<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, 1995
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, 1995 1,591,865,000 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,
1995 1994 1995 1994
Sales and Revenues
Telecommunications services.......... $12,088 $11,275 $35,235 $33,298
Products and systems................. 5,144 5,068 14,904 14,075
Rentals and other services........... 1,522 1,498 4,572 4,389
Financial services and leasing....... 950 808 2,767 2,222
Total revenues....................... 19,704 18,649 57,478 53,984
Costs
Telecommunications services
Access and other
interconnection costs............ 4,364 4,397 13,299 13,420
Other costs........................ 2,189 1,996 6,147 5,943
Total telecommunications services.... 6,553 6,393 19,446 19,363
Products and systems (e)............. 3,985 3,179 10,240 8,755
Rentals and other services (e)....... 1,106 757 2,730 2,253
Financial services and leasing....... 699 573 2,012 1,524
Total costs.......................... 12,343 10,902 34,428 31,895
Gross margin......................... 7,361 7,747 23,050 22,089
Operating Expenses
Selling, general and
administrative expenses (e)........ 5,642 4,985 15,403 14,074
Research and development expenses (e) 950 808 2,628 2,278
Total operating expenses............. 6,592 5,793 18,031 16,352
Operating income..................... 769 1,954 5,019 5,737
Other income (loss)- net ............ 128 (18) 341 217
Interest expense .................... 197 190 529 551
Income before income taxes........... 700 1,746 4,831 5,403
Provision for income taxes (e)....... 438 696 2,016 2,031
Net Income .......................... $ 262 $ 1,050 $ 2,815 $ 3,372
Weighted average common shares
outstanding (millions)............ 1,594 1,567 1,588 1,562
Earnings per common share............ $ .16 $ .67 $1.77 $2.16
Dividends declared per
common share...................... $ .33 $ .33 $ .99 $ .99
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 3 AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Per Share Amount)
(Unaudited)
September 30, December 31,
1995 1994
ASSETS
Cash and temporary cash investments.... $ 4,082 $ 1,208
Receivables less allowances
of $1,408 and $1,251
Accounts receivable.................. 14,027 13,671
Finance receivables.................. 14,934 14,952
Inventories (b)........................ 4,796 3,633
Deferred income taxes.................. 3,414 3,030
Other current assets................... 944 1,117
Total current assets................... 42,197 37,611
Property, plant and equipment, net
of accumulated depreciation of
$24,682 and $23,519 ................. 21,781 21,279
Licensing cost, net of accumulated
amortization of $702 and $613........ 6,028 4,251
Investments............................ 2,824 2,708
Long-term finance receivables.......... 5,214 4,513
Net investment in operating leases
of finance subsidiaries.............. 826 756
Prepaid pension costs.................. 4,680 4,151
Other assets........................... 3,711 3,993
TOTAL ASSETS........................... $87,261 $79,262
(CONT'D)
<PAGE>
<PAGE> 4 AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Per Share Amount)
(Unaudited)
September 30, December 31,
1995 1994
LIABILITIES AND DEFERRED CREDITS
Accounts payable....................... $ 6,172 $ 6,011
Payroll and benefit-related
liabilities.......................... 3,602 4,105
Postretirement and postemployment
benefit liabilities.................. 691 1,029
Debt maturing within one year.......... 16,001 13,666
Dividends payable...................... 529 518
Other current liabilities.............. 7,657 5,601
Total current liabilities.............. 34,652 30,930
Long-term debt including capital
leases............................... 13,073 11,358
Postretirement and postemployment
benefit liabilities.................. 8,759 8,754
Other liabilities...................... 4,045 4,285
Deferred income taxes.................. 4,578 3,913
Unamortized investment tax credits..... 207 232
Other deferred credits................. 521 776
Total liabilities & deferred credits... 65,835 60,248
Minority interests..................... 1,134 1,093
SHAREOWNERS' EQUITY
Common stock - par value $1 per share.. 1,591 1,569
Authorized shares: 2,000,000,000
Outstanding shares:
1,590,843,000 at September 30, 1995
1,569,006,000 at December 31, 1994
Additional paid-in capital............. 16,795 15,825
Guaranteed ESOP obligation............. (254) (305)
Foreign currency translation
adjustments.......................... 204 145
Retained earnings...................... 1,956 687
Total shareowners' equity.............. 20,292 17,921
TOTAL LIABILITIES/SHAREOWNERS' EQUITY.. $87,261 $79,262
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 5 AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30,
1995 1994
Operating Activities
Net income .............................. $ 2,815 $ 3,372
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and licensing cost
amortization........................ 3,189 2,937
Provision for uncollectibles.......... 1,689 1,406
(Increase) in accounts receivable..... (1,351) (1,334)
