<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 September 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 October 31, 1994 1,563,046,000 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 Nine
Months Ended Months Ended
September 30, September 30,
1994(b) 1993(b) 1994(b) 1993(b)
Sales and Revenues
Telecommunications services..... $10,974 $10,598 $32,466 $31,229
Sales of products and systems... 5,068 4,222 14,075 11,998
Rentals and other services...... 1,799 1,771 5,221 5,262
Financial services and leasing.. 808 634 2,222 1,792
Total revenues.................. 18,649 17,225 53,984 50,281
Costs (c)
Telecommunications services
Access and other
interconnection costs....... 4,397 4,480 13,420 13,355
Other costs................... 1,886 1,882 5,643 5,685
Total telecommunications
services...................... 6,283 6,362 19,063 19,040
Products and systems............ 3,179 2,625 8,755 7,301
Rentals and other services...... 849 862 2,504 2,508
Financial services and leasing.. 573 435 1,524 1,215
Total costs..................... 10,884 10,284 31,846 30,064
Gross margin.................... 7,765 6,941 22,138 20,217
Operating Expenses (c)
Selling, general and
administrative expenses....... 5,000 4,386 14,046 13,049
Research and development
expenses...................... 808 786 2,278 2,278
Total operating expenses........ 5,808 5,172 16,324 15,327
Operating income................ 1,957 1,769 5,814 4,890
Other income (loss) - net (e)... (35) 89 169 515
Loss on sale of stock by a
subsidiary (f)................ 0 9 0 9
Interest expense................ 176 188 580 706
Income before income taxes and
cumulative effects of
accounting changes............ 1,746 1,661 5,403 4,690
Provision for income taxes...... 696 639 2,031 1,764
Income before cumulative
effects of accounting changes. 1,050 1,022 3,372 2,926
(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 Nine
Months Ended Months Ended
September 30, September 30,
1994(b) 1993(b) 1994(b) 1993(b)
Cumulative effects on prior years
of changes in accounting for:
Postretirement benefits (net of
income taxes of $4,294) (g)... 0 0 0 (7,023)
Postemployment benefits (net of
income taxes of $ 681) (g).... 0 0 0 (1,128)
Income taxes (g)................ 0 0 0 (1,457)
Cumulative effects of
accounting changes............ 0 0 0 (9,608)
Net Income (Loss)............... $1,050 $1,022 $3,372 $(6,682)
Weighted average common shares
outstanding (millions)........ 1,567 1,551 1,562 1,545
Per Common Share:
Income before cumulative effects
of accounting changes......... $ .67 $ .66 $ 2.16 $ 1.89
Cumulative effects of accounting
changes....................... - - - (6.22)
Net income (loss)............... $ .67 $ .66 $ 2.16 $ (4.33)
Dividends declared per
common share.................. $ .33 $ .33 $ .99 $ .99
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)
September 30, December 31,
1994(b) 1993(b)
ASSETS
Cash and temporary cash investments.... $ 1,681 $ 671
Receivables less allowances
of $1,214 and $1,040
Accounts receivable.................. 12,674 12,294
Finance receivables.................. 13,666 11,370
Inventories (i)........................ 4,281 3,222
Deferred income taxes.................. 2,273 2,079
Other current assets................... 887 732
Total current assets................... 35,462 30,368
Property, plant and equipment, net of
accumulated depreciation of $22,903
and $22,281.......................... 21,176 21,015
Licensing costs, net of accumulated
amortization of $583 and $505........ 4,216 3,995
Investments............................ 2,336 3,060
Finance receivables.................... 4,319 3,815
Prepaid pension costs.................. 4,059 3,575
Other assets........................... 3,979 3,565
TOTAL ASSETS........................... $75,547 $69,393
(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)
September 30, December 31,
1994(b) 1993(b)
LIABILITIES AND DEFERRED CREDITS
Accounts payable........................ $ 5,342 $ 4,853
Payroll and benefit-related liabilities. 3,805 3,802
Postretirement and postemployment
benefit-related liabilities............ 1,095 1,301
Debt maturing within one year........... 13,679 11,063
Dividends payable....................... 517 448
Other current liabilities............... 5,848 4,587
Total current liabilities............... 30,286 26,054
Long-term debt including capital
leases................................ 10,866 11,802
Postretirement and postemployment
benefit-related liabilities........... 8,909 9,083
Other liabilities....................... 4,493 4,363
Deferred income taxes................... 2,576 2,231
Unamortized investment tax credits...... 231 270
Other deferred credits.................. 407 263
Total liabilities & deferred credits.... 57,768 54,066
