<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
..X.. QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
..... TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to _____________
Commission file number 1-1105
AT&T CORP.
A New York I.R.S. Employer
Corporation No. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone - Area Code 212-387-5400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ..X No .....
At July 31, 1995 1,586,347,000 common shares were outstanding.
<PAGE>
<PAGE> 2 AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1995 1994(b) 1995 1994(b)
Sales and Revenues
Telecommunications services.......... $11,759 $11,072 $23,147 $22,023
Products and systems................. 5,223 4,933 9,760 9,007
Rentals and other services........... 1,607 1,510 3,050 2,891
Financial services and leasing....... 923 723 1,817 1,414
Total revenues....................... 19,512 18,238 37,774 35,335
Costs
Telecommunications services
Access and other
interconnection costs............ 4,482 4,487 8,935 9,023
Other costs........................ 1,982 1,964 3,958 3,947
Total telecommunications services.... 6,464 6,451 12,893 12,970
Products and systems................. 3,413 3,116 6,255 5,576
Rentals and other services........... 830 782 1,624 1,496
Financial services and leasing....... 661 499 1,313 951
Total costs.......................... 11,368 10,848 22,085 20,993
Gross margin......................... 8,144 7,390 15,689 14,342
Operating Expenses
Selling, general and
administrative expenses............ 5,022 4,710 9,761 9,089
Research and development expenses.... 831 708 1,678 1,470
Total operating expenses............. 5,853 5,418 11,439 10,559
Operating income..................... 2,291 1,972 4,250 3,783
Other income - net (c)............... 87 118 213 235
Interest expense .................... 172 190 332 361
Income before income taxes........... 2,206 1,900 4,131 3,657
Provision for income taxes (c)....... 851 652 1,578 1,335
Net Income .......................... $ 1,355 $ 1,248 2,553 2,322
Weighted average common shares
outstanding (millions)............ 1,589 1,561 1,585 1,559
Earnings per common share............ $ .85 $ .80 $1.61 $1.49
Dividends declared per
common share...................... $ .33 $ .33 $ .66 $ .66
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 3 AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Per Share Amount)
(Unaudited)
June 30, December 31,
1995 1994
ASSETS
Cash and temporary cash investments.... $ 950 $ 1,208
Receivables less allowances
of $1,329 and $1,251
Accounts receivable.................. 13,317 13,671
Finance receivables.................. 15,277 14,952
Inventories (d)........................ 4,645 3,633
Deferred income taxes.................. 3,024 3,030
Other current assets................... 889 1,117
Total current assets................... 38,102 37,611
Property, plant and equipment, net
of accumulated depreciation of
$23,905 and $23,519 ................. 21,395 21,279
Licensing cost, net of accumulated
amortization of $676 and $613........ 6,028 4,251
Investments............................ 2,869 2,708
Long-term finance receivables.......... 5,061 4,513
Net investment in operating leases
of finance subsidiaries.............. 750 756
Prepaid pension costs.................. 4,521 4,151
Other assets........................... 3,763 3,993
TOTAL ASSETS........................... $82,489 $79,262
(CONT'D)
<PAGE>
<PAGE> 4 AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Per Share Amount)
(Unaudited)
June 30, December 31,
1995 1994
LIABILITIES AND DEFERRED CREDITS
Accounts payable....................... $ 5,719 $ 6,011
Payroll and benefit-related
liabilities.......................... 3,260 4,105
Postretirement and postemployment
benefit liabilities.................. 734 1,029
Debt maturing within one year.......... 12,648 13,666
Dividends payable...................... 543 518
Other current liabilities.............. 6,553 5,601
Total current liabilities.............. 29,457 30,930
Long-term debt including capital
leases............................... 13,450 11,358
Postretirement and postemployment
benefit liabilities.................. 8,777 8,754
Other liabilities...................... 4,187 4,285
Deferred income taxes.................. 4,235 3,913
Unamortized investment tax credits..... 212 232
Other deferred credits................. 546 776
Total liabilities & deferred credits... 60,864 60,248
