<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
..X.. QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
..... TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to _____________
Commission file number 1-1105
AT&T CORP.
A New York I.R.S. Employer
Corporation No. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone - Area Code 212-387-5400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ..X.. No .....
At July 29, 1994 1,360,270,000 common shares were outstanding.
<PAGE>
<PAGE> 2 AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30 June 30
1994 1993(b) 1994 1993(b)
Sales and Revenues
Telecommunications services..... $10,335 $ 9,833 $20,559 $19,800
Sales of products and systems... 4,979 4,175 9,049 7,729
Rentals and other services...... 1,692 1,720 3,267 3,348
Financial services and leasing.. 723 588 1,414 1,158
Total revenues.................. 17,729 16,316 34,289 32,035
Costs (c)
Telecommunications services
Access and other
interconnection costs....... 4,465 4,387 8,984 8,844
Other costs................... 1,748 1,690 3,489 3,526
Total telecommunications
services...................... 6,213 6,077 12,473 12,370
Products and systems............ 3,099 2,563 5,539 4,632
Rentals and other services...... 817 785 1,591 1,573
Financial services and leasing.. 499 403 951 780
Total costs..................... 10,628 9,828 20,554 19,355
Gross margin.................... 7,101 6,488 13,735 12,680
Operating Expenses (c)
Selling, general and
administrative expenses....... 4,490 4,341 8,592 8,258
Research and development
expenses...................... 703 740 1,461 1,487
Total operating expenses........ 5,193 5,081 10,053 9,745
Operating income................ 1,908 1,407 3,682 2,935
Other income - net (d).......... 65 278 184 421
Interest expense................ 134 111 263 313
Income before income taxes and
cumulative effects of
accounting changes............ 1,839 1,574 3,603 3,043
Provision for income taxes...... 709 569 1,379 1,102
Income before cumulative
effects of accounting changes. 1,130 1,005 2,224 1,941
(CONT'D)
<PAGE>
<PAGE> 3 AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME (CONT'D)
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30 June 30
1994 1993(b) 1994 1993(b)
Cumulative effects on prior years
of changes in accounting for:
Postretirement benefits (net of
income taxes of $4,294) (e)... 0 0 0 (7,023)
Postemployment benefits (net of
income taxes of $ 681) (e).... 0 0 0 (1,128)
Income taxes (e)................ 0 0 0 383
Cumulative effects of
accounting changes............ 0 0 0 (7,768)
Net Income (Loss)............... $1,130 $1,005 $2,224 $(5,827)
Weighted average common shares
outstanding (millions)........ 1,363 1,352 1,361 1,350
Per Common Share:
Income before cumulative effects
of accounting changes......... $ .83 $ .74 $ 1.63 $ 1.44
Cumulative effects of accounting
changes....................... - - - (5.76)
Net Income (Loss)............... $ .83 $ .74 $ 1.63 $ (4.32)
Dividends declared per
common share.................. $ .33 $ .33 $ .66 $ .66
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 4 AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Per Share Amount)
(Unaudited)
June 30, December 31,
1994 1993
ASSETS
Cash and temporary cash investments.... $ 967 $ 532
Receivables less allowances
of $1,062 and $1,003
Accounts receivable.................. 12,118 11,933
Finance receivables.................. 12,492 11,370
Inventories (f)........................ 3,972 3,187
Deferred income taxes.................. 2,230 2,079
Other current assets................... 975 637
Total current assets................... 32,754 29,738
Property, plant and equipment, net of
accumulated depreciation of $21,939
and $21,496.......................... 19,133 19,397
Investments............................ 1,237 1,503
Finance receivables.................... 4,099 3,815
Prepaid pension costs.................. 3,893 3,576
Other assets........................... 3,159 2,737
TOTAL ASSETS........................... $64,275 $60,766
(CONT'D)
<PAGE> 5 AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Per Share Amount)
(Unaudited)
June 30, December 31,
1994 1993
LIABILITIES AND DEFERRED CREDITS
Accounts payable........................ $ 5,353 $ 4,694
Payroll and benefit-related liabilities. 3,431 3,746
Postretirement and postemployment
benefit-related liabilities............ 1,188 1,301
Debt maturing within one year........... 9,213 10,904
Dividends payable....................... 449 448
Other current liabilities............... 4,737 4,241
Total current liabilities............... 24,371 25,334
Long-term debt including capital
leases................................ 9,114 6,812
Postretirement and postemployment
benefit related liabilities........... 8,981 9,082
Other liabilities....................... 4,371 4,298
Deferred income taxes................... 484 275
Unamortized investment tax credits...... 245 270
Other deferred credits.................. 432 263
Total liabilities & deferred credits.... 47,998 46,334
Minority interests...................... 618 582
SHAREOWNERS' EQUITY
Common stock - par value $1 per share... 1,360 1,352
Authorized shares: 2,000,000,000
Outstanding shares:
1,359,950,000 at June 30, 1994
1,352,398,000 at December 31, 1993
Additional paid-in capital.............. 12,413 12,028
Guaranteed ESOP obligation.............. (331) (355)
Foreign currency translation
adjustments........................... 50 (32)
Retained earnings....................... 2,167 857
Total shareowners' equity............... 15,659 13,850
TOTAL LIABILITIES/SHAREOWNERS' EQUITY... $64,275 $60,766
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 6 AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended
June 30,
1994 1993
Operating Activities
Net income (loss)........................ $ 2,224 $(5,827)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Cumulative effects of accounting
changes (e)......................... - 7,768
Depreciation.......................... 1,762 1,776
Provision for uncollectibles.......... 849 835
(Increase) in accounts receivable..... (756) (162)
(Increase) in inventories............. (762) (736)
Increase (Decrease)in accounts
payable............................. 629 (227)
Net change in other operating
assets and liabilities.............. (584) (171)
Other adjustments for non-cash
items - net......................... 56 (121)
Net cash provided by operating
activities............................. 3,418 3,135
Investing Activities
Capital expenditures net of proceeds
from sale or disposal of property,
plant and equipment of $132 and $140. (1,375) (1,489)
(Increase) in finance receivables, net
