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, 1997
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, 1997, 1,624,434,000 common shares were outstanding.
<PAGE>
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,
1997 1996 1997 1996
Revenues
Communications services.................. $12,822 $12,449 $25,480 $24,819
Financial services ...................... 351 419 741 899
Total revenues........................... 13,173 12,868 26,221 25,718
Operating Expenses
Access and other interconnection......... 4,237 3,852 8,489 8,020
Network and other
communications services................. 2,371 1,897 4,622 3,724
Depreciation and amortization ........... 911 655 1,841 1,310
Selling, general and administrative ..... 3,794 3,779 7,381 7,136
Total communications services expenses.. 11,313 10,183 22,333 20,190
Financial services expenses.............. 301 366 639 796
Total operating expenses ................ 11,614 10,549 22,972 20,986
Operating income ........................ 1,559 2,319 3,249 4,732
Other income - net ...................... 57 102 227 207
Interest expense ........................ 56 97 105 220
Income from continuing operations
before income taxes .................... 1,560 2,324 3,371 4,719
Provision for income taxes .............. 601 786 1,290 1,712
Income from continuing operations ....... 959 1,538 2,081 3,007
Discontinued Operations:
Income(loss) from discontinued operations
net of taxes of $0, ($56),
$3 and ($372), respectively............. - (47) 4 (154)
Net income .............................. $ 959 $ 1,491 $ 2,085 $ 2,853
Weighted average common shares and
common share equivalents (millions)..... 1,627 1,614 1,628 1,611
Earnings per common share:
Income from continuing operations ...... $ 0.59 $ 0.95 $ 1.28 $ 1.87
Income(loss) from discontinued
operations ............................ - (0.03) - (0.10)
Net income ............................. $ 0.59 $ 0.92 $ 1.28 $ 1.77
Dividends declared per
common share.......................... $ 0.33 $ 0.33 $ 0.66 $ 0.66
See Notes to Consolidated Financial Statements.
<PAGE>
AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Share Amounts)
(Unaudited)
June 30, December 31,
1997 1996
ASSETS
Cash and cash equivalents .............. $ 200 $ 134
Receivables less allowances
of $1,318 and $1,336
Accounts receivable................... 8,682 8,973
Finance receivables................... 6,157 7,087
Deferred income taxes................... 1,311 1,413
Other current assets.................... 494 703
Total current assets.................... 16,844 18,310
Property, plant and equipment, net
of accumulated depreciation of
$20,840 and $19,728 .................. 19,984 19,794
Licensing costs, net of accumulated
amortization of $989 and $913......... 8,397 8,071
Investments............................. 4,021 3,883
Long-term finance receivables........... 700 703
Prepaid pension costs................... 2,066 1,933
Other assets............................ 2,588 2,332
Net assets of discontinued operations... 591 526
TOTAL ASSETS............................ $55,191 $55,552
(CONT'D)
<PAGE>
AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Share Amounts)
(Unaudited)
June 30, December 31,
1997 1996
LIABILITIES
Accounts payable....................... $ 5,741 $ 6,173
Payroll and benefit-related
liabilities.......................... 2,043 2,635
Debt maturing within one year.......... 3,242 2,460
Dividends payable...................... 538 536
Other current liabilities.............. 3,724 4,514
Total current liabilities.............. 15,288 16,318
Long-term debt......................... 7,216 7,883
Long-term benefit-related liabilities.. 3,074 3,037
Deferred income taxes.................. 5,075 4,827
Other long-term liabilities and
deferred credits..................... 3,230 3,192
Total liabilities ..................... 33,883 35,257
SHAREOWNERS' EQUITY
Common stock - par value $1 per share.. 1,625 1,623
Authorized shares: 2,000,000,000
Outstanding shares:
1,625,285,000 at June 30, 1997
1,623,487,646 at December 31, 1996
Additional paid-in capital............. 15,715 15,643
Guaranteed ESOP obligation............. (84) (96)
Foreign currency translation
adjustments.......................... 22 47
Retained earnings...................... 4,030 3,078
Total shareowners' equity.............. 21,308 20,295
TOTAL LIABILITIES & SHAREOWNERS' EQUITY $55,191 $55,552
See Notes to Consolidated Financial Statements.
<PAGE>
AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended
June 30,
1997 1996
Operating Activities
Net income .............................. $ 2,085 $ 2,853
Add: (Income)loss from
discontinued operations ............... (4) 154
Income from continuing operations ....... 2,081 3,007
Adjustments to reconcile net income to
net cash provided by operating
activities of continuing operations:
Depreciation and amortization......... 1,841 1,310
Provision for uncollectibles.......... 1,213 1,041
Increase in accounts receivable....... (707) (945)
(Decrease)increase in accounts payable (128) 56
Net increase in other operating
assets and liabilities.............. (1,339) (1,468)
Other adjustments for non-cash
items - net......................... 171 173
Net cash provided by operating
activities of continuing operations.... 3,132 3,174
Investing Activities
Capital expenditures................... (2,942) (2,387)
Proceeds from sale or disposal of
property, plant and equipment........ 48 39
Proceeds from securitizations.......... 1,000 2,000
(Increase)decrease in finance assets... (248) 675
Acquisitions of licenses............... (291) (107)
Net increase in investments............ (260) (135)
Dispositions........................... 663 160
Other investing activities - net....... (47) 26
Net cash (used in)provided by investing
activities of continuing operations.... (2,077) 271
(CONT'D)
<PAGE>
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,
1997 1996
Financing Activities
Proceeds from long-term debt issuances. 25 2
Retirements of long-term debt.......... (464) (901)
Issuance of common shares.............. 70 755
Dividends paid......................... (1,070) (1,057)
Increase(decrease) in short-term
borrowings - net..................... 562 (3,404)
Other financing activities - net....... (43) 1,896
Net cash used in financing activities
of continuing operations............... (920) (2,709)
Effect of exchange rate
changes on cash........................ (7) (28)
Net cash used in discontinued operations. (62) (816)
Net increase(decrease) in cash and
cash equivalents........................ 66 (108)
Cash and cash equivalents
at beginning of year................... 134 129
Cash and cash equivalents
at end of period....................... $ 200 $ 21
See Notes to Consolidated Financial Statements.
<PAGE>
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 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
1996 Annual Report to Shareowners, Form 10-K for the year
ended December 31, 1996 and the current year's previously
issued Form 10-Q.
(b) DISCONTINUED OPERATIONS
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
reflect the dispositions of Lucent Technologies Inc.
("Lucent"), NCR Corporation ("NCR"), AT&T Capital Corporation
("AT&T Capital") and other businesses in 1996 and the pending
disposition of AT&T Submarine Systems Inc. ("SSI") as
discontinued operations. Accordingly, the revenues, costs and
expenses, assets and liabilities, and cash flows of Lucent,
NCR, AT&T Capital, SSI 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 through their
respective dates of disposition as "Income(loss) from
discontinued operations," net of applicable income taxes; as
"Net assets of discontinued operations"; and as "Net cash used
in discontinued operations."
On July 1, 1997 AT&T sold SSI to Tyco International Ltd. for
approximately $850 million in cash. Although we expect to
record a gain on the sale of SSI, such amount is subject to
post-closing adjustments and cannot be determined at this
time.
<PAGE>
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 Six
Months Ended Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues $ 295 $6,964 $ 454 $ 12,888
Income(loss) before
income taxes - (103) 7 (526)
Net income(loss) $ - $ (47) $ 4 $ (154)
At June At December
30, 1997 31, 1996
Current Assets $ 576 $ 554
Total Assets 901 862
Current Liabilities 187 230
Total Liabilities 310 336
Net assets of discontinued
operations $ 591 $ 526
The loss before income taxes includes interest expense of $5 for the quarter
ended June 30, 1996 and $33 for the six months ended June 30, 1996, allocated to
discontinued operations based on the ratio of net assets of discontinued
operations to total AT&T consolidated assets. No interest expense was allocated
to discontinued operations in both the quarterly and six month periods ended
June 30, 1997 due to immateriality of the amounts.
<PAGE>
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 outstanding public debt of AT&T Credit
Holdings, Inc. (formerly AT&T Credit Corporation). At June 30,
1997, $58.9 of the guaranteed debt remained outstanding.
AT&T Credit Holdings, Inc. holds the finance assets of the
former AT&T Credit Corporation and prior to the sale of AT&T
Capital on October 1, 1996, held the majority of AT&T's
investment in AT&T Capital.
The following table shows summarized consolidated financial
information for AT&T Credit Holdings, Inc. The summarized
financial information includes transactions with AT&T that are
eliminated in consolidation.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1997 1996 1997 1996
Total revenues $ 41 $ 31 $ 84 $ 64
Income(loss) from
continuing operations 5 (20) 14 (13)
Income from
discontinued operation - 28 - 54
Net income $ 5 $ 8 $ 14 $ 41
At At
June 30, December 31,
1997 1996
Finance receivables $1,103 $1,102
Total assets 3,052 3,075
Total debt 60 60
Total liabilities 1,868 1,891
Total shareowner's equity $1,184 $1,184
<PAGE>
AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(d) OPERATING EXPENSES OF FINANCIAL SERVICES
Operating expenses of the financial services segment are comprised of the
following:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1997 1996 1997 1996
Interest Expense $ 71 $ 106 $ 144 $ 229
Provision for losses 62 87 180 250
Other costs 97 100 198 202
Selling, general and
administrative 71 73 117 115
Total $ 301 $ 366 $ 639 $ 796
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
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 reflect the dispositions of
Lucent Technologies Inc. ("Lucent"), NCR Corporation ("NCR"), AT&T Capital
Corporation ("AT&T Capital") and other businesses in 1996 and the pending
disposition of AT&T Submarine Systems Inc. ("SSI") as discontinued operations.
Accordingly, the revenues, costs and expenses, assets and liabilities, and cash
flows of Lucent, NCR, AT&T Capital, SSI 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 through their respective dates of disposition as "Income(loss)
from discontinued operations," net of applicable income taxes; as "Net assets of
discontinued operations"; and as "Net cash used in discontinued operations."
On July 1, 1997 AT&T sold SSI to Tyco International Ltd. for approximately $850
million in cash. Although we expect to record a gain on the sale of SSI, such
amount is subject to post-closing adjustments and cannot be determined at this
time.
Throughout the discussion and analysis of AT&T's results of operations and
financial condition, references are made to initiatives in which AT&T is
investing and to AT&T's core business. Initiatives include local service
deployment; wireless services in new 1.9 GHz markets, wireless data services and
wireless international expansion; AT&T Solutions outsourcing, consulting and
systems integration business; online services such as AT&T WorldNet* and AT&T
Easy Commerce Services*; and international expansion. AT&T's core business
includes business and consumer long distance services, wireless voice services
in existing 800 MHz markets, air-to-ground services, one-way messaging, wireless
product sales and financial services.
All financial data presented on a "core" and "initiatives" basis should be
considered approximate. Data on initiatives include costs and expenses on an
incremental basis, and require certain estimates and allocations that management
believes provide a reasonable basis on which to present such information.
