithstanding the
appointment of an Investment Manager , the Trustee shall
have the following powers and authority to be exercised in
its sole discretion, with respect to the Trust Fund:
(a) To employ suitable agents, experts, custodians, sub-
custodians and counsel.
(b) To appoint ancillary trustees, sub-trustees,
custodians or sub-custodians to hold any portion of
the assets of the Trust.
(c) To register any securities held by the Trustee
hereunder in its own name or in the name of a
nominee with or without the addition of words
indicating that such securities are held in a
fiduciary capacity and to hold any securities in
bearer form and to deposit any securities or other
property in a depository or clearing corporation.
(d) To make, execute and deliver, as Trustee, any and
all deeds, leases, mortgages, conveyances, waivers,
releases or other instruments in writing necessary
or desirable for the accomplishment of any of the
foregoing powers.
(e) Generally to do all ministerial acts, whether or
not expressly authorized, which the Trustee may
deem necessary or desirable in carrying out its
duties under this Trust Agreement.
2.7 Proxies. On behalf of itself and the
Subsidiaries, the Company may, from time to time, direct the
Trustee with respect to the handling and voting of proxies
for all or any portion of the securities held in the Trust
Fund, in which case the Trustee shall vote such proxies
solely in accordance with the directions of the Company,
notwithstanding the provisions of subsections 2.5(e) and
3.1.
Section 3. Appointment of Investment Managers
3.1 Investment Managers. Notwithstanding anything in
this Trust to the contrary, the Company (or any organization
or individual to whom the Company has delegated such
authority) shall have the right from time to time to
appoint or remove an individual, partnership or corporation
(which may be a subsidiary of the Company or any other
Subsidiary) as Investment Manager each of whom shall have
the power to manage and to direct the Trustee with respect
to the acquisition and disposal of assets constituting all
or a portion of the Trust Fund, to be known as an
"Investment Manager Account". Written notice of any such
appointment and/or removal shall be given to the Trustee and
the Investment Manager so appointed or removed. As long as
an Investment Manager is acting, such Investment Manager
shall direct the Trustee to invest and the Trustee shall
invest the applicable Investment Manager Account (subject
to the provisions of subsection 2.5(q)) in any property in
which the Trustee could invest under this Trust. Subject to
the provisions of the investment management agreement and
subsection 2.5(q)), the Investment Manager of any
Investment Manager Account shall have all of the investment
powers and duties granted to or imposed on the Trustee
under the provisions of subsection 2.5. Subject to the
provisions of subsection 2.7, the Investment Manager shall
have full authority and the responsibility to direct the
Trustee with respect to the acquisition, retention,
management, and disposition of all of the assets from time
to time comprising the Investment Manager Account being
managed by such Investment Manager and the voting of
proxies thereon, and the Trustee shall have no duty or
obligation to review the assets from time to time comprising
such Investment Manager Account, to make recommendations
with respect to the investment, reinvestment, or retention
thereof, nor with respect to the voting of proxies thereon,
except as would otherwise be required to meet the Trustee's
obligations under the Trust, or any applicable law. At the
request of the Trustee, an Investment Manager shall certify
the value of any securities or other property held in the
Investment Manager Account managed by the Investment
Manager and the Trustee shall be entitled to incorporate
such information in its reports. The Trustee shall inform
the Company if the Trustee uses an Investment Manager 's
valuation for a particular security or other property.
3.2 Investment Manager Account Cash. Pending receipt
of directions from the Investment Manager , cash received by
the Trustee from time to time for any Investment Manager
Account shall be fully invested in accordance with Company
directions which may be either standing directions in the
form of a written agreement with the Trustee or a separate
letter of direction.
3.3 Directions. Any direction given to the Trustee by
an Investment Manager with respect to an Investment Manager
Account shall either (1) be made in writing or via facsimile
or other electronic communications as shall be agreed upon
by the Investment Manager and the Trustee or (2) if oral,
shall be confirmed in writing or via facsimile or other
electronic communications as shall be agreed upon by the
Investment Manager and the Trustee within a reasonable
period. The Trustee may issue to an Investment Manager
security codes or passwords in order that the Trustee may
verify that certain transmissions of information, including
directions or instructions have been originated by the
Investment Manager . To the extent that directions or
instructions using such security codes or passwords
constitute proper directions, Trustee liability associated
with such directions shall be governed by Section 7 of this
Trust. Except as otherwise provided in this Trust, the
Investment Manager of an Investment Manager Account shall
have the power and authority, to be exercised in its sole
discretion at any time and from time to time, to issue
orders for the purchase or sale of securities directly to a
broker. Written notification of the issuance of each such
order shall be given promptly to the Trustee by the
Investment Manager and the confirmation of each such order
shall be confirmed to the Trustee by the broker. Unless
otherwise directed by the Investment Manager , such
notification shall be authority for the Trustee to pay for
securities purchased or to deliver securities sold as the
case may be. Upon the direction of the Investment Manager ,
the Trustee will execute and deliver appropriate trading
authorizations, but no such authorization shall be deemed to
increase the liability or responsibility of the Trustee
under this Trust Agreement.
3.4 Notice. The Trustee may assume that any
Investment Manager Account previously established and the
appointment of any Investment Manager for that account
continues in force until receipt of written notice to the
contrary from the Company, In addition, except as otherwise
provided in Section 3.2, the Trustee shall have no
responsibility to invest or manage any asset held in an
Investment Manger Account (unless the Trustee has itself
been appointed Investment Manager for such account as
described below) until the Trustee is (1) notified by the
Company in writing of the termination of the Investment
Manager 's authority over the assets of such account and (2)
directed in writing to terminate the Investment Manager
Account and to transfer the assets of such account to the
Trustee's management as part of the Trust Fund pursuant to a
separate, written agreement. In the event that the Trustee
enters into such an agreement, it shall have the powers and
duties of an Investment Manager with regard to such
account, in addition to its powers and duties as Trustee.
Section 4. Establishment of Company Investment Account
4.1 Company Investment Accounts. The Company may, by
writing filed with the Trustee, assume investment
responsibility over any portion of the Trust Fund designated
by it as a "Company Investment Account". In addition,
during any time when there is no Investment Manager
(including the Trustee if appointed as an Investment Manager
) appointed with respect to all or part of the Trust Fund,
the Company shall direct the investment and reinvestment of
all or such portion of the Trust Fund. With respect to
assets of Company Investment Accounts over which the Company
has assumed investment responsibility, the Company shall
direct the Trustee to invest and the Trustee, shall invest
the applicable Company Investment Account (subject to
subsection 2.5(q)) in any property in which the Trustee
could invest under this Trust. With respect to any Company
Investment Account for which the Company has assumed
investment responsibility, the Company shall have all of the
investment powers and duties granted to or imposed on the
Trustee under the provisions of subsection 2.5. The Company
shall have full authority and the responsibility to direct
the Trustee with respect to the acquisition, retention,
management, and disposition of all of the assets from time
to time comprising the Company Investment Account being
managed by the Company and the voting of proxies thereon,
and the Trustee shall have no duty or obligation to review
the assets from time to time comprising such Company
Investment Account, to make recommendations with respect to
the investment, reinvestment or retention thereof nor with
respect to the voting of proxies thereon, except as would
otherwise be required to meet the Trustee's obligations
under the Trust or any applicable law. The Company shall
have the powers and duties with regard to the manner of
giving direction to the Trustee which an Investment Manager
would have under subsection 3.3 and the Trustee shall be
protected to the same extent as if those directions came
from an Investment Manager.
Section 5, Accounting and Distribution of Trust Assets
5.1 Common Fund. Subject to the following
provisions of this subsection 5.1 and the provisions of
subsection 8.2, the Trustee shall not be required to make
any separate investment of the Trust Fund for the account of
the Plan as applied to the Company or any Subsidiary and may
administer and invest all contributions made to the Trustee
as one Trust Fund. The Trustee shall establish and maintain
records which reflect the portion of the Trust Fund
attributable to the Company and each of the Subsidiaries.
Such records shall be adjusted, as of the last day of each
calendar year and at such other times as the Company shall
direct, to reflect changes in the Trust Fund and in the
Company's and each Subsidiary's portion of the Trust Fund.
The Trustee shall establish, maintain and adjust such
records based upon information provided by the Company on
behalf of itself and the Subsidiaries; or, if the Company
fails to provide such information, the Trustee shall
establish, maintain and adjust such records based upon the
information otherwise reasonably available to the Trustee
and subject to the Company's review and confirmation of such
information. The Trustee shall not be required to make any
separate investment of the Trust Fund for the account of any
creditor of the Company or any Subsidiary prior to receipt
of directions to make payments to such creditor in
accordance with subsection 8.2.
5.2 Trustee Records and Accounts. The Trustee
shall maintain accurate and detailed records and accounts of
all investments, receipts, disbursements and other
transactions hereunder; and all accounts, books and records
relating hereto shall be open at all reasonable times to
inspection and audit by such person or persons as the
Company may designate. The Trustee shall submit to the
auditors for the Company or to anyone the Company
designates, such valuations, reports or other information as
they may reasonably require. The Trustee and the Company
acknowledge that cooperation with such audits could exceed
the scope of the usual Trustee services, in which case the
Trustee shall be entitled to reasonable compensation and
reimbursement of its reasonable expenses incurred in
connection with such audits, as agreed to by the Company and
the Trustee at that time.
The Trustee shall establish and maintain for operational and
accounting purposes such other accounts or records as the
Company and the Trustee may from time to time agree upon .
Within ninety (90) days following the close of each calendar
year (or following the close of such other period as may be
agreed upon by the Trustee and the Company) and as often as
may reasonably be requested by the Company and agreed to by
the Trustee, the Trustee shall file with the Company a
written account pursuant to guidelines provided by the
Company and agreed to by the Trustee setting forth a
description of all securities and other property purchased
and sold, and all receipts, disbursements and other
transactions effected by it upon its own authority or
pursuant to the directions of any Investment Manager or the
Company during such annual or shorter period, and showing
the securities and other properties held at the end of such
period, and their current value. Such securities and other
property shall be valued at their market values, or if none,
at their fair values as determined in good faith and
pursuant to procedures established by the Trustee. Market
values or fair values may be taken by the Trustee as of such
times as the Trustee determines to be appropriate, and from
such financial publications, pricing services, or other
services or sources, including an Investment Manager , as
the Trustee reasonably believes appropriate.
The Company may approve such accounting by written notice of
approval delivered to the Trustee or by failure to express
objection to such accounting in writing delivered to the
Trustee within twelve months from the date upon which the
accounting was delivered to the Company.
Upon the receipt of a written approval of the accounting, or
upon the passage of the period of time within which
objection may be filed without written objections having
been delivered to the Trustee, such accounting shall be
deemed to be approved, and the Trustee shall be released and
discharged as to all items, matters and things set forth in
such account.
5.3 Benefit Payments. Subject to the provisions
of subsection 8.2, the Trustee shall make payments from the
Trust Fund to persons or accounts, in such manner, at such
times and in such amounts as the Company's Director -
Compensation and Benefits or the Company's Manager - Senior
Management Benefit Planning and Compensation Administration
(or their duly authorized delegate) provides to the Trustee,
subject to the following:
(a) If any payment directed to be made from the Trust
Fund is not claimed, the Trustee shall notify the
Company of that fact within a reasonable time
period and shall dispose of unclaimed
distributions and take such further action as
directed by the Company.
(b) Any payment under the Trust shall be made in cash
unless the Trustee is otherwise directed by the
Company.
5.4 Change in Control. For purposes of the
Trust, the term "Change in Control" means a change in the
beneficial ownership of the Company's voting stock or a
change in the composition of the Company's Board of
Directors which occurs as follows:
(a) any `person' (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) is or becomes a beneficial owner (as
defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of stock of
the Company representing 20% or more of the total
voting power of the Company's then outstanding
stock; provided, however, that this subparagraph
(a) shall not apply to any tender offer made
pursuant to an agreement with the Company approved
by the Company's Board of Directors and entered
into before the offeror has become a beneficial
owner of stock of the Company representing 5% or
more of the combined voting power of the Company's
then outstanding stock;
(b) a tender offer is made for the stock of the
Company, and the person making the offer owns or
has accepted for payment stock of the Company
representing 20% or more of the total voting power
of the Company's then outstanding stock; provided,
however, that this subparagraph (b) shall not apply
to any tender offer made pursuant to an agreement
with the Company approved by the Company's Board of
Directors and entered into before the offeror has
become a beneficial owner of stock of the Company
representing 5% or more of the combined voting
power of the Company's then outstanding stock ;
(c) during any period of 24 consecutive months there
shall cease to be a majority of the Board of
Directors comprised as follows: individuals who at
the beginning of such period constitute the Board
of Directors and any new Director(s) whose election
by the Board of Directors or nomination for
election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the
Directors then still in office who either were
Directors at the beginning of the period or whose
election or nomination for election was previously
so approved; or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with any other company
other than:
(i) a merger or consolidation which would result in
the Company's voting stock outstanding
immediately prior thereto continuing to
represent (either by remaining outstanding or
by being converted into voting stock of the
surviving entity) more than 70% of the combined
voting power of the Company's or such surviving
entity's outstanding voting stock immediately
after such merger or consolidation; or
(ii) a merger or consolidation which would
result in the directors of the Company who were
directors immediately prior thereto continuing
to constitute at least 50% of the directors of
the surviving entity immediately after such
merger or consolidation.
For purposes of subparagraph (d) above, the phrase
"surviving entity" shall mean only an entity in which all of
the Company's stockholders who are stockholders immediately
before the merger or consolidation (other than stockholders
exercising dissenter rights) become stockholders by the
terms of the merger or consolidation, and the phrase
"directors of the Company who were directors immediately
prior thereto" shall not include (A) any director of the
company who was designated by a person who has entered into
an agreement with the company to effect a transaction
described in subparagraph (a) or subparagraph (d) above, or
(B) any director who was not a director at the beginning of
the 24-consecutive-month period preceding the date of such
merger or consolidation, unless his election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds
(2/3) of the directors who were directors before the
beginning of such period. The Secretary of the Company
shall promptly notify the Trustee of the occurrence of a
Change in Control.
Section 6. Trustee Compensation and Expenses
6.1 Compensation and Expenses. The Trustee is
authorized to pay from the Trust Fund such compensation and
all reasonable and proper expenses, and charges (including
fees of persons employed by the Trustee in accordance with
subsection 2.5 (x) and (y) and subsection 2.6 (a) and (b)
incurred in connection with the collection, administration,
management, investment, protection and distribution of the
Trust Fund as shall be agreed upon in writing by the Company
and the Trustee and to the extent that they are not paid
directly by the Company or any Subsidiary. In addition, the
Trustee is authorized to pay from the Trust Fund any tax or
assessment levied against the Trust Fund by any governmental
authority. The Trustee shall notify the Company as soon as
reasonably practicable (but in any event no later than five
(5) business days) after the Trustee receives notice of such
tax or assessment and shall provide the Company with such
information as the Trustee has received concerning such tax
or assessment. The Company may direct that the Trustee
refrain from paying the tax or assessment for a period of up
to 120 days (or, if longer, such period as may be available
until such tax or assessment is due and payable under
applicable law (the "Review Period")), during which time the
Trustee will provide all reasonable assistance to the
Company in determining the validity of such tax or
assessment and will cooperate in all reasonable efforts to
have the tax or assessment waived or mitigated if such tax
or assessment is considered not to be owed by the Trust. At
the end of such 120 days (or the Review Period), if the tax
or assessment remains outstanding, the Trustee may pay the
tax or assessment unless otherwise directed in writing by
the Company, upon the advice of counsel satisfactory to both
the Company and the Trustee. If the Trustee engages in the
lending of securities or the investment of cash or cash
equivalents pursuant to subsection 2.5 (g) or 2.5(q), the
Trustee's compensation shall include any additional
compensation agreed to in writing by the Company and the
Trustee with respect to such activities. In addition, the
Trustee is authorized to pay from the Trust Fund all
reasonable Investment Manager or investment advisor fees,
legal fees, actuarial fees, accounting fees, and other
reasonable administrative expenses of the Trust including
Trust administration expenses incurred by the Company or any
other Subsidiary at the direction of the Company, to the
extent that they are not paid directly by the Company or any
Subsidiary. To the extent that the foregoing expenses are
paid directly by the Company or any Subsidiary, the Trustee
shall reimburse the Company or such Subsidiary from the
Trust Fund to the extent directed by the Company.
Section 7. Indemnification of Trustee
7.1 Indemnification of Trustee. To the extent not
prohibited by applicable law, the Company agrees to
indemnify the Trustee and hold it harmless, from any and all
liability or expense (including any reasonable legal fees
and reasonable expenses incurred by the Trustee in its
defense if the Company fails to provide such defense), which
the Trustee may sustain by (a) following any proper
direction of an Investment Manager, the Company, the
Company's Director - Compensation and Benefits or the
Company's Manager - Senior Management Benefit Planning and
Compensation Administration (or any of the Company's or such
Director's or Manager's duly authorized delegates) made in
accordance with this Trust or (b) any failure to act in the
absence of proper directions from an Investment Manager, the
Company, the Company's Director - Compensation and Benefits
or the Company's Manager - Senior Management Benefit
Planning and Compensation Administration (or any of the
Company's or such Director's or Manager's duly authorized
delegates), provided that the Trustee's action or failure to
act is otherwise consistent with its fiduciary obligations
under any applicable law and the Trust, and provided
further, that the Trustee shall not be indemnified if such
liability or expense results from the Trustee's negligence
or if the Trustee knowingly participates in, or knowingly
undertakes to conceal an act or omission of such Investment
Manager, the Committee, or such Director or Manager (or any
duly authorized delegate of the Company, such Director or
Manager), knowing such act or omission to be a breach.
Anything in this Trust to the contrary notwithstanding, the
preceding sentence shall not apply to the extent the Trustee
is acting as an Investment Manager with respect to all or
any portion of the Trust Fund. This Section shall survive
the termination of the Trust or the resignation or removal
of the Trustee with respect to liability or expense arising
from events which occurred before the transfer of assets to
a successor Trustee.
Section 8. Trust Fund Assets
8.1 Reversion to Company. Subject to the
provisions of subsection 8.2, no part of the corpus or
income of the Trust Fund shall revert to the Company or any
Subsidiary or be used for, or diverted to, purposes other
than the exclusive benefit of Participants; provided,
however, that if any funds attributable to contributions of
the Company or any Subsidiary (or earnings thereon) remain
after the satisfaction of all liabilities of the Trust with
respect to all Participants who were previously employed by,
or are entitled to benefits by reason of being a survivor or
beneficiary of an employee of, the Company or such
Subsidiary such amounts shall be returned to the Company or
such Subsidiary.
8.2 Claims of Creditors. Notwithstanding any
provision of this Trust, any property held in the Trust Fund
shall be treated as an asset of the Company and the
Subsidiaries and shall be subject to the claims of the
general creditors of the Company and each Subsidiary to the
extent of their respective interests under the Trust if such
claims are not satisfied by payment from the other general
assets of the Company or the Subsidiary, as the case may be,
because of the Company's or Subsidiary's Insolvency (as
described below). The Chairman of the Board of Directors
and the Chief Executive Officer of the Company on behalf of
the Company and/or any Subsidiary shall have a duty to
notify the Trustee, in writing, of the Insolvency of the
Company or such Subsidiary. In addition, if a person
claiming to be creditor of the Company or a Subsidiary
alleges in writing to the Trustee that the Company or such
Subsidiary has become Insolvent, the Trustee shall determine
whether the Company or such Subsidiary is Insolvent and,
pending such determination, the Trustee shall discontinue
payment of benefits to Plan Participants or their
beneficiaries.