Minority interests...................... 1,078 1,953
SHAREOWNERS' EQUITY
Common stock - par value $1 per share... 1,563 1,547
Authorized shares: 2,000,000,000
Outstanding shares:
1,562,667,000 at September 30, 1994
1,546,518,000 at December 31, 1993
Additional paid-in capital.............. 15,375 14,324
Guaranteed ESOP obligation.............. (305) (355)
Foreign currency translation
adjustments........................... 219 (32)
Retained deficit........................ (151) (2,110)
Total shareowners' equity............... 16,701 13,374
TOTAL LIABILITIES/SHAREOWNERS' EQUITY... $75,547 $69,393
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 Nine
Months Ended
September 30,
1994(b) 1993(b)
Operating Activities
Net income (loss)........................ $ 3,372 $(6,682)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Cumulative effects of accounting
changes (g)......................... - 9,608
Depreciation and licensing cost
amortization........................ 2,936 2,943
Provision for uncollectibles.......... 1,406 1,267
(Increase) in accounts receivable..... (1,334) (916)
(Increase) in inventories............. (1,048) (932)
Increase (decrease)in accounts
payable............................. 444 (392)
Net change in other operating
assets and liabilities.............. 213 296
Other adjustments for non-cash
items - net......................... 285 (179)
Net cash provided by operating
activities............................. 6,274 5,013
Investing Activities
Capital expenditures net of proceeds
from sale or disposal of property,
plant and equipment of $264 and $153. (3,059) (2,599)
(Increase) in finance receivables, net
of lease-related repayments of $2,659
and $2,819........................... (2,965) (2,018)
Net (increase) in investments.......... (81) (537)
Acquisitions, net of cash acquired..... 134 (228)
Other investing activities - net....... ( 72) (128)
Net cash used in investing activities.... (6,043) (5,510)
Financing Activities
Proceeds from long-term debt issuance.. 4,465 2,148
Retirements of long-term debt.......... (5,037) (3,770)
Issuance of common shares.............. 524 896
Treasury shares acquired............... (2) (1)
Dividends paid......................... (1,344) (1,330)
Increase in short-term
borrowings - net................... 2,194 2,069
Other financing activities - net....... (47) 25
Net cash provided by financing activities 753 37
(CONT'D)
<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 Nine
Months Ended
September 30,
1994(b) 1993(b)
Effect of exchange rate
changes on cash........................ $ 26 $ (1)
Net increase (decrease) in cash and
temporary cash investments............. 1,010 (461)
Cash and temporary cash investments
at beginning of year................... 671 1,512
Cash and temporary cash investments
at end of period....................... $ 1,681 $ 1,051
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 Annual Report, Form 10-K and Form 8-K for the year ended
December 31, 1993 and the current year's previously issued Forms 10-Q
(which have not been restated to reflect the merger with McCaw).
(b) RESTATEMENTS AND RECLASSIFICATIONS - Previously reported quarterly and
year to date results included herein were restated to reflect the
merger of AT&T and McCaw Cellular Communications, Inc. ("McCaw") which
was accounted for as a pooling of interests (see also note d).
Previously reported quarterly and year to date results for 1993 were
restated to reflect the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 112 "Employers' Accounting for Postemployment
Benefits" (see also note g).
These restatements include certain other reclassifications to conform
with the current presentation: 1) The reclassification, for prior
quarters of 1994, of certain benefits customers earned through our
targeted marketing programs for telecommunications services. For
example, benefits redeemed as long distance minutes are reported as a
direct reduction to telecommunications services revenues rather than
selling, general and administrative expense. 2) The reclassification
of certain revenues and related costs in the Global Information
Solutions unit from products and systems to the rentals and other
services category for all prior quarters. 3) The reclassification of
provisions for business restructuring to costs and operating expenses
for previously reported quarters in 1993. These reclassifications
did not affect operating income or net income for any periods.
(c) PROVISIONS FOR BUSINESS RESTRUCTURING - Provisions for business
restructuring in the nine months ended September 30, 1993 totaled
$308. 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 $93 in provisions for lease terminations, closing
facilities and other related expenses for restructuring activities in
other areas.