(Increase) in inventories............. (1,305) (1,094)
Increase in accounts payable.......... 150 445
Net decrease in other operating
assets and liabilities.............. 1,099 431
Other adjustments for non-cash
items - net......................... 7 (68)
Net cash provided by operating
activities............................. 6,293 6,095
Investing Activities
Capital expenditures net of proceeds
from sale or disposal of property,
plant and equipment of $223 and $195. (3,577) (2,738)
(Increase) in finance assets,
net of lease-related repayments
of $2,949 and $2,720................. (1,890) (3,211)
Cash proceeds from securitizations of
finance receivables.................. 1,171 79
(Acquisitions) of licenses.............. (1,877) (223)
Net decrease/(increase)in investments.. 286 (76)
(Acquisitions)/dispositions, net of
cash acquired........................ (532) 134
Other investing activities - net....... 22 172
Net cash (used in) investing activities.. (6,397) (5,863)
Financing Activities
Proceeds from long-term debt issuances. 4,068 4,465
Retirements of long-term debt.......... (1,936) (5,037)
Issuance of common shares.............. 974 524
Dividends paid......................... (1,560) (1,344)
Increase in short-term
borrowings - net..................... 1,492 2,193
Other financing activities - net....... 2 (49)
Net cash provided by
financing activities................... 3,040 752
(CONT'D)
<PAGE>
<PAGE> 6 AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30,
1995 1994
Effect of exchange rate
changes on cash........................ (62) 26
Net increase in cash and
temporary cash investments............. 2,874 1,010
Cash and temporary cash investments
at beginning of year................... 1,208 671
Cash and temporary cash investments
at end of period....................... $ 4,082 $ 1,681
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 7 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(a) 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 man-
agement, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of the consolidated re-
sults of operations, financial position and cash flows for each period
presented. 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 1994 Annual
Report to Shareowners and Form 10-K for the year ended December 31,
1994 and the current year's previously issued Forms 10-Q.
(b) Inventories at September 30, 1995 and December 31, 1994 were as
follows:
September 30, December 31,
1995 1994
Completed goods .............. $2,502 $2,022
Work-in-process and raw
materials ................. 2,294 1,611
Total inventories ............ $4,796 $3,633
<PAGE>
<PAGE> 8 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(c) 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 public
debt of AT&T Credit Holdings, Inc. (formerly AT&T Credit Corporation)
and certain public debt of its majority owned subsidiary, AT&T Capital
Corporation, outstanding at March 31, 1993. At September 30, 1995,
$517 million of the guaranteed debt remained outstanding.
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 following shows summarized
consolidated financial information for AT&T Credit Holdings, Inc.,
which consolidates the accounts of AT&T Capital Corporation. The
summarized financial information includes transactions with AT&T that
are eliminated in consolidation.
For the Nine
Months Ended
September 30,
1995 1994
Total revenue $1,269 $1,043
Interest expense 309 219
Selling, general and
administrative expense 328 286
Net income 76 59
At At
September 30, December 31,
1995 1994
Finance receivables $8,788 $7,726
Net investment in operating
leases 1,034 903
Total assets 10,509 9,468
Total debt 6,618 5,682
Total liabilities 9,260 8,299
Minority interest 290 270
Total shareholder's equity 959 899
<PAGE>
<PAGE> 9 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(d) On September 20, 1995, AT&T announced that it plans to separate the
company into three publicly-held stand-alone global businesses that
will each be focused on serving certain core businesses: communication
services, communications systems and technology and computers (the
"Plan"). In addition, AT&T plans to sell its remaining interest in
AT&T Capital Corporation ("AT&T Capital"). The Plan was based on a
comprehensive evaluation of business, economic, financial, regulatory
and technological factors. The Plan's goal is to remove complexity
from the businesses and reduce strategic and internal conflicts.
The Plan is targeted to be completed by the end of 1996, but remains
subject to a number of conditions. These conditions include the
receipt of a favorable tax ruling and any other necessary approvals.
In addition, AT&T is considering an initial public offering for
approximately 15 percent of the shares of the new communications
systems and technology company in the first half of 1996.
The full impact of the Plan on AT&T's financial position, results of
operations and cash flows cannot be predicted at this time.
Additional charges may be necessary in the future as decisions are
made regarding the Plan.
