<PAGE>
- ---------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
- -------------------------------------------
Form 10-Q
(Mark one)
- -------------------------------------------
[x] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
- -------------------------------------------
or
- -------------------------------------------
[ ] Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
- -------------------------------------------
Commission File Number 1-8612
Ameritech Corporation
-----------------------------
A Delaware Corporation
-----------------------------
30 S. Wacker Drive
Chicago, Illinois 60606
-----------------------------
I.R.S. Employer Identification
Number 36-3251481
Telephone number (800) 257-0902
We have filed all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12 months, and
have been subject to those filing requirements for the past 90 days.
Yes X No
---- ----
At April 30, 1999, 1,099,003,779 common shares were outstanding.
<PAGE>
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
ITEM Page
- ---- ----
1. Financial Statements
Condensed Consolidated Statements of Income for
the three months ended
March 31, 1999 and 1998 1
Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 2
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4-12
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-35
3. Quantitative and Qualitative
Disclosures About Market Risk 36
PART II
OTHER INFORMATION
4. Submission of Matters to a Vote of Security Holders 37
6. Exhibits and Reports on Form 8-K 38
Glossary 40-42
i
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Item 1 - Financial Statements
-----------------------------
AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended
March 31
---------------
1999 1998
---- ----
Revenues
Local service...................... $ 1,849 $ 1,682
Interstate network access.......... 675 614
Intrastate network access.......... 138 140
Long-distance services............. 369 341
Cellular, directory and other...... 1,424 1,356
------- -------
4,455 4,133
------- -------
Operating expenses
Employee-related expenses.......... 1,032 1,042
Depreciation and amortization...... 710 663
Other operating expenses........... 1,413 1,261
Restructuring...................... (44) 104
Taxes other than income taxes...... 162 158
------- -------
3,273 3,228
------- -------
Operating income..................... 1,182 905
Interest expense..................... 134 175
Other income, net.................... 111 51
------- -------
Income before income taxes........... 1,159 781
Income taxes......................... 427 289
------- -------
Net income........................... $ 732 $ 492
======= =======
Earnings per common share
Basic.............................. $ 0.67 $ 0.45
======= =======
Diluted............................ $ 0.66 $ 0.44
======= =======
Dividends declared per common
share............................... $ 0.3175 $ 0.30
======= =======
See Notes to Condensed Consolidated Financial Statements.
Page 1
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AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
March 31, 1999 Dec. 31, 1998
-------------- -------------
(Unaudited) (Derived from
Audited
Financial
Statements)
ASSETS
Current assets
Cash and temporary cash investments........ $ 666 $ 139
Receivables, net........................... 2,879 3,052
Installment receivable from
TCNZ share sale.......................... 221 940
Material and supplies...................... 341 345
Prepaid and other.......................... 691 654
-------- --------
4,798 5,130
-------- --------
Property, plant and equipment............... 36,976 36,344
Less, accumulated depreciation............. 22,562 22,039
-------- --------
14,414 14,305
-------- --------
Investments, primarily international........ 4,651 4,938
Other assets and deferred charges........... 5,933 5,926
-------- --------
Total assets................................ $ 29,796 $ 30,299
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Debt maturing within one year.............. $ 1,862 $ 2,619
Accounts payable........................... 1,976 1,905
Other...................................... 3,580 3,476
-------- --------
7,418 8,000
-------- --------
Long-term debt.............................. 5,521 5,557
-------- --------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes.......... 1,557 1,502
Unamortized investment tax credits......... 110 115
Postretirement benefits
other than pensions...................... 2,914 2,918
Other...................................... 1,359 1,310
-------- --------
5,940 5,845
-------- --------
Shareowners' equity
Common stock, par value $1; 2.4 billion
shares authorized, 1,177 million issued
in 1999 and 1998......................... 1,177 1,177
Proceeds in excess of par value............ 5,549 5,493
Reinvested earnings........................ 6,838 6,455
Treasury stock, at cost (79 million shares
in 1999 and 78 million shares in 1998)... (2,023) (1,923)
Deferred compensation...................... (37) (114)
Accumulated other comprehensive income..... (587) (191)
-------- --------
10,917 10,897
-------- --------
Total liabilities and shareowners' equity... $ 29,796 $ 30,299
======== ========
See Notes to Condensed Consolidated Financial Statements.
Page 2
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AMERITECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Three Months Ended
March 31
-------------
1999 1998
---- ----
Cash Flows from Operating Activities
Net income................................... $ 732 $ 492
Adjustments to net income
Restructuring, net of tax.................. (27) 64
Depreciation and amortization.............. 710 663
Deferred income taxes, net................. 55 15
Investment tax credits, net................ (5) (6)
Capitalized interest....................... (6) (5)
Change in accounts receivable, net......... 173 116
Change in material and supplies............ (4) (68)
Change in certain other current assets..... (65) (36)
Change in accounts payable................. 71 (116)
Change in certain other current
liabilities............................... 132 255
Change in certain other noncurrent
assets and liabilities................... (49) (257)
Undistributed equity earnings
in affiliates............................ (105) (72)
Other operating activities, net............ (2) 75
------- -------
Net cash from operating activities........... 1,610 1,120
------- -------
Cash Flows from Investing Activities
Capital expenditures......................... (718) (658)
Additional investments, principally
Tele Danmark............................... (8) (3,132)
Proceeds from repayment of GEIS note......... -- 473
Proceeds from sale of TCNZ shares............ 750 --
Other investing activities, net.............. 7 20
------- -------
Net cash from investing activities........... 31 (3,297)
------- -------
Cash Flows from Financing Activities
Net change in short-term debt................ (721) (135)
Issuance of long-term debt................... -- 2,500
Retirement of long-term debt................. (1) (9)
Dividend payments............................ (349) (329)
Proceeds from reissuance of treasury stock... 109 167
Repurchase of common stock................... (152) (108)
------- -------
Net cash from financing activities........... (1,114) 2,086
------- -------
Net increase (decrease) in cash and temporary
cash investments............................ 527 (91)
Cash and temporary cash investments,
beginning of period......................... 139 239
------- -------
Cash and temporary cash investments,
end of period............................... $ 666 $ 148
======= =======
See Notes to Condensed Consolidated Financial Statements.
Page 3
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AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 1: Preparation of Interim Financial Statements
We have prepared the unaudited condensed consolidated financial
statements in this report by following Securities and Exchange
Commission rules that permit reduced disclosure for quarterly period
reports. These financial statements include estimates and
assumptions that affect the reported amounts of assets and
liabilities and the amounts of revenues and expenses. Actual amounts
could differ from those estimates. We believe these statements
include all adjustments necessary for a fair statement of results for
each period shown. We believe our disclosures are adequate to make
the presented information clear. You should read these financial
statements in conjunction with the financial statements and notes
included in our 1998 Annual Report on Form 10-K.
When reading these financial statements, you should be familiar with
the terminology unique to our business. We have defined a number of
terms in the glossary on pages 40 through 42.
Note 2: Sale of Investment in Telecom Corporation of
New Zealand Limited
Beginning in 1990, Ameritech had an investment in Telecom Corporation
of New Zealand Limited (TCNZ), New Zealand's principal supplier of
domestic and international communications services. In April 1998,
we sold substantially all of our remaining 24.95% stake in TCNZ in a
global stock offering and recorded a gain of approximately $1 billion
in the second quarter of 1998. We originally received $1.078 billion
with the remaining sale proceeds due in 1999. During the three months
ended March 31, 1999, we received additional sales proceeds of $750
million, leaving a receivable balance of $221 million. We received
the remaining cash in early April 1999.
Note 3: Pending Investment in Bell Canada
On March 24, 1999, Ameritech and BCE Inc., a publicly traded Canadian
communications company, announced their binding agreement to enter
into a strategic partnership arrangement providing for a number of
joint development and operational projects. Under the terms of this
arrangement, Ameritech will invest approximately Cdn $5.1 billion (US
$3.4 billion) for a 20% minority interest in Bell Canada, a wholly
owned subsidiary of BCE. Following the investment, BCE will retain
80% and we will own the remaining 20% of Bell Canada through a
holding company. The agreement has been approved by the Boards of
Directors of both companies and is expected to close by the end of
May 1999, pending regulatory approvals.
As part of the agreement, Bell Canada will be reorganized to hold
certain telecommunications assets previously held by BCE. Bell Canada
will acquire from BCE all of its interests in BCE Mobile
Communications, Inc. (65%), a wireless company; Teleglobe Inc.
(21.5%), a provider of international telecommunications services; and
BCE's equity investments in six regional Canadian telecommunications
companies. Bell Canada will continue to hold its investments in BCE
Nexxia Inc., an Internet broadband service provider; Bell ActiMedia
Inc., a yellow pages directory company; and Manitoba Telecom Services
Inc., a regional telecom company. After giving effect to these
transactions, Bell Canada's pro forma 1998 revenues would have been
Cdn $12.7 billion (US $8.3 billion), its asset base would have been
Cdn $20.0 billion (US $13.2 billion) and debt would have been Cdn
$11.1 billion (US $7.3 billion).
Page 4
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AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 3: Pending Investment in Bell Canada (cont'd.)
We and BCE have entered into a shareholders agreement that provides
us with the right to nominate two of ten Directors to the Board of
Directors of Bell Canada, nominate one Director to the BCE Mobile
Board of Directors, appoint the Chief Financial Officer of Bell
Canada and participate in an exchange of approximately 15 other
professionals. This agreement also provides for other minority or
protective rights between the parties. The shareholders agreement
with BCE also provides that at any time during the periods July 1,
2002 through December 31, 2002, and July 1, 2004 through December 31,
2004, we have the option to sell all of our shares acquired in this
transaction to BCE. The selling price would be fair market value
plus 25%. Similarly, BCE has the right to purchase our Bell Canada
shares during the same time frames and at the same price.
The shareholders agreement also provides that Ameritech has the right
to sell its shares acquired in this transaction to BCE upon a change
in control of BCE. During the first five years we own our shares,
the price would be the highest of the following: (a) our original
purchase price plus 15%, compounded annually, adjusted downward for
any returns of capital or cash dividends already received by
Ameritech; (b) fair market value plus 25%; or (c) the implied value
in the transaction that gave rise to the change in control at BCE.
After the fifth year, the price would be the higher of fair market
value or the implied value in the transaction that gave rise to the
change in control at BCE. Similarly, BCE may call our Bell Canada
shares at any time if there is a change in control of Ameritech
(specifically excluding the pending SBC Merger). BCE's price would
be fair market value. The shareholders agreement also provides for
rights of first refusal and rights of first offer.
We will account for this investment using the equity method of
accounting. We intend to fund our investment with available cash and
additional debt borrowings, either through existing lending
arrangements, new debt financing or a combination. We are purchasing
forward contracts to acquire Canadian dollars in order to manage our
foreign currency risk. As of May 13, 1999, we purchased
approximately 75% of our commitment with forward contracts.
Both Moody's Investor Services and Standard & Poor's have reaffirmed
their prior credit ratings of Ameritech, despite Moody's earlier
announced "credit watch with negative implications" following the
announcement of our pending transaction with BCE. S&P previously had
advised us that our credit rating may be downgraded in the event our
Merger with SBC is completed.
Note 4: Proposed Merger with SBC Communications Inc.
On May 11, 1998, Ameritech and SBC Communications Inc. (SBC) jointly
announced their signing of a definitive merger agreement (Merger
Agreement). The Merger Agreement provides that a wholly owned
subsidiary of SBC will be merged into Ameritech (the Merger) and
Ameritech will become a wholly owned subsidiary of SBC. The Merger
is intended to be accounted for as a pooling of interests and to be a
tax-free reorganization. In the Merger, each share of Ameritech
common stock (other than shares owned by Ameritech, SBC or their
respective subsidiaries) will be converted into and exchanged for
1.316 shares of SBC common stock.
Page 5
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AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 4: Proposed Merger
with SBC Communications Inc. (cont'd.)
The Merger has been approved by the Board of Directors and the
shareowners of each company, but remains subject to various
regulatory approvals, principally by the Federal Communications
Commission (FCC) and the Illinois Commerce Commission (ICC).
On March 23, 1999, the Department of Justice entered into a consent
decree with Ameritech and SBC that would provide a basis for
Department of Justice clearance of both the Merger and SBC's proposed
acquisition of Comcast Cellular Corporation. The consent decree
requires the parties to divest certain "overlapping" cellular
properties in 17 markets in Illinois, Indiana and Missouri,
including, as previously undertaken by Ameritech and SBC, those in
Chicago and St. Louis.
On April 5, 1999, Ameritech announced an agreement to sell 20
Midwestern cellular properties for $3.27 billion in cash to a venture
of GTE Corporation and Georgetown Partners, effectively meeting U.S.
Department of Justice conditions for approval of the SBC-Ameritech
Merger. The sale, which is contingent on the closing of the Merger,
eliminates the overlapping cellular properties that would result from
the Merger. The venture, led by GTE and including Georgetown
Partners, will acquire Ameritech's cellular properties in Chicago,
St. Louis and surrounding areas of Illinois, northwestern Indiana and
Missouri. These properties include a population of 11.4 million and
serve nearly 1.5 million cellular customers. Up to 1,700 of
Ameritech's cellular employees may transfer to GTE upon completion of
the sale.
After a required 60-day comment period on the proposed consent
decree, which ends on June 28, 1999, the Department of Justice is
expected to reply to any public comments and seek final approval and
entry of the decree by the U.S. District Court in Washington, D.C.
On April 26, 1999, the hearing examiners of the ICC issued their
revised proposed order approving the Merger subject to certain
conditions. The more significant proposed conditions are to return
to customers 25% of the actual net merger-related savings, which may
be increased to 50% if certain performance requirements are not met.
It is further proposed that SBC must not reduce certain employment
levels due to the Merger, and that capital investments and charitable
contributions in Illinois are continued generally at historical
levels. The proposed order now goes to the commissioners of the ICC
for deliberations and a vote. Under Illinois law, such vote must
occur on or before June 24, 1999.
On April 8, 1999, the Public Utilities Commission of Ohio (PUCO)
approved the Merger based on a settlement agreement between the PUCO
staff, Ameritech, SBC, the Ohio Consumers' Counsel and certain
consumer groups and new competitors of Ameritech in Ohio. The
settlement, among other things, guarantees Ameritech Ohio workforce
levels for two years, extends the Advantage Ohio price cap plan for
basic residential phone rates, provides for certain discounts for
resold local residential service and residential unbundled local
loops to foster facilities-based residential competition, sets
various competitive and service quality benchmarks and establishes
monetary penalties if those benchmarks are not met, and provides
financing for consumer education and community technology funds.
Page 6
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AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 4: Proposed Merger
with SBC Communications Inc. (cont'd.)
On May 5, 1999, the Indiana Utility Regulatory Commission (IURC)
issued an order asserting that the Merger is subject to IURC approval
under state law. Ameritech disagrees with the IURC's assertion of
authority to vote on the Merger.
More detailed information relating to the terms and conditions of the
Merger is contained in the Joint Proxy Statement/Prospectus of
Ameritech and SBC dated October 15, 1998.
Note 5: Earnings Per Share
We compute basic earnings per common share by dividing net income by
the weighted average number of common shares outstanding during the
periods. We calculate diluted earnings per share by including all
dilutive potential common shares such as stock options. No
adjustment to reported net income is required when computing diluted
earnings per share.
The following represents the average common shares outstanding and
dilutive potential common shares for the periods indicated:
Three Months Ended
March 31
---------------
(millions)
1999 1998
---- ----
Average common shares
outstanding (000s)........ 1,099,066 1,099,649
Dilutive potential common
shares (000s)............. 12,922 8,968
--------- ---------
Average shares with
dilution (000s)........... 1,111,988 1,108,617
========= =========
Note 6: Reclassifications
We have made reclassifications to certain 1998 balances to correspond
to the presentation as of March 31, 1999.
Note 7: Comprehensive Income
On January 1, 1998, we adopted Statement of Financial Accounting
Standards (FAS) 130, "Reporting Comprehensive Income." This
statement established standards for reporting and display of
comprehensive income and requires that all components of
comprehensive income be reported in financial statements having the
same prominence as other financial statements.
Page 7
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AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 7: Comprehensive Income (cont'd.)
Comprehensive income for the three months ended March 31, 1999 and
1998 was as follows:
Three Months Ended
March 31
---------------
(millions)
1999 1998
---- ----
Net income......................... $ 732 $ 492
Foreign currency translation
adjustment....................... (399) (114)
Unrealized gain on
available-for-sale
securities ...................... 8 --
Reclassification adjustment to
net income for realized gain
on sale of securities ........... (5) --
------ ------
Comprehensive income............... $ 336 $ 378
====== ======
Our foreign operations and investments in international ventures are
subject to certain risks related to fluctuation in foreign currency
exchange rates. Foreign exchange transaction gains and losses
incurred by wholly owned subsidiaries impact operating income, while
transaction gains and losses incurred by other international ventures
(primarily equity method investments) impact other income, net.
Translation adjustments result in a change in the investment balance
and a corresponding change in accumulated comprehensive income in the
consolidated balance sheet. The change is negative when the U.S.
dollar strengthens against the local currency.
FAS 130 requires disclosure of the tax effects related to the
components of comprehensive income. The deferred tax effect of the
unrealized gain on available-for-sale securities was a $3 million
charge for the three months ended March 31, 1999. The deferred tax
effect of the realized gain in the first quarter of 1999 was a $2
million charge. We do not recognize deferred income taxes on foreign
currency translation adjustments.
Note 8: Restructuring
In March 1998 we announced plans to significantly reduce future
operating expenses by the end of 2002. As part of this cost
containment program, we recorded a pretax restructuring charge of
$104 million ($64 million after-tax or $0.06 per share) in March 1998
to cover principally the costs of consolidating security monitoring
centers and closing 53 company-owned cellular retail stores. The
charge included employee-related (principally severance) costs of
approximately $54 million for the termination of the employment of
approximately 5,000 employees, as well as other costs of
approximately $50 million related to lease terminations and asset
write-downs. We have accounted for the employee costs of the
restructuring charge in accordance with our existing severance plans
and following FAS 112, "Employers' Accounting for Postemployment
Benefits." We have accounted for the other restructuring costs in
accordance with existing accounting literature for restructurings.
Page 8
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AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 8: Restructuring (cont'd.)
Subsequent to announcing this restructuring plan, we agreed to merge
with SBC. As a result, certain aspects of our restructuring plan
required modification due in part to our expectation that the U.S.
Department of Justice would require the parties to this merger to
divest overlapping cellular properties. As previously discussed, on
March 23, 1999, the Department of Justice entered into a consent
decree with Ameritech and SBC delineating the overlapping cellular
properties required to be sold for that agency to approve the merger.
On April 5, 1999, Ameritech entered into a definitive agreement to
sell these "overlapping" cellular properties. In view of this
agreement and other modifications to our 1998 restructuring plan, we
have reversed to income $44 million ($27 million after-tax) of the
original restructuring charge in the first quarter of 1999. This
reversal also reflects several restructuring efforts that were
accomplished more cost efficiently than originally projected. After
giving effect to the reversal, as of March 31, 1999, the company had
$32 million remaining from this restructuring charge, which we
anticipate using later in 1999.
Note 9: Unconsolidated Investments
For investments accounted for using the equity method of accounting,
we increase our recorded investments for our allocable share of
earnings (adhering to purchase accounting and U.S. GAAP), reduce the
investment for distributions (dividends) received and give effect to
any currency translation adjustments. We did not receive any
material dividends in the first quarter of 1999, but received
dividends of $40 million in the first quarter last year from TCNZ.
Annual dividends from our investments in Belgacom, Matav and Tele
Danmark are anticipated to be paid in the second quarter 1999.
The following table presents summarized financial information of
significant investments accounted for using the equity method of
accounting after taking into account all adjustments necessary to
conform to U.S. GAAP, but excluding Ameritech's purchase adjustments
including goodwill:
Three Months Ended March 31 (millions) Increase Percent
- --------------------------------------
1999 1998 (Decrease) Change
---- ---- -------- ------
Revenues $3,077 $3,262 $(184) (5.7)
Operating income 715 818 (103) (12.5)
Net income 408 461 (53) (11.4)
Weighted average
owned by Ameritech* 30.0% 26.3% -- --
* Represents Ameritech's weighted average share of revenues.
Results for the three months ended March 31, 1999 include the results
of our 41.6% share in Tele Danmark for the entire quarter and exclude
the results of TCNZ, an investment we sold in April 1998. The first
quarter 1998 results include the results for TCNZ for the entire
quarter and include only two and a half months of our then 34%
interest in Tele Danmark. We purchased our 34% interest in Tele
Danmark in mid-January 1998. As part of the investment agreement,
Tele Danmark repurchased and retired all remaining shares owned by
the Danish government, effectively increasing our equity ownership to
41.6% of Tele Danmark in April 1998.
Page 9
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AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 10: Accounting for Software Costs
We implemented a new accounting requirement, Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," effective January 1, 1999. This SOP,
issued by the American Institute of Certified Public Accountants
(AICPA) in March 1998, provides authoritative guidance for the
capitalization of certain costs related to computer software
developed or obtained for our internal applications.
With the implementation of SOP 98-1 in the first quarter of 1999, we
decreased operating expenses by $21 million ($13 million after-tax or
$0.01 per share). We currently anticipate an annual operating
expense reduction of $200 million for all of 1999. We have
historically expensed most computer software costs as incurred and
will be required to continue to expense all Year 2000 modification
costs as incurred. We are amortizing most capitalized software over
five years.
Note 11: Subsequent Event
We have entered into an agreement to sell $750 million of 6.25%
unsecured Eurodollar bonds, due May 18, 2009, 10 years from the
scheduled closing date. We intend to use these proceeds to partially
fund our pending investment in Bell Canada (see Note 3). The
financing is being made through our financing subsidiary, Ameritech
Capital Funding Corporation.
Note 12: Segment Information
We have three reportable segments as defined by FAS 131, "Disclosures
About Segments of an Enterprise and Related Information." They are
communications, information and entertainment, and international.
The communications segment provides telecommunications services such
as landline telephone service, cellular telephone and paging
services, and call management and data services to business and
residential customers primarily in the states of Illinois, Indiana,
Michigan, Ohio and Wisconsin. Communications services also include
network access and interconnection services for interexchange
carriers and competitive providers of local telephone service. The
information and entertainment segment provides printed and online
directories for business and residential users, security and alarm
monitoring services for homes and businesses, and cable TV services.
The international segment manages those of our investments in foreign
ventures which we account for using the equity method of accounting.
In addition to these reportable segments, we derive revenues from
other nonreportable segments, including lease financing services.
