<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
..X.. QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
..... TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to _____________
Commission file number 1-1105
AT&T CORP.
A New York I.R.S. Employer
Corporation No. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone - Area Code 212-387-5400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ..X No .....
At October 31, 1996, 1,620,284,000 common shares were outstanding.
<PAGE> 2 AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues
Communications services.................. $12,832 $12,335 $37,651 $36,068
Financial services ...................... 396 585 1,295 1,710
Total revenues........................... 13,228 12,920 38,946 37,778
Operating Expenses
Access and other interconnection......... 4,086 4,364 12,106 13,299
Network and other
communications services................ 1,880 1,741 5,604 5,021
Depreciation and amortization ........... 744 662 2,054 1,901
Selling, general and administrative ..... 3,913 3,219 11,049 9,334
Total communications services expenses.. 10,623 9,986 30,813 29,555
Financial services expenses.............. 431 538 1,227 1,519
Total operating expenses ................ 11,054 10,524 32,040 31,074
Operating income ........................ 2,174 2,396 6,906 6,704
Other income - net ...................... 83 117 290 226
Interest expense ........................ 72 135 292 350
Income from continuing operations
before income taxes ................... 2,185 2,378 6,904 6,580
Provision for income taxes .............. 826 853 2,538 2,427
Income from continuing operations ....... 1,359 1,525 4,366 4,153
Discontinued Operations:
Income(loss) from discontinued operations
net of taxes of $18, ($417),
($354) and ($412), respectively......... 73 (1,263) (81) (1,338)
Net income .............................. $ 1,432 $ 262 $ 4,285 $ 2,815
Weighted average common shares
outstanding (millions)................ 1,618 1,594 1,613 1,588
Earnings per common share:
Income from continuing operations ...... $ 0.84 $ 0.96 $ 2.71 $ 2.61
Income(loss) from discontinued operations 0.05 (0.80) (0.05) (0.84)
Net income ............................. $ 0.89 $ 0.16 $ 2.66 $ 1.77
Dividends declared per
common share.......................... $ 0.33 $ 0.33 $ 0.99 $ 0.99
See Notes to Consolidated Financial Statements
<PAGE> 3 AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Share Amounts)
(Unaudited)
September 30, December 31,
1996 1995
ASSETS
Cash and cash equivalents .............. $ 568 $ 129
Receivables less allowances
of $1,286 and $1,252, respectively
Accounts receivable................... 9,309 8,359
Finance receivables................... 6,528 10,665
Deferred income taxes................... 1,578 2,437
Other current assets.................... 957 498
Total current assets.................... 18,940 22,088
Property, plant and equipment, net
of accumulated depreciation of
$18,538 and $17,621, respectively...... 17,725 16,083
Licensing costs, net of accumulated
amortization of $880
and $743, respectively................ 8,143 8,056
Investments............................. 3,785 3,646
Long-term finance receivables........... 753 768
Prepaid pension costs................... 1,973 1,793
Other assets............................ 2,401 2,535
Net assets of discontinued operations... 2,758 7,426
TOTAL ASSETS............................ $56,478 $62,395
(CONT'D)
<PAGE> 4 AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Share Amounts)
(Unaudited)
September 30, December 31,
1996 1995
LIABILITIES
Accounts payable....................... $ 5,557 $ 5,089
Payroll and benefit-related
liabilities.......................... 2,614 2,908
Debt maturing within one year.......... 3,261 12,176
Dividends payable...................... 534 527
Other current liabilities.............. 4,276 3,880
Total current liabilities.............. 16,242 24,580
Long-term debt......................... 7,851 8,542
Long-term benefit-related liabilities.. 3,088 2,871
Deferred income taxes.................. 4,535 5,446
Other long-term liabilities and
deferred credits..................... 3,709 3,682
Total liabilities ..................... 35,425 45,121
SHAREOWNERS' EQUITY
Common stock - par value $1 per share.. 1,619 1,596
Authorized shares: 2,000,000,000
Outstanding shares:
1,619,380,000 at September 30, 1996
1,596,005,351 at December 31, 1995
Additional paid-in capital............. 17,635 16,614
Guaranteed ESOP obligation............. (96) (254)
Foreign currency translation
adjustments.......................... (70) 5
Retained earnings (deficit)............ 1,965 (687)
Total shareowners' equity.............. 21,053 17,274
TOTAL LIABILITIES & SHAREOWNERS' EQUITY $56,478 $62,395
See Notes to Consolidated Financial Statements.
<PAGE> 5 AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30,
1996 1995
Operating Activities
Net income .............................. $ 4,285 $ 2,815
Add: loss from discontinued operations .. 81 1,338
Income from continuing operations ....... 4,366 4,153
Adjustments to reconcile net income to
net cash provided by operating
activities of continuing operations:
Depreciation and amortization for
communications services............. 2,054 1,901
Provision for uncollectibles.......... 1,629 1,550
Increase in accounts receivable....... (1,770) (1,767)
Increase in accounts payable.......... 324 367
Net (increase) decrease in other
operating assets and liabilities.... (496) 141
Other adjustments for non-cash
items - net......................... 63 174
Net cash provided by operating
activities of continuing operations.... 6,170 6,519
Investing Activities
Capital expenditures................... (3,792) (2,566)
Proceeds from sale or disposal of
property, plant and equipment........ 58 139
Decrease (increase) in
finance receivables.................. 779 (1,032)
Proceeds from securitization of
finance receivables.................. 3,000 998
Acquisitions of licenses............... (215) (1,878)
Net increase in investments............ (278) (56)
Disposition (acquisition) of businesses 160 (185)
Other investing activities - net....... 20 69
Net cash used in investing activities
of continuing operations................ (268) (4,511)
(CONT'D)
<PAGE> 6 AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30,
1996 1995
Financing Activities
Proceeds from long-term debt issuances. - 2,389
Retirements of long-term debt.......... (956) (661)
Issuance of common shares.............. 1,165 973
Dividends paid......................... (1,588) (1,563)
(Decrease) increase in short-term
borrowings - net..................... (4,805) 1,647
Other financing activities - net....... 1,913 25
Net cash (used in) provided by financing
activities of continuing operations.... (4,271) 2,810
Effect of exchange rate
changes on cash........................ (25) 2
Net cash used in
discontinued operations................ (1,167) (1,514)
Net increase in cash
and cash equivalents.................... 439 3,306
Cash and cash equivalents
at beginning of year................... 129 220
Cash and cash equivalents
at end of period....................... $ 568 $ 3,526
See Notes to Consolidated Financial Statements
<PAGE> 7 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(a) BASIS OF PRESENTATION
The consolidated financial statements have been prepared by AT&T Corp.