(*Service mark of AT&T)
<PAGE>
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 $13,173 million in the second
quarter of 1997 compared with $12,868 million in the second quarter of 1996. For
the first half of 1997, revenues from continuing operations increased 2.0% to
$26,221 million from $25,718 million in the first half of 1996. The revenue
increase in both periods was led by growth in business long distance services,
local and other initiatives and wireless services, partially offset by declines
in financial services and consumer long distance services. Competition continued
to affect long distance services revenues and is likely to increase.
Operating income decreased 32.7% to $1,559 million in the second quarter of 1997
compared with $2,319 million in the second quarter of 1996. Operating margin for
the second quarter of 1997 decreased to 11.8% from 18.0% in the second quarter
of 1996. Earnings before interest and taxes ("EBIT"), which includes other
income, was $1,616 million in the second quarter of 1997, a decrease of 33.3%
from $2,421 million in the second quarter of 1996. The quarter over quarter
decreases in both operating income and EBIT were due to higher network and other
communications services expenses, higher access and other interconnection
expenses, and higher depreciation and amortization expenses, partially offset by
higher revenues.
Operating income for the six months ended June 30, 1997 decreased 31.3% to
$3,249 million from $4,732 million in the year ago period and operating margin
decreased to 12.4% from 18.4% in the first half of 1996. For the six months
ended June 30, 1997, EBIT decreased 29.6% to $3,476 million from $4,939 million
in the first half of 1996. The year over year decreases in both operating income
and EBIT were due to higher network and other communications services expenses,
higher depreciation and amortization expenses, and higher access and other
interconnection expenses, partially offset by higher revenues.
Earnings before interest, taxes, depreciation and amortization ("EBITDA"), which
includes other income, decreased 17.8% to $2,545 million for the three months
ended June 30, 1997 from $3,092 million in the second quarter of 1996. For the
first half of 1997, EBITDA decreased 14.8% to $5,351 million from $6,280 million
in the six months ended June 30, 1996. The decreases in both the second quarter
and first half of 1997 were due to higher network and other communications
services expenses and higher access and other interconnection expenses,
partially offset by higher revenues.
Income from continuing operations was $959 million, or $.59 per share in the
second quarter of 1997. This represents a 37.7% decrease in income from
continuing operations and a 37.9% decrease in earnings per share compared with
income from continuing operations of $1,538 million, or $.95 per share in the
second quarter of 1996. Losses from initiatives diluted earnings per share by
approximately $.23 in the second quarter of 1997 and by approximately $.16 in
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
the second quarter of 1996. For the six months ended June 30,1997, income from
continuing operations was $2,081 million, a 30.8% decrease from $3,007 million
in the comparable period ended June 30, 1996. Losses from initiatives diluted
earnings per share by approximately $.48 in the first half of 1997 and $.26 in
the first half of 1996.
Earnings per share for the core business, which excludes the dilution from
initiatives, decreased 26% to approximately $.82 in the second quarter of 1997
from $1.11 in the second quarter of 1996. Earnings per share for the core
business for the six months ended June 30, 1997, which excludes the dilution
from initiatives, decreased 17% to approximately $1.76 from $2.13 in the
comparable year ago period.
Net income for the second quarter of 1997 decreased 35.7% to $959 million, or
$.59 per share, from $1,491 million, or $.92 per share, in the second quarter of
1996. For the six months ended June 30, 1997, net income decreased 26.9% to
$2,085 million, or $1.28 per share, from $2,853 million, or $1.77 per share, in
the first half of 1996.
<PAGE>
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 $373 million, or 3.0%, for the
quarter compared with the second quarter of 1996 and increased $661 million, or
2.7%, for the six months ended June 30, 1997 compared with the six months ended
June 30, 1996.
Three months Six months
ended ended
June 30, June 30,
In millions 1997 1996 1997 1996
Business long distance services $ 5,598 $ 5,375 $11,050 $10,698
Consumer long distance services 5,984 6,034 12,041 12,153
Wireless services 1,090 957 2,110 1,853
Local and other initiatives 524 358 983 683
Other and eliminations (374) (275) (704) (568)
Total communications
services revenues $12,822 $12,449 $25,480 $24,819
Operating income $ 1,509 $ 2,266 $ 3,147 $ 4,629
Operating margin 11.8% 18.2% 12.4% 18.6%
EBIT $ 1,566 $ 2,368 $ 3,371 $ 4,836
EBITDA 2,495 3,039 5,246 6,177
Long distance services revenues, which include business and consumer long
distance services revenues from toll calling, network management, data services,
other network-enabled services and related product sales, were $11,582 million
in the second quarter of 1997, up $173 million, or 1.5%, compared to $11,409
million in the second quarter of 1996. Revenue growth in business long distance
services was partially offset by a decrease in consumer long distance services
revenue. In the second quarter of 1997, total long distance volumes grew 9.7%
compared with the second quarter of 1996. The gap between revenue and volume
growth for the quarter resulted from the continued effects of pricing pressures
on long distance services, changes in product mix, the increased use of free
minutes in customer retention and acquisition programs, and increased customer
use of calling plans. For the first half of 1997, long distance services
revenues increased 1.0%, or $240 million, to $23,091 million from $22,851
million compared with the same period in 1996, led again by business long
distance services partially offset by a decrease in consumer long distance
services.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Business long distance services revenue for the second quarter of 1997 increased
$223 million, or 4.1%, compared with the second quarter of 1996. For the six
months ended June 30, 1997, business long distance services revenue increased
$352 million, or 3.3%, compared with the first half of 1996. The revenue
increase in both the second quarter and first half of 1997 was driven by strong
double-digit growth in revenues from data services. Volume growth was in the
mid-teens in the second quarter of 1997 compared with the second quarter of 1996
and continues to be led by strength in business inbound services, primarily
toll-free 800 and 888 services. The gap between revenue and volume growth for
the quarter was primarily due to continued pricing pressures on many new
business contracts resulting from increased competition and the uncertainty
surrounding detariffing. Rapid growth in lower-priced intra-LATA minutes also
contributed to the gap, as well as the shift of customers toward nodal services.
The rapid growth of these services is likely to continue throughout the year and
impact the gap. However, the gap is expected to begin to narrow by the end of
1997 because pricing pressures on new business contracts began to impact revenue
in the second half of 1996.
Consumer long distance services revenue for the three months ended June 30, 1997
decreased $50 million, or .8%, compared with the three months ended June 30,
1996. For the six months ended June 30, 1997, consumer long distance services
revenue decreased $112 million, or .9%, compared with the first half of 1996.
The use of free minutes, which are recorded as contra-revenue as part of our
1997 customer acquisition and retention programs, reduced the consumer long
distance services revenue growth rates by approximately 1.6% for the second
quarter of 1997 and by approximately 1.4% for the first half of 1997. Volume
growth in the second quarter of 1997 was slightly below the industry rate
compared to the second quarter of 1996. This growth was led by a surge in
intra-LATA traffic as AT&T has taken advantage of the opportunity offered by
presubscription in a number of states. Also contributing to the quarter over
quarter volume growth was continued double digit growth in international calling
volumes, which have been stimulated by promotional pricing offers. The widening
gap between revenue and volume growth for the quarter reflects the increase in
lower-priced intra-LATA traffic, free minutes recorded as contra-revenue,
international promotions and the migration of customers to the AT&T One Rate
plans. Competitive pressures from traditional and non-traditional sources such
as smaller telecommunications companies, non-RBOC local exchange carriers and
dial-around companies continued to impact growth in the second quarter of 1997
and are expected to continue to impact growth throughout 1997. Additionally,
factors such as the strategic shift from issuing checks to providing free
minutes will continue to have a negative impact on revenue growth in the future.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Wireless services revenue, which includes wireless voice and data, messaging,
air-to-ground services, the sales of wireless products and revenue from wireless
initiatives grew $133 million, or 13.9%, in the second quarter of 1997 compared
to the second quarter of 1996, driven by increased cellular subscribers.
Cellular revenue rose 13.5% to $910 million while consolidated cellular
subscribers increased 23.3% to 5.6 million at the end of the second quarter from
4.5 million at the end of the second quarter of 1996. On a consolidated basis,
this represents a voice penetration rate of 8.4% in the second quarter of 1997,
up from 6.8% in the second quarter of 1996. The disposal of several wireless
properties at the end of 1996 reduced the growth rates for both wireless revenue
and consolidated subscribers by more than 2% when compared to the second quarter
of 1996. During the quarter, net additions to consolidated subscribers were 271
thousand, representing an 11.8% decrease over net additions in the second
quarter of 1996. The disposal of wireless properties in 1996 negatively impacted
this growth rate by approximately 3.6%. The continued decline in the quarterly
growth rate for net additions primarily reflects additional competitors entering
certain markets. Wireless services revenue increased 13.9% to $2,110 million for
the six months ended June 30, 1997 compared with the same period in 1996, again
fueled by increased cellular subscribers. The previously mentioned disposal of
wireless properties reduced this growth rate by approximately 2.5%.
Total cellular customers served by companies in which AT&T has or shares a
controlling interest increased 22.1% to 7.6 million at June 30, 1997 from 6.3
million at June 30, 1996. On this basis, the voice penetration rate rose to 8.1%
this quarter from 6.6% in the second quarter of 1996.
Average revenue per subscriber continued to decline in the second quarter of
1997 to $55 per subscriber from $61 in the second quarter of 1996, and to $54
per subscriber for the six months ended June 30, 1997 from $61 for the first six
months of 1996, reflecting industry wide pricing pressures experienced by
cellular service providers, as well as the industry trend toward more
convenience-oriented use of wireless phones. Average revenue per subscriber is
expected to continue to decline throughout 1997.
Revenue from local and other initiatives includes revenue from AT&T Solutions'
consulting, outsourcing, and systems integration businesses, AT&T WorldNet and
other online services, international expansion and local service deployment. In
the second quarter of 1997, revenue from these initiatives increased $166
million, or 46.5%, from the second quarter of 1996. Revenue from these
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
initiatives for the six months ended June 30, 1997 increased $300 million, or
44.0%, compared with the first half of 1996. The revenue growth in both the
second quarter and first half of 1997 was primarily due to growth in outsourcing
revenue from AT&T Solutions and increased revenue from AT&T WorldNet and
international expansion.
AT&T WorldNet had approximately 923,000 subscribers at June 30, 1997. AT&T
WorldNet's subscriber growth has slowed primarily due to increased churn as a
result of the expiration of its initial promotional program which offered five
free hours of service per month for the first year. AT&T Easy Commerce Services
had more than 2,800 hosted sites at the end of the second quarter of 1997.
Other and eliminations reflects the elimination of revenues for services sold
between revenue categories (e.g., sales of business long distance services to
other units).