<PAGE>
<PAGE> 9 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
These provisions were reclassified as follows: $234 to selling,
general and administrative expenses; $59 to the costs of products and
systems; and $15 to other line items.
(d) MERGER WITH McCAW - On September 19, 1994, AT&T merged with McCaw. As
a result, 197.5 million shares of McCaw common stock were converted
into shares of AT&T common stock at an exchange ratio of one share of
AT&T common stock for each McCaw share. In addition, AT&T assumed
11.3 million McCaw stock options which were converted into AT&T stock
options at the same exchange ratio resulting in 11.3 million
additional AT&T stock options at an average exercise price of $27.01.
The merger was accounted for as a pooling of interests and the
consolidated financial statements of AT&T have been restated for all
periods prior to the merger to include the accounts and operations of
McCaw. Intercompany transactions, prior to 1994, have not been
eliminated due to the immateriality of the amounts involved.
Merger-related expenses of $227 million incurred in the third quarter
($169 million net of taxes) are reported as selling, general and
administrative expenses. Certain reclassifications have been made to
McCaw's accounts to conform to AT&T's presentation. Operating results
of the companies for the current presentation are:
Three Months Nine Months
Ended Ended
September 30, September 30,
Sales and Revenues 1994 1993 1994 1993
Dollars in millions
- - -----------------------------------------------------------------
AT&T $17,993 $16,662 $52,178 $48,697
McCaw 735 563 2,062 1,584
Eliminations (79) - (256) -
- - -----------------------------------------------------------------
Total $18,649 $17,225 $53,984 $50,281
Net Income (Loss)
- - -----------------------------------------------------------------
AT&T $ 1,191 $ 1,051 $ 3,431 $(4,777)
McCaw (95) (29) 34 (1,905)
Eliminations (46) - (93) -
- - -----------------------------------------------------------------
Total $ 1,050 $ 1,022 $ 3,372 $(6,682)
<PAGE>
<PAGE> 10 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(e) 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.
(f) SALE OF STOCK BY SUBSIDIARY - In August 1993, AT&T Capital Corporation
("AT&T Capital") sold 14% of its common stock in an Initial Public
Offering, thereby reducing AT&T's ownership to 86%. Due to the
required recording of $18 of recourse loans by AT&T Capital to its
senior management associated with the stock offering, a $9 loss was
realized for the three and nine months ended September 30, 1993. The
expected net gain on the sale after collecting these loans over seven
years will be $6.
(g) 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 ($4.55 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, "Employers'
Accounting for Postemployment Benefits." This standard requires
companies to accrue for estimated future postemployment benefits
during the years employees are working and accumulating these bene-
fits. Previously, AT&T recognized the separation costs as they were
identified and disability benefits when paid. AT&T recorded an after-
tax charge of $1,128 ($.73 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 reduction to net income of
$1,457 ($.94 per share) as a result of deferred liabilities that were
created by McCaw's acquisitions prior to the merger. This charge was
recorded as the cumulative effect of an accounting change in the first
quarter of 1993. This accounting change does not affect cash flows.
<PAGE>
<PAGE> 11 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
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.
(h) REDEMPTION OF PREFERRED STOCK BY A SUBSIDIARY - On June 24, 1994,
LCH Communications ("LCH"), a subsidiary of LIN Broadcasting ("LIN")
(a subsidiary of McCaw of which AT&T owns 52%), redeemed all of its
outstanding redeemable preferred stock in exchange for all of the
capital stock of one of its subsidiaries.
As a result of the redemption, the net assets were eliminated and a
gain on the sale of assets of $12 million and a tax benefit of $74
million were recorded. There was also an increase in additional paid-
in capital and minority interests of $408 million and $376 million
respectively.
(i) INVENTORIES - Inventories at September 30, 1994 and December 31, 1993
were as follows:
September 30, December 31,
1994 1993
Completed goods............... $2,472 $1,927
Work-in-process and raw
materials.................. 1,809 1,295
Total inventories............. $4,281 $3,222
<PAGE>
<PAGE> 12 AT&T Form 10-Q -Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(j) 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 Nine
Months Ended
September 30,
1994 1993
Total revenue $1,043 $1,034
Interest expense 219 212
Selling, general and
administrative expense 286 241
Income before cumulative effect of
accounting change 59 33
Cumulative effect of accounting
change (1) - (22)
Net Income 59 11
At At
September 30, December 31,
1994 1993
Finance receivables $7,337 $6,220
Net investment in operating
lease assets 829 978
Total assets 8,866 7,886
Total debt 5,415 4,639
Total liabilities 7,790 6,867
Minority interest 261 251
Total shareowners' equity 815 768
(1) Effective January 1, 1993, AT&T Credit Holdings, Inc. adopted
SFAS No. 109.