Our reportable segments are strategic business units or aggregations
of strategic business units that offer different products or
services. They are managed separately based on differences in
customer base, strategic objectives or regulatory environment. With
the exception of the international segment, management evaluates
segment performance based upon direct margin, which represents total
revenues less direct expenses attributable to that segment. Results
are normalized for one-time items. Management does not allocate
corporate overhead, centralized information technology (IT) costs,
interest income, interest expense, other nonoperating items or income
taxes when measuring segment results. Corporate overhead and IT
costs
Page 10
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AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 12: Segment Information (cont'd.)
are shown as a reconciling item in the reconciliation of segment
profit to consolidated operating income below. The international
segment is evaluated based on income from equity-method investees
before one-time items. Following is a summary of information about
segment profits and assets (dollars in millions):
COMMUNICATIONS
Three Months Ended March 31 Increase Percent
- ---------------------------
1999 1998 (Decrease) Change
---- ---- -------- ------
Revenues from
external customers $ 3,920 $ 3,613 $ 307 8.5
Intersegment revenues 33 30 3 10.0
Segment profit 1,626 1,446 180 12.4
- ---------------------------------------------------------------------
INFORMATION AND ENTERTAINMENT
Three Months Ended March 31 Increase Percent
- ---------------------------
1999 1998 (Decrease) Change
---- ---- -------- ------
Revenues from
external customers $ 552 $ 494 $ 58 11.7
Intersegment revenues 4 1 3 n/a
Segment profit 131 160 (29) (18.1)
- ---------------------------------------------------------------------
INTERNATIONAL
Three Months Ended March 31 Increase Percent
- ---------------------------
1999 1998 (Decrease) Change
---- ---- -------- ------
Income from
equity-method investees $ 111 $ 101 $ 10 9.9
- ---------------------------------------------------------------------
OTHER BUSINESS ACTIVITIES
Three Months Ended March 31 Increase Percent
- ---------------------------
1999 1998 (Decrease) Change
---- ---- -------- ------
Revenues from
external customers $ 42 $ 38 $ 4 10.5
Revenues from
operating segments 21 17 4 23.5
Profit 25 21 4 19.0
- ---------------------------------------------------------------------
Page 11
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AMERITECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Note 12: Segment Information (cont'd.)
A reconciliation of reportable segment results to pretax income
follows:
Three Months Ended March 31 Increase Percent
- ---------------------------
1999 1998 (Decrease) Change
---- ---- -------- ------
Communications and information
and entertainment margins $1,757 $1,606 $ 151 9.4
Margin from other
business activities 25 21 4 19.0
Corporate and eliminations (644) (618) (26) 4.2
Operating income before
one-time items 1,138 1,009 129 12.8
One-time items
in operating income 44 (104) 148 (142.3)
------ ------
Operating income 1,182 905 277 30.6
Interest expense 134 175 (41) (23.4)
Income from international
equity-method investees 111 101 10 9.9
Other income (expense) -- 4 (4) (100.0)
Other one-time items -- (54) 54 (100.0)
------ ------
Pretax income $1,159 $ 781 $ 378 48.4
- ---------------------------------------------------------------------
Assets by reportable segment as of March 31, 1999 and December 31,
1998 follows:
Increase Percent
1999 1998 (Decrease) Change
---- ---- -------- ------
Communications $19,752 $19,899 $(147) (0.7)
Information and
entertainment 2,853 2,868 (15) (0.5)
International 6,459 7,438 (979) (13.2)
- ---------------------------------------------------------------------
Page 12
<PAGE>
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
-----------------------------
AMERITECH CORPORATION AND SUBSIDIARIES
THREE MONTH PERIOD ENDED MARCH 31, 1999 vs.
THREE MONTH PERIOD ENDED MARCH 31, 1998
RESULTS OF OPERATIONS
- ---------------------
Results of operations for the three months ended March 31, 1999 were
impacted by a one-time, pretax credit of $44 million ($27 million
after-tax or $0.03 per share) related to a reduction to our 1998
accrual for restructuring determined to be no longer needed. Results
of operations for the three months ended March 31, 1998 were impacted
by a one-time, pretax charge of $104 million ($64 million after-tax
or $0.06 per share) for restructuring related to a cost containment
program, as well as a one-time pretax charge of $54 million ($34
million after-tax, or $0.03 per share) for a currency-related fair
value adjustment in conjunction with our January 1998 investment in
Tele Danmark. Results for the three months ended March 31, 1999,
compared with the prior year period, were as follows (dollars in
millions, except per share amounts):
Three Months Ended March 31 Increase Percent
- ---------------------------
1999 1998 (Decrease) Change
---- ---- -------- ------
Income before one-time items $ 705 $ 590 $ 115 19.5
EPS before one-time items
Basic 0.64 0.54 0.10 18.5
Diluted 0.63 0.53 0.10 18.9
Net income 732 492 240 48.8
Earnings per share
Basic 0.67 0.45 0.22 48.9
Diluted 0.66 0.44 0.22 50.0
- ---------------------------------------------------------------------
Segments
- --------
The following discussion makes reference to a new segment reporting
concept adopted in 1998. As discussed more fully in Note 12 to the
condensed consolidated financial statements on pages 10 through 12,
based on how we manage our business, we have three reportable
segments. Our largest segment is communications, which provides
landline telephone service, cellular telephone and paging services,
as well as call management and data services to business and
residential customers. Our second segment is information and
entertainment, which provides printed and online directories for
business and residential users, security and alarm monitoring
services for homes and businesses, and cable TV services. Our third
reportable segment is international, which manages our minority
equity investments in foreign ventures. The international segment
has no revenues, as all accounting activity is recorded using the one-
line equity method of accounting. We evaluate the performance of our
two revenue-producing segments on a direct margin basis, which
represents total revenues of that segment less direct expenses
attributed to it (excluding corporate allocations, information
technology costs, interest income or expense, income taxes and
certain other costs).
Our communications segment is characterized by stable revenue growth
and solid earnings. Revenue growth in the information and
entertainment segment is somewhat higher, in part due to
acquisitions, but earnings growth is more modest due to the start-up
nature of our cable TV operation and normal integration costs being
incurred in our security services business. The international
segment continues to contribute to earnings growth.
Page 13
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Segments (cont'd.)
- ------------------
Total direct margin for reportable segments was $1,757 million in the
first quarter of 1999 and $1,606 in the first quarter of 1998.
Direct margin for the communications segment represented
approximately 92% in the first three months of 1999 compared with 90%
for the same period of 1998, and margin from the information and
entertainment segment represented the remaining 8% and 10% for those
same periods.
Direct margin in the communications segment increased in the first
quarter of 1999 due to increased profitability in the cellular
business, increased revenues from higher margin call management
services and steady growth in our landline communications business.
Margins in the information and entertainment segment have been
impacted by acquisitions we have made in our security services
business. While these acquisitions have added to revenues, normal
integration costs have impacted our margins. Further, the start-up
nature of our cable TV business, which did not have any revenues
until mid-1996 and now has more than 200,000 customers, has also
affected margins in this segment.
Segment assets in our international segment decreased $979 million or
13.2% from $7,438 million as of December 31, 1998 to $6,459 million
as of March 31, 1999. This decrease reflects the receipt of $750
million in installment sales proceeds resulting from the sale of
substantially all our TCNZ shares, which was a receivable as of
December 31, 1998, and translation adjustments resulting from a
strong U.S. dollar when compared with local foreign currency (see
Note 7).
- ---------------------------------------------------------------------
Revenues
- --------
We derive most of our revenues from the provisioning of landline
telephone service and supporting products, which represents
approximately 78% of total revenues from operating segments. Other
significant sources of revenue in the first quarter of 1999 include
cellular and paging, which contributed approximately 10% of total
revenues, and directory advertising, which represented approximately
8% of total revenues.
Revenues increased by 7.8% to $4.46 billion in the first quarter of
1999, compared with $4.13 billion in the first quarter of 1998.
Revenue growth resulted from strong gains in local service and data
services revenues. Rate reductions, resulting primarily from lower
access charges for landline communications services, partially offset
the increase. Revenue growth in the first quarter of 1999 was 8.5%
in our communications segment and 11.7% in our information and
entertainment segment, due to strong growth in our security, Internet
access and directory businesses.
- ---------------------------------------------------------------------
Local service
- -------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,849 $1,682 $ 167 9.9
Local service revenues include basic monthly service fees and usage
charges, fees for call management services, installation and
connection charges and most public phone revenues. These revenues
are included in the results of our communications
Page 14
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Local service (cont'd.)
- -----------------------
segment. Local service revenues increased for the three months ended
March 31, 1999 due largely to a 14% increase in revenues from call
management services, resulting from strong growth in both the number
of activated features subscribed to on a monthly basis and services
provided on a pay-per-use basis. Demand for data transport and
Internet access services also increased. Total access lines in
service grew by 2.2% over the comparable prior year period, including
the impact of 89,000 fewer access lines sold to Century Telephone
Enterprises, Inc., in December 1998.
There were 21,146,000 access lines in service as of March 31, 1999
compared with 20,699,000 as of March 31, 1998 (restated to
standardize counting of voice-grade equivalent lines).
- ---------------------------------------------------------------------
Network access
- --------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Interstate
- ----------
Three Months Ended $ 675 $ 614 $ 61 9.9
Intrastate
- ----------
Three Months Ended $ 138 $ 140 $ (2) (1.4)
Network access revenues include fees charged to interexchange
carriers that use our local landline communications network to
connect customers to their long-distance networks. In addition, end
users pay flat rate access fees to connect to the long-distance
networks. These revenues are generated from both interstate and
intrastate services and are included in the results of our
communications segment.
Interstate network access revenues increased for the three months
ended March 31, 1999 due primarily to a 37% increase in high-capacity
channels. Demand for dedicated circuits grew as Internet service
providers and other high-capacity users increased their utilization
of our network. Interstate minutes of use increased by 5.8% for the
three months ended March 31, 1999, compared with the same period last
year, due primarily to growth in the number of calls handled for
interexchange carriers. These increases were partially offset by
rate reductions effective July 1, 1998 under the FCC annual access
filing. These rate reductions were partially offset by increased end
user fees resulting from the number portability surcharge effective
February 1, 1999.
Intrastate network access revenues decreased for the three months
ended March 31, 1999 due primarily to intrastate access rate
reductions that became effective in July 1998. We experienced volume
increases, largely resulting from growth in network usage by
alternative providers of intraLATA toll service in Indiana and Ohio,
which implemented Dial 1 + capability in February 1999, as well as in
Michigan where Dial 1 + capability was expanded. These volume
increases, combined with an increase in revenues from special access
services, partially offset the decreases. Intrastate minutes of use
increased by 9.2% for the three months ended March 31, 1999, compared
with the same period last year.
Page 15
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Long-distance service
- ---------------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 369 $ 341 $ 28 8.2
Most of our long-distance service revenues result from customer calls
to locations outside of their local calling areas but within the same
local access and transport area (LATA). We have also started to
provide long-distance service outside our five-state region. These
revenues are included in the results of our communications segment.
Long-distance service revenues increased for the three months ended
March 31, 1999, reflecting out-of-region volume increases, partially
offset by in-region volume decreases. Out-of-region volume increases
were attributable to our long-distance unit, Ameritech
Communications, Inc., which is certified to provide long-distance
service outside our region, and Ameritech Global Gateway Services, a
subsidiary offering international switching and transport
capabilities. In-region volume decreases resulted largely from
implementation of Dial 1 + capability in Indiana and Ohio in February
1999, together with existing Dial 1 + capability in Illinois,
Michigan and Wisconsin, which increased competition in our intraLATA
toll markets.
- ---------------------------------------------------------------------
Cellular, directory and other
- -----------------------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,424 $1,356 $ 68 5.0
Cellular, directory and other revenues include revenues from cellular
communications services, paging services, telephone directory
publishing, lease financing and billing and collection services,
telephone equipment sales and installation, security services and
cable TV programming. These revenues result from both our
communications and information and entertainment segments, as well as
from other business activities such as lease financing, not included
in results of reportable segments.
Cellular, directory and other revenues increased for the three months
ended March 31, 1999, due to the following factors:
- - Increased directory revenues, resulting primarily from a revised
directory agreement for Illinois and parts of Indiana, as well as
higher revenues from our Internet yellow pages service;
- - Higher wireless revenues resulting from growth in the number of
cellular subscribers compared with the same period last year. We
had 3.7 million total cellular subscribers, compared with 3.3
million in the comparable prior year period; and,
- - Other miscellaneous revenue increases resulting primarily from
increased revenues from cable TV, capital services, security
services and voice mail.
These revenue increases were partially offset by a $28 million
retroactive revenue adjustment resulting from an FCC ruling which
lowered the pay phone per call compensation we receive from other
communications companies.
Page 16
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Operating expenses
- ------------------
Total operating expenses increased by $45 million, or 1.4%, to $3.27
billion in the first quarter of 1999. The increase occurred
primarily in our communications segment, reflecting increased
depreciation and amortization, cost of sales and access charge
expenses. These increases were partially offset by a restructuring
credit of $44 million in the first quarter of 1999, as compared with
a restructuring charge of $104 million in the first quarter of 1998.
- ---------------------------------------------------------------------
Employee-related expenses
- -------------------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,032 $1,042 $ (10) (1.0)
Employee-related expenses decreased for the three months ended March
31, 1999, due primarily to lower employee levels across most
subsidiaries, except our data subsidiaries, where employee levels
have increased. This decrease was partially offset by wage rate
increases reflecting new union contracts effective in mid-1998.
We employed 69,624 people as of March 31, 1999, compared with 72,944
as of March 31, 1998.
- ---------------------------------------------------------------------
Depreciation and
amortization
- ------------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 710 $ 663 $ 47 7.1
Depreciation and amortization expense increased for the three months
ended March 31, 1999 due primarily to higher property, plant and
equipment balances. Higher depreciation rates on certain asset
categories contributed to the increase, as we used shorter
depreciable lives for newer technologies. Amortization of goodwill
and other intangibles also contributed to the increase.
- ---------------------------------------------------------------------
Other operating expenses
- ------------------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $1,413 $1,261 $ 152 12.1
Other operating expenses increased for the three months ended March
31, 1999. This was due primarily to higher access charge expenses
resulting from state commission rulings (which we are contesting)
requiring local exchange carriers to pay reciprocal compensation for
calls by their customers to the Internet via Internet service
providers (ISPs) who, in turn, are customers of competing local
exchange carriers. Access charges also increased at Ameritech
Communications, Inc., our out-of-region long-distance provider, and
at Ameritech Global Gateway Services, our international wholesale
long-distance provider.
Page 17
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other operating expenses (cont'd.)
- ----------------------------------
Cost of sales increased for the three months ended March 31, 1999 due
primarily to growth in sales at our cellular, data and security
services operations. Cost of sales also increased as a result of our
acquisition of Clover Technologies, a data integration company, in
the fourth quarter of 1998. We also had increased costs of sales
related to sales of customer premises equipment. Material costs at
our landline communications subsidiaries also contributed to the
increase. A decrease in contract services expenses, due to our cost
containment program, and advertising, due to refocused sales and
marketing efforts, partially offset these increases.
Effective January 1, 1999, we adopted Statement of Position (SOP) 98-
1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which required the capitalization of $21
million in software costs that previously would have been expensed.
(see Note 10).
- ---------------------------------------------------------------------
Restructuring
- -------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ (44) $ 104 $(148) (142.3)
As discussed more fully in Note 8, we recorded a restructuring charge
of $104 million in 1998 and reversed a portion of it ($44 million) in
1999. This restructuring was the principal reason for the reduction
in employees previously noted.
- ---------------------------------------------------------------------
Taxes other than income taxes
- -----------------------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 162 $ 158 $ 4 2.5
Taxes other than income taxes consist of property taxes, gross
receipts taxes and other taxes not directly related to earnings.
Taxes other than income taxes increased for the three months ended
March 31, 1999 primarily as a result of increases in gross receipts
taxes, principally in Illinois and Wisconsin. These tax increases
were largely offset by property tax decreases resulting from tax
reform, primarily in Ohio, and lower property tax assessments at our
cellular unit.
- ---------------------------------------------------------------------
Other income and expenses
- -------------------------
Interest expense
- -----------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 134 $ 175 $ (41) (23.4)
Interest expense decreased for the three months ended March 31, 1999,
due primarily to our redemption of $1.3 billion in long-term debt in
late 1998.
Page 18
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other income, net
- -----------------
Change
March 31 (Income) Percent
------------
(dollars in millions) 1999 1998 Expense Change
------------------- ---- ---- ------- ------
Three Months Ended $ 111 $ 51 $ 60 117.6
Other income, net includes earnings related to Ameritech's
investments (accounted for by the equity method of accounting),
interest income and other nonoperating items.
Other income, net increased in the three months ended March 31, 1999
as compared with the comparable prior year period, as a result of a
one-time charge reflected in the first quarter of 1998. This one-
time pretax charge of $54 million ($34 million after-tax) was a
currency-related fair-value adjustment related to our investment in
Tele Danmark. Excluding this one-time charge, other income, net
increased between the first quarter of 1999 and that of 1998 due to
increased equity earnings. The first quarter of 1998 included the
equity earnings of TCNZ, prior to the public sale of substantially
all of our shares in April 1998. Equity earnings have increased in
the first quarter of 1999 reflecting strong financial results and
earnings growth from our European investments.
- ---------------------------------------------------------------------
Income taxes
- ------------
March 31 Increase Percent
------------
(dollars in millions) 1999 1998 (Decrease) Change
------------------- ---- ---- -------- ------
Three Months Ended $ 427 $ 289 $ 138 47.8
Income taxes increased for the three months ended March 31, 1999,
primarily as a result of the change in pretax earnings, discussed
above.
- ---------------------------------------------------------------------
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Cash flows from operating activities
- ------------------------------------
Cash flows from operations were $1,610 million for the three months
ended March 31, 1999 compared with $1,120 million for the prior year
period, an increase of $490 million. The increase was due primarily
to solid growth in our business, combined with improved levels of
working capital.
- ---------------------------------------------------------------------
Cash flows from investing activities
- ------------------------------------
Cash flows received from investing activities were $31 million for
the three months ended March 31, 1999, compared with cash flows used
by investing activities of $3,297 million for the three months ended
March 31, 1998. Capital expenditures increased to $718 million for
the three months ended March 31, 1999, as compared with $658 million
for the comparable prior year period, reflecting continued investment
in the core communications segment. In January 1998, we invested
$3.1 billion in Tele Danmark, the national communications provider in
Denmark. Also in the first quarter of 1998, we received proceeds of
approximately $473 million from the repayment by General Electric of
the note related to our GEIS investment. In the first quarter of
1999, we received proceeds of $750 million, representing installment
payments from the sale of substantially all our TCNZ shares.
Page 19
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Cash flows from financing and other activities
- ----------------------------------------------
Cash flows used by financing activities were $1,114 million for the
three months ended March 31, 1999, compared with cash received from
financing activities of $2,086 million for the three months ended
March 31, 1998. Financing activity in the first three months of 1998
included issuance of $2.5 billion of long-term debt primarily to
finance our acquisition of Tele Danmark. Other financing activities
for the first three months of 1998 include repayment of short-term
borrowings of $135 million and payment of our quarterly dividend of
$329 million. We also reissued treasury shares for $167 million, and
repurchased shares of our stock for $108 million.
Financing activities for the first three months of 1999 included
repayment of short-term borrowings of $721 million, reflecting the
use of cash flow generated by operations and proceeds from the sale
of TCNZ shares. Our quarterly dividend payments increased to $349
million in the first three months of 1999, reflecting the 5.8%
increase in the rate of our quarterly dividend on relatively constant
shares outstanding. We also repurchased 2.4 million shares for $152
million, while receiving proceeds of $109 million from reissuance of
treasury shares.
- ---------------------------------------------------------------------
Company stock repurchase program
- --------------------------------
Our Board of Directors has periodically authorized management to
repurchase shares of Ameritech stock in the open market. Management
has the authority to repurchase approximately $1.345 billion of
additional Ameritech stock as of March 31, 1999; however, we have
agreed with SBC as part of the Merger Agreement to repurchase shares
only in connection with share issuance requirements under certain
benefit plans.
- ---------------------------------------------------------------------
Debt ratio
- ----------
Our debt ratio was 40.3% as of March 31, 1999, compared with 42.9% as
of December 31, 1998. The decrease resulted primarily from strong
cash flow in the first quarter of 1999.
- ---------------------------------------------------------------------
Ratio of earnings to fixed charges
- ----------------------------------
The ratio of earnings to fixed charges for the three months ended
March 31 was 7.07 in 1999 and 4.42 in 1998.
Page 20
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Other Matters
- -------------
Regulatory Environment
- ----------------------
The Telecommunications Act of 1996
The Telecommunications Act of 1996 (the 1996 Act) was intended to
stimulate competition in the market for communications services and
to remove barriers that prevented the telecommunications, cable TV
and broadcast industries from entering each others' businesses. The
1996 Act addresses various aspects of competition within, and
regulation of, the communications industry. In general, it includes
provisions designed to open local exchange markets to competition and
afford the RHCs and their affiliates the competitive opportunity to
provide interLATA (long-distance) services. Under the 1996 Act, the
RHCs' ability to provide in-region long-distance services is
dependent upon their satisfaction of, among other conditions, a 14-
point "competitive checklist" of specific requirements for opening
the local market to competition.
FCC Oversight
The FCC develops and implements policies concerning interstate
communications by radio, television, wire, satellite and cable. In
addition to developing regulations to carry out the intent of the
1996 Act, the FCC prescribes for certain communications companies a
uniform system of accounts and rules for apportioning costs between
regulated and nonregulated services. The FCC, in consultation with
representatives of state regulatory commissions, is also responsible
for 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 FCC
jurisdiction and those applicable to intrastate services under the
respective state regulatory commission's jurisdiction.
Local Interconnection and Unbundled Access
In January 1999, the U.S. Supreme Court issued its opinion on various
cross-appeals of the 1997 decision of the U.S. Court of Appeals for
the Eighth Circuit (the Eighth Circuit Court) relating to the FCC's
1996 order on the local interconnection provisions of the 1996 Act
(the Interconnection Order).
The Supreme Court reversed portions of the Eighth Circuit Court's
earlier decision that had vacated several provisions of the
Interconnection Order. The Supreme Court decided that the FCC has
rulemaking authority to implement the local competition provisions of
the 1996 Act, including pricing methodology. This overturned the
Eighth Circuit Court's ruling that the states were vested with
exclusive jurisdiction over the pricing for local interconnection,
unbundled network elements and local service resale provided by
incumbent local exchange carriers (ILECs) to competitive local
exchange carriers (CLECs). The Supreme Court also reinstated the
FCC's "pick and choose" rules allowing CLECs to select among
individual provisions from other existing interconnection agreements.
The Supreme Court upheld the FCC's determination that the definition
of a network element could include items beyond physical facilities
and equipment, such as operational support systems, operator
services, directory assistance and vertical
Page 21
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Regulatory Environment (cont'd.)
- --------------------------------
services such as call forwarding and caller notification. It further
ruled that the FCC could bar ILECs from separating already combined
unbundled network elements. However, the Supreme Court overturned
the FCC's rule identifying and requiring ILECs to offer specific
network elements, finding that the FCC had not adequately considered,
as required by the 1996 Act, whether those specific unbundled network
elements were "necessary" or whether the failure to provide access to
them might "impair" the ability of CLECs to provide competitive
services. We believe that this ruling supports our view that the
objectives of the 1996 Act, including development and deployment of
advanced technologies desired by customers, will best be served by
encouraging infrastructure investments, rather than through unlimited
blanket access to all ILEC network elements. On April 16, 1999, in
response to the Supreme Court's decision, the FCC issued a Second
Further Notice of Rulemaking regarding which network elements should
be made available to competitors.
Since the Eighth Circuit Court's 1997 opinion, local interconnection
matters and unbundled network element pricing have been resolved
primarily through negotiated interconnection agreements or state
commission arbitration proceedings. The substantive validity of the
FCC's pricing rules, including its total element long-run incremental
cost (TELRIC) pricing methodology, was not before the Supreme Court,
and will be addressed by the Eighth Circuit Court on remand. Pending
judicial resolution of the appropriate pricing methodologies and a
determination by the FCC of which unbundled network elements must be
made available, our landline communications subsidiaries expect to
continue to negotiate and enter into interconnection agreements and
pursue, through appropriate state or federal proceedings, timely
recovery of their costs.