(e) During the third quarter, AT&T approved plans at its computer unit,
Global Information Solutions ("GIS"), to discontinue the manufacturing
of personal computers and to consolidate facilities throughout the
U.S. and internationally. The plan is expected to be completed before
the end of 1996. As a result, in the third quarter AT&T recorded
pre-tax charges of approximately $1.6 billion. Approximately 7,200
employees and approximately 1,300 contractors will be eliminated. As
of the date of this filing, approximately 5,400 employees have been
notified that their positions have been eliminated. The remainder
have been identified and will be notified shortly. Of the total
charge, approximately $1.2 billion will result in payments of cash in
the future and approximately $0.4 billion related to noncash items.
The charges reduced net income by approximately $1.2 billion, or $0.74
per share.
The charges were recorded as $635 million of costs of products, $270
million of costs of rentals and others services, $589 million of
selling, general and administrative expenses, and $103 million of
research and development costs. The charges include separation and
other related costs of $664 million; facility closings of $181
million; and asset write-downs and other items of $752 million.
<PAGE>
<PAGE> 10 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(f) SUBSEQUENT EVENTS - On October 3, 1995, AT&T acquired the remaining
48% of LIN Broadcasting Corporation ("LIN") for a total purchase price
of approximately $3.3 billion. The accounting effects of this
purchase will be reflected in the fourth quarter of 1995.
<PAGE>
<PAGE> 11 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
On September 20, 1995, AT&T announced that it plans to separate the company
into three publicly-held stand-alone global businesses that will each be
focused on serving certain core businesses: communication services,
communications systems and technology and computers. In addition, AT&T
plans to sell its remaining interest in AT&T Capital. The Plan was based on
a comprehensive evaluation of business, economic, financial, regulatory and
technological factors. The Plan's goal is to remove complexity from the
businesses and reduce strategic and internal conflicts.
The Plan is targeted to be completed by the end of 1996, but remains
subject to a number of conditions. These conditions include the receipt of
a favorable tax ruling and any other necessary approvals. In addition,
AT&T is considering an initial public offering for approximately 15 percent
of the shares of the new communications systems and technology company in
the first half of 1996.
The full impact of the Plan on AT&T's financial position, results of
operations and cash flows cannot be predicted at this time. Additional
charges may be necessary in the future as decisions are made regarding the
Plan.
During the third quarter, AT&T approved GIS' plans to discontinue the
manufacturing of personal computers and to consolidate facilities
throughout the U.S. and internationally. As a result, in the third quarter
AT&T recorded pre-tax charges of approximately $1.6 billion (the
"charges"). The charges reduced net income by approximately $1.2 billion,
or $0.74 per share.(See also Note (e).)
The charges were recorded as $635 million of costs of products, $270
million of costs of rentals and others services, $589 million of selling,
general and administrative expenses, and $103 million of research and
development costs. The charges include separation and other related costs
of $664 million; facility closings of $181 million; and asset write-downs
and other items of $752 million. It is expected that the efforts
associated with these charges will favorably impact future results of
operations in the form of reduced costs and expenses.
AT&T reported quarterly net income of $262 million, or $.16 per share. As a
result of the charges, net income declined 75.1 percent compared with the
same prior year quarterly net income of $1.050 billion, or $.67 per share.
Excluding the charges in 1995 and expenses related to the merger with McCaw
Cellular Communications, Inc. and other non-recurring charges in 1994,
AT&T's quarterly net income was $1.433 billion, or 0.90 per share, an 11.7
percent increase over the same quarter in 1994.
<PAGE>
<PAGE> 12 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
For the nine-month period, AT&T reported net income of $2.815 billion, or
$1.77 per share, a 16.5 percent decline compared with the same nine-month
period net income of $3.372 billion, or $2.16 per share in 1994. For the
nine-month period, AT&T's net income, excluding the charges in 1995 and
merger-related expenses and other non-recurring charges in 1994, was $3.987
billion, or $2.51 per share, a 12.2 percent increase over the same period
in 1994.
Total revenues rose to $19.704 billion in the quarter, a 5.7 percent
increase from $18.649 billion in the same period of 1994. For the nine-
month period, total revenues increased to $57.478 billion, a 6.5 percent
increase compared with $53.984 billion in the same year-ago period. The
increases were led by strong revenue growth in telecommunications services,
including wireless services.
Total costs increased $1.441 billion compared with the same year-ago
quarter, reducing overall gross margin to 37.4 percent. These changes
resulted primarily from the charges at GIS in third quarter of 1995.