Minority interests..................... 1,190 1,093
SHAREOWNERS' EQUITY
Common stock - par value $1 per share.. 1,585 1,569
Authorized shares: 2,000,000,000
Outstanding shares:
1,585,385,000 at June 30, 1995
1,569,006,000 at December 31, 1994
Additional paid-in capital............. 16,574 15,825
Guaranteed ESOP obligation............. (280) (305)
Foreign currency translation
adjustments.......................... 327 145
Retained earnings...................... 2,229 687
Total shareowners' equity.............. 20,435 17,921
TOTAL LIABILITIES/SHAREOWNERS' EQUITY.. $82,489 $79,262
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 5 AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended
June 30,
1995 1994
Operating Activities
Net income .............................. $ 2,553 $ 2,322
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and licensing cost
amortization........................ 2,060 1,947
Provision for uncollectibles.......... 1,100 868
(Increase) in accounts receivable..... (316) (829)
(Increase) in inventories............. (1,125) (778)
(Decrease) increase in accounts
payable............................. (290) 554
Net (increase) in other operating
assets and liabilities.............. (93) (162)
Other adjustments for non-cash
items - net......................... 3 (213)
Net cash provided by operating
activities............................. 3,892 3,709
Investing Activities
Capital expenditures net of proceeds
from sale or disposal of property,
plant and equipment of $159 and $132. (2,128) (1,633)
(Increase) in finance assets,
net of lease-related repayments
of $2,134 and $1,886................. (622) (1,548)
(Acquisitions) of licenses............. (1,837) (186)
Net (increase) in investments.......... (108) (91)
Dispositions/(acquisitions), net of
cash acquired........................ 60 (149)
Other investing activities - net....... 41 61
Net cash (used in) investing activities.. (4,592) (3,546)
Financing Activities
Proceeds from long-term debt issuances. 3,665 3,739
Retirements of long-term debt.......... (1,077) (771)
Issuance of common shares.............. 765 401
Dividends paid......................... (1,019) (900)
(Decrease)in short-term
borrowings - net..................... (1,946) (2,148)
Other financing activities - net....... (17) (35)
Net cash provided by
financing activities................... 371 286
(CONT'D)
<PAGE>
<PAGE> 6 AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended
June 30,
1995 1994
Effect of exchange rate
changes on cash........................ 71 12
Net (decrease) increase in cash and
temporary cash investments............. (258) 461
Cash and temporary cash investments
at beginning of year................... 1,208 671
Cash and temporary cash investments
at end of period....................... $ 950 $ 1,132
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 7 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(a) ACCOUNTING POLICIES - The consolidated financial statements have been
prepared by AT&T Corp. ("AT&T" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and,
in the opinion of management, include all adjustments, consisting of
only normal recurring adjustments, necessary for a fair statement of
the consolidated results of operations, financial position and cash
flows for each period presented. The consolidated results for interim
periods are not necessarily indicative of results for the full year.
These financial statements should be read in conjunction with AT&T's
1994 Annual Report to Shareowners and Form 10-K for the year ended
December 31, 1994 and the current year's previously issued Form 10-Q.
(b) INCOME STATEMENT RECLASSIFICATION - Previously reported results were
restated to reflect the reclassification of interest associated with
certain reserves from Interest expense to Selling, general and
administrative expense.
(c) REDEMPTION OF PREFERRED STOCK BY A SUBSIDIARY - On June 24, 1994,
LCH Communications, Inc. ("LCH"), a subsidiary of LIN Broadcasting
Corporation ("LIN") (a 52% owned subsidiary of McCaw Cellular
Communications, Inc. ("McCaw")), redeemed all of its outstanding
redeemable preferred stock in exchange for all of the capital stock of
a subsidiary of LCH.
As a result of the redemption, the net assets of the subsidiary were
eliminated and a gain on the sale of assets of $12 million and a tax
benefit of $74 million were recorded.