In February 1999, we sought review by the U.S. Supreme Court of the
separate 1998 Eighth Circuit Court decision regarding shared
transport. In that earlier decision, the Eighth Circuit Court had
upheld the FCC's determination that "shared transport," which would
include access to all of an ILEC's transport facilities, is a network
element that should be made available to competitors on an unbundled
basis. In April 1999, the Government filed its opposition to our
petition.
The outcome of future regulatory and judicial developments in this
area is subject to continuing uncertainty. We believe that the
pricing rules and methodologies generally adopted by our in-region
state commissions with respect to our existing interconnection
agreements should not differ materially from those that may be
applied under proposed FCC pricing methodologies. We further expect
that future judicial or regulatory decisions will define reasonable
limiting standards, consistent with the purposes of the 1996 Act, as
to which of our existing network elements must be made available to
competitors. We can give no assurance, however, that future
regulatory and judicial determinations may not have a material
adverse effect on future revenues and margins in our communications
segment.
Reciprocal Compensation
A number of CLECs are engaged in regulatory and judicial proceedings
with various ILECs, including our landline communications
subsidiaries, with respect to the payment of reciprocal compensation
to the CLECs for calls originating on the ILECs' networks for dial-up
connections to access the Internet via Internet service providers
(ISPs) served by the CLECs' networks. The CLECs have asserted that
Page 22
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Regulatory Environment (cont'd.)
- --------------------------------
Reciprocal Compensation (cont'd.)
reciprocal compensation for such calls is provided for by
interconnection agreements between the CLECs and the ILECs. Together
with other ILECs, we have maintained that we are not required to make
such reciprocal compensation payments pursuant to those agreements
because such traffic is interstate access service, not local.
On February 26, 1999, the FCC ruled that a substantial portion of
Internet traffic is interstate and therefore under federal law it is
not subject to reciprocal compensation obligations. As a result, the
FCC issued a notice of proposed rulemaking to develop a federal inter-
carrier compensation rule for Internet traffic. During the interim,
the FCC concluded that state commissions may determine in
arbitrations whether reciprocal compensation should be paid for this
traffic. In finding that dial-up calls to ISPs are largely
interstate, the FCC concluded that dial-up traffic to the Internet
does not terminate at the ISP's local server, but continues to the
ultimate Internet Web site, which is often in another state. This
echoed an earlier FCC opinion and order in response to a federal
tariff application for a high-speed dedicated Internet connection.
The FCC noted, however, that carriers remain bound by their existing
interconnection agreements, and thus may be subject to reciprocal
compensation obligations to the extent provided by such
interconnection agreements. A number of CLECs have filed petitions
seeking federal appellate court review of the FCC's ruling on the
interstate nature of dial-up calls to ISPs. Various ILECs have
challenged the FCC's order with respect to the ability of state
commissions to impose reciprocal compensation on Internet traffic.
We believe that this FCC ruling confirms our view that Internet
traffic is appropriately classified as interstate and that reciprocal
compensation is not payable in connection with dial-up access to the
Internet via ISPs. We therefore intend to continue to pursue
judicial appeals of the contrary state commission determinations that
preceded this FCC ruling. Cases that involve appeals by our landline
communications subsidiaries of adverse decisions are currently
pending before the U.S. Court of Appeals for the Seventh Circuit and
U.S. District Courts in Michigan and Wisconsin. In Ohio, the PUCO
recently ruled on rehearing that our Ohio landline communications
subsidiary is required to make reciprocal compensation payments. We
intend to appeal that order to the U.S. District Court. We have
filed a petition for rehearing of a similar adverse determination by
the Indiana Utility Regulatory Commission (IURC).
We believe that our view, that reciprocal compensation is not payable
in these circumstances, ultimately should be upheld. However, there
can be no assurance as to that outcome or that our landline
communications subsidiaries will not be required to begin or continue
to make such reciprocal compensation payments under existing
interconnection agreements. Pending the outcome of our current
judicial appeals, our Illinois, Michigan and Wisconsin landline
communications subsidiaries are making reciprocal compensation
payments, under protest, pursuant to existing interconnection
agreements with CLECs providing services to ISPs. Our Ohio landline
communications subsidiary has been ordered to begin to make
reciprocal compensation payments on or about June 19, 1999. In
addition to such payments, we are making periodic accruals of amounts
which may become payable in Indiana in the event our view is not
ultimately upheld.
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<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Regulatory Environment (cont'd.)
- --------------------------------
Universal Service, Access Charge Reform and Price Caps
In May 1997, the FCC issued three closely related orders that
established rules to implement the universal service provisions of
the 1996 Act (the Universal Service Order) and to revise both
interstate access charge pricing (the Access Reform Order) and the
price cap plan for ILECs (the Price Cap Order).
The FCC's Universal Service Order provides that all interstate
telecommunications providers will be required to contribute to
universal service funding, based on retail telecommunications
revenues. The Universal Service Order establishes a multi-billion
dollar interstate universal service fund to help link eligible
schools and libraries and low-income consumers and rural health care
providers to the global telecommunications network (including the
Internet). The FCC directed the phase-in of these funds through
1999.
In its Access Reform Order, the FCC restructured interstate access
pricing and adopted changes to its tariff structure that require
ILECs to use rates that reflect the type of costs incurred. In
addition to the changes introduced in connection with the Access
Reform Order, we have implemented state changes that mirror the
federal access reform structure. Various interexchange carriers
opposing such changes have filed with the Illinois, Michigan and
Wisconsin state commissions seeking lower access charges. The state
commissions in Illinois (the ICC) and Michigan (the Michigan Public
Service Commission or MPSC), in response to such filings, have
ordered us to split the intrastate primary interexchange carrier
charge (PICC) into two separate per-line components, with one-half of
the total charge payable by the intraLATA toll carrier and the other
half by the interLATA toll carrier. A similar split of the
intrastate PICC was ordered by the IURC in its ongoing investigation
of universal service and access reform. Accordingly, the revenues we
receive from this charge will decrease to the extent that we are the
intraLATA toll carrier. In addition, the MPSC required that these
changes be made retroactive to January 1, 1998, when the initial
tariffs for this charge were filed. We have appealed the MPSC's
order.
Ameritech's interstate access revenues are subject to price cap
regulation, which limits prices rather than profits. The Price Cap
Order effectively reduced access charges by increasing the price cap
productivity offset factor to 6.5% from the previous 5.3% and by
applying this factor uniformly to all access providers. The order
also required ILECs subject to price cap regulation to set their 1997
price cap index assuming that the 6.5% factor had been in effect
since July 1996. Certain parties have sought judicial review of the
Price Cap Order, and a decision by the U.S. Court of Appeals for the
District of Columbia Circuit (the D.C. Circuit Court) with respect to
these matters currently is pending.
We cannot predict the precise impact of these regulatory changes on
our business, especially as their nature and timing may evolve in
connection with judicial and FCC consideration of other provisions of
the 1996 Act.
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AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Regulatory Environment (cont'd.)
- --------------------------------
Number portability
On May 5, 1998, the FCC entered an order to allow telecommunications
carriers, such as our landline communications subsidiaries, to
recover over a five-year period their carrier-specific costs of
implementing long-term number portability. Long-term number
portability allows customers to retain their local telephone numbers
in the event they change local exchange carriers. We are completing
implementation of long-term number portability in compliance with an
FCC-mandated schedule. Our number portability surcharge became
effective February 1, 1999, subject to a designation order, which
could result in a reduced surcharge and a partial refund.
Acquisitions of Security Services Assets
On September 25, 1998, the FCC issued a Memorandum Opinion and Order
on Remand and Order to Show Cause relating to an asset acquisition by
our security services subsidiary, SecurityLink from Ameritech, Inc.
(SecurityLink) in 1996. The FCC found that we had gained "financial
control" over the entity from which SecurityLink acquired the
security services assets, in violation of the 1996 Act, and required
that, within 30 days after issuance of the Order, we show cause why
the FCC should not require SecurityLink to divest the assets acquired
in this transaction. Previously, the FCC had ruled that the same
transaction was permissible under the 1996 Act, and the D.C. Circuit
Court had vacated and remanded such decision to the FCC. On October
26, 1998, we filed our response with the FCC, contending that
divestiture would not be an appropriate remedy.
Previously, on July 8, 1998, the FCC issued a Memorandum Opinion and
Order to Show Cause, finding that three separate asset acquisitions
by SecurityLink in 1997 (made after the first FCC ruling on security
services described above and before the D.C. Circuit Court decision)
violated the same provision of the 1996 Act, and ordering
SecurityLink to show cause why the FCC should not require divestiture
of the assets acquired in such transactions. We filed our response
with the FCC on August 7, 1998, contending that divestiture would not
be an appropriate remedy. The FCC's decision on these Orders to Show
Cause is pending.
Pay Phone Per Call Compensation
In February 1999, the FCC ruled on remand from the D.C. Circuit Court
that the rate interexchange carriers are to pay us for their
customers' "dial-around" access or toll-free calls originating on our
pay phones be decreased from $0.284 per call to $0.24 per call
commencing on the April 1999 effective date of the order. The FCC
also directed that a reduced rate of $0.238 per call be applied
retroactively for the period from October 7, 1997 through the
effective date of the FCC order. Based on the February 1999 FCC
ruling, which is under appeal, our pay phone revenues were reduced by
approximately $28 million in the first quarter of 1999.
Audit Report on Continuing Property Records
On March 12, 1999, the FCC released the result of a staff-level audit
of the property records of certain central office equipment
maintained by the RHCs, including our landline communications
subsidiaries. Based solely on a physical verification audit, this
report alleged an overstatement, and consequently recommended a write-
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AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Regulatory Environment (cont'd.)
- --------------------------------
Audit Report on Continuing Property Records (cont'd.)
off, of approximately $567 million of our central office equipment.
In releasing this audit report, the FCC stated that it did not pass
judgment on its accuracy or the reasonableness of the audit's
conclusions or recommendations.
We have issued a response to the audit that, among other things,
disputes the validity of its auditing and statistical sampling
methods. We also dispute the practical consequences of the FCC's
property audit while under a price cap regulatory plan. Further, in
the event the FCC required us to write central office equipment off
our books, we believe there would be no accounting impact on net
plant because we follow the group method of depreciation. Under this
method, plant retirements are charged against the accumulated
depreciation balance.
The FCC is currently seeking public comment on issues raised by the
audit results.
State Regulatory Commissions
ILLINOIS
In 1994, the ICC approved Advantage Illinois, providing a framework
for regulating Ameritech Illinois by capping prices for
noncompetitive services. At the same time, the ICC approved a cap on
the monthly line charge for residential customers and residential
calling rates within local calling areas at March 1992 levels for
five years ending October 1999. In return for these price
protections, the ICC removed a ceiling on earnings to reflect the
increasingly competitive communications industry and to create
incentives to invest in new technology, develop new services and
improve efficiency. Lower prices are reflected in several product
and service areas, but the largest portion of the reductions comes
from lower usage rates in certain parts of the Chicago area. These
rate reductions primarily impact local service revenues. This is the
fifth consecutive year of price reductions, now totaling $747
million, under the Advantage Illinois price cap plan.
The ICC approved an Interim Order in December 1998 in Phase I of a
proceeding investigating access charges and universal service. Phase
I dealt with tariff compliance issues. Phase II hearings, which
dealt with policy issues for non-rural local exchange carriers,
concluded on March 26, 1999.
Ameritech Illinois has offered dialing parity in local toll markets
since 1996 by giving customers the ability to choose an alternate
carrier for intraLATA toll calls by dialing 1 before the phone number
(Dial 1 +).
INDIANA
In 1994, the IURC approved the Opportunity Indiana plan. Under the
plan, we instituted market-based pricing and flexibility for
competitive services including Centrex, dedicated communications
services, 800 service, WATS, operator services and business intraLATA
toll service. In 1997, Ameritech Indiana filed a revised alternative
regulation plan and requested an interim extension of Opportunity
Indiana, which was due to expire at the end of 1997.
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AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Regulatory Environment (cont'd.)
- --------------------------------
State Regulatory Commissions (cont'd.)
INDIANA (cont'd.)
In December 1997, the IURC issued a final order on interim relief in
the Opportunity Indiana proceeding. The order addressed the manner
in which Ameritech Indiana will be regulated until such time as a
longer term replacement regulatory structure is finalized. The
ruling extended most of the alternative regulation plan that had been
in place since 1994. However, Ameritech Indiana was ordered to
reduce rates for basic residential and business service by 4.6% and
to continue infrastructure spending on fiber optics for interested
schools, hospitals and government centers, and on contributions to a
fund to provide distance learning equipment and courses in schools
all over the state. Ameritech Indiana has initiated an appeal of
this order to the Indiana Court of Appeals. Until such time as the
Court of Appeals issues a ruling, Ameritech Indiana will operate
under the provisions of the IURC's order, with the exception of the
requirement to reduce basic local service rates. Because Indiana law
provides that Ameritech Indiana can continue charging current rates
until the order is entered on the appeal, basic local rates will be
maintained at current levels. In January 1999, we filed Opportunity
Indiana II with the IURC. Plan approval is expected late in 1999.
Ameritech Indiana has offered Dial 1 + capability in local toll
markets since February 8, 1999.
MICHIGAN
The Michigan Telecommunications Act (MTA), which is in effect until
January 2001, regulates certain telecommunications services provided
by Ameritech Michigan. In 1996, the MPSC issued two orders requiring
Ameritech Michigan to provide statewide dialing parity on intraLATA
toll calls or to discount intraLATA toll access rates by 55% where
dialing parity was not implemented. In January 1997, the Michigan
Court of Appeals issued a stay of the MPSC orders pending a
determination of Ameritech Michigan's appeal on the merits. In
August, the Michigan Supreme Court declined AT&T's and MCI's motion
to vacate the Court of Appeals' stay. In May 1998, the Court of
Appeals issued a decision which reversed the 1996 MPSC orders. The
Court concluded that, under the plain language of the MTA, Ameritech
was required to provide intraLATA toll dialing parity to no more than
10% of its customers on January 1, 1996, until Ameritech obtained
interLATA relief. The Court of Appeals also reversed the imposition
of a 55% discount on access charges. The Michigan Supreme Court
granted applications for leave to appeal filed by AT&T, MCI WorldCom,
the MPSC and the Michigan Attorney General. The Michigan Supreme
Court heard oral argument on March 11, 1999, and a decision on the
merits of the appeal is expected later this year.
While its application for leave to appeal was pending, MCI filed
another MPSC complaint asking the MPSC to reinstate the 55% discount
on access charges and to issue a new mandate for dialing parity. The
MPSC granted MCI's complaint and required immediate implementation
for the remaining 30% of our access lines in its January 19, 1999
order. Ameritech filed a motion for stay of the MPSC's order on
January 22, 1999. The Michigan Court of Appeals granted that stay on
February 9, 1999.
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<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Regulatory Environment (cont'd.)
- --------------------------------
State Regulatory Commissions (cont'd.)
MICHIGAN (cont'd.)
MCI and AT&T have applied to the Michigan Supreme Court to vacate the
stay and to bypass the Michigan Court of Appeals. On February 16,
1999, Ameritech Michigan filed a response to the Motion. The Supreme
Court has not ruled on the motion.
On April 9, 1999, Ameritech Michigan filed an amended implementation
plan with respect to the remaining 30% of access lines for which
dialing parity had not been implemented. On April 12, 1999, the MPSC
approved the plan. Intrastate toll dialing parity was implemented
statewide for Michigan Bell access lines on May 12, 1999.
OHIO
In January 1995, Ameritech Ohio implemented the Advantage Ohio price
regulation plan following approval by the PUCO. 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. Since the inception of the plan, Ameritech Ohio has
reduced rates in excess of $110 million. At the same time, Ameritech
Ohio has invested $1.5 billion over four years improving the
telecommunications network. Ameritech Ohio has 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. As part of the Merger
settlement approval by the PUCO, rates for basic residential service
will not increase. The current price cap plan will be extended until
January 2002.
Pursuant to an order of the PUCO, Ameritech Ohio implemented Dial 1 +
capability in all of its exchanges effective February 8, 1999.
WISCONSIN
Under telecommunications legislation passed in 1994, the Public
Service Commission of Wisconsin (PSCW) regulates Ameritech
Wisconsin's prices rather than earnings. Ameritech Wisconsin has
reduced basic local service rates twice since the switch to price
regulation reducing basic rates by 10%, or $14 million on an
annualized basis, beginning in 1994, and again by $2.5 million in
October 1998. By year-end 1998, Ameritech Wisconsin had exceeded its
infrastructure commitment, which was to spend at least $700 million
by the year 2000 on new equipment and technology, deploying fiber
optics to hundreds of secondary schools, technical colleges,
universities, hospitals and libraries in the state.
Intrastate access rates have also declined along with interstate
access rates. Since September 1996, all of Ameritech Wisconsin's
service area has had Dial 1 + capability.
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AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Competitive environment
- -----------------------
With the passage of the 1996 Act and other regulatory initiatives,
our local service markets have been more extensively opened to new
competitors, many of which are believed to have initially targeted
high-volume business customers in densely populated areas.
Interconnection agreements with competitive service providers require
our landline communications subsidiaries to provide interconnection
or access to unbundled network elements at cost-based rates and
telecommunications services at discounted, wholesale rates. These
agreements and applicable tariffs may result in some downward
pressure on local service revenues, as a portion of our revenue
shifts from local service at retail prices to network access and
wholesale services at lower rates. We cannot predict with certainty
the impact that these and other developments ultimately may have on
our future business, results of operations or financial condition.
Year 2000 Readiness Disclosure
- ------------------------------
The Year 2000 issue exists because many computer systems and
applications, including those embedded in equipment and facilities,
use two-digit rather than four-digit date fields to designate an
applicable year. As a result, the systems and applications may not
properly recognize the year 2000 or process data that includes it,
potentially causing data miscalculations or inaccuracies or
operational malfunctions or failures.
We have established a centrally managed, companywide initiative to
identify, evaluate and address Year 2000 issues. Begun in May 1996,
our Year 2000 effort covers our network and supporting infrastructure
for our provision of local switched and data telecommunications
services, cellular and paging services, cable TV service and security
services. Also within the scope of this initiative are our
operational and financial information technology (IT) systems and
applications, end-user computing resources, and building systems,
such as security, elevator, and heating and cooling systems. In
addition, the project includes a review of the Year 2000 compliance
efforts of our key suppliers and other principal business partners
and, as appropriate, the development of joint business support and
continuity plans for Year 2000 issues. While this initiative is
broad in scope, it is structured to identify and prioritize our
efforts for mission-critical systems, network elements and products,
and key business partners.
Work is progressing in the following phases: inventory, assessment,
remediation, testing, deployment and monitoring. Although the pace
of the work varies among our business units and the phases often are
conducted in parallel, as of March 31, 1999, the inventory and
assessment phases have been substantially completed, the remediation
and testing phases are nearing completion, and the deployment phase
is well under way.
As of March 31, 1999, nearly all of our network elements requiring
corrective activity, including substantially all of our core network
switches and other network components that we regard as mission-
critical, have been made Year 2000 ready and deployed back into
production. As of March 31, 1999, more than 98% of our total
identified IT applications, including substantially all that we have
determined to be mission-critical, have been remediated, and a
majority of all corrected applications have completed certification
testing and been deployed back into production. We have also made
substantial progress in Year 2000 readiness preparations for our
remaining infrastructure components (buildings and physical
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<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Year 2000 Readiness Disclosure (cont'd.)
- ----------------------------------------
facilities, internal voice telephone systems, and desktop PCs), and
these efforts are scheduled to be completed in mid-1999. Final
integration testing for certain critical systems and processes is
scheduled to be completed by the end of the third quarter of 1999.
With the majority of our various systems remediated and a substantial
portion of those already tested and deployed back into production, we
believe we are well positioned to complete the remediation and
deployment of our remaining systems, any additional testing that may
be necessary, and the development of our business contingency and
continuity plans in advance of the Year 2000 transition. However,
our ability to meet that goal remains dependent upon a variety of
factors, including the timely provision of necessary upgrades and
modifications by our suppliers and contractors. In some instances,
upgrades or modifications are not expected to be available until mid-
or late-1999.
We have sought Year 2000 readiness information from various third-
party suppliers on whom we depend for certain products or essential
services (such as electric utilities, interexchange carriers, etc.),
but we have no method of ensuring that these suppliers will convert
their critical systems and processes in a timely manner. We are
developing business contingency and continuity plans (see discussion
below), and are continuing to work with our key suppliers as part of
a supplier compliance program to seek to minimize such risks.
There also may be Year 2000 issues in customer premises equipment
(CPE), including CPE that we have sold or maintained and CPE that is
used in connection with 911 services. Although the customer
generally is responsible for CPE, customers could attribute a Year
2000 disruption in their CPE to a malfunction of our network service.
We have taken steps to encourage many of our customers potentially at
risk to undertake the necessary assessment and remedial activities to
avoid a Year 2000 problem with their equipment and systems.
We currently estimate that we will incur expenses of approximately
$250 million through 2001 in connection with our anticipated Year
2000 efforts, of which approximately $128 million had been incurred
through March 31, 1999. The timing of our expenses may vary and is
not necessarily indicative of readiness efforts or progress to date.
We anticipate that a portion of our Year 2000 expenses will not be
incremental costs, but rather will represent the redeployment of
existing IT resources. We also expect to incur certain capital
improvement costs (totaling approximately $14 million) to support
this project. Such capital costs ($12 million as of March 31, 1999)
are being incurred sooner than originally planned but, for the most
part, would have been required in the normal course of business.
We have significant minority investments in large telecommunications
providers in Belgium, Denmark and Hungary. Each of those companies
has plans in place and activities under way to address Year 2000
issues, and we are offering advice in these efforts as practical.
Based on information reported to us, the estimated proportionate
share of these companies' Year 2000 conversion costs that will flow
through to our earnings is not expected to be material. As is true
for many companies outside the United States, we believe that the
Year 2000 readiness efforts of these carriers has not progressed as
far as our own, and we expect that the Year 2000 readiness conversion
and testing activities at some of these companies will continue into
late 1999.
Page 30
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Year 2000 Readiness Disclosure (cont'd.)
- ----------------------------------------
As with other communications services providers, there exists a worst
case scenario possibility that a failure to correct a Year 2000
program in one or more of our mission-critical network elements or IT
applications could cause a significant disruption of or interruption
in certain of our normal business functions. Based on our
assessments and work to date, we believe that any such material
disruption to our operations due to failure of an internal system is
unlikely. However, due to the uncertainty inherent in Year 2000
issues generally and those that are beyond our control in particular
(e.g., the final Year 2000 readiness of our suppliers, customers,
utilities, interconnecting carriers, and joint venture and foreign
investment interests), there can be no assurance that one or more
such failures would not have a material impact on our results of
operations, liquidity or financial condition.
