<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 March 31, 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 April 29, 1994 1,357,662,000 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
Months Ended
March 31,
1994 1993(b)
Sales and Revenues
Telecommunications services.......... $10,224 $ 9,967
Products and systems................. 4,070 3,554
Rentals and other services........... 1,575 1,628
Financial services and leasing....... 691 570
Total revenues....................... 16,560 15,719
Costs
Telecommunications services
Access and other
interconnection costs............ 4,519 4,457
Other costs........................ 1,741 1,836
Total telecommunications services.... 6,260 6,293
Products and systems................. 2,440 2,069
Rentals and other services........... 774 788
Financial services and leasing....... 452 377
Total costs.......................... 9,926 9,527
Gross margin......................... 6,634 6,192
Operating Expenses
Selling, general and
administrative expenses............ 4,102 3,917
Research and development expenses.... 758 747
Total operating expenses............. 4,860 4,664
Operating income..................... 1,774 1,528
Other income - net................... 119 143
Interest expense (e)................. 129 202
Income before income taxes and
cumulative effects of
accounting changes................. 1,764 1,469
Provision for income taxes........... 670 533
Income before cumulative
effects of accounting changes...... 1,094 936
(CONT'D)
<PAGE>
<PAGE> 3 AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF INCOME (CONT'D)
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the Three
Months Ended
March 31,
1994 1993(b)
Cumulative effects on prior years
of changes in accounting for:
Postretirement benefits (net of
income taxes of $4,294) (c)..... - (7,023)
Postemployment benefits (net of
income taxes of $681)(c)........ - (1,128)
Income taxes (c).................. - 383
Cumulative effects of accounting
changes......................... - (7,768)
Net Income (Loss).................... $ 1,094 $(6,832)
Weighted average common shares
outstanding (millions)............ 1,360 1,347
Per Common Share:
Income before cumulative effects
of accounting changes........... $ .80 $ .69
Cumulative effects of accounting
changes......................... $ - $ (5.76)
Net Income (Loss)................. $ .80 $ (5.07)
Dividends declared per
common share...................... $ .33 $ .33
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 4 AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Per Share Amount)
(Unaudited)
March 31, December 31,
1994 1993
ASSETS
Cash and temporary cash investments.... $ 793 $ 532
Receivables less allowances
of $977 and $1,003
Accounts receivable.................. 11,814 11,933
Finance receivables.................. 11,314 11,370
Inventories (d)........................ 3,857 3,187
Deferred income taxes.................. 2,258 2,079
Other current assets................... 623 637
Total current assets................... 30,659 29,738
Property, plant and equipment, net
of accumulated depreciation of
$21,665 and $21,496.................. 19,229 19,397
Investments............................ 1,428 1,503
Finance receivables.................... 3,972 3,815
Prepaid pension costs.................. 3,738 3,576
Other assets........................... 2,983 2,737
TOTAL ASSETS........................... $62,009 $60,766
(CONT'D)
<PAGE>
<PAGE> 5 AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Per Share Amount)
(Unaudited)
March 31, December 31,
1994 1993
LIABILITIES AND DEFERRED CREDITS
Accounts payable....................... $ 5,156 $ 4,694
Payroll and benefit-related
liabilities.......................... 2,988 3,746
Postretirement and postemployemnt
benefit liabilities.................. 1,096 1,301
Debt maturing within one year.......... 9,671 10,904
Dividends payable...................... 448 448
Other current liabilities.............. 5,196 4,241
Total current liabilities.............. 24,555 25,334
Long-term debt including capital
leases............................... 7,387 6,812
Postretirement and postemployment
benefit liabilities.................. 9,318 9,082
Other liabilities...................... 4,481 4,298
Deferred income taxes.................. 206 275
Unamortized investment tax credits..... 256 270
Other deferred credits................. 386 263
Total liabilities & deferred credits... 46,589 46,334
Minority interests..................... 618 582
SHAREOWNERS' EQUITY
Common stock - par value $1 per share.. 1,357 1,352
Authorized shares: 2,000,000,000
Outstanding shares:
1,357,388,000 at March 31, 1994
1,352,398,000 at December 31, 1993
Additional paid-in capital............. 12,269 12,028
Guaranteed ESOP obligation............. (331) (355)
Foreign currency translation
adjustments.......................... 20 (32)
Retained earnings...................... 1,487 857
Total shareowners' equity.............. 14,802 13,850
TOTAL LIABILITIES/SHAREOWNERS' EQUITY.. $62,009 $60,766
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 6 AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the Three
Months Ended
March 31,
1994 1993(b)
Operating Activities