Unless the Trustee has actual knowledge of the Company's or
a Subsidiary's Insolvency, or has received notice from the
Company or a person claiming to be a creditor alleging that
the Company or a Subsidiary is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent.
The Trustee may in all events rely on such evidence
concerning the Company's or a Subsidiary's solvency as may
be furnished to the Trustee and that provides the Trustee
with a reasonable basis for making a determination
concerning the Company's or a Subsidiary's solvency.
If at any time the Trustee has determined that the Company
or a Subsidiary is Insolvent, the Trustee shall discontinue
payments to Plan Participants or their beneficiaries and
shall hold the assets of the Trust for the benefit of the
Company's or such Subsidiary's general creditors. Nothing
in this Trust shall in any way diminish any rights of Plan
Participants or their beneficiaries to pursue their rights
as general creditors of the Company or a Subsidiary with
respect to benefits due under the Plan or otherwise.
The Trustee shall resume the payment of benefits to Plan
Participants or their beneficiaries only after the Trustee
has determined that the Company or such Subsidiary is not
Insolvent (or is no longer Insolvent).
Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to this subsection 8.2 and subsequently resumes such
payments, the first payment following such discontinuance
shall include the aggregate amount of all payments due to
Plan Participants or their beneficiaries under the terms of
the Plan for the period of such discontinuance, less the
aggregate amount of any payments made to the Plan
Participants or their beneficiaries by the Company or a
Subsidiary in lieu of the payments provided for hereunder
during any such period of discontinuance.
The Company or any Subsidiary shall be considered as
"Insolvent" (or in a condition of "Insolvency") for purposes
of this Trust if it is (i) unable to pay its debts generally
as they become due or (ii) engaged as a debtor in a
proceeding under the Bankruptcy Code (11 U.S.C. 101 et
seq.).
8.3 Claims of Participants. Neither the
Participants nor the Plan shall have any preferred claim on,
or any beneficial ownership in, any assets of the Trust, or
be entitled to any payment from the Trust, except to the
extent that payment is due and unpaid, and all rights of a
Participant created under the Plan and this Trust shall
constitute unsecured contractual rights of the Participant.
It is intended that neither the Plan nor the Trust be
subject to the provisions of part 4 of title I of the
Employee Retirement Income Security Act of 1974, as amended,
("ERISA") and neither the Participants nor the Plan shall
have any right to require the Company or any Subsidiary to
make any contribution to the Trust. To the extent the
assets of the Trust are insufficient to pay all benefits of
a Participant when due, the Company and the Subsidiaries
shall continue to be liable to the Participant for such
benefit payments in accordance with the terms of the Plan.
Section 9. Adoption by Subsidiaries
9.1 Adoption by and Definition of Subsidiaries. Any
Subsidiary may join in this Trust by obtaining the written
consent of the Company and providing notice to the Trustee.
The term "Subsidiary" means (i) any corporation of which the
Company owns at least 50% of the combined voting power of
all classes of stock entitled to vote and which previously
adopted or hereafter adopts the Plan and (ii) any affiliate,
which means any corporation (other than a subsidiary
described in (i) above ) which would be a member of a
controlled group of corporations with the Company under
Section 1563(a) of the Code which previously adopted or
hereafter adopts the Plan.
Section 10. Tax Matters
10.1 Nature of Trust. This Trust is intended to
constitute a grantor trust, as described in section 671 of
the Code. The Company and the Subsidiaries agree that all
income of the Trust is attributable to them as owners of the
Trust assets for income tax purposes and will be income to
the Company and the Subsidiaries. The Company and the
Subsidiaries shall pay the Federal, state or local taxes on
such Trust income or shall direct the Trustee to pay such
taxes from Trust income based upon the information provided
to the Company by the Trustee concerning such income in
accordance with subsection 5.2.
10.2 Federal and State Reporting Requirements.
The Trustee shall withhold Federal, state and local taxes
which are assessable on amounts paid to or on account of the
Participants based upon direction provided to the Trustee by
the Company, or such larger amounts as may be requested by
the Participant, and shall transmit the amount withheld
either (i) to the Company which shall deposit and report
such amounts to the applicable taxing authority or (ii) to
the applicable taxing authority at the direction of the
Company. The Company and the Trustee shall furnish to the
Participants all withholding and benefit payment information
with respect to amounts transmitted by them to the
applicable taxing authorities as soon as practicable after
the end of each calendar year.
10.3 Tax Matters. If the Internal Revenue Service
determines that a Participant is subject to Federal income
taxation on any amounts held in the Trust for his benefit in
a calendar year prior to the calendar year in which he would
otherwise receive such benefits in accordance with the terms
of his benefit statement, the Trustee shall distribute the
amount of the benefits determined to be taxable to the
Participant as soon as practicable.
Section 11. Change of Trustee
11.1 Resignation. The Trustee may resign at any
time by giving one hundred twenty (120) days' advance
written notice to the Company and the Participants, provided
that if the Trustee is resigning because it will no longer
be providing trustee services to plans such as the Plan, the
Trustee must give one hundred eighty (180) days advance
written notice of such resignation to the Company and the
Participants. Prior to the effective date of any such
resignation, the Company shall appoint a successor Trustee
which is a corporation with not less than $1 billion in
trust assets.
11.2 Removal of Trustee.
(a) Except as provided in subparagraph (b) of this
subsection 11.2 below, the Company by action of
the Company's Senior Vice President - Human
Resources or his duly authorized delegate may
remove any Trustee by giving thirty (30) days'
advance written notice to the Trustee, subject to
providing the removed Trustee with satisfactory
written evidence of the appointment of a successor
Trustee with not less than $1 billion in trust
assets and of the successor Trustee's acceptance
of the trusteeship;
(b) Anything in this Trust to the contrary
notwithstanding, in the event of a Change in
Control as defined in subsection 5.4, the Company,
by action of its Board of Directors or of a person
or persons designated by its Board of Directors,
may remove any Trustee only with the consent of
all of the Participants, by giving thirty (30)
days' advance written notice to the Trustee,
subject to providing the removed Trustee with
satisfactory written evidence of the appointment
of a successor Trustee with not less than $1
billion in trust assets and of the successor
Trustee's acceptance of the trusteeship.
11.3 Duties of Resigning or Removed Trustee and of
Successor Trustee. Each successor Trustee shall succeed to
the title to the Trust Fund vested in its predecessor,
without the signing or filing of any further instrument, but
any resigning or removed Trustee shall execute all documents
and do all acts necessary to vest such title of record in
any successor Trustee. In the event of the resignation or
removal of the Trustee, the Trustee shall assign, transfer
and pay over to the duly appointed successor Trustee the
assets then constituting the Trust Fund, and only thereafter
shall the resigning or removed Trustee be relieved of its
duties and responsibilities as Trustee hereunder. Within
ninety (90) days following the effective date of such
resignation or removal, the resigned or removed Trustee
shall furnish to the Company and the successor Trustee an
account of its administration of the Trust from the date of
its last account in accordance with the procedures described
in subsection 5.2; provided, that if at such time current
valuation information is not available for any individual or
group of securities or other property, the Trustee shall use
such values for this accounting as may then be available
and, as soon as reasonably practicable after such current
valuation information for such accounting period becomes
available, shall provide the current values for that period
to the Company and the successor Trustee. The Company and
the successor Trustee may approve such accounting by written
notice of approval delivered to the Trustee or by failure to
express objection to such accounting in writing delivered to
the Trustee within twelve months from the date upon which
the account was delivered to the Company and the successor
Trustee. Upon the receipt of a written approval of the
account, or upon the passage of the period of time within
which objection may be filed without written objections
having been delivered to the Trustee, such accounting shall
be deemed to be approved, and the Trustee shall be relieved
and discharged as to all items, matters and things set forth
in such account. Each successor Trustee shall have all the
powers, conferred by this Trust as if originally named
Trustee. Except as otherwise provided under applicable law,
neither the Trustee hereunder nor any successor Trustee
shall be personally liable for any act or failure to act of
a predecessor Trustee.
11.4 Additional Trustees. The Company shall have
authority at any time and for any purpose, to designate
additional trustees and to define the scope of authority for
each. Each additional trustee appointed under this Trust
shall signify its acceptance of trusteeship by an instrument
executed and acknowledged by it and delivered to the
Company. If there are two or more trustees acting
hereunder, the Company may at any time direct that all or
any portion of the Trust Fund and the accounts, books and
records relating thereto shall be transferred from one
trustee to another. Each trustee shall individually hold,
administer, invest and keep invested the portion of the
Trust Fund held by it from time to time upon the terms,
conditions, and limitations set forth in this Trust, as
though the Company had entered into a separate trust
agreement with each trustee having the same terms and
conditions as this Trust, and each trustee shall be subject
to the same duties and responsibilities and shall have the
same powers and rights with respect to the portion of the
Trust Fund held by it as a single trustee would have with
respect to the entire Trust and each trustee shall have no
duties or responsibilities and shall have no powers or
rights with respect to that portion of the Trust Fund not
held by it but held by another trustee, except as otherwise
provided under the Code or other applicable law. As used in
this Trust, the term "Trustee" shall mean any one or more
duly appointed trustees with respect to that portion of the
Trust Fund held from time to time by each such trustee.
Section 12. Amendment, Irrevocability and Termination
12.1 Amendment and Irrevocability . This Trust is
irrevocable . The Company may amend this Trust from time,
to time provided, that no amendment shall materially change
the rights, duties and responsibilities of the Trustee
without its consent; and provided, further, that no
amendment shall:
(a)permit any assets of the Trust Fund to be used for
any purpose other than the payment of Plan benefits
to Participants except as provided in Section 8;
(b)reduce or impair the right of any Participant to
receive any amount to which he may become entitled
under this Trust; or
(c)materially modify the terms of this Section 12.
Subject to the foregoing provisions of this subsection 12.1,
the Company's Senior Vice President - Human Resources, or
such other officer of the Company as may from time to time
be primarily responsible for human resources matters, may,
with the concurrence of the Company's Executive Vice
President and General Counsel, or such other officer of the
Company as may from time to time be primarily responsible
for legal matters, make minor or administrative amendments
to the Trust.
12.2 Termination. This Trust shall continue in
effect until such time as all of the assets of the Trust
Fund have been distributed to the Participants or all
liabilities with respect to the Participants under the Plan
have been satisfied. Upon termination of the Trust all of
the provisions of the Trust as evidenced by this agreement
nevertheless shall continue in effect until the Trust Fund
has been distributed by the Trustee.
Section 13. Miscellaneous
13.1 Disagreement as to Acts. If there is a
disagreement between the Trustee and anyone as to any act or
transaction reported in any accounting, the Trustee shall
have the right to have its account settled by a court of
competent jurisdiction.
13.2 Persons Dealing With Trustee. No person dealing
with the Trustee shall be required to see to the application
of any money paid or property delivered to the Trustee, or
to determine whether or not the Trustee is acting pursuant
to any authority granted to it under this Trust.
13.3 Evidence. Evidence required of anyone under
this Trust may be by certificate, affidavit, document or
other instrument which the person acting in reliance thereon
reasonably considers pertinent and reliable, and signed,
made or represented by the proper party.
13.4 Waiver of Notice. Any notice required under
this Trust may be waived by the person entitled thereto.
13.5 Counterparts. This Trust may be executed in
any number of counterparts, each of which shall be deemed an
original and no other counterpart need be produced.
13.6 Governing Laws. This Trust shall be construed
and administered according to the laws of the Commonwealth
of Massachusetts to the extent that such laws are not
preempted by the laws of the United States of America;
provided that in the event that an action is brought by the
Trustee on behalf of the Trust, the Company shall have the
right to determine that such action shall be brought in an
appropriate state or federal forum in the State of Illinois
or elsewhere as the Company shall deem appropriate, and the
Trustee shall follow any direction of the Company to that
effect; and provided further, that in the event an action is
brought by the Company against the Trustee, the Company
shall have the right to determine that such action shall be
brought in an appropriate state or federal forum either in
the Commonwealth of Massachusetts or in the State of
Illinois, subject to any right of the Trustee to remove such
action from state court to an appropriate federal court in
that state.
13.7 Successors, Etc. The provisions of this Trust
Agreement shall be binding on the Company, the Subsidiaries
and Trustee and their successors and on all persons entitled
to benefits under the Plan and their respective heirs and
legal representatives. Neither the Company nor any
Subsidiary shall merge or consolidate with any other
corporation or liquidate or dissolve without making suitable
arrangements for the fulfillment of all of its obligations
under this Trust and the Plan.
13.8 Service of Legal Process. If the Trustee receives
service of summons, subpoena or other legal process of any
court with respect to any action relating to the Plan or
this Trust, it shall promptly inform the Company of such
service and, at the request of the Company, shall provide it
with a copy of the document served.
13.9 Severability. In case any provision of this
Trust is held invalid or illegal for any reason, such
invalidity or illegality shall not affect the remaining
provisions of this Trust and this Trust shall be construed
and enforced as if such invalid or illegal provision had
never been incorporated in this Trust.
13.10 Gender and Numbers. Where the context
admits, words in the masculine gender shall include the
feminine, the singular shall include the plural, and the
plural shall include the singular.
13.11 Headings. The headings of Sections of this
Trust are for convenience of reference only and shall have
no substantive effect on the provisions of this Trust.
13.12 Action by Company and Subsidiaries. Except as
otherwise provided in this Trust, any action required or
permitted to be taken by the Company or any Subsidiary under
the provisions of this Trust shall be by resolution of its
Board of Directors, or by the person or persons authorized
by resolution of its Board of Directors or if the Company or
Subsidiary has no Board of Directors and is managed by its
shareholder or shareholders, then by such shareholder or
shareholders.
13.13 Nonalienation of Benefits. The interests
under this Trust of Participants and any other persons
entitled to benefits under the Plan are not subject to the
claims of their creditors and may not be voluntarily or
involuntarily assigned, alienated or encumbered.
IN WITNESS WHEREOF, the Company and the Trustee have
caused this Trust to be signed and their seals to be
hereunto affixed and attested by their duly authorized
representatives, as of the day and year first above written.
AMERITECH CORPORATION
By: /s/ Walter M. Oliver
Title Sr. V. P.- Human Resources
ATTEST:
/s/ Bruce B. Howat
Its Secretary
STATE STREET BANK AND TRUST
COMPANY
By: /s/ David B. Hill
Title: Vice President
ATTEST:
/s/ M. Ceurau
Its Assistant Secretary
FIRST ADMINISTRATIVE AMENDMENT
TO
AMERITECH CORPORATE RESOURCE DEFERRAL PLAN
Pursuant to authority reserved to Ameritech Corporation
(the "Company") by the provisions of the Ameritech Corporate
Resource Deferral Plan (Effective as of December 1, 1995)
(the "Plan"), the Plan is hereby amended effective as of
July 1,1996 as follows:
To insert the following after the term "Company's common
shares" in subsection 3.4: ", or as Stock Units distributed
to Participant as a Final Distribution with respect to
stock options granted on or after January 16, 1996, under
the provisions of the 1989 Long Term Incentive Plan."
Dated: July 3, 1996
AMERITECH CORPORATION
By: /s/ Walter M. Oliver
Senior Vice President -
Human Resources
Concur:
/s/ T.P. Hester
Executive Vice President and
General Counsel
SECOND ADMINISTRATIVE AMENDMENT
TO
AMERITECH CORPORATE RESOURCE DEFERRAL PLAN
Pursuant to authority reserved to Ameritech Corporation
(the "Company") by the provisions of the Ameritech Corporate
Resource Deferral Plan (Effective as of December 1, 1995)
(the "Plan"), the Plan is hereby amended effective as of
September 30, 1996 to delete subsection 4.4(d) in its
entirety and to substitute the following therefor:
"(d) Accelerated Distribution. Anything in the Plan to the
contrary notwithstanding, at the request of a Participant, the
Committee may accelerate distribution of:
(i) the entire Deferred Amount of any Participant on
the active roll of the Company or an Employer whose Deferred
Amount has not yet begun to be distributed in accordance
with subsection 4.1; provided, that (a) the Deferred Amount
to be distributed shall be paid in a lump sum and reduced by
six percent (6%), as an early withdrawal penalty, (b) the
valuation date used to determine such early withdrawal
penalty shall be the most recent valuation date preceding
the Committee's approval of the accelerated distribution,
(c) such early withdrawal penalty shall be retained by the
Company and never distributed to the Participant, and (d)
the Participant shall be prohibited from participating in
the Plan for a period of twelve (12) consecutive months
following the date of the Participant's accelerated
distribution;
(ii) the entire Deferred Amount of any Participant on
the active roll of the Company or an Employer whose Deferred
Amount, or any portion thereof, is currently being
distributed to the Participant in accordance with subsection
4.1; provided, that (a) the Deferred Amount to be
distributed shall be paid in a lump sum and reduced by six
percent (6%), as an early withdrawal penalty, (b) such early
withdrawal penalty shall be determined based upon the
Deferred Amount immediately prior to the distribution
commencement date for the first installment payment as
elected by Participant in accordance with subsection 4.1,
valued as of such distribution commencement date, (c) such
early withdrawal penalty shall be retained by the Company
and never distributed to the Participant, and (d) the
Participant shall be prohibited from participating in the
Plan for a period of twelve (12) consecutive months
following the date of the Participant's accelerated
distribution; and
(iii) the entire Deferred Amount of any
Participant who has retired from employment with the
Company, its Subsidiaries and Affiliates after attaining
eligibility for normal or approved early retirement as
defined in subsection 4.2 and whose Deferred Amount is
currently being distributed to the Participant in
accordance with subsection 4.1; provided, that (a) the
Deferred Amount to be distributed shall be paid in a lump
sum and reduced by eight percent (8%), as an early
withdrawal penalty, (b) such early withdrawal penalty shall
be determined based upon the Deferred Amount immediately
prior to the distribution commencement date for the first
installment payment as elected by Participant in accordance
with subsection 4.1, valued as of such distribution
commencement date, and (c) such early withdrawal penalty
shall be retained by the Company and never distributed to
the Participant.
In no event shall the Committee approve any such request
after having been notified of the Company's insolvency or
bankruptcy."
Dated: October 18, 1996
AMERITECH CORPORATION
By: /s/ Walter M. Oliver
Senior Vice President -
Human Resources
Concur:
/s/ Thomas P. Hester
Executive Vice President and
General Counsel
THIRD ADMINISTRATIVE AMENDMENT
TO
AMERITECH CORPORATE RESOURCE DEFERRAL PLAN
Pursuant to authority reserved to Ameritech Corporation
(the "Company) by the provisions of the Ameritech Corporate
Resource Deferral Plan (Effective as of December 1, 1995)
(the "Plan"), the Plan is hereby amended effective as of
September 30, 1996, as follows:
1. To delete the following at the end of the first
sentence in subsection 3.1:
"but only if and to the extent he would have received an
Employer Matching Contribution under the Savings Plan had no
deferral election been made."