Excluding the charges in 1995, total costs increased $537 million compared
with the third quarter of 1994, largely as a result of higher sales.
Additionally, the overall gross margin percentage for the quarter increased
to 41.9 percent from 41.5 percent compared with the same period of 1994.
Excluding the charges in 1995 and the merger-related expenses and other
non-recurring charges in 1994, operating margins were relatively flat.
RESULTS OF OPERATIONS
TELECOMMUNICATIONS SERVICES
Telecommunications services quarterly revenues, including wireless services
revenues, rose to $12.088 billion, a 7.2 percent increase compared with the
same period of 1994. The revenue increase was largely due to higher
volumes, led by strong growth in 800 services. The volumes of billed
minutes for switched long distance services increased more than 8.5 percent
for the third quarter of 1995 compared with the third quarter of 1994. For
the nine-month period, telecommunications service revenues, including
wireless services revenues, grew 5.8 percent to $35.235 billion compared
with $33.298 billion in the same period of 1994.
Telecommunications services revenues, excluding wireless services, grew 6.1
percent for the quarter and 4.6 percent for the nine-month period compared
with the same year-ago periods. The revenue to volume growth "gap"
narrowed for the quarter over the comparable period of 1994, reflecting the
slowing of business and residential customers movement to and among calling
plans and the impact of targeted pricing actions.
<PAGE>
<PAGE> 13 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Wireless services revenues, including cellular, messaging and air-to-ground
services revenues, grew to $758 million, a 28.4 percent increase compared
with year-ago quarterly revenues of $590 million. The increase was driven
by a continued strong increase in subscribers; however, the average revenue
per subscriber has declined compared with the same quarter of 1994
primarily due to below average usage by new customers. For the nine-month
period, wireless services revenues rose to $2.134 billion, a 29.3 percent
increase over revenues of $1.651 billion in the comparable period of 1994.
Total cellular subscribers served by companies in which AT&T has or shares
a controlling interest increased to almost 5.0 million at September 30,
1995 compared with 3.6 million at September 30, 1994.
Cost of telecommunications services increased $160 million for the quarter
compared with the same year-ago period. Gross margin percentage improved
to 45.8 percent in the quarter from 43.3 percent in the comparable period
of 1994. For the nine-month period, cost of telecomunications services were
relatively flat and gross margin improved to 44.8 percent from 41.8 percent
compared with the same period of 1994. For both periods, the gross margin
percentage increases were largely due to lower access and other
interconnection costs per minute.
PRODUCTS AND SYSTEMS
Sales of products and systems increased 1.5 percent for the quarter and 5.9
percent for the nine-month period over the comparable periods of 1994. For
the quarter, the growth was led by higher sales of communications products
and systems and microelectronic products partially offset by lower sales of
telecommunication network products and systems. For the nine-month period,
all areas experienced revenue growth, particularly sales of communications
products and systems.
<PAGE>
<PAGE> 14 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 1995 1994(1) 1995 1994(1)
Telecommunications network
products and systems $2,189 $2,328 $6,582 $6,478
Computer products and systems 1,034 1,011 2,909 2,677
Communications products
and systems 1,236 1,061 3,392 3,037
Microelectronic products,
special-design products for
U.S. government, and other* 685 668 2,021 1,883
Products and Systems $5,144 $5,068 $14,904 $14,075
(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 decreased 6.0
percent for the quarter over the comparable period of 1994, primarily due
to lower sales to the Regional Bell Operating Companies ("RBOCs") for
switching and transmission equipment. Sales in the U.S. were lower than
the year-ago quarter as higher sales to independent telephone companies,
cable companies and competitive access providers were more than offset by
lower sales to the RBOCs. For the quarter, revenues from outside of the
U.S. were also down compared with the same period of 1994 primarily due to
customer delays.
Telecommunications network products and systems revenues for the nine-month
period compared with the same period of 1994 increased slightly. For the
year-to-date period, revenues in the U.S. were down slightly while revenues
from outside of the U.S. continue to outpace 1994 revenues. The growth in
non-U.S. revenues was led by higher sales in the Europe/Middle East/Africa
region principally due to a large Saudi Arabian contract.
Revenues from computer products and systems sales increased 2.3 percent for
the quarter and 8.7 percent for the nine-month period compared with the
same year-ago periods, led by higher sales of mid-range servers and
personal computer products at GIS.
Revenues from sales of communications products and systems increased 16.5
percent for the quarter and 11.7 percent for the nine-month period compared
with the same year-ago periods. The increases for both periods were due to
higher sales of business communications equipment both inside and outside
of the U.S. as well as higher revenues from submarine cable operations and
strong consumer sales of cordless telephones.