As part of our Year 2000 initiative, we are evaluating scenarios that
may occur as a result of the century change and are in the process of
developing contingency and business continuity plans tailored for
Year 2000-related occurrences. Contingency planning to maintain and
restore service in the event of natural disasters, power failures and
software-related problems has been part of our standard operation for
many years, and we are working to leverage this experience in the
development of contingency and continuity plans tailored to meet Year
2000-related challenges. This work is being performed through
centrally managed, companywide teams organized by critical business
functions (including ordering, provisioning, maintenance, billing and
power). Our contingency and business continuity plans are expected
to assess the potential for business disruption in various scenarios,
and to provide for key operational back-up, recovery and restoration
alternatives.
The above information is based on our current best estimates, which
were derived using numerous assumptions of future events, including
the availability and future costs of certain technological and other
resources, third-party modification actions and other factors. Given
the complexity of these issues and possible unidentified risks,
actual results may vary materially from those anticipated and
discussed above. Specific factors that might cause such differences
include, among others, the availability and cost of personnel trained
in this area, the ability to locate and correct all affected computer
code, the timing and success of Year 2000 remedial efforts of our
customers and suppliers, and similar uncertainties.
Euro Conversion
- ---------------
On January 1, 1999, 11 of the 15 member countries of the European
Union formed the Economic and Monetary Union (EMU) and established
fixed conversion rates between their sovereign currencies and the
future European currency unit, the euro. The participating countries
agreed to adopt the euro as their common legal currency on that date.
The sovereign "legacy" currencies of these countries will continue in
circulation within the respective countries until at least January 1,
2002, but not later than July 1, 2002. At the time of final
conversion, new euro-denominated bills and coins will be used
exclusively.
Our international business segment consists of several significant
minority investments in Europe, including Belgacom in Belgium, Tele
Danmark in Denmark and Matav in Hungary. Of these, only Belgium is
among the countries that will convert
Page 31
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Euro Conversion (cont'd.)
- -------------------------
to the euro; Tele Danmark, however, has operating affiliates in
several participating countries. Management at these companies must
address several issues related to the conversion, including increased
price transparency, the tax treatment of conversion gain or loss,
changes to business processes and modification of information systems
to process euro-denominated transactions during the transition
period.
Management at our European affiliates has informed us that efforts to
convert computer systems and business processes are well under way
and are scheduled to be complete by the time the conversion takes
place. Based on information reported to us, the estimated
proportionate share of euro-related costs that will flow through to
our earnings is not expected to be material.
Effects of foreign currency fluctuations
- ----------------------------------------
Our foreign operations and investments in international ventures are
subject to certain risks related to fluctuation in foreign currency
exchange rates. For the quarter ended March 31, 1999, due to
fluctuations in the U.S. dollar, we recognized some foreign exchange
transaction gains and losses and currency translation adjustments
related to these investments. Foreign exchange transaction gains and
losses incurred by wholly owned subsidiaries affected operating
income. Transaction gains and losses incurred by other international
ventures (primarily equity-method investments) affected other income,
net. Translation adjustments resulted in a change in the investment
balance and a corresponding change in accumulated other comprehensive
income on the consolidated balance sheet. While future fluctuations
in currency exchange rates could impact results of operations or
financial position, we expect foreign investments to continue to
provide strong financial results and earnings growth.
Disclosures about market risk
- -----------------------------
We are exposed to market risks primarily from changes in interest
rates and foreign currency exchange rates. To manage our exposure to
these fluctuations, we occasionally enter into various hedging
transactions that have been authorized according to documented
policies and procedures. We do not use derivatives for trading
purposes, or to generate income or to engage in speculative activity,
and we never use leveraged derivatives.
The amounts shown below represent the estimated potential loss that
we could incur from adverse changes in either interest rates or
foreign exchange rates using the value-at-risk estimation model. The
value-at-risk model uses historical foreign exchange rates and
interest rates to estimate the volatility and correlation of these
rates in future periods. It estimates a loss in fair market value
using the variance/co-variance statistical modeling technique and
includes substantially all market risk exposures, specifically
excluding equity-method investments. The fair value losses shown in
the table below are for a one-day time period with a confidence level
of 95%. They have no impact on our results of operations or
financial condition.
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AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Disclosures about market risk (cont'd.)
- ---------------------------------------
March 31, 1999 Dec. 31, 1998
-------------- -------------
Risk Category
Interest rates $38 $ 39
Foreign exchange -- --
The 95% confidence interval signifies our degree of confidence that
actual losses would not exceed the estimated losses shown above. The
amounts shown here disregard the possibility that interest rates and
foreign currency exchange rates could move in our favor. The value-
at-risk model assumes that all movements in these rates will be
adverse. Actual experience has shown that gains and losses tend to
offset each other over time, and it is highly unlikely that we could
experience losses such as these over an extended period of time.
These amounts should not be considered projections of future losses,
since actual results may differ significantly depending upon activity
in the global financial markets.
The fair market value at risk remained relatively constant as of
March 31, 1999 as compared with the valuation at December 31, 1998.
As previously noted, the value-at-risk model does not consider our
significant foreign equity-method investments. The level of
commercial paper borrowing decreased from December 31, 1998 levels,
reflecting the receipt of the TCNZ share sale installment at March
31, 1999. Volatility in interest rates has also moderated somewhat
for the shortest term commercial paper maturities.
FAS 133
In June 1998, the Financial Accounting Standards Board (FASB) issued
FAS 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement provides standardized accounting and
disclosure guidance for derivative instruments and the derivative
portion of certain similar contracts. It amends FAS 52, "Foreign
Currency Translation," and FAS 107, "Disclosures about Fair Values of
Financial Instruments," and it supersedes a number of other financial
accounting standards.
The statement requires entities that use derivative instruments to
measure these instruments at fair value and record them as assets or
liabilities on the balance sheet. It also requires entities to
reflect the gains or losses associated with changes in the fair value
of these derivatives, either in earnings or as a separate component
of comprehensive income, depending on the nature of the underlying
contract or transaction.
FAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, and is to be adopted as of the
beginning of the fiscal year. At the time of adoption, all
derivative instruments are to be measured at fair value and recorded
on the balance sheet. Any differences between fair value and
carrying amount at that time will be recorded as a cumulative effect
of a change in accounting principle, in either net income or other
comprehensive income, as appropriate. Adoption of this statement may
or may not have a material impact on our results of operations or
financial position, depending on the nature and magnitude of
derivative activity in which we engage and the changes in market
conditions with respect to foreign currencies, interest rates or
other underlying values. We have not yet quantified the impacts of
the initial adoption of FAS 133 on our results of operations or
financial condition, nor have we determined when we will implement
the new standard.
Page 33
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont'd.)
Private Securities Litigation Reform Act Safe Harbor Statement
- --------------------------------------------------------------
Some of the information presented in, or in connection with, this
report may constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 that involve
potential risks and uncertainties. Our future results could differ
materially from those discussed here. Some of the factors that could
cause or contribute to such differences include:
- - Changes in economic and market conditions that impact the demand
for our products and services, or for products and services by
companies in which we have substantial investments;
- - The effects of vigorous competition in the local exchange,
intraLATA toll, cellular, data, cable TV, directory advertising or
security services markets;
- - Federal regulatory developments that impact the
telecommunications, security services and cable TV industries, and
pending regulatory issues in state jurisdictions, as well as the
outcome of any related judicial reviews;
- - The timing of and costs associated with entry into the interLATA
long-distance market;
- - The timing of, and potential regulatory or other considerations
relating to, the consummation of our proposed merger with SBC;
- - The potential impact of issues related to Year 2000 compliance;
- - Risks inherent in international operations, including possible
economic, political or monetary instability, as well as the
potential impact of Year 2000 compliance and euro currency
conversion issues; and,
- - The impact of new technologies and the potential effect of delays
in development or deployment of such technologies.
The words "expect," "believe," "anticipate," "estimate," "project,"
and "intend" and similar expressions are intended to identify forward-
looking statements. These forward-looking statements are found at
various places throughout the Management's Discussion and Analysis
and elsewhere in this report.
You should not place undue reliance on these forward-looking
statements, which are applicable only as of the date hereof. We have
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.
Page 34
<PAGE>
Item 3 - Quantitative and Qualitative
Disclosures about Market Risk
-----------------------------
AMERITECH CORPORATION AND SUBSIDIARIES
Information relating to market risk is included in Item 2,
Management's Discussion and Analysis of Financial Condition and
Results of Operations, in the Other Matters section under the caption
"Disclosures About Market Risk."
Page 35
<PAGE>
AMERITECH CORPORATION AND SUBSIDIARIES
Part II - Other Information
- ---------------------------
Item 4 Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
(a) Our 1999 Annual Meeting of Shareowners was held on
April 21, 1999.
The number of common shares present at the Annual Meeting in
person or by proxy and voting and withholding authority to vote
in the election of Directors was 915,854,556. This represented
more than a majority of the common shares of Ameritech
outstanding on February 22, 1999, the record date for the
Annual Meeting, and therefore constituted a quorum.
(b) The following nominees, having received the FOR votes set
opposite their respective names, constituting a plurality of
the votes cast at the Annual Meeting for the election of
Directors, were elected Directors of Ameritech to one-year
terms expiring in 2000.
DIRECTORS FOR WITHHELD
--------- --- --------
Donald C. Clark 901,222,897 14,631,659
Melvin R. Goodes 902,345,866 13,508,690
Hanna Holborn Gray 900,958,302 14,896,254
James A. Henderson 902,120,675 13,733,881
Sheldon B. Lubar 901,233,768 14,620,788
Lynn M. Martin 901,282,269 14,572,287
Arthur C. Martinez 901,721,915 14,132,641
John B. McCoy 902,252,956 13,601,600
Richard C. Notebaert 899,613,659 16,240,897
John D. Ong 901,653,140 14,201,416
A. Barry Rand 902,262,687 13,591,869
Laura D'Andrea Tyson 900,706,416 15,148,140
James A. Unruh 902,432,145 13,422,411
Each Director nominee received the favorable vote of more than
98% of the shares voted.
(c) Shareowners ratified the appointment of Arthur Andersen LLP, as
independent public accountants, to audit the consolidated
financial statements for the current year ending December 31,
1999. The vote was 902,451,511 shares FOR and 6,944,524 shares
AGAINST such ratification, with 6,458,521 shares abstaining.
(d) A proposal by a shareowner to provide for cumulative voting in
the election of directors was not approved, as it received a
favorable vote of only 27.33%, less than the majority required
for its adoption. A total of 222,711,925 shares were voted FOR
the proposal, 542,138,498 shares were voted AGAINST it,
50,236,449 shares abstained (with the same effect as votes
against the proposal) and broker nonvotes were recorded as to
100,767,684 shares.
Page 36
<PAGE>
Item 6 Exhibits and Reports on Form 8-K.
- ------ ---------------------------------
(a) Exhibits
--------
10a Ameritech Plan for Non-Employee Directors' Travel
Accident Insurance (corrected).
10b Form of Ameritech Split-Dollar Agreement pursuant to the
Ameritech Key Management Life Insurance Plan.
10c Form of Ameritech Collateral Assignment Agreement
pursuant to the Ameritech Key Management Life Insurance
Plan.
10d Form of Ameritech Split-Dollar Agreement pursuant to the
Ameritech Estate Preservation Plan.
10e Form of Ameritech Collateral Assignment Agreement
pursuant to the Ameritech Estate Preservation Plan.
10f Form of option agreements under the Ameritech
Corporation Long-Term Stock Incentive Plan.
10g Form of option agreements with dividend equivalents
under the Ameritech Long Term Incentive Plan or the
Ameritech Corporation Long-Term Stock Incentive Plan.
10h Amendment, dated April 30, 1999, to Stock Option
Agreements covering outstanding options approved for
issuance on or after April 8, 1998 and granted before
April 1, 1999.
10i Amendment, dated April 30, 1999, to 1996, 1997 and 1998
Stock Option Agreements with Dividend Equivalents.
12 Computation of ratio of earnings to fixed charges for
the three months ended March 31, 1999 and 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
We filed a Current Report on Form 8-K dated January 21, 1999
under Item 5, Other Events and Item 7, Financial Statements
and Exhibits, to report our earnings for the fourth quarter
and year ended December 31, 1998.
We filed a Current Report on Form 8-K dated February 18, 1999
under Item 5, Other Events and Item 7, Financial Statements
and Exhibits, to file certain financial information
concerning Ameritech and its subsidiaries.
We filed a Current Report on Form 8-K dated March 25, 1999
under Item 5, Other Events and Item 7, Financial Statements
and Exhibits, to announce a strategic partnership with BCE
Inc., in which Ameritech will invest approximately Cdn $5.1
billion (US $3.4 billion) for a 20% minority stake in Bell
Canada.
Page 37
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, an
authorized company official has signed this report on our behalf.
Ameritech Corporation
Date: May 13, 1999 By: /s/ Barbara A. Klein
------------------------------
Barbara A. Klein
Vice President and Comptroller
(Principal Accounting Officer)
Page 38
<PAGE>
GLOSSARY
Access charge -
- --------------
a fee that local phone companies charge long-distance carriers for
connecting long-distance calls to customers on the local network.
Access line -
- -------------
a line for voice, data or video reaching from a local phone company
to a home or business.
ADSL (Asymmetric Digital Subscriber Line) -
- -------------------------------------------
a technology that uses the existing copper phone wiring serving
virtually all homes and businesses to provide customers network
access to the Internet and other popular multimedia and data services
at speeds 50 times faster than an ordinary phone line.
Advanced data services -
- ------------------------
services that use advanced technology to allow faster network access
to the Internet and other multimedia and data services.
Bell operating companies -
- -------------------------
the former Bell telephone subsidiaries of AT&T, including Ameritech's
five landline communications subsidiaries in Illinois, Indiana,
Michigan, Ohio and Wisconsin.
Broadband -
- -----------
a transmission facility that has a capacity or "bandwidth" greater
than a voice-grade phone line. Broadband facilities - fiber optics
and coaxial cable, for example- may carry numerous voice, data and
video channels at the same time.
Call management services -
- --------------------------
services that add value and convenience for phone customers, such as
call waiting, call forwarding and Caller ID. These services are sold
to customers individually or in packages.
Cellular -
- ----------
a communications system that transmits voice, data or video over
radio frequencies.
Customer premises equipment (CPE) -
- -----------------------------------
communications equipment owned by customers, including telephones,
faxes and switches.
Data communications -
- ---------------------
digital transmissions through wired or wireless networks, usually
linking computers.
Dial 1 + (Dialing parity) -
- --------------------------
a feature that allows local phone customers to designate a carrier
other than the local service provider for toll calls within their
calling area by simply dialing 1 plus the telephone number.
Digital -
- ---------
an alternative to traditional analog communications, digital systems
transport information in the 1s and 0s of computer code for improved
clarity and quality.
Federal Communications Commission (FCC) -
- -----------------------------------------
an independent government agency whose mission is to encourage
competition in all communications markets and to protect the public
interest. The FCC develops and implements policy concerning
interstate communications by radio, television, wire, satellite, and
cable.
Financial Accounting Standards Board (FASB) -
- --------------------------------------------
the independent body responsible for setting accounting and financial
reporting standards to be followed by U.S. business enterprises.
High-capacity lines -
- ---------------------
lines sold to customers that have large-volume data communications
needs such as long-distance carriers, Internet service providers and
large companies.
Page 39
GLOSSARY (cont'd.)
<PAGE>
Interconnection -
- -----------------
allowing a competitive local service provider to use the local phone
company's network, or elements of the network, to provide local phone
service to its customers.
Interexchange carriers (IXCs) -
- -------------------------------
those companies primarily involved in providing long-distance voice
and data transmission services - such as AT&T, MCI WorldCom and
Sprint.
Internet -
- ----------
the global web of networks that connects computers around the world
providing rapid access to information from multiple sources.
Internet service providers (ISPs) -
- -----------------------------------
those companies providing access to the Internet and other computer-
based information networks.
Intrastate revenues -
- ---------------------
the portion of revenues regulated by state rather than federal
authorities.
ISDN (Integrated Services Digital Network) -
- --------------------------------------------
a service that carries voice, data and video at the same time and
offers several times the capacity of a conventional phone line.
Landline -
- ----------
referring to conventional wired phone service.
Local access -
- --------------
the local completion of long-distance calls.
Local access and transport area (LATA) -
- ----------------------------------------
the boundary within which a local company may provide phone service.
A LATA usually is centered around a city or other identifiable
community of interest.
Local exchange carrier (LEC) -
- ------------------------------
those companies primarily involved in providing local phone service
and access to the local phone network, including Ameritech's landline
communications subsidiaries in Illinois, Indiana, Michigan, Ohio and
Wisconsin.
Long-distance -
- ---------------
voice, data and video communications to locations beyond local
service areas.
Managed services -
- ------------------
services that give business customers one point of contact for all
communications and computing needs. For example, desktop managed
services provide business customers one place to call for anything
involving personal computers, phones, videoconferencing, local area
networks, PBXs and more.
Personal communications services (PCS) -
- ----------------------------------------
wireless services, such as cellular phone service and two-way paging,
that use digital technology to provide enhanced call security, longer
battery life and other convenience features.
Price caps -
- ------------
a form of regulation that sets maximum limits on the prices that
local exchange carriers can charge for access services instead of
limits on rate of return or profits.
Privatization -
- ---------------
a government sale of part or all of a national company to private
firms and investors.
Regional holding companies (RHCs) -
- -----------------------------------
the seven regional holding companies formed in connection with the
court-approved divestiture, effective January 1, 1984, of certain
assets of AT&T Corp. With the 1997 mergers of Pacific Telesis Group
into SBC Communications Inc. and NYNEX Corporation into Bell Atlantic
Corporation, five regional holding companies, including Ameritech,
remain.
Page 40
GLOSSARY (cont'd.)
<PAGE>
Securities and Exchange Commission (SEC) -
- ------------------------------------------
the federal agency that regulates the issuance and trading of public
debt and equity securities in the United States and monitors
compliance with these regulations.
Security services -
- -------------------
services that help secure people and property at home and at work
such as burglar and fire alarm systems, closed circuit cameras and
electronic card access.
Switched minutes of use -
- -------------------------
the measure of time used to bill long-distance companies for access
to the local phone network.
Total return -
- --------------
stock price appreciation plus reinvested dividends.
Unbundled network elements -
- --------------------------
separate components of a regulated service for which separate rates
are charged.
Universal service -
- -------------------
a concept designed to ensure access to the telecommunications network
in rural and low-income areas at affordable prices. Funding
typically comes from urban telecommunications operators.
Voice-grade equivalent -
- ------------------------
a channel or other portion of a high-capacity access line that can be
used to transmit voice or data traffic.
Voice mail -
- ------------
a service that automatically answers calls and distributes messages.
Wireless -
- ----------
voice, data and video communications that use radio frequencies
rather than wires for transmission. Includes cellular, paging and
personal communications services.
Page 41
Exhibit 10a
AMERITECH CORPORATION
NON-EMPLOYEE DIRECTORS' TRAVEL ACCIDENT INSURANCE
Limit of Coverage: $1,000,000 ($10,500,000 aggregate per occurrence)
Premium: $53,000 (Three year)
Term: Three years
Renewal Date: June 9, 1999
Policyholder: Ameritech Corporation
Provided by: Hartford Life Insurance Company
Policy No.: ETB-107130
Coverage is of the broadest, all-risk Business Travel
Insurance type - 24 hours a day while on a business trip.
Coverage starts when the Directors leave their home or place
of employment and continues until their return. It covers
almost all forms of air travel plus travel on railroads,
ships, buses, subways, taxis, private and rented cars. It
is not restricted to conveyance accidents but includes a
wide variety of accidents that may occur - even accidents
resulting from personal or recreational activities engaged
in during a business trip.
The policy provides for payment of up to $1,000,000 per
Director for accidental death and dismemberment. An
aggregate limit of $10,500,000 applies per any one accident.
Coverage is provided while the Director is on assignment, or
at the direction of Ameritech, for the purpose of furthering
the business of Ameritech Corporation. Coverage is not
provided for travel to and from work, bona fide leaves of
absence and vacations. Also, coverage is not provided while
an aircraft is engaged in extra-hazardous activity or when a
Director operates, is learning to operate, or is serving as
a crewmember of a conveyance at the time of accident.
Directors may designate a beneficiary, or benefits may be
assigned in accordance with the Payment of Claims provision.
Otherwise, insurance under this policy is not assignable.
Premium is charged as a corporate expense.
Exhibit 10b
<PAGE>1
[Key Management Life Insurance Plan]
[Owner is the Executive]
KMLIP SD-1.DOC
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT is made and entered into as of the __ day of
_____ ,1999, by and between AMERITECH, a Delaware corporation,
with principal offices and place of business in the State of
Illinois (hereinafter referred to as the "Corporation", and
___________, an individual (hereinafter referred to as the
"Executive"),
WITNESSETH THAT:
WHEREAS, the Executive is employed by the Corporation (or
one of its subsidiaries or affiliates, and employment by any such
subsidiary or affiliate shall be considered the same as
employment by the Corporation for purposes of this Agreement) and
is eligible under the Corporation's "Key Management Life
Insurance Plan" (hereinafter referred to as the "Plan") to
purchase life insurance coverage pursuant to a collateral
assignment, split-dollar arrangement (hereinafter referred to as
the "Split-Dollar Arrangement") with the Corporation; and
WHEREAS, the Executive is acquiring life insurance coverage
by purchasing a policy of life insurance (hereinafter referred to
as the "Policy"), insuring the Executive's own life (the
Executive is also sometimes hereinafter referred to as the
"Insured"), which policy is described in Exhibit A attached
hereto and by this reference made a part hereof, and which policy
is issued by Metropolitan Life Insurance Company (hereinafter
referred to as the "Insurer"); and
WHEREAS, pursuant to the Plan, the Corporation is obligated
to pay a portion of the premiums on the Policy as an employment
benefit for the Executive, on the terms and conditions
hereinafter set forth; and
<PAGE>2
WHEREAS, pursuant to the Plan, the Executive is obligated to
pay a portion of the premiums on the Policy, on the terms and
conditions hereinafter set forth; and
WHEREAS, the Executive will be the sole and absolute owner
of the Policy and, as such, will possess all ownership rights and
incidents of ownership in and to the Policy (except as otherwise
specifically provided herein); and
WHEREAS, pursuant to the Plan, the Corporation is entitled
to have the Policy collaterally assigned in its favor by the
Executive, in order to secure the payment of the amount due it
hereunder as a result of its payments toward the premiums on the
Policy; and
WHEREAS, the parties intend that by such collateral
assignment the Corporation shall receive only the right to such
payment, with the Executive retaining all other ownership rights
and incidents of ownership in and to the Policy, as specified
herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual promises contained herein, the parties hereto agree as
follows:
1. Purchase of Policy. The Executive shall purchase the
Policy described in Exhibit A from the Insurer. The parties
hereto have taken all necessary action to cause the Insurer to
issue the Policy, and shall take any further action which may be
necessary to cause the Policy to conform to the provisions of
this Agreement. The parties hereto agree that the Policy shall
be subject to the terms and conditions of this Agreement and of
the collateral assignment filed with the Insurer relating to the
Policy.
