<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: March 9, 1995
AT&T Corp.
A New York Commission File I.R.S. Employer
Corporation No. 1-1105 No. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone Number (212) 387-5400
<PAGE>
<PAGE> 2 Form 8-K March 9, 1995
Item 5. Other Events.
AT&T Corp. is filing herewith audited consolidated financial
statements for the year ended December 31, 1994.
FINANCIAL SECTION
THE MERGER OF AT&T AND MCCAW IS THE BEST AND QUICKEST WAY FOR THE TWO
COMPANIES TO TAKE ADVANTAGE OF DEVELOPING OPPORTUNITIES IN A DYNAMIC
INDUSTRY.
A DISCUSSION AND ANALYSIS OF OUR RESULTS AND OPERATIONS
The merger was the most important event of 1994 for us. Shareowners
now own a stronger AT&T with even better prospects for growth in
revenues and earnings. Our customers will choose from a wider array
of services.
Though completed, the merger remains subject to legal reviews.
In addition, under the terms of a proposed antitrust consent decree
between AT&T and McCaw and the United States, the operations of AT&T
and McCaw are subject to several conditions, including keeping McCaw
as a separate business with its own officers and employees. After
McCaw provides equal access connections to other long distance
carriers, McCaw may use the AT&T brand on McCaw's cellular services,
and AT&T may jointly market AT&T's long distance and McCaw's cellular
services, and provide customers with a single bill for both. For the
most part, these restrictions merely confirm commitments we made when
we announced our merger plans and they do nothing to alter the
fundamental logic or economics of the merger.
Operating now as the wireless unit of AT&T, McCaw is the leading
U.S. provider of wireless communications services, which include
cellular, messaging, data transmission and air-to-ground services.
McCaw has cellular operations in more than 100 cities. In most
markets McCaw offers its services under the brand name Cellular One#.
McCaw also operates the sixth largest U.S. messaging service, serving
more than 700,000 customers, and a digital air-to-ground telephone
service for commercial airlines and corporate aircraft.
AT&T's STRONG FINANCIAL PERFORMANCE
Accelerating revenue growth in products and services, aided by
effective cost and expense controls, boosted earnings to another
record in 1994. The climate for growth improved this past year
because of better economic conditions, and changes in technology and
world trade that spurred demand for network services as well as new
networks. We look forward to continued growth in revenues and
earnings in 1995.
Our financial performance was also strong in 1992 and 1993. Our
performance met growth targets despite the less favorable business and
economic environment. In 1993 we also had to adopt new accounting
methods. Because new rules apply to all U.S. companies, we changed
# Registered trademark
<PAGE>
<PAGE> 3 Form 8-K March 9, 1995
our accounting for retiree benefits, postemployment benefits and
income taxes. The net $9.6 billion after-tax charge to bring our
financial statements in line with the new accounting methods caused us
to report a net loss for that year. But those accounting changes do
not affect cash flows; they only change the expenses we report.
In our accounting for retiree benefits, we estimate and book
expenses during the years employees are working and accumulating
future benefits. When we used the former "pay-as-you-go" accounting,
we simply booked our contributions to trust funds for life insurance
benefits and the actual claims for benefits such as health care and
telephone concessions as they occurred.
Our accounting for postemployment benefits, including payments
for separations and disabilities, is very similar to the accounting
for retiree benefits. We book expenses for future separations during
the years employees are working and accumulating service with the
company and for disability benefits when the disabilities occur. In
the former accounting method, we booked expenses for separations when
we approved them and for disabilities when we made payments. Compared
with 1992, this change increased our costs and expenses by $301
million in 1993, which reduced earnings $171 million, or $0.11 per
share.
Our accounting for income taxes uses the enacted tax rates to
compute both deferred and current income taxes. Using our former
method, we held deferred tax assets and liabilities at their original
values even when Congress changed the tax rates.
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REVENUE GROWTH
As a Percentage Increase in Total Revenues
Over Prior Year
10%
8.3
8 RR
RR
6 RR
4.1 RR
4 3.4 RR RR
RR RR RR
2 RR RR RR
RR RR RR
0 RR RR RR
1992 1993 1994
------------------------------------------------
In 1994 we achieved revenue growth that matches the 8-10% annual growth of the
global information industry as a whole.
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REPORTING ON THE MERGER
To complete the merger, McCaw's owners exchanged their McCaw stock for
197.5 million shares of newly issued AT&T stock. At the market
closing price for AT&T stock on September 19, the official day of the
merger, that exchange was worth about $11.5 billion.
<PAGE>
<PAGE> 4 Form 8-K March 9, 1995
We accounted for the merger as a pooling of interests. That
means we combined the financial statements for the two companies. We
did, however, take out the business between the companies just as we
remove dealings between other AT&T units. Now all our financial
information shows combined amounts as if we had always been one
company.
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AN OVERVIEW OF OUR BUSINESS OPERATIONS
Our main business is meeting the communications and computing needs of
our customers by using networks to move and manage information. We
divide the revenues and costs of this business into three categories
on our 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 our communications and computing business units as
well as innovators in the financial services industry. We include
their revenues and costs in a separate category on our income
statement: financial services and leasing.
Competition in communications and computing is global and
increasingly involves multinational firms and partners from different
nations. To increase our global presence, we are hiring, building
facilities and investing outside the U.S. We believe these
commitments of resources are necessary to be successful in these
markets. However, the economies of Europe and Japan were very weak in
1992 and 1993, and we restructured some operations in those areas.
For these reasons we reported operating losses, in total, for the past
three years in our units outside the U.S. Nevertheless, we continue
to believe that these operations and markets provide excellent
opportunities for future growth in revenues and earnings.
All our business units face stiff competition. Prices and
technology are under continual pressure. Such market conditions make
the ongoing need for cost controls even more urgent. Managers must
continuously assess their resource needs and consider further steps to
reduce costs, which could include consolidating facilities, disposing
of assets, reducing workforce or withdrawing from markets.
In 1993 one of our business units, AT&T Global Information
Solutions Company, offered an early retirement program and a voluntary
separation program to its U.S.-based employees. About 2,200 employees
accepted the early retirement offer, and the total workforce at the
unit has declined by more than 10% since year-end 1993. We also
provided reserves in 1993 to restructure and centralize support
services for telecommunications services and for other restructuring
activities. In total we provided $498 million before taxes in 1993
for restructuring activities.
At year-end 1994 reserves for all restructuring activities
amounted to about $900 million, most of which relates to net lease
payments to be made over the life of the related leases. We believe
the balance of reserves is adequate for the completion of planned
activities to improve efficiency as part of our commitment to meet
intense competition.
Like other manufacturers, we use, dispose of and clean up
substances that are regulated under environmental protection laws. We
also have been named a potentially responsible party (PRP) at a number
of Superfund sites. At most of these sites, our share is very limited
and there are other PRPs who can be expected to contribute to the
cleanup costs. We review potential cleanup costs and costs of
compliance with environmental laws and regulations regularly. Using
<PAGE>
<PAGE> 5 Form 8-K March 9, 1995
engineering estimates of total cleanup costs, we estimate our
potential liability for all currently and previously owned properties
where some cleanup may be required, including each Superfund site
where we are named a PRP. We provide reserves for these potential
costs and regularly review the adequacy of our reserves. In addition,
we forecast our expenses and capital expenditures for existing and
planned compliance programs as part of our regular corporate planning
process. Despite these procedures, it is very difficult to estimate
the future impact of actions regarding environmental matters,
including potential liabilities. However, we believe that cleanup
costs and costs related to environmental proceedings and ongoing
compliance with present laws will not have a material effect on our
future expenditures, annual consolidated financial statements or
competitive position beyond that provided for at year-end.
Many of our employees are represented by unions. In 1995 we will
negotiate new labor agreements because the 1992 contracts are due to
expire on May 27.
<PAGE>
<PAGE> 6 Form 8-K March 9, 1995
<TABLE>
<CAPTION>
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(UNAUDITED)
AT&T Corp. and Subsidiaries
Dollars in millions (except per share amounts)
1994 1993* 1992 1991* 1990 1989 1988* 1987 1986* 1985 1984
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Total revenues $75,094 $69,351 $66,647 $64,455 $63,228 $61,604 $62,067 $60,726 $61,975 $63,159 $60,326
Research and
development expenses 3,110 3,111 2,924 3,114 2,935 3,098 2,988 2,810 2,599 2,527 2,477
Operating income (loss) 8,030 6,568 6,628 1,570 5,622 4,931 (2,381) 4,164 978 3,562 2,825
Income (loss) before extraordinary
item and cumulative effects
of accounting changes 4,710 3,702 3,442 171 3,475 2,820 (1,527) 2,374 609 1,856 1,712
Net income (loss) 4,710 (5,906) 3,442 171 3,666 2,820 (1,527) 2,374 434 1,856 1,712
Earnings (loss) per
common share before extraordinary
item and cumulative effects
of accounting changes 3.01 2.39 2.27 0.12 2.38 1.95 (1.06) 1.61 0.36 1.21 1.14
Earnings (loss) per
common share 3.01 (3.82) 2.27 0.12 2.51 1.95 (1.06) 1.61 0.24 1.21 1.14
Dividends declared per
common share 1.32 1.32 1.32 1.32 1.32 1.20 1.20 1.20 1.20 1.20 1.20
- - ------------------------------------------------------------------------------------------------------------------------------
ASSETS AND CAPITAL
Property, plant and
equipment - net $22,035 $21,015 $20,798 $19,887 $19,536 $17,653 $16,886 $22,159 $22,247 $23,182 $22,180
Total assets 79,262 69,393 66,104 62,071 57,036 45,228 41,945 45,583 44,305 44,824 43,461
Long-term debt including
capital leases 11,358 11,802 14,166 13,682 14,579 10,116 10,172 9,060 8,234 8,104 8,963
Common shareowners'
equity 17,921 13,374 20,313 17,973 17,928 15,727 13,694 16,913 15,849 16,945 15,852
Net capital expenditures 4,853 4,296 4,328 4,376 4,369 4,162 4,528 3,936 3,977 4,303 3,685
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE> 7 Form 8-K March 9, 1995
<TABLE>
<CAPTION>
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA (Cont'd)
(UNAUDITED)
AT&T Corp. and Subsidiaries
Dollars in millions (except per share amounts)
1994 1993* 1992 1991* 1990 1989 1988* 1987 1986* 1985 1984
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER INFORMATION
Operating income (loss)
as a percentage of
revenues 10.7% 9.5% 10.0% 2.4% 8.9% 8.0% (3.8)% 6.9% 1.6% 5.6% 4.7%
Net income (loss) as a
percentage of revenues 6.3% (8.5)% 5.2% 0.3% 5.8% 4.6% (2.5)% 3.9% 0.7% 2.9% 2.8%
Return on average common
equity 29.5% (47.1)% 17.6% 0.9% 21.2% 19.1% (8.9)% 14.3% 2.0% 10.6% 10.4%
Data at year-end:
Stock price per share $50.25 $52.50 $51.00 $39.125 $30.125 $45.50 $28.75 $27.00 $25.00 $25.00 $19.50
Book value per common
share $11.42 $ 8.65 $13.31 $12.05 $12.33 $10.92 $ 9.57 $11.87 $11.04 $11.73 $11.19
Debt ratio 58.3% 64.4% 53.1% 54.8% 53.5% 45.0% 45.8% 38.4% 39.6% 39.9% 42.0%
Debt ratio excluding
financial services 34.1% 49.1% 40.8% 46.0% 47.6% 39.3% 42.2% 35.2% 37.6% 38.4% 41.7%
Employees 304,500 317,700 319,000 322,300 333,400 343,000 367,400 366,200 379,900 400,400 427,800
- - ------------------------------------------------------------------------------------------------------------------------------
<FN>
* 1993 data reflect a $9.6 billion net charge for three accounting changes.
1991 data reflect $4.5 billion of business restructuring and other charges.
1988 data reflect a $6.7 billion charge due to accelerated digitization of the long distance network.
1986 data reflect $3.2 billion of charges for business restructuring, an accounting change and other items.