<PAGE>
<PAGE> 13 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On September 19, 1994, AT&T completed the merger with McCaw which was
accounted for as a pooling of interests. In this report, AT&T is reporting
the combined financial results of AT&T and McCaw. Accordingly, all
comparisons with prior years are based on restated combined results.
AT&T reported quarterly combined net income of $1.050 billion, or $.67 per
share in the third quarter of 1994, a 2.7 percent increase compared with
year-ago quarterly net income of $1.022 billion, or $.66 per share. For
the nine months ended September 30, 1994, combined income before cumulative
effects of accounting changes was $3.372 billion, or $2.16 per share,
compared with $2.926 billion, or $1.89 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 $9.608 billion,
or $6.22 per share. As a result, AT&T reported a combined loss of $6.682
billion, or $4.33 per share, for the first nine months of 1993. (See also
Note g). These accounting changes do not affect cash flows.
Total revenues reached $18.649 billion in the quarter, an 8.3 percent
increase from $17.225 billion in the same period of 1993. Through
September total revenues were 7.4 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
strong growth in telecommunications services, including wireless services,
and financial services and leasing revenues.
Total costs increased $600 million compared with the third quarter of 1993,
largely as a result of higher sales of products and systems. Compared with
the same periods in 1993, operating income increased 10.6 percent for the
quarter and 18.9 percent for the nine months of 1994. The overall gross
margin percentage increased to 41.6 percent in the quarter from 40.3
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 nine months ended September 30, 1994 with the comparable periods
of 1993, unless otherwise noted.
<PAGE>
<PAGE> 14 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, including McCaw's wireless services
revenues, rose to $10.974 billion, a 3.5 percent increase from the third
quarter of 1993, principally as a result of higher volumes. Volumes,
measured by billed minutes for switched services, increased more than 7
percent from the year-ago period. The switched revenue to volume growth
"gap" was about 4 percent for the quarter. 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 late 1993 and 1994. 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, 12
million customers have signed up for AT&T True Rewards# since year-end
1993.
Cost of telecommunications services decreased $79 million for the
quarter compared with the year-ago quarter, largely reflecting lower access
and other interconnection costs. These costs decreased primarily because
of lower prices for connections. For the first nine months in 1994, cost
of telecommunication services increased $23 million compared with the same
period in 1993, largely due to higher volumes. Access and other
interconnection costs decreased $83 million for the quarter, but increased
$65 million for the nine-month period compared with the same period in 1993
also because of higher volumes. Other costs increased slightly for the
quarter but decreased for the nine-month period compared with the same
periods in 1993. The decrease was mainly due to lower network operating
costs. The gross margin percentage improved to 42.7 percent in the quarter
from 40.0 percent in the same period of 1993.
# Registered service mark of AT&T
<PAGE>
<PAGE> 15 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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. In July 1994, a consortium of
Dutch, Swiss and Swedish telephone authorities known as Unisource joined
WorldPartners. Telefonica de Espana has also become a full member of
Unisource, enhancing market opportunities for WorldPartners in both Spain
and Latin America. During the third quarter of 1994, Hongkong Telecom also
announced it is joining WorldPartners, offering voice and data services to
multinational customers in Hong Kong. Canada's Unitel Communications, in
which AT&T currently has a 20 percent ownership interest, is also a member
of WorldPartners.
PRODUCTS AND SYSTEMS
Sales of products and systems increased 20.1 percent for the quarter and
17.3 percent for the nine-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.
Three months Nine months
ended ended
September 30, September 30,
Revenues in millions 1994 1993(1) 1994 1993(1)
Telecommunications network
products and systems $2,328 $1,911 $ 6,478 $ 5,536
Computer products and systems 1,016 778 2,682 2,242
Communications products
and systems 1,066 949 3,024 2,475
Microelectronic products,
special-design products for
U.S. government, and other* 658 584 1,891 1,745
Products and Systems $5,068 $4,222 $14,075 $11,998
(1) Reclassified to conform with current presentation.