2. To delete subsection 3.2(a) in its entirety and to
substitute the following therefor:
"(a) Supplemental Deferrals. Each Senior Management
Employee who is prevented from making a salary
allotment under the Savings Plan due to the limitations
imposed by any of sections 401(k), 401(m), 402(g), or
415 of the Code, and each Management Employee who is
prevented from making a salary allotment under the
Savings Plan due to the limitations of sections 401(m)
and 415 of the Code, may elect, at such time and in
such manner as the Plan Administrator may determine, to
make a supplemental salary deferral in an amount equal
to the allotments which he is prevented from making
under the Savings Plan for such period; further, each
Senior Management Employee and each Management Employee
may also elect, prospectively, at such time and in such
manner as the Plan Administrator may determine, to make
a supplemental salary deferral of not less than 1% nor
more than 12% (in multiples of 1%) of his Base Salary
for any payroll period (or portion thereof) occurring
after his Base Salary for that calendar year has
reached the maximum limit under section 401(a)(17) of
the Code (if any such Senior Management Employee or
Management Employee has been making salary allotments
to the Savings Plan during such calendar year, then for
administrative convenience, the Plan Administrator may
determine that it is appropriate that any such
supplemental salary deferrals under the Plan by such
Senior Management Employee or Management Employee shall
be at the same percentage as the most recent salary
allotments made under the Savings Plan by such Senior
Management Employee or Management Employee unless such
Senior Management Employee or Management Employee
directs the Plan Administrator to use a different
percentage); provided that no Senior Management
Employee shall be permitted to make any supplemental
salary deferral in any payroll period which would cause
the aggregate of his supplemental salary deferrals and
Base Salary deferrals for such payroll period to exceed
the 25% limitation prescribed in subsection 3.1(b)
above."
3. To delete subsection 3.2(b) in its entirety and to
substitute the following therefor:
"(b) Senior Management Excess Savings Plan Credit. Subject
to subsection 3.1, for each payroll period, each Senior
Management Employee shall be credited with an "Excess
Savings Plan Credit" in an amount equal to the lesser
of:
(i) 4-1/2% of his Base Salary and, to the extent such
a Participant is in salary grade CR5 and
participates in the Management Team Incentive
Plan, his annual bonuses, for that period; or
(ii) 75% of (A) his aggregate salary allotments under
the Savings Plan during that period (including his
annual bonuses to the extent such a Participant is
in salary grade CR5 and participates in the
Management Team Incentive Plan) and (B) base and
supplemental salary deferrals under the Plan
during that period;
reduced by the amount of Employer Matching
Contributions that he actually receives under the
Savings Plan for that period."
4. To delete subsection 3.2(c) in its entirety and to
substitute the following therefor:
"(c) Management Excess Savings Plan Credit. Subject to
subsection 3.1, for each payroll period, each
Management Employee shall be credited with an "Excess
Savings Plan Credit" in an amount equal to the lesser
of:
(i) 4-1/2% of his Base Salary and, to the extent such
a Participant participates in the Management Team
Incentive Plan, his annual bonuses for that
period; or
(ii) 75% of (A) his aggregate salary allotments under
the Savings Plan during that period (including his
annual bonuses to the extent such a Participant
participates in the Management Team Incentive
Plan) and (B) supplemental salary deferrals under
the Plan during that period;
reduced by the amount of Employer Matching
Contributions that he actually receives under the
Savings Plan for that period."
Dated: October 24, 1996
AMERITECH CORPORATION
By: /s/ Walter M. Oliver
Senior Vice President-Human Resources
Concur:
/s/ T.P. Hester
Executive Vice President and
General Counsel
Exhibit 11a
Ameritech Corporation
Computation of Primary Earnings Per Share
1996 1995 1994
---- ---- ----
Income before extraordinary
item 2,133,712,000 $2,007,635,000 $1,170,426,000
============== ============== ==============
Weighted average number of
shares outstanding 551,853,953 553,621,693 549,238,304
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 2,288,000 1,757,528 939,584
-------------- -------------- --------------
Weighted average shares outstanding
on which primary earnings per share
are based 554,141,953 555,379,221 550,177,188
Primary earnings per share $3.85 $3.61 $2.13
============== ============== ==============
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. Accordingly, reported EPS does not consider dilutive
securities.
Amounts for prior years have been restated to reflect inclusion of the
windfall tax benefit when applying the treasury stock method to determine
the dilutive effect of outstanding options.
Exhibit 11b
Ameritech Corporation
Computation of Fully Diluted Earnings Per Share
1996 1995 1994
---- ---- ----
Income before extraordinary
item $2,133,712,000 $2,007,635,000 $1,170,426,000
============== ============== ==============
Weighted average number of
shares outstanding 551,853,953 553,621,693 549,238,304
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 2,747,922 3,063,153 993,665
-------------- -------------- --------------
Weighted average shares outstanding
on which fully diluted earnings
per share are based 554,601,875 556,684,846 550,231,969
Fully diluted earnings per share $3.85 $3.61 $2.13
============== ============== ==============
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. Accordingly, reported EPS does not consider dilutive
securities.
Amounts for prior years have been restated to reflect inclusion of the
windfall tax benefit when applying the treasury stock method to determine
the dilutive effect of outstanding options.
Exhibit 11a
Ameritech Corporation
Computation of Primary Earnings Per Share
1996 1995 1994
---- ---- ----
Net income (loss) after
extraordinary item $2,133,712,000 $2,007,635,000 $(1,063,613,000)
============== ============== ==============
Weighted average number of
shares outstanding 551,853,953 553,621,693 549,238,304
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 2,288,000 1,757,528 939,584
-------------- -------------- --------------
Weighted average shares outstanding
on which primary earnings per share
are based 554,141,953 555,379,221 550,177,888
Primary earnings per share $3.85 $3.61 ($1.93)
============== ============== ==============
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.
Amounts for prior years have been restated to reflect inclusion of the
windfall tax benefit when applying the treasury stock method to determine
the dilutive effect of outstanding options.
Exhibit 11b
Ameritech Corporation
Computation of Fully Diluted Earnings Per Share
1996 1995 1994
---- ---- ----
Net Income (Loss) after
extraordinary item $2,133,712,000 $2,007,635,000 $(1,063,613,000)
============== ============== ==============
Weighted average number of
shares outstanding 551,853,953 553,621,693 549,238,304
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 2,747,922 3,063,153 993,665
-------------- -------------- --------------
Weighted average shares outstanding
on which fully diluted earnings
per share are based 554,601,875 556,684,846 550,231,969
Fully diluted earnings per share $3.85 $3.61 ($1.93)
============== ============== ==============
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.
Amounts for prior years have been restated to reflect inclusion of the
windfall tax benefit when applying the treasury stock method to determine
the dilutive effect of outstanding options.
Exhibit 12
AMERITECH CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE YEARS ENDED DECEMBER 31, 1996
(Dollars in Millions)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
EARNINGS
Income before interest,
income taxes, extraordinary
item and cumulative effect
of change in accounting
principles andundistributed
equity earnings........ $ 3,726 $ 3,537 $ 2,162 $ 2,707 $ 2,470
Preferred dividends
of subsidiary (3)..... 13 9 2 -- --
Portion of rent expense
representing interest.. 73 67 64 65 65
Michigan
Single Business Tax.... 43 34 33 28 25
-------- -------- -------- -------- --------
Total earnings
(1) (2).............. $ 3,855 $ 3,647 $ 2,261 $ 2,800 $ 2,560
======== ======== ======== ======== ========
FIXED CHARGES
Interest expense........ $ 514 $ 469 $ 435 $ 453 $ 496
Preferred dividends
of subsidiary (3)..... 13 9 2 -- --
Capitalized interest.... 28 20 13 11 8
Portion of rent expense
representing interest.. 73 67 64 65 65
-------- -------- -------- -------- --------
Total fixed charges... $ 628 $ 565 $ 514 $ 529 $ 569
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED
DIVIDENDS................ 6.14 6.45 4.40 5.29 4.50
======== ======== ======== ======== ========
(1) The results for 1995 reflect a $134 million pretax credit primarily
from settlement gains resulting from lump sum pension payments from
the pension plan to former employees who left the business in the
nonmanagement work force restructuring, partially offset by $74
million associated with increased force costs related to the
restructuring started in 1994, as well as a $58 million charge
recorded to write down certain data processing equipment to net
realizable value. Results for 1994 reflect a $728 million pretax
charge associated with the nonmanagement work force restructuring.
Costs of the work force restructuring program have largely been funded
from the Ameritech Pension Plan.
(2) Earnings are income before income taxes and fixed charges. Since the
Michigan Single Business Tax ("the Tax") and rental expense have been
deducted, the Tax and the one-third portion of rental expense
considered to be fixed charges are added back.
(3) For purposes of 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.
<PAGE>
- ----------------<===========>----------------
SELECTED FINANCIAL AND OPERATING DATA
Ameritech Corporation and Subsidiaries
As of December 31 or for the year ended
(dollars in millions, except per share amounts)
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------
REVENUES
Local service $ 6,068 $ 5,586 $ 5,337 $ 5,065 $ 5,012
Interstate network access 2,365 2,254 2,218 2,118 2,041
Intrastate network access 573 562 612 623 613
Long distance 1,491 1,457 1,456 1,401 1,252
Cellular, directory
and other 4,420 3,569 2,946 2,658 2,367
---------------------------------------------
TOTAL 14,917 13,428 12,569 11,865 11,285
=============================================
OPERATING EXPENSES /1/ 11,412 10,125 10,540 9,307 8,941
---------------------------------------------
OPERATING INCOME 3,505 3,303 2,029 2,558 2,344
Interest expense 514 469 435 453 495
Other income (expense), net 326 260 147 117 125
Income taxes 1,183 1,086 571 709 628
---------------------------------------------
Income before special
accounting items /2/ 2,134 2,008 1,170 1,513 1,346
Special accounting
items /2/ -- -- (2,234) -- (1,746)
---------------------------------------------
NET INCOME (LOSS) $ 2,134 $ 2,008 $(1,064) $ 1,513 $ (400)
=============================================
EARNINGS (LOSS) PER SHARE /3/
Income before special
accounting items /2/ $ 3.87 $ 3.63 $ 2.13 $ 2.78 $ 2.51
Special accounting
items /2/ -- -- (4.07) -- (3.26)
---------------------------------------------
NET INCOME (LOSS) $ 3.87 $ 3.63 $ (1.94) $ 2.78 $ (0.75)
=============================================
Dividends declared
per share /3/ $ 2.155 $ 2.03 $ 1.94 $ 1.86 $ 1.78
Average common shares
outstanding (millions)/3/ 551.9 553.6 549.2 544.1 536.6
Total assets /4/ $23,707 $21,942 $19,947 $23,428 $22,818
Property, plant and
equipment, net /4/ $13,507 $13,457 $13,455 $17,366 $17,335
Capital expenditures $ 2,476 $ 2,176 $ 1,955 $ 2,108 $ 2,267
Long-term debt $ 4,437 $ 4,513 $ 4,448 $ 4,090 $ 4,586
Total debt $ 7,592 $ 6,651 $ 6,346 $ 6,692 $ 6,704
Debt ratio 49.7 % 48.7 % 51.2 % 46.0 % 48.9 %
Return on average equity /5/ 28.7 % 29.5 % (13.6)% 20.1 % (5.9)%
Return on average
total capital /5/ 17.1 % 18.2 % (4.6)% 13.1 % 0.2 %
Market price per
common share /3/ $ 60.63 $ 58.88 $ 40.38 $ 38.38 $ 35.63
Access lines (000s) 19,704 19,057 18,239 17,560 17,001
Cellular subscribers (000s) 2,512 1,891 1,299 860 586
Employees 66,128 65,345 63,594 67,192 71,300
========================================================================
1991 1990 1989 1988 1987 1986
--------------------------------------------------------------------------
REVENUES
Local service $ 4,886 $ 4,789 $ 4,679 $ 4,521 $ 4,494 $ 4,491
Interstate network access 1,993 2,009 1,942 1,958 1,798 1,881
Intrastate network access 556 559 541 583 573 606
Long distance 1,294 1,336 1,259 1,240 1,149 1,093
Cellular, directory
and other 2,254 2,080 1,895 1,712 1,609 1,394
---------------------------------------------------------
TOTAL 10,983 10,773 10,316 10,014 9,623 9,465
=========================================================
OPERATING EXPENSES /1/ 9,001 8,584 8,161 7,882 7,358 7,047
---------------------------------------------------------
OPERATING INCOME 1,982 2,189 2,155 2,132 2,265 2,418
Interest expense 545 454 384 366 351 361
Other income (expense), net 219 76 14 52 (8) 10
Income taxes 491 557 547 581 718 929
---------------------------------------------------------
Income before special
accounting items /2/ 1,165 1,254 1,238 1,237 1,188 1,138
Special accounting
items /2/ -- -- -- -- -- --
---------------------------------------------------------
NET INCOME (LOSS) $ 1,165 $ 1,254 $ 1,238 $ 1,237 $ 1,188 $ 1,138
=========================================================
EARNINGS (LOSS) PER SHARE /3/
Income before special
accounting items /2/ $ 2.19 $ 2.37 $ 2.30 $ 2.27 $ 2.12 $ 1.97
Special accounting
items /2/ -- -- -- -- -- --
---------------------------------------------------------
NET INCOME (LOSS) $ 2.19 $ 2.37 $ 2.30 $ 2.27 $ 2.12 $ 1.97
=========================================================
Dividends declared
per share /3/ $ 1.72 $ 1.61 $ 1.49 $ 1.38 $ 1.28 $ 1.20
Average common shares
outstanding (millions)/3/ 531.0 530.6 539.5 544.4 561.1 578.6
Total assets /4/ $22,290 $21,715 $19,833 $19,163 $18,780 $18,739
Property, plant and
equipment, net /4/ $16,986 $16,652 $16,296 $16,078 $15,962 $15,822
Capital expenditures $ 2,200 $ 2,154 $ 2,015 $ 1,895 $ 1,956 $ 2,076
Long-term debt $ 4,964 $ 5,074 $ 5,069 $ 4,487 $ 4,388 $ 4,497
Total debt $ 6,938 $ 6,769 $ 5,582 $ 4,942 $ 4,843 $ 4,724
Debt ratio 46.1 % 46.7 % 42.1 % 38.7 % 38.9 % 38.3 %
Return on average equity /5/ 14.5 % 16.3 % 15.8 % 15.8 % 15.5 % 14.9 %
Return on average
total capital /5/ 10.6 % 11.8 % 11.9 % 12.0 % 11.7 % 11.4 %
Market price per
common share /3/ $ 31.75 $ 33.38 $ 34.00 $ 23.88 $ 21.13 $ 22.00
Access lines (000s) 16,584 16,278 15,899 15,469 15,094 14,755
Cellular subscribers (000s) 483 326 242 146 87 57
Employees 73,967 75,780 77,326 77,334 78,510 77,538
=============================================================================
/1/ Increase in operating expenses in 1994 was due to nonmanagement work
force restructuring charges of $728 million, while operating expenses
in 1995 decreased due to a restructuring credit of $134 million.
/2/ Special accounting items represent an extraordinary item for the
discontinuation of FAS 71 in 1994 and the cumulative effect of
changes in accounting principles in 1992 for FAS 106 ($1,644 million)
and FAS 112 ($102 million).
/3/ Gives retroactive effect to all stock splits.
/4/ Substantial reduction in total assets and property, plant and
equipment, net in 1994 was due principally to the discontinuance
of FAS 71.
/5/ Return on average equity and return on average total capital are
calculated using weighted average monthly amounts.
26
<PAGE>
- ----------------<===========>----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(dollars in millions, except per share amounts)
MANAGEMENT'S DISCUSSION AND ANALYSIS
================<<----------->>===============
Ameritech (the company) is a diversified, full-service communications company
providing wireline and cellular telephone service, paging, cable TV, security
monitoring, directory publishing and on-line services. Ameritech's landline
communications subsidiaries provide local telephone service, network access,
directory publishing and public telephone service to more than 12 million
customers in Illinois, Indiana, Michigan, Ohio and Wisconsin. These
subsidiaries are subject to regulation by the respective state utility
commissions and the Federal Communications Commission (FCC).
In addition, the company provides cellular service in its five-state
region and Missouri; paging services in its five-state region, Missouri and
Minnesota; and security monitoring equipment and services throughout North
America. In 1996, the company began offering cable TV service to customers
in Illinois, Michigan and Ohio. These and other services are offered through
nonregulated subsidiaries of Ameritech.
1996 was a dynamic year for the telecommunications industry due to
sweeping regulatory reform, the emergence of the Internet and other new
technologies, and a number of mergers and alliances among industry members.
In the face of these changes, Ameritech continued to pursue its three basic
strategies: speed growth in its core businesses, introduce new services for
customers and connect customers around the world.
The Telecommunications Act of 1996 (the 1996 Act), signed into law on
February 8, 1996, is bringing significant changes to the telecommunications
industry. The new law allows Ameritech and other local exchange carriers
to compete directly with interexchange carriers, such as AT&T and MCI, and
cable TV providers, such as TCI and Time Warner. Currently, the company is
prohibited from providing interLATA long distance service within its five-
state region. This prohibition is lifted upon proving that the local
exchange market is open to competition using a 14-point checklist, and that
other statutory criteria have been met.
In August 1996, the FCC issued an order to implement the interconnection
provisions of the 1996 Act. Interconnection refers to the process that
allows various competitors, such as AT&T, MFS and Time Warner, to act as
resellers of local services. In the face of numerous challenges to the new
rules by local exchange carriers, industry groups and state utility
commissions, the Federal Circuit Court in St. Louis has stayed portions of
the order pending a full review of the order and the merits of the appeals.
In spite of this legal uncertainty, Ameritech continues to pursue
compliance with the checklist in preparation for the opening of the in-region
long distance market. To this end, Ameritech has negotiated or arbitrated 36
agreements with numerous competitors to allow interconnection access to the
company's network elements and resale of its local services. Although these
agreements require the company to interconnect and provide network elements
at cost-based rates and to resell its services at a discount from retail
rates, management believes that increased competition will spur overall
demand for traditional landline services and that the new law provides
Ameritech an opportunity to expand its revenue base by entering the long
distance market. As permitted under the 1996 Act, Ameritech began offering
long distance service to its cellular customers in 1996, and since then over
1 million subscribers have chosen Ameritech for long distance service.
Early in 1997, Ameritech intends to request permission from the FCC to
offer interLATA long distance service in its own five state region. The
company must file a separate request for each state, and must demonstrate
that it has met all statutory requirements of the 1996 Act in the respective
state. The FCC will have 90 days to rule on each request.
In other core businesses, cellular operations continue to grow at a robust
rate, fueled by high-quality service and strong marketing efforts. Ameritech
now serves 2.5 million cellular customers in 44 U.S. markets. These markets
have a total population of more than 34 million people, and include all major
metropolitan areas served by Ameritech's landline communications
subsidiaries. More than one million customers now use Ameritech paging
services, and the company continues to add new services and features,
including voice mail notification and alphanumeric paging. In addition, the
company provided more ways for customers to get in touch with the
introductions of nationwide directory assistance and a national Yellow Pages
service on the Internet (yp.ameritech.net).
Ameritech continued to offer new products and services to customers in
1996, including cable TV. Through its wholly owned subsidiary, Ameritech New
Media, Inc. (New Media),
27
<PAGE>
- ----------------<===========>----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
the company now offers cable TV service in 20 communities in Illinois,
Michigan and Ohio, and has franchise agreements with 13 other communities to
provide cable service. These communities have a total population of 1.7
million people. Negotiations continue in about 30 other municipalities to
obtain additional franchise agreements, and consumers continue to encourage
their elected officials to provide a choice in cable providers.
Cable TV programming is provided by Americast, a joint venture between
Ameritech, The Walt Disney Company, BellSouth Corporation, SBC Communications
Inc., GTE Corporation and The Southern New England Telecommunications
Corporation. The venture was formed to develop, acquire, package and market
traditional and interactive video programming. Through Americast, New Media
currently offers 80 to 90 channels of programming in the markets it serves.