Operating expenses for communications services increased $1,130 million, or
11.1%, in the second quarter of 1997 from the second quarter of 1996. The
increase was driven by higher network and other communications services
expenses, higher access and other interconnection expenses and higher
depreciation and amortization expenses. For the six months ended June 30, 1997
communications services' operating expenses increased $2,143 million, or 10.6%,
compared with the first half of 1996. The increase was driven by higher network
and other communications services expenses, higher depreciation and amortization
expenses, and higher access and other interconnection expenses.
Access and other interconnection expenses for the second quarter of 1997
increased $385 million, or 10.0%, from the second quarter of 1996. The increase
was primarily due to a second quarter 1996 favorable accounting adjustment to
previously estimated accruals to reflect actual billing. Higher calling volumes
in 1997 partially offset by unit cost efficiencies and changes in domestic
traffic mix also contributed to the increase.
For the six months ended June 30, 1997, access and other interconnection
expenses increased $469 million, or 5.8%, from the first half of 1996 primarily
reflecting increased volumes and the favorable accounting adjustment in the
second quarter of last year partially offset by unit cost efficiencies and
changes in domestic traffic mix. Access and other interconnection expenses as a
percentage of communications services revenues increased to 33.0% for the second
quarter of 1997 from 30.9% for the second quarter of 1996, and increased to
33.3% for the first half of 1997 from 32.3% for the same period in 1996. This
percentage is expected to decrease in the second half of 1997 due to access
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
reform (see Legislative and Regulatory Developments).
Network and other communications services expenses increased $474 million, or
25.0%, in the second quarter of 1997 from the second quarter of 1996.
Approximately one-third of the increase was due to compensation to payphone
operators resulting from a recent Federal Communications Commission ("FCC")
ruling. The remaining increase was primarily due to increased costs for
initiatives particularly AT&T Solutions, AT&T WorldNet and local service
deployment. For the six months ended June 30, 1997, network and other
communications services expenses increased 24.1% to $898 million compared with
the first half of 1996. The increase primarily reflects increased costs for
initiatives, particularly AT&T Solutions, AT&T WorldNet and local service
deployment. The remaining increase was driven by a higher provision for
uncollectibles and payphone compensation.
Depreciation and amortization expenses for the quarter ended June 30, 1997
increased $256 million, or 38.8%, from the second quarter of 1996 and increased
$531 million, or 40.5%, for the six months ended June 30, 1997 from the same
period in 1996. The increases were primarily driven by higher levels of capital
expenditures, particularly in the fourth quarter of 1996 when purchases from
Lucent began to be recorded at their full commercial price. The six-month period
ended June 30, 1997 also includes a charge of approximately $80 million recorded
to exit wireless services' two-way messaging initiative.
Selling, general and administrative ("SG&A") expenses were essentially flat in
the second quarter of 1997 compared to the second quarter of 1996. SG&A as a
percentage of communications services revenue decreased to 29.6% for the second
quarter, from 30.4% in the second quarter of 1996. A downturn in traditional
SG&A expense levels, primarily due to lower customer acquisition costs in
consumer long distance services reflecting a reduction in the use of checks as a
customer acquisition tool, was offset by increases from certain transitory
projects and spending on initiatives. These projects include customer retention
and acquisition costs in wireless services, including costs of moving customers
to digital service, costs in consumer long distance services related to both the
creation of bundles of services and billing costs. The increased spending on
initiatives was driven by spending on local service deployment.
Although customer retention and acquisition costs for wireless services
increased in total due to increased cellular subscribers, the cost per customer
acquisition (cost per gross add, "CPGA") declined to $382 in the second quarter
of 1997, down 8.4% from $417 in the second quarter of 1996. For the six months
ended June 30, 1997, CPGA decreased 5.1% to $392 from $413 for the six months
ended June 30, 1996. The decreases in the second quarter and first half of 1997
were primarily due to an emphasis on lower cost distribution channels.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
For the six months ended June 30, 1997 SG&A expenses increased $245 million, or
3.4%, from the first half of 1996. SG&A as a percentage of communications
services revenue was 29.0% for the six-month period in 1997 up slightly from
28.8% for the six-month period in 1996. The increase in SG&A was primarily due
to higher customer retention and acquisition costs in wireless services,
increased costs for bundled services development in consumer long distance
services, and higher spending on initiatives, particularly local service
deployment. These increases were partially offset by a reduction in the use of
checks as a customer acquisition tool in consumer long distance services.
The operating margin for communications services decreased to 11.8% for the
second quarter of 1997 from 18.2% in the second quarter of 1996 and decreased to
12.4% for the first half of 1997 from 18.6% in the first half of 1996. EBIT,
which includes other income, for communications services decreased 33.9% to
$1,566 million in the second quarter of 1997 from $2,368 million in the second
quarter of 1996, and decreased 30.3% to $3,371 million for the six-month period
of 1997, from $4,836 million in the comparable period of 1996.
EBIT for communications services includes $155 million and $122 million for
wireless services in the second quarter of 1997 and 1996, respectively, and $122
million and $214 million for the six months ended June 30, 1997 and 1996,
respectively. In the second quarters of 1997 and 1996 EBIT dilution from
wireless initiatives was not material. For the six months ended June 30, 1997,
EBIT for wireless services was diluted by approximately $.2 billion relating to
wireless initiatives, including $160 million in costs recorded in the first
quarter of 1997 to exit the two-way messaging business. For the first six months
of 1996, EBIT dilution from wireless initiatives was not material.
Additionally, EBIT for communications services in the second quarters of 1997
and 1996 includes dilution relating to local service deployment of approximately
$.2 billion and $.1 billion, respectively, and dilution relating to other
initiatives of approximately $.4 billion and $.3 billion, respectively. For the
six months ended June 30, 1997 and 1996, EBIT for communications services
includes dilution relating to local service deployment of approximately $.4
billion and $.2 billion, respectively, and dilution relating to other
initiatives of approximately $.7 billion and $.5 billion, respectively.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBITDA, which includes other income, for communications services decreased 14.6%
to $2,495 million in the second quarter of 1997 from $3,039 million in the
second quarter of 1996. For the six months ended June 30, 1997, EBITDA for
communications services decreased 15.1% to $5,246 million from $6,177 million in
the six months ended June 30, 1996.
Wireless services EBITDA was $378 million in the second quarter of 1997 and $302
million in the second quarter of 1996 and $622 million and $569 million in the
six months ended June 30, 1997 and 1996, respectively. In both the second
quarters of 1997 and 1996 EBITDA dilution from wireless initiatives was not
material. For the six months ended June 30, 1997 EBITDA for wireless services
was diluted by approximately $.1 billion relating to wireless initiatives,
primarily reflecting half of the charge recorded in the first quarter of 1997 to
exit the two-way messaging business. For the six months ended June 30, 1996,
EBITDA dilution from wireless initiatives was not material.
Similarly, EBITDA for communications services includes dilution relating to
local service deployment of approximately $.2 billion and $.1 billion in the
second quarters of 1997 and 1996, respectively, and dilution of approximately
$.3 billion for other initiatives in the second quarters of both 1997 and 1996.
For the six months ended June 30, 1997 and 1996, EBITDA for communications
services includes dilution relating to local service deployment of approximately
$.3 billion and $.2 billion, respectively, and dilution relating to other
initiatives of approximately $.6 billion and $.5 billion, respectively.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL SERVICES
Financial services revenues decreased $68 million, or 16.3% in the second
quarter of 1997 compared with the second quarter of 1996, and $158 million, or
17.6%, in the first six months of 1997 compared with the same period in 1996.
The declines were primarily a result of the Universal Card Services Corp.
("Universal Card") securitization program but also reflect the impact of the
increased use of promotional pricing.
In the first quarter of 1997 AT&T adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." Among other provisions, this
standard requires Universal Card to recognize anticipated net revenue from
securitized receivables. The adoption of this standard resulted in a benefit to
revenue in both the first and second quarters of 1997. <TABLE> <CAPTION> <S> <C>
_________________ <C>
Three months Six months
FINANCIAL SERVICES ended ended
June 30, June 30,
In millions 1997 1996 1997 1996
Financial services revenue $351 $419 $741 $899
Operating income $ 50 $ 53 $102 $103
Operating margin 14.1% 12.6% 13.8% 11.5%
EBT $ 50 $ 53 $105 $103
Universal Card Information: At June 30,
In millions 1997 1996
Total book finance receivables $ 6,065 $ 7,666
Total managed finance receivables $13,565 $13,166
Cardholder accounts 18.9 18.3
</TABLE>
Since June 30, 1996, Universal Card securitized $2.0 billion of cardholder
receivables; $1.0 billion in the third quarter of 1996 and $1.0 billion in the
second quarter of 1997. This brings the total receivables securitized to $7.5
billion since August, 1995.
Universal Card's book receivables, which exclude the $7.5 billion of receivables
that have been securitized to date, were $6.1 billion at the end of the second
quarter of 1997. Universal Card retained the servicing and customer
relationships of the securitized credit card accounts. Including securitized
receivables, Universal Card's total managed receivables were $13.6 billion at
the end of the second quarter of 1997, up $0.4 billion from the second quarter
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
of 1996. The increase resulted primarily from Universal Card restarting account
customer acquisition activity earlier this year, including a balance transfer
program.
Financial services expenses decreased $65 million, or 17.7%, in the second
quarter of 1997 and $157 million, or 19.7%, for the six months ended June 30,
1997 due to declines in direct portfolio expenses (interest, provisions for
losses, and other related costs) of $63 million in the second quarter of 1997
and $159 million in the six-month period of 1997. The decreases were primarily
due to decreased receivable balances associated with the securitization program.
The decreases in direct portfolio expenses were also partially offset by
increases in net charge-offs as a percentage of average credit card receivables
outstanding ("charge-off rate"). The charge-off rate for credit card receivables
was 7.3% for the second quarter of 1997, up from 6.4% for the second quarter of
1996. However, the charge-off rate relating to managed receivables decreased to
6.1% for the second quarter from 6.5% for the second quarter of 1996.
Delinquencies, or payments that are thirty days or more past due, were 3.3% of
average managed receivables as of June 30, 1997, down from 3.9% as of June 30,
1996.
Financial services operating income for the quarter ended June 30, 1997
decreased $3 million compared to the second quarter of 1996, however, the
operating margin percentage increased to 14.1% for the second quarter of 1997
from 12.6% in the second quarter of 1996. Earnings before taxes ("EBT"),
including other income, decreased 6.7% to $50 million in the second quarter of
1997 from $53 million in the second quarter of 1996. Absent the impact of
revenue recognized in accordance with SFAS No. 125 and the benefit from this
quarter's securitization, financial services would have reported a slight
operating loss in the second quarter of 1997. This represents a substantial
improvement over the second quarter of 1996 on the same basis. For the six
months ended June 30, 1997, financial services operating income was $102
million, essentially flat from the first half of 1996, and EBT increased 2.1% to
$105 million for the six months ended June 30, 1997 compared to the first half
of 1996.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER INCOME STATEMENT ITEMS
Other income decreased $45 million, or 45.5%, quarter over quarter primarily due
to lower earnings from equity investments. For the six months ended June 30,
1997 other income increased $20 million, or 9.0%, from the six months ended June
30, 1996 primarily due to the gain of approximately $100 million on the sale of
AT&T Skynet Satellite Services, partially offset by lower earnings from equity
investments.