*"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 21.8
percent and 17.0 percent compared with the year-ago quarter and first nine
months of 1993, respectively, primarily due to substantially higher sales
of transmission systems and strong gains across the business, including
cable systems, switching systems and wireless products. Revenues from
sales outside of the U.S. increased about 20 percent compared with a year-
ago quarter. 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 the Regional Bell Operating Companies
and independent telephone companies.
<PAGE>
<PAGE> 16 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 30.6 percent
for the quarter and 19.6 percent for the nine-month period compared with
the same year-ago periods, reflecting higher sales of computer products and
systems both in the U.S. and overseas. Although sales are higher, 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 12.3
percent and 22.2 percent for the third quarter and nine 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 12.7 percent
for the quarter and 8.4 percent for the nine-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. but was partially
offset by lower purchases of AT&T's special-design products by the U.S.
government compared with the year-ago quarter primarily because of reduced
spending for defense.
The increase in cost of products and systems for the quarter and nine-month
period compared with the same periods in 1993 was primarily the result of
higher sales. The gross margin percentage declined to 37.3 percent
compared with 37.9 percent in the third quarter of 1993. The decrease was
principally due to competitive pricing pressures and shifts in the product
sales mix.
RENTALS AND OTHER SERVICES
Rentals and other services revenues increased slightly for the quarter but
decreased for the nine-month period compared with the same periods in 1993,
primarily reflecting the continuing reduction in the rental base of
communications products and systems. Rentals and services revenues for
computer products and systems were up slightly for the quarter but were
flat for the nine-month period compared with the same periods in 1993
because of lower revenues from traditional maintenance services offset by
increases in professional 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 decreased
slightly for the nine-month period compared with the same periods in 1993.
<PAGE>
<PAGE> 17 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three months Nine months
ended ended
September 30, September 30,
Revenues in millions 1994 1993(1) 1994 1993(1)
Computer products and systems $ 645 $ 623 $1,902 $1,905
Communications products and
systems rentals 233 288 733 902
Communications products and
systems services 431 372 1,219 1,058
Other* 490 488 1,367 1,397
Rentals and Other Services $1,799 $1,771 $5,221 $5,262
(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 decreased for the quarter and nine-month
periods compared with the same periods in 1993. The gross margin
percentage increased to 52.8 percent in the quarter from 51.3 percent in
the same period of 1993 primarily because of a higher proportion of
installation and maintenance revenues, which are typically higher-margin
services.
<PAGE>
<PAGE> 18 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 27.7 percent for the
quarter and 24.0 percent for the first nine-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 Nine Months
ended ended
September 30, September 30,
In millions 1994 1993 1994 1993
AT&T Capital $ 348 $ 331 $ 1,007 $ 975
Universal Card 477 318 1,249 874
Eliminations, adjustments
and other* (17) (15) (34) (57)
Total revenues $ 808 $ 634 $ 2,222 $ 1,792
Total costs 573 435 1,524 1,215
Gross margin $ 235 $ 199 $ 698 $ 577
Gross margin percentage 29.2% 31.3% 31.4% 32.2%
Universal Card Information:
Finance receivables $11,152 $ 7,887 $11,152 $ 7,887
Accounts 14.6 12.2 14.6 12.2
* "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 $3.3
billion and 2.4 million, respectively, since September 30, 1993.
Delinquent balances and charge-offs continue to be below industry norms.
The increase in cost of financial services and leasing was due primarily to
the higher volume of financing and credit card transactions for the quarter
and nine-month periods. The gross margin percentage decreased for the
quarter and nine-month periods mainly due to higher provisions for
uncollectibles at Universal Card, as the percentage of revolving cardholder
receivables grew.
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. In October, 1994 the Financial
Accounting Standards Board issued SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures." The standard
amends the disclosure and income recognition requirements in SFAS No. 114.
These standards must be adopted for fiscal years beginning after December
15, 1994; for AT&T, that would be 1995. The adoption of SFAS No. 114 and
SFAS No. 118 is not expected to have a material impact on the reported
costs and expenses for financial services.
<PAGE>
<PAGE> 19 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 12.3 percent for the quarter and 6.5
percent for the first nine-months of 1994 compared with the same periods of
1993. The increase reflects merger-related expenses, as well as, higher
advertising and promotions expense, and increased sales and sales support
activities focused towards telecommunications services markets. Research
and development expenses were up slightly for the quarter but even for the
nine-month periods compared with the same periods in 1993.