of lease-related repayments of $1,854
and $1,910........................... (1,393) (1,085)
Net (increase) in investments.......... (73) (558)
Acquisitions, net of cash acquired..... (149) (250)
Other investing activities - net....... 5 (134)
Net cash used in investing activities.... (2,985) (3,516)
Financing Activities
Proceeds from long-term debt issuance.. 3,248 1,253
Retirements of long-term debt.......... (531) (2,395)
Issuance of common shares.............. 392 318
Treasury shares acquired............... (2) (1)
Dividends paid......................... (900) (884)
(Decrease) increase in short-term
borrowings - net..................... (2,183) 1,327
Other financing activities - net....... (33) 20
Net cash used in financing activities.... (9) (362)
(CONT'D)
<PAGE>
<PAGE> 7 AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended
June 30,
1994 1993
Effect of exchange rate
changes on cash........................ $ 11 $ 36
Net increase (decrease) in cash and
temporary cash investments............. 435 (707)
Cash and temporary cash investments
at beginning of year................... 532 1,310
Cash and temporary cash investments
at end of period....................... $ 967 $ 603
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 8 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(a) ACCOUNTING POLICIES - The consolidated financial statements have been
prepared by AT&T Corp. ("AT&T" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and,
in the opinion of management, include all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation
of the consolidated results of operations, financial position and cash
flows for each period presented. The consolidated financial statements
include the accounts of foreign entities based on their fiscal years,
which end either November 30 or December 31. The consolidated results
for interim periods are not necessarily indicative of results for the
full year. These financial statements should be read in conjunction
with AT&T's 1993 Annual Report to Shareowners and Form 10-K for the
year ended December 31, 1993 and the current year's previously issued
Form 10-Q.
(b) RESTATEMENTS AND RECLASSIFICATIONS - Previously reported quarterly
results for 1993 were restated to reflect the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers'
Accounting for Postemployment Benefits." In addition, the provisions
for business restructuring have been reclassified to costs and
operating expenses.
(c) PROVISIONS FOR BUSINESS RESTRUCTURING - Provisions for business
restructuring in the three months ended June 30, 1993 totaled $278.
These provisions included $215 for re-engineering customer support
functions for telecommunications services (including $55 for employee
relocation, $25 for outplacement costs, $30 for legal contingencies
and $105 for closing facilities, lease terminations and asset
abandonments associated with centralizing support services). There
were also $63 in provisions to provide for lease terminations, closing
facilities and other related expenses for restructuring activities in
other areas.
These provisions were reclassified as follows: $218 to selling,
general and administrative expenses; $58 to the costs of products and
systems; and $2 to other line items.
(d) OTHER INCOME - In June 1993, AT&T sold its remaining 77% interest in
UNIX System Laboratories, Inc. to Novell, Inc. ("Novell") in exchange
for approximately 3% of Novell common stock. The gain on the sale was
$217.
<PAGE>
<PAGE> 9 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(e) CHANGES IN ACCOUNTING PRINCIPLES - Effective January 1, 1993, AT&T
adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This standard requires companies to
accrue for estimated future postretirement benefit expenses during the
years employees are working and earning benefits for retirement.
Previously, AT&T expensed these benefits as claims were incurred. AT&T
recorded an after-tax charge of $7,023 ($5.20 per share) to record the
unprovided portion of these liabilities as the cumulative effect of an
accounting change in the first quarter of 1993. This accounting change
does not affect cash flows.
Effective January 1, 1993, AT&T adopted SFAS No. 112. This standard
requires companies to accrue for estimated future postemployment
benefits during the years employees are working and accumulating these
benefits. Previously, AT&T recognized the separation costs as they
were identified and disability benefits when paid. AT&T recorded an
after-tax charge of $1,128 ($.84 per share) to record the unprovided
portion of these liabilities as the cumulative effect of an accounting
change in the first quarter of 1993. This accounting change does not
affect cash flows.
Also effective January 1, 1993, AT&T adopted SFAS No. 109, "Accounting
for Income Taxes." Among other provisions, this standard requires tax
assets and liabilities to be determined using the enacted income tax
rates for the years in which taxes will be paid or refunds received.
Prior to 1993, AT&T's deferred tax accounts reflected the statutory
rates that were in effect when the deferrals were initiated. The
adoption of SFAS No. 109 resulted in a net income benefit of $383, or
$.28 per share. This benefit was recorded as the cumulative effect of
an accounting change in the first quarter of 1993. This accounting
change does not affect cash flows.
Effective January 1, 1994, AT&T adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The standard
provides for the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. The new standard did not have a
material impact on AT&T's results of operations or financial position.
<PAGE>
<PAGE> 10 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(f) INVENTORIES - Inventories at June 30, 1994 and December 31, 1993 were
as follows:
June 30, December 31,
1994 1993
Completed goods............... $2,396 $1,893
Work-in-process and raw
materials.................. 1,576 1,294
Total inventories............. $3,972 $3,187
(g) STATUS OF PROSPECTIVE MERGER WITH McCAW CELLULAR COMMUNICATIONS, INC.
("McCaw")- In August 1993, AT&T and McCaw entered into a definitive
agreement to merge McCaw and a subsidiary of AT&T, making McCaw a
wholly owned subsidiary of AT&T (the "Merger"). The Merger is subject
to a number of conditions, including the receipt of outstanding
approvals (discussed below) and receipt of opinions that the Merger
will be tax free and will qualify for pooling-of-interests accounting
treatment. Various other approvals, including McCaw shareholder
approval, and review by various state regulatory agencies have been
obtained.