2. Ownership of Policy
a. The Executive shall be the sole and absolute owner of
the Policy, and may exercise all ownership rights and incidents
of ownership granted to the owner thereof by the terms of the
Policy, except as otherwise specifically provided herein.
b. It is the intention of the parties to this Agreement
and the collateral assignment executed by the Executive in favor
of the Corporation in connection herewith that the Executive
shall retain all rights which the Policy grants to the owner
thereof and that the sole right of the Corporation shall be to be
paid the amount due it hereunder as a result of its
<PAGE>3
payments toward the premiums on the Policy. Specifically, but
without limitation, except as otherwise specifically provided
herein, the Corporation shall neither have nor exercise any right
as collateral assignee of the Policy which could in any way
defeat or impair the right of the Executive to utilize the cash
surrender value of the Policy or of the Executive's beneficiary
to receive that portion of the death benefit provided under the
Policy to which the Executive's beneficiary is entitled pursuant
to the terms of this Agreement. All provisions of this Agreement
and of such collateral assignment shall be construed so as to
carry out such intention.
3. Policy Dividends. Subject to the provisions of
paragraph 6, while the Split-Dollar Arrangement remains in
effect, the Executive may make any elections and exercise any and
all other rights relating to Policy Dividends, as hereinafter
defined, granted to the owner of the Policy. For purposes of
this Agreement, the term "Policy Dividends" shall include
"dividends" earned by a participating policy and "excess
interest" earned by a non-participating policy and any similar
type of policy distribution.
4. Payment of Premiums. While the Split-Dollar
Arrangement remains in effect:
a. Except as otherwise provided herein, the premium to be
paid to the Insurer for the Policy in each "Policy Year," as
hereinafter defined in paragraph 10, shall be as set forth in
Column 3 ("Total Policy Year Premium") of Exhibit B attached
hereto and by this reference made a part hereof.
b. Except as otherwise provided herein, on or before the
date of this Agreement as to the first Policy Year and on or
before the first day of each next succeeding Policy Year, or
within the grace period provided in the Policy, the Corporation
shall pay to the Insurer the amount set forth in Column 3 of
Exhibit B for that Policy Year. However, for purposes of
determining the amount due the Corporation hereunder as a result
of its payments toward the premiums on the Policy, in each Policy
Year the Corporation shall be deemed to have paid only that
portion of the premium for which it has not received payment from
the Executive as the Executive's contribution to the premium as
provided for in paragraph 4(c) of this
<PAGE>4
Agreement (hereinafter referred to as the "Corporation's Policy
Year Net Premium Payment").
c. Except as otherwise provided herein, as to each Policy
Year, a certain amount of contribution to the premium shall be
due from the Executive hereunder (hereinafter referred to as the
"Executive's Policy Year Contribution to Premium") for such
Policy Year. This amount shall be based upon the annual cost of
the current life insurance coverage provided to the Executive
hereunder for such Policy Year and shall be equal to the
"economic benefit" of such current life insurance coverage for
federal income tax purposes, as provided in Revenue Ruling 64-328
(or the corresponding applicable provisions of any future Revenue
Ruling) or as otherwise provided for federal income tax purposes.
Under current tax law, this amount would be measured under
Revenue Ruling 66-110 by the lower of the P.S. 58 rate, as set
forth in Revenue Ruling 55-747, or the Insurer's current
published premium rates per $1,000 of life insurance coverage for
individual one-year term life insurance available for all
standard risks. The Executive shall be required to pay the
Executive's Policy Year Contribution to Premium to the
Corporation for each such Policy Year. So long as the
Executive's employment with the Corporation continues and unless
the parties agree otherwise, the Corporation shall deduct the
Executive's Policy Year Contribution to Premium from the
Executive's normal salary payments on a level basis during the
Policy Year, except as to the first Policy Year, during which the
Executive's Policy Year Contribution to Premium shall be deducted
on a level basis beginning as of the date on which the Enrollment
Agreement is signed, and except as to the last Policy Year,
during which the Executive's Policy Year Contribution to Premium
shall be deducted on a level basis ending as of the date of the
termination of the Split-Dollar Arrangement. Upon the
termination of the Executive's employment with the Corporation in
any Policy Year and continuing until the termination of the Split-
Dollar Arrangement, the Executive shall be required to pay the
balance of the Executive's Policy Year Contribution to Premium
for such Policy Year (which has not theretofore been deducted
from the Executive's salary) generally within ninety (90) days of
<PAGE>5
such termination of the Executive's employment with the
Corporation, and the Executive shall be required to pay the
Executive's Policy Year Contribution to Premium for each
succeeding Policy Year generally within ninety (90) days of the
premium payment date for the Policy for each such Policy Year.
In all events, the Executive shall pay the Executive's Policy
Year Contribution to Premium prior to the end of each such Policy
Year. For the Policy Year in which the Executive dies, the
Executive's employment with the Corporation is terminated, or the
Split-Dollar Arrangement is otherwise terminated, an appropriate
adjustment will be required to the Executive's Policy Year
Contribution to Premium for such Policy Year to reflect such
event.
d. Based on the foregoing provisions of this paragraph 4,
under current tax law, it is not anticipated that any amount of
income will be reportable by the Executive for federal, state or
local income tax purposes as a result of the current life
insurance coverage provided to the Executive hereunder for any
Policy Year. However, if any amount of income becomes reportable
by the Executive for federal, state or local income tax purposes
as a result of the current life insurance coverage provided to
the Executive hereunder for any Policy Year, then the Corporation
shall furnish to the Executive a statement of such reportable
income for such Policy Year.
e. Based on the foregoing provisions of this paragraph 4,
if the Executive's employment with the Corporation continues
until the Executive attains age sixty-five (65), under current
tax law, the Corporation's Policy Year Net Premium Payment under
paragraph 4(b) and the Executive's Policy Year Contribution to
Premium under paragraph 4(c) during each Policy Year while the
Split-Dollar Arrangement remains in effect would be illustrated
by Columns 6 and 5, respectively, of Exhibit B.
f. Anything contained in this paragraph 4 or in Exhibit B
to the contrary notwithstanding, if the Executive's employment
with the Corporation terminates before the Executive attains age
sixty-five (65) but the Split-Dollar Arrangement remains in
effect (hereinafter referred to as "Early Retirement"), then in
the Policy Year in which
<PAGE>6
the Executive's employment with the Corporation shall have
terminated and in each Policy Year thereafter until the
termination of the Split-Dollar Arrangement (in lieu of the
amount set forth in Column 3 of Exhibit B), the Corporation shall
pay to the Insurer only such amount, if any, as shall be
necessary to ensure "Adequate Policy Funding" (as hereinafter
defined), or shall receive from the Insurer, out of partial
surrenders of Policy additions (or otherwise), any Policy cash
values in excess of that level of Policy cash value necessary to
ensure Adequate Policy Funding, but in no event shall the
Corporation receive more than the then cumulative total amount of
the "Corporation's Policy Year Net Premium Payment" (as
hereinabove defined). "Adequate Policy Funding" shall mean that
level of Policy cash value on termination of the Split-Dollar
Arrangement, assuming such termination occurred under paragraph
8(a)(5) hereof, which would be sufficient to fund the reduced
level of death benefit provided hereunder in the event of such
Executive's Early Retirement (the "Executive's Death Benefit Upon
Termination," as hereinafter defined), after recovery of the
"Corporation's Cumulative Net Premium Payment at Termination" (as
hereinafter defined), based on the original policy configuration
assumptions and the fact of such Executive's Early Retirement.
For purposes of this paragraph 4(f), the Corporation may rely
conclusively upon, and shall be held harmless in relying upon,
the determination of the Insurer as to any such further premium
obligation or any recovery of such excess Policy cash values.
5. Collateral Assignment. To secure the payment to the
Corporation of the amount due it hereunder as a result of its
payments toward the premiums on the Policy, the Executive has,
contemporaneously herewith, assigned the Policy in favor of the
Corporation as collateral, which collateral assignment
specifically provides that the sole right of the Corporation
thereunder is to be paid the amount due it hereunder as a result
of its payments toward the premiums on the Policy. Such payment
shall be made from the cash surrender value of the Policy (as
defined therein) if the Split-Dollar Arrangement is terminated or
if the Executive surrenders or cancels the Policy while the Split
- -Dollar Arrangement remains in effect, or from the death benefit
provided under the Policy if the Executive dies while the
<PAGE>7
Policy and the Split-Dollar Arrangement remain in effect. In no
event shall the Corporation have any right to borrow against or
withdraw amounts from the Policy (except as provided in paragraph
4(f)), to surrender or cancel the Policy, or to take any other
action which would impair or defeat the rights of the Executive
as the owner of the Policy. The collateral assignment of the
Policy to the Corporation hereunder shall not be terminated,
altered or amended by the Executive while the Split-Dollar
Arrangement is in effect. The parties hereto agree to take all
action necessary to cause such collateral assignment to conform
to the provisions of this Agreement.
6. Limitations on Executive's Rights under Policy. As the
sole and absolute owner of the Policy, the Executive may exercise
all of the rights, options, privileges and other incidents of
ownership granted to the owner thereof by the terms of the Policy
(including, without limitation, the unlimited ability to borrow
against or withdraw amounts from the cash surrender value of the
Policy and to surrender or cancel the Policy). Notwithstanding
the foregoing so long as the Split-Dollar Arrangement remains in
effect: (1) the Executive shall not take any action with respect
to the Policy which would have a direct or indirect adverse
effect on the Corporation's interests under this Agreement in the
Policy without the Corporation's prior written consent; and (2)
except with respect to the Executive's right to change the
beneficiaries of the "Executive's Death Benefit," as hereinafter
defined in paragraph 7, and to assign the Executive's interests
in the Policy and under this Agreement, as contemplated in
paragraph 13, the Executive shall not take any other action with
respect to the Policy (regardless of whether it would directly or
indirectly adversely affect the Corporation's interests under
this Agreement in the Policy) without the Corporation's prior
written consent, which consent will not be unreasonably withheld
by the Corporation. For purposes of this paragraph 6, the
Executive may borrow against or withdraw from the cash surrender
value of the Policy any amounts which may be required to be paid
to the Corporation and which are due the Corporation under
paragraph 4(c), so long as the amount of any such loan or
withdrawal is chargeable solely against the "Executive's Death
Benefit," as
<PAGE>8
hereinafter defined in paragraph 7, and that portion of the cash
surrender value of the Policy which is in excess of the cash
surrender value of the Policy due the Corporation hereunder as a
result of its payments toward the premiums on the Policy pursuant
to the collateral assignment hereunder.
7. Collection and Payment of Death Benefit.
a. Upon the death of the Executive while the Split-Dollar
Arrangement remains in effect, the Corporation and the
Executive's beneficiary shall promptly take all action necessary
to obtain the death benefit provided under the Policy and payable
as a result of the maturity of the Policy (hereinafter referred
to as the "Death Benefit").
b. The Death Benefit shall be paid as follows:
(1) The Corporation shall first be paid from the Death
Benefit any unpaid amount of the Executive's Policy Year
Contribution to Premium owed to it by the Executive under
paragraph 4(c).
(2) The Corporation shall next be paid from the Death
Benefit the total net amount of the payments made by it toward
the premiums on the Policy hereunder. Such amount shall be the
sum of the Corporation's Policy Year Net Premium Payment amounts
under paragraph 4(b) (hereinafter referred to as the
"Corporation's Cumulative Net Premium Payment") less any amounts
received by the Corporation under paragraph 4(f). Based on the
foregoing provisions of this Agreement, if, for example, the
Executive died on the last day of any Policy Year (other than the
Policy Year in which the Executive's employment with the
Corporation shall have terminated or any subsequent Policy Year),
under current tax law, the amount of the Corporation's Cumulative
Net Premium Payment would be equal to the amount set forth in
Column 7 of Exhibit B for the Policy Year in which the Executive
died.
(3) The Executive's beneficiary shall next be paid, in
the manner and in the amount or amounts provided in the
beneficiary designation provision of the Policy, from the Death
Benefit an amount equal to the "Executive's Death Benefit," as
hereinafter defined. For purposes of this Agreement, the
"Executive's Death Benefit" shall be an amount equal to
<PAGE>9
the least of (A) the amount provided in Column 4 of Exhibit B
(hereinafter referred to as the "Executive's Maximum Death
Benefit") for the Policy Year in which the Executive shall have
died, (B) the "Executive's Death Benefit Upon Termination," as
hereinafter defined, or (C) that portion of the Death Benefit
remaining after the payments provided for in subparagraphs (1)
and (2) of this paragraph 7(b), and then reduced by any loan
chargeable against the Executive's Death Benefit. For purposes
of this Agreement, the "Executive's Death Benefit Upon
Termination" shall be the amount of the Executive's Maximum Death
Benefit provided in said Column 4 for the Policy Year in which
the Executive's employment with the Corporation shall have
terminated. Based on the foregoing provisions of this Agreement,
if the Executive's employment with the Corporation continues
until the Executive's death, under current tax law, the amount of
the Executive's Death Benefit, before any reduction for any loan
chargeable against the Executive's Death Benefit, would be equal
to the Executive's Maximum Death Benefit as set forth in said
Column 4 for the Policy Year in which the Executive dies.
(4) The Corporation shall receive the balance, if any,
of the Death Benefit remaining after the payments provided for in
subparagraphs (1), (2) and (3) of this paragraph 7(b).
c. The parties hereto agree that the beneficiary
designation provision of the Policy shall conform to the
provisions hereof.
8. Termination of Split-Dollar Arrangement.
a. The Split-Dollar Arrangement shall terminate, without
notice, on the first day of the month following the month during
which the first of the following events occurs:
(1) the Executive fails to make any premium payment
required under paragraph 4(c) of this Agreement for any Policy
Year by the end of such Policy Year or the Executive notifies the
Corporation that the Executive intends to surrender or cancel the
Policy;
<PAGE>10
(2) the Executive's employment with the Corporation
terminates before the date upon which the Executive becomes
"retirement eligible," as hereinafter defined in paragraph 8(c);
(3) the Executive is demoted by the Corporation to a
position that is not eligible under the Plan, even if the
demotion occurs on or after the date upon which the Executive
becomes "retirement eligible;"
(4) the Executive establishes a relationship with a
competitor of the Corporation or engages in any activity which is
in conflict with or adverse to the interests of the Corporation
whether before or after the Executive's employment with the
Corporation has terminated and whether before, on or after the
date upon which the Executive becomes "retirement eligible;" or:
(5) the later of:
(A) the date the Executive's employment with the
Corporation terminates on or after the date upon which the
Executive becomes "retirement eligible," or:
(B) the date immediately before the date fifteen
(15) years after the "Policy Date" of the Policy (as defined
therein), namely, June 30, 2014.
b. In addition, the Executive may terminate the Split
- -Dollar Arrangement at any time by written notice to the
Corporation. Such termination shall be effective as of the date
of such notice.
c. For purposes of this Agreement, the Executive shall be
deemed to be "retirement eligible" as of the date upon which (1)
the Executive's age and service equal 75 years or (2) the
Executive is eligible to receive a Minimum Disability Pension
Allowance under the Corporation's "Senior Management Retirement
and Survivor Protection Plan" or (3) the Executive has been
"disabled" for more than fifty-two (52) weeks and had at least
six (6) months credited service, as long as the Executive
continues to be "disabled," in each case as defined under
subsection 3.2 of the Corporation's "Senior Management Long Term
Disability Plan" or the Corporation's "Long Term Disability Plan
for Salaried Employees."
<PAGE>11
Anything contained in this Agreement to the contrary
notwithstanding, the Executive's employment with the Corporation
shall be deemed to continue for as long as the Executive is
eligible to receive Sickness and Accident Disability Benefits
under the Corporation's "Sickness and Accident Disability Benefit
Plan." For purposes of this paragraph 8(c), each of the
Corporation's plans identified above shall also include any
successor plan.
9. Options on Termination of Split-Dollar Arrangement.
a. Upon termination of the Split-Dollar Arrangement, the
Corporation shall be entitled to receive from the cash surrender
value of the Policy an amount equal to the sum of (1) the
Corporation's Cumulative Net Premium Payment less any amounts
received by the Corporation under paragraph 4(f) plus (2) the
amount owed to it by the Executive under paragraph 4(c), if any.
Such amount is hereinafter referred to as the "Corporation's
Cumulative Net Premium Payment at Termination."
b. For thirty (30) days after the date of the termination
of the Split-Dollar Arrangement, the Executive shall have the
option of obtaining the release of the collateral assignment of
the Policy to the Corporation. To obtain such release, the
Executive shall pay to the Corporation an amount equal to the
Corporation's Cumulative Net Premium Payment at Termination, and,
notwithstanding any other provision hereof, the Executive shall
specifically be allowed to borrow against or withdraw from the
cash surrender value of the Policy for this purpose. Upon
receipt of such amount, the Corporation shall release the
collateral assignment of the Policy by the execution and delivery
of an appropriate instrument of release.
c. If the Executive fails to exercise such option within
such thirty (30) day period, then, at the request of the
Corporation, the Executive shall execute any document or
documents required by the Insurer to transfer the interest of the
Executive in the Policy to the Corporation. Alternatively, the
Corporation may enforce its right to be paid an amount equal to
the Corporation's Cumulative Net Premium Payment at Termination
under the collateral assignment of the Policy. Thereafter,
neither the Executive, nor the Executive's heirs, assigns
<PAGE>12
or beneficiaries shall have any further interest in and to the
Policy, either under the terms thereof or under this Agreement.
However, in no event shall the Executive be liable to the
Corporation in the event the cash surrender value of the Policy
at the time of the termination of the Split-Dollar Arrangement is
insufficient to pay the Corporation an amount equal to the
Corporation's Cumulative Net Premium Payment at Termination.
d. Anything contained in this Agreement to the contrary
notwithstanding, if the Split-Dollar Arrangement terminates
(other than as a result of the death of the Executive) for any
reason other than pursuant to paragraph 8(a)(5) of this
Agreement, the Corporation shall also be entitled to recover, in
addition to the Corporation's Cumulative Net Premium Payment at
Termination, an amount sufficient to pay all federal, state and
local income taxes, if any, imposed upon the Corporation as a
result of such early termination and attributable to the Policy
so that the Corporation will receive the Corporation's Cumulative
Net Premium Payment at Termination on an after-tax basis. The
amount, if any, payable to the Corporation pursuant to this
paragraph 9(d) shall be determined by the Corporation's
independent certified public accountant which is responsible for
preparing the income tax returns for the Corporation for such
Policy Year.
10. Policy Year. For purposes of this Agreement, the term
"Policy Year" shall mean, as the context requires, the twelve
month period beginning July 1st and ending
June 30th in which this Agreement is signed or any succeeding
twelve month period in which this Agreement is in force. Each
Policy Year shall begin on July 1st and end on June 30th of each
calendar year. The first such twelve month period in which this
Agreement is signed shall be the first Policy Year (or,
alternatively, Policy Year 1) and each such succeeding twelve
month period will be the succeeding Policy Year.
11. Insurer Not a Party. The Insurer shall be fully
discharged from its obligations under the Policy by payment of
the Death Benefit to the beneficiary or beneficiaries named in
the Policy, subject to the terms and conditions of the Policy.
In no event shall the Insurer be considered a party to this
Agreement, or any modification or amendment hereof. No
<PAGE>13
provision of this Agreement, nor of any modification or amendment
hereof, shall in any way be construed as enlarging, changing,
varying, or in any other way affecting the obligations of the
Insurer as expressly provided in the Policy, except insofar as
the provisions hereof are made a part of the Policy by the
collateral assignment executed by the Executive and filed with
the Insurer in connection herewith.
12. Amendment. This Agreement may not be amended, altered
or modified, except by a written instrument signed by the parties
hereto, or their respective successors or assigns, and may not be
otherwise terminated except as provided herein.
13. Binding Effect. This Agreement (and all rights,
options, privileges and obligations hereby created and/or
imposed) shall be binding upon and inure to the benefit of the
Corporation and its successors and assigns, and the Executive and
the Executive's successors, assigns, heirs, executors,
administrators and beneficiaries. More specifically, if the
Executive shall assign any or all of the Executive's interests in
the Policy and under this Agreement to another person ("Third
Party Owner"), then all of such rights, options, privileges and
obligations in the Policy and under this Agreement which would
otherwise inure to the benefit of or be imposed upon the
Executive shall instead inure to the benefit of or be imposed
upon the Third Party Owner.
14. Notice. Any notice, consent or demand required or
permitted to be given under the provisions of this Agreement
shall be in writing, and shall be signed by the party giving or
making the same. If such notice, consent or demand is mailed to
a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as
shown on the records of the Corporation. The date of such
mailing shall be deemed the date of notice, consent or demand.
15. Governing Law. This Agreement, and the rights of the
parties hereunder, shall be governed by and construed in
accordance with the law of the State of Illinois.
<PAGE>14
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, in duplicate, as of the day and year first above
written.
AMERITECH
By:____________________________
Its authorized officer
"Corporation"
ATTEST:
_______________________________
Secretary
Signature:_____________________
Name:_______________________
"Executive"
Exhibit 10c
<PAGE>1
[Key Management Life Insurance Plan]
[Owner is the Executive]
KMLIP CA-1.DOC
COLLATERAL-ASSIGNMENT AGREEMENT
A. FOR VALUE RECEIVED, ________________ (hereinafter
referred to as the "Owner") does hereby assign, transfer and
set over to AMERITECH, a Delaware corporation, with principal
offices and place of business in the State of Illinois, its
successors and assigns (hereinafter referred to as the
"Assignee"), the specific rights referenced herein (and only
those specific rights) in and to that certain policy (policy
number __________________ ) issued by Metropolitan Life
Insurance Company (hereinafter referred to as the "Insurer")
(said policy hereinafter referred to as the "Policy"),
insuring the life of ___________ (hereinafter referred to as
the "Insured"), subject to all the terms and conditions of the
Policy. The Owner, by this Assignment, and the Assignee, by
acceptance of the assignment of the Policy to the Assignee
hereunder, agree to the terms and conditions contained herein.
B. This Assignment is made, and the Policy is to be
held, as collateral security for all liabilities of the Owner
to the Assignee, now existing or hereafter arising under and
pursuant to that certain Split-Dollar Agreement, by and
between the Owner and the Assignee dated as of __________,
(hereinafter referred to as the "Agreement"). The Owner
reserves all rights and powers in and to the Policy, except
those specific, limited rights granted in the Policy to the
Assignee hereby as security for the liabilities of the Owner
to the Assignee under the Agreement.
C. It is expressly agreed that the Assignee's interest
in the Policy under and pursuant to this Assignment shall be
limited to the following specific rights in addition to those
provided for in Paragraph D hereof: (a) the right to be paid
the amount due the Assignee under the Agreement as a result of
the Assignee's payments toward the premiums on the Policy by
recovering said amount directly from the Insurer out of the
death benefit provided under the Policy, upon the death of the
Insured while the "Split-Dollar Arrangement," as
<PAGE>2
defined in
the Agreement, remains in effect; (b) the right to be paid the
amount, if any, due the Assignee under the Agreement as a
result of the Assignee's payments toward the premiums on the
Policy in the event of the Insured's "Early Retirement," as
defined in the Agreement, while the "Split-Dollar
Arrangement," as defined in the Agreement, remains in effect
by recovering said amount, if any, directly from the Insurer
out of the cash surrender value of the Policy; and (c) the
right to be paid the amount due the Assignee under the
Agreement as a result of the Assignee's payments toward the
premiums on the Policy in the event the "Split-Dollar
Arrangement," as defined in the Agreement, shall terminate
prior to the death of the Insured by recovering said amount
directly from the Insurer out of the cash surrender value of
the Policy. The Owner and the Assignee shall promptly notify
the Insurer of the termination of the "Split-Dollar
Arrangement," as defined in the Agreement, and of the
Insured's "Early Retirement," as defined in the Agreement,
upon the occurrence of any such event. Except as provided in
Paragraph D hereof, the Assignee shall have no other rights or
powers in and to the Policy as a result of this Assignment,
and specifically shall have no right or power to borrow
against or withdraw amounts from the Policy, to surrender or
cancel the Policy, or to take any other action which would
impair or defeat the rights of the Owner.