In the international arena, Ameritech continues its efforts to connect
customers around the world. In March 1996, Ameritech invested $865 million
in Belgacom S.A., the national telecommunications provider in Belgium. The
Belgian government sold a 49.9% stake in Belgacom to a consortium of
investors led by Ameritech and including Tele Danmark A/S, Singapore
Communications Limited and certain Belgian investors. Ameritech's 35%
allocable consortium share results in ownership of approximately 17.5% of
Belgacom S.A.
This investment increases the company's presence in Europe, where
Ameritech already has a significant interest in MATAV, the Hungarian
telecommunications company, as well as interests in a cellular venture in
Norway and business directories in Germany and other countries. This
increased European presence, coupled with the growth potential of the
European telecommunications market in an era of privatizations and
deregulation, prompted the company to establish a headquarters for its
European operations in Brussels, Belgium. This office provides support for
existing ventures and serves as a center for new business opportunities.
International investments, primarily in Belgium, Hungary and New Zealand
(accounted for using the equity method), represented 9.4% of the company's
assets as of December 31, 1996. Where less than a controlling interest is
owned, the company records its allocable share of the operating results from
international investments. Such results are included in other income, net in
the consolidated statements of income on page 38. The company has followed a
strategy of teaming with partners and forming alliances to develop synergies,
share expertise and mitigate risk. These investments had a significant
impact on earnings growth in 1996, and the company estimates that its pro
rata share of revenues from its international investments was approximately
$1.7 billion in 1996.
Reported income in 1996 was $2,134 million, or $3.87 per share. Excluding
the effects of a gain on the sale of Ameritech's interest in Centertel, a
cellular telephone company in Poland, income was $2,116 million or $3.83 per
share. Normalized income for 1996 represents an increase of $228 million, or
12.1%, over normalized 1995 earnings and an increase in earnings per share of
$0.42, or 12.3%.
Reported income for 1995 was $2,008 million or $3.63 per share. Results
for 1995 include net restructuring credits of $79 million after-tax, or $0.14
per share, resulting from pension settlement gains associated with lump-sum
payments from the nonmanagement pension plan for work force restructuring,
and a gain of $41 million after-tax, or $0.08 per share, resulting from the
exchange of minority interests in certain cellular partnerships.
Excluding the effects of these one-time items, net income for 1995 would
have been $1,888 million, or $3.41 per share.
REVENUE GROWTH (in percent)
--------------------------------------------------------------
91--------- 1.9
92------------- 2.7
93------------------------ 5.1
94------------------------- 5.9
95------------------------------- 6.8
96-------------------------------------------------- 11.1
Revenues grew a record 11.1% to $14,917 million in 1996, up
from $13,428 million in 1995.
=============================================================
In December 1996, Ameritech's Board of Directors approved a 6.6% increase
in the quarterly dividend, demonstrating the company's confidence in its
ability to generate sustainable growth in the future. Over the past 13
years, the company has produced a total return on shareowners' investment of
1,039%, compared with a cumulative return of 588% for the S&P 500 over the
same time period. Long-term, above-average shareowner return remains a key
financial goal.
>>================>>-----------<<===============<<
1996 net income* rose 12.1%
* before one-time items, explained above
>>================<<----------->>===============<<
The following sections provide a more detailed discussion of Ameritech's
results of operations and financial condition over the past three years.
RESULTS OF OPERATIONS
.............................................................................
REVENUES Total revenues increased by 11.1% to $14.9 billion in 1996. This
increase was primarily attributable to increases in the number of cellular
and paging subscribers, growth in access lines and call management services,
higher network usage volumes and increased security monitoring revenues
resulting from the October 1995 acquisition of The National Guardian
Corporation (National Guardian). Rate reductions implemented as a result of
federal and various state regulatory agreements for landline communications
services partially offset these increases.
28
<PAGE>
In 1995, total revenues increased 6.8% to $13.4 billion due to higher
network usage, as well as increases in cellular volume related to subscriber
growth, and increased sales of customer premises equipment (CPE) and security
monitoring services.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Local service $ 6,068 $ 5,586 $ 482 8.6
========================================================================
LOCAL SERVICE Local service revenues include basic monthly service fees and
usage charges, fees for call management services, public phone revenues and
installation and connection charges. Local service rates generally have been
regulated by the state public service commissions. Ameritech operates under
price regulation in each of the states in its five-state region. In exchange
for certain regulatory freedoms, the company agreed to certain rate
reductions and moratoriums on price increases for two to six years, beginning
in 1994 and fully reflected in 1995 and 1996 revenues. All intrastate limits
on earnings were removed.
The increase in local service revenues in 1996 was due to increased
calling volumes, which principally resulted from growth in the number of
access lines in service, as well as increased business usage. Access lines
increased 3.4%, or 647,000 lines to 19,704,000 from 19,057,000 as of December
31, 1995, fueled by residential second line additions. In today's
environment of new technologies and telecommuting, customers want additional
lines for data transmission, Internet access, fax machines and added
convenience. Greater demand for call management services, such as call
waiting, call forwarding and Caller ID, also contributed to the increase, as
customers sought greater convenience and control over their telephone
communications. These increases were partially offset by rate reductions
agreed to under price regulation, as discussed above. These reductions
impacted revenues primarily in Illinois and Ohio.
CALL MANAGEMENT FEATURES IN SERVICE (in thousands)
--------------------------------------------------------------
91------------------------ 7,081
92-------------------------- 7,547
93------------------------------ 8,561
94---------------------------------- 9,852
95----------------------------------------- 12,080
96------------------------------------------------- 14,914
Call management features in service increased to 14.9 million in
1996, an increase of 23.5%.
=============================================================
In 1995, local service revenues increased $249 million or 4.7%, driven
primarily by higher network usage due to access line growth of 4.5%. Greater
sales of call management services also contributed to the increase. Local
service revenues were also impacted in 1995 by the Extended Community Calling
plan (ECC) in Wisconsin, which expanded the areas covered by basic monthly
service, resulting in a shift of some revenues from the long distance
category to local service. These increases were offset by rate reductions
resulting from regulatory proceedings as discussed above.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Network access
Interstate access $ 2,365 $ 2,254 $ 111 4.9
Intrastate access 573 562 11 2.0
========================================================================
NETWORK ACCESS Network access revenues are fees charged to interexchange
carriers, such as AT&T and MCI, that use the company's local landline
communications network to connect customers to the 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 increase in interstate network access revenues was due primarily to
increases in network minutes of use, resulting from overall growth in the
volume of calls handled for interexchange carriers and growth in the number
of access lines served. This increase was partially offset by rate
reductions, resulting primarily from the FCC's approval in 1995 of the
company's request for price regulation without sharing of earnings, as well
as an increase in National Exchange Carrier Association (NECA) common line
support payments. Minutes of use related to interstate calls increased by
7.1% in 1996.
Interstate network access revenues increased $36 million or 1.7% in 1995,
due primarily to higher network usage and a decrease in NECA common line
support payments. These increases were partially offset by rate reductions
as a result of the FCC's approval of price regulation as discussed above.
Minutes of use related to interstate calls increased by 7.1% in 1995.
The increase in intrastate network access revenues in 1996 was primarily
attributable to volume increases resulting from overall growth in call
volume. This increase was partially offset by rate reductions, largely
resulting from regulatory proceedings as discussed above. In addition,
revenues were reduced by a refund to interexchange carriers in Illinois
related to certain payphone use fees and a reclassification in Michigan of
certain revenues from the intrastate access category to the long distance
service category. This reclassification related to revenues for certain
calling features offered to businesses in Michigan, which correspond more
closely to long distance service rather than network access. Minutes of use
related to intrastate access increased by 15.0% in 1996.
Intrastate network access revenues decreased $50 million or 8.3% in 1995
due primarily to rate reductions and certain one-time billing adjustments,
partially offset by volume increases. Minutes of use related to intrastate
access increased by 11.3% in 1995.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Long distance $ 1,491 $ 1,457 $ 34 2.3
========================================================================
LONG DISTANCE The company's current long distance service revenues are
derived from customer calls to locations outside of the customer's local
calling areas but within the same
29
<PAGE>
- ----------------<===========>----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
local access transport area (LATA). The increase in long distance service
revenues was primarily attributable to increased surcharges collected for
third-party credit card calls, as well as a reclassification of certain
revenues in Michigan from the intrastate access category to the long distance
service category, as discussed above. Higher calling volumes also
contributed to the revenue increase, as did rate increases.
Long distance service revenues increased in 1995 by $1 million, due
primarily to rate increases which were substantially offset by volume
decreases, primarily attributable to the impact of the Wisconsin ECC plan
discussed above.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Cellular, directory
and other $ 4,420 $ 3,569 $ 851 23.8
========================================================================
CELLULAR, DIRECTORY AND OTHER 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 security monitoring installations and services.
The increase in cellular, directory and other revenues was largely
attributable to cellular revenue growth, resulting from a 32.8% increase in
subscribers to 2,512,000 as of December 31, 1996 from 1,891,000 as of
December 31, 1995. Paging revenues also increased as a result of a 53.0%
increase in subscribers to 1,140,000 as of December 31, 1996 from 745,000 as
of December 31, 1995. 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 increase. Security monitoring revenues increased
primarily from the October 1995 acquisition of National Guardian.
Cellular, directory and other revenues increased $623 million or 21.1% in
1995, primarily attributable to growth in cellular and paging subscribers.
Demand growth and price increases in other nonregulated services, such as
inside wire installation and maintenance, as well as new businesses like
security monitoring also contributed to the increase.
CELLULAR CUSTOMERS (in thousands)
--------------------------------------------------------------
91---------- 483
92----------- 586
93------------------ 860
94-------------------------- 1,299
95-------------------------------------- 1,891
96--------------------------------------------------- 2,512
During 1996, Ameritech achieved strong growth in the number
of cellular customers, which rose 32.8% to more than 2.5 million.
=============================================================
OPERATING EXPENSES Total operating expenses increased $1,287 million or
12.7% in 1996. The increase was 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 emerging businesses, such as long distance, personal communications
services (PCS) and cable TV. Operating expenses also increased in 1996 due
to the effects of pretax credits in 1995 of $134 million ($79 million after-
tax) primarily related to settlement gains associated with lump-sum pension
payments to former employees.
REVENUES PER EMPLOYEE (in thousands of dollars)
--------------------------------------------------------------
91--------------------------------- 148
92----------------------------------- 158
93---------------------------------------- 177
94-------------------------------------------- 198
95---------------------------------------------- 205
96--------------------------------------------------- 226
Revenues per employee increased 10.2% to a record $226,000
in 1996.
=============================================================
Total operating expenses decreased $415 million or 3.9 % in 1995, largely
due to the work force restructuring credits discussed above, partially offset
by charges for planned work force reductions due to data center
consolidations, increased force costs related to the work force restructuring
started in 1994 and a write-down of certain data processing equipment in
connection with information technology restructuring.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Employee-related
expenses $ 3,711 $ 3,623 $ 88 2.4
========================================================================
EMPLOYEE-RELATED EXPENSES The increase in employee-related expenses was
primarily attributable to increased employee levels at growth-related and
emerging businesses, including cellular, security monitoring, long distance
and cable TV, resulting in increased salaries and wages. Also contributing
to the increase were higher wages and salaries at the landline communications
subsidiaries, partially offset by productivity improvements. These increases
were also partially offset by lower employee benefits expense in 1996.
Approximately 70% of the company's employees are represented by either the
International Brotherhood of Electrical Workers (IBEW) or the Communications
Workers of America (CWA). In September 1995, memberships of the two unions
ratified three-year contracts with Ameritech, expiring on June 28, 1998 for
the IBEW and August 8, 1998 for the CWA. The contracts included basic wage
increases and signing bonuses, and addressed such issues as wages, benefits,
employment security, training and retraining and other conditions of
employment. In addition, beginning with the year ended December 31, 1995,
union employees receive their annual bonuses in the form of Ameritech stock
instead of cash.
Employee-related expenses increased $11 million or 0.3% in 1995 due
primarily to increased employee levels at growth-related and emerging
businesses, as well as a decrease in pension credits compared with the prior
year. Higher salaries and wages at the landline communications subsidiaries,
largely attributable to the new union contracts discussed above, also
contributed to the increase. These
30
<PAGE>
increases were substantially offset by productivity improvements from work
force reductions at the landline communications subsidiaries.
There were 66,128 employees as of December 31, 1996 compared with 65,345
as of December 31, 1995.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Depreciation and
amortization $ 2,365 $ 2,177 $ 188 8.6
========================================================================
>>================>>-----------<<===============<<
1996 revenues
grew 11.1%
>>================<<----------->>===============<<
DEPRECIATION AND AMORTIZATION The increase in depreciation and amortization
expense was primarily due to higher plant balances, as well as higher
depreciation rates on certain asset categories due to shorter depreciable
lives. Increased amortization of intangibles, largely due to the acquisition
of National Guardian in October 1995, also contributed to the increase.
Depreciation and amortization expense decreased $28 million or
1.3% in 1995 primarily as a result of the cessation in late 1994 of
depreciation of analog switches at the landline communications subsidiaries
in connection with the discontinuation of regulatory accounting in 1994.
This decrease was partially offset by the effects of shortened landline plant
lives and increased depreciation and amortization at other operating units.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Other operating
expenses $ 4,743 $ 3,911 $ 832 21.3
========================================================================
OTHER OPERATING EXPENSES The increase in other operating expenses was
largely attributable to growth-related cost of sales and other expense
increases at the cellular and security monitoring operations, as well as
higher costs in the emerging long distance and PCS businesses. Contract
services costs for systems development and data center management also
increased, as did uncollectibles and advertising expenses due to increased
revenues and sales efforts, respectively.
In May 1996, the company commenced a ten-year agreement with Integrated
Systems Solutions Corporation ISSC, a wholly owned subsidiary of IBM, to
perform certain information technology services previously performed by
Ameritech and to assume responsibility for the consolidation of the company's
data centers. This agreement will result in increased contract services
costs in future periods as services are provided by ISSC. However, the
company expects future employee-related costs to decrease from what otherwise
would have been incurred and depreciation expense associated with computer
assets to moderate as ISSC eventually replaces hardware, at its cost,
required to manage the company's extensive data processing needs. Management
believes this agreement will enhance the company's control of its data
processing costs.
Other operating expenses increased $493 million or 14.4% in 1995, largely
due to increased cost of sales and other expenses related to new businesses
such as security monitoring and cable TV, as well as increased costs at
growth-related businesses. Cost of sales increases related to equipment
sales and higher contract services costs, primarily for systems development
and business process reengineering, also contributed to the increase, as did
higher advertising and uncollectibles, reflecting increased marketing and
sales efforts. These increases were partially offset by reductions in access
charges and switching system software expenses.
Percent
1996 1995 Change Change
------------------------------------------------------------------------
Restructuring
(credits) charges $ - $ (134) $ 134 n/a
========================================================================
RESTRUCTURING (CREDITS) CHARGES As announced in March 1994, the company
significantly reduced its nonmanagement work force by the end of 1995. The
nonmanagement work force was reduced by 11,500 employees, although new
employees with different skills were added during these periods to
accommodate growth and meet staffing requirements for new business
opportunities. Pretax charges totaling $728 million ($456 million after-tax)
related to the work force reductions were recorded in 1994. Noncash
settlement gains of $302 million were recorded in 1995, associated primarily
with lump-sum pension payments to former employees. These gains were
partially offset by $110 million in increased force costs related to the
restructuring started in 1994 and estimated work force reductions due to
information technology restructuring. In connection with this restructuring,
$58 million was recorded in 1995 to write down certain data processing
equipment to net realizable value.
The restructuring program was recorded by year as follows:
Gross Net Program Cost
Program Settlement -------------------
Cost Gains Pretax After-tax
-------------------------------------------------------------------------
1995...................... $ 168 $ 302 $ (134) $ (79)
1994...................... 1,070 342 728 456
------------------------------------------
Program Totals........... $ 1,238 $ 644 $ 594 $ 377
=========================================================================
Actual employee reductions were 9,115 in 1994 and 2,385 in 1995.
Additional employees left the company in 1996 as a result of the
consolidation of data centers previously discussed.
31
<PAGE>
- ----------------<===========>----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
The work force restructuring program reduced annual employee-related costs
by approximately $50,000 per departing employee. The projected savings are
being partially offset by the hiring of new employees as discussed
previously.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Taxes other than
income taxes $ 593 $ 548 $ 45 8.2
========================================================================
TAXES OTHER THAN INCOME TAXES Taxes other than income taxes consist of
property taxes, gross receipts taxes and other taxes not directly related to
earnings. The increase in taxes other than income taxes was largely
attributable to increases in gross receipts and capital stock taxes,
resulting primarily from business growth and the acquisition of National
Guardian. These increases were partially offset by a decrease in property
taxes, largely resulting from favorable tax legislation, primarily in Ohio.
In 1995, taxes other than income taxes decreased $29 million or 5.0% due
to lower property taxes resulting from favorable tax legislation, as well as
a decrease in capital stock taxes in Illinois due to a smaller tax base.
OTHER INCOME AND EXPENSE
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Interest expense $ 514 $ 469 $ 45 9.6
========================================================================
INTEREST EXPENSE The increase in interest expense was primarily attributable
to the company's funding of its investment in Belgacom S.A., partially offset
by the effect of lower average short-term interest rates. 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 stock buyback program.
Interest expense increased $34 million or 7.8% in 1995 due primarily to
higher interest on long-term debt, reflecting higher debt levels, as well as
an increase in interest on short-term debt resulting from higher average
interest rates, partially offset by lower short-term debt levels.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Other income, net $ 326 $ 260 $ 66 25.4
========================================================================
OTHER INCOME, NET Other income, net includes earnings related to Ameritech's
investments (when the equity method of accounting is followed), interest
income and other nonoperating items.
Other income, net increased due primarily to strong growth in equity
earnings from international investments, including Belgacom, Telecom
Corporation of New Zealand Limited (New Zealand Telecom) and MATAV in
Hungary, as well as a gain from the sale of the company's interest in
Centertel in December 1996. These increases were partially offset by the
effects of a gain of $66 million ($41 million after-tax) recorded in 1995
from the exchange of minority interests in certain cellular partnerships.
In 1995, other income, net increased $113 million or 77.0% due primarily
to the gain from exchange of cellular minority interests discussed above, as
well as higher equity earnings from investments, principally at New Zealand
Telecom.
Increase Percent
1996 1995 (Decrease) Change
------------------------------------------------------------------------
Income taxes $ 1,183 $ 1,086 $ 97 8.9
========================================================================
INCOME TAXES The increase in income taxes was 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.
These items increased 1995 income tax expense by $81 million. Excluding the
effects of these items, income taxes increased in line with the earnings of
the business.
Income taxes increased $515 million or 90.3% in 1995 due primarily to
increased pretax earnings. Pretax earnings increased in 1995 partially as a
result of the work force restructuring credits and gain on exchange of
cellular minority interests discussed above, as well as the effects of the
$728 million charge for work force restructuring in 1994.
EXTRAORDINARY ITEM - FAS 71 As described in Note 10 to the consolidated
financial statements, the company discontinued applying Statement of
Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects
of Certain Types of Regulation," in 1994. The company determined that it no
longer met the criteria for following FAS 71 due to changes in the manner in
which the company is regulated and the heightened competitive environment.
The accounting impact was an extraordinary noncash after-tax charge of $2.2
billion.
The consolidated financial statements were impacted beginning in 1995 as a
result of no longer following FAS 71, since the effective income tax rate
increased as a result of the elimination of excess deferred tax balances
previously amortized as a reduction of tax expense over the lives of the
related assets.
LIQUIDITY AND CAPITAL RESOURCES
.............................................................................