(d) INVENTORIES - Inventories at June 30, 1995 and December 31, 1994 were
as follows:
June 30, December 31,
1995 1994
Completed goods .............. $2,530 $2,022
Work-in-process and raw
materials ................. 2,115 1,611
Total inventories ............ $4,645 $3,633
<PAGE> 8 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(e) AT&T CREDIT HOLDINGS, INC. - In connection with a March 31, 1993 legal
restructuring of AT&T Capital Holdings, Inc. (formerly AT&T Capital
Corporation), AT&T issued a direct, full and unconditional guarantee
of all the public debt of AT&T Credit Holdings, Inc. (formerly AT&T
Credit Corporation) and certain public debt of its majority owned
subsidiary, AT&T Capital Corporation, outstanding at March 31, 1993.
At June 30, 1995, $630 million of the guaranteed debt remained
outstanding.
AT&T Credit Holdings, Inc. holds the majority of AT&T's investment in
AT&T Capital Corporation and the lease finance assets of the former
AT&T Credit Corporation. The table following shows summarized
consolidated financial information for AT&T Credit Holdings, Inc.,
which consolidates the accounts of AT&T Capital Corporation. The
summarized financial information includes transactions with AT&T that
are eliminated in consolidation.
For the Six
Months Ended
June 30,
1995 1994
Total revenue $ 819 $ 687
Interest expense 201 143
Selling, general and
administrative expense 221 188
Net income 43 34
At At
June 30, December 31,
1995 1994
Finance receivables $8,506 $7,726
Net investment in operating
leases 947 903
Total assets 10,205 9,468
Total debt 6,340 5,682
Total liabilities 8,983 8,299
Minority interest 282 270
Total shareholder's equity 940 899
<PAGE> 9 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(f) SUBSEQUENT EVENTS - In July 1995, AT&T Global Information
Solutions Company ("GIS") announced its intention to restructure
its operations to focus on the retail, financial and
communications industries. Although GIS will continue to serve
existing customers in the consumer goods, manufacturing,
transportation and public sector industries, it will not actively
pursue marketing programs to attract new customers in these
markets. Reductions in expenses and employment levels are
expected. Management is currently assessing the impact that this
will have on AT&T's results of operations and financial position.
<PAGE>
<PAGE> 10 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
AT&T reported quarterly net income of $1.355 billion, or $.85 per share.
Net income grew 8.4 percent compared with year-ago quarterly net income of
$1.248 billion, or $.80 per share. For the six-month period, AT&T reported
net income of $2.553 billion, or $1.61 per share. Net income grew 9.9
percent compared with the same six-month period net income of $2.322
billion, or $1.49 per share in 1994.
Total revenues rose to $19.512 billion in the quarter, a 7.0 percent
increase from $18.238 billion in the same period of 1994. For the six-
month period, total revenues increased to $37.774 billion, a 6.9 percent
increase compared with $35.335 billion in the same year-ago period. The
increases were led by strong revenue growth in telecommunications services,
including wireless services. The increases were also fueled by strong
growth in sales of products and systems, and in financial services and
leasing revenues.
Total costs increased $520 million compared with the second quarter of
1994, largely as a result of higher sales of products and systems and
growth in financial services and leasing. The overall gross margin
percentage increased to 41.7 percent in the quarter from 40.5 percent in
the same period of 1994. Compared with 1994, operating income increased
16.2 percent for the quarter as a higher gross margin more than offset an
increase in operating expenses.
The more detailed discussion that follows is based on a comparison of the
three months ended June 30, 1995 with the comparable period of 1994, unless
otherwise noted.
RESULTS OF OPERATIONS
AT&T is a major participant in two industries: the global information
movement and management industry and the financial services and leasing
industry. AT&T's main business is to meet the communications and computing
needs of its customers by using networks to move and manage information.
The revenues and costs of this business are divided into three categories
on the income statement: telecommunications services, products and systems,
and rentals and other services. AT&T Capital Corporation ("AT&T Capital")
and AT&T Universal Card Services Corp. ("Universal Card") are partners with
AT&T's communications and computing business units as well as innovators in
the financial services industry. The revenues and costs for financial
services and leasing operations are displayed as a separate category on the
income statement.