D. Subject to the provisions of this Assignment, the
Owner shall retain all of the rights, options, privileges and
other incidents of ownership in and to the Policy as limited
by the requisite consent of the Assignee provided for herein,
including, but not limited to: (a) the right to surrender or
cancel the Policy at any time provided by the terms of the
Policy and at such other times as the Insurer may allow; (b)
the right to collect and receive all distributions or shares
of surplus, dividend deposits or additions to the Policy now
or hereafter made or apportioned thereto, and to exercise any
and all options contained in the Policy with respect thereto;
(c) the right to exercise all non-forfeiture rights permitted
by the terms of the Policy or allowed by the Insurer and to
receive all benefits and advantages derived therefrom; (d) the
sole right to designate and change the beneficiaries of the
"Executive's Death Benefit," as defined in the Agreement; (e)
the right to elect any optional
<PAGE>3
mode of settlement permitted
by the Policy or allowed by the Insurer; and (f) the sole
right to assign the Owner's interests in the Policy; provided,
however, that all of the rights, options, privileges and other
incidents of ownership in and to the Policy retained by the
Owner shall be subject to the terms and conditions of the
Agreement, and provided further that (1) the Owner shall not
take any action with respect to the Policy which would have a
direct or indirect adverse effect on the Assignee's interests
under the Agreement in the Policy without the Assignee's prior
written consent, and (2) except with respect to the Owner's
right to change the beneficiaries of the "Executive's Death
Benefit," as defined in the Agreement, and to assign the
Owner's interests in the Policy and under the Agreement, the
Owner shall not take any other action with respect to the
Policy (regardless of whether it would directly or indirectly
adversely affect the Assignee's interests under the Agreement
in the Policy) without the Assignee's prior written consent,
which consent will not be unreasonably withheld by the
Assignee. Except with respect to those actions described in
clause (2) above, the Insurer may rely upon, and shall be
protected in doing so, the written notice of the Assignee as
to the need for and the fact of the Assignee's prior consent
to such action.
E. The Assignee agrees with the Owner as follows: (a)
subject to the terms and conditions of the Agreement, any
balance of any amount received by the Assignee hereunder from
the Insurer remaining after payment of the then existing
liabilities of the Owner to the Assignee under the Agreement
shall be paid by the Assignee to the persons entitled thereto
under the terms of the Policy had this Assignment not been
executed; and (b) if the Policy is in the possession of the
Assignee, the Assignee will, upon the Owner's written request,
forward the Policy to the Insurer, without unreasonable delay,
for endorsement of any designation or change of beneficiary,
any election of optional mode of settlement, or the exercise
of any other right reserved by the Owner hereunder.
F. Notwithstanding anything in this Assignment to the
contrary, the Insurer shall be under no obligation to monitor
the obligation of the Assignee hereunder to pay to the persons
entitled thereto any amounts received from the Insurer
remaining after payment of the then
<PAGE>4
existing liabilities of
the Owner to the Assignee under the Agreement, and the Insurer
shall have no obligation or liability to any person or entity
if the Assignee fails to pay such amounts as required
hereunder.
G. The Insurer is hereby authorized to recognize, and is
protected in recognizing, the Assignee's claims to amounts due
the Assignee hereunder without investigating the validity of
the Assignee's claims thereto, the reason for any action taken
by the Assignee, the validity or accuracy of the amount of any
of the liabilities of the Owner to the Assignee under the
Agreement, the existence of any default therein, the giving of
any notice required herein, or the application to be made by
the Assignee of any amounts to be paid to the Assignee. The
sole receipt of the Assignee for any amounts received by the
Assignee shall be a full discharge and release therefor to the
Insurer.
H. The Insurer shall be fully protected in recognizing
the request made by the Owner for surrender or cancellation of
the Policy without investigating the reason for such request,
but only with the prior written consent of the Assignee
attached thereto, and upon such surrender or cancellation, the
Policy shall be terminated and be of no further force or
effect.
I. Upon the full payment of the liabilities of the Owner
to the Assignee under the Agreement by either the Insurer or
the Owner, the Assignee shall promptly release this Assignment
and thereby reassign to the Owner all specific rights in the
Policy previously assigned hereunder.
J. The Assignee may take or release other security, may
grant extensions, renewals or indulgences with respect to the
liabilities of the Owner to the Assignee under the Agreement,
or may apply the proceeds of the Policy hereby assigned or any
amount received on account of the Policy by the exercise of
any right permitted under this Assignment, without resorting
to or regard to other security for such liabilities, if any.
K. In the event of any conflict between the provisions
of this Assignment and the provisions of the Agreement with
respect to the Policy or the Assignee's rights therein, the
provisions of this Assignment shall prevail. The Insurer is
not a party to the Agreement and
<PAGE>5
shall not be responsible for the interpretation of the Agreement
or for the sufficiency or validity of this Assignment.
L. The Owner declares that no proceedings in bankruptcy
are pending against the Owner, and that the Owner's property
is not subject to any assignment for the benefit of creditors
of the Owner.
<PAGE>6
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, in duplicate, as of the day and year first above
written.
Signature:
Name: ______________________________
Executive "Owner"
SPOUSAL CONSENT
The undersigned, being the spouse of the Owner, consents
to the assignment of the Policy under the foregoing Assignment
as of the day and year first above written.
Signature:
Name: _____________________________
Spouse of Executive "Owner"
ACCEPTANCE
The undersigned Assignee accepts the assignment of the
Policy under the foregoing Assignment as of the day and year
first above written.
AMERITECH
By: _____________________________
Its authorized officer
"Assignee"
ATTEST:
___________________________
Secretary
<PAGE>7
RECEIPT
The undersigned Insurer acknowledges receipt of the
foregoing Assignment and Acceptance as of the day and year
first above written. However, the undersigned Insurer assumes
no responsibility as to the validity of the foregoing
Assignment and Acceptance and reserves the right to require
proof satisfactory to it of the Assignee's interest in the
Policy and the extent thereof before making any settlement
under the Policy.
METROPOLITAN LIFE INSURANCE COMPANY
By: ___________________________
Its authorized officer
"Insurer"
Exhibit 10d
<PAGE>1
[Estate Preservation Plan]
[Owner is the Executive]
EPP SD-1.DOC
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT is made and entered into as of the
___ day of _________ 1999, by and between AMERITECH, a
Delaware corporation, with principal offices and place of
business in the State of Illinois (hereinafter referred to
as the "Corporation"), and _______________, an individual
(hereinafter referred to as the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive is employed by the Corporation
(or one of its subsidiaries or affiliates, and employment by
any such subsidiary or affiliate shall be considered the
same as employment by the Corporation for purposes of this
Agreement) and is eligible under the Corporation's "Estate
Preservation Plan" (hereinafter referred to as the "Plan")
to purchase life insurance coverage pursuant to a collateral
assignment, split-dollar arrangement (hereinafter referred
to as the "Split-Dollar Arrangement") with the Corporation;
and
WHEREAS, the Executive is acquiring life insurance
coverage by purchasing a policy of life insurance
(hereinafter referred to as the "Policy"), insuring the
lives of the Executive and the Executive's spouse (the
Executive and the Executive's spouse are also sometimes
hereinafter referred to as the "Insureds") and providing a
death benefit upon the death of the survivor of the
Insureds, which policy is described in Exhibit A attached
hereto and by this reference made a part hereof, and which
policy is issued by Manufacturers Life Insurance Company
(hereinafter referred to as the "Insurer"); and
WHEREAS, pursuant to the Plan, the Corporation is
obligated to pay a portion of the premiums on the Policy as
an employment benefit for the Executive, on the terms and
conditions hereinafter set forth; and
<PAGE>2
WHEREAS, pursuant to the Plan, the Executive is
obligated to pay a portion of the premiums on the Policy, on
the terms and conditions hereinafter set forth; and
WHEREAS, the Executive will be the sole and absolute
owner of the Policy and, as such, will possess all ownership
rights and incidents of ownership in and to the Policy
(except as otherwise specifically provided herein); and
WHEREAS, pursuant to the Plan, the Corporation is
entitled to have the Policy collaterally assigned in its
favor by the Executive, in order to secure the payment of
the amount due it hereunder as a result of its payments
toward the premiums on the Policy; and
WHEREAS, the parties intend that by such collateral
assignment the Corporation shall receive only the right to
such payment, with the Executive retaining all other
ownership rights and incidents of ownership in and to the
Policy, as specified herein;
NOW, THEREFORE, in consideration of the premises and of
the mutual promises contained herein, the parties hereto
agree as follows:
1. Purchase of Policy. The Executive shall purchase
the Policy described in Exhibit A from the Insurer. The
parties hereto have taken all necessary action to cause the
Insurer to issue the Policy, and shall take any further
action which may be necessary to cause the Policy to conform
to the provisions of this Agreement. The parties hereto
agree that the Policy shall be subject to the terms and
conditions of this Agreement and of the collateral
assignment filed with the Insurer relating to the Policy.
2. Ownership of Policy.
a. The Executive shall be the sole and absolute
owner of the Policy, and may exercise all ownership rights
and incidents of ownership granted to the owner thereof by
the terms of the Policy, except as otherwise specifically
provided herein.
b. It is the intention of the parties to this
Agreement and the collateral assignment executed by the
Executive in favor of the Corporation in connection herewith
that the Executive shall retain all rights which the Policy
grants to the owner thereof and
<PAGE>3
that the sole right of the Corporation shall be to be paid
the amount due it hereunder as a result of its payments
toward the premiums on the Policy. Specifically, but
without limitation, except as otherwise specifically provided
herein, the Corporation shall neither have nor exercise any
right as collateral assignee of the Policy which could in any way
defeat or impair the right of the Executive to utilize the cash
surrender value of the Policy or of the Executive's
beneficiary to receive that portion of the death benefit
provided under the Policy to which the Executive's
beneficiary is entitled pursuant to the terms of this
Agreement. All provisions of this Agreement and of such
collateral assignment shall be construed so as to carry out
such intention.
3. Policy Dividends. Subject to the provisions of
paragraph 6, while the Split-Dollar Arrangement remains in
effect, the Executive may make any elections and exercise
any and all other rights relating to Policy Dividends, as
hereinafter defined, granted to the owner of the Policy.
For purposes of this Agreement, the term "Policy Dividends"
shall include "dividends" earned by a participating policy
and "excess interest" earned by a non-participating policy
and any similar type of policy distribution.
4. Payment of Premiums. While the Split-Dollar
Arrangement remains in effect:
a. Except as otherwise provided herein, the premium
to be paid to the Insurer for the Policy in each "Policy
Year," as hereinafter defined in paragraph 10, shall be as
set forth in Column 3 ("Total Policy Year Premium") of
Exhibit B attached hereto and by this reference made a part
hereof.
b. Except as otherwise provided herein, on or before
the date of this Agreement as to the first Policy Year and
on or before the first day of each next succeeding Policy
Year, or within the grace period provided in the Policy, the
Corporation shall pay to the Insurer the amount set forth in
Column 3 of Exhibit B for that Policy Year. However, for
purposes of determining the amount due the Corporation
hereunder as a result of its payments toward the premiums on
the Policy, in each Policy
<PAGE>4
Year the Corporation shall be
deemed to have paid only that portion of the premium for
which it has not received payment from the Executive as the
Executive's contribution to the premium as provided for in
paragraph 4(c) of this Agreement (hereinafter referred to as
the "Corporation's Policy Year Net Premium Payment").
c. Except as otherwise provided herein, as to each
Policy Year, a certain amount of contribution to the premium
shall be due from the Executive hereunder (hereinafter
referred to as the "Executive's Policy Year Contribution to
Premium") for such Policy Year. This amount shall be based
upon the annual cost of the current life insurance coverage
provided to the Executive hereunder for such Policy Year and
shall be equal to the "economic benefit" of such current
life insurance coverage for federal income tax purposes, as
provided in Revenue Ruling 64-328 (or the corresponding
applicable provisions of any future Revenue Ruling) or as
otherwise provided for federal income tax purposes. Under
current tax law, while both Insureds are alive, this amount
would be measured by the U.S. Life Table 38, and after the
death of one of the Insureds, this amount would be measured
under Revenue Ruling 66-110 by the lower of the P.S. 58
rate, as set forth in Revenue Ruling 55-747, or the
Insurer's current published premium rates per $1,000 of life
insurance coverage for individual one-year term life
insurance available for all standard risks. The Executive
shall be required to pay the Executive's Policy Year
Contribution to Premium to the Corporation for each such
Policy Year. So long as the Executive's employment with the
Corporation continues and unless the parties agree
otherwise, the Corporation shall deduct the Executive's
Policy Year Contribution to Premium from the Executive's
normal salary payments on a level basis during the Policy
Year, except as to the first Policy Year, during which the
Executive's Policy Year Contribution to Premium shall be
deducted on a level basis beginning as of the date of this
Agreement, and except as to the last Policy Year, during
which the Executive's Policy Year Contribution to Premium
shall be deducted on a level basis ending as of the date of
the termination of the Split-Dollar Arrangement. Upon the
termination of the
<PAGE>5
Executive's employment with the
Corporation in any Policy Year and continuing until the
termination of the Split Dollar Arrangement, the Executive
shall be required to pay the balance of the Executive's
Policy Year Contribution to Premium for such Policy Year
(which has not theretofore been deducted from the
Executive's salary) generally within ninety (90) days of
such termination of the Executive's employment with the
Corporation, and the Executive shall be required to pay the
Executive's Policy Year Contribution to Premium for each
succeeding Policy Year generally within ninety (90) days of
the premium payment date for the Policy for each such Policy
Year. In all events, the Executive shall pay the
Executive's Policy Year Contribution to Premium prior to the
end of each such Policy Year. For the Policy Year in which
either of the Insureds dies, the Executive's employment with
the Corporation is terminated, or the Split-Dollar
Arrangement is otherwise terminated, an appropriate
adjustment will be required to the Executive's Policy Year
Contribution to Premium for such Policy Year to reflect such
event.
d. Based on the foregoing provisions of this
paragraph 4, under current tax law, it is not anticipated
that any amount of income will be reportable by the
Executive for federal, state or local income tax purposes as
a result of the current life insurance coverage provided to
the Executive hereunder for any Policy Year. However, if
any amount of income becomes reportable by the Executive for
federal, state or local income tax purposes as a result of
the current life insurance coverage provided to the
Executive hereunder for any Policy Year, then the
Corporation shall furnish to the Executive a statement of
such reportable income for such Policy Year.
e. Based on the foregoing provisions of this
paragraph 4, if the Executive's employment with the
Corporation continues until the Executive attains age sixty
- -five (65), and both Insureds continue to live until the
termination of the Split-Dollar Arrangement pursuant to
paragraph 8(a)(5), under current tax law, the Corporation's
Policy Year Net Premium Payment under paragraph 4(b) and the
Executive's Policy Year
<PAGE>6
Contribution to Premium under
paragraph 4(c) during each Policy Year while the
Split-Dollar Arrangement remains in effect would be
illustrated by Columns 6 and 5, respectively, of Exhibit B.
5. Collateral Assignment. To secure the payment to
the Corporation of the amount due it hereunder as a result
of its payments toward the premiums on the Policy, the
Executive has, contemporaneously herewith, assigned the
Policy in favor of the Corporation as collateral, which
collateral assignment specifically provides that the sole
right of the Corporation thereunder is to be paid the amount
due it hereunder as a result of its payments toward the
premiums on the Policy. Such payment shall be made from the
cash surrender value of the Policy (as defined therein) if
the Split-Dollar Arrangement is terminated or if the
Executive surrenders or cancels the Policy while the Split
- -Dollar Arrangement remains in effect, or from the death
benefit provided under the Policy if both Insureds die while
the Policy and the Split-Dollar Arrangement remain in
effect. In no event shall the Corporation have any right to
borrow against or withdraw amounts from the Policy, to
surrender or cancel the Policy, or to take any other action
which would impair or defeat the rights of the Executive as
the owner of the Policy. The collateral assignment of the
Policy to the Corporation hereunder shall not be terminated,
altered or amended by the Executive while the Split-Dollar
Arrangement is in effect. The parties hereto agree to take
all action necessary to cause such collateral assignment to
conform to the provisions of this Agreement.
6. Limitations on Executive's Rights under Policy. As
the sole and absolute owner of the Policy, the Executive may
exercise all of the rights, options, privileges and other
incidents of ownership granted to the owner thereof by the
terms of the Policy (including, without limitation, the
unlimited ability to borrow against or withdraw amounts from
the cash surrender value of the Policy and to surrender or
cancel the Policy). Notwithstanding the foregoing so long
as the Split-Dollar Arrangement remains in effect: (1) the
Executive shall not take any action with respect to the
Policy which
<PAGE>7
would have a direct or indirect adverse effect
on the Corporation's interests under this Agreement in the
Policy without the Corporation's prior written consent; and
(2) except with respect to the Executive's right to change
the beneficiaries of the "Executive's Death Benefit," as
hereinafter defined in paragraph 7, and to assign the
Executive's interests in the Policy and under this
Agreement, as contemplated in paragraph 13, the Executive
shall not take any other action with respect to the Policy
(regardless of whether it would directly or indirectly
adversely affect the Corporation's interests under this
Agreement in the Policy) without the Corporation's prior
written consent, which consent will not be unreasonably
withheld by the Corporation. For purposes of this paragraph
6, the Executive may borrow against or withdraw from the
cash surrender value of the Policy any amounts which may be
required to be paid to the Corporation and which are due the
Corporation under paragraph 4(c), so long as the amount of
any such loan or withdrawal is chargeable solely against the
"Executive's Death Benefit," as hereinafter defined in
paragraph 7, and that portion of the cash surrender value of
the Policy which is in excess of the cash surrender value of
the Policy due the Corporation hereunder as a result of its
payments toward the premiums on the Policy pursuant to the
collateral assignment hereunder.
7. Collection and Payment of Death Benefit.
a. Upon the death of the survivor of the Insureds
while the Split-Dollar Arrangement remains in effect, the
Corporation and the Executive's beneficiary shall promptly
take all action necessary to obtain the death benefit
provided under the Policy and payable as a result of the
maturity of the Policy (hereinafter referred to as the
"Death Benefit").
b. The Death Benefit shall be paid as follows:
(1) The Corporation shall first be paid from the
Death Benefit any unpaid amount of the Executive's Policy
Year Contribution to Premium owed to it by the Executive
under paragraph 4(c).
<PAGE>8
(2) The Corporation shall next be paid from the
Death Benefit the total net amount of the payments made by
it toward the premiums on the Policy hereunder. Such amount
shall be the sum of the Corporation's Policy Year Net
Premium Payment amounts under paragraph 4(b) (hereinafter
referred to as the "Corporation's Cumulative Net Premium
Payment"). Based on the foregoing provisions of this
Agreement, if, for example, both Insureds died on the last
day of any Policy Year (other than the Policy Year in which
the Executive's employment with the Corporation shall have
terminated or any subsequent Policy Year), under current tax
law, the amount of the Corporation's Cumulative Net Premium
Payment would be equal to the amount set forth in Column 7
of Exhibit B for the Policy Year in which both Insureds
died.
(3) The Executive's beneficiary shall next be
paid, in the manner and in the amount or amounts provided in
the beneficiary designation provision of the Policy, from
the Death Benefit an amount equal to the "Executive's Death
Benefit," as hereinafter defined. For purposes of this
Agreement, the "Executive's Death Benefit" shall be an
amount equal to the lesser of (A) the amount provided in
Column 4 of Exhibit B (hereinafter referred to as the
"Executive's Maximum Death Benefit") for the Policy Year in
which the survivor of the Insureds shall have died or (B)
that portion of the Death Benefit remaining after the
payments provided for in subparagraphs (1) and (2) of this
paragraph 7(b), and then reduced by any loan chargeable
against the Executive's Death Benefit. Based on the
foregoing provisions of this Agreement, if the Executive's
employment with the Corporation continues until the
Executive attains age sixty-five (65), under current tax
law, the amount of the Executive's Death Benefit, before any
reduction for any loan chargeable against the Executive's
Death Benefit, would be equal to the Executive's Maximum
Death Benefit as set forth in said Column 4 for the Policy
Year in which the survivor of the Insureds dies.
<PAGE>9
(4) The Corporation shall receive the balance, if
any, of the Death Benefit remaining after the payments
provided for in subparagraphs (1), (2) and (3) of this
paragraph 7(b).
c. The parties hereto agree that the beneficiary
designation provision of the Policy shall conform to the
provisions hereof.
8. Termination of Split-Dollar Arrangement.
a. The Split-Dollar Arrangement shall terminate,
without notice, on the first day of the month following the
month during which the first of the following events occurs:
(1) the Executive fails to make any premium
payment required under paragraph 4(c) of this Agreement for
any Policy Year by the end of such Policy Year or the
Executive notifies the Corporation that the Executive
intends to surrender or cancel the Policy;
(2) the Executive's employment with the
Corporation terminates before the date upon which the
Executive becomes "retirement eligible," as hereinafter
defined in paragraph 8(c);
(3) the Executive is demoted by the Corporation
to a position that is not eligible under the Plan, even if
the demotion occurs on or after the date upon which the
Executive becomes "retirement eligible," unless the Senior
Vice President of Human Resources or the Compensation
Committee of the Corporation shall make a determination
based on all relevant facts and circumstances that the
Split-Dollar Arrangement shall not terminate as a result of
the Executive's demotion and so notifies the Executive;
(4) the Executive establishes a relationship with
a competitor of the Corporation or engages in any activity
which is in conflict with or adverse to the interests of the
Corporation whether before or after the Executive's
employment with the
<PAGE>10
Corporation has terminated and whether
before, on or after the date upon which the Executive
becomes "retirement eligible;" or
(5) if the Executive's employment with the
Corporation terminates after the date upon which the
Executive becomes "retirement eligible" or hereinafter
defined in paragraph 8(c), the later of:
(A) the date the Executive attains age 65,
or
(B) the date immediately before the date
fifteen (15) years after the "Policy Date" of the Policy (as
defined therein), namely, June 30, 2014.
b. In addition, the Executive may terminate the
Split-Dollar Arrangement at any time by written notice to
the Corporation. Such termination shall be effective as of
the date of such notice.
c. For purposes of this Agreement, the Executive
shall be deemed to be "retirement eligible" as of the date
upon which (1) the Executive's age and service equal 75
years or (2) the Executive is eligible to receive a Minimum
Disability Pension Allowance under the Corporation's "Senior
Management Retirement and Survivor Protection Plan" or (3)
the Executive has been "disabled" for more than fifty-two
(52) weeks and had at least six (6) months credited service,
as long as the Executive continues to be "disabled," in each
case as defined under subsection 3.2 of the Corporation's
"Senior Management Long Term Disability Plan" or the
Corporation's "Long Term Disability Plan for Salaried
Employees." Anything contained in this Agreement to the
contrary notwithstanding, the Executive's employment with
the Corporation shall be deemed to continue for as long as
the Executive is eligible to receive Sickness and Accident
Disability Benefits under the Corporation's "Sickness and
Accident Disability Benefit Plan." For purposes of this
paragraph 8(c), each of the Corporation's plans identified
above shall also include any successor plan.