CASH FLOWS FROM OPERATING ACTIVITIES Cash flow from operations was $3,743
million in 1996, an increase of $187 million from 1995, primarily reflecting
stronger earnings, partially offset by increases in receivables and other
noncurrent assets. Receivables increased primarily due to revenue increases.
CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures continue to
represent the single largest use of company funds. Management believes that
investment in the core communications business will facilitate introduction
of new products and services, enhance responsiveness to ever-increasing
competitive challenges and increase the operating efficiency and productivity
of the network.
32
<PAGE>
CASH FLOW FROM OPERATIONS (in millions of dollars)
- --------------------------------------------------------------
91-------------------------------------- 2,804
92--------------------------------------------- 3,288
93------------------------------------------- 3,189
94---------------------------------------------- 3,430
95------------------------------------------------ 3,556
96-------------------------------------------------- 3,743
1996 cash flow from operations increased 5.3% to $3,743 million,
an all-time high.
=============================================================
Capital spending is being deployed based on customer needs and the
company's business plans. Investments in technologies that will enable the
company to provide customers with new products and services represent a high
priority. Capital spending in the landline communications subsidiaries
increased by $350 million in 1996 due to access line growth and strong demand
for custom calling and private line services. In 1995, capital spending
increased by $221 million primarily for new products and services, such as
cable TV, long distance and security monitoring.
Modernization of the landline communications network continued throughout
1996, as demonstrated by the following year-end information.
1996 1995
----------------------------------------------------------------------
Lines served by digital switching 83% 81%
Lines with ISDN accessibility 72% 70%
Lines served by advanced signaling (SS7) 99% 97%
Fiber-optic strand miles (000s) 1,289 1,096
======================================================================
In March 1996, a consortium led by Ameritech closed its strategic
consolidation agreement with Belgacom S.A., the national telecommunications
operator of Belgium. The consortium purchased from the Belgian government a
49.9% stake in Belgacom S.A., with Ameritech acquiring a 35% consortium
share, Tele Danmark A/S 33%, Singapore Communications Limited 27% and certain
Belgian investors the remaining 5%. The purchase price was approximately 74
billion Belgian francs, or approximately $2.5 billion. Ameritech invested
approximately $865 million for its 35% allocable consortium share, or
approximately 17.5% of Belgacom S.A. Investing activities in 1996 also
included additional investments in security monitoring assets.
Investing activities in 1995 included investments of $895 million
represented by cash to acquire additional MATAV shares ($405 million), newly
issued licenses, principally for PCS ($161 million) and all other investments
($329 million), including National Guardian. Proceeds of $61 million were
received in connection with the exchange of certain cellular minority
interests.
CASH FLOWS FROM FINANCING AND OTHER ACTIVITIES In August 1996, Indiana Bell
Telephone Company, Incorporated issued $150 million of 7.3% noncallable long-
term debentures due in 2026. In November 1996, Wisconsin Bell, Inc. issued
$125 million of 6.35% long-term debentures due in 2026.
In April 1995, the company, through Ameritech Capital Funding Corporation,
issued $192 million of long-term debentures due in 2005. The debentures are
noncallable and have a coupon rate of 7.5%. The proceeds from the issuances
in both years were used to reduce short-term debt.
STOCK REPURCHASE PROGRAM The company's Board of Directors has periodically
authorized management to repurchase shares of Ameritech common stock in the
open market or through private transactions. During 1996, pursuant to this
authorization, the company repurchased, in the open market, 8.7 million
shares of common stock aggregating $492 million. During 1995, the company
repurchased, in the open market, 3.2 million shares of common stock
aggregating $162 million. Management has the authority to repurchase 8.1
million additional shares through December 1997.
DIVIDENDS The company paid dividends of $1.17 billion in 1996. This was an
increase of $64 million or 5.8% over 1995. In December 1996, Ameritech's
Board of Directors approved a 6.6% increase in the quarterly dividend. The
dividend policy is consistent with the need to balance returns to shareowners
and investments of capital necessary in a competitive environment.
>>================>>-----------<<===============<<
call management features
increased 23.5%
>>================<<----------->>===============<<
FINANCING OPTIONS As of December 31, 1996, the company maintained available
lines of credit totaling $1.46 billion, a committed credit facility of $1.0
billion and shelf registrations for issuance of up to $1.95 billion in
unsecured debt securities.
Management believes that the company has adequate internal and external
resources available to finance its business development, network expansion,
dividends, acquisitions and investments.
COMMITMENTS Effective May 1, 1996, the company commenced a ten-year
agreement with ISSC, a wholly owned subsidiary of IBM, to perform certain
information technology services previously performed by Ameritech. ISSC will
also be responsible for the consolidation of the company's data centers. The
terms of the agreement require payments to ISSC not to exceed about $200
million in any year.
Ameritech participates in the Americast joint venture, as previously
discussed. This investment will be funded by the
33
<PAGE>
- ----------------<===========>----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
partners with $500 million over a five-year period. Video services will
ultimately include movies-on-demand, interactive home shopping, educational
programs, games and more. The company has not invested significant funds in
Americast as of December 31, 1996.
HEDGING Ameritech on occasion will use hedging transactions to manage the
foreign currency risk resulting from the cash flows of the company's
international investments or its investment commitments. Hedging
transactions in 1996 and 1995 consisted of forward contracts for Belgian
francs in late 1995 and early 1996 related to the company's commitment to
invest in Belgacom S.A., and forward contracts purchased with respect to the
August and December 1995 New Zealand Telecom dividends. There were no other
material hedging transactions in 1996 or 1995.
NEW ZEALAND TELECOM In November 1996, New Zealand Telecom announced plans to
repurchase in 1997 a portion of its stock. Ameritech anticipates selling a
portion of its shares to New Zealand Telecom, resulting in cash proceeds to
the company of about $165 million (based on the 1996 year-end exchange rate),
while not materially changing its percentage ownership in New Zealand
Telecom.
>>================>>-----------<<===============<<
cellular customers
increased 32.8%
>>================<<----------->>===============<<
OTHER MATTERS
.............................................................................
NEW ACCOUNTING PRONOUNCEMENTS 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." As amended by FAS 127, 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 is generally effective for transactions occurring after December
31, 1996, with early or retroactive application prohibited. The company does
not expect adoption of this standard will have a material impact on its
financial statements.
In October 1996, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities." This SOP provides authoritative guidance on specific accounting
issues related to the recognition, measurement, display and disclosure of
environmental remediation liabilities. The SOP addresses only those actions
undertaken in response to a threat of litigation or assertion of a claim. It
does not address accounting for pollution control costs with respect to
current operations or for costs of future site restoration or closure
required upon cessation of operations. The SOP is effective for fiscal years
beginning after December 15, 1996. The company does not expect adoption of
this standard will have a material impact on its financial statements.
COMPETITIVE AND REGULATORY ENVIRONMENT Because of the 1996 Act, the
communications landscape is rapidly being redrawn. One objective of the new
law was to foster competition by establishing a regulatory framework to
govern the provision of local and long distance telecommunications services.
It permits the local exchange carriers, including Ameritech, to provide long
distance services only after satisfying the conditions for developing local
competition established by the new law and demonstrating to the FCC that such
provision is in the public interest. For the first time in more than sixty
years, all communications companies are governed by a new set of rules that
call for competition and open markets, not regulatory management, as the
basic business environment. This public policy change opens a wealth of
business opportunities for providers of all forms of communications, enabling
them to become full-service providers of voice, video, data, local and long
distance service for their customers. As a result of the new law, consumers
can expect to see more choices and receive greater value for these and other
services.
With the passage of the 1996 Act, the company's local service markets are
being opened to competition from interexchange carriers, cable TV providers
and other nontraditional local service providers. Interconnection agreements
with these providers require the company to allow access to network elements
at cost-based rates or services at discounted, wholesale rates. These
agreements may result in some downward pressure on local service revenues, as
a portion of the company's revenue shifts from local service at retail rates
to network access at wholesale rates.
The 1996 Act will also bring renewed scrutiny of the current universal
service funding policy. Historically, network access charges have been used
to help local exchange carriers ensure universal basic telephone service to
all customers. Modifications of this policy by the FCC may result in changes
to the company's revenue stream related to network access charges.
Although historically the company's local exchange business has been
challenged by other access providers and cellular service providers,
Ameritech has moved forward rapidly to foster a competitive local market.
Competition will spur growth and Ameritech is expected to benefit from
accelerating growth in a fully competitive communications market. The
company has prepared for competition by building a market presence with
strong brand recognition,
33
<PAGE>
securing the best regulatory framework in the industry and being a
productivity leader.
It is impossible to predict the specific impact of the 1996 Act on
Ameritech's business or financial condition. Notwithstanding the potential
for an adverse effect on certain revenue streams of the company, Ameritech
expects to capture a major share of the expected growth in the communications
marketplace, including interLATA long distance.
Early in 1997, Ameritech expects to request permission to offer interLATA
long distance service in each of the five states in its region. The company
will file a separate request with the FCC for each state. For each request,
the FCC will have 90 days to determine whether Ameritech has met the
provisions of the competitive checklist and other statutory requirements and
should be allowed to offer interLATA long distance service. Although the
sequence and timing of events related to review and approval of these
requests is uncertain, the company is fully prepared to provide long distance
service in its own region pending these regulatory approvals.
Building on its strengths, the company plans to branch into new services
that are logical extensions of its business, exporting its expertise to
customers around the world. Ameritech's competitive strategy includes
positioning itself to take advantage of future opportunities by refining its
processes to continue to be the most efficient communications provider in the
market.
In 1996, the company was required to implement Dial 1 plus capability in
its local toll markets in Illinois and Wisconsin, and in portions of its
local toll market in Michigan. Dial 1 plus gives customers the ability to
choose an alternate long distance carrier for intraLATA toll calls by dialing
1 before the phone number. Management anticipates that competition for toll
service revenues will intensify in these areas. The increased competition,
however, should stimulate growth in overall demand for toll calls and
corresponding network access services.
Until 1996, the U.S. cellular market has been a series of duopolies: the
local telephone company and one other provider for each cellular market.
With PCS, each market will add at least two new wireless service providers.
Each PCS provider will offer digital cellular service with features such as
longer battery life, increased account security and enhanced services such as
voice mail, Caller ID and paging capabilities. The company plans to
introduce digital cellular service in its markets beginning in mid-1997.
Paging, invigorated by the popularity of cellular service, is a highly
competitive business with at least five to seven providers in each market.
Competitors of Ameritech's directory publishing business are traditional
advertising media, including television, radio, direct mail, magazines and
newspapers, as well as providers of new technology such as on-line services
including the Internet. The company believes competition in all segments of
the company's business, as well as the technological innovations rapidly
spawned by each unique unit, will accelerate growth.
Public policy changes are beginning to open communications markets to
competition internationally. In pursuit of business opportunities in and
outside of the United States, Ameritech faces competition from other local
exchange carriers, long distance service providers, cable TV companies and
Internet and wireless service providers, as well as a variety of foreign
entities and other entrants from adjacent segments of the communications and
information services industries.
EVOLUTION OF THE INDUSTRY While telecommunications reform was the most
dramatic change affecting the communications industry in 1996, another trend
that intensified was the number of noteworthy mergers, alliances and joint
ventures. As the company expands and diversifies, the number, variety and
size of competitors will shift to challenge Ameritech's evolving business
interests. Much of the competition will be from companies with substantial
capital, technological and marketing resources and wide-ranging service
offerings.
BUSINESS UNITS Although the company continues to operate solely in the
communications industry, it has organized its business into separate units.
Each customer is assigned to a business unit that is best positioned to serve
that customer's specific needs. Revenues by business unit are as follows:
1996 1995
----------------------------------------------------------------------
Consumer 32% 32%
Custom, enhanced and small business 27 27
Long distance* 13 14
Cellular, including paging 9 8
Advertising 7 8
All other 12 11
--- ---
Total 100% 100%
======================================================================
* Long distance relates closely to the revenue categories of interstate
and intrastate network access, excluding end-user charges.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT Except for
historical information contained herein, the above discussion contains
certain forward-looking statements that involve potential risks and
uncertainties. Ameritech's future results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, changes in economic and market conditions,
effects of state and federal regulation, risks inherent in international
operations and the impact of new technologies. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The company undertakes no obligation to revise or update
these forward-looking statements to reflect events or circumstances that
arise after the date hereof or to reflect the occurrence of unanticipated
events.
35
<PAGE>
- ----------------<===========>----------------
REPORT OF MANAGEMENT
SHAREOWNERS
AMERITECH CORPORATION
The consolidated financial statements were prepared in accordance with
generally accepted accounting principles that required the use of estimates
and judgment. Management prepared these statements and other information in
the annual report and is responsible for their integrity and objectivity.
The company's consolidated financial statements have been audited by
Arthur Andersen LLP. Management has made available to Arthur Andersen LLP
all of the company's financial records and related data, as well as the
minutes of meetings of shareowners and directors. Management believes that
all representations made to Arthur Andersen LLP were valid and appropriate.
Management maintains a system of internal control over the preparation of
its published financial statements, which provides reasonable assurance as to
the integrity and reliability of the consolidated financial statements, the
protection of assets from unauthorized use or disposition, and the prevention
and detection of fraudulent financial reporting. The internal control system
provides appropriate division of responsibility, and written policies and
procedures are communicated to employees and updated as necessary.
Management is responsible for proactively fostering a strong ethical climate
so that the company's affairs are conducted according to the highest
standards of personal and corporate conduct.
The company maintains a strong internal auditing program to assess the
effectiveness of internal controls and recommend possible improvements. As
part of their audit of the consolidated financial statements, Arthur Andersen
LLP considered the internal control system to determine the nature, timing
and extent of necessary audit tests. Management has considered the
recommendations of its internal auditors and Arthur Andersen LLP concerning
the company's system of internal control, and has responded appropriately.
Management assessed the company's internal control system in relation to
criteria for effective internal control. These criteria consist of five
interrelated components, which are: control environment, risk assessment,
control activities, information and communication, and monitoring. Based on
its assessment, management believes that, as of December 31, 1996, its system
of internal control has met these criteria.
The Board of Directors, through its audit committee which is composed
solely of outside directors, serves in an oversight capacity to assure the
integrity and objectivity of the company's financial reporting process. The
role of the committee includes monitoring the company's accounting and
financial controls and assuring the independence of Arthur Andersen LLP.
Both the internal auditors and the independent public accountants have
complete access to the committee and periodically meet with the committee,
with and without management present.
Sincerely,
/s/ Richard C. Notebaert /s/ Oren G. Shaffer
- ---------------------------- ----------------------------
Richard C. Notebaert Oren G. Shaffer
Chairman and Executive Vice President
Chief Executive Officer and Chief Financial Officer
January 13, 1997
36
<PAGE>
- --------------<<===========>>---------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS
AMERITECH CORPORATION
We have audited the accompanying consolidated balance sheets of Ameritech
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, shareowners'
equity and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ameritech
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 10 to the consolidated financial statements, the
company discontinued applying the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," in 1994.
/s/ Arthur Andersen LLP
- ----------------------------
Arthur Andersen LLP
Chicago, Illinois
January 13, 1997
37
<PAGE>
- --------------<<===========>>---------------
CONSOLIDATED STATEMENTS OF INCOME
Ameritech Corporation and Subsidiaries
(dollars in millions, For the year ended December 31
----------------------------------
except per share amounts) 1996 1995 1994
- --------------------------------------------------------------------
REVENUES $ 14,917 $ 13,428 $ 12,569
=====================================
OPERATING EXPENSES
Employee-related expenses 3,711 3,623 3,612
Depreciation and
amortization 2,365 2,177 2,205
Other operating expenses 4,743 3,911 3,418
Restructuring
(credits) charges -- (134) 728
Taxes other than
income taxes 593 548 577
-------------------------------------
11,412 10,125 10,540
-------------------------------------
OPERATING INCOME 3,505 3,303 2,029
Interest expense 514 469 435
Other income, net 326 260 147
-------------------------------------
Income before income taxes
and extraordinary item 3,317 3,094 1,741
Income taxes 1,183 1,086 571
-------------------------------------
Income before
extraordinary item 2,134 2,008 1,170
Extraordinary item -- -- (2,234)
-------------------------------------
NET INCOME (LOSS) $ 2,134 $ 2,008 $ (1,064)
=====================================
EARNINGS (LOSS) PER COMMON SHARE
Income before
extraordinary item $ 3.87 $ 3.63 $ 2.13
Extraordinary item -- -- (4.07)
-------------------------------------
NET INCOME (LOSS) $ 3.87 $ 3.63 $ (1.94)
=====================================
AVERAGE COMMON SHARES
OUTSTANDING (MILLIONS) 551.9 553.6 549.2
====================================================================
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
- --------------<<===========>>---------------
CONSOLIDATED BALANCE SHEETS
Ameritech Corporation and Subsidiaries
As of December 31
-------------------
(dollars in millions) 1996 1995
- ---------------------------------------------------------------------
ASSETS
Current assets
Cash and temporary cash investments $ 145 $ 131
Receivables, less allowance for uncollectibles
of $320 and $166, respectively 3070 2,774
Material and supplies 231 205
Prepaid and other 353 342
---------------------------
3799 3,452
---------------------------
Property, plant and equipment
In service 31,927 30,478
Under construction 365 396
---------------------------
32,292 30,874
Less, accumulated depreciation 18,785 17,417
---------------------------
13,507 13,457
---------------------------
Investments, primarily international 2,323 1,497
---------------------------
Other assets and deferred charges 4,078 3,536
---------------------------
TOTAL ASSETS $23,707 $21,942
===========================
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Debt maturing within one year $ 3,155 $ 2,138
Accounts payable 1,836 1,792
Other 1,841 1,831
---------------------------
6,832 5,761
---------------------------
Long-term debt 4,437 4,513
---------------------------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes 900 782
Unamortized investment tax credits 172 208
Postretirement benefits
other than pensions 2,984 2,967
Other 695 696
---------------------------
4,751 4,653
---------------------------
Shareowners' equity
Common stock, par value $1;
2.4 billion shares authorized;
588,113,000 issued in 1996;
587,611,000 issued in 1995 588 588
Proceeds in excess of par value 5,732 5,613
Reinvested earnings 3,154 2,209
Treasury stock, at cost
(38,182,000 shares in 1996
and 33,773,000 shares in 1995) (1,344) (986)
Deferred compensation (259) (329)
Currency translation adjustments (188) (85)
Other, net 4 5
---------------------------
7,687 7,015
---------------------------
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $23,707 $21,942
======================================================================
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
<TABLE>
<CAPTION>
- --------------<<===========>>---------------
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
Ameritech Corporation and Subsidiaries
Shareowners' Equity
- --------------------------------------------------------------------------------------------------------------------------------
Proceeds Common Treasury
in Excess Currency Shares Common
Common of Reinvested Treasury Deferred Translation Other, Issued Shares
(dollars in millions) Total Stock Par Value Earnings Stock Compensation Adjustments net (000) (000)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1993 $ 7,845 $ 588 $ 5,455 $ 3,455 $ (1,105) $ (469) $ (76) $ (3) 587,611 40,969
Net loss (1,064) (1,064)
Dividends declared
($1.94 per share) (1,066) (1,066)
Treasury stock activity
Purchases (4) (4) 88
Issuances
Employee benefit plans 36 5 31 (1,179)
Dividend reinvestment and
stock purchase plan 149 48 101 (3,728)
Reduction of LESOP debt 73 73
Other 26 13 13
Translation adjustments 60 60
------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 6,055 588 5,521 1,325 (977) (396) (16) 10 587,611 36,150
Net income 2,008 2,008
Dividends declared
($2.03 per share) (1,124) (1,124)
Treasury stock activity
Purchases (162) (162) 3,196
Issuances
Employee benefit plans 82 13 69 (2,530)
Dividend reinvestment and
stock purchase plan 145 61 84 (3,043)
Reduction of LESOP debt 67 67
Other 13 18 (5)
Translation adjustments (69) (69)
------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 7,015 588 5,613 2,209 (986) (329) (85) 5 587,611 33,773
Net income 2,134 2,134
Dividends declared
($2.155 per share) (1,189) (1,189)
Stock issued to
nonmanagement employees 29 29 502
Treasury stock activity
Purchases (492) (492) 8,661
Issuances
Employee benefit plans 85 15 70 (2,253)
Dividend reinvestment and
stock purchase plan 115 51 64 (1,999)
Reduction of LESOP debt 70 70
Other 23 24 (1)
Translation adjustments (103) (103)
------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 $ 7,687 $ 588 $ 5,732 $ 3,154 $ (1,344) $ (259) $ (188) $ 4 588,113 38,182
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
- --------------<<===========>>---------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Ameritech Corporation and Subsidiaries
For the year ended December 31
----------------------------------
(dollars in millions) 1996 1995 1994
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $2,134 $2,008 $(1,064)
Adjustments to net income (loss)
Extraordinary item - - 2,234
Restructuring (credits) charges,
net of tax - (79) 456
Depreciation and amortization 2,365 2,177 2,205
Deferred income taxes, net 122 149 69
Investment tax credits, net (36) (48) (52)
Capitalized interest (28) (20) (13)
Change in accounts receivable, net (296) (474) (224)
Change in material and supplies (61) (15) (76)
Change in other current assets (11) (8) (30)
Change in accounts payable 44 246 332
Change in certain other
current liabilities 86 (119) (160)
Change in certain noncurrent assets
and liabilities (482) (154) (277)
Gain on exchange of cellular minority
interests - (66) -
Other operating activities, net (94) (41) 30
----------------------------------
NET CASH FROM OPERATING ACTIVITIES 3,743 3,556 3,430
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (2,440) (2,120) (1,877)
Additional investments including
acquisition of new companies (922) (895) (589)
Net proceeds from exchange of cellular
minority interests - 61 -
Other investing activities, net 51 72 74
----------------------------------
NET CASH FROM INVESTING ACTIVITIES (3,311) (2,882) (2,392)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term debt 815 217 (416)
Issuance of long-term debt 273 195 645
Retirement of long-term debt (92) (84) (569)
Dividend payments (1,171) (1,107) (1,053)
Repurchase of common stock (492) (162) (4)
Proceeds from reissuance of treasury stock 196 226 188
Issuance of preferred stock in subsidiary - 60 85
Other financing activities, net 53 38 4
----------------------------------
NET CASH FROM FINANCING ACTIVITIES (418) (617) (1,120)
----------------------------------
Net increase (decrease) in cash and
temporary cash investments 14 57 (82)
Cash and temporary cash investments,
beginning of year 131 74 156
----------------------------------
Cash and temporary cash investments,
end of year $ 145 $ 131 $ 74
=============================================================================
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
- ----------------<===========>----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================<<----------->>===============
| 1 | SIGNIFICANT ACCOUNTING POLICIES
.............................................................................