On July 15, 1994, AT&T, McCaw and the United States entered into a
proposed antitrust consent decree (the "Proposed Consent Decree")
which would permit the Merger by settling a suit challenging the
Merger filed the same day by the United States. The Proposed Consent
Decree requires approval by the U.S. District Court for the District
of Columbia. Under the Proposed Consent Decree, several conditions
are imposed on the future operations of AT&T and McCaw. These
conditions include: (i) the maintenance of McCaw (and McCaw
affiliates) as a subsidiary or entity separate from AT&T; (ii)
requirements that McCaw cellular systems, within 21 months of the
commencement of the action, cease providing interexchange services and
provide customers of McCaw cellular systems with equal access to any
interexchange carrier that offers service to the system; (iii)
requirements that McCaw cellular systems provide to all interexchange
carriers exchange access on an unbundled basis that is equal in type,
quality, and price to that provided to AT&T; (iv) a prohibition on the
sale by each of AT&T and McCaw of interexchange or local cellular
services at a price, term or discount that depends on whether the
customer obtains both AT&T's interexchange and McCaw's local cellular
services; (v) requirements that AT&T not discriminate in favor of
McCaw in the way in which certain services and products are made
available; (vi) restriction of the flow of certain non-public
information between AT&T and McCaw relating to unaffiliated wireless
system equipment customers of AT&T; (vii) a requirement for AT&T to
continue to provide technological and other support to its
<PAGE>
<PAGE> 11 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
unaffiliated cellular system equipment customers; and (viii) a
requirement on AT&T to buy back any cellular system equipment sold to
an unaffiliated cellular carrier if the United States determines AT&T
has violated the information restrictions or support requirements.
The requirements of the Antitrust Procedures and Penalties Act, 15
U.S.C. Section 16, must be complied with before the Proposed Consent
Decree may be entered by the court. The requirements include: (i)
filing with the court and publication of the Proposed Consent Decree
and a competitive impact statement in the Federal Register at least 60
days prior to the effective date of the decree; (ii) an opportunity
for the public to provide written comments and an opportunity for the
United States to reply to such comments; and (iii) a determination by
the court that the Proposed Consent Decree is in the public interest.
The parties to the Proposed Consent Decree have stipulated as follows:
(i) the Proposed Consent Decree may be entered by the court at any
time after compliance with the requirements of the Antitrust
Procedures and Penalties Act; (ii) each party shall abide by and
comply with the provisions of the Proposed Consent Decree pending and
following entry by the court unless the Merger has been earlier
abandoned; and (iii) the United States may withdraw its consent at any
time prior to entry of the Proposed Consent Decree.
The closing of the Merger, however, is not contingent on the prior
entry of the Proposed Consent Decree or the completion of the
requirements of the Antitrust Procedures and Penalties Act. If the
closing of the Merger occurs before the completion of such
requirements, it will nevertheless be subject to any lawful orders
that the court may impose as a result of the proceeding.
On April 5, 1994, the U.S. District Court for the District of
Columbia, acting on a motion filed by BellSouth Corporation on
December 2, 1993, ruled that AT&T's acquisition, under the proposed
Merger, of the interests owned by McCaw in certain cellular properties
controlled by Bell Operating Companies (the "BOCs") would violate the
Modification of Final Judgment of 1982 (the "MFJ"). The court
determined that AT&T must seek a waiver of the MFJ to proceed with the
Merger.
On May 31, 1994, AT&T filed for a waiver of the MFJ to permit the
Merger. Several parties filed responses with the court requesting
that various conditions be imposed on any waiver granted to AT&T, or
opposing the request for a waiver. The Antitrust Division of the U.S.
Department of Justice (the "Antitrust Division") has supported AT&T's
request for the waiver subject to certain conditions on AT&T. Oral
argument on AT&T's motion took place on July 21, 1994, and the matter
is pending.
<PAGE>
<PAGE> 12 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
In August 1993, AT&T and Craig O. McCaw filed various applications
seeking consent of the Federal Communications Commission (the "FCC")
to the proposed transfer of control of McCaw to AT&T, which consent is
required prior to consummation of the Merger. Several parties,
including competitors of McCaw and/or AT&T, have filed petitions with
the FCC opposing the request for FCC consent or seeking to impose
conditions on the Merger. The FCC established an initial pleading
cycle which was completed on January 18, 1994.
In May 1994, the FCC established a supplemental pleading cycle which
permitted review of certain of the documents filed by AT&T and McCaw
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
proceeding, and under which further comments and replies were filed.
That pleading cycle was completed on July 1, 1994. The matter is
still pending a decision by the FCC.
On August 8, 1994, Bell Atlantic Corporation, Bell Atlantic Mobile
Systems, Inc. ("Bell Atlantic Mobile"), NYNEX Corporation and NYNEX
Mobile Communications Co. ("NYNEX Mobile") filed an action (the "Bell
Atlantic Complaint") against AT&T and McCaw in the U.S. District Court
for the Eastern District of New York. The action alleges that the
effect of the Merger may be to substantially lessen competition in
interstate trade and commerce in violation of Section 7 of the Clayton
Act. The relief requested includes: a preliminary injunction
preventing and restraining the Merger until the court has ruled on the
merits of the compliant; a judgment that the Merger violates Section 7
of the Clayton Act; and a permanent injunction enjoining the Merger
and any acquisition by AT&T of any direct or indirect interest in
McCaw. AT&T intends to oppose the action, including the preliminary
injunction, and believes it is without merit.
With respect to all of the foregoing, there can be no assurance that
the court or regulatory actions requested by AT&T will be granted or
granted without unacceptable conditions, or that AT&T will
successfully oppose the Bell Atlantic Complaint, or that other
challenges to the Merger will not be made on antitrust grounds. The
United States could challenge the Merger before or after it is
consummated if the Proposed Consent Decree is not approved by the
court or if the United States decides to withdraw its consent prior to
court approval.