Net income (loss)........................ $ 1,094 $(6,832)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Cumulative effects of accounting
changes (c)......................... - 7,768
Depreciation.......................... 916 893
Provision for uncollectibles.......... 419 403
(Increase) decrease in accounts
receivable.......................... (176) 110
(Increase) in inventories............. (652) (381)
Increase in accounts payable.......... 445 51
Net change in other operating
assets and liabilities.............. 26 (57)
Other adjustments for non-cash
items - net......................... 2 35
Net cash provided by operating
activities............................. 2,074 1,990
Investing Activities
Capital expenditures net of proceeds
from sale or disposal of property,
plant and equipment of $40 and $87... (675) (614)
(Increase) in finance receivables, net
of lease-related repayments of $933
and $1,212........................... (156) (97)
Net (increase) in investments.......... 3 (766)
Acquisitions, net of cash acquired..... (114) -
Other investing activities - net....... 76 (122)
Net cash used in investing activities.... (866) (1,599)
Financing Activities
Proceeds from long-term debt issuance.. 966 112
Retirements of long-term debt.......... (284) (551)
Issuance of common shares.............. 246 166
Dividends paid......................... (451) (443)
(Decrease)short-term borrowings - net.. (1,412) (1)
Other financing activities - net....... (22) (17)
Net cash (used in)financing activities... (957) (734)
(CONT'D)
<PAGE>
<PAGE> 7 AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Dollars in Millions)
(Unaudited)
For the Three
Months Ended
March 31,
1994 1993(b)
Effect of exchange rate
changes on cash........................ 10 9
Net increase (decrease) in cash and
temporary cash investments............. 261 (334)
Cash and temporary cash investments
at beginning of year................... 532 1,310
Cash and temporary cash investments
at end of period....................... $ 793 $ 976
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 statement 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.
(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) 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 ($5.21 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 bene-
fits during the years employees are working and accumulating these
benefits. Before this change in accounting method, AT&T recognized the
separation costs as they were identified and disability benefits when
paid. AT&T recorded an after-tax charge of $1,128 ($.83 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.
<PAGE> 9 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
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.
(d) INVENTORIES - Inventories at March 31, 1994 and December 31, 1993 were
as follows:
March 31, December 31,
1994 1993
Completed goods .............. $2,343 $1,893
Work-in-process and raw
materials ................. 1,514 1,294
Total inventories ............ $3,857 $3,187
(e) LONG-TERM DEBT REDEMPTION - In March 1993, AT&T issued redemption
notices for debentures and notes with an aggregate outstanding balance
of $1,750 at March 31, 1993. Expenses associated with these
redemptions of $83 ($52 or $.04 per share after taxes) were included
in interest expense for the three months ended March 31, 1993.
<PAGE>
<PAGE> 10 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(f) STATUS OF PROSPECTIVE MERGER WITH McCAW CELLULAR COMMUNICATIONS, INC.
("McCaw")- On April 5, 1994 the U.S. District Court, 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 regional Bell
operating companies would violate the antitrust consent decree entered
into by AT&T in 1982 (the "Decree"). The court determined that AT&T
must seek a waiver of the Decree to proceed with the merger, and that
the record before the court was insufficient to support a waiver
previously requested by AT&T. Accordingly, the court declined to grant
such a waiver without prejudice to a renewed request by AT&T, and
noted that its ruling does not absolutely foreclose the waiver.
Rather, the court held that AT&T must satisfy the legal standard for a
Decree modification. The proposed merger is also subject to the
approval of the Federal Communications Commission and expiration of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act ("HSR"). There can be no assurance as to whether the foregoing
approvals or waiver will be granted, or if granted, when that will
occur.
(g) 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.
<PAGE>
<PAGE> 11 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the Three
Months Ended
March 31,
1994 1993
Total revenue $ 342 $ 349
Interest expense 69 73
Operating and administrative
expense 101 103
Income before cumulative effect of
accounting change 18 22
Cumulative effect of accounting
change (1) - (22)
Net Income 18 -
At At
March 31, December 31,
1994 1993
Finance receivables $6,712 $6,220
Net investment in operating
lease assets 797 978
Total assets 8,303 7,886
Total debt 4,979 4,639
Total liabilities 7,268 6,867
Minority interest 253 251
Total shareholder's equity 782 768
(1) Effective January 1, 1993, AT&T Credit Holdings, Inc. adopted
SFAS No. 109.