NATURE OF OPERATIONS Ameritech Corporation (Ameritech or the company), one of
the world's largest communications companies, provides a wide array of local
phone, data, directory and other services to over 12 million customers
(primarily in Illinois, Indiana, Michigan, Ohio and Wisconsin).
Ameritech serves almost 2.5 million cellular customers, more than one
million paging customers and 367,000 security monitoring customers, and
publishes business directories in Germany and other countries. The security
monitoring business is conducted throughout the United States and Canada. The
company also has cellular interests in China and Norway, as well as interests
in communications companies in Belgium, New Zealand and Hungary.
See discussion of competition and significant new legislation in Other
matters in Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 34 and 35.
CONSOLIDATION The consolidated financial statements include the accounts of
Ameritech and all of its majority-owned subsidiaries. All significant
intercompany transactions have been eliminated.
BASIS OF ACCOUNTING The consolidated financial statements have been prepared
in accordance with U.S. generally accepted accounting principles (GAAP). In
1994, Ameritech discontinued accounting for its landline communications
subsidiaries under Statement of Financial Accounting Standards No. 71 (FAS
71), "Accounting for the Effects of Certain Types of Regulation" (see Note
10). The Ameritech landline communications subsidiaries are Illinois Bell
Telephone Company; Indiana Bell Telephone Company, Incorporated; Michigan Bell
Telephone Company; The Ohio Bell Telephone Company; and Wisconsin Bell, Inc.
USE OF ESTIMATES The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
MATERIAL AND SUPPLIES Inventories of new and reusable material and supplies
are stated at the lower of cost or market, with cost generally determined on
an average-cost basis.
INCOME TAXES Ameritech files a consolidated federal income tax return.
Deferred tax assets and liabilities are determined at the end of each period,
based on differences between the financial statement bases of assets and
liabilities and the tax bases of those same assets and liabilities, using the
currently enacted statutory tax rates. Deferred income tax expense is
measured by the change in the net deferred income tax asset or liability
during the year. The company also provides deferred income taxes on
undistributed equity earnings from foreign investments where it does not
control the dividend flow back to the United States.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated
primarily at original cost. The provision for depreciation is based
principally on straight-line remaining life and straight-line equal life group
methods of depreciation applied to individual categories of plant with similar
characteristics. As a result of discontinuing the application of FAS 71 in
1994, the company recognized shorter, more economically realistic lives and
increased its accumulated depreciation balance.
The following is a summary of average lives (in years) before and after the
discontinuation of FAS 71.
Asset Category Before After
---------------------------------------------------------------------
Central office equipment
Digital switching 17 7
Analog switching up to 4 obsolete
Circuit accounts 8-12 7
Copper and fiber cable and wire facilities 20-32 15
All other various various
=====================================================================
Generally, when depreciable plant is retired, the amount at which such plant
has been carried in property, plant and equipment is charged to accumulated
depreciation. The cost of maintenance and repair of plant is charged to
expense.
Property, plant and equipment is used predominantly in Illinois, Indiana,
Michigan, Ohio and Wisconsin.
TEMPORARY CASH INVESTMENTS Temporary cash investments are stated at cost,
which approximates market value. All highly liquid, short-term investments
with an original maturity of three months or less are considered to be cash
equivalents.
ADVERTISING COSTS Advertising costs are generally charged to expense as
incurred.
42
<PAGE>
EARNINGS PER SHARE Earnings per common share are computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Common share equivalents have been excluded from the computation as
they result in a dilutive effect of less than three percent.
STOCK OPTIONS The company accounts for its stock option plans in accordance
with Accounting Principles Board (APB) Opinion 25, under which no compensation
expense is recognized in the financial statements except where the plan is
determined to be variable in nature. The company has presented the pro forma
disclosures of compensation expense under the fair value provisions of the
recently issued FAS 123, "Accounting for Stock-Based Compensation" in Note 12.
REVENUE RECOGNITION Revenues are generally recognized as services are
provided or products are delivered to customers. Certain local telephone and
wireless service revenues are billed in advance, resulting in deferred
revenues. The company primarily accounts for its directory advertising
revenues as billed over the term of the related directory (usually one year)
and amortizes production costs, which are deferred when incurred, to match the
related revenues.
INTANGIBLES Intangibles, including goodwill arising from the acquisition of
companies, are amortized on a straight-line basis over the anticipated period
of benefit, not to exceed 40 years. Amounts recorded as intangible assets are
reviewed for impairment on a periodic basis using expected undiscounted future
cash flows.
TRANSLATION ADJUSTMENTS The assets and liabilities relating to the company's
share of significant foreign operations are translated to U.S. dollars at year-
end exchange rates. Revenues and expenses are translated to U.S. dollars
using average exchange rates for the year. Translation adjustments are
accumulated and recorded as a separate component of shareowners' equity.
| 2 | INVESTMENTS
.............................................................................
BELGACOM In March 1996, a consortium led by Ameritech finalized its agreement
to acquire an interest in Belgacom S.A., the national telecommunications
operator of Belgium. The consortium purchased from the Belgian government a
49.9% stake in Belgacom S.A. The consortium's purchase price was
approximately 74 billion Belgian francs, or approximately $2.5 billion.
Ameritech has invested approximately $865 million for its 35% allocable
consortium share, which results in about a 17.5% investment in Belgacom S.A.
Ameritech accounts for its Belgacom investment using the equity method of
accounting since the company exercises significant operating influence. After
giving effect to Belgacom's unfunded pension obligation and other adjustments
to conform to U.S. GAAP, the company's share of goodwill from this transaction
is approximately $845 million, which is being amortized on a straight-line
basis over a period of 40 years.
MATAV In December 1993, a holding company (MagyarCom), owned equally by
Ameritech and Deutsche Telekom AG, purchased a 30% share in the Hungarian
telecommunications company, MATAV. Ameritech's purchase price for its 15%
share of MATAV was $438 million. A significant portion of the purchase price
was for a capital infusion into MATAV and receipt of a concession license from
the Hungarian government. On December 22, 1995, Ameritech, through MagyarCom,
purchased an additional 18.5% share of MATAV from the Hungarian government for
$405 million. Ameritech accounts for its effective 33.5% share of MATAV using
the equity method. Goodwill from these transactions approximates $410 million
and is being amortized on a straight-line basis over a period of 40 years.
TELECOM CORPORATION OF NEW ZEALAND LIMITED In September 1990, Ameritech and
Bell Atlantic Corporation purchased all of the shares of Telecom Corporation
of New Zealand Limited (New Zealand Telecom), the state-owned telephone
company in New Zealand. The company's share of the purchase price was
approximately $1.2 billion.
After stock sales required by the New Zealand government in the purchase
agreement, which were completed in 1993, the company's share of ownership is
24.8%. Such sales resulted in gains with cash proceeds to the company of $676
million.
During 1994 the company received a cash distribution totaling $67 million
from New Zealand Telecom as a result of a capital restructuring.
The investment in New Zealand Telecom is accounted for using the equity
method. Goodwill of approximately $290 million associated with this
investment is being amortized on a straight-line basis over a period of 40
years.
The company owned 469,060,000 shares of New Zealand Telecom as of December
31, 1996 and 1995. Shares of New Zealand Telecom are publicly traded. Based
on the year-end closing price of individual New Zealand Telecom shares, the
aggregate value of the company's shares was about $2.4 billion in 1996 and
$2.0 billion in 1995. However, New Zealand Telecom shares are thinly traded
with approximately 50% of the company owned by Ameritech and Bell Atlantic
Corporation.
SUMMARY OF NONCONSOLIDATED INVESTMENTS A summary of the company's
investments, which have not been consolidated, follows:
1996 1995
----------------------------------------------------------------------
Belgacom $ 890 $ --
MATAV 655 723
New Zealand Telecom 670 644
Other international investments 5 20
--------------------------
Total international investments 2,220 1,387
Domestic investments 103 110
--------------------------
Total investments $ 2,323 $ 1,497
======================================================================
43
<PAGE>
- ----------------<===========>----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
In accordance with the equity method of accounting, the company increases
its recorded investment for its allocable share of earnings (adhering to
purchase accounting and U.S. GAAP), reduces the investment for distributions
(dividends) received and gives effect to any currency translation adjustments.
Dividends received by the company on such investments were $152 million in
1996, $110 million in 1995 and $85 million in 1994.
The following unaudited summary presents Ameritech's proportional (pro
rata) interest in the summarized financial information of investments
accounted for under the equity method of accounting:
Year ended December 31 1996 1995 1994
-------------------------------------------------------------------------
Revenues $ 1,726 $ 745 $ 593
Costs and expenses 1,461 641 503
--------------------------------------
Net income $ 265 $ 104 $ 90
--------------------------------------
As of December 31 1996 1995
------------------------------------------------------------
Assets* $ 4,634 $ 2,415
Liabilities 2,398 1,027
----------------------
Net equity $ 2,236 $ 1,388
============================================================
*Includes goodwill associated with Ameritech's investments
OTHER INVESTMENTS In October 1995 and December 1994, the company purchased
two security monitoring businesses, which operate through wholly owned
subsidiaries doing business as SecurityLink [SM] from Ameritech. These
businesses have been consolidated in the accompanying financial statements
from the date of acquisition using the purchase method of accounting. The
combined preacquisition annual revenues of the acquired security monitoring
businesses were approximately $250 million. During 1996, assets of certain
smaller security monitoring businesses were acquired.
OTHER TRANSACTIONS In 1995, in a Federal Communications Commission auction,
the company purchased broadband personal communications services (PCS)
licenses in the Indianapolis and Cleveland markets for $158 million. This is
in addition to the narrowband licenses obtained in 1994 to offer two-way
paging in the Midwest. These licenses have been classified in other assets
and deferred charges in the accompanying consolidated balance sheets.
Amortization of these licenses will begin upon commencement of the related
operations.
In May 1994, Ameritech invested $473 million in a newly formed subsidiary
of General Electric Company (GE). The new subsidiary, GE Information
Services, Inc. (GEIS), provides electronic data interchange and electronic
commerce. Ameritech's investment is in the form of a four-year interest
bearing convertible debenture, which, if legal restrictions are removed,
converts into a 30% equity interest in GEIS. The debenture has been
guaranteed as to repayment by GE. Ameritech may extend the term of the
debenture by one year under certain circumstances. The debenture has been
classified in other assets and deferred charges in the accompanying
consolidated balance sheets.
| 3 | PROPERTY, PLANT AND EQUIPMENT
.............................................................................
The components of property, plant and equipment were as follows as of December
31:
1996 1995
----------------------------------------------------------------------
Land $ 150 $ 140
Buildings 3,115 2,992
Central office equipment 12,345 12,108
Cable, wiring and conduit 13,061 12,372
Other 3,256 2,866
--------------------------
31,927 30,478
Under construction 365 396
--------------------------
32,292 30,874
Less, accumulated depreciation 18,785 17,417
--------------------------
Total property, net $ 13,507 $ 13,457
======================================================================
Depreciation expense on property, plant and equipment was $2,216 million,
$2,090 million and $2,104 million in 1996, 1995 and 1994, respectively.
| 4 | Income taxes
.............................................................................
The components of income tax expense follow:
1996 1995 1994
-------------------------------------------------------------------------
Federal
Current $ 959 $ 821 $ 733
Deferred, net 115 181 (196)
Investment tax credits, net (36) (48) (52)
--------------------------------------
Total 1,038 954 485
--------------------------------------
State, local and foreign
Current 138 109 93
Deferred, net 7 23 (7)
--------------------------------------
Total 145 132 86
--------------------------------------
Total income tax expense $ 1,183 $ 1,086 $ 571
==========================================================================
Total income taxes paid were $1,075 million, $890 million and $904 million in
1996, 1995 and 1994, respectively.
The following is a reconciliation between the statutory federal income tax
rate for each of the past three years and the company's effective tax rate:
1996 1995 1994
-------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 2.8 2.8 3.2
Amortization of
investment tax credits (0.7) (1.0) (2.8)
Benefit of tax rate differential
under FAS 71 applied
to reversing temporary
differences - - (3.0)
Other (1.4) (1.7) 0.4
--------------------------------------
Effective tax rate 35.7% 35.1% 32.8%
==========================================================================
Income tax expense was reduced by $12 million and $16 million in 1996 and
1995, respectively, as a result of a portion of the beginning of year
valuation allowances no longer being required.
44
<PAGE>
As of December 31, 1996 and 1995, the components of long-term accumulated
deferred income taxes were as follows:
1996 1995
----------------------------------------------------------------------
Deferred tax assets
Postretirement and
postemployment benefits $ 1,151 $ 1,172
Other 353 241
--------------------------
1,504 1,413
--------------------------
Deferred tax liabilities
Accelerated depreciation 1,656 1,541
Prepaid pension cost 451 368
Other 297 286
--------------------------
2,404 2,195
--------------------------
Net deferred tax liability $ 900 $ 782
======================================================================
The company had valuation allowances against certain deferred tax assets
aggregating $55 million and $65 million as of December 31, 1996 and 1995,
respectively. Deferred income taxes in current assets and liabilities are not
shown as they are not significant.
| 5 | Debt maturing within one year
.............................................................................
Debt maturing within one year is included as debt in the computation of debt
ratios and consisted of the following as of December 31:
1996 1995
----------------------------------------------------------------------
Notes payable
Commercial paper $ 2,777 $ 1,969
Bank loans 11 4
Other 11 11
Long-term debt maturing
within one year 356 154
--------------------------
Total $ 3,155 $ 2,138
==========================
Weighted average interest rate
on notes payable, year-end 5.4% 6.0%
======================================================================
The company has a committed revolving credit facility of $1.0 billion. The
fee for this facility is 0.04% per annum. This facility was not used during
the three years ended December 31, 1996. In addition, Ameritech has entered
into uncommitted agreements with a number of banks for lines of credit
totaling $1.46 billion. The interest rates on these lines are negotiable at
the time of borrowing. No amounts were outstanding under these agreements as
of December 31, 1996. There are no significant commitment fees or material
compensating balance requirements associated with any of these lines of
credit. These lines, as well as the revolving credit facility, are available
for support of commercial paper borrowing and to meet short-term cash needs.
| 6 | LONG-TERM FINANCING
.............................................................................
Long-term debt consists principally of debentures issued by the Ameritech
landline communications subsidiaries. The following table sets forth interest
rates and other information on long-term debt outstanding as of December 31:
Interest Rates Maturities 1996 1995
-------------------------------------------------------------------------
4.375% - 6.0%* 1998-2007 $ 865 $ 1,140
6.125% - 8.0% 2002-2026 2,812 2,537
8.125% - 9.0% 1998-2026 330 334
9.1% - 10.0% 1998-2016 196 199
------------------------
4,203 4,210
------------------------
LESOP (Note 7) 190 266
Capital lease obligations 77 73
Other 5 1
Unamortized discount, net (38) (37)
------------------------
Total $ 4,437 $ 4,513
==========================================================================
* Includes $450 million tied to floating LIBOR rate.
Scheduled maturities of long-term debt (including principal payments on
LESOP debt) are $405 million due in 1998, $232 million due in 1999, $147
million due in 2000 and $6 million due in 2001.
Approximately $8,837 million of total gross property, plant and equipment
are subject to liens under mortgage bonds with outstanding balances of $300
million.
>>================>>-----------<<===============<<
pagers
increased 53.0%
>>================<<----------->>===============<<
As of December 31, 1996, the company, through a financing subsidiary, had
$1.0 billion in unsecured debt securities available for issuance through a
shelf registration statement with the SEC. The company, through its landline
communications subsidiaries, had $950 million in unsecured debt securities
available for issuance through shelf registration statements as of December
31, 1996.
PREFERRED STOCK ISSUANCES BY SUBSIDIARY Ameritech New Zealand Funding
Corporation, a wholly owned subsidiary, issued through private placements $85
million of Series A Preferred Stock in 1994 (7.04%, subject to mandatory
redemption in 2001) and $60 million of Series B Preferred Stock in 1995
(variable rate, 3.92% as of December 31, 1996, not subject to mandatory
redemption). Both preferred stock issues are included in other long-term
liabilities.
| 7 | EMPLOYEE BENEFIT PLANS
.............................................................................