<PAGE>
<PAGE> 8 Form 8-K March 9, 1995
TELECOMMUNICATIONS SERVICES
These revenues, which include wireless services revenues, grew 4.3% in
1994 and 1.6% in 1993. Volume growth, caused by market share gains
among residential customers, strong demand from business customers,
new cellular customers and the improved economy, fueled the faster
growth in 1994.
Wireless services revenues, including cellular, messaging and
air-to-ground services revenues, grew to $2,280 million in 1994 from
$1,760 million in 1993 and $1,387 million in 1992, primarily because
of the added traffic coming from new customers. Cellular customers
served by companies in which AT&T has or shares a controlling interest
increased to 4.0 million at year-end 1994, from 3.0 million at the end
of 1993 and 2.2 million at the end of 1992.
Billed minutes for switched long distance services rose more than
7.5% in 1994 compared with 5.5% in 1993. Volume growth exceeds
revenue growth because many customers are selecting higher-value,
lower-priced services made possible by our increasing efficiency.
Although we raised prices on basic services over the past two years,
the shift in the mix of services that customers selected reduced
average per-minute revenues in 1994 and 1993.
AT&T True USA@ Savings and AT&T True Rewards@ offer savings and
other benefits to residential customers based on their calling
volumes. We also rolled out AT&T TrueVoice# service, a patented
technology to improve the sound quality on calls placed within the
continental U.S. and Canada. Other offers and calling plans now share
this theme of offering customers true value. These efforts helped us
retain and win back residential customers in 1994, allowing us to
recapture some market share for the first time since the breakup of
the Bell System in 1984.
We expect continuing strong volume growth in 1995, leading to
further growth in telecommunications services revenues. Several of
our initiatives will enhance future network capabilities for
communications and computing. For example, since late 1994, Network
Notes@ has enabled customers to access applications and information
hosted in the AT&T network that are compatible with the popular Notes
groupware software from Lotus Development Corp. Beginning in 1995,
Netware Connect@ services, based on popular networking software from
Novell, Inc., will enable users to link computers or use computer-
based services through the AT&T network. Through our relationship
with Xerox Corp., users will be able to store and transmit high-
quality production documents through our network. Our WorldWorx@
service, developed in cooperation with several major equipment
vendors, will permit interactive, multipoint video and data calls.
Customers using our PersonaLink@ service may program "intelligent
agents" to sort through, retrieve and monitor desired information on
networks.
Total cost of telecommunications services declined both years
despite higher volumes, in part because of reduced prices for
connecting customers through local networks. In addition, we improved
@ Service mark
# Registered trademark
<PAGE>
<PAGE> 9 Form 8-K March 9, 1995
our efficiency in network operations, engineering and operator
services. With lower costs and higher revenues, the gross margin
percentage rose to 41.8% in 1994 from 39.0% in 1993 and 37.2% in 1992.
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SPOTLIGHT ON SOME TRENDS IN TELECOMMUNICATIONS SERVICES
COMPETITION IS CHANGING.
As we look ahead, along with growing opportunities, we see more direct
competition for AT&T coming from local telephone, long distance, cable
television, wireless and other companies that offer network services.
AT&T, as a supplier of networking systems, services and products, will
be a supplier as well as a customer and competitor of these firms.
There may also be other entrants from the communications and
information services industries, such as providers of information
systems, who will offer basic or integrated services.
Customers and competitors--present and future--are making
acquisitions, merging, and forming joint ventures and alliances to
expand their geographic reach, enter new markets and gain scale. Some
of the largest cable TV companies, such as Tele-Communications Inc.
(TCI) and Time Warner Inc., are clustering cable systems. Cables have
more capacity than current phone lines, suiting them for multimedia
use. Bell Atlantic Corporation, Nynex Corporation, U S West, Inc. and
Airtouch Communications Corp. formed an alliance of their cellular
operations to gain a national presence and bid against AT&T and others
for radio licenses to provide personal communications services. These
licenses are being auctioned by the Federal Communications Commission
to get as many as seven wireless competitors in each territory.
Sprint Corporation (Sprint), which already competes in local phone
service, long distance and cellular markets, is forming a joint
venture with cable companies TCI, Comcast Corp. and Cox Enterprises
Inc. to expand its presence in both local and wireless markets.
Several bills were introduced in Congress last year which would
have accelerated competition for local access and phone services and
permitted the Regional Bell Operating Companies (RBOCs) to offer long
distance services under certain conditions. Although none of these
bills was enacted, several key members of Congress have introduced or
announced plans to introduce new bills during 1995 that would permit
competition in local services and set conditions under which the RBOCs
would be permitted to offer long distance services and manufacture
equipment. Some of the RBOCs are also seeking this same kind of
permission through the courts. They requested relief from the decree
that broke up the Bell System-- the Modification of Final Judgment of
1982--including provisions that bar the RBOCs from offering long
distance services and manufacturing equipment. We believe the RBOCs
must face real competition for their local business before getting the
permission they seek. Absent local competition they could use their
bottleneck control over connections to customers to disadvantage
competitors.
It is not possible to predict the timing, course and
circumstances of changes that may come from technology, new alliances,
regulation and legislation. We set a high priority on anticipating
<PAGE>
<PAGE> 10 Form 8-K March 9, 1995
these changes and positioning AT&T for future success. However,
depending on their exact nature and timing, such changes could affect
our future revenues and earnings adversely.
COMPETITION WILL BE GLOBAL, AS LEGAL MONOPOLIES DISAPPEAR IN OTHER
COUNTRIES.
Mexico will open to competition beginning in late 1996. We are
working with Grupo Alfa to plan a joint venture to compete there.
Other U.S. companies--including MCI Communications Corp. (MCI), Sprint
and GTE Corporation--have or plan alliances with Mexican companies to
compete in telecommunications services.
The European Union is scheduled to be open fully to competition
beginning in 1998, but some changes are coming sooner. At year-end
1994 we were granted a license to provide switched voice and data
services and private lines within the United Kingdom (U.K.) and to
resell services between the U.K. and other countries. To better serve
multinational businesses in Europe, we plan a joint venture with the
Unisource consortium founded by PTT Telecom Netherlands, Swiss Telecom
PTT and Telia of Sweden. Telefonica de Espana will also become a
member. The new joint venture would then replace Unisource as the
European partner in the AT&T-sponsored WorldPartners seamless global
services alliance begun in 1993. British Telecommunications plc (BT)
took a 20% stake in MCI in 1994, and they jointly formed a venture to
compete in this same market sector.
Germany's Deutsche Telekom AG and France Telecom each seek
approval to buy a 10% stake in Sprint, securing entry to the U.S.
market similar to that of BT. We oppose their plans because the
French and German telecommunications services markets remain
fundamentally closed.
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PRODUCTS AND SYSTEMS
Expansion abroad and into new customer segments, improved global
economic conditions and major contract wins raised sales by 18.1% in
1994 and 8.1% in 1993 despite stiff price competition. Sales outside
the U.S. grew at a faster rate than U.S. sales and were responsible
for more than half the growth both years. We expect sales under major
contracts and the continuing economic recovery outside the U.S. in
1995 to pave the way for further growth in revenues.
A pie chart appears containing the following information:
1994 SOURCES OF REVENUES
As Percentages of Total Revenues
10% INTERNATIONAL REVENUES
From operations located in other countries
15% INTERNATIONAL REVENUES
From U.S. operations (international telecommunications
services, and exports)
75% U.S. REVENUES
Markets and competition in the information industry are increasingly global in
scope. Some of the fastest growing markets are outside the U.S.<PAGE>
<PAGE> 11 Form 8-K March 9, 1995
Revenues from sales of telecommunications network products and
systems grew 17.3% in 1994 and 8.5% in 1993. The 1994 increase
reflected higher sales across the product line, particularly in
switching and transmission systems and wireless products. About $243
million of switching revenues in 1994 came from consolidating A.G.
Communication Systems Corporation because AT&T raised its ownership to
80%. The 1993 increase came chiefly from higher sales of wireless
products, switching equipment and operations systems. For the last
two years, sales grew both inside and outside the U.S.
PRODUCTS AND SYSTEMS
Dollars in millions 1994 1993 1992
Revenues
Telecommunications network
products and systems $ 9,785 $ 8,345 $ 7,691
Computer products and systems 4,208 3,470 3,358
Communications products
and systems 4,494 3,692 3,279
Microelectronics products,
special-design products for
U.S. government, and other* 2,674 2,418 2,251
Products and systems $21,161 $17,925 $16,579
Gross margin percentage 37.3% 38.8% 39.8%
* "Other" is composed principally of media, predominantly for use with automated
teller machines and point-of-sale equipment, and business forms.
AT&T was selected for several large projects for network products
and systems over the past two years that we believe will lead to many
sales opportunities in the years ahead. Pacific Bell and Bell
Atlantic Corporation chose AT&T as the major equipment supplier and
system integrator for planned multimedia networks. These two projects
alone could generate up to $10 billion in revenues for AT&T over the
next seven years. AT&T was also awarded major contracts by other U.S.
telephone and cable companies, including Southern New England
Telephone Corp. and Time Warner, Inc. Outside the U.S., AT&T won a $4
billion contract with Saudi Arabia and signed a long-term system
support agreement, worth about $500 million over five years, with
China's Guangdong province government agencies.
Revenues from sales of computer products and systems grew 21.3%
in 1994 and 3.3% in 1993. The growth came mainly from higher U.S.
sales of workstations, automated teller machines, and mid-range and
high-end systems for enterprise-wide computing. Price competition for
this product line is very fierce, particularly for personal computers,
so revenue growth has lagged behind the gains in volumes. We changed
the end of the fiscal year for certain operations located outside the
U.S. to December from November in 1994 to report essentially all of
our operations on a calendar year. This added $223 million in
revenues and a marginal loss in income in 1994. About $113 million of
these revenues were from sales of computer products and systems.
Revenues from sales of communications products and systems rose
21.7% in 1994 and 12.6% in 1993. More than half this growth in both
years came from higher sales of business communications products and
systems. We also had higher sales of consumer communications products
<PAGE>
<PAGE> 12 Form 8-K March 9, 1995
- - --particularly cellular phones--submarine cables and data
communications equipment. AT&T Submarine Systems, Inc. and a partner
were awarded a $1.2 billion contract to supply and construct the
17,000-mile Fiber Optic Link Around the Globe (FLAG) cable system.
This system is scheduled to be completed during 1997. We will manage
the entire marine installation and also supply network management
equipment.
In total, revenues from sales of microelectronics products,
special-design products for the federal government, and other products
and systems grew 10.6% in 1994 and 7.4% in 1993. Growth in both years
came mainly from higher sales of microelectronics components and power
systems to equipment manufacturers outside the U.S. Sales of media
and business forms rose slightly in 1994, but were steady in 1993.
Because of reduced defense spending by the U.S. government, sales of
special-design products, such as secure phones, declined both years.
We sold several smaller operating units in 1994 and arranged to sell
NCR Microelectronics and are negotiating to sell a copper cable unit
in early 1995. These sales will reduce our revenues, as well as our
costs and expenses, by about $1 billion a year. Most of the revenues
related to product sales, about half in the microelectronics products
category.
The increase in cost of products and systems is mainly associated
with the higher sales volumes both years. The declining gross margin
percentage reflects pricing pressures and a changing product sales
mix.
RENTALS AND OTHER SERVICES
These revenues grew the last three years. The growth in 1994 came
mainly from communications equipment maintenance contracts and
professional services for computer products and systems. In 1993 we
saw higher revenues from newer telecommunications services, such as
network management and satellite services, which individually generate
small revenue streams. In both years these increases more than offset
the continuing, expected decline in communications equipment rentals.
RENTALS AND OTHER SERVICES
Dollars in millions 1994 1993 1992
Revenues
Computer products and systems $2,818 $2,641 $2,742
Communications products and
systems rentals 955 1,174 1,409
Communications products and
systems services 1,680 1,457 1,375
Other* 1,938 2,027 1,680
Rentals and other services $7,391 $7,299 $7,206
Gross margin percentage 50.9% 51.2% 53.3%
* "Other" is composed principally of global messaging and electronic mail services,
telemarketing services, information technology services and facility rentals.