<PAGE>
<PAGE> 12 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 $1.094 billion, or $.80 per share, in
the first quarter of 1994, a 16.8 percent increase compared with year-ago
net income of $936 million, or $.69 per share, before the cumulative
effects of accounting changes.
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 $6.832 billion, or
$5.07 per share, for the first three months of 1993. (See also Note c.)
These accounting changes do not affect cash flows.
Total revenues reached $16.560 billion in the quarter, a 5.3 percent
increase from $15.719 billion in the same period of 1993. The increase
primarily resulted from 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 $399 million compared with the first quarter of 1993,
largely as a result of higher sales of products and systems. Compared with
the same period in 1993, operating income increased 16.1 percent for the
quarter. The overall gross margin percentage increased to 40.1 percent in
the quarter from 39.4 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 months ended March 31, 1994 with the same period of 1993, unless
otherwise noted.
<PAGE>
<PAGE> 13 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
TELECOMMUNICATIONS SERVICES
Telecommunications services revenues increased to $10.224 billion, a 2.6
percent increase from the first quarter of 1993, principally as a result of
higher volumes. Volumes, measured by billed minutes for switched services,
increased nearly 7 percent from the year-ago period. The switched revenue
to volume growth "gap" narrowed to about 3.5 percent for the quarter,
reflecting selective pricing actions in the consumer market. 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
effective pricing discounts of these "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 a result of the True program. In its first 100 days,
over 5 million customers signed up for AT&T True Rewards#.
Cost of telecommunications services declined $33 million from the year-ago
quarter, primarily due to lower network operating costs. The provision for
uncollectibles also declined. Access and other interconnection costs in-
creased $62 million compared with the year-ago quarter because of higher
volumes though they declined as a percentage of revenues. The gross margin
percentage improved to 38.8 percent from 36.9 percent in the same period of
1993.
# Registered service mark for AT&T
<PAGE>
<PAGE> 14 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 14.5 percent compared with the
first quarter of 1993, driven by substantial gains in sales of
communications products and systems and strong growth in telecommunications
network products and systems and microelectronics products.
Three months
ended
March 31,
Revenues in millions 1994 1993
Telecommunications network
products and systems $1,949 $1,753
Computer products and systems 685 651
Communications products
and systems 869 633
Microelectronic products,
special-design products for
U.S. government, and other* 567 517
Products and Systems $4,070 $3,554
*"Other" is composed of media, predominantly for use with automated teller
machines and point-of-sale equipment, and business forms.
Telecommunications network products and systems revenues increased 11.2
percent compared with the year-ago quarter primarily due to higher sales of
wireless products and switching services and increases in transmission
services. About $65 million of switching revenues in the first quarter
came from consolidating AG Communication Systems Corporation when AT&T's
equity interest rose to 80 percent. For the first quarter 1994, the in-
crease was led by sales outside the U.S., as AT&T develops opportunities in
expanding telecommunications markets overseas. During the first quarter of
1994, AT&T announced wireless contracts in Argentina and Korea. 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. AT&T expects that sales outside the U.S. will continue
to show a strong increase for all of 1994.
Revenues from computer products and systems sales in the quarter increased
5.2 percent compared with the year-ago quarter primarily because of higher
U.S. sales. Markets for these products are still experiencing fierce
competitive pricing, particularly for lower-end computer products, and a
general weakness in demand for computer systems, particularly among
financial customers overseas.
<PAGE>
<PAGE> 15 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from sales of communications products and systems increased 37.3
percent compared with the first quarter of 1993. Higher sales of business
communications equipment and consumer products led the increase. Higher
sales of data communications equipment, satellite transponders and
submarine cable also contributed to the growth.
As a category, sales of microelectronics products, special-design products
for the federal government and other product sales increased 9.7 percent
compared with the year-ago quarter, led by strong growth in sales outside
of the U.S. of microelectronic components. 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.