("AT&T" or the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of man-
agement, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of the consolidated re-
sults of operations, financial position and cash flows for each period
presented. The consolidated results for interim periods are not
necessarily indicative of results for the full year. These financial
statements should be read in conjunction with AT&T's 1995 Annual
Report to Shareowners, Form 10-K for the year ended December 31, 1995,
Form 8-K dated March 21, 1996 and the current year's previously issued
Forms 10-Q.
(b) DISCONTINUED OPERATIONS
On September 20, 1995, AT&T Corp. announced a plan, subject to certain
conditions, to separate into three independent, publicly held, global
companies: communications services (AT&T), communications systems and
technologies (Lucent Technologies Inc., "Lucent") and transaction-intensive
computing (NCR Corporation, "NCR"). On April 10, 1996,
Lucent sold 112 million shares of common stock in an initial public
offering ("IPO"), representing 17.6% of the Lucent common stock
outstanding. Because of AT&T's plan to spin-off its remaining 82.4%
interest in Lucent, the sale of the Lucent stock was recorded as an
equity transaction, resulting in an increase in AT&T's Additional Paid-In
Capital at the time of the IPO of $2.6 billion. In addition, in
connection with the restructuring, Lucent assumed $3.7 billion of AT&T
debt. On September 30, 1996, AT&T distributed to AT&T shareowners of
record as of September 17, 1996, the remaining Lucent common stock held
by AT&T. The shares were distributed on the basis of .324084 of a
share of Lucent for each AT&T share outstanding. As a result of this
distribution, AT&T's shareowners' equity was reduced by $2.7 billion.
The net impact of the Lucent IPO and the distribution of the remaining
Lucent common stock was a reduction of $109 million to AT&T's
shareowners' equity. The distribution of Lucent common stock to AT&T
shareowners was a noncash transaction which did not affect the
Company's results of operations. As of October 1, 1996, Lucent's
results of operations will no longer be included in the income from
discontinued operations.
AT&T intends to distribute its 100% interest in NCR by the end of 1996
to AT&T shareowners.
<PAGE> 8 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
Also announced as part of the plan was the Company's intent to pursue
the sale of its remaining approximate 86% interest in AT&T Capital
Corporation ("AT&T Capital"). On October 1, 1996, AT&T sold its
remaining interest in AT&T Capital for approximately $1.8 billion.
Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB 30"), the consolidated financial
statements of AT&T have been restated to reflect the dispositions of
Lucent and AT&T Capital and the planned dispositions of NCR and other
businesses as discontinued operations. Accordingly, the revenues,
costs and expenses, assets and liabilities, and cash flows of Lucent,
NCR, AT&T Capital and other businesses have been excluded from the
respective captions in the Consolidated Statements of Income,
Consolidated Balance Sheets and Consolidated Statements of Cash Flows,
and have been reported as "Income (loss) from discontinued operations",
net of applicable income taxes; as "Net assets of discontinued
operations"; and as "Net cash used by discontinued operations" for all
periods presented. In addition, the consolidated results for
continuing operations have been reclassified to reflect the results of
the ongoing AT&T businesses and to improve comparability within the
communications services industry.
<PAGE> 9 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
Summarized financial information for the discontinued operations is as
follows:
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues $7,259 $ 6,784 $20,147 $19,700
Income (loss) before
income taxes 91 (1,680) (435) (1,750)
Net income (loss) $ 73 $(1,263) $ (81) $(1,338)
At Sept. At Dec.
30, 1996* 31, 1995
Current Assets $ 7,196 $17,415
Total Assets 16,005 34,181
Current Liabilities 8,155 14,787
Total Liabilities 13,247 26,755
Net assets of discontinued
operations $ 2,758 $ 7,426
* Excludes Lucent due to the completion of the spin-off on
September 30, 1996.
The income (loss) before income taxes includes allocated interest
expense of $3 million and $33 million for the quarters ended
September 30, 1996 and September 30, 1995, respectively, and $35
million and $87 million for the nine months ended September 30, 1996
and 1995, respectively. Interest expense is allocated to discontinued
operations based on a ratio of net assets of discontinued operations to
total AT&T consolidated assets.
The net loss for the third quarter of 1995 includes restructuring and
other charges for NCR of $1,597 million ($1,172 million or $.74 per
share, net of taxes).