Interest expense for the second quarter of 1997 decreased $41 million, or 43.2%,
from the second quarter of 1996 and decreased $115 million, or 52.4%, for the
six months ended June 30, 1997 from the first half of 1996 due to lower levels
of average debt partially offset by higher interest rates.
The provision for income taxes for the second quarter of 1997 decreased $185
million from the second quarter of 1996 and decreased $422 million for the six
months ended June 30, 1997 from the same six-month period in 1996 primarily due
to lower income before income taxes partially offset by a higher effective tax
rate. The increases in the effective tax rates to 38.6% for the second quarter
of 1997 from 33.8% for the second quarter of 1996 and to 38.3% for the first
half of 1997 from 36.3% for the first six months of 1996 were primarily due to
certain tax benefits to AT&T in 1996 from various legal entity restructurings.
Income from discontinued operations increased $47 million for the second quarter
of 1997 compared with the second quarter of 1996 and increased $158 million for
the first half of 1997 compared with the same period last year. In the first
half of 1997 income from discontinued operations reflects the results of SSI. In
the second quarter and six months ended June 30, 1996, the loss from
discontinued operations includes the results of Lucent, NCR, AT&T Capital, SSI
and other businesses. The dispositions of Lucent, NCR, AT&T Capital and other
businesses were successfully completed during 1996. Discontinued operations also
includes the elimination of intercompany transactions, an allocation of AT&T's
interest expense (based on the ratio of net assets of discontinued operations to
total AT&T consolidated assets) in the first and second quarters of 1996, and a
portion of AT&T's consolidated taxes attributable to discontinued businesses.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
JUNE 30, 1997 VERSUS DECEMBER 31, 1996
Total assets by business category consist of the following:
<TABLE>
<CAPTION>
June 30, Dec. 31,
In billions 1997 1996
<S> <C> <C>
Long distance - business
and consumer $ 19.7 $ 20.3
Wireless services 16.6 16.2
Local service initiative 3.3 2.7
Other initiatives 2.3 1.8
Other business categories 5.2 5.5
Total communications
services 47.1 46.5
Financial services 7.5 8.5
Net assets of discontinued
operations .6 .6
Total assets $ 55.2 $ 55.6
</TABLE>
Total assets decreased $361 million, or 0.7%, during the six months ended June
30, 1997. A decline in current assets was partially offset by increases in
licensing costs, other assets and in net property, plant and equipment. The
current asset decline was driven by decreases in finance receivables and
accounts receivable.
Finance receivables decreased from December 31, 1996 mainly due to the
securitization of $1 billion of receivables by Universal Card in the second
quarter of 1997. The decrease in accounts receivable was primarily due to the
collection of employee benefit-related receivables from Lucent. The increase in
licensing costs primarily reflects additional purchases of PCS licenses
partially offset by amortization. Other assets increased primarily due to an
increase in assets related to promotional programs. Property, plant and
equipment increased due to 1997 capital expenditures substantially offset by
current year depreciation and the sale of AT&T Skynet Satellite Services.
Total liabilities decreased $1,374 million, or 3.9%, from December 31, 1996,
primarily reflecting lower current liabilities and a lower level of long-term
debt. Total current liabilities decreased due to lower other current
liabilities, payroll and benefit-related liabilities and accounts payable,
partially offset by a higher level of debt maturing within one year.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The decrease in other current liabilities primarily reflects the payment of
income taxes. Payroll and benefit-related liabilities decreased primarily due to
the annual payment of year-end employee bonuses in the first quarter of 1997.
The accounts payable decrease primarily reflects payments for capital
expenditures and other purchases accrued for at the end of 1996. The higher
level of debt maturing within one year is primarily due to increased borrowings
in communications services and a reclassification from long-term debt partially
offset by lower levels of debt for Universal Card due to the securitization
program. The decrease in long-term debt resulted from the previously mentioned
reclassification to short-term debt.
Shareowners' equity increased $1,013 million primarily resulting from net income
for the first half of 1997 partially offset by dividends paid.
The ratio of total debt to total capital (total debt and equity) decreased to
32.9% at June 30, 1997, compared with 33.8% at December 31, 1996. Excluding
financial services operations, the debt ratio was 21.2% at June 30, 1997
compared with 18.7% at December 31, 1996.
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 small and the benefits
include more stable earnings in periods when interest rates and currency
exchange rates are changing.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED JUNE 30, 1996
Cash flows provided by operating activities of continuing operations of $3,132
million decreased $42 million for the six months ended June 30, 1997 compared
with the first six months of 1996 despite a decrease in income from continuing
operations of $926 million which was primarily driven by depreciation and
amortization and the provision for uncollectibles. In addition, increased cash
tax payments in 1997 were substantially offset by a prepayment to Lucent in the
second quarter of 1996.
For the six months ended June 30, 1997 net cash used in investing activities of
$2,077 million increased by $2,348 million from $271 million of net cash
provided by investing activities in the first half of 1996. The change primarily
reflects lower proceeds from Universal Card securitizations in 1997 compared to
1996 and increased cash payments required in 1997 compared to 1996 to fund
receivables growth for Universal Card. Also contributing to the increased use of
cash in 1997 compared to 1996 were higher cash payments for capital expenditures
and PCS license acquisitions. All of these items were partially offset by an
increase in dispositions, primarily reflecting the proceeds from the sale of
Skynet in the first quarter of 1997.
Capital expenditures, per the statement of cash flows, represents only the cash
payments made thus far in 1997. This amount differs from the $2.5 billion of
capital expenditures reported on an accrual basis due to the timing of cash
payments. Capital expenditures for the six months ended June 30, 1997 on an
accrual basis were approximately $2.5 billion, an increase of approximately $.4
billion from the first half of 1996. Long distance services capital expenditures
were approximately $1.4 billion in the first half of 1997, an increase of $.2
billion compared to the first six months of 1996. Additionally, capital
expenditures for wireless services were approximately $.7 billion in the first
half of 1997, an increase of approximately $.2 billion from the first half of
1996. AT&T expects capital expenditures for the year to total in the lower end
of the range of $8 billion to $9 billion.
Net cash used in financing activities of $920 million in the six months ended
June 30, 1997 decreased $1,789 million from $2,709 million in the first six
months of 1996. The activity for the first six months of 1996 included a large
decrease in debt, partially offset by an increase in cash provided by other
financing activities, both as a result of Lucent spin-off related transactions.
This net use of cash in 1996 was partially offset by cash provided from the
issuance of common shares. In 1997 we have predominantly satisfied the share
requirements for our employee plans through open market purchases rather than
the issuance of new shares.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Future financing is contemplated to be arranged as necessary to meet our capital
and other requirements with the timing of issue, principal amount and form
depending on our needs, prevailing market and general economic conditions.
We anticipate 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.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RECENT PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Among
other provisions, the standard sets forth provisions for calculating basic and
diluted earnings per share and requires disclosure of both on the face of the
income statement for income from continuing operations and net income. As
prescribed by the standard, the basic earnings per share calculation includes
only common shares outstanding while diluted earnings per share includes all
common shares and dilutive potential common shares outstanding. The standard is
effective for both interim and annual periods ending after December 15, 1997.
For AT&T, this means that the standard is effective December 31, 1997. Since the
standard applies to the earnings per share calculation, it will not have any
impact on AT&T's results of operations, financial position or cash flows, and
will not have a material impact on AT&T's results of operations reported on a
per share basis.
In June 1997 the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes the standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains, and losses) as part of a full set of financial statements. This
statement requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. For AT&T, this means the standard is effective January
1, 1998. Since this standard applies only to the presentation of comprehensive
income, it will not have any impact on AT&T's results of operations, financial
position or cash flows.
In June 1997 the Financial Accounting Standards Board also issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The standard defines operating segments as components of an enterprise
for which separate financial information is available and evaluated regularly as
a means for assessing segment performance and allocating resources to segments.
A measure of profit or loss, total assets and other related information are
required to be disclosed for each operating segment. In addition, this standard
requires the annual disclosure of information concerning revenues derived from
the enterprise's products or services, countries in which it earns revenue or
holds assets, and major customers. The statement is also effective for fiscal
years beginning after December 15, 1997. For AT&T, this means the standard is
effective for the 1998 annual report. Since this standard applies only to the
presentation of segment information, it will not have any impact on AT&T's
results of operations, financial position or cash flows.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER DEVELOPMENTS
AT&T has established processes for evaluating and managing the risks and costs
associated with preparing our systems and applications for the year 2000. We
expect to incur internal staff costs as well as consulting and other expenses
related to the conversion and testing of our systems and applications. We expect
the cost of this project to be approximately $100 million in 1997 and have
reflected this in our targets. We are still assessing the total expected impact
to AT&T over the life of the project. We plan on having substantially all repair
work completed by the end of 1998, leaving a full year for testing.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
AT&T has experienced significant difficulty in penetrating local markets
primarily due to the lack of cooperation by local exchange carriers ("LECs"). At
June 30, 1997 AT&T had received authority to provide local service in 46 states
and the District of Columbia. As of such date, AT&T was offering AT&T Digital
Link local service for medium- and large-sized business customers on an outbound
only basis in 45 states and on an inbound and outbound basis in one state. Also
at such date, AT&T was offering resold local service to consumers in California,
Connecticut, Georgia, Illinois, Michigan, Texas and Rochester, New York as well
as offering resold local service to small business customers in California and
Connecticut.
In addition, on July 18, 1997, the 8th Circuit Court of Appeals issued a
decision holding that the FCC lacks authority to establish pricing rules to
implement the sections of the local competition provisions of the
Telecommunications Act applicable to interconnection with LEC networks and the
purchase of unbundled network elements and wholesale services from LECs.
Accordingly, the Court vacated the rules that the FCC had adopted in August
1996, and which had been stayed by the Court since September 1996.
Absent effectiveness of the pricing rules, each state will determine the
applicable rates and procedures independent of the framework established by the
FCC. However, since the stay was issued, many states have used the pricing rules
as guidelines in establishing interim rates that will apply pending the
determination of permanent rates in subsequent state proceedings. Nevertheless,
there can be no assurance that the prices and other conditions established in
each state will provide for effective local service entry and competition or
provide AT&T with new market opportunities.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In addition, in May 1997, the FCC adopted three orders relating to Price
Caps, Access Reform, and Universal Service that will result in substantial
revisions to the level and structure of access charges that AT&T as a long
distance carrier pays to incumbent LECs. AT&T has agreed to pass through to
consumers savings to AT&T as a result of access charge reform. AT&T began
implementing these reductions July 15, 1997. As a result, AT&T's future results
will reflect lower revenue per minute of usage and lower access and other
interconnection costs per minute of usage.