PENSION PLANS The company maintains noncontributory defined benefit pension
plans covering substantially all employees and death benefit plans for
nonmanagement employees. The management plan was amended effective May 1,
1995. The pension benefit formula now used in the management plan for the
determination of pension cost is based on the highest
45
<PAGE>
- ----------------<===========>----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
consecutive 36 months (3 years) pay, out of the last 60 consecutive months for
which service pension credits were earned. Pension cost under the
nonmanagement plan is determined using a flat dollar amount per year of
service. The pension plans were amended in 1996 to provide a pension
increase, effective February 1, 1997, to retirees who retired prior to April
1, 1994 and are receiving annuity pension benefits. The increase is 4.5% for
retirees who retired prior to April 1, 1989, with lower rates of increase for
more recent retirees.
The company's funding policy is to contribute an amount up to the maximum
that can be deducted for federal income tax purposes. However, due to the
funded status of the plans, no contributions have been made for the years
reported below.
Pension expense was determined using the projected unit credit actuarial
method in accordance with FAS 87, "Employers' Accounting for Pensions." The
resulting pension credits are primarily attributable to past favorable
investment performance and the funded status of the plans.
The components of pension cost (credits) follow:
1996 1995 1994
-------------------------------------------------------------------------
Benefits earned during
the year $ 167 $ 139 $ 215
Interest cost on projected
benefit obligation 493 494 524
Actual return on plan assets (1,921) (1,798) 73
Net amortization and deferral 1,066 1,024 (1,018)
--------------------------------------
Net pension credits $ (195) $ (141) $ (206)
==========================================================================
The funded status of the plans was as follows as of December 31:
1996 1995
----------------------------------------------------------------------
Actuarial present value of
accumulated plan benefits
Vested $ 5,895 $ 6,181
Nonvested 735 828
--------------------------
Total 6,630 7,009
--------------------------
Fair value of plan assets 12,121 10,974
Actuarial present value of
projected benefit obligation (7,622) (7,620)
Unrecognized net asset resulting
from initial adoption of FAS 87 (772) (892)
Unrecognized net gains (3,008) (1,860)
Unrecognized prior service cost 468 331
--------------------------
Prepaid pension cost $ 1,187 $ 933
======================================================================
The assets of the pension plans consist principally of debt and equity
securities, fixed income instruments and real estate. The assumed long-term
rate of return on plan assets used in determining pension cost was 8.0% for
1996 and 7.25% for 1995 and 1994. The assumed discount rate used to determine
the projected benefit obligation was 7.5% as of December 31, 1996 and 6.9% as
of December 31, 1995. In addition, the determination of the projected benefit
obligation included an assumed rate of increase in future compensation levels
of 4.2% for 1996 and 4.5% for 1995. Effective December 31, 1996, the company
gave effect to increases in future benefits under the nonmanagement plan.
>>================>>-----------<<===============<<
international investments
grew 60.1%
>>================<<----------->>===============<<
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The company sponsors health care
and life insurance plans that provide noncontributory postretirement benefits
to substantially all of its retirees and their dependents. The company
accrues the cost of postretirement benefits granted to employees as expense
over the period in which the employee renders services and becomes eligible to
receive benefits. The cost of postretirement health care and life insurance
benefits for current and future retirees is determined using the projected
unit credit actuarial method.
The company has provided for part of the cost of these plans by making
contributions for health care benefits to voluntary employee benefit
association trust funds (VEBAs) and maintains retirement funding accounts
(RFAs) to provide life insurance benefits. The company intends to continue to
fund the nonmanagement VEBA. Funding of the management VEBA was suspended
effective in 1994. The nonmanagement VEBA and the RFAs earn income without
tax. Plan assets consist principally of corporate securities and bonds.
The components of postretirement benefit cost follow:
1996 1995 1994
-------------------------------------------------------------------------
Retiree health care plans
Benefits earned during the year $ 80 $ 49 $ 76
Interest cost on accumulated
postretirement benefit
obligation (APBO) 311 307 258
Actual return on plan assets (44) (113) 11
Net amortization and deferral (18) 57 (53)
--------------------------------------
329 300 292
--------------------------------------
Retiree life plans
Benefits earned during the year 8 5 8
Interest cost on APBO 34 33 30
Actual return on plan assets (28) (27) (21)
Net amortization and deferral (4) (8) (13)
--------------------------------------
10 3 4
--------------------------------------
Total postretirement
benefit cost $ 339 $ 303 $ 296
==========================================================================
46
<PAGE>
The components of the postretirement obligation were as follows as of December
31:
1996 1995
----------------------------------------------------------------------
Retiree health care plans
Retirees and dependents $ 3,075 $ 3,084
Fully eligible active plan participants 342 286
Other active plan participants 1,168 1,269
--------------------------
Total APBO 4,585 4,639
Fair value of plan assets 1,033 916
--------------------------
APBO in excess of plan assets 3,552 3,723
Unrecognized net loss (528) (707)
--------------------------
Accrued postretirement health
care benefit obligation 3,024 3,016
--------------------------
Retiree life plans
Retirees and dependents 349 370
Fully eligible active plan participants - 1
Other active plan participants 123 140
--------------------------
Total APBO 472 511
Fair value of plan assets 458 452
--------------------------
APBO in excess of plan assets 14 59
Unrecognized net loss (54) (108)
--------------------------
Prepaid postretirement
life benefit obligation (40) (49)
--------------------------
Total accrued postretirement
benefit obligation, net $ 2,984 $ 2,967
======================================================================
The assumed discount rate used to measure the accumulated postretirement
benefit obligation as of December 31, 1996, was 7.5% and 6.9% for 1995. The
assumed rate of increase in future compensation levels was 4.2% for 1996 and
4.5% for 1995. The expected long-term rate of return on plan assets was 8.0%
for 1996 and 7.25% for 1995 and 1994 for the VEBAs and 8.0% for 1996, 1995 and
1994 for the RFAs.
The assumed health care cost trend rate for 1996 was 8.4% and 8.8% for 1995
and is assumed to decrease gradually to 4.0% in 2007 and remain at that level.
The assumed health care cost trend rate is 8.0% for 1997.
The health care cost trend rate has a significant effect on the amounts
reported for costs each year as well as on the accumulated postretirement
benefit obligation. Specifically, increasing the assumed health care cost
trend rate by one percentage point in each year would have increased the
aggregate of the service and interest cost components for 1996 by $61 million
and would have increased the accumulated postretirement benefit obligation as
of December 31, 1996 by $585 million.
As of December 31, 1996, the company had approximately 55,000 retirees
eligible to receive health care and group life insurance benefits.
LEVERAGED EMPLOYEE STOCK OWNERSHIP PLANS In 1989, the company created
leveraged employee stock ownership plans (LESOPs) within its existing employee
savings plans. To fund the LESOPs, the Trustee for the savings plans issued
$665 million of debt, at 8.03% interest, payable in semiannual installments
through 2001, which the company guaranteed. The Trustee used the proceeds to
purchase at fair market value 22,566,276 shares of the company's common stock
from the company's treasury. These shares are considered to be outstanding
for earnings per share purposes. The Trustee repays the notes, including
interest, with funds from the company's contributions to the savings plans,
from dividends paid on the shares of company common stock held by the Trustee
and with new loans from the company.
As a result of the company's unconditional guarantee, the notes of the
Trusts are recorded as long-term debt and as deferred compensation in the
accompanying consolidated balance sheets. Deferred compensation represents a
reduction of shareowners' equity. Debt and deferred compensation are reduced
as the Trustee makes principal payments. As of December 31, 1996, the company
had $190 million included in long-term debt and $69 million included in long-
term debt maturing within one year with respect to the LESOP.
The company maintains savings plans that cover substantially all of its
employees. Under these plans, the company matches a certain percentage of
eligible contributions made by the employees. The LESOP provisions of the
savings plans became effective January 1, 1990. Under these provisions,
company matching contributions are allocated to employees in company stock
from the LESOP Trusts. Company stock is released for allocation to employees
in the proportion that principal and interest paid in a year bears to the
total principal and interest due over the life of debt outstanding in the
Trust.
Company matching contributions to the plans are recorded as compensation
expense. Any change in the required contribution as a result of leveraging
this obligation is recorded as a gain or loss in other income. The amount
expensed and contributed to the LESOPs for 1996, 1995 and 1994 totaled $34
million, $38 million and $56 million, respectively. Interest expense incurred
by the savings plans for 1996, 1995 and 1994 was $21 million, $28 million and
$33 million, respectively. Dividends paid on shares of stock held by the
Trustee used to partially satisfy debt repayment requirements were $41
million, $42 million and $41 million for 1996, 1995 and 1994, respectively.
As of December 31, 1996, 14,593,007 shares have been allocated or have been
committed to employee accounts, leaving 7,973,269 shares unallocated. As of
December 31, 1995, 12,984,497 shares were allocated or committed to employee
accounts, leaving 9,581,779 shares unallocated.
The company has entered into agreements to lend up to $123 million to one
of the Trusts through December 1, 2004. The Trustee borrowed $18 million at
8.4% in 1995, $17 million and $6 million at 6.1% and 7.4%, respectively, in
1996 and $22 million at 6.9% in January 1997.
WORK FORCE AND OTHER RESTRUCTURING In March 1994, Ameritech announced a plan
to reduce its existing nonmanagement work force. As of December 31, 1995,
11,500 employees had left the company as a result of this restructuring. See
additional discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 31 and 32.
47
<PAGE>
- ----------------<===========>----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
As a result of this restructuring, a pretax charge of $728 million, or $456
million after-tax, was recorded in 1994. In 1995, a credit of $134 million,
or $79 million after-tax, was recorded resulting primarily from settlement
gains from lump-sum pension payments to former employees, net of additional
restructuring charges of $132 million recorded in the fourth quarter of 1995.
The fourth quarter restructuring charges include $74 million associated with
increased force costs related to the restructuring started in 1994, as well as
planned work force reductions due to consolidation of the company's data
centers. In connection with this consolidation, an additional $58 million was
recorded to write down certain data processing equipment to estimated net
realizable value. The cumulative gross program cost through December 31, 1995
totaled $1,238 million, partially offset by settlement gains of $644 million,
for an aggregate pretax net program cost of $594 million, or $377 million
after-tax.
MANAGEMENT WORK FORCE REDUCTIONS Effective January 1, 1995, management
employees who are asked to leave the company will receive a severance payment
under the Management Separation Benefit Program (MSBP). The company accounts
for this benefit in accordance with FAS 112, "Employers' Accounting for
Postemployment Benefits," accruing the separation cost when incurred. The
number of employees leaving the company under the MSBP and the predecessor
plan was 618 in 1996, 460 in 1995 and 1,246 in 1994.
Settlement gains result from the payment of lump-sum distributions from the
pension plan to former employees and are recorded as a credit to other
operating expense. Settlement gains, net of termination costs, under the
plans were $33 million, $27 million and $56 million in 1996, 1995 and 1994,
respectively. The involuntary plans are funded from company operations and
required cash payments of $17 million, $10 million and $41 million in 1996,
1995 and 1994, respectively.
| 8 | COMMITMENTS
.............................................................................
The company leases certain facilities and equipment used in its operations
under both operating and capital leases. Rental expense under operating
leases was $219 million, $200 million and $182 million in 1996, 1995 and 1994,
respectively. As of December 31, 1996, the aggregate minimum rental
commitments under noncancelable leases were as follows:
Years Operating Capital
----------------------------------------------------------------------
1997 $ 80 $ 59
1998 73 22
1999 69 3
2000 57 2
2001 43 3
Thereafter 196 4
--------------------------
Total minimum rental commitments $ 518 93
======
Less: executory costs 2
interest costs 8
-----
Present value of minimum lease payments $ 83
======================================================================
Effective May 1, 1996, the company commenced a ten-year agreement with
Integrated Systems Solutions Corporation (ISSC), a wholly owned subsidiary of
IBM, to perform certain information technology services previously performed
by Ameritech. ISSC is also responsible for the consolidation of the company's
data centers.
Initially, ISSC will be using existing computers owned or leased by the
company to perform these services, but over time, ISSC may utilize any data
processing equipment it acquires or leases, as long as ISSC meets the criteria
specified in the agreement. The terms of the agreement and subsequent
amendments specify payments to ISSC that do not exceed about $200 million in
any year. Actual charges to the company may increase or decrease based in
part upon usage, growth and other data processing requirements. During the
initial years, scheduled payments to ISSC include reimbursement of lease
payments on existing computers leased by the company.
The company may terminate the entire agreement upon payment of a
predetermined fee, which varies based on the reason for termination and the
year terminated. The information technology restructuring charge recorded by
the company in December 1995 is consistent with this ten-year agreement.
| 9 | FINANCIAL INSTRUMENTS AND DERIVATIVES
.............................................................................
The following table presents the estimated fair value of the company's
financial instruments as of December 31:
1996 1995
----------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------------------------------------------------------------
Cash and temporary
cash investments $ 145 $ 145 $ 131 $ 131
Debt 7,604 7,572 6,670 6,879
Other assets 798 765 905 909
Other liabilities 183 196 191 193
========================================================================
The following methods and assumptions were used to estimate the fair value of
financial instruments:
CASH AND TEMPORARY CASH INVESTMENTS The carrying value approximates fair
value because of the short-term maturity of these instruments.
DEBT The carrying amount (including accrued interest) of the company's debt
maturing within one year approximates fair value because of the short-term
maturities involved. The fair value of the company's long-term debt was
estimated based on the year-end quoted market price for the same or similar
issues.
OTHER ASSETS AND LIABILITIES These financial instruments consist primarily of
long-term receivables, other investments, financial contracts, customer
deposits and preferred stock of a subsidiary. The fair values of these items
were based on expected cash flows, available market prices or market
comparables. Fair value of other liabilities includes the effect of interest
rate swaps discussed below.
48
<PAGE>
FINANCIAL CONTRACTS, INCLUDING DERIVATIVES The company occasionally enters
into foreign currency forward contracts to hedge exposure to adverse exchange
risk. Also, interest rate swaps are used to manage interest rate exposure.
Related gains and losses are reflected in net income. As of December 31,
1995, the company had contracts giving it the right to deliver foreign
currency valued at $300 million (none in 1996). As of December 31, 1996 and
1995, the company had also entered into interest rate swap agreements to
change the interest rate on notional amounts of $582 million and $401 million,
respectively. Interest expense is adjusted to give effect to obligations
under the swaps. The company is exposed to credit risk in the unlikely event
of nonperformance by counterparties and the fair value of the swaps exceeds
their carrying value. As of December 31, 1996, the fair value of these
interest rate swaps was $9 million less than carrying value. As of December
31, 1995, the fair value of the interest rate swaps was $17 million less than
carrying value.
>>================>>-----------<<===============<<
dividends
increased 6.6%
>>================<<----------->>===============<<
The company uses derivatives in a limited way as a tool to manage financial
risk. Their use is restricted primarily to hedging assets and obligations
already held by the company. Derivatives are used to protect the cash flow of
the company rather than to generate income or engage in speculative activity.
Leveraged derivatives are strictly prohibited.
| 10 | DISCONTINUATION OF REGULATORY ACCOUNTING - FAS 71
.............................................................................
In 1994, having achieved price regulation in all five states in which it
operates and recognizing increased competition, the company concluded that
GAAP prescribed by FAS 71 was no longer appropriate.
As a result of discontinuing the application of FAS 71, the company
recorded an extraordinary noncash after-tax charge of $2.2 billion in 1994.
The following table is a summary of the extraordinary charge.
Pretax After-tax
----------------------------------------------------------------------
Increase to the accumulated
depreciation balance $ 3,659 $ 2,288
Elimination of other net
regulatory assets 126 78
Tax-related net regulatory liabilities - (86)
Accelerated amortization of tax credits - (46)
--------------------------
$ 3,785 $ 2,234
======================================================================
The adjustment of $3.7 billion to net communications plant was necessary
because estimated useful lives and depreciation methods historically
prescribed by regulators did not keep pace with rapid technological changes
and differed significantly from those used by nonregulated enterprises. Plant
balances were adjusted by increasing the accumulated depreciation balance.
The necessary adjustment was determined by a discounted cash flow analysis,
which considered technological changes, capital requirements and estimated
impacts of future competition. To corroborate this study, a depreciation
reserve study was also performed that identified inadequate accumulated
depreciation levels by individual asset categories. The company believes
these levels developed over the years as a result of the systematic
underdepreciation of assets resulting from the regulatory process.
When adjusting its net communications plant, the company gave effect to
shorter, more economically realistic lives, as previously outlined in Note 1.
The discontinuance of FAS 71 also required the company to eliminate from
its consolidated balance sheet the effects of any actions of regulators that
had been recognized as assets and liabilities pursuant to FAS 71, but would
not have been recognized as assets and liabilities by nonregulated
enterprises.
The elimination of other net regulatory assets related primarily to certain
deferred vacation pay, debt financing costs and certain deferred assets.
Additionally, at the time the company discontinued the application of FAS
71, the income tax-related regulatory assets and liabilities were eliminated
and deferred tax balances adjusted to reflect application of FAS 109,
"Accounting for Income Taxes", consistent with other nonregulated enterprises.
As asset lives were shortened, the related unamortized investment tax credits
deemed already earned were credited to income.
| 11 | OTHER INCOME, NET
.............................................................................
The components of other income, net are as follows:
Income (expense)
------------------------------
1996 1995 1994
-------------------------------------------------------------------------
Equity earnings of affiliates,
primarily New Zealand
Telecom and Belgacom $ 265 $ 104 $ 90
Interest on company-owned
life insurance and
related programs 55 52 54
Gain on sale of investment
in Polish venture, Centertel 11 - -
Gain on exchange of
cellular minority interests - 66 -
Gain on LESOP 35 27 15
Other, net (40) 11 (12)
--------------------------------------
Total $ 326 $ 260 $ 147
==========================================================================
49
<PAGE>
- ----------------<===========>----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
| 12 | SHAREOWNERS' EQUITY
.............................................................................
Ameritech's certificate of incorporation was amended in 1996 to increase the
number of authorized common shares from 1.2 billion to 2.4 billion. The
certificate also allows 30 million shares of preferred stock (par value $1 per
share) and 30 million shares of preference stock (par value $1 per share).
SHAREOWNERS' RIGHTS One preference stock purchase right is attached to each
share of the company's common stock. Under certain circumstances, each right
may be exercised to purchase one one-hundredth of a share of Series A Junior
Participating Preference Stock, $1 par value, at a price of $125. If a person
acquires, or announces a tender offer for, 20% or more of the company's common
stock, the rights become exercisable for common stock of the company having a
market value of two times the exercise price. If the company is acquired in a
merger or similar transaction, the rights may be exercised to purchase common
stock of the surviving company having a market value of two times the exercise
price. The rights, which are nonvoting, are redeemable by the company for
$0.01 per right and expire on December 31, 1998, or upon consummation of
certain merger transactions. Until the occurrence of certain events, the
rights are attached to and trade with shares of the company's common stock.
As of December 31, 1996, 549,928,240 rights were outstanding.
STOCK PLANS The company, through its 1989 Long Term Incentive Plan (the
plan), grants incentive compensation to its officers and other employees in
the form of stock options, stock appreciation rights, restricted stock and
performance awards. The incentives granted are based upon terms and
conditions, and are subject to certain limitations, determined by a committee
of the Board of Directors, which administers the plan. The plan authorizes
the issuance of up to 40,000,000 shares of common stock over a 10-year period.
Stock options may be granted under the plan as either incentive stock
options or nonqualified stock options. Options have not been granted at less
than fair market value as of the date of grant (however, under the plan,
nonqualified options may be granted at not less than 50% of fair market value)
and have a maximum life of 10 years and one day from the date of grant. Stock
appreciation rights may be granted independently or in tandem with stock
options and permit the optionee to receive stock, cash or a combination
thereof equal to the amount by which the fair market value on the exercise
date exceeds the option price. Substantially all stock options granted on or
following December 16, 1987, are exercisable after one year in equal
increments over the following three years. Beginning in 1994, the company
awarded grants of nonqualified stock options with dividend equivalents to
certain employees.