<PAGE> 10 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(c) CREDIT HOLDINGS
In connection with a March 31, 1993 legal restructuring of AT&T
Capital Holdings, Inc. (formerly AT&T Capital Corporation), AT&T
issued a direct, full and unconditional guarantee of all the public
debt of AT&T Credit Holdings, Inc. (formerly AT&T Credit Corporation)
and certain public debt of its majority owned subsidiary, AT&T Capital
Corporation, outstanding at March 31, 1993. At September 30, 1996
$339.5 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 (which was sold on October 1, 1996) and the
lease finance assets of the former AT&T Credit Corporation. The
following table shows summarized consolidated financial information
for AT&T Credit Holdings, Inc., which consolidates the accounts of
AT&T Capital Corporation. Consistent with AT&T's presentation, the net
operating results and net assets of AT&T Capital have been reported as
"Discontinued Operations". The summarized financial information
includes transactions with AT&T that are eliminated in consolidation.
For the Nine
Months Ended
September 30,
1996 1995
Total revenue from
continuing operations $ 136 $ 132
Interest expense 7 8
Selling, general and
administrative expense 7 7
Income from continuing operations 9 14
Income from discontinued operations 84 62
Net income $ 93 $ 76
<PAGE> 11 AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
At At
September 30, December 31,
1996 1995
Finance receivables $1,144 $1,149
Net assets of discontinued
operations 916 835
Total assets 2,453 2,355
Total debt 90 100
Total liabilities 1,387 1,343
Total shareowner's equity $1,066 $1,012
(d) OPERATING EXPENSES OF FINANCIAL SERVICES
Operating expenses of the financial services segment, which excludes
AT&T Capital, are comprised of the following:
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1996 1995 1996 1995
Interest expense $ 88 $ 165 $ 317 $ 489
Provision for losses 124 206 374 550
Other costs 101 103 303 328
Selling, general and
administrative 118 64 233 152
Total $ 431 $ 538 $1,227 $1,519
(e) RECLASSIFICATIONS
Prior period amounts have been reclassified to conform to the current
presentation.
<PAGE> 12 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
On September 20, 1995, AT&T Corp. ("AT&T" or the "Company") announced a
plan, subject to certain conditions, to separate into three independent,
publicly held, global companies: communication services (AT&T),
communications systems and technology (Lucent Technologies Inc., "Lucent")
and transaction-intensive computing (formerly Global Information Solutions,
now NCR Corporation, "NCR"). On April 10, 1996, Lucent sold 112 million
shares of common stock in an initial public offering ("IPO"), representing
17.6% of the Lucent common stock outstanding. Because of AT&T's plan to
spin off its remaining interest in Lucent, the sale of Lucent stock was
recorded as an equity transaction, resulting in an increase in AT&T's
Additional Paid-In Capital at the time of the IPO of $2.6 billion. In
addition, in connection with the restructuring, Lucent assumed $3.7 billion
of AT&T debt. On July 18, 1996, AT&T's board of directors approved the
distribution of the remaining 524,624,894 shares of Lucent common stock to
AT&T's shareowners. On September 30, 1996, AT&T distributed to AT&T
shareowners of record as of September 17, 1996 the Lucent common stock held
by AT&T. The Lucent shares were distributed on the basis of .324084 of a
share of Lucent for each AT&T share outstanding. As a result of this
distribution AT&T's shareowners' equity was reduced by $2.7 billion. Thus,
the net impact of the Lucent IPO and the distribution of the remaining
Lucent common stock was a reduction of $109 million to AT&T's shareowners'
equity. The distribution of Lucent common stock to AT&T shareowners was a
noncash transaction which did not affect AT&T's results of operations. As
of October 1, 1996, Lucent's results of operations will no longer be
included in the income from discontinued operations.
AT&T shareowners received stock certificates for whole shares of Lucent and
cash payments for fractional shares. AT&T received a favorable Private
Letter Ruling from the Internal Revenue Service on March 21, 1996 that
confirmed the tax-free status of the Lucent distribution. Therefore the
dividend qualified as tax-free for federal tax purposes, except to the
extent that cash was received instead of fractional shares.
AT&T intends to distribute its 100% interest in NCR by the end of 1996 to
AT&T shareowners. AT&T and NCR have also received a favorable Private
Letter Ruling from the Internal Revenue Service confirming the tax-free
status of the planned NCR distribution.
Also announced as part of the plan was the Company's intent to pursue the
sale of its remaining approximate 86% interest in AT&T Capital Corporation
("AT&T Capital"). On October 1, 1996, AT&T sold its remaining interest in
AT&T Capital for approximately $1.8 billion.
<PAGE> 13 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
AT&T's Board of Directors also reviewed the AT&T dividend policy and has
decided to maintain its regular quarterly dividend of $.33 per share. The
declaration and payment of future dividends, however, is subject to the
discretion of the Board of Directors and will depend on the results of
operations, financial condition, cash requirements and future prospects of
AT&T, general economic conditions and other factors deemed relevant by the
Board of Directors. Separately, AT&T and Lucent declared third quarter
dividends of $.33 and $.075 per common share respectively, payable November
1, 1996, to shareowners of record on September 12, 1996. AT&T received
payment of approximately 82.4% of the Lucent dividend, because the record
date of September 12, 1996 was prior to the September 30, 1996 spin-off of
AT&T's remaining interest in Lucent.
The Company believes that the spin-offs of Lucent and NCR and the sale of
AT&T Capital will enhance AT&T's ability to focus on strategic businesses
that add value to customers, to take advantage of new opportunities and to
improve operating efficiencies. However, upon separation, the ongoing AT&T
will no longer have the benefits of vertical integration of its
manufacturing and services businesses (i.e., the ability to purchase
equipment at cost to manufacture). Accordingly, AT&T's equipment purchase
costs and related depreciation associated with the AT&T network will
increase over time.