<PAGE>
<PAGE> 11 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TELECOMMUNICATIONS SERVICES
Telecommunications services revenues, including McCaw's wireless services
revenues, rose to $11.759 billion, a 6.2 percent increase from the second
quarter of 1994, principally as a result of higher volumes. The volumes
of billed minutes for switched long distance services, increased more than
9 percent from the same year-ago quarter. Telecommunications services
revenues, excluding wireless services, grew 4.9 percent from the same
quarter in 1994. Volume growth continues to exceed revenue growth resulting
from growth in business services and the increased usage by residential
customers of discount calling plans.
Wireless services revenues, including cellular, messaging and air-to-ground
services revenues, grew to $724 million, a 29.8 percent increase compared
with year-ago quarterly revenues of $558 million. The increase was driven
by a continued strong increase in subscribers. Cellular subscribers served
by companies in which AT&T has or shares a controlling interest increased
to 4.7 million at June 30, 1995 from 3.3 million a year-ago.
Cost of telecommunications services remained relatively flat for the
quarter and for the six-month period compared with the same year-ago
periods. Gross margin percentage improved to 45.0 percent in the quarter
from 41.7 percent in the same period of 1994. For the six-month period,
the gross margin percentage increased to 44.3 percent from 41.1 percent in
the same year-ago period. The gross margin percentage increases were
largely due to lower access and other interconnection costs per minute.
<PAGE>
<PAGE> 12 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
PRODUCTS AND SYSTEMS
Sales of products and systems increased 5.9 percent for the quarter and 8.4
percent for the six-month period over the comparable periods in 1994. For
the quarter, the growth was led by higher sales of telecommunications
network products and communications products and systems, while all areas
experienced strong growth in the six month period.
Three months Six Months
ended ended
June 30, June 30,
Revenues in millions 1995 1994(1) 1995 1994(1)
Telecommunications network
products and systems $2,412 $2,256 $4,393 $4,150
Computer products and systems 1,023 997 1,875 1,666
Communications products
and systems 1,115 1,033 2,156 1,976
Microelectronic products,
special-design products for
U.S. government, and other* 673 647 1,336 1,215
Products and Systems $5,223 $4,933 9,760 9,007
(1) Reclassified to conform with current presentation.
*"Other" is composed principally of media, predominantly for use with
automated teller machines and point-of-sale equipment, and business forms.
Telecommunications network products and systems revenues increased 6.9
percent and 5.9 percent compared with the year-ago quarter and first six
months of 1994, primarily due to growth in wireless products and cable
systems. Revenues from sales outside of the U.S. continued to experience
double-digit growth compared with the year-ago quarter, led by the
Europe/Middle East/Africa region, due primarily to a large Saudi Arabian
contract. AT&T expects sales outside of the U.S. to remain strong for all
of 1995. Sales in the U.S. continue to remain relatively flat as higher
sales to independent telephone companies, cable companies and competitive
access providers were offset by lower sales to the Regional Bell Operating
Companies ("RBOCs").
Revenues from computer products and systems sales increased 2.6 percent for
the quarter and 12.5 percent for the six-month period compared with the
same year-ago periods, led by higher sales of personal computer products
and mid-range servers at GIS. Despite GIS's revenue growth and relatively
flat operating expenses as a percentage of revenues, GIS reported an
operating loss of $189 million compared to an operating gain of $14 million
in the year-ago period primarily because of fewer sales of higher margin
products in 1995.
<PAGE>
<PAGE> 13 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In July 1995, GIS announced its intention to restructure its operations to
focus on the retail, financial and communications industries. Although GIS
will continue to serve existing customers in the consumer goods,
manufacturing, transportation and public sector industries, it will not
actively pursue marketing programs to attract new customers in these
markets. Reductions in expenses and employment levels are expected.