<PAGE>11
9. Options on Termination of Split-Dollar Arrangement.
a. Upon termination of the Split-Dollar Arrangement,
the Corporation shall be entitled to receive from the cash
surrender value of the Policy an amount equal to the sum of
(1) the Corporation's Cumulative Net Premium Payment plus
(2) the amount owed to it by the Executive under paragraph
4(c), if any. Such amount is hereinafter referred to as the
"Corporation's Cumulative Net Premium Payment at
Termination."
b. For thirty (30) days after the date of the
termination of the Split-Dollar Arrangement, the Executive
shall have the option of obtaining the release of the
collateral assignment of the Policy to the Corporation. To
obtain such release, the Executive shall pay to the
Corporation an amount equal to the Corporation's Cumulative
Net Premium Payment at Termination, and, notwithstanding any
other provision hereof, the Executive shall specifically be
allowed to borrow against or withdraw from the cash
surrender value of the Policy for this purpose. Upon
receipt of such amount, the Corporation shall release the
collateral assignment of the Policy by the execution and
delivery of an appropriate instrument of release.
c. If the Executive fails to exercise such option
within such thirty (30) day period, then, at the request of
the Corporation, the Executive shall execute any document or
documents required by the Insurer to transfer the interest
of the Executive in the Policy to the Corporation.
Alternatively, the Corporation may enforce its right to be
paid an amount equal to the Corporation's Cumulative Net
Premium Payment at Termination under the collateral
assignment of the Policy. Thereafter, neither the
Executive, nor the Executive's heirs, assigns or
beneficiaries shall have any further interest in and to the
Policy, either under the terms thereof or under this
Agreement. However, in no event shall the Executive be
liable to the Corporation in the event the cash surrender
value of the Policy at the time of the termination of the
Split-Dollar Arrangement is insufficient to pay the
Corporation an amount equal to the Corporation's Cumulative
Net Premium Payment at Termination.
<PAGE>12
d. Anything contained in this Agreement to the
contrary notwithstanding, if the Split-Dollar Arrangement
terminates (other than as a result of the death of the
survivor of the Insureds) for any reason other than pursuant
to paragraph 8(a)(5) of this Agreement, the Corporation
shall also be entitled to recover, in addition to the
Corporation's Cumulative Net Premium Payment at Termination,
an amount sufficient to pay all federal, state and local
income taxes, if any, imposed upon the Corporation as a
result of such early termination and attributable to the
Policy so that the Corporation will receive the
Corporation's Cumulative Net Premium Payment at Termination
on an after-tax basis. The amount, if any, payable to the
Corporation pursuant to this paragraph 9(d) shall be
determined by the Corporation's independent certified public
accountant which is responsible for preparing the income tax
returns for the Corporation for such Policy Year.
10. Policy Year. For purposes of this Agreement, the
term "Policy Year" shall mean, as the context requires, the
twelve month period beginning July 1st and ending June 30th
in which this Agreement is signed or any succeeding twelve
month period in which this Agreement is in force. Each
Policy Year shall begin on July 1st and end on June 30th of
each calendar year. The first such twelve month period in
which this Agreement is signed shall be the first Policy
Year (or, alternatively, Policy Year 1) and each such
succeeding twelve month period will be the succeeding Policy
Year.
11. Insurer Not a Party. The Insurer shall be fully
discharged from its obligations under the Policy by payment
of the Death Benefit to the beneficiary or beneficiaries
named in the Policy, subject to the terms and conditions of
the Policy. In no event shall the Insurer be considered a
party to this Agreement, or any modification or amendment
hereof. No provision of this Agreement, nor of any
modification or amendment hereof, shall in any way be
construed as enlarging, changing, varying, or in any other
way affecting the obligations of the Insurer as expressly
provided in the Policy, except insofar as the provisions
hereof are made a part of the Policy by the collateral
assignment executed by the Executive and filed with the
Insurer in connection herewith.
<PAGE>13
12. Amendment. This Agreement may not be amended,
altered or modified, except by a written instrument signed
by the parties hereto, or their respective successors or
assigns, and may not be otherwise terminated except as
provided herein.
13. Binding Effect. This Agreement (and all rights,
options, privileges and obligations hereby created and/or
imposed) shall be binding upon and inure to the benefit of
the Corporation and its successors and assigns, and the
Executive and the Executive's successors, assigns, heirs,
executors, administrators and beneficiaries. More
specifically, if the Executive shall assign any or all of
the Executive's interests in the Policy and under this
Agreement to another person ("Third Party Owner"), then all
of such rights, options, privileges and obligations in the
Policy and under this Agreement which would otherwise inure
to the benefit of or be imposed upon the Executive shall
instead inure to the benefit of or be imposed upon the Third
Party Owner.
14. Notice. Any notice, consent or demand required or
permitted to be given under the provisions of this Agreement
shall be in writing, and shall be signed by the party giving
or making the same. If such notice, consent or demand is
mailed to a party hereto, it shall be sent by United States
certified mail, postage prepaid, addressed to such party's
last known address as shown on the records of the
Corporation. The date of such mailing shall be deemed the
date of notice, consent or demand.
15. Governing Law. This Agreement, and the rights of
the parties hereunder, shall be governed by and construed in
accordance with the law of the State of Illinois.
16. Death of Executive as First Death. If the
Executive is the first of the Insureds to die, then the
Executive's successor in interest shall, unless the context
otherwise requires, be substituted in place of the Executive
for purposes of this Agreement. Further, after the
Executive's death, all rights, options, privileges and
obligations in the Policy and under this Agreement which
theretofore inured to the benefit of and were imposed upon
the Executive shall instead inure to the benefit of and be
imposed upon the Executive's successor in interest. The
Executive's successor in interest
<PAGE>14
shall be the person to
whom the Executor's interest in the Policy and under this
Agreement shall pass as a result of the Executive's death.
This paragraph 16 shall apply only to the extent that the
Executive has not assigned the Executive's interests in the
Policy and under this Agreement to a Third Party Owner prior
to the Executive's death and shall only apply if the
Executive dies while the Split-Dollar Arrangement is in
effect.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement, in duplicate, as of the day and year first
above written.
AMERITECH
By:______________________________
Its authorized officer
"Corporation"
ATTEST:
______________________________
Secretary
Signature:___________________________
Name:___________________________
Executive
Exhibit 10e
<PAGE>1
[Estate Preservation Plan]
[Owner is the Executive]
EPP CA-1.DOC
COLLATERAL-ASSIGNMENT AGREEMENT
A. FOR VALUE RECEIVED, __________(hereinafter
referred to as the "Owner") does hereby assign, transfer and
set over to AMERITECH, a Delaware corporation, with
principal offices and place of business in the State of
Illinois, its successors and assigns (hereinafter referred
to as the "Assignee"), the specific rights referenced herein
(and only those specific rights) in and to that certain
policy (policy number ) issued by
Manufacturers Life Insurance Company (hereinafter referred
to as the "Insurer") (said policy hereinafter referred to as
the "Policy"), insuring the lives of Sample Executive and
Sample Spouse (hereinafter referred to as the "Insureds"),
subject to all the terms and conditions of the Policy. The
Owner, by this Assignment, and the Assignee, by acceptance
of the assignment of the Policy to the Assignee hereunder,
agree to the terms and conditions contained herein.
B. This Assignment is made, and the Policy is to
be held, as collateral security for all liabilities of the
Owner to the Assignee, now existing or hereafter arising
under and pursuant to that certain Split-Dollar Agreement,
by and between the Owner and the Assignee dated as of
_______ (hereinafter referred to as the "Agreement"). The
Owner reserves all rights and powers in and to the Policy,
except those specific, limited rights granted in the Policy
to the Assignee hereby as security for the liabilities of
the Owner to the Assignee under the Agreement.
C. It is expressly agreed that the Assignee's
interest in the Policy under and pursuant to this Assignment
shall be limited to the following specific rights in
addition to those provided for in Paragraph D hereof: (a)
the right to be paid the amount due the Assignee under the
Agreement as a result of the Assignee's payments toward the
premiums on the Policy by recovering said amount directly
from the Insurer out of
<PAGE>2
the death benefit provided under the
Policy, upon the death of the survivor of the Insureds while
the "Split-Dollar Arrangement," as defined in the Agreement,
remains in effect; and (b) the right to be paid the amount
due the Assignee under the Agreement as a result of the
Assignee's payments toward the premiums on the Policy in the
event the "Split-Dollar Arrangement," as defined in the
Agreement, shall terminate prior to the death of the
survivor of the Insureds by recovering said amount directly
from the Insurer out of the cash surrender value of the
Policy. The Owner and the Assignee shall promptly notify
the Insurer of the termination of the "Split-Dollar
Arrangement," as defined in the Agreement, upon the
occurrence of such event. Except as provided in Paragraph D
hereof, the Assignee shall have no other rights or powers in
and to the Policy as a result of this Assignment, and
specifically shall have no right or power to borrow against
or withdraw amounts from the Policy, to surrender or cancel
the Policy, or to take any other action which would impair
or defeat the rights of the Owner.
D. Subject to the provisions of this Assignment,
the Owner shall retain all of the rights, options,
privileges and other incidents of ownership in and to the
Policy as limited by the requisite consent of the Assignee
provided for herein, including, but not limited to: (a) the
right to surrender or cancel the Policy at any time provided
by the terms of the Policy and at such other times as the
Insurer may allow; (b) the right to collect and receive all
distributions or shares of surplus, dividend deposits or
additions to the Policy now or hereafter made or apportioned
thereto, and to exercise any and all options contained in
the Policy with respect thereto; (c) the right to exercise
all non-forfeiture rights permitted by the terms of the
Policy or allowed by the Insurer and to receive all benefits
and advantages derived therefrom; (d) the sole right to
designate and change the beneficiaries of the "Executive's
Death Benefit," as defined in the Agreement; (e) the right
to elect any optional mode of settlement permitted by the
Policy or allowed by the Insurer; and (f) the sole right to
assign the Owner's interests in the Policy; provided,
however, that all of the rights, options, privileges and
other incidents of ownership in and
<PAGE>3
to the Policy retained
by the Owner shall be subject to the terms and conditions of
the Agreement, and provided further that (1) the Owner shall
not take any action with respect to the Policy which would
have a direct or indirect adverse effect on the Assignee's
interests under the Agreement in the Policy without the
Assignee's prior written consent, and (2) except with
respect to the Owner's right to change the beneficiaries of
the "Executive's Death Benefit," as defined in the
Agreement, and to assign the Owner's interests in the Policy
and under the Agreement, the Owner shall not take any other
action with respect to the Policy (regardless of whether it
would directly or indirectly adversely affect the Assignee's
interests under the Agreement in the Policy) without the
Assignee's prior written consent, which consent will not be
unreasonably withheld by the Assignee. Except with respect
to those actions described in clause (2) above, the Insurer
may rely upon, and shall be protected in doing so, the
written notice of the Assignee as to the need for and the
fact of the Assignee's prior consent to such action.
E. The Assignee agrees with the Owner as follows:
(a) subject to the terms and conditions of the Agreement,
any balance of any amount received by the Assignee hereunder
from the Insurer remaining after payment of the then
existing liabilities of the Owner to the Assignee under the
Agreement shall be paid by the Assignee to the persons
entitled thereto under the terms of the Policy had this
Assignment not been executed; and (b) if the Policy is in
the possession of the Assignee, the Assignee will, upon the
Owner's written request, forward the Policy to the Insurer,
without unreasonable delay, for endorsement of any
designation or change of beneficiary, any election of
optional mode of settlement, or the exercise of any other
right reserved by the Owner hereunder.
F. Notwithstanding anything in this Assignment to
the contrary, the Insurer shall be under no obligation to
monitor the obligation of the Assignee hereunder to pay to
the persons entitled thereto any amounts received from the
Insurer remaining after payment of the then existing
liabilities of the Owner to the Assignee under the
<PAGE>4
Agreement, and the Insurer shall have no obligation or
liability to any person or entity if the Assignee fails to
pay such amounts as required hereunder.
G. The Insurer is hereby authorized to recognize,
and is protected in recognizing, the Assignee's claims to
amounts due the Assignee hereunder without investigating the
validity of the Assignee's claims thereto, the reason for
any action taken by the Assignee, the validity or accuracy
of the amount of any of the liabilities of the Owner to the
Assignee under the Agreement, the existence of any default
therein, the giving of any notice required herein, or the
application to be made by the Assignee of any amounts to be
paid to the Assignee. The sole receipt of the Assignee for
any amounts received by the Assignee shall be a full
discharge and release therefor to the Insurer.
H. The Insurer shall be fully protected in
recognizing the request made by the Owner for surrender or
cancellation of the Policy without investigating the reason
for such request, but only with the prior written consent of
the Assignee attached thereto, and upon such surrender or
cancellation, the Policy shall be terminated and be of no
further force or effect.
I. Upon the full payment of the liabilities of
the Owner to the Assignee under the Agreement by either the
Insurer or the Owner, the Assignee shall promptly release
this Assignment and thereby reassign to the Owner all
specific rights in the Policy previously assigned hereunder.
J. The Assignee may take or release other
security, may grant extensions, renewals or indulgences with
respect to the liabilities of the Owner to the Assignee
under the Agreement, or may apply the proceeds of the Policy
hereby assigned or any amount received on account of the
Policy by the exercise of any right permitted under this
Assignment, without resorting to or regard to other security
for such liabilities, if any.
K. In the event of any conflict between the
provisions of this Assignment and the provisions of the
Agreement with respect to the Policy or the Assignee's
rights therein, the provisions of this Assignment shall
prevail. The Insurer is not a party to the
<PAGE>5
Agreement and shall not be responsible for the interpretation
of the Agreement or for the sufficiency or validity of this
Assignment.
L. The Owner declares that no proceedings in
bankruptcy are pending against the Owner, and that the
Owner's property is not subject to any assignment for the
benefit of creditors of the Owner.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement, in duplicate, as of the day and year first
above written.
Signature:______________________
Name:___________________________
Executive "Owner"
SPOUSAL CONSENT
The undersigned, being the spouse of the Owner,
consents to the assignment of the Policy under the foregoing
Assignment as of the day and year first above written.
Signature:______________________
Name:___________________________
Spouse of Executive "Owner"
<PAGE>6
ACCEPTANCE
The undersigned Assignee accepts the assignment of the
Policy under the foregoing Assignment as of the day and year
first above written.
AMERITECH
By:_________________________________
Its authorized officer
"Assignee"
ATTEST:
___________________________
Secretary
RECEIPT
The undersigned Insurer acknowledges receipt of the
foregoing Assignment and Acceptance as of the day and year
first above written. However, the undersigned Insurer
assumes no responsibility as to the validity of the
foregoing Assignment and Acceptance and reserves the right
to require proof satisfactory to it of the Assignee's
interest in the Policy and the extent thereof before making
any settlement under the Policy.
MANUFACTURERS LIFE INSURANCE COMPANY
By:_____________________________________
Its authorized officer
"Insurer"
Exhibit 10f
<PAGE>1 -----------------------------
AMERITECH CORPORATION
1999
STOCK OPTION AGREEMENT
-----------------------------
Participant: ______________________________
Number of Shares of Common Stock:_____________
Option Price: ______________________________
Date of Agreement:____________________________
Option Becomes Exercisable:
No. of Shares
Date Exercisable
Prior to _______________ None
On _______________ ____________
On _______________ ____________
On _______________ ____________
Option Term Expiration Date: _________________
1. Grant. In accordance with, and subject to, the provisions of
the Ameritech Corporation Long-Term Stock Incentive Plan (the "Plan"),
Ameritech Corporation, a Delaware corporation (the "Company"), hereby
grants to the above-named participant (the "Participant") a Non-
Qualified Stock Option to purchase the number of shares of Common Stock
of the Company set forth above (the "Option Shares") at a price per
share equal to the option price set forth above (the "Option Price").
2. Exercisability. (a) General. Except as otherwise provided
in this paragraph 2, the Non-Qualified Stock Option granted by this
Agreement (this "Option") shall first become exercisable on the date or
dates set forth above as to the respective number of Option Shares set
forth opposite each such date.
(b) Acceleration upon Change in Control. This Option shall
become exercisable as to all of the Option Shares upon the occurrence
of a Change in Control (as defined in the Plan).
3. Term and Termination of Option. (a) Normal Option
Expiration. Unless terminated earlier pursuant to any of the following
provisions of this paragraph 3 or paragraph 6 of this Agreement, this
Option shall expire on the date shown above as the Option Term
Expiration Date (the "Option Term Expiration Date").
<PAGE>2
(b) Retirement. If the Participant's employment terminates by
reason of any Retirement (as defined below) which constitutes a
Qualifying Retirement (as defined below), then (i) any portion of this
Option which is either exercisable as of the date of the Participant's
Qualifying Retirement, or which will become exercisable, pursuant to
the regular exercisability schedule for this Option set forth above,
within 120 days following the date of the Participant's Qualifying
Retirement shall terminate on the earlier of (A) the Option Term
Expiration Date, or (B) if the Participant is not in Corporate Resource
grade 5 (CR5) or equivalent or higher at such date of Qualifying
Retirement, five years after the date of the Participant's Qualifying
Retirement, and (ii) the balance of this Option as to all remaining
Option Shares shall terminate as of the date of the Participant's
Qualifying Retirement. For purposes of this paragraph 3(b),
"Retirement" shall mean any employment termination by reason of
retirement which occurs either (I) on or after the date on which the
Participant reaches age 65 or, if later, the fourth anniversary of the
date the Participant commenced participation in the Ameritech
Management Pension Plan ("Normal Retirement") or (II) under the
Ameritech Management Pension Plan, with the Company's approval, on or
after the date on which the Participant's combined age and service (in
years and months) while participating in the Ameritech Management
Pension Plan (or the Ameritech Pension Plan if the Participant
previously accrued a benefit under the Ameritech Pension Plan for which
eligibility was transferred to the Ameritech Management Pension Plan)
equals 75 ("Approved Early Retirement" and, together with Normal
Retirement, "Retirement"). For purposes of this paragraph 3(b),
"Qualifying Retirement" means any Retirement which occurs on or after
[December 31, 19 or the first anniversary of the date of this
Agreement]. Any portion of this Option which is not exercisable as of
the date of the Participant's Qualifying Retirement, but would become
so within 120 days following such date, will first become exercisable
on the normal exercisability date therefor set forth above, in
accordance with paragraph 2(a) hereof.
(c) Resignation or Certain Other Non-Cause Terminations of
Employment. If the Participant's employment by the Company and its
subsidiaries terminates voluntarily (for example, upon the
Participant's resignation) or involuntarily for any reason or under any
circumstances other than those covered by paragraphs 3(b), 3(d), 3(e)
or 3(f) hereof, this Option shall terminate (i) on the date which is 30
days after the date of such employment termination, but in no event
after the Option Term Expiration Date, as to the portion of this Option
which is exercisable as of the date of such employment termination, and
(ii) upon such employment termination, as to any and all remaining
Option Shares for which this Option is not exercisable as of such time.
(d) Employment Termination Without Cause Following Change in
Control. If the Participant's employment by the Company and
subsidiaries is involuntarily terminated without Cause (as defined
below) during the portion of the calendar year which remains following
a Change in Control or the two immediately subsequent calendar years,
the Participant may exercise this Option at any time during the five
years commencing on the date of Participant's termination of employment
(or, if less, the period remaining on the original term of this
Option). Solely for purposes of the preceding sentence, the term
"Cause" means the Participant's willfully engaging in conduct
materially injurious to the Company or any subsidiary or the willful
and continual failure by the Participant to substantially perform the
duties assigned to the Participant (other than any failure resulting
from the Participant's incapacity due to physical injury or illness or
mental illness), which failure has not been corrected by the
Participant within 30 days after receipt of a written notice from the
Chief Executive Officer or Board of Directors of the Participant's
employer (or, if the Participant's employer does not have a Board of
Directors and is managed by its shareholder or shareholders, then from
such shareholder or shareholders owning a majority of the voting stock
of the Participant's employer) specifying the manner in which the
Participant has failed to perform such duties. No act, or failure to
act, by the Participant shall be deemed "willful"
<PAGE>3
unless done, or omitted to be done, not in good faith and without
reasonable belief that such action or omission was in the best
interest of the Company and its subsidiaries.
(e) Termination of Employment for Cause. If the Participant's
employment by the Company and its subsidiaries is terminated for cause
(as determined by the Company, in its sole judgment) prior to the
Option Term Expiration Date, this Option shall terminate upon such
employment termination as to any and all Option Shares then remaining
subject to this Option.
(f) Employment Termination due to Participant's Death or Long-
Term Disability. The portion of this Option which is exercisable as of
the date on which the Participant's employment is terminated by reason
of the Participant's death or disability shall terminate on the earlier
of (i) the Option Term Expiration Date or (ii) one year after the date
of such employment termination by death or disability.
4. Manner of Exercise. This Option may be exercised, in whole
or in part, (a) in the case of "cashless exercises" (including so-
called "sell enough to cover" transactions), by providing such notice
as may be required by the "cashless exercise" procedures established by
the Committee (as defined in the Plan) from time to time and then in
effect, and (b) as to all other forms of option exercise, by filing a
written notice (in the form attached hereto) with the person then
designated by the Company as the appropriate Stock Option Administrator
with respect to the Participant, in either case prior to the date this
Option expires or earlier terminates. Such notice shall specify the
number of shares of Common Stock with respect to which this Option is
being exercised. Unless shares (or a portion of the proceeds, in the
case of a cashless exercise) are retained in satisfaction of applicable
income and employment tax withholding, the Participant will, upon
request of the Company, submit a check for an amount equal to the
amount required to be withheld by the Company on account of FICA taxes
and federal, state, and local income taxes. Payment of the Option
Price shall be by cash, by certified or cashier's check payable to the
Company, by delivery or attestation of ownership of shares of Common
Stock having an aggregate fair market value which is equal to the
amount of cash which would be required (unless otherwise provided by
rules established by the Committee from time to time) or by compliance
with the cashless exercise procedures established by the Committee.
5. Non-Transferability. This Option is not transferable except,
upon the Participant's death, either to a beneficiary or beneficiaries
previously designated by the Participant in accordance with procedures
established from time to time by the Committee (a "Designated
Beneficiary") or, if there is no such Designated Beneficiary, by will
or the laws of descent and distribution. This Option may be exercised
during the lifetime of the Participant only by the Participant and
after the death of the Participant by a Designated Beneficiary or, if
there is no such Designated Beneficiary, by the legal representative of
the estate of the Participant.
6. Forfeiture for Certain Participant Actions. Notwithstanding
any other provision of this Agreement, this Option shall terminate
immediately and the Participant shall forfeit all rights hereunder if
the Participant, without the consent of the Company, either (i) becomes
associated with, is employed by, renders services to or owns more than
two percent (2%) of the stock of any business that competes with the
Company or any of its subsidiaries or affiliates in any market in which
the Company or any such subsidiary or affiliate then does business, or
(ii) divulges or appropriates to the Participant's own use or to the
use of any other person any secret or confidential information or
knowledge pertaining to the business of the Company or any of its
subsidiaries or affiliates obtained by the Participant while employed
by any of them.
<PAGE>4
7. No Collateral Rights. Nothing herein contained shall confer
on the Participant any right with respect to continuation of employment
by the Company or its subsidiaries, or interfere with the right of the
Company or its subsidiaries to terminate at any time the employment of
the Participant or, except as to shares of Company Common Stock
actually delivered upon any exercise of this Option, confer any rights
as a stockholder upon the holder hereof or any other person.