As a result of the above activities, AT&T has restated its Consolidated
Financial Statements pursuant to Accounting Principles Board Opinion No. 30
"Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" ("APB 30") to reflect the dispositions
of Lucent and AT&T Capital and the planned dispositions of NCR and other
businesses as discontinued operations. Accordingly, the revenues, costs
and expenses, assets and liabilities, and cash flows of Lucent, NCR, AT&T
Capital and other businesses have been excluded from the respective
captions in the Consolidated Statements of Income, Consolidated Balance
Sheets and Consolidated Statements of Cash Flows, and have been reported
as "Income (loss) from discontinued operations", net of applicable income
taxes; as "Net assets of discontinued operations"; and as "Net cash used by
discontinued operations". In addition, the consolidated results for
continuing operations have been reclassified to reflect the results of the
ongoing AT&T businesses, to improve comparability within the communications
services industry and to conform to the current presentation.
For a detailed discussion of the results for Lucent, NCR and AT&T Capital,
refer to their separate Form 10-Qs and other reports filed with the
Securities and Exchange Commission.
<PAGE> 14 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from continuing operations grew 2.4% to $13,228 million for the
quarter ended September 30, 1996 compared to $12,920 million in the third
quarter of 1995. For the nine months ended September 30, 1996, revenues
from continuing operations increased 3.1% to $38,946 million from $37,778
million in the nine-month period of 1995. This growth was achieved amidst
heightened competition, especially in our consumer services business. It
is likely that competitive pressures will continue and may increase.
Operating income decreased 9.2% to $2,174 million for the third quarter of
1996, down $222 million from $2,396 million in the third quarter of 1995.
Operating margin for the third quarter when compared to the same period in
1995 decreased to 16.4% from 18.5% primarily due to higher selling, general
and administrative expenses partially offset by lower access and other
interconnection expenses.
Operating income for the nine months ended September 30, 1996 was $6,906
million, an increase of $202 million or 3.0% from $6,704 million in the
nine-month period of 1995. For the nine months ended September 30, 1996,
operating margin remained flat at 17.7% when compared to the same period in
1995, primarily due to lower access and other interconnection expenses
offset by higher selling, general and administrative expenses as well as
higher network and other communications services expenses.
Quarterly income from continuing operations was $1,359 million, or $.84 per
share. This represents a 10.9% decrease in income from continuing
operations and a 12.2% decrease in earnings per share compared with income
from continuing operations of $1,525 million, or $.96 per share, in the
third quarter of 1995. For the nine months ended September 30, 1996,
income from continuing operations increased 5.1% to $4,366 million from
$4,153 million in the nine-month period of 1995.
<PAGE> 15 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
COMMUNICATIONS SERVICES
Communications services revenues increased $497 million or 4.0% for the
quarter compared with the third quarter of 1995, and $1,583 million or 4.4%
for the nine-month period of 1996 compared with the same period in 1995.
Three months Nine months
ended ended
September 30, September 30,
$ In millions 1996 1995 1996 1995
Wireline services revenue $11,552 $11,298 $34,106 $33,014
Wireless services revenue 892 758 2,539 2,134
Products and other services
revenue 388 279 1,006 920
Total communications
services revenues $12,832 $12,335 $37,651 $36,068
Operating income 2,209 2,349 6,838 6,513
Operating margin 17.2% 19.0% 18.2% 18.1%
Wireline services revenue, which includes toll calling, network management,
satellite services, messaging and other network enabled services, increased
$254 million or 2.2% compared with the third quarter of 1995. The revenue
increase quarter over quarter was driven by volume growth of 5.1%. This
volume growth was led by strong growth in business inbound services. For
the nine months ended September 30, 1996, revenues increased by $1,092
million or 3.3% compared to the same period in 1995, led again by volume
growth in business inbound services. Overall revenue growth was limited by
continued slower consumer services revenue growth due to relatively flat
volume growth.
Volume growth for the quarter slowed from the more than 8.5% growth for the
third quarter of 1995, reflecting competitive pressures from traditional
sources in the consumer markets as well as non-traditional sources such as
third-tier and dial-around resellers. The increased competition in the
consumer markets may also impact the volume growth for the fourth quarter
of 1996. Total volume growth exceeded revenue growth for the quarter by
2.9% reflecting the use of promotional discounts, the increased movement of
customers to optimal calling plans, the impact of targeted pricing actions
and increased competition.
<PAGE> 16 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Wireless services revenue, which includes cellular, messaging services and
air-to-ground services, grew 17.7% to $892 million in the third quarter of
1996 compared to the third quarter of 1995. Cellular revenue rose 15.1% to
$834 million, while consolidated cellular subscribers increased 33.3% to
4.8 million at the end of the quarter from 3.6 million at the end of the
third quarter 1995. During the quarter, consolidated subscribers increased
245,000, representing a 15.7% increase over third quarter 1995 net
additions. Wireless services revenues grew 19.0% to $2,539 million for the
nine months ended September 30, 1996 compared with the same period in 1995.
The revenue growth in both the quarterly and year to date periods was
fueled by additional cellular service subscribers. Total cellular
customers served by companies in which AT&T has or shares a controlling
interest increased 31.2% to 6.6 million at September 30, 1996 from 5.0
million at September 30, 1995.
Average revenue per cellular subscriber continued to decline in the third
quarter of 1996 reflecting industry wide pricing pressures, as well as
lower average usage per subscriber. The lower average usage per subscriber
is attributed to growth in subscribers who are more casual users (e.g. for
emergency and other personal use). Average revenue per subscriber is
expected to continue to decline in the fourth quarter of 1996.