In the third quarter of 1993, a $23 million provision for business
restructuring was recorded to cover force reductions and plant closings at
AT&T's Global Information Solutions unit.
OTHER INCOME, INTEREST EXPENSE, PROVISION FOR INCOME TAXES
Other income - net decreased $124 million for the quarter and $346 million
for the first nine months of 1994 compared with the same periods in 1993.
For the quarter, the decrease reflects the losses associated with the
shutdown of AT&T's EO Inc. unit and a lost telecommunications satellite.
In addition, the year-ago quarter included a gain of $94 million on the
sale of cellular systems. For the nine-month period, 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. (See also Note e.)
Interest expense decreased $12 million and $126 million for the quarter and
nine-month period, respectively, compared with the same periods a year-ago.
The decrease reflects the benefits associated with lower interest rates
after debt refinancings and one-time costs for refinancing activities
included in 1993.
The provision for income taxes increased for the quarter due primarily to
higher income before income taxes and the impact of changes in the federal
law enacted in the third quarter of 1993. The effective tax rate increased
to 39.9% in the quarter from 38.4% in the year-ago quarter, reflecting
certain provisions of the 1993 tax law that became effective in 1994, the
non-deductibility of certain merger-related expenses, and some favorable
adjustments in 1993.
<PAGE>
<PAGE> 20 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 $6.154 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 investments.
Working capital, defined as current assets less current liabilities,
increased about $0.9 billion from year-end primarily due to increases in
cash and temporary cash investments, finance receivables and inventories.
The cash balance exceeded management's target at the end of September 1994
because of a change in strategy to finance global opportunities and
pending re-investments in projects. Management continues to target a cash
balance of approximately $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
the planned build-up in anticipation of higher product and system sales
later in the year.
Property, plant and equipment, net of accumulated depreciation, increased
from year-end due to higher capital expenditures.
The decrease in investments largely reflects the exchange of LIN's
investment in the Philadelphia cellular system for all the outstanding
redeemable preferred stock of a LIN subsidiary. In addition, AT&T's sold
its 20 percent investment interest in Italtel S.p.A. back to STET S.p.A.,
the Italian government's telecommunications holding company, during the
quarter. There was no gain or loss on the sale.
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 g.)
In October 1994, the Financial Accounting Standards Board also issued SFAS
No. 119, "Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments." The standard requires companies to identify the
purpose for holding all derivative financial instruments as well as
additional disclosures based on the derivative's identified purpose. The
standard is effective for financial statements issued for fiscal years
ending after December 15, 1994; for AT&T, that would be for 1994.
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.
Payroll and benefit-related liabilities was about even compared with year-
end. The increase in debt maturing within one year, primarily reflects the
refinancing of McCaw's long-term debt subsequent to the merger with
commercial paper. The increase in other current liabilities primarily
reflects the unredeemed points earned for the True Rewards# program.
# Registered service mark of AT&T
<PAGE>
<PAGE> 21 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The increase in deferred income tax liabilities was mainly due to the
temporary differences in the book and tax bases of plant-related assets.
The decrease in minority interests is because of the redemption of all the
outstanding redeemable preferred stock of LCH Communications in exchange
for all the capital stock of one of its subsidiaries. (See also Note h.)
CASH FLOWS
Cash flows provided by operating activities increased compared with the
third quarter of 1993 primarily because of higher income before cumulative
effects of accounting changes.
The increase in cash flows used in investing activities compared with the
same period in 1993 is largely the result of higher levels of finance
receivables and capital expenditures. The increase in capital expenditures
is primarily due to enhancing and expanding our wireless services. These
increases were offset by lower levels of new investments in 1994 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 telecommunications infrastructure. The
agreements call for AT&T to invest more than $150 million in China over two
years.
On October 28, 1994, AT&T Wireless PCS Inc., a wholly owned subsidiary of
AT&T Corp., filed an application with the FCC establishing its eligibility
to bid on broad-band personal communication service (PCS) radio licenses to
provide wireless telephone service in 30 of 51 major trading areas in the
United States. The FCC auction is scheduled to begin on December 5, 1994.
It is not possible to predict the outcome of the auction or the amounts
successful bidders will be required to pay in order to win licenses as more
than 70 companies have registered to be eligible for bidding. In the event
AT&T determines to bid and is successful in obtaining one or more licenses,
substantial expenditures could be required for the licenses and for
constructing associated systems.