If the Merger is not consummated by September 30, 1994, the Merger
agreement may be terminated by AT&T or McCaw. AT&T is not required to
consummate the Merger if any court or governmental or regulatory
authority of competent jurisdiction enjoins the Merger or imposes any
condition or restriction on its consummation unacceptable to AT&T in
its reasonable judgment.
<PAGE>
<PAGE> 13 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(h) AT&T CREDIT HOLDINGS, INC. - In connection with a March 31, 1993 legal
restructuring of AT&T Capital Holdings, Inc. (formerly AT&T Capital
Corporation), AT&T issued a direct, full and unconditional guarantee
of all the outstanding public debt of AT&T Credit Holdings, Inc.
(formerly AT&T Credit Corporation) existing at March 31, 1993.
AT&T Credit Holdings, Inc. holds the majority of AT&T's investment in
AT&T Capital Corporation and the lease finance assets of the former
AT&T Credit Corporation. The table below shows summarized consolidated
financial information for AT&T Credit Holdings, Inc., which
consolidates the accounts of AT&T Capital Corporation. Financial
information for prior periods was restated for the legal
restructuring. The summarized financial information includes
transactions with AT&T that are eliminated in consolidation.
For the Six
Months Ended
June 30,
1994 1993
Total revenue $ 687 $ 679
Interest expense 143 143
Operating and administrative
expense 188 158
Income before cumulative effect of
accounting change 34 34
Cumulative effect of accounting
change (1) - (22)
Net Income 34 12
At At
June 30, December 31,
1994 1993
Finance receivables $6,953 $6,220
Net investment in operating
lease assets 795 978
Total assets 8,433 7,886
Total debt 5,054 4,639
Total liabilities 7,376 6,867
Minority interest 255 251
Total shareholder's equity 802 768
(1) Effective January 1, 1993, AT&T Credit Holdings, Inc. adopted SFAS No.
109.
<PAGE>
<PAGE> 14 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
AT&T reported quarterly net income of $1.130 billion, or $.83 per share, in
the second quarter of 1994, a 12.6 percent increase compared with year-ago
net income of $1.005 billion, or $.74 per share, in the second quarter of
1993. For the six months ended June 30, 1994, income before cumulative
effects of accounting changes was $2.224 billion, or $1.63 per share,
compared with $1.941 billion, or $1.44 per share in the same period of
1993.
Effective January 1, 1993, AT&T adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," and SFAS No. 109, "Accounting for Income Taxes."
AT&T recognized the cumulative effects of accounting changes on prior years
in the first quarter of 1993, which reduced net income by $7.768 billion or
$5.76 per share. As a result, AT&T reported a loss of $5.827 billion, or
$4.32 per share, for the first six months of 1993. (See also Note e).
These accounting changes do not affect cash flows.
Total revenues reached $17.729 billion in the quarter, an 8.7 percent
increase from $16.316 billion in the same period of 1993. Through June,
total revenues were 7.0 percent ahead of last year. The increase primarily
resulted from continued strong growth in sales of products and systems,
principally network systems and communications products, and growth in
telecommunications services and financial services and leasing revenues.
Total costs increased $800 million compared with the second quarter of
1993, largely as a result of higher sales of products and systems.
Compared with the same periods in 1993, operating income increased 35.7
percent for the quarter and 25.4 percent for the six months of 1994.
The overall gross margin percentage increased to 40.0 percent in the
quarter from 39.8 percent in the same period of 1993, reflecting effective
cost controls coupled with revenue growth.
The more detailed discussion that follows is based on a comparison of the
three and six months ended June 30, 1994 with the comparable periods of
1993, unless otherwise noted.
RESULTS OF OPERATIONS
AT&T's core business is to meet the communications and computing needs of
its customers by using networks to move and manage information. The
revenues and costs of this core business are divided into three categories
on the income statement: telecommunications services, products and systems,
and rentals and other services. AT&T Capital Corporation ("AT&T Capital")
and AT&T Universal Card Services Corp. ("Universal Card") are partners with
AT&T's core business units as well as innovators in the financial services
industry. The revenues and costs for financial services and leasing
operations are displayed as a separate category on the income statement.
<PAGE>
<PAGE> 15 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TELECOMMUNICATIONS SERVICES
Telecommunications services revenues rose to $10.335 billion, a 5.1 percent
increase from the second quarter of 1993, principally as a result of higher
volumes. Volumes, measured by billed minutes for switched services,
increased 7 percent from the year-ago period. The switched revenue to
volume growth "gap" narrowed to about 3 percent for the quarter, largely
reflecting better performance in the consumer market due to AT&T's "True"
program. The gap exists because customers select higher-value, lower-
priced services made possible by AT&T's increased efficiency. This shift
in the mix of services that customers select lowers average per-minute
revenues.
AT&T introduced a number of new services and calling plans for residential
customers in 1993 and early 1994, which are marketed as a family. The
effects of discounts inherent in the "True" program calling plans were more
than offset by price increases for basic services announced in the fourth
quarter last year. The balance of customer wins versus losses continued to
show improvement as the "True" program continues to experience strong
sign-up levels. For example, 9 million customers have signed up for AT&T
True Rewards#.
Cost of telecommunications services increased $136 million for the
quarter and $103 million for the first six months compared with the same
periods in 1993, primarily due to higher volumes. Access and other
interconnection costs increased $78 million and $140 million for the
quarter and six-month period compared with the same periods in 1993 also
because of higher volumes. Other costs were increased for the quarter but
decreased for the six-month period compared with the same periods in 1993.