Management is currently assessing the impact that this will have on AT&T's
results of operations and financial position. (See also Note f.)
Revenues from sales of communications products and systems increased 7.9
percent and 9.1 percent for the quarter and six months of 1995,
respectively, compared with the same periods of 1994. The increases were
led by higher sales of business communications equipment both inside and
outside of the U.S. and strong consumer sales of cellular telephones.
Revenues from sales of cordless telephones, corded telephones and telephone
answering machines declined for the quarter, reflecting competitive
pressures.
As a category, sales of microelectronics products, special-design products
for the federal government and other product sales increased 4.0 percent
for the quarter and 10.0 percent for the six-month period compared with the
same year-ago periods. These increases were led by continued strong growth
in sales of microelectronic components both inside and outside of the U.S.
The revenues for 1994 included sales of microelectronic products from GIS's
divested microelectronics unit of $98 million for the quarter and $181
million for the six-month period.
The cost of products and systems for the quarter and six-month period
increased compared with the same year-ago periods primarily because of
higher sales. The gross margin percentage declined to 34.7 percent
compared with 36.8 percent in the second quarter of 1994. The decrease was
driven by declines in computer products and systems margins, as a result of
fewer sales of higher margin products in 1995.
RENTALS AND OTHER SERVICES
Rentals and other services revenues increased 6.4 percent for the quarter
and 5.5 percent for the six-month period compared with the same periods of
1994. The increases were due to the growth in services from computer
products and systems, communications products and other services which were
partially offset by continued declines in the rental base for
communications products. Rentals and services revenues for computer
products and systems increased for the quarter and six-month periods
largely because of significant increases in professional services, as well
as increases in traditional maintenance services.
<PAGE>
<PAGE> 14 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from communications products and systems services increased for
the quarter and six-month periods because of the continued growth in
maintenance contract revenues for business customers. The decrease in
rentals revenues for communications products and systems for the quarter
and six-month periods was largely due to the continued erosion of the base
of rental customers. Other rentals and services revenues increased for the
quarter and first six months of 1995 compared with the same year-ago
periods principally due to higher licensing and royalty fees.
Three months Six months
ended ended
June 30, June 30,
Revenues in millions 1995 1994(1) 1995 1994(1)
Computer products and systems $ 709 $ 678 $ 1,374 $ 1,257
Communications products and
systems rentals 200 242 404 500
Communications products and
systems services 422 409 836 787
Other* 276 181 436 347
Rentals and Other Services $1,607 $1,510 $ 3,050 $ 2,891
(1) Reclassified to conform with current presentation.
*"Other" is composed principally of telemarketing services, information
technology services and facility rentals.
Cost of rentals and other services increased for the quarter and six-month
periods compared with the same periods in 1994. The gross margin
percentage of 48.3 percent was even with the year-ago quarter and decreased
to 46.8 percent for the first six months of 1995 compared with 48.3 percent
for the first six months of 1994. The gross margin percentages for the
quarter and six-month periods reflect the continuing erosion of the
communications products rental base, offset by increases in high margin
licensing and royalty fees.
FINANCIAL SERVICES AND LEASING
Financial services and leasing revenues increased 27.7 percent for the
quarter and 28.5 percent for the first six months of 1995 compared with the
same year-ago periods, led by continued strong portfolio asset growth at
both Universal Card and AT&T Capital.
<PAGE>
<PAGE> 15 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three months Six months
ended ended
June 30, June 30,
In millions 1995 1994 1995 1994
AT&T Capital $ 382 $ 332 $ 745 $ 658
Universal Card 563 400 1,114 772
Eliminations, adjustments
and other* (22) ( 9) (42) (16)
Financial services
and leasing revenues $ 923 $ 723 1,817 1,414
Universal Card Information: At June 30,
1995 1994
Finance receivables $12,372 $10,075
Accounts 16.3 13.4
* "Other" is composed principally of revenues from certain lease finance
assets AT&T retained when AT&T Capital was reorganized.