Cost of products and systems increased $371 million compared with the year-
ago quarter primarily because of higher sales. The gross margin
percentage decline to 40.0 percent compared with 41.8 percent in the first
quarter of 1993 was principally due to shifts in the product sales mix and
competitive pricing pressures.
RENTALS AND OTHER SERVICES
Rentals and other services revenues decreased for the quarter, primarily
reflecting the continuing reduction in rental revenues for communications
products and systems. The decline in rentals and services for computer
products and systems was primarily due to 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. The increase in other rentals
and services revenues reflected continuing growth in a large number of
miscellaneous and new services, such as network management,
satellite services, and cable ship operations, which individually generate
small revenue streams.
Three months
ended
March 31,
Revenues in millions 1994 1993
Computer products and systems $ 563 $ 590
Communications products and
systems rentals 258 313
Communications products and
systems services 353 335
Other* 401 390
Rentals and Other Services $1,575 $1,628
*"Other" is composed principally of global messaging and electronic mail
services, telemarketing services, information technology services and
facility rentals.
<PAGE>
<PAGE> 16 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Cost of rentals and other services decreased $14 million compared with the
year-ago quarter. The gross margin percentage declined to 50.9 percent in
the quarter from 51.6 percent in the same period of 1993 primarily because
of the continuing shift in the mix of revenues from higher margin rentals
and computer services to other services.
FINANCIAL SERVICES AND LEASING
Financial services and leasing revenues increased 21.3 percent for the
quarter compared with the same period in 1993 led by continued strong
growth from Universal Card.
Three Months
ended
March 31,
In millions 1994 1993
AT&T Capital $ 326 $ 327
Universal Card 372 267
Eliminations, adjustments
and other* ( 7) (24)
Total revenues $ 691 $ 570
Total costs 452 377
Gross margin $ 239 $ 193
Gross margin percentage 34.6% 33.9%
Universal Card Information:
Finance receivables $ 8,970 $ 6,578
Accounts 12.0 10.8
* "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 $2.4
billion and 1.2 million, respectively, compared with the year-ago quarter.
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. The gross margin percentage increased compared with the same
period in 1993, primarily reflecting a shift in the portfolio mix 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
<PAGE>
<PAGE> 17 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
OPERATING EXPENSES
Total operating expenses increased 4.2 percent compared with the same
period in 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 up slightly compared with the year-ago
quarter.
OTHER INCOME, INTEREST EXPENSE, PROVISION FOR INCOME TAXES
Other income - net was $24 million lower than in the year-ago quarter. The
year-ago period included some one-time adjustments related to income from
trust funds set up to provide certain postemployment and postretirement
benefits.
Interest expense was $73 million lower than the year-ago quarter, which
included $83 million of one-time costs for redeeming debt, such as call
premiums.
The effective tax rate increased to 38.0 percent in the quarter from 36.3
percent in the year-ago quarter, primarily due to a 1.0 percent increase in
the federal income tax rate and certain provisions of the 1993 tax law that
became effective in 1994.
TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY
Total assets increased $1.243 billion from year-end 1993 as lower accounts
receivable and investments were more than offset by higher levels of cash
and temporary cash investments, inventories, finance receivables and
prepaid pension costs. Working capital, defined as current assets less
current liabilities, increased $1.7 billion from year-end primarily due to
AT&T's repayment of commercial paper and an increase of inventory levels.
Management continues to target a cash balance of under $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.
<PAGE>
<PAGE> 18 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 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 c.) Higher prepaid pension costs are primarily
the result of the net pension credit. The increase in other assets was
caused primarily by promotional offerings purchased 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
repayment of commercial paper. The increase in other current liabilities
primarily reflects an increase of income tax liabilities. The increase in
long-term debt, including capital leases, primarily reflects the issuance
of notes to replace the short-term debt outstanding. The reduction in
deferred income tax liabilities primarily reflects the recognition of
deferred tax benefits associated with retiree benefit liabilities.
<PAGE>
<PAGE> 19 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
first quarter of 1993 because of higher income before cumulative effects of
accounting changes.
AT&T made investments in McCaw and Unitel in the first quarter of 1993.
There were no significant investments made in the current quarter.
Consequently, despite an increase in capital expenditures and finance
receivables in 1994, cash flows used in investing activities declined
relative to the year-ago.
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 their telecommunication infrastructure. The
agreements call for AT&T to invest more than $150 million in China over the
next two years.