<PAGE>
<PAGE> 15 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
As a category, sales of microelectronics products, special-design products
for the federal government and other product sales increased 2.6 percent
for the quarter and 7.4 percent for the nine-month period over the
comparable periods of 1994. The increases for both periods were led by
continued strong global growth in sales of microelectronic components.
The revenues for 1994 included sales of microelectronic products from GIS's
microelectronics unit, which was sold in early 1995, of $92 million for the
quarter and $273 million for the nine-month period.
Costs of products and systems increased 25.4 percent for the quarter and
17.0 percent for the year-to-date period from the same periods of 1994,
primarily due to the charges at GIS. Excluding the charges, products and
systems costs increased 5.4 percent and 9.7 percent for the quarter and
nine-month periods, respectively, compared with the same year-ago periods.
The increases were due to the higher sales volumes in the periods. The
gross margin percentage, as reported, declined to 22.5 percent for the
quarter and 31.3 percent for the nine-month period compared to 37.3 percent
for the third quarter of 1994 and 37.8 percent for the nine-month period of
1994. The decreases for both periods were also driven by the charges at
GIS. Excluding the charges, products and systems margins decreased to 34.9
percent for the quarter and to 35.6 percent for the year-to-date period.
The declines for both periods were principally related to fewer sales of
higher margin computer products in 1995 and a lower margin mix of product
sales in many parts of the business.
RENTALS AND OTHER SERVICES
Rentals and other services revenues increased 1.6 percent for the quarter
and 4.2 percent for the nine-month period compared with the same periods of
1994.
Three months Nine months
ended ended
September 30, September 30,
Revenues in millions 1995 1994(1) 1995 1994(1)
Computer products and systems $ 683 $ 645 $ 2,056 $ 1,902
Communications products and
systems rentals 209 232 613 732
Communications products and
systems services 448 432 1,285 1,219
Other* 182 189 618 536
Rentals and Other Services $1,522 $1,498 $ 4,572 $ 4,389
(1) Reclassified to conform with current presentation.
*"Other" is composed principally of 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
Rentals and services revenues for computer products and systems increased
for the quarter and nine-month periods largely because of increases in
professional services as well as increases in traditional maintenance
services.
The decrease in rentals revenues for communications products and systems
for the quarter and nine-month periods was largely due to the expected
continued erosion of the base of rental customers.
Revenues from communications products and systems services increased for
the quarter and nine-month periods because of the continued growth in
maintenance contract revenues for business customers.
Other rentals and services revenues decreased slightly for the quarter
compared with the same quarter a year-ago. For the first nine months of
1995 compared with the same year-ago period, the increase in other rentals
and services revenues was principally due to higher licensing and royalty
fees.
Cost of rentals and other services increased 46.2 percent for the quarter
and 21.2 percent for the nine-month periods compared with the same periods
of 1994. The gross margin percentage decreased to 27.3 percent and to 40.3
percent for the quarter and nine-month periods of 1995, respectively, from
49.5 percent and 48.7 percent for the quarter and nine-month periods of
1994, respectively. The declines for both periods principally reflect the
GIS charges. Excluding the charges in 1995, the gross margin percentages
declined to 45.0 percent and to 46.2 percent for the quarter and the nine-
month periods, respectively, compared with the same periods of 1994. For
both periods, these declines reflect the continuing erosion of the higher
margin communications products rental base, offset partially by increases
in higher margin licensing and royalty fees. In addition, the gross margin
percentage declines both reflect the partial spin-off of LIN Broadcasting's
television operations at the end of 1994.
FINANCIAL SERVICES AND LEASING
Financial services and leasing revenues increased 17.5 percent for the
quarter and 24.5 percent for the first nine months of 1995 compared with
the same year-ago periods, led by continued strong portfolio asset growth
at both AT&T Universal Card Services Corp. ("Universal Card") and AT&T
Capital.
<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,
In millions 1995 1994 1995 1994
AT&T Capital $ 396 $ 348 $ 1,141 $ 1,007
Universal Card 586 477 1,699 1,249
Eliminations, adjustments
and other* (32) (17) (73) (34)
Financial services
and leasing revenues $ 950 $ 808 $ 2,767 $ 2,222
Universal Card Information: At September 30,
1995 1994
Total book and managed finance receivables $12,970 $11,152
Cardholder accounts 16.8 14.6
* "Other" is composed principally of revenues from certain lease finance
assets AT&T retained when AT&T Capital was reorganized as well as the
elimination of lease revenues from AT&T affiliates.