<PAGE>
<PAGE> 13 Form 8-K March 9, 1995
The shift in revenue mix from rentals to lower-margin services
reduced the gross margin percentage. Also, provisions for business
restructuring added $90 million to cost of rentals and other services
in 1993.
FINANCIAL SERVICES AND LEASING
These revenues rose 24.5% in 1994 and 32.2% in 1993. Both Universal
Card and AT&T Capital contributed to the growth by profitably
expanding their portfolios of earning assets. We expect continuing
growth in these revenues, earnings and assets in 1995.
FINANCIAL SERVICES AND LEASING
In millions 1994 1993 1992
Revenues
AT&T Capital $ 1,384 $ 1,360 $ 1,266
Universal Card 1,782 1,228 831
Eliminations, adjustments
and other* (49) (84) (203)
Financial services and leasing $ 3,117 $ 2,504 $ 1,894
Gross margin percentage 31.0% 31.7% 30.8%
Universal Card Information:
Finance receivables $12,380 $ 9,154 $ 6,606
Accounts 15.1 11.7 10.3
* "Other" is composed principally of revenues from certain lease finance assets AT&T
retained when AT&T Capital was reorganized.
Universal Card rose to fourth in its industry in 1994 measured by
cardmember receivables. During the year it began its Something Extra@
program, which offers customers rewards for outstanding balances as
well as new purchases. Other promotions have convinced customers to
transfer balances from the credit card accounts held with competitors.
These programs and our highly regarded customer service contributed to
the 35.2% increase in outstanding cardholder receivables in 1994 and
38.6% increase in 1993. We set reserves for losses based on
experience and the future outlook for the economy.
AT&T Capital completed an initial public offering of its common
stock in August 1993, emerging as the largest publicly owned equipment
leasing and financing company in the U.S. AT&T still owns about 86%
of the stock, so AT&T Capital is still fully consolidated in our
financial statements. AT&T Capital limits its exposure to credit
risks by diversifying its business across customers, geographic
locations and lease maturities. It determines its allowance for
credit losses by analyzing previous experience on losses, current
delinquencies, and present and future economic conditions. We
unconditionally guaranteed all of AT&T Capital's debt outstanding at
the end of March 1993. Since then, all AT&T Capital debt has been
issued using its own credit. This change makes AT&T Capital
financially independent and permits us to focus on the financing needs
of our main business.
@ Service mark<PAGE>
<PAGE> 14 Form 8-K March 9, 1995
The growth in cost of financial services and leasing over the
last two years is associated mostly with the growth in financing
activity. The improved gross margin percentage in 1993 mainly
reflects the maturation of the credit card receivables portfolio.
Lower interest rates in 1993 also contributed to the margin
improvement that year, but rising interest rates in 1994 narrowed our
margins.
By 1995 we must change our accounting on loans to customers.
Under new rules we must compute the present value of principal and
interest payments for troubled loans that may not be fully repaid.
Our current methods do not require present value calculations, but we
do not expect this change to affect our costs materially.
OPERATING EXPENSES
Selling, general and administrative expenses increased 8.9% in 1994
and 8.0% in 1993, largely because of spending for advertising and
promotions, and for sales and sales support activities. We focused
particularly on retaining and winning back residential customers of
telecommunications services and acquiring new cellular customers. We
expect marketing expenses will continue to grow because of competitive
conditions. The 1993 total also includes $373 million in provisions
for business restructuring activities, and the 1994 total includes
$246 million of expenses related to the merger of AT&T and McCaw.
Research and development expenses were level in 1994 but
increased 6.4% in 1993. The higher spending of the last two years was
mainly for work on cellular technology, advanced communications
services and devices, and projects aimed at international growth.
OTHER INCOME STATEMENT ITEMS
Other income--net depends mostly on our cash balance, investments and
joint ventures, and sales of assets. We also deducted dividends on
preferred stock of a subsidiary in other income before we redeemed
this stock in mid-1994. Interest income declined over the past two
years, and in 1993 we saw a decline in income related to investments
and joint ventures. Material pretax gains and losses also affected
other income--net:
o In 1994 there were no material transactions. Asset sales and
various other immaterial gains more than offset losses from
the shutdown of EO Inc. and the uninsured portion of a lost
telecommunications satellite.
o In 1993 we had a $217 million gain when we exchanged our
remaining 77% interest in UNIX System Laboratories, Inc. for
stock in Novell, Inc.
o Because of declines in its market value, we wrote down our
investment in Compagnie Industriali Riunite S.p.A. by $68
million in 1992. We sold our remaining interest in that
investment in 1993 for a slight gain.
<PAGE>
<PAGE> 15 Form 8-K March 9, 1995
Interest expense declined over the past two years because of
benefits from refinancing long-term debt at favorable rates. Reduced
requirements for contingent liabilities also contributed about half
the decline in 1993.
The provisions for income taxes increased the past two years
mainly because of higher "book income," that is, the income before
income taxes and cumulative effects of accounting changes. The
effective tax rate declined to 37.3% in 1994, from 38.3% in 1993 and
39.0% in 1992, due to credits for foreign tax payments and the effect
on deferred taxes from redeeming preferred stock. These benefits were
somewhat offset by the nondeductibility of some merger-related
expenses.
Congress increased the federal statutory tax rate to 35% in
August 1993 and made the change retroactive to January 1, 1993. We
recognized a $23 million benefit from adjusting our net deferred tax
assets for the new rate. However, this benefit was more than offset
by the increase in income taxes due to the new rate.
TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY
We raised our cash balance in 1994 so we could act quickly on new
opportunities outside the U.S. and because of some pending
reinvestments in projects. However, we continue to target a cash
balance of about $800 million. The higher cash balance as well as
higher inventories and receivables, which are primarily associated
with the growth in revenues, boosted net working capital to $6.7
billion at the end of 1994 from $4.3 billion at the end of 1993.
We turned over our inventory 3.4 times in 1994, the same turnover
rate as 1993. Accounts receivable for our communications and
computing business were outstanding an average of 56.4 days in 1994,
about the same as in 1993.
Net property,plant and equipment and net licensing costs rose
because of normal purchasing activity.
A 52%-owned subsidiary of McCaw, LIN Broadcasting Corporation
(LIN), exchanged its investment in the A Block Philadelphia cellular
system for all the outstanding redeemable preferred stock of one of
its subsidiaries. In addition, AT&T sold its remaining 20% interest
in Italtel S.p.A back to STET S.p.A., the Italian government's
telecommunications holding company. These transactions led to a
decline in investments during the year.
We also changed the way we report and account for investments in
equity securities that have readily determinable fair values and in
all debt securities. Starting in 1994 we account for the fair values
of these securities rather than our original investment. This change
did not affect our earnings or financial position materially.
The fair value of our pension plan assets is greater than our
projected pension obligations. We record pension income when our
expected return on plan assets plus amortization of the transition
asset (created by our 1986 adoption of the current standard for
pension accounting) is greater than the interest cost on our projected
benefit obligation plus service cost for the year. Consequently, we
had pension income that added to our prepaid pension costs in 1994.
<PAGE>
<PAGE> 16 Form 8-K March 9, 1995
The increase in other assets mainly reflects the advanced
purchase of rewards, such as frequent flyer miles and merchandise
certificates to be given to consumers who earn sufficient points to
claim them under our calling plans. At the same time, we accrued a
liability for the unredeemed points earned under our calling plans,
which led to higher other current liabilities.
Higher accounts payable and payroll and benefit-related
liabilities are mainly due to increases in the associated expenses and
benefit costs.
We issued more debt in 1994, mainly short-term financing, for
financial services and for higher inventories and receivables.
Contributions to trusts for retiree benefits led to the decline
in related liabilities. We redeemed all of LIN's outstanding
preferred stock, which increased additional paid-in capital and
minority interests.
Operating cash flows increased in 1994 mainly because of higher
income. The decline in 1993 was mainly due to working capital
requirements such as inventories and accounts receivable. For the
three years operating cash flows covered our additions to property,
plant and equipment and dividend payments. We expect operating cash
flows to continue covering usual capital expenditures and dividends in
1995. However, as discussed in the next section, we may have broader
capital requirements in 1995 which may require additional external
financing.
INVESTING ACTIVITIES
Most of our capital expenditures support telecommunications network
services, providing for growth in traffic, modernization and enhanced
reliability. Other capital additions include the equipment and
facilities used in leasing operations, manufacturing, and research and
development. We expect our net capital expenditures to continue
rising in 1995.
We plan substantial investments to expand and enhance our
cellular network in 1995. We are also bidding on broad-band personal
communication service (PCS) radio licenses to provide wireless
telephone service in 30 of 51 major trading areas in the U.S. The
Federal Communications Commission (FCC) auction began 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 about 30 companies have made deposits and are eligible for
bidding. In the event AT&T is successful in obtaining one or more
licenses, substantial expenditures could be required for the licenses
and for constructing associated systems.
Under an agreement between McCaw and LIN, a process, using third-
party appraisers, began on January 1, 1995 to determine the private
market value per share of LIN. The private market value is the price
per share, including control premium, that an unrelated third party
would pay if it were to acquire all the outstanding shares of LIN,
including the shares held by McCaw, in an arm's-length transaction and
assuming LIN was being sold in a manner designed to attract all
possible participants and to maximize shareholder value. After the
price is determined, McCaw will have 45 days to decide whether to<PAGE>
<PAGE> 17 Form 8-K March 9, 1995
proceed with the acquisition of all the public shares at that price,
subject to the approval of the LIN public shareholders. AT&T and
McCaw have not made any decision as to whether McCaw should proceed
with an acquisition of the LIN public shares. If the private market
price is set at a level that AT&T and McCaw believe is reasonable,
AT&T and McCaw expect that McCaw would seek to proceed with an
acquisition. Any such acquisition would involve a substantial capital
expenditure. If the private market price is set at a level that AT&T
and McCaw believe is not reasonable, AT&T and McCaw expect that McCaw
would not proceed with an acquisition. If McCaw does not proceed with
an acquisition, the agreement provides that McCaw will put LIN in its
entirety up for sale under the direction of the LIN independent
directors.
In 1994 we agreed to acquire Alascom, one of Alaska's long
distance companies, for $290 million. This agreement is subject to
approval by the Alaska Public Utilities Commission and the FCC.
We also plan substantial expenditures to increase our presence
outside the U.S. in 1995. For example, we signed a memorandum of
understanding in 1994 with Grupo Alfa, a leading Mexican company, to
explore the feasibility of a joint venture to compete in
telecommunications services in Mexico when the market is opened to
competition beginning in late 1996. The capital requirements of such
a joint venture are not currently known, but we estimate that as much
as $1 billion of capital might be required over a 4- to 6-year period.
Our share of the joint venture would be 49%. We also signed an
agreement in principle with Unisource, a consortium of European
telecommunications companies, to form a joint venture to compete in
Europe, meeting the communications needs of multinational business
customers. Our ownership of the venture would be 40%. At the
formation, the venture would have $200 million of assets, but these
assets and our investment would be likely to grow.
We also signed a broad set of business agreements in 1994 with
the People's Republic of China to provide technologies, products and
services to modernize its telecommunications infrastructure. Those
agreements call for us to invest more than $150 million over two
years.
Our investments in finance receivables, particularly credit card
receivables, are required to support further growth in revenues and
earnings from our financial services businesses.
<PAGE>
<PAGE> 18 Form 8-K March 9, 1995
*****************************************************************
DEBT TO EQUITY ANALYSIS
AT&T Consolidated and AT&T Excluding Financial Services
In Billions of Dollars
45
#D #D
#D #D #D
#D #D #D
30 #D @D #D @D #D
#D @D #D @D #D
#D @D #D @D #D @D
#E @D #D @D #D @D
15 #E @E #D @D #E @E
#E @E #E @E #E @E
#E @E #E @E #E @E
0 #E @E #E @E #E @E
1992 1993 1994
53.1% 40.8% 64.4% 49.1% 58.3% 34.1% Debt Ratio
------------------------------------------------
D: Debt
E: Equity
#: AT&T Consolidated
@: AT&T excluding Financial Services
Most of AT&T's debt supports our financial services. Our long-term goal is a 30%
debt ratio for AT&T excluding financial services. We are currently above that ratio
because of McCaw's capital structure and our heavy investment program to take
advantage of current opportunities and build a stronger AT&T for the future.