Products and other services revenue increased 38.8% to $388 million in the
third quarter 1996 compared with the third quarter 1995 led by higher
revenues from business value added services, consulting and outsourcing
services from AT&T Solutions and on-line services. For the nine months
ended September 30, 1996, products and other services revenue grew 9.2% to
$1,006 million compared with the same period in 1995. The increase was led
by higher revenues from on-line services, business value added services and
consulting and outsourcing services, partially offset by decreased sales of
cellular phones associated with AT&T's de-emphasis of this product.
Operating expenses for communications services increased 6.4% to $10,623
million from $9,986 million in the third quarter of 1995 and increased 4.3%
to $30,813 million for the nine-month period of 1996 compared with the same
period in 1995. The expense increases for both periods were driven by
higher levels of selling, general and administrative expenses and network
and other communications services expenses, partially offset by lower
access and other interconnection expenses. The operating margin for
communications services decreased 1.8 percentage points to 17.2% for the
third quarter of 1996 from 19.0% for the third quarter of 1995 and
increased .1 percentage point to 18.2% for the nine months ended September
30, 1996 from 18.1% for the same period in 1995.
<PAGE> 17 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Access and other interconnection expenses decreased $278 million or 6.4%
from the third quarter of 1995 and $1,193 million or 9.0% from the nine
months ended September 30, 1995. The reductions reflect lower unit costs
in access, reductions in international settlements and improved access
efficiencies. The decrease for the nine-month period of 1996 when compared
to the same period in 1995 was also partially due to a second quarter 1996
accounting adjustment to previously estimated accruals to reflect actual
billing. Access and other interconnection expenses as a percentage of
wireline services revenue declined quarter over quarter to 35.4% from
38.6%, and to 35.5% from 40.3% for the year to date period. As a
percentage of communications services revenues, these expenses declined to
31.8% for the quarter from 35.4% for the third quarter of 1995, and to
32.2% for the nine-month period of 1996 from 36.9% for the same period in
1995.
Network and other communications services expenses increased $139 million
or 8.0% from the third quarter of 1996. The increase was mainly
attributable to higher provisions for uncollectibles; costs for AT&T
Solutions offers, local services, and WorldNet* services; higher gross
receipt taxes; and higher operator services expenses; partially offset by
lower network operating expenses. For the nine-month period of 1996,
network and other communications services expenses increased $583 million
or 11.6% compared with the same period in 1995 due to higher provisions for
uncollectibles; costs for AT&T Solutions offers, local services, and
WorldNet services; higher gross receipt taxes; and higher operator services
expenses.
Depreciation and amortization increased $82 million, or 12.2%, from the
third quarter of 1995 and $153 million, or 8.0%, for the nine-month period
of 1996 reflecting increased capital expenditures for the AT&T network, as
well as the amortization of goodwill and licenses acquired in the purchase
of the remaining 48% of LIN Broadcasting in the fourth quarter of 1995.
These increases were partially offset by decreased depreciation from assets
written off as part of the fourth quarter 1995 charge.
Selling, general and administrative expenses ("SG&A") increased $694
million, or 21.6%, from the third quarter of 1995 and $1,715 million, or
18.4% from the nine-month period of 1995. SG&A as a percentage of
communications services revenue was 30.5% for the third quarter, up 4.4
percentage points from the third quarter of 1995 and 29.3% for the nine-month
period of 1996, up 3.5 percentage points from the nine-month period
in 1995. The higher SG&A expenses for both periods are due to higher
* (Service mark of AT&T)
<PAGE> 18 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
marketing and sales expenses primarily for consumer services, initiatives
for our AT&T Solutions and WorldNet businesses, local service entry,
customer care, and additions to the cellular subscriber base.
FINANCIAL SERVICES
Financial services revenues decreased $189 million, or 32.2%, on a
quarterly basis and $415 million, or 24.3% on a year to date basis. The
declines were primarily a result of the Universal Card Services Corp.
("Universal Card") securitization program but also reflect lower card usage
and greater use of promotional pricing. Lower rate offers continue to
decrease margins.
Universal Card securitized $1.0 billion of cardholder receivables in the
third quarter of 1996 in order to further diversify its sources for funding
receivables growth. This brings the total receivables securitized to $6.5
billion since August of 1995.
We expect lower rate offers to continue, which may impact operating income
in the near future.
FINANCIAL SERVICES Three months Nine months
ended ended
September 30, September 30,
In millions 1996 1995 1996 1995
Financial services revenue $396 $585 $1,295 $1,710
Operating income $(35) $ 47 $ 68 $ 191
Operating margin (8.8%) 7.9% 5.3% 11.2%
Universal Card Information:
At September 30,
In millions 1996 1995
Total book finance receivables $ 6,548 $11,970
Total managed finance receivables $13,048 $12,970
Cardholder accounts 18.1 16.8
Universal Card book receivables, which exclude the $6.5 billion of
receivables securitized, were $6.5 billion at the end of the third quarter.
Universal Card retained the servicing and customer relationships of the
securitized credit card accounts.
<PAGE> 19 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financial services expenses decreased $107 million, or 20.0%, for the
quarter ended September 30, 1996 and $292 million, or 19.2% for the nine
months ended September 30, 1996. This reflects a decrease in direct
portfolio expenses (interest, provisions for losses, and other related
costs) of $161 million for the third quarter of 1996, and $373 million for
the nine-month period of 1996, due to decreased receivable balances
associated with the securitization program and lower card usage. The
decreases in direct portfolio expenses were partially offset by increases
in net charge-offs as a percentage of average credit card receivables
outstanding ("charge-off rate") associated with the continued decline in
portfolio credit performance. The charge-off rate for credit card
receivables was 6.2% for the year to date period, up 1.5 percentage points
from the same period in 1995. Selling, general and administrative expenses
increased $54 million quarter over quarter and $81 million for the nine
months ended September 30, 1996 compared with the prior year primarily due
to customer loyalty programs.