Universal Card receivables and accounts at June 30, 1995 increased by
approximately $2.3 billion and 2.9 million, respectively, from June 30,
1994, reflecting continued credit card portfolio growth and a strong
customer response to the Something Extra@ program which began during 1994.
The program offers customer rewards for outstanding balances as well as new
purchases. The percentage of revolving accounts continues to increase.
The increase in cost of financial services and leasing was primarily
associated with portfolio asset growth for the quarter and six-month
periods. The gross margin percentage decreased to 28.4 percent for the
quarter and to 27.7 percent for the first six months of 1995 compared with
30.9 percent and 32.7 percent in the quarter and six-month year-ago
periods, respectively. The decreases were because of higher interest costs
and higher provisions for uncollectibles at Universal Card. The higher
provisions for uncollectibles at Universal Card primarily reflect the
higher percentage of revolving cardholder receivables and the growth of the
credit card earning asset portfolios. The allowance for credit losses is
determined by analyzing previous experience on losses, current
delinquencies, and present and future economic conditions.
@ Registered service mark of AT&T
<PAGE>
<PAGE> 16 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING EXPENSES
Total operating expenses increased 8.0 percent for the quarter and 8.3
percent for the six-month period compared with the same year-ago periods.
Selling, general and administrative expenses increased largely because of
higher spending for advertising and promotions, for sales and sales support
activities focused towards telecommunications services markets and for
expenses related to global expansion. Research and development expenses
were up for the quarter and first six months of 1995 mainly as the result
of work related to broadband networks, wireless technologies and enhanced
services.
INTEREST EXPENSE AND PROVISION FOR INCOME TAXES
Interest expense declined $18 million for the quarter and $29 million for
the six-months period compared with the same periods in 1994. The decline
reflects the benefits of debt refinancings in the fourth quarter of 1994 to
obtain lower interest rates. During the second quarter of 1995, previously
reported results were restated to reflect the reclassification of interest
associated with certain reserves from interest expense to selling, general
and administrative expense. (See also Note b.)
The provision for income taxes increased $199 million for the quarter
largely because of higher income before income taxes. The effective tax
rate increased to 38.6 percent in the quarter from 34.3 percent in the
year-ago quarter. The increase was primarily the result of a $74 million
tax benefit from the redemption of preferred stock by a LIN subsidiary in
the second quarter of 1994. Without the tax benefit from the redemption of
preferred stock, the effective tax rate for the second quarter of 1994
would have been 38.2 percent. (See also Note c.)
TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY
Total assets increased $3.227 billion from year-end 1994 primarily as a
result of increases in licensing costs and inventories. The increase in
licensing costs principally represents the purchase of personal
communications services ("PCS") licenses, totalling $1.680 billion in 1995.
Inventories increased reflecting the planned seasonal build-up in
anticipation of higher product and system sales later in the year.
Working capital, defined as current assets less current liabilities,
increased about $2.0 billion from year-end resulting from higher inventory
levels and decreases in both debt maturing within one year and payroll and
benefit-related liabilities.
The cash balance was slightly below management's target at the end of June
1995. Management continues to target a cash balance of approximately $1.0
billion.
<PAGE>
<PAGE> 17 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The decline in payroll and benefit-related liabilities primarily reflects
the first-quarter payment of the 1994 employee compensation awards. The
decrease in debt maturing within one year was primarily related to the
repayment of commercial paper. The increase in other current liabilities
reflects increases of income tax liabilities, customer deposits and advance
billings.
The increase in long-term debt, including capital leases, primarily
reflects the issuance of notes to replace the short-term debt outstanding.
AT&T anticipates obtaining all necessary external financing through
issuances of commercial paper, long-term debt and equity, asset-backed
financings (or securitizations) and available lines of credit for its
operations.
Future financing is contemplated to be arranged as necessary to meet AT&T's
capital and other requirements with the timing of issue, principal amount
and form depending on the Company's needs, prevailing market and general
economic conditions.