The Price Cap Order requires LECs to reduce their price cap indices by 6.5
percent annually, less an adjustment for inflation, which is likely to result in
a reduction in the interstate access charges that long distance carriers, such
as AT&T, pay to LECs. The Access Charge Reform Order restructured access charges
so that certain costs that do not vary with usage will be recovered on a
flat-rate basis and permits increased flat-rate assessments on multiline
business customers and on residential lines beyond the primary telephone line.
This restructuring allows a reduction in access charges assessed on long
distance carriers on a usage basis. Finally, the Universal Service Order adopts
a new mechanism for funding universal service which expands the set of carriers
that must contribute to support universal service from only long-distance
carriers to all carriers, including LECs, that provide interstate
telecommunications services. Similarly, the set of carriers eligible for the
universal service support has been expanded from only LECs to any eligible
carrier providing local service to a customer, including AT&T as a new entrant
in local markets. The Universal Service Order also adopted measures to provide
discounts on telecommunications services, Internet access and inside wire to
eligible schools and libraries and rural health carrier providers.
COMPETITION
AT&T currently faces significant competition in the communication and
information services industry and expects that the level of competition will
continue to increase. For example, non-RBOC LECs, which are not required to
implement the Telecommunications Act's 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. This forward
integration adversely affected AT&T's consumer long-distance revenues and
earnings in these service regions in the first half of 1997.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In addition, the Telecommunications Act will permit RBOCs to provide interLATA
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. Most of the RBOCs have
indicated their intention to petition the FCC during 1997 for permission to
provide interLATA interexchange services in one or more states within their home
market. On June 26, 1997, the FCC denied an application by SBC Communications
Inc. to provide in-region interLATA services originating in Oklahoma. On May 21,
1997, Ameritech Michigan filed an application to provide in-region interLATA
services originating in Michigan, and a decision on that application must,
according to the Telecommunications Act, be rendered within 90 days (i.e., by
August 19, 1997). To the extent that the RBOCs obtain in-region interLATA
authority before the Telecommunications Act's checklist of conditions have been
fully or satisfactorily 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
providing both local service and combined service packages. 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 or
limitations in providing local service or combined service packages could
adversely affect AT&T's future revenues and earnings.
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. 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.
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, including statements concerning future operating performance, AT&T's
share of new and existing markets, AT&T's short- and long-term revenue and
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
earnings growth rates, and general industry growth rates and AT&T's performance
relative thereto. These forward looking statements rely on a number of
assumptions concerning future events, including the adoption and implementation
of balanced and effective rules and regulations by the FCC and the state public
regulatory agencies, and AT&T's ability to achieve a significant market
penetration in new markets. These forward looking statements 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. These factors include, but are not limited to:
- - the efficacy of the rules and regulations to be adopted by the FCC and state
public regulatory agencies to implement the provisions of the Telecommunications
Act; and the impact of regulatory changes relating to access reform and
international settlement reform;
- - the outcome of negotiations with LECs and state regulatory arbitrations and
approvals with respect to interconnection agreements; and the ability to
purchase unbundled network elements or wholesale services from LECs at a price
sufficient to permit the profitable offering of local exchange service at
competitive rates;
- - success and market acceptance for new initiatives, many of which are untested;
the level and timing of the growth and profitability of new initiatives,
particularly local (consumer and business) service, business data service,
personal communications service and AT&T Worldnet service; start-up costs
associated with entering new markets, including advertising and promotional
efforts; successful deployment of new systems and applications to support new
initiatives; and local conditions and obstacles;
- - competitive pressures, including pricing pressures, ____ technological
developments, alternative routing developments, and the ability to offer
combined service packages that include local service; the extent and pace at
which different competitive environments develop for each segment of the
telecommunications industry; the extent at and duration for which competitors
from each segment of the telecommunications industry are able to offer combined
or full service packages prior to AT&T being able to; and the degree to which
AT&T experiences material competitive impacts to its traditional service
offerings prior to achieving adequate local service entry;
- - the availability, terms and deployment of capital; the impact of regulatory
and competitive developments on capital outlays; and the ability to achieve cost
savings and realize productivity improvements; and
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
factors that could cause actual results to differ materially from such forward
looking statements, see "Results of Operations", "Financial Condition",
"Regulatory and Legislative Developments", and "Competition" included in this
Form 10-Q. 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>
AT&T Form 10-Q - Part II
Item 1. Legal Proceedings
On July 6, 1997 MCI Telecommunications Corp. and Ronald A. Katz Technology
Licensing, L.P. filed suit in United States District Court in Philadelphia,
Pennsylvania against AT&T. The suit alleges that a number of AT&T services
infringe patents owned by Katz but licensed to MCI for enforcement against AT&T.
AT&T is reviewing the allegations of the Complaint. Based on review to date, it
is management's opinion that the claims do not present any material monetary
liability or financial impact to AT&T that is not subject to patent indemnity
agreements with third-party equipment vendors.
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) The annual meeting of the shareholders of the registrant was held on May 21,
1997.
(b) Election of Directors(*)
<TABLE>
<CAPTION>
Votes
(Millions)
Nominee For Withheld
<S> <C> <C>
Robert E. Allen 1,275 35
Kenneth T. Derr 1,283 26
M. Kathryn Eickhoff 1,284 26
Walter Y. Elisha 1,284 26
George M. C. Fisher 1,285 25
Ralph S. Larsen 1,284 25
Donald F. McHenry 1,282 27
Michael I. Sovern 1,283 27
John R. Walter 1,284 25
Thomas H. Wyman 1,282 28
</TABLE>
* In June 1997, John D. Zeglis was elected as a member and vice chairman
of the board of directors. In July 1997, John R. Walter resigned as a
member of the board of directors and Donald V. Fites was
elected as a member of the board of directors.
(c) _____ Holders of common shares voted at this meeting on the following
matters, which were set forth in the registrant's proxy statement dated
April 1, 1997.
<PAGE>
AT&T Form 10-Q - Part II
(i) Ratification of Auditors
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
Ratification of the firm 1,294 9 8
of Coopers & Lybrand L.L.P. (99.3%) (.7%)
as the independent auditors
to audit the registrant's
financial statements for
the year 1997.(*)
</TABLE>
<TABLE>
<CAPTION>
(ii) Directors Proposals
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
That the Shareholders 972 96 38 204
approve the AT&T 1997 (60%) (6%) (2%) (13%)
Long Term Incentive
Program.(**)
</TABLE>
*Percentages are based on the total common shares voted. Approval of this
proposal required a majority of the common shares voted.
**Percentages are based on total number of outstanding common shares. Approval
of this proposal required a majority of the outstanding common shares.
<PAGE>
AT&T Form 10-Q - Part II
(iii)Shareholder Proposals
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
That the management will 69 972 64 204
be required to advise the (6.7%) (93.3%)
shareholders how many
corporate dollars are
being spent for
political purposes and
to specify what political
causes the management
seeks to promote with
these funds.(*)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
That the board adopt 74 918 114 204
policies for dealings (7.4%) (92.6%)
with China and the former
Soviet Union regarding
the use of slave or
forced labor to produce
goods and services purchased
by the company, its
subsidiaries, affiliates, or
joint ventures, and regarding
the distribution the Company's
products and services to
facilities utilizing slave or
forced labor, and that the
Company shall pursue the right
of on-site inspection, and the
Company shall cooperate with
the United States and
international organizations
in their laws or policies to
discourage the use of slave
or forced labor. (*)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AT&T Form 10-Q - Part II
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
That along with the brief 96 957 52 204
biography of the people (9.1%) (90.9%)
nominated for AT&T's company
directors, a personal state-
ment of belief should be
published, which should
include where the director
wants the company to go,
how they want the company
to get there and what the
director has done in the past.(*)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
That the board institute a 150 905 51 204
comprehensive Executive (14.2%) (85.8%)
Compensation Review, which
will consider 1) whether the
compensation of corporate
executives should be frozen
during periods of
significant corporate down-
sizing and cost-cutting; 2)
whether company performance
targets should be measured
relative to peer group
companies, rather than only
by internally set goals; 3)
what are appropriate performance
measurements for the long-term
incentive program during the
period of restructuring; 4) how
executive compensation will be
adjusted in light of AT&T's
smaller size following the
restructuring; 5)whether a cap
should be placed on compensation
packages for officers to prevent
our company from paying excessive
executive compensation; and 6) ways
to link compensation to social and
environmental performance.(*)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AT&T Form 10-Q - Part II
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
That the board of directors 118 935 53 204
provide that all future (11.2%) (88.8%)
non-cash compensation
components, such as options
that are designed to help
retain senior management, are
nullified if the manager
leaves the company before
retirement.(*)
</TABLE>
*Percentages are based on the total common shares voted. Approval of this
proposal required a majority of the common shares voted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number
10 Agreement and Release between AT&T Corp. and Richard W. Miller
dated May, 1997.
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K dated January 15, 1997 was filed pursuant to Item 5 (Other
Events) and Item 7 (Financial Statements and Exhibits). Form 8-K dated
March 3, 1997 was filed pursuant to Item 5 and Item 7. Form 8-K dated June
19, 1997 was filed pursuant to Item 5 and Item 7. Form 8-K dated July 15,
1997 was filed pursuant to Item 5.
<PAGE>
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 12, 1997 /s/ Maureen B. Tart
-------------------
M. B. Tart
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
AT&T Form 10-Q
Exhibit Index
Exhibit
Number
10 Agreement and Release between AT&T Corp. and Richard W. Miller
dated May, 1997.
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
<PAGE>
Exhibit 12
Form 10-Q
For the Three
Months Ended
June 30, 1997
<TABLE>
<CAPTION>
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended
June 30, 1997
<S> <C>
Income from Continuing Operations
Before Income Taxes ................................. $3,371
Less Interest Capitalized during
the Period........................................... 129
Add Equity Investment Losses, net of distributions
of Less than 50% Owned Affiliates.................. 76
Add Fixed Charges...................................... 549
Total Earnings from Continuing
Operations Before Income Taxes
and Fixed Charges.................................... $3,867
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $ 378
Interest Portion of Rental Expense..................... 171
Total Fixed Charges................................ $ 549
Ratio of Earnings to Fixed Charges..................... 7.0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T Corp. at June 30, 1997 and the unaudited
consolidated statement of income for the six-month period ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 200
<SECURITIES> 0
<RECEIVABLES> 9,669
<ALLOWANCES> 987
<INVENTORY> 0
<CURRENT-ASSETS> 16,844
<PP&E> 40,824
<DEPRECIATION> 20,840
<TOTAL-ASSETS> 55,191
<CURRENT-LIABILITIES> 15,288
<BONDS> 7,216
0
0
<COMMON> 1,625
<OTHER-SE> 19,683
<TOTAL-LIABILITY-AND-EQUITY> 55,191
<SALES> 0
<TOTAL-REVENUES> 26,221
<CGS> 0
<TOTAL-COSTS> 22,972
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,213
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 3,371
<INCOME-TAX> 1,290
<INCOME-CONTINUING> 2,081
<DISCONTINUED> 4
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,085
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 0
</TABLE>
AGREEMENT AND RELEASE
This AGREEMENT is made this _____ day of May, 1997 by and between AT&T
Corp., (hereinafter "Company" or "AT&T") and Richard W. Miller (hereinafter
"Employee").