Financial services operating income decreased $82 million compared to the
third quarter of 1995 and $123 million for the nine months ended September
30, 1996 compared with the prior year. The operating margin percentage
decreased to (8.8%) compared with 7.9% for the third quarter of 1995 and to
5.3% compared with 11.2% for the nine-month period of 1995. The lower
operating margins were primarily due to the continued decline in portfolio
credit performance, as well as increased selling, general and
administrative expenses.
OTHER INCOME STATEMENT ITEMS
Other income decreased $34 million quarter over quarter primarily due to
gains from the sale of certain cellular properties in 1995. For the nine-
month period of 1996, other income increased $64 million, reflecting gains
on the sale of cellular interests in Mexico, the sale of a real estate
joint venture, increases in earnings from equity investments and other
miscellaneous items in 1996, partially offset by gains from the sale of
cellular properties in 1995.
Interest expense decreased $63 million, or 46.4%, from the third quarter of
1995 and $58 million, or 16.3%, for the nine months ended September 30,
1996 primarily reflecting lower levels of average debt outstanding for both
periods.
The provision for income taxes decreased $27 million for the quarter
reflecting lower income before income taxes partially offset by a higher
effective tax rate. The increase in the effective tax rate to 37.8% from
<PAGE> 20 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
35.9% quarter over quarter, is primarily associated with certain non-recurring
items in the third quarter of 1995. For the nine months ended
September 30, 1996, the provision for income taxes increased $111 million
primarily due to higher income before income taxes. The effective tax rate
remained essentially flat at 36.8% when compared to the same period of
1995. The 1996 effective tax rate was impacted by tax benefits to AT&T
from various legal entity restructurings while the 1995 effective tax rate
was favorably impacted by certain non-recurring items in the third quarter
of 1995.
Income from discontinued operations increased to $73 million from a loss of
$1,263 million in the third quarter of 1995 and the loss from discontinued
operations decreased to $81 million from $1,338 million in the nine-month
period of 1995. The net loss in the third quarter of 1995 includes
restructuring and other charges for NCR of $1,172 million, net of taxes.
The income (loss) from discontinued operations includes the results of
Lucent, NCR, AT&T Capital and other businesses. Discontinued operations
also includes the elimination of intercompany transactions, an allocation
of AT&T's interest expense (based on a ratio of net assets of discontinued
operations to total AT&T consolidated assets), and a portion of AT&T's
consolidated taxes attributable to discontinued businesses.
Included in the year to date loss from discontinued operations is a
non-recurring tax benefit of $155 million recorded in the first quarter of
1996. This benefit is the result of reversing deferred tax liabilities on
the undistributed earnings of Lucent's non-United States consolidated
subsidiaries. The subsidiaries have the ability and specific intention to
permanently reinvest such undistributed earnings. These deferred tax
liabilities reduced income from discontinued operations in earlier years.
FINANCIAL CONDITION
SEPTEMBER 30, 1996 VERSUS DECEMBER 31, 1995
Total assets, including net assets of discontinued operations, decreased
$5.9 billion, or 9.5% in the nine months ended September 30, 1996. Assets
attributable to continuing operations decreased $1.3 billion, or 2.3%.
This decrease is primarily due to a decline in current assets of $3.1
billion partially offset by an increase in net property, plant and
equipment. The current asset decline was driven by decreases in finance
receivables and current deferred income tax assets, partially offset by
increases in accounts receivable, other current assets and cash.
<PAGE> 21 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Finance receivables decreased from December 31, 1995 mainly due to
Universal Card securitizations of $3.0 billion in 1996, the normal seasonal
decline as a result of higher levels of consumer purchases in the fourth
quarter of 1995 and continued lower card usage.
The decrease in current deferred income tax assets is due to long-term
deferred income tax liabilities at December 31, 1995 becoming current
deferred income tax liabilities mainly in the first quarter of 1996. Since
current deferred income taxes are in a net asset position, this results in
a decrease in current deferred income tax assets and a decrease in long-term
deferred income tax liabilities.
The increase in accounts receivable reflects $377 million of receivables
from Lucent no longer eliminated in consolidation as well as normal
business activity.
The increase in other current assets is primarily due to prepaid equipment
purchases of $500 million from Lucent pursuant to a purchase agreement.
Net property, plant and equipment increased $1.6 billion from December 31,
1995 reflecting current year expenditures for the AT&T network partially
offset by current year depreciation.
Working capital, defined as current assets less current liabilities,
increased $5.2 billion from year-end driven by an $8.9 billion decrease in
debt maturing within one year, partially offset by the decline in current
assets discussed previously. Debt maturing within one year decreased
primarily due to lower levels of debt for Universal Card due to the
securitization program, the assignment of debt to Lucent and Lucent
directly obtaining external financing in the second quarter of 1996 (as
opposed to AT&T obtaining financing on Lucent's behalf).
Long-term deferred income tax liabilities declined $911 million due to the
reclassification of deferred income taxes to current as discussed
previously. Long term debt decreased $691 million reflecting amounts
becoming current and therefore reclassified to short term debt, and the
repayment of certain long term debt.
Shareowner's equity increased $3.8 billion reflecting year to date net
income of $4.3 billion and shares issued primarily under employee plans,
partially offset by dividends paid.
Net assets of discontinued operations decreased $4.7 billion primarily due
to the assignment of debt to Lucent as noted previously, and the completion
of the Lucent spin-off which occurred on September 30, 1996.