The decrease was mainly due to lower network operating costs and, to a
lesser extent, a lower provision for uncollectibles. The gross margin
percentage improved to 39.9 percent in the quarter from 38.2 percent in the
same period of 1993.
AT&T has created international alliances in an effort to offer one-stop
telecommunications services to companies that do business globally. Other
major U.S. long distance companies are also creating, or have created, such
alliances. In 1993, AT&T formed WorldPartners with Kokusai Denshin Denwa
Co. Ltd of Japan and Singapore Telephone. During the second quarter of
1994, a consortium of Dutch, Swiss and Swedish telephone authorities known
as Unisource also joined WorldPartners. Telefonica de Espana announced
that it will become a full member of Unisource, enhancing market
opportunities for WorldPartners in both Spain and Latin America. Canada's
Unitel Communications, in which AT&T currently has a 20 percent ownership
interest, is also a member of WorldPartners.
# Registered service mark for AT&T
<PAGE>
<PAGE> 16 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
PRODUCTS AND SYSTEMS
Sales of products and systems increased 19.3 percent for the quarter and
17.1 percent for the six-month period compared with the same periods of
1993, driven by substantial gains in sales of telecommunications network
products and systems and strong growth in computer products and systems
and communications products and systems sales.
Three months Six months
ended ended
June 30, June 30,
Revenues in millions 1994 1993 1994 1993
Telecommunications network
products and systems $2,331 $1,872 $4,280 $3,625
Computer products and systems 1,041 883 1,726 1,534
Communications products
and systems 943 790 1,812 1,423
Microelectronic products,
special-design products for
U.S. government, and other* 664 630 1,231 1,147
Products and Systems $4,979 $4,175 $9,049 $7,729
*"Other" is composed principally of media, predominantly for use with
automated teller machines and point-of-sale equipment, and business forms.
Telecommunications network products and systems revenues increased 24.5
percent and 18.1 percent compared with the year-ago quarter and first six
months of 1993, respectively, primarily due to substantially higher sales
of wireless products and strong gains across the business, including
transmission systems, cable systems and switching systems. About $77
million of switching revenues in the second quarter of 1994 came from
consolidating AG Communication Systems Corporation when AT&T's equity
interest rose to 80 percent. Revenues from sales outside of the U.S.
increased more than 30 percent compared with a year-ago quarter. Revenues
from wireless contracts announced earlier this year in Argentina and Korea
contributed strongly to this growth outside the U.S. AT&T expects sales
outside the U.S. to remain strong for all of 1994. Sales in the U.S. also
increased compared with the same period in 1993 as a result of higher sales
to independent telephone companies and cellular service providers.
During the second quarter, AT&T divested its microelectronics connector
systems and its copper-exchange cable businesses. While there were no
material gains or losses, these transactions divest businesses with annual
revenues, as well as, costs and expenses of nearly $600 million.
<PAGE>
<PAGE> 17 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from computer products and systems sales increased 17.9 percent
for the quarter and 12.5 percent for the six-month period compared with the
same year-ago periods, reflecting higher sales of computer systems both in
the U.S. and overseas. Markets for these products are still experiencing
fierce competitive pricing, particularly for lower-end computer products,
and some weakness in demand among financial customers overseas.
Revenues from sales of communications products and systems increased 19.4
percent and 27.3 percent for the second quarter and six months of 1994,
respectively, compared with the same periods of 1993. The increases were
led by higher sales of business communications equipment outside of the
U.S. and strong consumer products sales of cellular and cordless
telephones.
As a category, sales of microelectronics products, special-design products
for the federal government and other product sales increased 5.4 percent
for the quarter and 7.3 percent for the six-month period compared with the
same periods in 1993. The increase was led by continued strong growth in
sales of microelectronic components outside of the U.S. Purchases of
AT&T's special-design products by the U.S. government declined from the
year-ago quarter primarily because of reduced spending for defense.
The increase in cost of products and systems for the quarter and six-month
period compared with the same periods in 1993 was primarily the result of
higher sales. The gross margin percentage decline to 37.8 percent compared
with 38.6 percent in the second quarter of 1993 was principally due to
competitive pricing pressures and shifts in the product sales mix.
RENTALS AND OTHER SERVICES
Rentals and other services revenues decreased for the quarter and six-month
period, primarily reflecting the continuing reduction in rental
revenues from communications products and systems. Rentals and services
revenues for computer products and systems were flat for the quarter but
declined slightly for the six-month period because of lower revenues from
traditional maintenance services. The increase in service revenues for
communications products and systems was largely due to continued growth in
maintenance contract revenues for business customers. Other rentals and
services revenues were relatively even for the quarter but up slightly for
the six-month period reflecting small gains in a number of miscellaneous
and new services.
<PAGE>
<PAGE> 18 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three months Six months
ended ended
June 30, June 30,
Revenues in millions 1994 1993(1) 1994 1993(1)
Computer products and systems $ 634 $ 636 $1,197 $1,226
Communications products and
systems rentals 242 301 500 614
Communications products and
systems services 410 378 788 737
Other* 406 405 782 771
Rentals and Other Services $1,692 $1,720 $3,267 $3,348
(1) Reclassified to conform with current presentation.
*"Other" is composed principally of global messaging and electronic mail
services, telemarketing services, information technology services and
facility rentals.
Cost of rentals and other services increased for the quarter and six-month
periods compared with the same periods in 1993. The gross margin
percentage declined to 51.7 percent in the quarter from 54.4 percent in the
same period of 1993 primarily because of the continuing shift in the mix of
revenues from higher margin rentals and computer maintenance services to
other services.
<PAGE>
<PAGE> 19 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL SERVICES AND LEASING
Financial services and leasing revenues increased 22.8 percent for the
quarter and 22.0 percent for the first six-months of 1994 compared with the
same periods in 1993 led by continued strong growth from Universal Card and
growth at AT&T Capital.