Accounting changes reduced our equity in 1993.
************************************************************************************
FINANCING ACTIVITIES AND CAPITALIZATION
Capital requirements due to the growth of our financial services and
leasing business will continue to grow in 1995.
Much of the financing activity shown on our cash flows statement
relates to refinancing activities. For example, in 1992 and 1993 we
took advantage of favorable levels of interest rates to extend debt
maturities by refinancing a substantial amount of long-term debt. In
1994 we refinanced McCaw's debt.
In the normal course of our business, we use certain derivative
financial instruments, mainly interest rate contracts and foreign
currency exchange rate contracts for purposes other than trading. The
interest rate contracts allow us to limit the effects of changing
interest rates and protect our margins on existing transactions. The
foreign currency contracts and options allow us to manage our exposure
to changing currency exchange rates. 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 our benefits include more stable
earnings in periods when interest rates or currency exchange rates are
changing.
<PAGE>
<PAGE> 19 Form 8-K March 9, 1995
For the past three years we have issued new shares of common
stock in our shareowner and employee plans. The dilution in earnings
per share from new issuances was not material.
We sell equity interests in AT&T subsidiaries only when
opportunities or circumstances warrant. We have no current plans to
sell material interests in subsidiaries.
The ratio of total debt and preferred stock to total capital
(total debt, preferred stock and equity) declined to 58.3% at December
31, 1994, compared with 64.4% at December 31, 1993, primarily because
of higher equity from 1994 earnings. Excluding financial services and
leasing operations, the debt ratio declined to 34.1% at December 31,
1994, compared with 49.1% at December 31, 1993.
<PAGE>
<PAGE> 20 Form 8-K March 9, 1995
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the financial statements and all other financial
information included in this report. Management is also
responsible for maintaining a system of internal controls as a
fundamental requirement for the operational and financial
integrity of results.
The financial statements, which reflect the consolidated
accounts of AT&T and subsidiaries, and other financial
information shown were prepared in conformity with generally
accepted accounting principles. Estimates included in the
financial statements were based on judgments of qualified
personnel.
To maintain its system of internal controls, management
carefully selects key personnel and establishes the
organizational structure to provide an appropriate division of
responsibility. We believe it is essential to conduct business
affairs in accordance with the highest ethical standards as set
forth in the AT&T Code of Conduct. These guidelines and other
informational programs are designed and used to ensure that
policies, standards and managerial authorities are understood
throughout the organization. Our internal auditors monitor
compliance with the system of internal controls by means of an
annual plan of internal audits. On an ongoing basis, the system
of internal controls is reviewed, evaluated and revised as
necessary in light of the results of constant management
oversight, internal and independent audits, changes in AT&T's
business and other conditions.
Management believes that the system of internal controls,
taken as a whole, provides reasonable assurance that (1)
financial records are adequate and can be relied upon to permit
the preparation of financial statements in conformity with
generally accepted accounting principles, and (2) access to
assets occurs only in accordance with management's
authorizations.
The Audit Committee of the Board of Directors, which is
composed of directors who are not employees, meets periodically
with management, the internal auditors and the independent
auditors to review the manner in which these groups of
individuals are performing their responsibilities and to carry
out the Audit Committee's oversight role with respect to
auditing, internal controls and financial reporting matters.
Periodically, both the internal auditors and the independent
auditors meet privately with the Audit Committee. These auditors
also have access to the Audit Committee and its individual
members at any time.
<PAGE>
<PAGE> 21 Form 8-K March 9, 1995
The financial statements in this annual report have been
audited by Coopers & Lybrand L.L.P., Independent Auditors. Their
audits were conducted in accordance with generally accepted
auditing standards and include consideration of the internal
control structure and selective tests of transactions. Their
report follows.
Richard W. Miller Robert E. Allen
Executive Vice President, Chairman of the Board,
Chief Financial Officer Chief Executive Officer
REPORT OF INDEPENDENT AUDITORS
To the Shareowners of AT&T Corp.:
We have audited the consolidated balance sheets of AT&T Corp.
and subsidiaries (AT&T) at December 31, 1994 and 1993, and the
related consolidated statements of income and cash flows for the
years ended December 31, 1994, 1993 and 1992. These financial
statements are the responsibility of AT&T's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of AT&T at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for
the years ended December 31, 1994, 1993 and 1992, in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, in 1993
AT&T changed its methods of accounting for postretirement
benefits, postemployment benefits and income taxes.
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York
January 24, 1995
<PAGE>
<PAGE> 22 Form 8-K March 9, 1995
CONSOLIDATED STATEMENTS OF INCOME AT&T CORP. AND SUBSIDIARIES
Years Ended December 31
Dollars in millions (except per share amounts) 1994 1993 1992
SALES AND REVENUES
Telecommunications services $43,425 $41,623 $40,968
Products and systems 21,161 17,925 16,579
Rentals and other services 7,391 7,299 7,206
Financial services and leasing 3,117 2,504 1,894
TOTAL REVENUES 75,094 69,351 66,647
COSTS
Telecommunications services
Access and other interconnection costs 17,797 17,772 18,186
Other costs 7,466 7,623 7,553
Total telecommunications services 25,263 25,395 25,739
Products and systems 13,273 10,966 9,976
Rentals and other services 3,629 3,563 3,366
Financial services and leasing 2,152 1,711 1,310
TOTAL COSTS 44,317 41,635 40,391
GROSS MARGIN 30,777 27,716 26,256
OPERATING EXPENSES
Selling, general and administrative expenses 19,637 18,037 16,704
Research and development expenses 3,110 3,111 2,924
TOTAL OPERATING EXPENSES 22,747 21,148 19,628
OPERATING INCOME 8,030 6,568 6,628
Other income -- net 236 476 163
Loss on sale of stock by subsidiary - 9 -
Interest expense 748 1,032 1,153
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECTS OF
ACCOUNTING CHANGES 7,518 6,003 5,638
Provision for income taxes 2,808 2,301 2,196
Income before cumulative
effects of accounting changes 4,710 3,702 3,442
Cumulative effects on prior years
of changes in accounting for:
Postretirement benefits (net of income
tax benefit of $4,294) - (7,023) -
Postemployment benefits (net of income
tax benefit of $681) - (1,128) -
Income taxes - (1,457) -
Cumulative effects of accounting changes - (9,608) -
NET INCOME (LOSS) $ 4,710 $(5,906) $ 3,442
Weighted average common
shares outstanding (millions) 1,564 1,547 1,519
PER COMMON SHARE:
Income before cumulative effects
of accounting changes $ 3.01 $ 2.39 $ 2.27
Cumulative effects of accounting changes - (6.21) -
NET INCOME (LOSS) $ 3.01 $ (3.82) $ 2.27
The notes on pages 25 through 48 are an integral part of the consolidated
financial statements.
<PAGE>
<PAGE> 23 Form 8-K March 9, 1995
CONSOLIDATED BALANCE SHEETS AT&T CORP. AND SUBSIDIARIES
At December 31
Dollars in millions (except per share amount) 1994 1993
ASSETS
Cash and temporary cash investments $ 1,208 $ 671
Receivables, less allowances of $1,251 and $1,040
Accounts receivable 13,671 12,294
Finance receivables 14,952 11,370
Inventories 3,633 3,222
Deferred income taxes 3,030 2,079
Other current assets 1,117 732
TOTAL CURRENT ASSETS 37,611 30,368
Property, plant and equipment -- net 22,035 21,015
Licensing costs -- net 4,251 3,995
Investments 2,708 3,060
Finance receivables 4,513 3,815
Prepaid pension costs 4,151 3,575
Other assets 3,993 3,565
TOTAL ASSETS $79,262 $69,393
LIABILITIES AND DEFERRED CREDITS
Accounts payable $ 6,011 $ 4,853
Payroll and benefit-related liabilities 4,105 3,802
Postretirement and postemployment
benefit liabilities 1,029 1,301
Debt maturing within one year 13,666 11,063
Dividends payable 518 448
Other current liabilities 5,601 4,587
TOTAL CURRENT LIABILITIES 30,930 26,054
Long-term debt including capital leases 11,358 11,802
Postretirement and postemployment
benefit liabilities 8,754 9,083
Other liabilities 4,285 4,363
Deferred income taxes 3,913 2,231
Unamortized investment tax credits 232 270
Other deferred credits 776 263
TOTAL LIABILITIES AND DEFERRED CREDITS 60,248 54,066
MINORITY INTERESTS 1,093 648
REDEEMABLE PREFERRED STOCK - 1,305
COMMON SHAREOWNERS' EQUITY
Common shares par value $1 per share 1,569 1,547
Authorized shares: 2,000,000,000
Outstanding shares: 1,569,006,000 at December 31, 1994;
1,546,518,000 at December 31, 1993
Additional paid-in capital 15,825 14,324
Guaranteed ESOP obligation (305) (355)
Foreign currency translation adjustments 145 (32)
Retained earnings (deficit) 687 (2,110)
TOTAL COMMON SHAREOWNERS' EQUITY 17,921 13,374
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $79,262 $69,393
The notes on pages 25 through 48 are an integral part of the consolidated
financial statements.
<PAGE>
<PAGE> 24 Form 8-K March 9, 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS AT&T CORP. AND SUBSIDIARIES
Years Ended December 31
Dollars in millions 1994 1993 1992
OPERATING ACTIVITIES
Net income (loss) $ 4,710 $(5,906) $ 3,442
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effects of accounting changes - 9,608 -
Depreciation and licensing
cost amortization 4,039 4,082 3,825
Provision for uncollectibles 1,929 1,665 1,983
(Increase) in accounts receivable (2,672) (2,211) (1,577)
(Increase) decrease in inventories (392) (444) 549
Increase (decrease) in accounts payable 1,125 (295) 46
Net (increase) decrease in other operating
assets and liabilities (356) (1,272) (1,595)
Other adjustments for noncash items -- net 573 2,197 1,363
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,956 7,424 8,036
INVESTING ACTIVITIES
Capital expenditures net of proceeds from
sale or disposal of property, plant and
equipment of $451, $241 and $250 (4,853) (4,296) (4,328)
Increase in finance receivables,
net of lease-related repayments of
$3,384, $3,512 and $3,316 (4,616) (3,484) (3,878)
Net (increase) decrease in investments (159) (453) 33
Acquisitions, net of cash acquired 144 (228) (308)
Other investing activities -- net (271) (204) (125)
NET CASH USED IN INVESTING ACTIVITIES (9,755) (8,665) (8,606)
FINANCING ACTIVITIES
Proceeds from long-term debt issuance 6,134 4,386 3,368
Retirements of long-term debt (5,637) (5,879) (3,732)
Issuance of common shares 976 1,053 703
Dividends paid (1,870) (1,774) (1,748)
Increase in short-term borrowings -- net 1,747 2,586 1,341
Other financing activities -- net (36) 25 (162)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,314 397 (230)
Effect of exchange rate changes on cash 22 3 26
Net increase (decrease) in cash and
temporary cash investments 537 (841) (774)
Cash and temporary cash investments at
beginning of year 671 1,512 2,286
Cash and temporary cash investments at
end of year $ 1,208 $ 671 $ 1,512
The notes on pages 25 through 48 are an integral part of the consolidated
financial statements.
<PAGE>
<PAGE> 25 Form 8-K March 9, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AT&T CORP. AND SUBSIDIARIES (AT&T)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
OWNERSHIP OF AFFILIATES ACCOUNTING METHOD
More than 50% Fully consolidated
20% to 50% Equity method
Less than 20% Cost method
The fiscal year of essentially all AT&T operations ends December 31.
CURRENCY TRANSLATION
For operations outside of the U.S. that prepare financial statements
in currencies other than the U.S. dollar, we translate income
statement amounts at average exchange rates for the year, and we
translate assets and liabilities at year-end exchange rates. We show
these translation adjustments as a separate component of shareowners'
equity.