<PAGE> 22 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The ratio of total debt to total capital (total debt and equity) decreased
to 34.5% at September 30, 1996, compared with 54.5% at December 31, 1995.
Excluding financial services operations, the debt ratio was 21.8% at
September 30, 1996 compared with 41.3% at December 31, 1995. The decrease
is primarily due to lower average debt outstanding as discussed previously.
In the normal course of business, AT&T uses certain derivative financial
instruments, mainly interest rate swaps and foreign currency exchange rate
contracts. The interest rate swaps and foreign currency contracts and
options allow the Company to manage its exposures to changing interest
rates and currency exchange rates. AT&T does not use derivative financial
instruments for speculative purposes. Credit policies are designed to
limit the risks of dealing with other parties to these instruments. In
management's view, the risks to AT&T from using these derivative financial
instruments are minimal and the benefits include more stable earnings and
cash flows in periods when interest rates and currency exchange rates are
changing.
CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1995
Cash flows provided by operating activities from continuing operations
decreased $349 million compared with the nine-month period of 1995
primarily due to the prepayment of equipment purchases from Lucent in 1996
and payments of $292 million related to the 1995 restructuring and other
charges. Of the 17,000 positions related to continuing operations included
in the fourth quarter of 1995 restructuring charges, approximately 5,200
people have left the payroll as of September 30, 1996. The increased use
of cash was partially offset by an increase in income from continuing
operations of $213 million.
For the nine months ended September 30, 1996, net cash used in investing
activities of continuing operations of $268 million decreased $4,243
million compared with the $4,511 million net cash used in the nine-month
period of 1995. This year over year decrease is due to increased Universal
Card securitizations, a lower level of license acquisitions, and declining
finance receivables. These changes were partially offset by increases in
cash outflows for capital expenditures related to the AT&T network.
<PAGE> 23 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net cash used in financing activities of $4,271 million increased $7,081
million compared to net cash provided of $2,810 million for the comparable
period of 1995. The change was due to decreases in both short term debt
borrowings and long term debt issuances as well as increases in repayments
of long term debt. These changes in debt activity reflect the use of
alternative sources of funding, such as securitizations and cash
collections of the $2.0 billion in accounts receivable retained by AT&T
continuing operations as part of the restructuring plan, as well as the
impact of Lucent obtaining its own external financing in the second quarter
of 1996.
Future financing is contemplated to be arranged as necessary to meet AT&T's
capital and other requirements with the timing of issue, principal amount
and form depending on the Company's needs, prevailing market and general
economic conditions.
AT&T anticipates obtaining all necessary external financing through
issuances of commercial paper, long-term debt and equity, asset-backed
financings (i.e., securitizations) and available lines of credit.
RECENT PRONOUNCEMENTS
In June, 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities". This
statement requires that liabilities incurred or obtained by transferors as
part of a transfer of financial assets be initially measured at fair value,
if practical. It also requires that servicing assets and other retained
interests in the transferred assets be recognized and measured by
allocating the previous carrying amount between the assets sold and
retained interests based upon their relative fair values at the date of
transfer. The statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
December 31, 1996, and early adoption is prohibited. Management does not
expect the adoption of this standard to have a material impact on AT&T's
consolidated financial statements.
<PAGE> 24 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
LEGISLATIVE AND REGULATORY DEVELOPMENTS
In February 1996, the Telecommunications Act of 1996 (the
"Telecommunications Act") became law. The Telecommunications Act, among
other things, was designed to foster local exchange competition by
establishing a regulatory framework to govern the provision of local and
long-distance telecommunications services. The Telecommunications Act will
permit Regional Bell Operating Companies ("RBOCs") to provide interexchange
services after demonstrating to the FCC that such provision is in the
public interest and satisfying the conditions for developing local
competition established by the Telecommunications Act.
In August 1996, the FCC adopted rules and regulations (the "Implementing
Rules") to implement the local competition provisions of the
Telecommunications Act, including with respect to the terms and conditions
of interconnection with local exchange carrier ("LEC") networks and the
standards governing the purchase of unbundled elements and wholesale
services from LECs. The Implementing Rules rely on each state to develop
the specific rates and procedures in such state within the framework
prescribed by the FCC for developing such rates and procedures.
In October 1996, the 8th Circuit Court of Appeals ordered a stay of the
effectiveness of those provisions of the Implementing Rules addressed to
the pricing of unbundled network elements and wholesale services ("Pricing
Rules"), among others, until such court resolves the challenges to the
Implementing Rules by local telephone companies and telephone regulators in
several states. The court has scheduled argument on the challenges in
January 1997 and will issue its decision some time thereafter.
AT&T believes that the stay of the Pricing Rules may inhibit the prompt
establishment of appropriate rates for the provision of network elements
and wholesale services. Absent full effectiveness of the Implementing
Rules, each state will determine the applicable rates and procedures
independent of the framework of the Pricing Rules. As a result, there can
be no assurance that the prices adopted in each state will provide for
effective local service entry and competition or provide AT&T with new
market opportunities. A significant factor for successful entry by AT&T
and others will be the adoption, at the state level, of acceptable rates
and procedures for entrants, including certification by state regulatory
agencies and LEC interconnection agreements arbitrated and approved by
state regulatory agencies.
<PAGE> 25 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
AT&T has applied for permission to provide local service in all 50 states.
At October 31, 1996, AT&T had received authority to provide service in 37
states and anticipates that it will receive the remaining approvals as the
other states take the actions contemplated by the Telecommunications Act.
While the Telecommunications Act makes clear that no state can prohibit
AT&T or any other entity from providing local services, AT&T cannot be
certain as to when it will receive certification in each state and the
conditions that might attach to each such certification.