Three Months Six Months
ended ended
June 30, June 30,
In millions 1994 1993 1994 1993
AT&T Capital $ 332 $ 317 $ 658 $ 645
Universal Card 400 289 772 555
Eliminations, adjustments
and other* ( 9) (18) (16) (42)
Total revenues $ 723 $ 588 $ 1,414 $ 1,158
Total costs 499 403 951 780
Gross margin $ 224 $ 185 $ 463 $ 378
Gross margin percentage 30.9% 31.5% 32.7% 32.6%
Universal Card Information:
Finance receivables $10,075 $ 7,216 $10,075 $ 7,216
Accounts 13.4 11.4 13.4 11.4
* "Other" is composed principally of revenues from certain lease finance
assets AT&T retained when AT&T Capital was reorganized.
Universal Card receivables and accounts increased by approximately $2.9
billion and 2.0 million, respectively, since June 30, 1993. Delinquent
balances and charge-offs continue to be below industry norms.
The increase in cost of financial services and leasing for the quarter was
due primarily to the higher volume of financing and credit card
transactions for the quarter and six-month periods. The gross margin
percentage decreased for the quarter mainly due to higher provisions for
uncollectibles at Universal Card, as revolving cardholder receivables grew.
For the six-month period, the gross margin percentage was up slightly as a
result of a shift in the portfolio mix and a reduction in provisions for
uncollectibles at AT&T Capital.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." The standard provides
for present value accounting by creditors in determining the allowances for
credit losses on certain loans including loans that have been modified as
part of a troubled debt restructuring. The standard must be adopted for
fiscal years beginning after December 15, 1994; for AT&T, that would be
1995. The adoption of the new standard is not expected to have a
material impact on the reported costs and expenses for financial services.
<PAGE>
<PAGE> 20 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING EXPENSES
Total operating expenses increased 2.2 percent for the quarter and 3.2
percent for the first six-months of 1994 compared with the same periods of
1993. Continuing previous trends, the increase reflects higher advertising
and promotions expense, and increased sales and sales support activities
focused towards telecommunications services markets. Research and
development expenses were down slightly for the quarter and six-month
periods compared with the same periods in 1993.
On July 27, 1994, AT&T announced plans to stop operations of its 52 percent
owned EO Inc. unit, which was responsible for developing pen-based
computers and wireless communicators. As a result, AT&T will incur
charges, before taxes, ranging from $50 to $80 million in the third quarter
of 1994.
In the second quarter of 1993, AT&T recorded $278 million in provisions for
business restructuring activities recognizing the estimated costs of
specific plans to close offices, consolidate facilities, relocate employees
and fulfill contractual obligations and other activities involved in
restructuring operations. (See also Note c.)
OTHER INCOME, INTEREST EXPENSE, PROVISION FOR INCOME TAXES
Other income - net decreased $213 million for the quarter and $237 million
for the first six months of 1994 compared with the same periods in 1993.
The decrease primarily reflects a $217 million pre-tax gain in the second
quarter of 1993 on the sale of AT&T's remaining interest in UNIX System
Laboratories, Inc. to Novell, Inc. (See also Note d).
Interest expense increased $23 million for the quarter and decreased $50
million for the six-month period compared with the same periods a year-ago.
The increase from the year-ago quarter was mainly due to lower interest on
contingent liabilities. For the six-month period, the decrease also
reflects the benefits associated with lower interest rates after debt
refinancings and one-time costs for refinancing activities included in
1993.
The effective tax rate increased to 38.5 percent in the quarter from 36.1
percent in the year-ago quarter, primarily due to a 1.0 percent increase in
the statutory federal income tax rate, certain provisions of the 1993 tax
law that became effective in 1994 and higher income before taxes, which
reduced the relative percentage benefit of tax credits.
<PAGE>
<PAGE> 21 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY
Total assets increased $3.509 billion from year-end 1993 as higher levels
of cash and temporary cash investments, inventories, finance receivables
and prepaid pension costs more than offset lower levels of plant, property
and equipment and investments. Working capital, defined as current assets
less current liabilities, increased $4.0 billion from year-end primarily
due to increases in finance receivables and inventories.
Management continues to target a cash balance below $800 million. The
increase in finance receivables is an expected result of the growth in
credit card operations and leasing activities. The increase in inventories
is primarily seasonal, reflecting planned build-up in anticipation of
higher product and system sales later in the year.
Property, plant and equipment, net of accumulated depreciation, declined
from year-end as depreciation exceeded capital additions.
The decrease in investments largely reflects the reclassification of AG
Communication Systems Corporation from an equity investment in 1993 to a
consolidated entity of AT&T as of January 1, 1994. In addition, the
investment in Italtel S.p.A. was reclassified to other current assets in
anticipation of AT&T's plan to sell its 20 percent interest back to STET
S.p.A., the Italian government's telecommunications holding company, during
1994.
In January 1994, AT&T adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The standard provides for the
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt
securities. The new standard did not have a material impact on AT&T's
results of operations or financial position. (See also Note e.)
Higher prepaid pension costs are primarily the result of the net pension
credit. The increase in other assets was caused primarily by advanced
purchases of promotional offerings for the "True" program calling plans.
The seasonal decline in payroll and benefit-related liabilities primarily
reflects the first-quarter payment of annual employee compensation awards.
The decrease in debt maturing within one year is primarily related to
a reduction of commercial paper outstanding. The increase in other current
liabilities primarily reflects increases of customer deposits and advance
billings. The increase in long-term debt, including capital leases,
primarily reflects the issuance of notes to replace the short-term debt
outstanding. The increase in deferred income tax liabilities was mainly
due to the recognition of future plant-related liabilities and the reclass
of deferred tax benefits associated with retiree benefits to other current
liabilities.