WHEREAS, Employee has been employed by AT&T since August 9, 1993; and
WHEREAS, Employee and the Company have decided to settle fully and finally
all obligations related to Employee's employment and resignation from the
Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
1. Employee will resign his active employment with the Company on or before
June 2, 1997, this date or such later resignation date under Paragraph 8,
hereinafter "Resignation Date".
2. Should Employee die after executing this Agreement but before the
intended Resignation Date, this Agreement shall be null and void in its
entirety.
3. As special consideration for this Agreement, the Company will provide
the following:
a. Special AT&T Performance Share Treatment: In accordance with the terms
and conditions of such grants, Employee's 12,436 AT&T Performance
Shares/Stock Units for the 1995-1997 performance period, 12,436 AT&T
Performance Shares/Stock Units for the 1996-1998 performance
period and 17,000 AT&T Performance Shares for the 1997-1999
performance period would be canceled as of the Resignation Date.
However, notwithstanding the foregoing, the Company agrees that for
the sole purpose of such three Performance Share grants, the Company
will treat Employee as if he were a Service Pensioner under the AT&T
Management Pension Plan, i.e., the Company will permit Employee to
retain 100% of all three undistributed Performance Share grants. Such
retained Performance Shares will be continued after the Resignation
Date under the terms and conditions applicable to a Service
Pensioner. For grants related to performance periods 1995-97
and 1996-98, payout will be at 100% of target per the resolution of
the Compensation Committee of the Board, and for the grant related to
performance period 1997-99, the payout will be based on achievement
of corporate performance criteria established by the Board for such
period. All payouts/distributions associated with these grants will
not be eligible for deferral under the AT&T Senior Management
Incentive Award Deferral Plan.
b. Special AT&T Stock Option Treatment: In accordance with the terms of
such awards, Employee's AT&T Stock Options granted in 1994 and any
prior year which are unexercised as of the Resignation Date would be
canceled as of such Resignation Date and Employee's AT&T Stock Options
granted on January 3, 1995, September 25, 1995 and January 31, 1997,
which are unexercised as of the Resignation Date would be canceled 90
days after such Resignation Date. However, notwithstanding the
foregoing, all such AT&T Stock Options and related Lucent/NCR SARs
will not be canceled (See Appendix A). All such outstanding Options
and SARs, with the exception of Leveraged Stock Option grant dated
September 25, 1995, will continue to be exercisable in accordance with
their terms applicable to a Service Pensioner. With respect to the
September 25, 1995 Leveraged Stock Option grant, such grant shall
continue to vest and be exercisable in accordance with its provision
without regard to the term which provides for cancellation upon
termination of employment.
c. Restricted Stock Units: In accordance with the terms of such awards,
Employee's 30,008 AT&T Restricted Stock Unit Award granted September
25, 1995, and unvested as of the Employee's Resignation Date would be
canceled as of such Resignation Date. However, notwithstanding the
foregoing, Employee will be permitted to retain such Restricted Stock
Units in accordance with its terms without regard to the term which
provides for cancellation upon termination of employment.
d. Annual Incentive Treatment: In March 1998, Employee will receive
prorated 1997 AT&T Performance Award (APA) and Merit Award (MA). The
amount of such APA/MA will be determined in accordance with plan
provisions.
e. Special Pension Treatment: The Company will pay Employee for his
lifetime an individual non-qualified Special Pension payable
monthly from operating income in the amount of $9,750 per month
commencing on the first of the month following the month of
Resignation. (This is a single life annuity and, therefore, no
surviving spouse benefit is payable. In the event any "ad hoc"
inflation adjustment is made after Employee's Resignation Date to
the AT&T Non-Qualified Pension Plan (AT&TNQPP), the amount of
Special Pension payable to Employee will be increased by same
percentage which is applicable to Service Pensioners who retired
on Employee's Resignation Date and utilizing any other terms and
conditions of such ad hoc adjustment provision.
4. Except as provided in Paragraphs 3 and 4 of this Agreement, Employee
hereby waives any and all claims to salary, incentives, payments, or benefits of
any kind, including, but not limited to, any entitlements Employee may have
under his Employment Agreement with the Company signed and dated by Employee on
October 26, 1993 and any amendments thereto, other than:
a. Employee and/or his survivors, will receive payout of previously deferred
incentive plan awards made under the AT&T Senior Management Incentive Award
Deferral Plan in accordance with Employee's elected payout schedules and with
the terms and conditions of the plan.
b. Those payments and other benefits shown in Appendix B.
5. Except as required by law or valid legal process, Employee shall not
disclose or discuss, other than with legal counsel, personal tax or financial
advisors, or members of Employee's immediate family, any facts concerning the
negotiation, execution or implementation of this Agreement. Moreover, Employee
specifically agrees that he will not criticize, denigrate or otherwise speak
adversely or originate, disclose or otherwise be the source of any negative
information about the operations, management or performance of the Company,
affiliates of the Company, or about any director, officer, employee or agent of
any of the foregoing; or the circumstances related to his resignation, other
than to state that Employee was Senior Executive Vice President and Chief
Financial Officer - AT&T and that he resigned voluntarily therefrom to pursue
other opportunities.
6. Employee specifically covenants that:
Paragraphs 3 (a), 3 (b) and 3 (c), provide for the extension of certain
grants made under the AT&T 1987 Long Term Incentive Program (the
"Program"), ____ after ____ the Resignation Date (under the terms and
conditions of the Program and/or related individual grant agreements, such
grants would have been canceled at the Resignation Date or within 90 days
of such Resignation Date). Continuation and payout of such Program grants
under the provision of the Program and/or related individual grant
agreements and this Agreement, are conditioned upon Employee adhering to
and not violating the AT&T Non-Competition Guideline (Appendix C). Benefits
provided for under Paragraphs 3 (d) and 3(e) will also be conditioned upon
Employee adhering to and not violating the AT&T Non-Competition Guideline.
Such Guideline, in addition to _____ Non-Competition constraints includes a
provision which calls for forfeiture of benefits in the event Employee
engages in activities in conflict with or adverse to the interest of the
Company.
b. The Employee recognizes and acknowledges that the Company considers its
confidential and proprietary information and trade secrets to be among its
most valuable assets, including, but not limited to, its customer and
vendor lists, databases, computer programs, frameworks, models, its
marketing programs, its sales, financial, marketing, training and technical
information, and any other information, whether communicated orally,
electronically, in writing or in other tangible forms concerning how AT&T
creates, develops or maintains its products, services and its marketing
plans, targets its potential customers and operates its business. The
parties to this Agreement recognize that AT&T has invested, and continues
to invest, considerable amounts of time and money in obtaining and
developing the goodwill of its customers, its other external relationships,
its data systems and data bases, and all the proprietary and other
information described above (hereinafter collectively referred to as "AT&T
Confidential Information"), that it is essential to the protection of
AT&T's goodwill and to the maintenance of AT&T's competitive position and
that AT&T Confidential Information be kept secret and that Employee not
disclose AT&T Confidential Information to others or use AT&T Confidential
Information to Employee's own advantage or the advantage of others, and
agrees that any misappropriation or unauthorized disclosure of AT&T
Confidential Information (including trade secrets) in any form would
irreparably harm AT&T. (Such AT&T Confidential Information does not include
any publicly available material.) Employee affirms his obligation to keep
secret all AT&T Confidential Information and that he will not disclose it
to any third party in the future.
c. Employee acknowledges that the restrictions set forth in this Paragraph
6 are necessary and reasonable to prevent the use and disclosure of AT&T
Confidential Information and to otherwise protect the legitimate business
interests of the Company. Employee further acknowledges that when
Employee's employment with AT&T terminates, he will be able to earn a
livelihood without violating any of the foregoing restrictions.
7. Employee acknowledges that remedies at law, and those remedies
contained in Paragraph 11, for any breach by Employee of the provisions of
Paragraph 6 will be inadequate and that the Company shall be entitled to
injunctive relief against Employee in the event of any such breach, in addition
to any other remedy and damages available. Employee acknowledges that the
restrictions contained therein are reasonable, but agrees that if any court of
competent jurisdiction shall hold such restrictions unreasonable as to time,
geographic area, activities, or otherwise, such restrictions shall be deemed to
be reduced to the extent necessary in the opinion of such court to make them
reasonable. Any waiver, or failure to seek enforcement or remedy for any breach
or suspected breach of any provision of this Agreement by the Company in any
instance shall not be deemed a waiver of such provision in the future or any
other provision.
8. If Employee becomes disabled after executing this Agreement, but before
June 2, 1997, and if he is receiving or entitled to receive sickness or
accident disability benefit payments from the Company as of June 3, 1997, then:
a. Should Employee die while disabled and receiving sickness or accident
benefit payments, this Agreement shall be null and void in its entirety; OR
b. Should Employee's period of disability be determined by the Company to
terminate prior to the expiration of the period during which in accordance wit
the terms of the Sickness and Accident Disability Benefit Plan, he could become
entitled to receive sickness and accident disability benefit payments, Employee
will resign his active employment with the Company effective on the day
following the last day of disability for which he receives such payments
(hereinafter his "actual resignation date"); further, Employee understands and
agrees that, in such event, the total amount of the incentive/pension payments
specified in Paragraph 3 above shall be reduced by the total amount of sickness
or accident disability benefit payments which he has received from the Company
for the period of disability after his intended resignation date, i.e., June 2,
1997 to his actual resignation date inclusive and shall be paid out in
accordance with Paragraph 3 above OR
c. Should Employee be determined by the Company to continue to be disabled at
the expiration of the period during which he is entitled to receive sickness or
accident disability benefit payments, Employee understands and agrees that he
will thereupon be retired by action of the Company's Benefit Committee,
effective on the day following the last day of eligibility for such sickness or
accident disability payments (hereafter his "actual resignation date") and that,
under such circumstances, the total amount of the incentive/pension payments
specified in Paragraph 3 above shall be reduced by the total amount of sickness
or accident disability benefit payments which he has received from the Company
for the period of disability after his intended resignation date, i.e., from
June 2, 1997 to his actual resignation date inclusive and shall be paid out in
accordance with Paragraph 3 above.
9. The Employee agrees that he will submit all vouchers for reasonable
business expenses prior to his Resignation Date or as soon thereafter as is
practicable. The Employee understands and agrees that after his Resignation Date
he will no longer be authorized to incur any expenses, obligations or
liabilities on behalf of the Company.