REVENUE RECOGNITION
REVENUE FROM BASIS OF RECOGNITION
Telecommunications Services Minutes of traffic processed
and contracted fees
Products and Systems Upon performance of
contractual obligations
Rentals and Other Services Proportionately over contract
period or as services are
performed
Financial Services and Leasing Over the life of the finance
receivables using the
interest method, or straight-
line over life of operating
lease
SOFTWARE PRODUCTION COSTS
Until technological feasibility is established, we expense as
incurred the costs of developing computer software that we plan to
sell, lease or otherwise market. After that time, we capitalize the
remaining software production costs and amortize them to costs over
the estimated period of sales and revenues.
INTEREST EXPENSE
Interest expense is the interest on short-term and long-term debt and
accrued liabilities, excluding the interest related to our financial
services operations, which is included in cost of financial services
and leasing, and net of interest capitalized in connection with
construction.
INVESTMENT TAX CREDITS
For financial reporting purposes, we amortize investment tax credits
as a reduction to the provision for income taxes over the useful
lives of the property that produced the credits.
<PAGE>
<PAGE> 26 Form 8-K March 9, 1995
EARNINGS PER SHARE
We use the weighted average number of shares of common stock and
common stock equivalents outstanding during each period to compute
earnings per common share. Common stock equivalents are stock
options that we assume to be exercised for the purposes of this
computation.
TEMPORARY CASH INVESTMENTS
We consider temporary cash investments to be cash equivalents for
cash flow reporting purposes. They are highly liquid and have
original maturities generally of three months or less.
INVENTORIES
We state inventories at the lower of cost or market. We determine
cost principally on a first-in, first-out (FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT
We state property, plant and equipment at cost and determine
depreciation using either the group or unit method. The unit method
is used primarily for factory facilities, laboratory equipment, large
computer systems, and certain international earth stations and
submarine cables. The group method is used for most other
depreciable assets. When we sell assets that were depreciated using
the unit method, we include the gains or losses in operating results.
When we sell or retire plant that was depreciated using the group
method, we deduct the original cost from the plant account and from
accumulated depreciation.
We use accelerated depreciation methods for factory facilities and
digital equipment used in the telecommunications network, except
switching equipment placed in service before 1989. All other plant
and equipment is depreciated on a straight-line basis.
In our wireless services unit, depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
which are generally 10 to 12 years for cellular, 2 to 12 years for
messaging, 3 to 12 years for air-to-ground and 3 to 5 years for other
equipment. Leasehold improvements are amortized using the straight-
line method over the terms of the leases.
LICENSING COSTS
Licensing costs represent costs incurred to develop or acquire
cellular and messaging licenses. Generally, amortization begins with
the commencement of service to customers and is computed using the
straight-line method over a period of 40 years.
GOODWILL
Goodwill is the difference between the purchase price and the fair
value of net assets acquired in business combinations treated as
purchases. We amortize goodwill on a straight-line basis over the
periods benefited, principally in the range of 10 to 40 years.
RECLASSIFICATIONS
We reclassified certain amounts for previous years to conform with
the 1994 presentation.
<PAGE>
<PAGE> 27 Form 8-K March 9, 1995
2.CHANGES IN ACCOUNTING PRINCIPLES
POSTRETIREMENT BENEFITS
We adopted Statement of Financial Accounting Standards (SFAS) No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," effective January 1, 1993. This standard requires us to
accrue estimated future retiree benefits during the years employees
are working and accumulating these benefits. Previously, we expensed
health care benefits as claims were incurred and life insurance
benefits as plans were funded.
We also reimburse the divested regional Bell companies for a
portion of their costs to provide health care benefits, increases in
pensions and other benefits to predivestiture retirees under the
terms of the Divestiture Plan of Reorganization. Through 1992 we
expensed these reimbursements as incurred.
We recorded a one-time pretax charge for the unfunded portions of
these liabilities of $11,317 million ($7,023 million or $4.54 per
share after taxes). Apart from these cumulative effects on prior
years of the accounting change, our change in accounting had no
material effect on net income and it does not affect cash flows.
POSTEMPLOYMENT BENEFITS
We also adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1993. Analogous to
SFAS No. 106, this standard requires us to accrue for estimated
future postemployment benefits, including separation payments, during
the years employees are working and accumulating these benefits, and
for disability payments when the disabilities occur. Before this
change in accounting, we recognized costs for separations when they
were approved and disability benefits when they were paid.
We recorded a one-time pretax charge for the unprovided portion of
these liabilities of $1,809 million ($1,128 million or $0.73 per
share after taxes). The change in accounting reduced operating
income by $301 million and net income by $171 million ($0.11 per
share) in 1993. This change does not affect cash flows.
INCOME TAXES
We also adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. Among other provisions, this standard
requires us to compute deferred tax amounts using the enacted
corporate income tax rates for the years in which the taxes will be
paid or refunds received. Before 1993 our deferred tax accounts
reflected the rates in effect when we made the deferrals.
The adoption of this standard reduced net income by $1,457 million
($0.94 per share) as a result of deferred liabilities that were
created by McCaw Cellular Communications, Inc. acquisitions prior to
the merger. Apart from these cumulative effects on prior years of
the accounting change, the new accounting method had no material
effect on net income in 1993. Unless Congress changes tax rates, we
do not expect this change to affect net income materially in future
periods. This change does not affect cash flows.
<PAGE>
<PAGE> 28 Form 8-K March 9, 1995
3.PROSPECTIVE ACCOUNTING CHANGES
IMPAIRED LOANS
In 1995 we must adopt SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This standard requires us to compute present
values for impaired loans when determining our allowances for credit
losses. We do not expect this new standard to affect net income
materially at or after adoption, and it will not affect cash flows.
4.MERGER WITH MCCAW CELLULAR COMMUNICATIONS, INC. (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 $27.43. The merger was
accounted for as a pooling of interests, and the consolidated
financial statements were restated for all periods prior to the
merger to include the accounts and operations of McCaw. Intercompany
transactions prior to 1994 were not eliminated due to immateriality.
Merger-related expenses of $246 million incurred in 1994
($187 million net of taxes) were reported as selling, general and
administrative expenses. Certain reclassifications were made to
McCaw's accounts to conform to AT&T's presentation. Premerger
operating results of the companies in the current presentation were:
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
Dollars in millions 1994 1993 1992
SALES AND REVENUES
AT&T $ 52,178 $ 67,156 $ 64,904
McCaw 2,062 2,195 1,743
Eliminations (256) - -
Total $ 53,984 $ 69,351 $ 66,647
NET INCOME (LOSS)
AT&T $ 3,431 $ (3,794) $ 3,807
McCaw 34 (2,112)* (365)
Eliminations (93) - -
Total $ 3,372 $ (5,906) $ 3,442
* Includes a charge of $45 million previously reported as an
extraordinary item for the early redemption of debt.
<PAGE>
<PAGE> 29 Form 8-K March 9, 1995
5.SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
DOLLARS IN MILLIONS 1994 1993 1992
INCLUDED IN COSTS
Amortization of software production costs $ 370 $ 359 $ 315
Amortization of licensing costs 115 108 105
COST OF FINANCIAL SERVICES AND LEASING
Interest expense $ 725 $ 506 $ 485
Depreciation, provision for losses, etc. 1,427 1,205 825
Cost of financial services and leasing $2,152 $1,711 $1,310
INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Amortization of goodwill $ 97 $ 89 $ 80
OTHER INCOME - NET
Interest income $ 80 $ 141 $ 167
Royalties and dividends 30 59 48
Minority interests in earnings
of subsidiaries (64) (9) 40
Miscellaneous - net 190 285 (92)
Other income - net $ 236 $ 476 $ 163
DEDUCTED FROM INTEREST EXPENSE
Capitalized interest $ 47 $ 72 $ 62
<PAGE>
<PAGE> 30 Form 8-K March 9, 1995
SUPPLEMENTARY BALANCE SHEET INFORMATION
DOLLARS IN MILLIONS AT DECEMBER 31, 1994 1993
INVENTORIES
Completed goods $ 2,022 $ 1,927
Work in process and raw materials 1,611 1,295
Inventories $ 3,633 $ 3,222
PROPERTY, PLANT AND EQUIPMENT
Land and improvements $ 761 $ 757
Buildings and improvements 9,240 8,608
Machinery, electronic and other equipment 35,981 33,930
Total property, plant and equipment 45,982 43,295
Less: Accumulated depreciation 23,947 22,280
Property, plant and equipment--net $22,035 $21,015
INVESTMENTS
Accounted for by the equity method $ 2,314 $ 2,603
Stated at cost or fair value 394 457
Investments $ 2,708 $ 3,060
OTHER ASSETS
Unamortized software production costs $ 483 $ 499
Unamortized goodwill 1,007 1,359
Deferred charges 746 270
Other 1,757 1,437
Other assets $ 3,993 $ 3,565
DEBT MATURING WITHIN ONE YEAR
Commercial paper $10,777 $ 8,761
Long-term debt 2,535 2,019
Long-term lease obligations 30 52
Other 324 231
Debt maturing within one year $13,666 $11,063
<PAGE>
<PAGE> 31 Form 8-K March 9, 1995
SUPPLEMENTARY CASH FLOW INFORMATION
DOLLARS IN MILLIONS 1994 1993 1992
Interest payments net of
amounts capitalized $ 1,280 $ 1,640 $ 1,510
Income tax payments 2,047 1,733 727
The following table displays the non-cash items excluded from the
consolidated statements of cash flows:
Dollars in millions 1994 1993 1992
Machinery and equipment acquired under
capital lease obligations $ 13 $ 15 $ 60
EXCHANGE OF STOCK
Net assets $ 2 $ (43) -
Investments - 260 -
Licenses 134 96 -
$ 136 $ 313 -
ACQUISITION ACTIVITIES
Net receivables $ 24 $ (19) $ (131)
Inventories (10) (1) (48)
Property, plant and equipment 3 (132) (82)
Licensing costs (79) 5 (75)
Accounts payable (8) 7 37
Short-term and long-term debt 47 3 93
Other operating assets and liabilities - net 167 (91) (102)
Net non-cash items consolidated 144 (228) (308)
Net cash received from (used for)
acquisitions $ 144 $ (228) $ (308)
6.BUSINESS RESTRUCTURING AND OTHER CHARGES
Our $498 million in provisions for business restructuring in 1993
covered $227 million of costs at AT&T Global Information Solutions
(including, in millions, $137 for special termination benefits, $43
for closing facilities, $18 for employee relocation, $19 for
contractual obligations and $10 for other related expenses). We also
provided $215 million for restructuring customer support functions
for telecommunications services (including, in millions, $55 for
employee relocation, $25 for outplacement costs, $30 for legal
matters, and $105 for closing facilities, lease terminations and
asset abandonments associated with centralizing support services).
The remaining provisions consist of $23 million related to closing
plants for manufacturing telecommunications network systems, and $33
million for employee relocation, outplacement services and legal
liabilities related to restructuring operations that service the U.S.
federal government. These amounts were recorded as $13 million in
costs of products and systems, $90 million as costs of other
services, $373 million as selling, general and administrative
expenses and $22 million as research and development expenses.
We believe that the balance of reserves for business restructuring
activities, $894 million at December 31, 1994, is adequate for the
completion of those activities.<PAGE>
<PAGE> 32 Form 8-K March 9, 1995
7.OTHER INCOME-NET
In June 1993 we sold our remaining 77% interest in UNIX System
Laboratories, Inc. to Novell, Inc. (Novell) in exchange for
approximately 3% of Novell's common stock. Our gain on the sale was
$217 million.
We sold our remaining interest in Compagnie Industriali Riunite
S.p.A. in 1993 for a slight gain. We reduced the carrying value of
that investment by $68 million in 1992 because of a sustained decline
in its market value.
8.SALE OF STOCK BY SUBSIDIARY
In August 1993 AT&T Capital Corporation (AT&T Capital) sold 5,750,000
shares of common stock in an initial public offering and
approximately 850,000 shares of common stock in a management
offering. That was about 14% of the shares outstanding, so our
ownership is now about 86%. The shares were sold at $21.50 per
share, yielding net proceeds of $115 million excluding $18 million of
recourse loans attributable to the management offering. Because of
these loans, we recorded a $9 million loss on the sale. When the
loans are collected by the year 2000, we expect to report a net $6
million gain from this sale of stock.