On November 9, 1994, AT&T and Alfa, a leading Mexican company, announced
that they signed a memorandum of understanding pursuant to which they plan
to work together to develop a possible joint venture to address the Mexican
telecommunications services business. At this time, it is not possible to
determine with any precision the capital requirements of any such joint
venture, should one be formed, however, AT&T has estimated that as much as
$1 billion of capital over 4-6 years could be required. AT&T's share of
the joint venture would be 49%.
During the third quarter of 1994, AT&T signed an agreement to acquire
Alascom, one of Alaska's long-distance carriers, from Pacific Telecom Inc.
for $290 million. The agreement remains subject to the approval by the
Alaska Public Utilities Commission, the Federal Communications Commission
and the U.S. Department of Justice.
<PAGE>
<PAGE> 22 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Private Market Value Guarantee ("PMVG") between McCaw and LIN, for the
benefit of LIN's stockholders (other than McCaw and its affiliates),
provides that on or about January 1, 1995, a process will be commenced to
determine the private market price per share of LIN. Following the
determination of the private market price, McCaw will have 45 days to
decide whether to proceed with the acquisition of all the public shares of
LIN at the private market price. Such an acquisition would involve a
substantial capital expenditure. If AT&T and McCaw decide not to proceed
with the acquisition, the PMVG provides that McCaw will put LIN in its
entirety up for sale, under the direction of the LIN independent directors,
in a manner intended by the LIN independent directors to maximize value for
all the LIN shares.
Cash flows from financing activities increased for the first nine months of
1994 compared with the same period in 1993 primarily due to a higher level
of proceeds from new long-term debt, net of retirements, in anticipation of
replacing McCaw's long-term debt.
The ratio of total debt to total debt plus total equity (debt ratio)
decreased to 59.5 percent at September 30, 1994, compared with 63.1 percent
at December 31, 1993, primarily as a result of higher equity from 1994
earnings. Excluding financial services and leasing operations, the debt
ratio was 37.6 percent at September 30, 1994 compared with 46.0 percent at
December 31, 1993.
<PAGE>
<PAGE> 23 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
AT&T MERGER WITH MCCAW
On September 19, 1994, pursuant to a merger agreement between AT&T and
McCaw, entered into in August 1993, McCaw became a wholly owned subsidiary
of AT&T (the "Merger").
In connection with the Merger, AT&T, McCaw and the United States entered
into a proposed antitrust consent decree (the "Proposed Consent Decree") on
July 15, 1994, which permit the Merger by settling a suit challenging the
Merger filed the same day by the United States in the United States
District Court for the District of Columbia (the "court"). The Proposed
Consent Decree imposes several conditions 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) re-
quirements that McCaw cellular systems, within 21 months of the commence-
ment 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 pro-
vided to AT&T; (iv) a prohibition on the sale by each of AT&T and McCaw of
interexchange or local cellular services, respectively, 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 and unaffiliated
wireless system equipment suppliers of McCaw; (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 that AT&T buy
back any cellular system equipment sold to an unaffiliated cellular carrier
if the United States determines AT&T has violated any of the provisions
described in (v) through (vii) of this paragraph.
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 time period for public comments
ended on October 26, 1994. The United States has not yet replied to such
comments.
<PAGE>
<PAGE> 24 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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; 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 was not contingent on the prior entry of the
Proposed Consent Decree or the completion of the requirements of the
Antitrust Procedures and Penalties Act. The Merger continues to 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 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. The waiver was granted on August 25, 1994. An appeal has been
brought by BellSouth Corporation and the matter is under an expedited
briefing schedule. Oral argument is scheduled for November 16, 1994.
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, filed petitions with the FCC opposing the
request for FCC consent or seeking to impose conditions on the Merger. By
order dated September 19, 1994, the FCC approved the transfer of control of
McCaw to AT&T (the "September 19 FCC Order"). Appeals which have been
consolidated have been brought by BellSouth Corporation and Southwestern
Bell Corporation. An expedited briefing schedule has been set by the
court.
In addition, on October 19, 1994, Allnet Communication Services, Inc. has
petitioned the FCC for clarification or, in the alternative,
reconsideration of the September 19 FCC Order. On October 19, 1994, NYNEX
and Bell Atlantic also filed a petition for reconsideration of the
September 19 FCC Order.