AT&T Capital revenues increased 13.6 percent for the quarter and 13.3
percent for year-to-date period compared with the same periods of 1994.
Universal Card revenues increased 22.7 percent for the quarter and 36.0
percent for the nine-month period of 1995 compared with the same periods of
1994. These increases were primarily due to higher earning assets at both
AT&T Capital and Universal Card.
Universal Card book receivables were $12.0 billion at the end of the
quarter, excluding the $1 billion of receivables that were securitized
during the quarter. Universal Card will retain the servicing and customer
relationships of the credit card accounts.
The increase in cost of financial services and leasing was primarily
associated with portfolio asset growth for the quarter and nine-month
periods of 1995. The gross margin percentage decreased to 26.4 percent for
the quarter and to 27.3 percent for the first nine months of 1995 compared
with 29.1 percent and 31.4 percent in the quarter and nine-month periods of
1994, respectively. The gross margin decreases for both periods are due to
competitive pressures and increases in credit and fraud losses at Universal
Card.
<PAGE>
<PAGE> 18 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 13.8 percent for the quarter and 10.3
percent for the nine-month period over the comparable periods of 1994
largely due the charges at GIS recorded in the third quarter of 1995. These
charges added $589 million to the growth in selling, general and
administrative expenses as well as $103 million of research and development
expenses for the quarter and nine-month periods over the comparable periods
of 1994. (See also Note (e).) Excluding the charges in 1995 and the
merger-related expenses and other non-recurring charges in 1994, selling,
general and administrative expenses increased for the quarter and year-ago
periods largely because of higher spending for advertising and promotions,
for sales and sales support activities focused towards telecommunications
services markets and for expenses related to global expansion. Research
and development expenses, excluding the charges in 1995, were up for the
quarter and first nine months of 1995 mainly as the result of work related
to broadband networks, wireless technologies and enhanced services.
In October 1995, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS")No. 123, "Accounting for Stock-
Based Compensation." The standard establishes a fair value method for
accounting for or disclosing stock-based compensation plans. The standard
is effective for financial statements for fiscal years beginning after
December 31, 1995. For AT&T, this means the standard would be effective
for 1996. AT&T will most likely adopt this standard by disclosing the pro
forma net income and earnings per share amounts assuming the fair value
method was adopted on January 1, 1995. As a result, management does not
expect the adoption of this standard to have any impact on AT&T's results
of operations and financial position.
OTHER INCOME, INTEREST EXPENSE AND PROVISION FOR INCOME TAXES
Other Income - net increased $146 million for the quarter compared with the
same year-ago quarter. Other income in 1994 was a net loss due to losses
associated with the shutdown of AT&T's EO Inc. unit and a failed
telecommunications satellite launch.
The provision for income taxes decreased $258 million for the quarter
largely due to lower income before income taxes resulting from the charges
at GIS. The effective tax rate rose to 62.6 percent compared with 39.9
percent in the third quarter of 1994. Excluding the charges in 1995 and
the non-recurring charges in 1994, the effective tax rate decreased to 37.6
percent from 38.3 percent in the year-ago quarter due to a benefit from a
reduced state tax rate and the recognition of future deferred tax assets
associated with foreign entities. For the first nine months of 1995, the
effective tax rate as reported increased to 41.7 percent from 37.6 percent
in the same period of 1994. Excluding the charges in 1995 and the non-
recurring charges in 1994, the effective tax rate decreased to 38.0 percent
from 38.3 percent compared with the same period of 1994.
<PAGE>
<PAGE> 19 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 approximately $8.0 billion, or 10.1 percent, from
year-end 1994. The increase was due to higher levels of cash in
anticipation of the closing of the purchase of LIN (See also Note (f).) as
well as higher licensing costs, inventories and finance receivables. The
increase in licensing costs principally represents the purchase of personal
communications services ("PCS") licenses, totaling $1.7 billion in 1995.
Inventories increased reflecting the seasonal build-up in anticipation of
higher product and system sales in the fourth quarter. The increase in
finance receivables is the result of the growth in credit card and leasing
operations.
Working capital, defined as current assets less current liabilities,
increased $864 million from year-end primarily resulting from higher cash
and inventory levels partially offset by increases in other current
liabilities. Other current liabilities were higher largely due to the
reserves established for the charges at GIS as well as higher current taxes
payable.