<PAGE>
<PAGE> 22 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CASH FLOWS
Cash flows provided by operating activities increased compared with the
second quarter of 1993 because of higher income before cumulative effects
of accounting changes.
AT&T made investments in McCaw Cellular Communications, Inc. ("McCaw")and
Unitel in the first quarter of 1993. There were no significant investments
made in the current quarter. Consequently, despite an increase in finance
receivables in 1994, cash flows used in investing activities declined
relative to the year-ago period.
In April 1994, AT&T signed a broad set of business agreements with the
People's Republic of China ("China") to provide technologies, products and
services to modernize its telecommunication infrastructure. The
agreements call for AT&T to invest more than $150 million in China over the
next two years.
Cash flows from financing activities increased for the first six months of
1994 compared with the same period in 1993 primarily because of the
proceeds of debt issuances and lower levels of debt retirements. The net
effects of these activities were partly offset by a large reduction in
commercial paper outstanding and dividend payments.
The ratio of total debt to total debt plus total equity (debt ratio)
decreased to 53.9 percent at June 30, 1994, compared with 56.1 percent at
December 31, 1993, primarily as a result of higher earnings during the
six-month period. Excluding financial services and leasing operations, the
debt ratio was 22.9 percent at June 30, 1994 compared with 28.3 percent at
December 31, 1993.
McCAW MERGER DEVELOPMENTS
In August 1993, AT&T and McCaw entered into a definitive agreement to merge
McCaw and a subsidiary of AT&T, making McCaw a wholly owned subsidiary of
AT&T (the "Merger"). The Merger is subject to a number of conditions,
including the receipt of outstanding approvals (discussed below) and
receipt of opinions that the Merger will be tax free and will qualify for
pooling-of-interests accounting treatment. Various other approvals,
including McCaw shareholder approval, and review by various state
regulatory agencies have been obtained.
<PAGE>
<PAGE> 23 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On July 15, 1994, AT&T, McCaw and the United States entered into a proposed
antitrust consent decree (the "Proposed Consent Decree") which would permit
the Merger by settling a suit challenging the Merger filed the same day by
the United States. The Proposed Consent Decree requires approval by the
U.S. District Court for the District of Columbia. Under the Proposed
Consent Decree, several conditions are imposed on the future operations of
AT&T and McCaw. These conditions include: (i) the maintenance of McCaw (and
McCaw affiliates) as a subsidiary or entity separate from AT&T; (ii)
requirements that McCaw cellular systems, within 21 months of the
commencement of the action, cease providing interexchange services and
provide customers of McCaw cellular systems with equal access to any
interexchange carrier that offers service to the system; (iii) requirements
that McCaw cellular systems provide to all interexchange carriers exchange
access on an unbundled basis that is equal in type, quality, and price to
that provided to AT&T; (iv) a prohibition on the sale by each of AT&T and
McCaw of interexchange or local cellular services at a price, term or
discount that depends on whether the customer obtains both AT&T's
interexchange and McCaw's local cellular services; (v) requirements that
AT&T not discriminate in favor of McCaw in the way in which certain
services and products are made available; (vi) restriction of the flow of
certain non-public information between AT&T and McCaw relating to
unaffiliated wireless system equipment customers of AT&T; (vii) a
requirement for AT&T to continue to provide technological and other support
to its unaffiliated cellular system equipment customers; and (viii) a
requirement on AT&T to buy back any cellular system equipment sold to an
unaffiliated cellular carrier if the United States determines AT&T has
violated the information restrictions or support requirements.
The requirements of the Antitrust Procedures and Penalties Act, 15 U.S.C.
Section 16, must be complied with before the Proposed Consent Decree may be
entered by the court. The requirements include: (i) filing with the court
and publication of the Proposed Consent Decree and a competitive impact
statement in the Federal Register at least 60 days prior to the effective
date of the decree; (ii) an opportunity for the public to provide written
comments and an opportunity for the United States to reply to such
comments; and (iii) a determination by the court that the Proposed Consent
Decree is in the public interest.
The parties to the Proposed Consent Decree have stipulated as follows: (i)
the Proposed Consent Decree may be entered by the court at any time after
compliance with the requirements of the Antitrust Procedures and Penalties
Act; (ii) each party shall abide by and comply with the provisions of the
Proposed Consent Decree pending and following entry by the court unless the
Merger has been earlier abandoned; and (iii) the United States may withdraw
its consent at any time prior to entry of the Proposed Consent Decree.
<PAGE>
<PAGE> 24 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The closing of the Merger, however, is not contingent on the prior entry of
the Proposed Consent Decree or the completion of the requirements of the
Antitrust Procedures and Penalties Act. If the closing of the Merger
occurs before the completion of such requirements, it will nevertheless be
subject to any lawful orders that the court may impose as a result of the
proceeding.
On April 5, 1994, the U.S. District Court for the District of Columbia,
acting on a motion filed by BellSouth Corporation on December 2, 1993,
ruled that AT&T's acquisition, under the proposed Merger, of the interests
owned by McCaw in certain cellular properties controlled by Bell Operating
Companies (the "BOCs") would violate the Modification of Final Judgment of
1982 (the "MFJ"). The court determined that AT&T must seek a waiver of the
MFJ to proceed with the Merger.
On May 31, 1994, AT&T filed for a waiver of the MFJ to permit the Merger.
Several parties filed responses with the court requesting that various
conditions be imposed on any waiver granted to AT&T, or opposing the
request for a waiver. The Antitrust Division of the U.S. Department of
Justice (the "Antitrust Division") has supported AT&T's request for the
waiver subject to certain conditions on AT&T. Oral argument on AT&T's
motion took place on July 21, 1994, and the matter is pending.