In May 1995, AT&T filed a registration statement for the sale of debt
securities and warrants to purchase debt securities for up to $3.0 billion.
In June 1995, a registration statement was filed with the SEC which covers
the offering and sale by a Master trust of up to $3.0 billion of
certificates representing an interest in Universal Card credit card
receivables sold to the trust.
In the normal course of our business, we use certain derivative financial
instruments, mainly interest rate contracts and foreign currency exchange
rate contracts solely for purposes other than trading. AT&T does not use
derivative financial instruments for speculative purposes. The interest
rate contracts allow us to limit the effects of changing interest rates and
protect our margins on financial services and leasing transactions. The
foreign currency contracts and options allow us to manage our exposure to
changing currency exchange rates. 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> 18 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In March 1995, The Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The standard requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. This
standard must be adopted for fiscal years beginning after December 15,
1995; for AT&T, that would be 1996. Management is currently assessing the
impact of the adoption on AT&T's results of operations and financial
position.
CASH FLOWS
Cash flows provided by operating activities were relatively flat compared
with same six-month period in 1994.
The growth in cash flows used in investing activities is largely the result
of increased capital expenditures and acquisitions of licenses. The
increase in capital expenditures is primarily due to enhancing and
expanding our wireless services. The license acquisitions were largely for
PCS licenses.
In August 1995, AT&T completed its purchase of Alascom, Inc., the Alaska
long distance communication subsidiary of Pacific Telecom Inc., for $290
million.
In June 1995, the Federal Communications Commission ("FCC") granted to AT&T
broadband PCS licenses covering the 21 major trading areas that AT&T
successfully bid for in the PCS auction which concluded March 13, 1995.
Accordingly, in June 1995 AT&T paid the FCC the remaining 80% (totalling
$1.34 billion) due on the licenses.
On June 22, 1995, McCaw agreed in principle to the settlement of litigation
related to the proposed acquisition by McCaw of the outstanding common
shares of LIN. Under the settlement, McCaw would increase the purchase
price of LIN to $129.50 per share, from the private market price of $127.50
per share, and pay up to $4 million in legal fees. McCaw will also pay an
additional $0.25 per share, to be divided, depending on the court's
determination, among legal fees and LIN shareholders. In addition, if the
acquisition is not completed by September 15, 1995, McCaw agreed to pay
interest on the increased merger price to LIN shareholders from that date
until closing at an annual rate of 5.5%. On June 30, 1995, the LIN board
unanimously approved a revised merger agreement with McCaw reflecting the
terms of the settlement. The settlement is subject to court approval and
the acquisition remains subject to the approval of the holders of a
majority of the LIN shares held by non-affiliates of McCaw voting at LIN's
annual meeting.
<PAGE>
<PAGE> 19 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Cash flows provided by financing activities increased slightly because of
the issuances of common shares and a lower level increase of short-term
debt compared with the same period in 1994.
The ratio of total debt to total capital (total debt and equity) decreased
to 56.1 percent at June 30, 1995, compared with 58.3 percent at December
31, 1994, primarily as a result of higher equity from earnings. Excluding
financial services and leasing operations, the debt ratio was 32.0 percent
at June 30, 1995 compared with 34.1 percent at December 31, 1994.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
AT&T currently faces significant competition in its markets and expects
that the level of competition will continue to increase. As regulatory,
legislative and technological changes occur, AT&T anticipates that new and
different competitors will enter the communications services and equipment
markets. These may include entrants from other segments of the
telecommunications and information services industries and/or global
competitors seeking to expand their market opportunities. Such new
competitors may enter with a strong market presence, well recognized names
and pre-existing direct customer relationships. Depending on the timing
of, circumstances of, and any competitive inequities not addressed by
regulatory or legislative conditions or restrictions placed on the entry of
these competitors into the market, AT&T's future revenues and net income
could be adversely affected.