The increases in debt maturing within one year and long-term debt primarily
resulted from the purchase of the PCS licenses and the purchase of LIN
completed on October 3, 1995.
Decreases in payroll and benefit-related liabilities reflect the annual
payment of year-end bonuses in the first quarter of 1995.
Future financing is contemplated to be arranged as necessary to meet AT&T's
capital and other requirements with the timing of issue, principal amount
and form depending on the Company's needs, prevailing market and general
economic conditions.
AT&T anticipates obtaining all necessary external financing through
issuances of commercial paper, long-term debt and equity, asset-backed
financings (or securitizations) and available lines of credit.
<PAGE>
<PAGE> 20 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In August 1995, the Company issued $1.0 billion of notes under a Master
Trust which were securitized with Universal Card receivables. The proceeds
from the securitized receivables were used by Universal Card for corporate
business purposes, including repaying intercompany loans to AT&T and other
affiliates. The Master Trust has agreed to again issue approximately $1.5
billion of notes which will be securitized with Universal Card receivables
in November 1995.
By using this alternative financing program, AT&T has diversified its
funding sources. Universal Card will retain its servicing and customer
relationships of the credit card accounts.
In the normal course of our business, we use certain derivative financial
instruments, mainly interest rate contracts and foreign currency exchange
rate contracts. The interest rate contracts allow us to limit the effects
of changing interest rates and protect our margins on financial services
and leasing transactions. The foreign currency contracts and options allow
us to manage our exposure to changing currency exchange rates. AT&T does
not use derivative financial instruments for speculative purposes. We
design our credit policies to limit the risks of dealing with other parties
to these instruments. In our view, the risks to AT&T from our use of these
derivative financial instruments are small and the benefits include more
stable earnings in periods when interest rates or currency exchange rates
are changing.
In March 1995, The Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The standard requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. This
standard must be adopted for fiscal years beginning after December 15,
1995, for AT&T, that would be 1996. Management is currently assessing the
impact of the adoption on AT&T's results of operations and financial
position.
CASH FLOWS
Cash flows provided by operating activities were relatively flat compared
with the same nine-month period of 1994.
<PAGE>
<PAGE> 21 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Of the total charges taken in the third quarter of 1995 at GIS,
approximately $1.2 billion will result in future cash payments. AT&T
anticipates that it will pay out approximately $500 million relating to
these charges in the fourth quarter of 1995 and the remainder throughout
1996. Cash from operations will be used to fund this cash outflow.
The growth in cash flows used in investing activities was largely the
result of increased acquisitions of PCS licenses, capital expenditures and
net acquisitions of businesses compared with the same nine-month period of
1994. The increase in capital expenditures is primarily due to enhancing
and expanding our wireless services. These increases were partially offset
by lower growth levels of finance assets and proceeds received from
securitized finance receivables.
In June 1995, the Federal Communications Commission ("FCC") granted to AT&T
broadband PCS licenses covering the 21 major trading areas that AT&T
successfully bid for in the PCS auction which concluded March 13, 1995.
Accordingly, in June 1995 AT&T paid the FCC the remaining 80% (totaling
$1.34 billion) due on the licenses.
On October 3, 1995, AT&T acquired the remaining 48% of LIN for a total
purchase price of approximately $3.3 billion.
Cash flows provided by financing activities increased primarily due to
decreased retirements of long-term debt compared with the same nine-month
period of 1994.
The ratio of total debt to total capital (total debt and equity) increased
to 58.9 percent at September 30, 1995, compared with 58.3 percent at
December 31, 1994. Excluding financial services and leasing operations,
the debt ratio was 39.5 percent at September 30, 1995 compared with 34.1
percent at December 31, 1994.
<PAGE>
<PAGE> 22 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
LEGISLATIVE AND REGULATORY DEVELOPMENTS
AT&T currently faces significant competition in its markets and expects
that the level of competition will continue to increase. As regulatory,
legislative and technological changes occur, AT&T anticipates that new and
different competitors will enter the communications services and equipment
markets. These may include entrants from other segments of the
telecommunications and information services industries and/or global
competitors seeking to expand their market opportunities. Such new
competitors may enter with a strong market presence, well recognized names
and pre-existing direct customer relationships. Depending on the timing
of, circumstances of, and any competitive inequities not addressed by
regulatory or legislative conditions or restrictions placed on the entry of
these competitors into the market, AT&T's future revenues and net income
could be adversely affected.