In August 1993, AT&T and Craig O. McCaw filed various applications seeking
consent of the Federal Communications Commission (the "FCC") to the
proposed transfer of control of McCaw to AT&T, which consent is required
prior to consummation of the Merger. Several parties, including
competitors of McCaw and/or AT&T, have filed petitions with the FCC
opposing the request for FCC consent or seeking to impose conditions on the
Merger. The FCC established an initial pleading cycle which was completed
on January 18, 1994.
In May 1994, the FCC established a supplemental pleading cycle which
permitted review of certain of the documents filed by AT&T and McCaw under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 proceeding, and
under which further comments and replies were filed. That pleading cycle
was completed on July 1, 1994. The matter is still pending a decision by
the FCC.
<PAGE>
<PAGE> 25 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On August 8, 1994, Bell Atlantic Corporation, Bell Atlantic Mobile Systems,
Inc. ("Bell Atlantic Mobile"), NYNEX Corporation and NYNEX Mobile
Communications Co. ("NYNEX Mobile") filed an action (the "Bell Atlantic
Complaint") against AT&T and McCaw in the U.S. District Court for the
Eastern District of New York. The action alleges that the effect of the
Merger may be to substantially lessen competition in interstate trade and
commerce in violation of Section 7 of the Clayton Act. The relief
requested includes: a preliminary injunction preventing and restraining the
Merger until the court has ruled on the merits of the compliant; a
judgment that the Merger violates Section 7 of the Clayton Act; and a
permanent injunction enjoining the Merger and any acquisition by AT&T of
any direct or indirect interest in McCaw. AT&T intends to oppose the
action, including the preliminary injunction, and believes it is without
merit.
With respect to all of the foregoing, there can be no assurance that the
court or regulatory actions requested by AT&T will be granted or granted
without unacceptable conditions, or that AT&T will successfully oppose the
Bell Atlantic Complaint, or that other challenges to the Merger will not be
made on antitrust grounds. The United States could challenge the Merger
before or after it is consummated if the Proposed Consent Decree is not
approved by the court or if the United States decides to withdraw its
consent prior to court approval.
If the Merger is not consummated by September 30, 1994, the Merger
agreement may be terminated by AT&T or McCaw. AT&T is not required to
consummate the Merger if any court or governmental or regulatory authority
of competent jurisdiction enjoins the Merger or imposes any condition or
restriction on its consummation unacceptable to AT&T in its reasonable
judgment.
LITIGATION AND LEGISLATIVE DEVELOPMENTS
On July 6, 1994, four of the BOCs filed a motion in the U.S. District Court
for the District of Columbia to vacate the MFJ in its entirety. The MFJ
currently forbids the BOCs from providing interexchange long-distance
service, from manufacturing telecommunications equipment and customer
premises equipment, and from providing telecommunications equipment. A
pleading cycle on that motion has not yet been established.
Separately, on June 14, 1994, the Antitrust Division announced that it
intends to support, subject to several additional conditions, requests by
the BOCs to provide long-distance services to cellular customers. The U.S.
District Court for the District of Columbia has jurisdiction over the BOCs'
request and the matter is currently being briefed.
<PAGE>
<PAGE> 26 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On June 28, 1994, the U.S. House of Representatives approved legislation
that, subject to certain conditions and limitations, would permit the BOCs
to offer, or seek permission to offer, certain long-distance services and
would set conditions for BOC entry into manufacturing of telecommunications
equipment. On the same date, the U.S. House of Representatives approved
legislation that would permit local telephone companies ("LECs") to enter
the cable television business and at the same time require the LECs to
provide interconnection and equal access to their exchanges. Subsequently,
the two House bills were combined into a single bill. Separate legislation
has been introduced and is currently pending in the U.S. Senate that would
set different standards and conditions for BOC provision of long-distance
services and for equipment manufacturing by the BOCs. This proposed
legislation would also permit the LECs to enter the cable television
business and at the same time allow competitors into their local service
areas. Another Senate bill has been introduced that would permit the BOCs
to provide long-distance services within one year.
It is not possible to predict the ultimate outcome of any of these various
initiatives, including whether and under what conditions or circumstances
the BOCs might be permitted to enter into the long-distance or equipment
manufacturing businesses. AT&T has taken the position that it is
inappropriate for the BOCs to receive relief from the restrictions
currently imposed by the MFJ until competition in local service has
developed. However, should the BOCs nevertheless succeed in obtaining such
premature relief and in entering these businesses, depending on the
circumstances of and the conditions and restrictions imposed on their
entry, AT&T's revenues and net income could be adversely affected in future
years.
<PAGE>
<PAGE> 27 AT&T Form 10-Q - Part II
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number
12 Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K:
Form 8-K report dated April 5, 1994 was filed pursuant
to Item 5 (Other Events), Forms 8-K dated August 16,
1993, as amended (filed April 19, 1994), April 22,
1994, August 16, 1993, as amended (filed May 20, 1994)
and May 26, 1994 were filed pursuant to Items 5 (Other
Events) and 7 (Financial Statements and Exhibits).
<PAGE>
<PAGE> 28 AT&T Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AT&T Corp.
Date August 8, 1994
M. B. Tart
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
<PAGE> 29 AT&T Form 10-Q
Exhibit Index
Exhibit
Number
12 Computation of Ratio of Earnings to Fixed Charges
<PAGE> 1 Exhibit 12
Form 10-Q
For the Six
Months Ended
June 30, 1994
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended
June 30,
1994
Earnings Before Income Taxes and Cumulative
Effects of Accounting Changes........................ $3,603
Less Interest Capitalized during
the Period........................................... 20
Less Undistributed Earnings of Less than 50%
Owned Affiliates..................................... 3
Add Fixed Charges...................................... 762
Total Earnings......................................... $4,342
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $ 609
Interest Portion of Rental Expense..................... 153
Total Fixed Charges................................ $ 762
Ratio of Earnings to Fixed Charges..................... 5.7