9.INCOME TAXES
This table shows the principal reasons for the difference between the
effective tax rate and the United States federal statutory income tax
rate:
Dollars in millions 1994 1993 1992
U.S. federal statutory income tax rate 35% 35% 34%
Federal income tax at statutory rate $2,631 $2,101 $1,917
Amortization of investment tax credits (33) (92) (221)
State and local income taxes, net of
federal income tax effect 296 287 243
Amortization of intangibles 20 24 110
Foreign rate differential 36 45 75
Taxes on repatriated and accumulated
foreign income, net of tax credits (71) (20) 67
Research credits (66) (47) (18)
Capital loss carryforward - - (13)
Effect of tax rate change on
deferred tax assets - (23) -
Other differences-net (5) 26 36
Provision for income taxes $2,808 $2,301 $2,196
Effective income tax rate 37.3% 38.3% 39.0%
<PAGE>
<PAGE> 33 Form 8-K March 9, 1995
The U.S. and foreign components of income before income taxes and
the provision for income taxes are presented in this table:
Dollars in millions 1994 1993 1992
INCOME BEFORE INCOME TAXES
United States $6,841 $5,705 $5,308
Foreign 677 298 330
$7,518 $6,003 $5,638
PROVISION FOR INCOME TAXES
CURRENT
Federal $1,618 $ 925 $ 533
State and local 300 206 142
Foreign 225 169 215
$2,143 $1,300 $ 890
DEFERRED
Federal $ 488 $ 910 $1,384
State and local 155 212 225
Foreign 60 (41) (85)
$ 703 $1,081 $1,524
Deferred investment tax credits -- net* (38) (80) (218)
Provision for income taxes $2,808 $2,301 $2,196
*Net of amortization of $33 in 1994, $92 in 1993 and $221 in 1992.
Deferred tax liabilities are taxes we expect to pay in future
periods. Similarly, deferred tax assets are taxes we expect to get
refunded in future periods. Deferred taxes arise because of
differences in the book and tax bases of certain assets and
liabilities. Deferred tax liabilities (assets) consist of the
following:
Dollars in millions 1994 1993
LONG-TERM DEFERRED INCOME TAX LIABILITIES:
Property, plant and equipment $ 5,964 $ 5,620
Other 1,713 964
Total long-term deferred tax liabilities $ 7,677 $ 6,584
LONG-TERM DEFERRED INCOME TAX ASSETS:
Business restructuring $ 479 $ 476
Credit carryforwards 166 425
Employee pensions and other benefits - net 2,618 3,348
Reserves and allowances 141 142
Unamortized investment tax credits 92 119
Valuation allowance (178) (212)
Other 446 55
Total long-term deferred income tax assets $ 3,764 $ 4,353
Net long-term deferred income tax liabilities $ 3,913 $ 2,231
<PAGE>
<PAGE> 34 Form 8-K March 9, 1995
CURRENT DEFERRED INCOME TAX LIABILITIES:
Other $ 110 $ 93
Total current deferred income tax liabilities $ 110 $ 93
CURRENT DEFERRED INCOME TAX ASSETS:
Business restructuring $ 99 $ 191
Credit carryforwards 99 -
Employee pensions and other benefits 1,166 850
Reserves and allowances 1,126 907
Other 650 224
Total current deferred income tax assets $ 3,140 $ 2,172
Net current deferred income tax assets $ 3,030 $ 2,079
This table shows the principal sources of deferred taxes in 1992:
Dollars in millions 1992
Property, plant and equipment $ 992
Business restructuring charges 218
Employee pensions and other benefits 234
Reserves and allowances 108
Other timing differences - net (28)
Deferred income taxes $1,524
10.LEASES
AS LESSOR
We provide financing on sales of our products and those of other
companies and lease our products to customers under sales-type
leases. This table displays our net investment in direct financing
and sales-type leases:
Dollars in millions at December 31 1994 1993
Minimum lease payments receivable $5,414 $4,226
Estimated unguaranteed residual values 593 543
Unearned income (1,006) (797)
Allowance for credit losses (127) (110)
Net investment $4,874 $3,862
This table shows the scheduled maturities for our $5,414 million
minimum lease payments receivable on these leases at December 31,
1994:
1995 1996 1997 1998 1999 Later Years
$1,689 $1,402 $1,143 $659 $309 $212
<PAGE>
<PAGE> 35 Form 8-K March 9, 1995
We lease airplanes, energy-producing facilities and transportation
equipment under leveraged leases having original terms ranging from
10 to 30 years, expiring in various years from 1995 through 2025.
This table shows our net investment in leveraged leases:
Dollars in millions at December 31 1994 1993
Rentals receivable (net of principal
and interest on nonrecourse notes) $ 967 $1,010
Estimated residual value
of leased property 781 782
Unearned and deferred income (472) (537)
Allowance for credit losses (30) (22)
Investment in leveraged leases 1,246 1,233
Deferred taxes (1,066) (994)
Net investment $ 180 $ 239
We lease land, buildings and equipment to others through operating
leases, the majority of which are cancelable. This table shows our
net investment in operating leases:
Dollars in millions at December 31 1994 1993
Assets leased to others $2,129 $2,694
Less: Accumulated depreciation 817 1,230
Net investment $1,312 $1,464
This table shows the $977 million of future minimum rentals
receivable under noncancelable operating leases at December 31, 1994:
1995 1996 1997 1998 1999 Later Years
$354 $201 $104 $46 $32 $240
AS LESSEE
We lease land, buildings and equipment through contracts that expire
in various years through 2025. Our rental expense under operating
leases, in millions, was $1,098 in 1994, $1,095 in 1993 and $1,168 in
1992. The table below shows our future minimum lease payments due
under noncancelable leases at December 31, 1994. Such payments total
$2,968 million for operating leases. The net present value of such
payments on capital leases was $105 million after deducting estimated
executory costs of $1 million and imputed interest of $15 million.
1995 1996 1997 1998 1999 Later Years
Operating
leases $579 $445 $370 $301 $250 $1,023
Capital
leases 52 30 21 10 5 3
Minimum lease
payments $631 $475 $391 $311 $255 $1,026
<PAGE>
<PAGE> 36 Form 8-K March 9, 1995
11.SHAREOWNERS' EQUITY
Foreign
Additional Currency Retained
Common Paid-in Translation Earnings
Dollars in millions Shares Capital Adjustments (Deficit)
At December 31, 1991 $1,491 $12,670 $ 158 $ 4,116
1992
Net income - - - 3,442
Dividends declared - - - (1,759)
Shares issued:
Under employee plans 14 307 - -
Under shareowner plans 10 402 - -
Other - 2 - -
For merger with Teradata 11 103 - -
Teradata balance recorded - - - (178)
Shares repurchased - (2) - -
Translation adjustments - - (93) -
Other changes - 3 - 23
At December 31, 1992 1,526 13,485 65 5,644
1993
Net income - - - (5,906)
Dividends declared - - - (1,780)
Shares issued:
Under employee plans 6 183 - -
Under shareowner plans 8 450 - -
Other 7 208 - -
Shares repurchased - (4) - -
Translation adjustments - - (97) -
Other changes - 2 - (68)
At December 31, 1993 1,547 14,324 (32) (2,110)
1994
Net income - - - 4,710
Dividends declared - - - (1,940)
Shares issued:
Under employee plans 11 538 - -
Under shareowner plans 8 424 - -
To acquire licenses 3 133 - -
Shares repurchased - (2) - -
Preferred stock redemption - 408 - -
Translation adjustments - - 177 -
Other changes - - - 27
At December 31, 1994 $1,569 $15,825 $ 145 $ 687
In 1992 we recorded the retained earnings of Teradata Corporation
(Teradata) as of January 1, after making adjustments associated with
the merger. In September 1991 NCR Corporation (NCR) issued 6.3
million shares of NCR common stock in connection with the merger with
AT&T. The shares were converted into approximately 17.9 million
shares of our common stock upon consummation of the merger.
In March 1990 we issued 13.4 million new shares of common stock in
connection with the establishment of an ESOP feature for the
nonmanagement savings plan. The shares are being allocated to plan
participants over ten years commencing in July 1990 as contributions
are made to the plan.
<PAGE>
<PAGE> 37 Form 8-K March 9, 1995
We have 100 million authorized shares of preferred stock at $1 par
value. No preferred stock is currently issued or outstanding.
12.LONG-TERM DEBT OBLIGATIONS
This table shows the outstanding long-term debt obligations in
millions at December 31:
Interest Rates Maturities 1994 1993
DEBENTURES
4 3/8% to 4 3/4% 1996-1999 $ 750 $ 750
5 1/8% to 6% 2000-2001 500 500
8% to 9% 2008-2031 1,700 1,676
NOTES
4 1/4% to 7 3/4% 1995-2009 6,291 3,605
7 4/5% to 8 19/20% 1995-2004 348 445
9% to 13% 1995-2020 373 616
Variable rate 1995-2054 3,187 6,072
13,149 13,664
Long-term lease obligations 105 163
Other 739 89
Less: Unamortized discount-net 69 43
13,924 13,873
Less: Amounts maturing within one year 2,566 2,071
Total long-term obligations $11,358 $11,802
This table shows the maturities, at December 31, 1994, of the
$13,149 million in debentures and notes:
1995 1996 1997 1998 1999 Later Years
$2,535 $2,115 $1,197 $1,288 $1,396 $4,618
A consortium of lenders provides revolving credit facilities of $7
billion to AT&T and $2 billion to AT&T Capital. These facilities are
intended for general corporate purposes, which include support for
AT&T's and AT&T Capital's commercial paper. They were unused at
December 31, 1994.
13.EMPLOYEE BENEFIT PLANS
PENSION PLANS
We sponsor noncontributory defined benefit plans covering the
majority of our employees. Benefits for management employees are
principally based on career-average pay. Benefits for occupational
employees are not directly pay-related.
Pension contributions are principally determined using the
aggregate cost method and are primarily made to trust funds held for
the sole benefit of plan participants. We compute pension cost using
the projected unit credit method and assumed a long-term rate of
return on plan assets of 9.0% in 1994, 1993 and 1992.
<PAGE>
<PAGE> 38 Form 8-K March 9, 1995
Pension cost includes the following components:
Dollars in millions 1994 1993 1992
Service cost--benefits earned during
the period $ 669 $ 536 $ 452
Interest cost on projected benefit
obligation 2,400 2,294 2,225
Amortization of unrecognized prior
service costs 230 251 346
Credit for expected return on plan
assets* (3,260) (3,110) (2,973)
Amortization of transition asset (501) (500) (502)
Charges for special pension options - 74 11
Net pension cost (credit) $ (462) $ (455) $ (441)
*The actual return on plan assets was $601 in 1994, $5,068 in 1993
and $2,153 in 1992.
This table shows the funded status of the defined benefit plans:
Dollars in millions at December 31 1994 1993
Actuarial present value of accumulated
benefit obligation, including vested benefits
of $26,315 and $28,027, respectively $28,778 $30,804
Plan assets at fair value $40,150 $41,291
Less: Actuarial present value of projected
benefit obligation 30,090 32,495
Excess of assets over projected benefit obligation 10,060 8,796
Unrecognized prior service costs 2,319 2,052
Unrecognized transition asset (3,460) (3,960)
Unrecognized net gain (4,982) (3,504)
Net minimum liability of nonqualified plans (93) (122)
Prepaid pension costs $ 3,844 $ 3,262
We used these rates and assumptions to calculate the projected
benefit obligation:
At December 31 1994 1993
Weighted-average discount rate 8.7% 7.5%
Rate of increase in future
compensation levels 5.0% 5.0%
The prepaid pension costs shown above are net of pension
liabilities for plans where accumulated plan benefits exceed assets.
Such liabilities are included in other liabilities in the
consolidated balance sheets.