<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., NYNEX Corporation and NYNEX Mobile Communications Co. 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 alleged that the
effect of the Merger would be to substantially lessen competition in
interstate trade and commerce in violation of Section 7 of the Clayton Act.
The plaintiffs sought, among other things, a judgment that the Merger
violates Section 7 of the Clayton Act; and a permanent injunction requiring
AT&T to either divest (i) McCaw or (ii) AT&T's cellular network equipment
business. On November 5, 1994, the parties settled the action by entering
into a settlement agreement, the specific terms of which are confidential.
AT&T did not, however, admit liability, make any payments to the plaintiffs
to settle the action or undertake any other obligations that AT&T believes
would have a material adverse affect on AT&T.
With respect to all of the foregoing, there can be no assurance that the
court or regulatory actions requested by AT&T will be finally resolved
without unacceptable conditions, or that other challenges to the Merger
will not be made on antitrust grounds. The United States could challenge
the Merger 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.
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
process for review by the Department of Justice, and then by the court, has
been established, under which it is unlikely that the motion will be acted
upon until late 1995 or thereafter.
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.
In June 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, and 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. Separate
legislation on the same subject was introduced in the U.S. Senate. While
none of this legislation was enacted, it is possible that legislation on
the same subject will be introduced in 1995 or subsequent years.
<PAGE>
<PAGE> 26 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 1. Legal Proceedings.
AT&T Nassau Metals Corporation ("Nassau") and the New York State Department
of Environmental Conservation ("NYSDEC") have been engaged in negotiations
over a study and cleanup of Nassau plant located on Richmond Valley Road in
Staten Island, New York. During these negotiations, in June 1994, NYSDEC
presented Nassau with a draft consent order which included not only
provisions relating to site investigation and remediation but also a
provision for payment of a $3.7 million penalty for alleged violations of
hazardous waste management regulations. No formal proceeding has been
commenced by NYSDEC. Nassau has denied most of the allegations.
Negotiations and discussions are still continuing.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K report dated July 15, 1994 was filed pursuant to Item 5
(Other Events), Form 8-K report dated August 16, 1993, as amended
(filed August 23, 1994) was filed pursuant to Items 5 and 7 (Fi-
nancial Statements and Exhibits), Form 8-K reports dated August
25, 1994 and September 14, 1994 were filed pursuant to Item 5,
and Form 8-K report dated September 19, 1994 was filed pursuant
to Item 2 (Acquisition or Disposition of Assets) and Items 5
and 7.
<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 November 9, 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
27 Financial Data Schedule
<PAGE> 1 Exhibit 12
Form 10-Q
For the Nine
Months Ended
September 30, 1994
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30, 1994
Earnings Before Income Taxes and Cumulative
Effects of Accounting Changes........................ $5,403
Less Interest Capitalized during
the Period........................................... 31
Less Undistributed Earnings of Less than 50%
Owned Affiliates..................................... 79
Add Fixed Charges...................................... 1,412
Total Earnings......................................... $6,705
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $1,139
Interest Portion of Rental Expense..................... 273
Total Fixed Charges................................ $1,412
Ratio of Earnings to Fixed Charges..................... 4.7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T at September 30, 1994 and the unaudited
consolidated statement of income for the nine-month period ended September 30,
1994 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,681
<SECURITIES> 0
<RECEIVABLES> 13,540
<ALLOWANCES> 1,214
<INVENTORY> 4,281
<CURRENT-ASSETS> 35,462
<PP&E> 44,079
<DEPRECIATION> 22,903
<TOTAL-ASSETS> 75,547
<CURRENT-LIABILITIES> 30,286
<BONDS> 10,866
<COMMON> 1,563
0
0
<OTHER-SE> 15,138
<TOTAL-LIABILITY-AND-EQUITY> 75,547
<SALES> 14,075
<TOTAL-REVENUES> 53,984
<CGS> 8,755
<TOTAL-COSTS> 31,846
<OTHER-EXPENSES> 16,324
<LOSS-PROVISION> 1,406
<INTEREST-EXPENSE> 580
<INCOME-PRETAX> 5,403
<INCOME-TAX> 2,031
<INCOME-CONTINUING> 3,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,372
<EPS-PRIMARY> $2.16
<EPS-DILUTED> 0
</TABLE>