In this regard, Congress has taken steps towards the enactment of
telecommunications legislation in 1995 with the passage of S.652 in the
Senate and H.R.1555 in the House of Representatives. Both bills would
permit the RBOCs to provide interexchange services upon the satisfaction of
certain enumerated criteria, mostly related to the opening of the local
exchange markets to competitive entry. RBOCs could apply to the FCC to
demonstrate satisfaction of such criteria immediately, under S.652, or
after six months, under H.R.1555, following enactment of legislation. AT&T
believes that the timing of, and conditions and restrictions placed on,
RBOC entry into interexchange services by either bill does not adequately
assure the presence of facilities - based local exchange services
competition in the RBOCs' former monopoly markets before the RBOCs may
provide interexchange services. To the extent such legislation were
enacted without adequate provision for full local exchange competition as a
precondition to the RBOCs' provision of interexchange services, AT&T's
revenues and income could be adversely affected during a period of
increased interexchange competition and prior to effective local exchange
competition.
<PAGE>
<PAGE> 20 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Nevertheless, the legislation, plus other regulatory and technological
changes, also may open new markets for AT&T in different segments of
communications services, end-to-end services, value-added services and
multimedia services. AT&T's competitive strategy includes using its
networking capabilities, respected brand name and other resources to take
advantage of these new opportunities as they arise.
On April 28, 1995, the U.S. District Court for the District of Columbia
("District Court") entered an Order which specifies the conditions and
limitations under which, and a procedure whereby, RBOCs may become
authorized to provide interexchange services to cellular subscribers. The
conditions and limitations require, among other things, that, before the
RBOC may provide such interexchange services, there are no legal or
regulatory barriers to the provision of, and that there is at least one
non-RBOC providing, access between the cellular switches and the long
distance carriers' points of presence. Three RBOCs have applied to the
Department of Justice for such authority.
On April 3, 1995, the United States Department of Justice ("DOJ") filed a
motion with the District Court for a modification of the Modification of
Final Judgment. The modification would allow Ameritech Corporation to
provide interexchange services to customers in the Chicago, Illinois and
Grand Rapids, Michigan LATAs. This would be conducted under the
supervision of the DOJ only after local competition is found to exist and
would be subject to separate subsidiary, nondiscrimination and marketing
safeguards. AT&T has consented to the entry of this modification and has
applied to the respective state commissions to provide local service in
these LATAs.
<PAGE>
<PAGE> 21 AT&T Form 10-Q - Part II
Part II - Other Information
Item 1. Legal Proceedings.
On June 22, 1995, McCaw agreed in principle to the settlement of litigation
related to the proposed acquisition by McCaw of the outstanding common
shares of LIN. For a discussion of the proposed settlement, see the
information contained in Part I, Management's Discussion and Analysis of
Results of Operation and Financial Condition - Cash Flows.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K:
Forms 8-K dated January 24, 1995 and as amended on January 26,
1995, February 15, 1995, March 7, 1995 were filed pursuant to
Item 5 (Other Events). Form 8-K dated March 9, 1995 was filed
pursuant to Item 5 and Item 7 (Financial Statements and Exhibits)
and Form 8-K dated March 13, 1995, April 7, 1995 and July 3, 1995
were filed pursuant to Item 5.
<PAGE>
<PAGE> 22 AT&T Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AT&T Corp.
Date August 11, 1995
M. B. Tart
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
<PAGE> 23 AT&T Form 10-Q
Exhibit Index
Exhibit
Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
<PAGE> 1
Exhibit 12
Form 10-Q
For the Six
Months Ended
June 30, 1995
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended
June 30, 1995
Earnings Before Income Taxes .......................... $4,131
Less Interest Capitalized during
the Period........................................... 32
Less Undistributed Earnings of Less than 50%
Owned Affiliates..................................... 10
Add Fixed Charges...................................... 1,039
Total Earnings......................................... $5,128
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $ 845
Interest Portion of Rental Expense..................... 194
Total Fixed Charges................................ $1,039
Ratio of Earnings to Fixed Charges..................... 4.9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T at June 30, 1995 and the unaudited consolidated
statement of income for the six-month period ended June 30, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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