In addition to the matters referred to above, various other factors,
including market acceptance, start-up and ongoing costs associated with the
provision of new services and local conditions and obstacles, could
adversely affect the timing and success of AT&T's entrance into the local
exchange services market and AT&T's ability to offer combined service
packages that include local service. Because it is widely anticipated that
substantial numbers of long-distance customers will seek to purchase local,
interexchange and other services from a single carrier as part of a
combined or full service package, any competitive disadvantage, inability
to profitably provide local service at competitive rates or delays in
providing local service or combined service packages could adversely affect
AT&T's future revenues and earnings. In addition, the simultaneous entrance
of numerous new competitors for interexchange and combined service packages
is likely to adversely affect AT&T's long-distance revenues and could
adversely affect earnings.
COMPETITION
AT&T currently faces significant competition and expects that the level of
competition will continue to increase. The Telecommunications Act has
already begun to intensify the competitive environment in recent months.
Non-RBOC LECs, which are not required to implement the Telecommunications
Act competitive checklist prior to offering long-distance in their home
markets, have begun integrating their local service offerings with
long-distance offerings in advance of AT&T being able to offer combined local
and long-distance service in these areas. If such non-RBOC LECs continue
to offer combined services without offering reasonable terms of
interconnection and service elements at competitive rates, AT&T's revenues
and earnings in these service regions will be adversely affected.
Similarly, to the extent that the RBOCs obtain in-region interLATA
authority before the Telecommunications Act s checklist of conditions have
been fully implemented and adequate facilities-based local exchange
competition exists, there is a substantial risk that AT&T and other
interexchange service providers would be at a disadvantage to the RBOCs in
<PAGE> 26 AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
providing both local service and combined service packages. Furthermore,
the recently announced merger of British Telecommunications PLC and MCI
Communications Corp. will create a large, well-capitalized competitor for
AT&T's offerings, domestically as well as internationally, with substantial
financial, technical, marketing and other resources and a large worldwide
installed base of customers.
FORWARD LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this Report on Form 10-Q constitute "forward
looking statements" within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. Any Form
10-K, Annual Report to Shareowners, Form 10-Q or Form 8-K of AT&T may
include forward looking statements. In addition, other written or oral
statements which constitute forward looking statements have been made and
may in the future be made by or on behalf of AT&T. These forward-looking
statements rely on a number of assumptions concerning future events, and
are subject to a number of uncertainties and other factors, many of which
are outside AT&T's control, that could cause actual results to differ
materially from such statements.
Readers are cautioned not to put undue reliance on such forward looking
statements. These factors and uncertainties include the adoption of
balanced and effective rules and regulations by the state public regulatory
agencies, AT&T's ability to achieve a significant market penetration in new
markets and the related costs thereof, and competitive pressures. For a
more detailed description of the uncertainties and other factors that could
cause actual results to differ materially from such forward-looking
statements, see the discussion thereof contained in the Company's Form 10-Q
for the quarter ended June 30, 1996 under the section entitled "Forward
Looking Statements". AT&T disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
<PAGE> 27 AT&T Form 10-Q - Part II
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit:
Exhibit Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K dated July 18, 1996 was filed pursuant to
Item 5 (Other Events) and Item 7 (Financial
Statements and Exhibits). Form 8-K dated August
19, 1996 was filed pursuant to Item 5. Form 8-K
dated September 18, 1996 was filed pursuant to
Items 5 and 7. Form 8-K dated September 24, 1996
was filed pursuant to Item 2 (Acquisition or
Disposition of Assets) and Items 5 and 7.
<PAGE> 28 AT&T Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AT&T Corp.
Date November 12, 1996
M. B. Tart
Vice President and Controller
(Principal Accounting Officer)
<PAGE> 29 AT&T Form 10-Q
EXHIBIT INDEX
EXHIBIT
NUMBER
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
<PAGE> 1
Exhibit 12
Form 10-Q
For the Nine
Months Ended
September 30, 1996
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30, 1996
Earnings Before Income Taxes .......................... $6,904
Less Interest Capitalized during
the Period........................................... 141
Less Undistributed Earnings of Less than 50%
Owned Affiliates..................................... 120
Add Fixed Charges...................................... 921
Total Earnings......................................... $7,564
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $ 764
Interest Portion of Rental Expense..................... 157
Total Fixed Charges................................ $ 921
Ratio of Earnings to Fixed Charges..................... 8.2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T at September 30, 1996 and the unaudited
consolidated statement of income for the nine-month period ended September 30,
1996 and is qualified in its entirety by reference to such financial statemnts.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 568
<SECURITIES> 0
<RECEIVABLES> 10,595
<ALLOWANCES> 1,286
<INVENTORY> 0
<CURRENT-ASSETS> 18,940
<PP&E> 36,263
<DEPRECIATION> 18,538
<TOTAL-ASSETS> 56,478
<CURRENT-LIABILITIES> 16,242
<BONDS> 7,851
0
0
<COMMON> 1,619
<OTHER-SE> 19,434
<TOTAL-LIABILITY-AND-EQUITY> 56,478
<SALES> 0
<TOTAL-REVENUES> 38,946
<CGS> 0
<TOTAL-COSTS> 32,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,629
<INTEREST-EXPENSE> 292
<INCOME-PRETAX> 6,904
<INCOME-TAX> 2,538
<INCOME-CONTINUING> 4,366
<DISCONTINUED> (81)
<EXTRAORDINARY> 0
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<NET-INCOME> 4,285
<EPS-PRIMARY> $2.66
<EPS-DILUTED> 0
</TABLE>