10. In accordance with his existing and continuing obligations to the
Company, Employee agrees (except as indicated in the last sentence of this
Paragraph) to return to the Company, on or before his Resignation Date, all
Company property or copies thereof, including, but not limited to, files,
records, computer access codes, computer programs, instruction manuals,
documents, business plans and other property which he received or prepared or
helped to prepare in connection with his employment with the Company, and to
assign to the Company all right, title and interest in such property, and any
other inventions, discoveries or works of authorship created by Employee during
the course of his employment. Employee may retain the Company equipment listed
in Appendix E.
11. Employee understands and agrees that a violation of any portion of
Paragraphs 5, 6, or 10, relating to the negotiation of the Agreement, disclosure
of adverse information about the Company, violation of the AT&T Non-Competition
Guideline, the return of Company property, (except the Company car if Employee
elects to purchase such vehicle), and the use or disclosure of AT&T Confidential
Information, will be considered a material breach of this Agreement, for which
Employee will forfeit all benefits (other than tax qualified welfare and
retirement plan benefits) as well as any monies not already paid under this
Agreement and/or be obligated to return immediately all monies which have
already been paid under this Agreement - except $1,000.00. The provisions of
this Paragraph 11 in no way limit the Company's right to also commence an action
for damages and/or pursue other legal or equitable remedies in the event
Employee breaches any provision of this Agreement. In the event that the Company
takes such action, all of Employee's other obligations under this Agreement
shall remain in full force and effect.
12. Employee acknowledges that there are various state local
and federal laws that prohibit employment discrimination on the basis of age,
sex, race, color, national origin, religion, disability, sexual orientation or
veteran status and that these laws are enforced through the Equal Employment
Opportunity Commission, Department of Labor and State or Local Human Rights
agencies. Such laws include, without limitation, Title VII of the Civil Rights
Act of 1964 as amended 42 U.S.C. Sec. 2000 et. seq.; the Age Discrimination in
Employment Act, 29 U.S.C. Sec. 621 et. seq.; the Americans with Disabilities
Act, 42 U.S.C. Sec. 12101; the Employee Retirement Income Security Act, as
amended 29 U.S.C. Sec. 1001 et. seq.; and 42 U.S.C. Section 1981, and other
state and local human or civil rights laws as well as other statutes which
regulate employment; and the common law of contracts and torts. In consideration
of this Agreement, Employee hereby waives and releases any rights he may have
under these laws as to events which have occurred prior to the date of this
Agreement or Resignation Date, whichever is later. Employee, also waives any
right to become, and promises not to consent to become, a member of any class in
a case in which claims are asserted against any Releasee that is related in any
way to his employment or the termination of his employment with AT&T, and that
involve events which have occurred as of the date of this Agreement or
Resignation Date. If Employee, without his prior knowledge and consent is made a
member of a class in any proceeding, he shall opt out of the class at the first
opportunity afforded to him after learning of his inclusion. In this regard
Employee agrees that he will execute, without objection or delay, an "opt-out"
form presented to him either by the court in which such proceeding is pending or
by counsel for any Releasee who is made a defendant in any such proceeding.
13. Employee, on behalf of himself, his heirs, executors,
administrators, successors and assigns, releases and discharges the Company and
its successors, assigns, subsidiaries, affiliates, directors, officers,
representatives, agents and employees ("Releasees") from any and all claims,
including claims for attorney's fees and costs, charges, actions and causes of
action, including but not limited to those with respect to his employment or
termination of employment with the Company, as well as from all claims for
personal injury, actual or potential, to the date of this Agreement or
Employee's Resignation Date, whichever is later. This includes, but is not
limited to, claims arising under federal, state, or local laws prohibiting age,
sex, race or any other forms of discrimination or claims growing out of any
legal restrictions on the Company's right to terminate its employees. Employee
represents that he has not filed any charge or lawsuit against the Company with
any governmental agency or Court and that he will not institute any actions
against the Company or any Releasee for any reason. With respect to any
administrative charges that have been or may be filed concerning events or
actions relating to his employment or the termination of his employment that
occurred on or before Resignation Date, Employee waives and releases any right
he may have to recover in any lawsuit or proceeding brought by him or by an
Administrative Agency on his behalf. If Employee breaches this Paragraph,
Employee understands that he will be liable for all expenses, including costs
and reasonable attorney's fees, incurred by any Releasee in defending the
lawsuit or charge of discrimination. Employee agrees to pay such expenses within
thirty (30) calendar days of written demand. This Paragraph is not intended to
limit Employee from instituting legal action for the sole purpose of enforcing
this Agreement.
14. Except to the extent expressly provided herein, nothing in
this Agreement shall be deemed to alter, amend, modify or otherwise affect any
employee benefit, compensation or other plan, program or policy maintained by
the Company or any provision thereof.
15. If any provision, or portion thereof, of this Agreement is
determined to be invalid under applicable statute or rule of law, only such
provision, and only to the extent determined to be invalid, shall be deemed
omitted from this Agreement, the remainder of which shall remain fully in force
and effect.
16. The construction, interpretation and performance of this
Agreement shall be governed by the laws of the State of New Jersey without
regard to Conflict of Laws principles.
17. Employee understands that, pursuant to the Older Workers
Benefit Protection Act of 1990, he has the right to consult with an attorney
before signing this Agreement, he has 21 days to consider the Agreement before
signing it and he may revoke the Agreement within seven (7) calendar days after
signing it. Employee further understands that the Agreement will not become
effective or enforceable until the seven day revocation period has expired.
18. Employee promises and agrees that in consideration of a
payment of one thousand dollars ($1,000) to be made within ten business days
subsequent to his Resignation Date, in addition to the benefits set forth in
Paragraph 3 and 4, Employee will execute a release of all claims relating to his
employment during the period from the execution of this Agreement to his
Resignation Date. A copy of such release is attached as Appendix D to this
Agreement.
19. This Agreement, consisting of eight pages containing
nineteen paragraphs and three Appendices constitutes the entire agreement
between the Company and Employee with respect to the subject matter hereof and
shall not be amended, modified, or amplified without specific written provision
to that effect, signed by both parties. No oral statement of any person
whosoever shall, in any manner or degree, modify or otherwise affect the terms
and provisions of this Agreement. Accordingly, this Agreement supersedes and
completely replaces any prior oral or written communication on this subject.
By signing this Agreement, Employee states that;
a) He has read it and has had sufficient time to consider its terms;
b) He understands it and knows that he is giving up important
rights;
c) He agrees with everything in it;
d) He is aware of his right to consult an attorney before signing it;
and has been so advised
e) He has signed it knowingly and voluntarily.
Witnesses:
- ---------------------- -------------------------- ----------------
Employee Date
- ---------------------- -------------------------- ----------------
For the Company Date
THIS IS A LEGAL AGREEMENT, RELEASE
AND COVENANT NOT TO SUE
READ CAREFULLY BEFORE SIGNING
Appendices
<PAGE>
<TABLE>
<CAPTION>
Richard Miller Stock Option/SAR Status as of: 3/18/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Option
Number Date Type Price Granted Excercised Cancelled* Vested Unvested Outstanding Excercisable
24228 8/9/93 NQ $44.1746 36,981 0 13,405 23,576 0 23,576 23,576
24229 8/9/93 NQ $44.1746 71,448 0 25,899 45,549 0 45,549 45,549
24389 1/3/94 NQ $36.9580 36,981 0 13,405 23,576 0 23,576 23,576
26137 1/3/95 NQ $34.9461 44,699 0 16,202 18,998 9,499 28,497 18,998
LV0006 9/25/95 NQ $44.4371 357,246 0 0 0 357,246 357,246 0
32431 1/31/97 NQ $39.3125 128,000 0 0 0 128,000 128,000 0
675,355 0 68,911 111,699 494,745 606,444 111,699
*Cancellations due to impact of balancing stock options at Lucent and NCR spin. See SAR information below.
</TABLE>
<TABLE>
<CAPTION>
Lucent SAR Status
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Option
Number Date Type Price Granted Excercised Cancelled* Vested Unvested Outstanding Excercisable
24228 8/9/93 SAR $50.9241 10,396 0 0 10,396 0 10,396 10,396
24229 8/9/93 SAR $50.9241 20,086 0 0 20,086 0 20,086 20,086
24389 1/3/94 SAR $42.6048 10,396 0 0 10,396 0 10,396 10,396
26137 1/3/95 SAR $40.2855 12,565 0 0 8,376 4,189 12,565 8,376
53,443 0 0 49,254 4,189 53,443 49,254
</TABLE>
<TABLE>
<CAPTION>
NCR SAR Status
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Option
Number Date Type Price Granted Excercised Cancelled* Vested Unvested Outstanding Excercisable
24228 8/9/93 SAR $40.2545 1,473.500 0.000 0.000 1,473.500 0.000 1,473.500 1,473.500
24229 8/9/93 SAR $40.2545 2,846.813 0.000 0.000 2,846.813 0.000 2,846.813 2,846.813
24389 1/3/94 SAR $33.2961 1,473.500 0.000 0.000 1,473.500 0.000 1,473.500 1,473.500
26137 1/3/95 SAR $31.3553 1,781.063 0.000 0.000 1,187.375 593.688 1,781.063 1,187.375
7,574.876 0.000 0.000 6,981.188 593.688 7,574.876 6,981.188
</TABLE>
<PAGE>
Appendix B
Item Treatment
a) Base Salary Employee receives base salary through
Resignation Date.
b) Employee Benefits and Employee will be covered under
Senior Management Benefits general employee benefit plans and
(except as otherwise noted Senior Management benefit and
below) prerequisite plans/programs and
practices through Resignation Date.
c) AT&T Long Term Incentive Program
Any awards granted to Employee
under this Program which are not
specified in Paragraph 3 will be
cancelled as of the Resignation Date.
d) Medical/Dental/Vision (After Company paid Medical/Dental/Vision
Resignation Date) will continue through the Resignation
Date. Under COBRA (Consolidated
Omnibus Budget Reconciliation Act of
1985), coverage can be continued at
Employee's expense for lesser of 18
months or until Employee becomes
eligible for coverage under another
employer's plan.
The Federal government's rules of
regarding participation in tax
qualified medical plans currently
precludes your participation in the
Company's post-retirement medical
plan for all Management employees.
However, the Company is currently
considering the implementation of a
special medical plan for certain
retired Senior Managers.
In the event this special Senior
Management program is approved prior
to the expiration of your COBRA
medical coverage, you will be
permitted to participate in this
program on the same basis as service
pension eligible Senior Managers (or,
as determined by the company, a
comparable program for non-Service
Pension eligible Senior Managers.)
f) AT&T Senior Management Coverage will cease on Resignation
Individual Life Insurance Date. Employee may assume policy if
Program (AT&T SMILIP) (After he so elects by paying 100% of the
Resignation Date) premium. Company premium
contributions to policy cease on
Resignation Date and Company will
withdraw all prior premium
contributions.
g) AT&T Senior Management Employee's coverage will cease on
Basic Life Insurance (After Resignation Date.
Resignation Date)
h) Supplemental Variable Employee, via insurance carrier, will
Universal Life Insurance be given the option to continue
on an individual basis.
i) AT&T Senior Management Bills submitted for service prior to
Telephone Reimbursement Program Resignation Date will be covered.