AT&T plans to sell back to STET S.p.A., the Italian government's
telecommunications holding company, its 20 percent interest in Italtel
S.p.A, during 1994.
On August 16, 1993, AT&T and McCaw entered into a definitive merger
agreement. The merger agreement provides for the merger of McCaw and a
subsidiary of AT&T, as a result of which McCaw will become a wholly owned
subsidiary of AT&T.
In the merger, each share of McCaw's Class A common stock and each share of
McCaw's Class B common stock will be converted into one share of AT&T
common stock. However, if the 20-day-average market price of AT&T common
stock as of five business days prior to the merger is less than $53 per
share, the conversion ratio will be adjusted upward to provide shares of
AT&T common stock having an aggregate market price of $53 for each share of
McCaw common stock, subject to a maximum of 1.111 shares of AT&T common
stock. If the 20-day-average market price of AT&T common stock as of five
business days prior to the merger is greater than $71.73 per share, the
conversion ratio will be adjusted downward to provide shares of AT&T common
stock having an aggregate market price of $71.73 for each share of McCaw
common stock, subject to a minimum of .909 of a share of AT&T common stock.
The merger is subject to a number of conditions, including the approval of
the Federal Communications Commission, expiration of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act and receipt of
opinions that the merger will be tax free and will be accounted for as a
pooling of interests.
<PAGE>
<PAGE> 20 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Pursuant to a separate agreement, AT&T has granted McCaw the right, in the
event the merger does not close, to require AT&T to purchase from McCaw
$600 million of McCaw's Class A common stock at a price of $51.25 per
share.
On April 5, 1994, the U.S. District Court, 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 regional Bell operating companies would
violate the antitrust consent Decree entered into by AT&T in 1982. The
court determined that AT&T must seek a waiver of the Decree. There can be
no assurance as to whether the court will grant any waiver, or if granted,
when that will occur. (See also Note f.)
More cash was used in financing activities than in the first quarter of
1993 primarily because of the large reduction in commercial paper
outstanding, discussed previously.
The ratio of total debt to total debt plus total equity (debt ratio)
decreased to 53.5 percent at March 31, 1994, compared with 56.1 percent at
December 31, 1993 as a result of an overall net reduction of debt levels
during the quarter. Excluding financial services and leasing operations,
the debt ratio was 23.5 percent at March 31, 1994 compared with 28.3
percent at December 31, 1993.
<PAGE>
<PAGE> 21 AT&T Form 10-Q - Part II
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of the shareholders of the registrant was held on
April 20, 1994.
(b) Election of Directors
Votes
(Millions)
Nominee For Withheld
Robert E. Allen 1,090 12
M. Kathryn Eickhoff 1,091 12
Walter Y. Elisha 1,092 12
Philip M. Hawley 1,092 13
Carla A. Hills 1,090 13
Belton K. Johnson 1,091 12
Drew Lewis 1,092 12
Donald F. McHenry 1,090 14
Victor A. Pelson 1,092 12
Donald S. Perkins 1,091 12
Henry B. Schacht 1,092 12
Michael I. Sovern 1,091 12
Franklin A. Thomas 1,091 12
Joseph D. Williams 1,091 12
Thomas H. Wyman 1,091 12
(c) Holders of common shares voted at this meeting on the following
matters, which were set forth in full in the registrant's proxy
statement dated March 1, 1994.
(i) Ratification of Auditors
For Against Abstain
Ratification of the firm 1,089 6 8
of Coopers & Lybrand as the (99.4%) (.5%)
independent auditors to audit
the registrant's financial
statements for the year
1994.(*)
(ii) Directors' Proposals
For Against Abstain
That the shareholders approve 1,052 35 16
an amendment of the Company's (77.5%) (2.5%) (1.2%)
Restated Certificate of Incor-
poration to change the name of
the Company to "AT&T Corp."(**)
*Percentages are based on the total common shares voted. Approval of this
Proposal required a majority of the common shares voted.
**Percentages are based on total number of outstanding common shares.
Approval of this Proposal required a majority of the outstanding common
shares.