We are amortizing over approximately 15.9 years the unrecognized
transition asset related to our 1986 adoption of SFAS No. 87,
"Employers' Accounting for Pensions." We amortize prior service
costs primarily on a straight-line basis over the average remaining
service period of active employees. Our plan assets consist
primarily of listed stocks (including $216 million and $378 million
of AT&T common stock at December 31, 1994 and 1993, respectively),
corporate and governmental debt, real estate investments, and cash
and cash equivalents.
<PAGE>
<PAGE> 39 Form 8-K March 9, 1995
SAVINGS PLANS
We sponsor savings plans for the majority of our employees. The
plans allow employees to contribute a portion of their pretax and/or
after-tax income in accordance with specified guidelines. We match a
percentage of the employee contributions up to certain limits. Our
contributions in millions amounted to $357 in 1994, $351 in 1993 and
$334 in 1992.
14.POSTRETIREMENT BENEFITS
Our benefit plans for retirees include health care benefits, life
insurance coverage and telephone concessions. This table shows the
components of the net postretirement benefit cost:
Dollars in millions 1994 1993
Service cost--benefits earned during the period $ 108 $ 95
Interest cost on accumulated postretirement
benefit obligation 852 868
Expected return on plan assets * (242) (180)
Amortization of unrecognized prior service costs 14 29
Charge for special options - 29
Net postretirement benefit cost $ 732 $ 841
* The actual return on plan assets was ($30) in 1994 and $243 in
1993.
We did not restate our 1992 financial statements to reflect the
change in accounting for retiree benefits. This table shows our
actual postretirement benefit costs on a pay-as-you-go basis in 1992:
Dollars in millions 1992
Cost of health care benefits for retirees $532
Cost of life insurance benefits for retirees 3
Cost of telephone concessions and other benefits 39
Payments to regional Bell companies
for predivestiture retirees 145
Postretirement benefit cost $719
We had approximately 144,900 retirees in 1994, 142,200 in 1993 and
141,200 in 1992.
Our plan assets consist primarily of listed stocks, corporate and
governmental debt, cash and cash equivalents and life insurance
contracts. This table shows the funded status of our postretirement
benefit plans reconciled with the amounts recognized in the
consolidated balance sheet:
<PAGE>
<PAGE> 40 Form 8-K March 9, 1995
Dollars in millions at December 31 1994 1993
Accumulated postretirement benefit obligation:
Retirees $ 7,861 $ 8,912
Fully eligible active plan participants 822 885
Other active plan participants 1,745 2,084
Accumulated postretirement benefit obligation 10,428 11,881
Plan assets at fair value 3,291 2,918
Unfunded postretirement obligation 7,137 8,963
Less:
Unrecognized prior service cost (46) 210
Unrecognized net (gain) loss (633) 558
Accrued postretirement benefit obligation $ 7,816 $ 8,195
We made these assumptions in valuing our postretirement benefit
obligation at December 31,: 1994 1993
Weighted-average discount rate 8.8% 7.5%
Expected long-term rate of return
on plan assets 9.0% 9.0%
Assumed rate of increase in the per
capita cost of covered health care benefits 8.6% 9.4%
We assumed that the growth in the per capita cost of covered health
care benefits (the health care cost trend rate) would gradually
decline after 1994 to 5.7% by the year 2021 and then remain level.
This assumption greatly affects the amounts reported. To illustrate,
increasing the assumed trend rate by 1% in each year would raise our
accumulated postretirement benefit obligation at December 31, 1994 by
$577 million and our 1994 postretirement benefit costs by $58
million.
15.STOCK OPTIONS
In our Long-Term Incentive Program, we grant stock options, stock
appreciation rights (SARs), either in tandem with stock options or
free-standing, and other awards. On January 1 of each year, 0.6% of
the outstanding shares of our common stock become available for
grant. The exercise price of any stock option is equal to or greater
than the stock price when the option is granted. When granted in
tandem, exercise of an option or SAR cancels the other to the extent
of such exercise. Before our mergers with McCaw, NCR and Teradata,
stock options were granted under the separate stock option plans of
those companies. No new options can be granted under those plans.
<PAGE>
<PAGE> 41 Form 8-K March 9, 1995
Option transactions are shown below:
Number of Shares 1994 1993 1992
Balance at January 1 38,011,478 36,777,098 37,267,956
Options assumed in merger
with Teradata - - 1,848,642
Options granted 5,803,142 7,261,355 7,580,568
Options and SARs exercised (2,498,132) (5,766,132) (9,504,536)
Average price $25.04 $23.93 $13.66
Options forfeited (1,031,687) (260,843) (415,532)
At December 31:
Options outstanding 40,284,801 38,011,478 36,777,098
Average price $36.61 $33.52 $28.53
Options exercisable 28,010,381 24,063,837 23,759,421
Shares available for grant 22,014,728 25,264,307 22,614,535
During 1994, 41,300 SARs were exercised and no SARs were granted.
At December 31, 1994 881,385 SARs remained unexercised and all of
these were exercisable.
<PAGE>
<PAGE> 42 Form 8-K March 9, 1995
16.SEGMENT INFORMATION
INDUSTRY SEGMENTS
Our operations in the global information movement and management
industry involve providing wireline and wireless telecommunications
services, business information processing systems, and other systems,
products and services that combine communications and computers. Our
operations in the financial services and leasing industry involve
direct financing and finance leasing programs for our products and
the products of other companies, leasing products to customers under
operating leases and being in the general-purpose credit card
business. Miscellaneous other activities, including the distribution
of computer equipment through retail outlets, in the aggregate,
represent less than 10% of revenues, operating income and
identifiable assets and are included in the information movement and
management segment. Revenues between industry segments are not
material.
Dollars in millions 1994 1993 1992
REVENUES
Information movement and management $71,977 $66,847 $64,753
Financial services and leasing 3,117 2,504 1,894
$75,094 $69,351 $66,647
OPERATING INCOME
Information movement and management $ 8,188 $ 6,839 $ 7,200
Financial services and leasing 394 339 193
Corporate and nonoperating (1,064) (1,175) (1,755)
Income before income taxes $ 7,518 $ 6,003 $ 5,638
ASSETS
Information movement and management $56,551 $51,971 $50,661
Financial services and leasing 21,462 17,033 14,003
Corporate assets 1,714 1,104 1,849
Eliminations (465) (715) (409)
$79,262 $69,393 $66,104
DEPRECIATION AND AMORTIZATION
Information movement and management $ 4,193 $ 4,271 $ 4,046
Financial services and leasing 440 431 352
CAPITAL EXPENDITURES
Information movement and management $ 4,237 $ 3,831 $ 3,710
Financial services and leasing 609 457 633
TOTAL LIABILITIES
Financial services and leasing $19,463 $15,329 $12,250
<PAGE>
<PAGE> 43 Form 8-K March 9, 1995
GEOGRAPHIC SEGMENTS
Transfers between geographic areas are on terms and conditions
comparable with sales to external customers. The methods followed in
developing the geographic area data require the use of estimation
techniques and do not take into account the extent to which product
development, manufacturing and marketing depend upon each other.
Thus the information may not be indicative of results if the
geographic areas were independent organizations.
Dollars in millions 1994 1993 1992
REVENUES - EXTERNAL CUSTOMERS
United States $67,769 $63,775 $60,977
Other geographic areas 7,325 5,576 5,670
$75,094 $69,351 $66,647
TRANSFERS BETWEEN GEOGRAPHIC AREAS
(ELIMINATED IN CONSOLIDATION)
United States $ 1,679 $ 1,374 $ 1,077
Other geographic areas 1,291 1,125 911
$ 2,970 $ 2,499 $ 1,988
OPERATING INCOME (LOSS)
United States $ 8,732 $ 7,425 $ 7,441
Other geographic areas (150) (247) (48)
Corporate and nonoperating (1,064) (1,175) (1,755)
Income before income taxes $ 7,518 $ 6,003 $ 5,638
ASSETS
United States $69,718 $63,194 $60,409
Other geographic areas 9,361 6,901 5,373
Corporate assets 1,714 1,104 1,849
Eliminations (1,531) (1,806) (1,527)
$79,262 $69,393 $66,104
Data on other geographic areas pertain to operations that are
located outside of the U.S. Our revenues from all international
activities, including those in the table, international
telecommunications services and exports, provided 25.2% of
consolidated revenues in 1994.
Business restructuring and other charges were taken primarily in
the information movement and management segment and the U.S.
geographic area. Corporate assets are principally cash and temporary
cash investments.
17.FINANCIAL INSTRUMENTS
In the normal course of business we use various financial
instruments, including derivative financial instruments, for
purposes other than trading. These instruments include commitments
to extend credit, letters of credit, guarantees of debt, interest
rate swap and cap agreements, and foreign currency exchange
contracts. By their nature all such instruments involve risk
including the credit risk of non-performance by counterparties, and
our maximum potential loss may exceed the amount recognized in our
balance sheet. As is customary for these types of instruments, we
usually do not require collateral or other security from other
parties to these instruments. However, because we control our<PAGE>
<PAGE> 44 Form 8-K March 9, 1995
exposure to credit risk through credit approvals, credit limits and
monitoring procedures, we believe that our reserves for losses are
adequate.
COMMITMENTS TO EXTEND CREDIT
We participate in the general-purpose credit card business through
AT&T Universal Card Services Corp., a wholly owned subsidiary. We
purchase essentially all cardholder receivables under an agreement
with the Universal Bank, a subsidiary of Synovus Financial
Corporation, which issues the cards. At December 31, the unused
portion of available credit was approximately $75,445 million in 1994
and $64,864 million in 1993. This represents the receivables we
would need to purchase if all Universal Card accounts were used up to
their full credit limits. The potential risk of loss associated
with, and the estimated fair values of, the unused credit lines are
not considered to be significant.
LETTERS OF CREDIT
Letters of credit are purchased guarantees that ensure our
performance or payment to third parties in accordance with specified
terms and conditions.
GUARANTEES OF DEBT
From time to time, we guarantee the financing for product purchases
by customers outside the U.S., and the debt of certain unconsolidated
joint ventures.
INTEREST RATE SWAP AND CAP AGREEMENTS
We enter into interest rate contracts to manage our exposure to
changes in interest rates and lower our overall costs of financing.
We enter into swap agreements to manage the fixed/floating mix of our
debt portfolio to reduce aggregate risk to interest rate movements.
These agreements involve the exchange of floating rate for fixed rate
payments without the exchange of the underlying principal amount.
Fixed interest rate payments are at rates ranging from 3.8% to 8.2%.
Floating rate payments are based on rates tied to prime, LIBOR or
U.S. Treasury bills. Interest rate differentials paid or received
under these swap contracts are recognized over the life of the
contracts as adjustments to the effective yield of the underlying
debt.
We pay premiums for cap agreements to protect us from rising
interest rates on our floating rate debt. There is no market risk of
loss beyond the premiums paid, which are amortized over the life of
the agreement. The weighted average remaining term of the agreements
is 5 years for swap contracts and 2 years for caps.
FOREIGN EXCHANGE
We enter into foreign currency exchange contracts, including forward,
option and swap contracts, to manage our exposure to changes in
currency exchange rates, principally Canadian dollars, Deutsche
marks, pounds sterling and Japanese yen. The use of derivative
financial instruments allows us to reduce our exposure to the risk
that the eventual dollar net cash inflows resulting from the sale of
products to foreign customers and purchases from foreign suppliers<PAGE>
<PAGE> 45 Form 8-K March 9, 1995
will be adversely affected by changes in exchange rates. Our foreign
exchange contracts almost entirely hedge firmly committed purchases
and sales. These transactions are generally expected to occur in
less than one year. Deferred gains and losses are recognized when
the future sales or purchases are recognized or immediately if the
commitment is canceled. At December 31, 1994, deferred unrealized
gains, based on dealer quoted prices, were $51 million and deferred
unrealized losses were $55 million.
FAIR VALUES OF FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS
The tables below show the valuation methods and the carrying or
notional amounts and estimated fair values of material financial
instruments held or issued for purposes other than trading:
Financial instrument Valuation method
Universal Card finance receivables Carrying amounts. These accrue
interest at a prime-based
rate.
All other finance receivables Future cash flows discounted at
market rates.
Debt excluding capital leases Market quotes or based on rates
available to us for debt with
similar terms and maturities.