Information regarding options granted under the Long Term Incentive Plan,
which expired in 1994, and the plan is as follows:
Incentive Nonqualified
Stock Options Stock Options
--------------------------------------------------
Shares Price* Shares Price*
------------------------------------------------------------------------
Outstanding,
December 31, 1993 15,268 $ 20.59 7,333,588 $ 31.21
Granted - - 5,798,530 $ 38.54
Exercised 4,200 $ 20.59 (1,196,462) $ 30.93
Canceled or expired - - (717,151) $ 38.26
------ ------------
Outstanding,
December 31, 1994 11,068 $ 20.59 11,218,505 $ 34.65
Granted - - 6,500,980 $ 41.99
Exercised (5,400) $ 20.59 (2,553,592) $ 32.09
Canceled or expired - - (1,190,176) $ 39.97
------ ------------
Outstanding,
December 31, 1995 5,668 $ 20.59 13,975,717 $ 38.07
Granted - - 6,880,416 $ 58.29
Exercised (5,668) $ 20.59 (2,196,937) $ 36.16
Canceled or expired - - (833,184) $ 49.98
------ ------------
Outstanding,
December 31, 1996 - - 17,826,012 $ 45.55
=========================================================================
* weighted average
The above stock options have the following characteristics
as of December 31, 1996:
Shares Remaining Life Shares
Grant Year Outstanding Price* (in years)* Exercisable
------------------------------------------------------------------------
1987-88 206,379 $ 22.13 1.0 206,379
1989-90 46,400 32.07 3.1 46,400
1991-93 2,704,134 32.37 4.3 2,654,124
1994 3,361,122 38.56 7.1 2,102,603
1995 5,034,158 42.02 8.1 1,459,739
1996 6,473,819 58.28 9.1 -
---------- ---------
17,826,012 6,469,255
========== =========
* weighted average
As of December 31, 1996 and 1995, 356,910 and 174,796 additional shares,
respectively, were available as dividend equivalents.
All stock appreciation rights granted under the plans have been issued in
tandem with nonqualified stock options. Stock appreciation rights granted
prior to 1987 have been capped at $29.938. The exercise of a nonqualified
option or a stock appreciation right cancels the related right or option. No
stock appreciation rights have been issued after December 31, 1990.
Under the Long Term Incentive Plan, which expired in 1994, 18,232 shares of
nonperformance based restricted stock remained outstanding as of December 31,
1996, while under the plan, 5,000 shares of nonperformance based restricted
stock remained outstanding. Shareowners' equity reflects deferred
compensation for the unvested stock awarded. This amount is reduced and
charged against operations (together with any change in market price) as the
employees vest in the stock.
During 1995, the Financial Accounting Standards Board issued FAS 123,
"Accounting for Stock-Based Compensation."
50
<PAGE>
This pronouncement requires that the company calculate the value of stock
options at the date of grant using an option pricing model. The company has
elected the "pro forma, disclosure only" option permitted under FAS 123,
instead of recording a charge to operations, as shown below:
1996 1995
----------------------------------------------------------------------
Net income As reported $ 2,134 $ 2,008
Pro forma 2,107 1,992
Earnings per share As reported 3.87 3.63
Pro forma 3.82 3.60
======================================================================
Because the FAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years. Pro forma
net income was adjusted for dividend equivalents expensed as a variable plan.
The company's weighted-average assumptions used in the pricing model and
resulting fair values were as follows:
1996 1995
----------------------------------------------------------------------
Risk free rate 5.37% 7.55%
Expected dividend yield* 3.50% 4.17%
Expected option life (in years)
(without dividend equivalents) 3.25 3.25
Expected option life (in years)
(with dividend equivalents) 5.00 5.00
Expected stock price volatility 20.74% 19.42%
Grant date value
(without dividend equivalents) $ 8.95 $ 6.44
Grant date value
(with dividend equivalents) $ 17.99 $ 14.94
======================================================================
* The options granted with dividend equivalents (about 28% of total
options granted in 1996 and 34% in 1995) were priced assuming the
dividends would accrue to the optionee over the expected life of
the option.
>>================>>-----------<<===============<<
total shareowners' equity
increased 9.6%
>>================<<----------->>===============<<
| 13 | ADDITIONAL FINANCIAL INFORMATION
.............................................................................
December 31
-------------------
1996 1995
----------------------------------------------------------------------
Other current liabilities
Accrued payroll $ 216 $ 241
Accrued taxes 454 407
Advance billings and customer deposits 366 322
Dividends payable 313 295
Accrued interest 131 133
Other 361 433
-----------------------
Total $ 1,841 $ 1,831
======================================================================
Interest paid was $544 million, $465 million and $446 million in 1996, 1995
and 1994, respectively. Advertising expense was $270 million, $236 million
and $191 million in 1996, 1995 and 1994, respectively.
| 14 | QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
.............................................................................
Operating Net Earnings
Revenues Income Income Per Share
------------------------------------------------------------------------
1996
1st Quarter $ 3,567 $ 822 $ 478 $ 0.86
2nd Quarter 3,744 946 567 1.02
3rd Quarter 3,722 873 519 0.94
4th Quarter 3,884 864 570 1.04
------------------------------------
Total $ 14,917 $ 3,505 $ 2,134 $ 3.87
======================================================================
1995
1st Quarter $ 3,146 $ 989 $ 579 $ 1.05
2nd Quarter 3,369 859 504 0.91
3rd Quarter 3,381 803 512 0.92
4th Quarter 3,532 652 413 0.74
------------------------------------
Total $ 13,428 $ 3,303 $ 2,008 $ 3.63
======================================================================
Total nonmanagement work force restructuring credits in 1995 were $134 million
or $79 million after-tax as follows: $256 million or $160 million after-tax in
the first quarter, $10 million or $7 million after-tax in the third quarter
and a net charge of $132 million or $88 million after-tax in the fourth
quarter. The fourth quarter restructuring charge includes costs related to
the restructuring started in 1994, and charges relating to the consolidation
of the company's data centers, as discussed more fully in Note 7.
The third quarter of 1995 includes a gain of $66 million ($41 million after-
tax) related to exchange of cellular minority interests.
The fourth quarter of 1996 includes an after-tax gain of $18 million from
the sale of an interest in Centertel, a Polish cellular telephone company.
Several other significant income and expense items were reported in the
fourth quarter of both years. However, the net result was not material to the
respective quarters or years.
Earnings per share are calculated on a quarter by quarter basis in
accordance with GAAP and, accordingly, may not total EPS for the year due to
the fluctuation of shares outstanding.
All adjustments necessary for a fair statement of results for each period
have been included.
51
<PAGE>
- ----------------<===========>----------------
INFORMATION FOR OUR INVESTORS
TRADING AND DIVIDEND INFORMATION
Dividends
High Low Close Declared
------------------------------------------------------------------------
1996
1st Quarter $ 66.88 $ 52.25 $ 54.50 $ .53
2nd Quarter 60.00 52.63 59.38 .53
3rd Quarter 59.63 49.63 52.63 .53
4th Quarter 63.38 52.00 60.63 .565
---------------------------------------------------
1995
1st Quarter $ 44.38 $ 39.88 $ 41.25 $ .50
2nd Quarter 47.25 41.25 44.00 .50
3rd Quarter 52.75 44.00 52.13 .50
4th Quarter 59.38 50.38 58.88 .53
======================================================================
STOCK TRADING INFORMATION Ameritech stock is traded in the United States on
the New York, Boston, Chicago, Pacific and Philadelphia stock exchanges.
Overseas it is listed on the London, Tokyo and Amsterdam stock exchanges and
on the Swiss stock exchanges of Basel, Geneva and Zurich.
57
Exhibit 21
AMERITECH CORPORATION
SUBSIDIARIES
as of March 7, 1997
AMERITECH CORPORATION Delaware
Illinois Bell Telephone Company (d/b/a Ameritech Illinois) Illinois
Indiana Bell Telephone Company, Incorporated Indiana
(d/b/a Ameritech Indiana)
Michigan Bell Telephone Company (d/b/a Ameritech Michigan) Michigan
The Ohio Bell Telephone Company (d/b/a Ameritech Ohio) Ohio
Wisconsin Bell, Inc. (d/b/a Ameritech Wisconsin) Wisconsin
Ameritech Services, Inc. (Jointly owned by the Bell companies) Delaware
Ameritech Center Phase I, Inc. (Jointly owned by AIT and ASI) Delaware
Ameritech Advanced Data Services of Illinois, Inc. Delaware
Ameritech Advanced Data Services of Indiana, Inc. Delaware
Ameritech Advanced Data Services of Michigan, Inc. Delaware
Ameritech Advanced Data Services of Ohio, Inc. Delaware
Ameritech Advanced Data Services of Wisconsin, Inc. Delaware
Ameritech Capital Funding Corporation Delaware
Ameritech Communications, Inc. Delaware
Ameritech Communications of Illinois, Inc. Delaware
Ameritech Communications of Indiana, Inc. Delaware
Ameritech Communications of Michigan, Inc. Delaware
Ameritech Communications of Ohio, Inc. Delaware
Ameritech Communications of Wisconsin, Inc. Delaware
Ameritech Communications International, Inc. Delaware
Ameritech Credit Corporation (d/b/a Ameritech Capital Delaware
Services)
Ameritech Development Corporation Delaware
Ameritech Information Industries Services, Inc. Delaware
Quantum Control Systems, LLC Delaware
Ameritech Information Systems, Inc. Delaware
Ameritech EGA, Inc. Delaware
Ameritech Information Access LLC Delaware
Ameritech Health Connections, Inc. Delaware
Ameritech Kidsoft Holdings, Inc. Delaware
Ameritech Knowledge Data, Inc. Delaware
Ameritech Health Information Management Corporation of Delaware
Tennessee
Ameritech Health Information Management Corporation of Ohio Delaware
Ameritech Managed Services, Inc. Delaware
Dynix Corporation Delaware
Ameritech Library Services, Inc. Delaware
DMI Promark, Inc. Delaware
Dynix Library Systems, Inc. (Canada) Canada
Dynix Library Systems (UK), Ltd. U.K.
Dynix Library Systems (Ireland), Ltd. Ireland
Dynix (France), S.A. France
Dynix (Nederland), B.V. Netherlands
Ameritech Mobile Communications, Inc. Delaware
Ameritech Mobile Communications of Wisconsin, Inc. Wisconsin
Ameritech Mobile Phone Service of Chicago, Inc. Illinois
Ameritech Mobile Phone Service of Cincinnati, Inc. Delaware
Ameritech Mobile Phone Service of Detroit, Inc. Delaware
Ameritech Mobile Phone Service of Illinois, Inc. Illinois
Ameritech Mobile Services, Inc. Delaware
Ameritech Mobile Services of Wisconsin, Inc. Delaware
Metrocom Communications, Inc. Delaware
AMCI Partnership Holdings, Inc. Delaware
Ameritech Mobile Data, Inc. Delaware
CyberTel Financial Corporation Delaware
CyberTel Cellular Telephone Company Delaware
CyberTel Corporation Delaware
CyberTel Minneapolis Paging Corporation Delaware
CyberTel Cellular Management Corporation Delaware
CyberTel St. Louis Paging Corporation Delaware
GSAA, Inc. Delaware
Gensub, Inc. Delaware
Hawaiian Cellular Properties, Inc. Delaware
Ohio Paging Units, Inc. Delaware
Ameritech Monitoring Services, Inc. Delaware
(d/b/a SecurityLink from Ameritech)
SecurityLink from Ameritech, Inc. Delaware
National Guardian Electronic Services S.A. de C.V. Mexico
National Guardian Security Services Corp. of Puerto Rico Puerto Rico
Ameritech New Media, Inc. Delaware
Ameritech Media Ventures, Inc. Delaware
Ameritech New Zealand Funding Corporation Delaware
Ameritech New Zealand Investments, Inc. Delaware
Ameritech Belgium Investments, Inc. Delaware
Ameritech Belgium Leasing, Inc. Delaware
Ameritech International Belgium, LLC Delaware
Ameritech Holdings, Ltd. New Zealand
Ameritech Publishing, Inc. Delaware
Ameritech Interactive Media Services, Inc. Delaware
Ameritech Publishing of Illinois, Inc. Illinois
Ameritech International, Inc. Delaware
Wer Liefert Was? BV Netherlands
Wer Liefert Was? SA Belgium
Wer Liefert Was? Ges.m.b.H. Germany
Ameritech International China, LLC Delaware
Ameritech International Business Development Corporation Delaware
Starline Insurance Company Vermont
Ameritech Wireless Communications, Inc. Delaware
Ameritech Telecommunications Services Company Delaware
Ameritech Long Distance Industry Services, Inc. Delaware
Ameritech Payphone Services, Inc. Delaware
Ameritech Payphone Services of Illinois, Inc. Illinois
Ameritech Payphone Services of Indiana, Inc. Indiana
Ameritech Payphone Services Ohio, Inc. Ohio
Ameritech Payphone Services of Michigan, Inc. Michigan
Ameritech Payphone Services of Wisconsin, Inc. Wisconsin
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Ameritech Corporation
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated January 13, 1997
included (or incorporated by reference) in this Form 10-K for the
year ended December 31, 1996, into Ameritech Corporation's
previously filed Registration Statement File Nos. 33-26366, 2-
97037, 33-30593, 33-32705, 33-34006, 33-36790, 33-47608, 33-
49036, 33-51771, 33-51773, 33-00897 and 33-02591.
Arthur Andersen LLP
Chicago, Illinois
March 11, 1997
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is an Officer and Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.
G. SHAFFER, B. A. KLEIN AND R.W. PEHLKE and each of them, as
attorneys for the undersigned and in the undersigned's name, place and
stead as an Officer and a Director of the Company, to execute and file
the Annual Report, and thereafter to execute and file any amendment or
amendments thereto on Form 10-K/A, hereby giving and granting to said
attorneys full power and authority to do and perform all and every act
and thing whatsoever requisite and necessary to be done in and about
the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully
do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
4th day of March, 1997.
/s/ Richard C. Notebaert
Richard C. Notebaert
Chairman and Chief Executive Officer
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 4th day of March, 1997, personally appeared before me Richard
C Notebaert to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 4th day of March, 1997.
/s/ Judy L. Anker
Notary Public
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is an Officer of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS R.C.
NOTEBAERT, B. A. KLEIN AND R. W. PEHLKE, and each of them, as
attorneys for the undersigned and in the undersigned's name, place and
stead as an Officer of the Company, to execute and file the Annual
Report, and thereafter to execute and file any amendment or amendments
thereto on Form 10-K/A, hereby giving and granting to said attorneys
full power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the
premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully
do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
5th day of March, 1997.
/s/ Oren G. Shaffer
Oren G. Shaffer
Executive Vice President and
Chief Financial Officer
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 5th day of March, 1997, personally appeared before me Oren G.
Shaffer to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 5th day of March, 1997.
/s/ Judy L. Anker
Notary Public
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, hereby giving and granting to said attorneys full power
and authority to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully,
to all intents and purposes, as the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
4th day of March, 1997.
/s/ Donald C. Clark
Donald C. Clark
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 4th day of March, 1997, personally appeared before me Donald
C. Clark to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 4th day of March, 1997.
/s/ Judy L. Anker
Notary Public
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, hereby giving and granting to said attorneys full power
and authority to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully,
to all intents and purposes, as the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this
4th day of March, 1997.
/s/ Hanna Holborn Gray
Hanna Holborn Gray
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 4th day of March, 1997, personally appeared before me Hanna
Holborn Gray to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 4th day of March, 1997.
/s/ Judy L. Anker
Notary Public
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, hereby giving and granting to said attorneys full power
and authority to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully,
to all intents and purposes, as the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
5th day of March, 1997.
/s/ James A. Henderson
James A. Henderson
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 5th day of March, 1997, personally appeared before me James
A. Henderson to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 5th day of March, 1997.
/s/ Judy L. Anker
Notary Public
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER, B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys
for the undersigned and in the undersigned's name, place and stead as
a Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, hereby giving and granting to said attorneys full power
and authority to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully,
to all intents and purposes, as the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
5th day of March, 1997.
/s/ Sheldon B. Lubar
Sheldon B. Lubar
STATE OF WISCONSIN )
COUNTY OF MILWAUKEE )
On the 5th day of March, 1997, personally appeared before me Sheldon
B. Lubar to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 5th day of March, 1997.
/s/ Mary Beth Wisniewski
Notary Public
<PAGE> Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, hereby giving and granting to said attorneys full power
and authority to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully,
to all intents and purposes, as the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
4th day of March, 1997.
/s/ Arthur C. Martinez
Arthur C. Martinez
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 4th day of March, 1997, personally appeared before me Arthur
C. Martinez to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 4th day of March, 1997.
/s/ Kathleen Tarpinian
Notary Public
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, hereby giving and granting to said attorneys full power
and authority to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully,
to all intents and purposes, as the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
4th day of March, 1997.
/s/ John B. McCoy
John B. McCoy
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 4th day of March, 1997, personally appeared before me John B.
McCoy to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 4th day of March, 1997.
/s/ Judy L. Anker
Notary Public
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, hereby giving and granting to said attorneys full power
and authority to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully,
to all intents and purposes, as the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
N WITNESS WHEREOF, the undersigned has hereunto set his hand this
4th of March, 1997.
/s/ John D. Ong
John D. Ong
STATE OF OHIO )
COUNTY OF SUMMIT )
On the 4th of March, 1997, personally appeared before me John D. Ong
to me known and known to be the person described in and who executed
the foregoing instrument and such person duly acknowledged that such
person executed and delivered the same for the purpose therein
expressed.
WITNESS my hand and official seal this 4th of March, 1997.
/s/ Virginia M. Huggins
Notary Public
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, hereby giving and granting to said attorneys full power
and authority to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully,
to all intents and purposes, as the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
4th day of March, 1997.
/s/ A. Barry Rand
A. Barry Rand
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 4th day of March, 1997, personally appeared before me A.
Barry Rand to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 4th day of March, 1997.
/s/ Judy L. Anker
Notary Public
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, hereby giving and granting to said attorneys full power
and authority to do and perform all and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully,
to all intents and purposes, as the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
4th day of March, 1997.
/s/ James A. Unruh
James A. Unruh
STATE OF PENNSYLVANIA )
COUNTY OF MONTGOMERY )
On the 4th day of March, 1997, personally appeared before me James
A. Unruh to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 4th day of March, 1997.
/s/ Susan H. Sowers
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S DECEMBER 31, 1996 CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 145,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,390,000
<ALLOWANCES> (320,000)
<INVENTORY> 231,000
<CURRENT-ASSETS> 3,799,000
<PP&E> 32,292,000
<DEPRECIATION> 18,785,000
<TOTAL-ASSETS> 23,707,000
<CURRENT-LIABILITIES> 6,832,000
<BONDS> 4,437,000
0
0
<COMMON> 588,000
<OTHER-SE> 7,099,000
<TOTAL-LIABILITY-AND-EQUITY> 23,707,000
<SALES> 0<F1>
<TOTAL-REVENUES> 14,917,000
<CGS> 0
<TOTAL-COSTS> 11,412,000
<OTHER-EXPENSES> (326,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 514,000
<INCOME-PRETAX> 3,317,000
<INCOME-TAX> 1,183,000
<INCOME-CONTINUING> 2,134,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,134,000
<EPS-PRIMARY> 3.87
<EPS-DILUTED> 3.87<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 THE 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>