<PAGE>
<PAGE> 22 AT&T Form 10-Q - Part II
(ii) Directors' Proposals (cont'd)
Votes
(Millions)
For Against Abstain
That the shareholders approve 1,052 32 20
the 1995 AT&T Employee Stock (77.5%) (2.3%) (1.4%)
Purchase Plan.(**)
That the shareholders approve 1,047 35 22
the 1994 Employee Stock Pur- (77.1%) (2.5%) (1.6%)
chase Plan for AT&T Global In-
formation Solutions Company
(formerly NCR Corporation).(**)
That the shareholders approve 935 144 24
an amendment to the existing (86.6%) (13.3%)
AT&T Short Term Incentive Plan
(the "Short Term Plan") which
establishes an objective per-
formance-based formula that
effectively limits the awards
to "covered employees" by set-
ting the maximum awards payable
under the Short Term Plan.(*)
(iii)Shareholder Proposals
Broker
For Against Abstain Non-votes
That the Board of Directors 78 837 27 161
disclose, in future proxy (8.5%) (91.4%)
statements, the name and title
of executive officers who are
contractually entitled to re-
ceive annual base salaries in
excess of $100,000, together
with other additional compensa-
tion due them.(*)
That the Company endorse the 76 811 55 161
Coalition for Environmentally (8.6%) (91.3%)
Responsible Economies (CERES)
Principles for corporate envi-
ronment accountability.(*)
That the Board of Directors 53 737 152 161
institute an official corporate (6.6%) (93.3%)
policy that as the company con-
tinues or expands its business
in Mexico, it will evaluate the
environmental and human rights
context in which it oper-
ates.(*)
*Percentages are based on the total common shares voted. Approval of this
Proposal required a majority of the common shares voted.
**Percentages are based on total number of outstanding common shares.
Approval of this Proposal required a majority of the outstanding common
shares.
<PAGE>
<PAGE> 23 AT&T Form 10-Q - Part II
(iii)Shareholder Proposals (cont'd)
Votes
(Millions)
Broker
For Against Abstain Non-votes
That the Board of Directors 70 843 28 161
institute a salary and compensa- (7.7%)(92.2%)
tion ceiling for future employ-
ment contracts, stating that no
senior executive or director of
the Company receive combined sal-
ary and other compensation which
is more than two times the salary
provided to the President of the
United States, that is, no more
than $400,000.(*)
That the Board of Directors adopt 39 738 165 161
policies for dealings with China (5.0%)(94.9%)
and the former Soviet Union re-
garding the use of slave or
forced labor to produce goods and
services purchased by the Compa-
ny, its subsidiaries, affiliates,
or joint ventures, and regarding
the distribution of the Company's
products and services to facili-
ties utilizing slave or forced
labor, and that the Company shall
pursue the right of on-site in-
spection, and the Company shall
cooperate with the United States
and international organizations
in their laws or policies to dis-
courage the use of slave or
forced labor.(*)
That the Board of Directors 45 859 38 161
establish a Committee composed (4.9%)(95.0%)
of four members of the Board,
in order to evaluate the impact
of various health care propos-
als on the Company, including
the proposal of the Clinton
Administration, and to prepare
a report of its findings to
provide advice to the Board
concerning strategic decisions
and to provide information to
shareholders so they may evalu-
ation the potential impact of
health care reform on the Com-
pany in making investment deci-
sions regarding the Companies
securities.(*)
*Percentages are based on the total common shares voted. Approval of this
Proposal required a majority of the common shares voted.
<PAGE>
<PAGE> 24 AT&T Form 10-Q - Part I
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number
12 Computation of Ratio of Earning to Fixed Charges
(b) Reports on Form 8-K:
Form 8-K reports dated January 14 and January 27, 1994 were filed
pursuant to Item 5 (Other Events), Forms 8-K dated March 4, and March
23, 1994 were filed pursuant to Items 5 (Other Events) and 7 (Finan-
cial Statements and Exhibits).
<PAGE>
<PAGE> 25 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 May 6, 1994
M. B. Tart
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
<PAGE> 26 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
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
For the Three
Months Ended
March 31,1994
Earnings Before Income Taxes.................... $1,764
Less Interest Capitalized during the Period..... 7
Less Undistributed Earnings of Less than 50%
Owned Affiliates..............................
11
Add Fixed Charges............................... 385
Total Earnings.................................. $2,131
Fixed Charges
Total Interest Expense Including Capitalized
Interest...................................... $ 291
Interest Portion of Rental Expense.............. 94
Total Fixed Charges......................... $ 385
Ratio of Earnings to Fixed Charges.............. 5.5