Letters of credit Fees paid to obtain the
obligations.
Guarantees of debt Costs to terminate agreements.
Interest rate swap agreements Net gains or losses to
terminate agreements.
Interest rate cap agreements Costs to obtain agreements.
Foreign exchange contracts Market quotes.
Dollars in millions 1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
ON BALANCE SHEET INSTRUMENTS
Assets:
Finance receivables
other than leases $13,553 $13,528 $10,320 $10,337
Liabilities:
Debt excluding capital leases 24,920 24,449 22,702 23,032
Contract/ Contract/
Notional Fair Notional Fair
Amount Value Amount Value
OFF BALANCE SHEET
Interest rate swap agreements $ 4,423 $115 $ 3,835 $(37)
Interest rate cap agreements 1,333 2 1,640 4
Foreign exchange:
Forward contracts 1,573 (17) 783 (3)
Swap contracts 340 10 361 5
Purchased option contracts - - 41 1
Letters of credit 834 2 680 -
Guarantees of debt 423 - 455 -
<PAGE>
<PAGE> 46 Form 8-K March 9, 1995
18.CONTINGENCIES
In the normal course of business we are subject to proceedings,
lawsuits and other claims, including proceedings under government
laws and regulations related to environmental and other matters.
Such matters are subject to many uncertainties, and outcomes are not
predictable with assurance. Consequently, we are unable to ascertain
the ultimate aggregate amount of monetary liability or financial
impact with respect to these matters at December 31, 1994. While
these matters could affect the operating results of any one quarter
when resolved in future periods, we believe that after final
disposition, any monetary liability or financial impact to us beyond
that provided for at year-end would not be material to our annual
consolidated financial statements.
19.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), we issued
a direct, full and unconditional guarantee of all the outstanding
public debt of AT&T Credit Holdings, Inc. (formerly AT&T Credit
Corporation).
AT&T Credit Holdings, Inc. holds the majority of AT&T's investment
in AT&T Capital 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. The summarized financial
information includes transactions with AT&T that are eliminated in
consolidation.
Dollars in millions 1994 1993 1992
Total revenue $1,437 $1,432 $1,351
Interest expense 302 284 293
Selling, general and administrative expense 387 329 309
Income before cumulative effect of
change in accounting 92 70 100
Cumulative effect on prior years of change in
accounting for income taxes (SFAS No. 109) - 22 -
Net income 92 48 100
Finance receivables $7,726 $6,220
Net investment in operating lease assets 903 978
Total assets 9,468 7,886
Total debt 5,682 4,639
Total liabilities 8,299 6,867
Minority interest 270 251
Total shareowners' equity 899 768
In some cases, AT&T Capital securitizes finance receivables, subject
to limited recourse provisions. In the unlikely event that all such
receivables had become uncollectible and subject to recourse, our
exposure was $353 million at December 31, 1994 and $347 million at
December 31, 1993. We record liabilities for the amounts we expect
to actually reimburse.
<PAGE>
<PAGE> 47 Form 8-K March 9, 1995
20.PREFERRED STOCK REDEMPTION
On June 24, 1994, LCH Communications (LCH), a subsidiary of LIN
Broadcasting Corporation (LIN), redeemed all $1.3 billion of its
outstanding redeemable preferred stock held by Comcast Cellular
Communications, Inc. in exchange for all of the capital stock of one
of LCH's subsidiaries.
As a result of the redemption, we eliminated the net assets and
recorded a gain on the sale of assets of $12 million and a tax
benefit of $74 million. The $784 million difference between the book
value of the preferred stock and the fair value of the assets
exchanged was recorded as $408 million of additional paid-in capital
and $376 million of minority interests.
21.PRIVATE MARKET VALUE GUARANTEE
Under the Private Market Value Guarantee (PMVG) between McCaw and its
52%-owned subsidiary, LIN, a process began on January 1, 1995, to
determine the private market price per share of LIN. The private
market value is defined as the price per share, including control
premium, that an unrelated third party would pay if it were to
acquire all the outstanding shares of LIN, including the shares held
by McCaw, in an arm's-length transaction and assuming that LIN was
being sold in a manner to attract all possible participants and to
maximize shareholder value. Using that definition, the private
market value is being determined by Morgan Stanley & Co.
Incorporated, designated as McCaw's appraiser, and by Lehman Brothers
Inc. and Bear, Stearns & Co., designated jointly as the LIN
independent directors' appraiser, and if necessary by a third-party
appraiser. After the price is determined, McCaw will have 45 days to
decide whether to proceed with the acquisition of all the public
shares of LIN at that price, subject to the approval of the LIN
public shareholders, or to put LIN in its entirety up for sale under
the direction of the LIN independent directors. Such a sale would
also be subject to approval by the LIN public shareholders.
<PAGE>
<PAGE> 48 Form 8-K March 9, 1995
22.QUARTERLY INFORMATION (UNAUDITED)
Dollars in millions
(except per share amounts) First Second Third Fourth
1994
Total revenues $17,097 $18,238 $18,649 $21,110
Gross margin 6,967 7,406 7,765 8,639
Net income 1,074 1,248 1,050 1,338
Per common share:
Net income .69 .80 .67 .85
Dividends declared .33 .33 .33 .33
Stock price*:
High 57 1/8 57 1/8 55 7/8 55 1/4
Low 50 5/8 49 1/2 52 1/2 47 1/4
Quarter-end close 51 1/4 53 3/8 54 50 1/4
1993
Total revenues $16,199 $16,857 $17,225 $19,070
Gross margin 6,491 6,785 6,941 7,499
Income before cumulative
effects of accounting
changes 922 982 1,022 776
Net income (loss) (8,686) 982 1,022 776
Per common share:
Income before cumulative
effects of accounting
changes .60 .64 .66 .50
Net income (loss) (5.65) .64 .66 .50
Dividends declared .33 .33 .33 .33
Stock price*:
High 59 1/8 63 7/8 65 61 3/8
Low 50 1/8 53 3/4 57 3/8 52
Quarter-end close 56 3/4 63 58 7/8 52 1/2
* Stock prices obtained from the Composite Tape.
The number of weighted average shares outstanding increases as we
issue new common shares for employee plans, shareowner plans and
other purposes. For this reason, the sum of quarterly earnings per
common share may not be the same as earnings per common share for the
year, and the per share effects of unusual items in a quarter may
differ from the per share effects of those same items for the year.
In the third quarter of 1994, we recorded $227 million of costs
($169 million net of taxes) related to the McCaw merger primarily
consisting of legal and investment banking fees and bonus pool
funding.
In the second quarter of 1993, we recorded $278 million in
provisions for business restructuring activities. The effect of these
provisions was offset by the $217 million gain from selling UNIX
System Laboratories, Inc. and other miscellaneous credits. In the
fourth quarter of 1993, we recorded a $190 million provision for
business restructuring at AT&T Global Information Solutions Company,
which reduced net income by $119 million ($0.08 per share).<PAGE>
<PAGE> 49 Form 8-K March 9, 1995
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit
Number
-------
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
<PAGE>
<PAGE> 50 Form 8-K March 9, 1995
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.
By: S.L. Prendergast
Vice President and Treasurer
March 8, 1995
<PAGE>
<PAGE> 51 Form 8-K March 9, 1995
EXHIBIT INDEX
Exhibit
Number
-------
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
<PAGE> 1 Exhibit (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration
statements of AT&T Corp. ( AT&T or the Company ) on Form S-3 for the
Shareowner Dividend Reinvestment and Stock Purchase Plan (Registration No.
33-56249), Form S-8 for the AT&T 1984 Stock Option Plan (Registration No.
2-90983), Form S-8 for the AT&T Long Term Savings and Security Plan
(Registration Nos. 33-34265 and 33-31362), Form S-8 for the AT&T Long Term
Savings Plan for Management Employees (Registration Nos. 33-34264, 33-
29256, 33-21937 and 33-14373), Form S-8 for the AT&T Retirement Savings
and Profit Sharing Plan (Registration No. 33-39708), Form S-8 for Shares
Issuable Under the Stock Option Plan of the AT&T 1987 Long Term Incentive
Program (Registration Nos. 33-56643, 33-49465 and 33-20276, Form S-8 for
the AT&T Global Information Solutions Company Savings Plan (Registration
No. 33-53765), Form S-8 for the 1994 Employee Stock Purchase Plan for AT&T
Global Information Solutions Company (Registration No. 33-54281), Form S-8
for the AT&T Capital Corporation Retirement and Savings Plan (Registration
No. 33-50821), Form S-8 for the AT&T of Puerto Rico, Inc. Long Term Savings
Plan for Management Employees (Registration No. 33-50819), Form S-8 for the
AT&T of Puerto Rico, Inc. Long Term Savings and Security Plan (Registration
No. 33-50817), Form S-8 for the AGCS Savings Plan (Registration No. 33-
50827), Form S-8 for the AGCS Hourly Savings Plan (Registration No. 33-
50829, Form S-8 for the 1995 AT&T Employee Stock Purchase Plan
(Registration No. 33-54797), Form S-3 for the AT&T $2,600,000,000 Notes and
Warrants to Purchase Notes (Registration No. 33-49589), Form S-4 for the
AT&T 5,000,000 Common Shares (Registration No. 33-57745), and in Post-
Effective Amendment Nos. 1, 2 and 3 on Form S-8 to Form S-4 Registration
Statement (Registration No. 33-42150) for the NCR Corporation 1989 Stock
Compensation Plan (Registration No. 33-42150-01), the NCR Corporation 1984
Stock Option Plan (Registration No. 33-42150-02) and the NCR Corporation
1976 Stock Option Plan (Registration No. 33-42150-03), respectively, and
the Post-Effective Amendment Nos. 1, 2, 3, 4 and 5 on Form S-8 to Form S-4
Registration Statement (Registration No. 33-52119) for the McCaw Cellular
Communications, Inc. 1983 Non-Qualified Stock Option Plan (Registration No.
33-52119-01), the McCaw Cellular Communications, Inc. 1987 Stock Option
Plan (Registration No. 33-52119-02), the McCaw Cellular Communications,
Inc. Equity Purchase Plan (Registration No. 33-52119-03), the McCaw
Cellular Communications, Inc. 1992 Stock Option Plan for Non-Employee
Directors (Registration No. 33-52119-04) and the McCaw Cellular
Communications, Inc. Employee Stock Purchase Plan (Registration No. 33-
52119-05), respectively, and Post-Effective Amendment No. 1 on Form S-8 to
Form S-4 Registration Statement (Registration No. 33-45302) for the
Teradata Corporation 1987 Incentive and Other Stock Option Plan
(Registration No. 33-45302-01), of our report, which includes an
explanatory paragraph regarding the change in 1993 in methods of accounting
for postretirement benefits,
postemployment benefits and income taxes, dated January 24, 1995, on our
audits of the consolidated financial statements of the Company and its
subsidiaries at December 31, 1994 and 1993, and for the years ended
December 31, 1994, 1993 and 1992, which report is included in this Current
Report on Form 8-K.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
March 8, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
balance sheet of AT&T at December 31, 1994, audited consolidated statement of
income for the year ended December 31, 1994 and the statement of cash flows at
December 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,208
<SECURITIES> 294
<RECEIVABLES> 29,874
<ALLOWANCES> 1,251
<INVENTORY> 3,633
<CURRENT-ASSETS> 37,611
<PP&E> 45,982
<DEPRECIATION> 23,947
<TOTAL-ASSETS> 79,262
<CURRENT-LIABILITIES> 30,930
<BONDS> 11,358
<COMMON> 1,569
0
0
<OTHER-SE> 16,352
<TOTAL-LIABILITY-AND-EQUITY> 79,262
<SALES> 21,161
<TOTAL-REVENUES> 75,094
<CGS> 13,273
<TOTAL-COSTS> 44,317
<OTHER-EXPENSES> 22,747
<LOSS-PROVISION> 1,929
<INTEREST-EXPENSE> 748
<INCOME-PRETAX> 7,518
<INCOME-TAX> 2,808
<INCOME-CONTINUING> 4,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,710
<EPS-PRIMARY> $3.01
<EPS-DILUTED> 0
</TABLE>