8. Administration. The authority to manage and control the
operation and administration of this Agreement shall be vested in the
Committee or its delegates (subject to the discretionary assumption of
such authority by the Company's Board of Directors, as provided in the
Plan), and the Committee shall have the same powers and authority with
respect to this Agreement as it has with respect to the Plan. Any
interpretation of this Agreement by the Committee and any decision made
by it with respect to this Agreement shall be final and binding with
respect to the Participant and all other persons.
9. Relationship to the Plan. This Agreement may contain terms
which are in addition to or supplement the terms of the Plan, but the
terms of this Agreement shall be subject to the terms of the Plan.
This Agreement also is subject to all interpretations, amendments,
rules and regulations adopted by the Committee from time to time
pursuant to the Plan.
10. Miscellaneous. The headings of this Agreement are included
for convenience of reference only, and shall not be used in
interpreting this Agreement. Any notices provided for in this
Agreement or in the Plan shall be in writing and shall be given by hand
delivery, facsimile, overnight courier or postage paid, first class
mail. Any notices shall be directed (a) if to the Participant, to the
Participant's address as then reflected on the Company's records, and
(b) if to the Company, to the person then designated by the Company as
the appropriate Stock Option Administrator with respect to the
Participant or to such other persons and in accordance with such other
procedures as the Committee from time to time may establish.
AMERITECH CORPORATION
By:_______________________
Its Corporate Secretary
Exhibit 10g
<PAGE>1
------------------------------------
AMERITECH CORPORATION
1999 STOCK OPTION AGREEMENT
WITH DIVIDEND EQUIVALENTS
------------------------------------
Participant: ___________________________________
Number of Shares of Common Stock: _____________________
Option Price: ___________________________________
Date of Agreement: ___________________________________
Option Becomes Exercisable:
No. of Shares
Date Exercisable
Prior to _______________________ None
On _______________________ ______________
On _______________________ ______________
On _______________________ ______________
Option Term Expiration Date: __________________________________
1. Grant. In accordance with, and subject to, the
provisions of the Ameritech Corporation Long-Term Stock Incentive
Plan (the "Plan"), Ameritech Corporation, a Delaware corporation
(the "Company"), hereby grants to the above-named participant
(the "Participant") a Non-Qualified Stock Option to purchase the
number of shares of Common Stock of the Company set forth above
(the "Option Shares") at a price per share equal to the option
price set forth above (the "Option Price").
2. Exercisability. (a) General. Except as otherwise
provided in this paragraph 2, the Non-Qualified Stock Option
granted by this Agreement (this "Option") shall first become
exercisable on the date or dates set forth above as to the
respective number of Option Shares set forth opposite each such
date.
(b) Acceleration upon Change in Control. This Option shall
become exercisable as to all of the Option Shares upon the
occurrence of a Change in Control (as defined in the Plan).
3. Term and Termination of Option. (a) Normal Option
Expiration. Unless terminated earlier pursuant to any of the
following provisions of this paragraph 3 or paragraph 6 of this
<PAGE>2
Agreement, this Option shall expire on the date shown above as
the Option Term Expiration Date (the "Option Term Expiration
Date").
(b) Retirement. If the Participant's employment terminates
by reason of any Retirement (as defined below) which constitutes
a Qualifying Retirement (as defined below), then (i) any portion
of this Option which is either exercisable as of the date of the
Participant's Qualifying Retirement, or which will become
exercisable, pursuant to the regular exercisability schedule for
this Option set forth above, within 120 days following the date
of the Participant's Qualifying Retirement shall terminate on the
earlier of (A) the Option Term Expiration Date, or (B) if the
Participant is not in Corporate Resource grade 5 (CR5) or
equivalent or higher at such date of Qualifying Retirement, five
years after the date of the Participant's Qualifying Retirement,
and (ii) the balance of this Option as to all remaining Option
Shares shall terminate as of the date of the Participant's
Qualifying Retirement. For purposes of this paragraph 3(b),
"Retirement" shall mean any employment termination by reason of
retirement which occurs either (I) on or after the date on which
the Participant reaches age 65 or, if later, the fourth
anniversary of the date the Participant commenced participation
in Ameritech Management Pension Plan ("Normal Retirement") or
(II) under the Ameritech Management Pension Plan, with the
Company's approval, on or after the date on which the
Participant's combined age and service (in years and months)
while participating in the Ameritech Management Pension Plan (or
the Ameritech Pension Plan if the Participant previously accrued
a benefit under the Ameritech Pension Plan for which eligibility
was transferred to the Ameritech Management Pension Plan) equals
75 ("Approved Early Retirement" and, together with Normal
Retirement, "Retirement"). For purposes of this paragraph 3(b),
"Qualifying Retirement" means any Retirement which occurs on or
after [December 31, ______ or the first anniversary of the date
of this Agreement]. Any portion of this Option which is not
exercisable as of the date of the Participant's Qualifying
Retirement, but would become so within 120 days following such
date, will first become exercisable on the normal exercisability
date therefor set forth above, in accordance with paragraph 2(a)
hereof.
(c) Resignation or Certain Other Non-Cause Terminations of
Employment. If the Participant's employment by the Company and
its subsidiaries terminates voluntarily (for example, upon the
Participant's resignation) or involuntarily for any reason or
under any circumstances other than those covered by paragraphs
3(b), 3(d), 3(e) or 3(f) hereof, this Option shall terminate (i)
on the date which is 30 days after the date of such employment
termination, but in no event after the Option Term Expiration
Date, as to the portion of this Option which is exercisable as of
the date of such employment termination, and (ii) upon such
employment termination, as to any and all remaining Option Shares
for which this Option is not exercisable as of such time.
(d) Employment Termination Without Cause Following Change
in Control. If the Participant's employment by the Company and
subsidiaries is involuntarily terminated without Cause (as
defined below) during the portion of the calendar year which
remains following a Change in Control or the two immediately
subsequent calendar years, the Participant may exercise this
Option at any time during the five years commencing on the date
of Participant's termination of employment (or, if less, the
period remaining on the original term of this Option). Solely
for purposes of the preceding sentence, the term "Cause" means
the Participant's willfully engaging in conduct materially
injurious to the Company or any subsidiary or the willful and
continual failure by the Participant to substantially perform the
duties assigned to the Participant (other than any
<PAGE>3
failure resulting from the Participant's incapacity due to
physical injury or illness or mental illness), which failure
has not been corrected by the Participant within 30 days after
receipt of a written notice from the Chief Executive Officer or
Board of Directors of the Participant's employer (or, if the
Participant's employer does not have a Board of Directors and is
managed by its shareholder or shareholders, then from such
shareholder or shareholders owning a majority of the voting stock
of the Participant's employer) specifying the manner in which the
Participant has failed to perform such duties. No act, or
failure to act, by the Participant shall be deemed "willful"
unless done, or omitted to be done, not in good faith and without
reasonable belief that such action or omission was in the best
interest of the Company and its subsidiaries.
(e) Termination of Employment for Cause. If the
Participant's employment by the Company and its subsidiaries is
terminated for Cause (as determined by the Company, in its sole
judgment) prior to the Option Term Expiration Date, this Option
shall terminate upon such employment termination as to any and
all Option Shares then remaining subject to this Option.
(f) Employment Termination due to Participant's Death or
Long-Term Disability. The portion of this Option which is
exercisable as of the date on which the Participant's employment
is terminated by reason of the Participant's death or disability
shall terminate on the earlier of (i) the Option Term Expiration
Date or (ii) one year after the date of such employment
termination by death or disability.
4. Manner of Exercise. This Option may be exercised, in
whole or in part, (a) in the case of "cashless exercises"
(including so-called "sell enough to cover" transactions), by
providing such notice as may be required by the "cashless
exercise" procedures established by the Committee (as defined in
the Plan) from time to time and then in effect, and (b) as to all
other forms of option exercise, by filing a written notice (in
the form attached hereto) with the person then designated by the
Company as the appropriate Stock Option Administrator with
respect to the Participant, in either case prior to the date this
Option expires or earlier terminates. Such notice shall specify
the number of shares of Common Stock with respect to which this
Option is being exercised. Unless shares (or a portion of the
proceeds, in the case of a cashless exercise) are retained in
satisfaction of applicable income and employment tax withholding,
the Participant will, upon request of the Company, submit a check
for an amount equal to the amount required to be withheld by the
Company on account of FICA taxes and federal, state, and local
income taxes. Payment of the Option Price shall be by cash, by
certified or cashier's check payable to the Company, by delivery
or attestation of ownership of shares of Common Stock having an
aggregate fair market value which is equal to the amount of cash
which would be required (unless otherwise provided by rules
established by the Committee from time to time) or by compliance
with the cashless exercise procedures established by the
Committee.
5. Non-Transferability. This Option is not transferable
except, upon the Participant's death, either to a beneficiary or
beneficiaries previously designated by the Participant in
accordance with procedures established from time to time by the
Committee (a "Designated Beneficiary") or, if there is no such
Designated Beneficiary, by will or the laws of descent and
distribution. This Option may be exercised during the lifetime
of the Participant only by the Participant and after the
<PAGE>4
death of the Participant by a Designated Beneficiary or, if there
is no such Designated Beneficiary, by the legal representative of
the estate of the Participant.
6. Forfeiture for Certain Participant Actions.
Notwithstanding any other provision of this Agreement, this
Option shall terminate immediately and the Participant shall
forfeit all rights hereunder if the Participant, without the
consent of the Company, either (i) becomes associated with, is
employed by, renders services to or owns more than two percent
(2%) of the stock of any business that competes with the Company
or any of its subsidiaries or affiliates in any market in which
the Company or any such subsidiary or affiliate then does
business, or (ii) divulges or appropriates to the Participant's
own use or to the use of any other person any secret or
confidential information or knowledge pertaining to the business
of the Company or any of its subsidiaries or affiliates obtained
by the Participant while employed by any of them.
7. Dividend Equivalents. The Participant will be entitled
to Dividend Equivalents to the extent provided by this paragraph
7:
(a) Book Account. The Company shall establish a book
account for the benefit of the Participant (the Participant's
"Account"). As of each Record Date during the Dividend Crediting
Period, Stock Units shall be credited to the Participant's
Account to reflect the dividends payable for that Record Date
with respect to Covered Shares (as those terms are defined
below). The number of Stock Units to be credited to the
Participant's Account as of a Record Date shall be determined by
dividing the aggregate amount of the cash dividend that would
have been paid on the number of Covered Shares (as of such Record
Date) by the Average Value of a share of the Company's Common
Stock (as of such Record Date). To the extent that stock options
under the Plan are adjusted in accordance with the Plan to
reflect a corporate transaction (e.g., a stock split) with
respect to the Company, a corresponding adjustment shall be made
with respect to the Participant's Account.
(b) Interim Distributions. If, during the Dividend
Crediting Period, the Participant has exercised all or any
portion of the Option, then, as of the Interim Distribution Date
next following the end of the calendar quarter in which such
exercise occurs, the Participant shall receive an "Interim
Distribution" of shares of the Company's Common Stock equal to
the number of Stock Units credited to the Participant's Account
as of the Interim Distribution Date, multiplied by a fraction,
(A) the numerator of which shall be the total number of shares of
Company Stock as to which the Option was exercised during the
calendar quarter; and (B) the denominator of which shall be equal
to the sum of: (i) the number of shares of Company Stock subject
to the Option at the beginning of the calendar quarter in which
such exercise occurs; plus (ii) the number of shares, if any, of
the Company's Common Stock covered by any other prior exercise(s)
of the Option as to which Interim Distributions or Deferred
Interim Distributions have not been made. As of the date of such
distribution, the Participant's Account shall be reduced by the
number of Stock Units equal to the number of shares distributed.
(c) Deferred Distribution. If, as of the Interim
Distribution Date with respect to the exercise of the Option in
accordance with paragraph (b) above, the Fair Market Value of the
Company's
<PAGE>5
Common Stock is equal to or less than the Option Price,
distribution with respect to that exercise shall be deferred
until the earlier of the next Interim Distribution Date on which
the Fair Market Value of the Company's Common Stock exceeds the
Option Price or the Final Distribution Date (as defined in
paragraph 7(d)). If, by reason of the limitations of this
paragraph (c), distribution with respect to any Option exercise
is deferred, (i) the number of Stock Units as to which
distribution would otherwise have occurred will remain credited
to the Participant's Account, and will, while remaining credited
to the Participant's Account, be included in the determination of
Covered Shares during the Dividend Crediting Period, and (ii) the
number of Stock Units to be distributed on a subsequent Interim
Distribution Date shall be determined by multiplying the number
of Stock Units credited to the Participant's Account as of the
Interim Distribution Date by the fraction determined in
accordance with paragraph 7(b).
(d) Final Distribution. As of the Final Distribution Date,
the Participant shall receive a "Final Distribution" of shares of
the Company's Common Stock equal to the number of Stock Units
then credited to the Participant's Account. The "Final
Distribution Date" shall be the date that is five years from the
date of this Agreement; provided that if the Fair Market Value of
the Company's Common Stock is equal to or less than the Option
Price on that date, the "Final Distribution Date" shall be
deferred until the first day of the next calendar quarter (i.e.,
July 1, October 1, January 1 and April 1) during the Option Term
(as set forth in paragraph 3(a)) on which the Fair Market Value
on such date exceeds the Option Price. Upon the Final
Distribution with respect to the Participant's Account, the Stock
Units credited to that Account shall be reduced to zero.
(e) Distribution following Termination of Employment. If
the Participant's employment terminates for any reason other than
Cause (as determined in accordance with paragraph 3(e)), the
number of Stock Units in the Participant's Account as of the date
of termination shall be multiplied by a fraction, the numerator
of which shall be the number of Option Shares canceled
immediately upon the Participant's termination of employment
pursuant to paragraph 3(b), 3(c), 3(d), and 3(f) and the
denominator of which shall be the sum of (i) total number of
shares then subject to the Option (whether or not then
exercisable) plus (ii) the number of shares, if any, of the
Company's Common Stock covered by any other prior exercise(s) of
the Option as to which Interim Distributions or Deferred Interim
Distributions have not been made. The number of Stock Units in
the Participant's Account equal to the number resulting from such
multiplication (if any) shall be canceled. The number of Stock
Units remaining in the Participant's Account after such
cancellation (if any) shall remain subject to this Agreement and
be available for Interim Distributions and the Final Distribution
for 120 days beyond the period determined in accordance with
paragraphs 3(b), 3(c), 3(d), and 3(f) during which the Option
remains exercisable following termination of employment in
accordance with this Agreement (or the period during which the
Option would remain exercisable in accordance with paragraph
3(b), 3(c), 3(d), and 3(f), even if, following termination of
employment, there is no unexercised portion of the Option that
has become exercisable on or before termination of employment).
Notwithstanding the above, on the ten-year anniversary of this
Agreement, all Stock Units remaining in the Participant's
Account, if any, shall be canceled. If the Participant's
employment is terminated for Cause, all Stock Units credited to
the Participant's Account shall immediately be canceled.
<PAGE>6
(f) Withholding. If tax withholding is required with
respect to the Participant's Account, and unless shares are
retained in satisfaction of applicable income and employment tax
withholding, the Participant will, upon request of the Company,
submit a check for an amount equal to the amount required to be
withheld by the Company on account of FICA taxes and federal,
state, and local income taxes.
(g) Definitions. For purposes of this paragraph 7, the
terms listed below shall have the definitions indicated:
(i) The "Average Value" of a share of the Company's Common Stock
as of any Record Date shall be the average of the Fair Market
Values on the first and last trading days of the calendar quarter
immediately preceding the payment date of the dividends for such
Record Date.
(ii) The number of "Covered Shares" as of any Record Date shall
equal the sum of the number of shares then subject to the Option
(the "Shares") and the number of Stock Units then credited to the
Participant's Account.
(iii) The "Dividend Crediting Period" shall be the period
beginning with the first day after the date of this Agreement,
and ending five years from the date of this Agreement.
(iv) The "Fair Market Value" of a share of the Company's Common
Stock means the average of the highest and lowest prices at which
a share of the Company's Common Stock is traded on the date as of
which the determination is made, or, if the Company's Common
Stock is not traded on that date, the average of the highest and
lowest prices on the next preceding day on which the Company's
Common Stock was traded, as quoted on the New York Stock Exchange
- - Composite Transactions or, if the Company's Common Stock is not
so quoted, on another principal market quotation system selected
by the Company.
(v) The "Interim Distribution Date" shall be the first day of
the second month of each calendar quarter occurring after the
date of this Agreement, and prior to the Final Distribution Date.
(vi) The "Record Date" shall be any date on which a record of
the Company's stockholders is taken for the purpose of payment of
a cash dividend on the Company's Common Stock.
8. Deferral of Distributions. Notwithstanding the
foregoing provisions of this Agreement to the contrary, the
Participant may elect to defer receipt of Option gains, and defer
the Interim Distributions and Final Distribution otherwise
provided in paragraph 7, as provided for and in accordance with
the provisions of the Corporate Resource Deferral Plan.
9. No Collateral Rights. Nothing herein contained shall
confer on the Participant any right with respect to continuation
of employment by the Company or its subsidiaries, or interfere
with the right of the Company or its subsidiaries to terminate at
any time the employment of the Participant or, except as to
shares of Company Common Stock actually delivered upon any
exercise of this Option, confer any rights as a stockholder upon
the holder hereof or any other person.
<PAGE>7
10. Administration. The authority to manage and control
the operation and administration of this Agreement shall be
vested in the Committee or its delegates (subject to the
discretionary assumption of such authority by the Company's Board
of Directors, as provided in the Plan), and the Committee shall
have the same powers and authority with respect to this Agreement
as it has with respect to the Plan. Any interpretation of this
Agreement by the Committee and any decision made by it with
respect to this Agreement shall be final and binding with respect
to the Participant and all other persons.
11. Relationship to the Plan. This Agreement may contain
terms which are in additions to or supplement the terms of the
Plan, but the terms of this Agreement shall be subject to the
terms of the Plan. This Agreement also is subject to all
interpretations, amendments, rules and regulations adopted by the
Committee from time to time pursuant to the Plan.
12. Miscellaneous. The headings of this Agreement are
included for convenience of reference only, and shall not be used
in interpreting this Agreement. Any notice provided for in this
Agreement or in the Plan shall be in writing and shall be given
by hand delivery, facsimile, overnight courier or postage paid,
first class mail. Any notice shall be directed (a) if to the
Participant, to the Participant's address as then reflected on
the Company's records, and (b) if to the Company, to the person
then designated by the Company as the appropriate Stock Option
Administrator with respect to the Participant or to such other
persons and in accordance with such other procedures as the
Committee from time to time may establish.
AMERITECH CORPORATION
By: ______________________
Its Corporate Secretary
Exhibit 10h
<PAGE>1 of 1
-------------------------------------------
AMENDMENT TO
STOCK OPTION AGREEMENTS
WITH SBC MERGER PROVISIONS
-------------------------------------------
The following constitutes an amendment of the terms of
currently outstanding stock options approved for issue on or
after April 8, 1998 and granted before April 1, 1999 under
the provisions of the Ameritech Corporation Long-Term Stock
Incentive Plan. Notwithstanding any provision to the
contrary in the applicable stock option agreement, the
change in control provisions contained therein shall be
applicable to any change in control which occurs pursuant to
the Agreement and Plan of Merger, dated as of May 10, 1998,
among Ameritech Corporation, SBC Communications Inc. and SBC
Delaware, Inc. (as such agreement may be amended from time
to time).
Date: April 30, 1999 AMERITECH CORPORATION
By__________________________
Its Corporate Secretary
Exhibit 10I
<PAGE>1 of 1
_________________________________________
AMENDMENT TO
1996, 1997 AND 1998 STOCK OPTION AGREEMENTS
WITH DIVIDEND EQUIVALENTS
_________________________________________
The following constitutes an amendment of the terms of
each stock option granted with dividend equivalent rights
and an effective date on or after January 1, 1996 and before
January 1, 1999 under the provisions of the Ameritech 1989
Long Term Incentive Plan or the Ameritech Corporation Long-
Term Stock Incentive Plan (collectively the "Stock Option
Plans"). The applicable agreement issued with respect to
each such option currently provides that dividend equivalent
"Stock Units" are credited as of certain "Record Dates"
occurring on or before the earlier of the fifth anniversary
of the date of the option agreement or the date on which the
Participant's employment by the Company and its subsidiaries
is terminated for any reason other than Retirement (as
defined in the option agreement). Subject to all other
terms and conditions of the Stock Option Plans and the
applicable stock option agreement, in the event of a
termination of employment for reasons other than Retirement,
dividend equivalent Stock Units shall continue to be
credited as of the applicable Record Dates for so long as
the stock option or Stock Units attributable to the stock
option are outstanding, but in no event beyond the fifth
anniversary of the date of the option agreement.
Date: April 30, 1999 AMERITECH CORPORATION
By _____________________________
Its Corporate Secretary
EXHIBIT 12
AMERITECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Dollars in Millions)
Three Months Ended
March 31
--------------
1999 1998
---- ----
EARNINGS
- --------
Income before interest, income taxes
and undistributed equity earnings.......... $1,188 $ 884
Portion of rent expense
representing interest...................... 19 18
Michigan Single Business tax................ 9 7
Preferred dividends of subsidiaries (2)..... 15 10
------ ------
Total earnings (2)......................... $1,231 $ 919
------ ------
FIXED CHARGES
- -------------
Interest expense............................ $ 134 $ 175
Capitalized interest........................ 6 5
Portion of rent expense
representing interest...................... 19 18
Preferred dividends of subsidiaries (2)..... 15 10
------ ------
Total fixed charges......................... $ 174 $ 208
------ ------
Ratio of earnings to fixed charges.......... 7.07 4.42
====== ======
(1) Earnings represent income before income taxes and fixed charges.
Since we have already deducted the Michigan Single Business Tax
(the Tax) and rental expense to arrive at income before interest
and income taxes, the Tax and the one-third portion of rental
expense considered to be fixed charges are added back to arrive at
total earnings.
(2) As required by SEC rules, we have grossed up the preferred stock
dividends to an amount representing the pretax earnings needed to
cover the dividend requirements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S MARCH 31, 1999 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 666,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,221,000
<ALLOWANCES> (342,000)
<INVENTORY> 341,000
<CURRENT-ASSETS> 4,798,000
<PP&E> 36,976,000
<DEPRECIATION> 22,562,000
<TOTAL-ASSETS> 29,796,000
<CURRENT-LIABILITIES> 7,418,000
<BONDS> 5,521,000
0
0
<COMMON> 1,177,000
<OTHER-SE> 9,740,000
<TOTAL-LIABILITY-AND-EQUITY> 29,796,000
<SALES> 0<F2>
<TOTAL-REVENUES> 4,455,000
<CGS> 0<F3>
<TOTAL-COSTS> 3,273,000
<OTHER-EXPENSES> (111,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,000
<INCOME-PRETAX> 1,159,000
<INCOME-TAX> 427,000
<INCOME-CONTINUING> 732,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 732,000
<EPS-PRIMARY> 0.67<F4>
<EPS-DILUTED> 0.66<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE CASH TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUES" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN COST OF SERVICE AND
PRODUCTS IN THE FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER
REGULATION S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128,"EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN
PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY.
</FN>
</TABLE>