In this regard, Congress has taken steps towards the enactment of
telecommunications legislation in 1995 with the passage of S.652 in the
Senate and H.R.1555 in the House of Representatives. Both bills would
permit the RBOCs to provide interexchange services upon the satisfaction of
certain enumerated criteria, mostly related to the opening of the local
exchange markets to competitive entry. RBOCs could apply to the FCC to
demonstrate satisfaction of such criteria immediately, under S.652, or
after six months, under H.R.1555, following enactment of legislation. AT&T
believes that the timing of, and conditions and restrictions placed on,
RBOC entry into interexchange services by either bill does not adequately
assure the presence of facilities - based local exchange services
competition in the RBOCs' former monopoly markets before the RBOCs may
provide interexchange services.
To the extent that such legislation was enacted without adequate provision
for full local exchange competition as a precondition to the RBOCs'
provision of interexchange services, AT&T's revenues and income could be
adversely affected during a period of increased interexchange competition
and prior to effective local exchange competition.
Nevertheless, the legislation, plus other regulatory and technological
changes, also may open new markets for AT&T in different segments of
communications services, end-to-end services, value-added services and
multimedia services. AT&T's competitive strategy includes using its
networking capabilities, respected brand name and other resources to take
advantage of these new opportunities as they arise.
On April 28, 1995, the U.S. District Court for the District of Columbia
("District Court") entered an Order which specifies the conditions and
limitations under which, and a procedure whereby, RBOCs may become
authorized to provide interexchange services to cellular subscribers. The
conditions and limitations require, among other things, that, before the
RBOC may provide such interexchange services, there are no legal or
regulatory barriers to the provision of, and that there is at least one
non-RBOC providing, access between the cellular switches and the long
distance carriers' points of presence. Three RBOCs have applied to the
Department of Justice for such authority.
<PAGE>
<PAGE> 23 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On April 3, 1995, the United States Department of Justice ("DOJ") filed a
motion with the District Court for a waiver of the Modification of Final
Judgment. The waiver would allow Ameritech Corporation to provide
interexchange services to customers in the Chicago, Illinois and Grand
Rapids, Michigan LATAs. This would be conducted under the supervision of
the DOJ only after local competition is found to exist and would be subject
to separate subsidiary, nondiscrimination and marketing safeguards. AT&T
has consented to the entry of this modification and has applied to the
respective state commissions to provide local service in these LATAs.
On October 12, 1995, the FCC granted AT&T's long-pending motion to
reclassify it as nondominant in the provision of domestic interexchange
services. The basis for the ruling significantly reduces regulatory
requirements on AT&T, and it places AT&T on a more equal regulatory footing
with its interexchange service competitors.
<PAGE>
<PAGE> 24 AT&T Form 10-Q - Part II
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K:
Forms 8-K dated July 3, 1995 and September 20, 1995 were filed
pursuant to Item 5 (Other Events) and Item 7 (Financial
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 November 8, 1995
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
27 Financial Data Schedule
<PAGE> 1
Exhibit 12
Form 10-Q
For the Nine
Months Ended
September 30, 1995
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30, 1995
Earnings Before Income Taxes .......................... $4,831
Less Interest Capitalized during
the Period........................................... 46
Less Undistributed Earnings of Less than 50%
Owned Affiliates..................................... 86
Add Fixed Charges...................................... 1,564
Total Earnings......................................... $6,263
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $1,287
Interest Portion of Rental Expense..................... 277
Total Fixed Charges................................ $1,564
Ratio of Earnings to Fixed Charges..................... 4.0
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T at September 30, 1995 and the unaudited
consolidated statement of income for the nine-month period ended September 30,
1995 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,082
<SECURITIES> 3,819
<RECEIVABLES> 14,027
<ALLOWANCES> 1,408
<INVENTORY> 4,796
<CURRENT-ASSETS> 42,197
<PP&E> 46,463
<DEPRECIATION> 24,682
<TOTAL-ASSETS> 87,261
<CURRENT-LIABILITIES> 34,652
<BONDS> 13,073
<COMMON> 1,591
0
0
<OTHER-SE> 18,701
<TOTAL-LIABILITY-AND-EQUITY> 87,261
<SALES> 14,904
<TOTAL-REVENUES> 57,478
<CGS> 10,240
<TOTAL-COSTS> 34,428
<OTHER-EXPENSES> 18,031
<LOSS-PROVISION> 1,689
<INTEREST-EXPENSE> 529
<INCOME-PRETAX> 4,831
<INCOME-TAX> 2,016
<INCOME-CONTINUING> 2,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,815
<EPS-PRIMARY> $1.77
<EPS-DILUTED> 0
</TABLE>