Reimbursement privileges cease at
Resignation Date.
j) Financial Counseling Employee, upon Resignation Date,
will not be eligible to participate
in the program. The Company will
pay for any services provided prior
to Resignation Date as well as income
tax preparation in 1998 for 1997.
k) Company Car If Employee elects not to purchase
his leased automobile, such vehicle
will be returned to the Company on or
before the Resignation Date.
l) Vacation Days The June 2, 1997 Resignation
Date is predicated on employee
utilizing all vacation and carryover
vacation days prior to such date.
<PAGE>
Appendix C
AT&T
Non-Competition
Guideline
Summary
<PAGE>
INTRODUCTION
In order to protect the interests of the Company, its shareholders, its
employees and its customers, AT&T requires that an employee who is eligible to
receive benefits under various Senior Management incentive and compensation
plans forfeit those benefits if he or she competes with the Company after
termination of employment. The standard used to determine "competing" and an
explanation of the administrative process used to evaluate activity are
described in full in the AT&T Non-Competition Guideline, which has been approved
by the AT&T Board of Directors.
This brochure summarizes the Guideline and is intended as a reference guide
only. A copy of the complete Guideline may be obtained by requesting a copy from
the Director, Executive Human Resources, AT&T Corporate Headquarters.
GENERAL INFORMATION
Responsibility for interpreting, administering and implementing the provisions
of the Guideline rests with the AT&T Management Committee, which was established
and authorized by the Board to resolve all questions and handle all matters in
connection with competition and forfeiture of benefits. At least three, but no
more than five, Senior Officers serve on the Committee.
The Committee may make minor changes in the Guideline and to those incentive and
compensation plans which are subject to the Guideline's procedures. Changes may
be made without notice whenever the Committee considers the changes necessary to
fairly and consistently administer the Guideline and to protect the Company's
interests. The Committee's decisions about forfeiture of benefits and what is
competitive activity are final.
No act of the Company, the Committee or any employee acting in connection with
the Guideline and its provisions is in any way intended to interfere with any
individual's right to consider, accept, continue or terminate employment to
engage in any activity or to establish any kind of business or ownership
interest with any enterprise.
FORFEITABLE BENEFITS
Under the terms of the following plans, the benefits they pay are forfeitable
(or immediately payable): AT&T Senior Management Short Term Incentive Plan, AT&T
Senior Management Long Term Incentive Plan, AT&T 1984 Stock Option Plan, AT&T
Non-Qualified Pension Plan, AT&T Senior Management Life Insurance Program, AT&T
Senior Management Long Term Disability and Survivor Protection Plan, AT&T Senior
Management Individual Life Insurance Program, AT&T Incentive Award Deferral
Plan, AT&T Deferred Compensation Plan for Non-Employee Directors, AT&T Senior
Management Financial Counseling Program and the AT&T Mid-Career Pension Plan.
The Board or Committee may make other plans subject to this Guideline.
AFFECTED INDIVIDUALS
An individual whether a present or former employee, is subject to the Guideline
and to having activity evaluated if he or she has received, is receiving or is
entitled to receive benefits according to any of the Plans listed above.
WHAT IS COMPETITIVE ACTIVITY
An individual's activity is competitive activity and his or her benefits are
forfeitable if that individual either (A) engages in activity in conflict with
or adverse to the interests of the Company or (B) establishes a relationship
with a competitor of the Company.
"Establishing a relationship" includes founding, organizing, establishing,
becoming associated with, becoming employed by, rendering services to,
consulting or acting as consultant to, being a partner in or owning a
substantial interest in as shareholder or otherwise (such as, for example, an
interest subject to the reporting requirements of Section 13(d) of the
Securities Exchange Act of 1934).
A "competitor of the Company" is a business, entity or enterprise which either
(A) designs, develops, manufactures, produces, offers for sale or sells a
product or service which can be used as a substitute for, performs substantially
the same function as, is a practical alternative for or is generally intended to
satisfy the same customer or client needs for any product or service designed,
developed, manufactured, produced, offered for sale or sold by the Company or
(B) is a business which the Committee, based upon review of the individual facts
and circumstances and in its discretion and judgment, determines, in order to
protect the best interests of the Company, to be a competitor within the spirit
and intent of the Guideline and the non-competition clauses of various Plans.
THE EVALUATION PROCESS
Anyone who is considering engaging in an activity which a reasonable person
might consider competitive activity as described above should notify the
Director, Executive Human Resources, and request that the Company evaluate the
activity to determine whether it is competitive.
To insure that the Company's evaluation is fairly based on all relevant facts
and circumstances, an individual who requests a determination should provide the
Company in writing with all information he or she believes to be relevant to the
inquiry as well as a full explanation of the contemplated activity which
describes
- - the contemplated relationship, including (as applicable) the proposed
position, title, responsibilities and the nature and extent of the ownership
interest;
- - the nature of the business, including, for example, all products and/or
services currently being or expected to be designed, developed, manufactured,
produced, offered for sale or sold by the business; and
- - the most recently available financial information on the business
The Company has the right to initiate an evaluation of an individual's activity.
An evaluation will be instituted when it is requested by or on behalf of the
head of any of the Company's lines of business or a member of the Board or the
Committee. The Director, Executive Human Resources, will notify the individual
in writing that an evaluation has been initiated and of the opportunity to
submit within a stated period of time information for the evaluators' and the
Committee's consideration. An individual whose activity is being evaluated is
strongly encouraged to provide the Committee with a written submittal such as
that described above.
An individual's contemplated or actual activity will be separately evaluated by
- - the head and an attorney serving as counsel to the head of each of the
Company's lines of business responsible for the design, development,
manufacture, production, offer for sale of the product or service with which the
activity is suspected to be in competition;
- - the head of each entity responsible for paying benefits under any of the
Plans listed above, or a delegate;
- - a Corporate Vice President-Law of the Company; and
- - any other individual whose evaluations the Committee designates as
appropriate.
Individuals who, for personal or professional reasons, have a conflict of
interest which they feel would prevent their fair and objective evaluation will
not participate but will delegate their responsibility to another in their line
of business or organization. Evaluations will be based on the individual's
submittal, the financial state of the line of business, the competitive
marketplace, the impact of the individual's leaving on his or her line of
business, the extent to which activity is adverse to the Company's interests and
all other relevant facts and circumstances. After evaluating the activity, each
person doing an evaluation will make to the Committee a recommendation of
appropriate action, identifying, if there are any, those facts or circumstances
not readily apparent from the submittal or not generally known but upon which
facts or circumstances the recommendation was based.
DETERMINATION
Final determination of whether an individual's activity is or is not competitive
activity will be made by the Committee and the Committee alone. The
determination will be based on the recommendations as described above, the best
interests of the Company and on all other facts and circumstances the Committee
deems pertinent.
After the Committee's determination, the Director, Executive Human Resources,
will notify the individual of the decision in writing.
If the Committee's determination is that activity is not competitive activity,
the individual may receive a letter advising of that determination. In such
case, the Committee reserves the right to seek, at whatever intervals it deems
appropriate, written assurance from the individual that the facts and
circumstances on which the evaluations and the determination were based have not
changed.
An individual who has not yet engaged in activity which would be considered
competitive activity will have the opportunity to provide the Company within a
reasonable period of time written assurance that he or she has not and will not
engage in such activity. If the Company receives such assurances no forfeiture
will result. If the individual fails to provide such assurance or if he or she
is already engaged in competitive activity and does not withdraw from it, then
the Director, Executive Human Resources, will coordinate termination of all
benefits with the Payroll, Benefit and all other affected organizations. The
Committee or its delegate may also take legal steps to recover any benefits
already paid.
OPPORTUNITY TO WITHDRAW
After activity has been evaluated and recommendations submitted as described
above, the Committee may determine that there are unusual or special
circumstances which are persuasive that withdrawal or denial of benefits is not
appropriate. In that case, the Committee may, in its discretion and judgment,
withhold termination or denial of benefits and offer the competitive activity.
An individual who receives such an offer will have a reasonable period of time
from the date of the offer to accept it and to provide the Committee assurance
in writing that the withdrawal has been accomplished, or the offer will lapse
and a notice to terminate benefits will be issued.
REEVALUATION
Even though activity has been previously evaluated and regardless of a prior
determination, the Company reserves the right without prior notice to reevaluate
activity if the Committee believes it is warranted. In case of a reevaluation,
the individual will be advised by the Director, Executive Human Resources, that
a reevaluation has been instituted and that he or she has the opportunity to
make a submittal such as that described above.
SUBSEQUENT COMPETITIVE ACTIVITY
If an individual establishes a relationship with a business which is not at that
time a competitor of the Company, but AT&T later engages in a line of business
which is competitive with any such product and/or service of the business, no
question of forfeiture arises. However, the Company may require forfeiture if
the person knew (or had reason to know) at the time the relationship was
established that AT&T intended to design, develop, manufacture, produce, offer
for sale or sell a competitive produce or service.
The Company may also invoke forfeiture if, within a reasonable time-normally
three years-after the individual engages in an activity, it becomes adverse to
AT&T's interests or competitive with AT&T. In such case, if the person advises
the Director, Executive Human Resources, that the activity may have become
competitive, he or she will have the opportunity to withdraw as described above,
without forfeiture. If the Company is not advised, or if the withdrawal is not
accomplished within the stated time, then all benefits paid after the point when
the activity became competitive are forfeitable.
CONSENT TO COMPETE
In very extraordinary circumstances and despite the fact that the individual's
competitive activity would be grounds for requiring forfeiture of benefits, the
Company may consent to the activity if the Committee determines that the
situation is only technically competitive and the facts are overwhelmingly
compelling that relief is warranted. In such a case, the Director, Executive
Human Resources, will provide a letter advising the individual of the Company's
decision. However, the Company does not waive by such consent the right to
withdraw the consent after it is issued, without prior notice, and to invoke the
non-competition clauses if, within a reasonable time-normally three years-
thereafter, the facts and circumstances change and it becomes in the Company's
best interest to require forfeiture.
This guideline is published by the Executive Human Resources group of AT&T
Corporate Headquarters. Questions and requests for additional copies may be
directed to Director, Executive Human Resources, AT&T Corporate Headquarters,
295 North Maple Avenue, Room 7244M3, Basking Ridge, NJ 07920.
October 1994
<PAGE>
APPENDIX D
GENERAL RELEASE OF ALL CLAIMS
Employee, on behalf of himself, his heirs, executors, administrators,
successors and assigns, releases and discharges the Company and its successors,
assigns, subsidiaries, affiliates, directors, officers, representatives, agents
and employees ("Releasees") from any and all claims, including claims for
attorney's fees and costs, charges, actions, and causes of action with respect
to, or arising out of, his employment or termination of employment with the
Company, as well as from all claims for personal injury, actual or potential,
relating to the period from May ____ , 1997 to Employee's Resignation Date. This
includes, but is not limited to, claims arising under federal, state or local
laws prohibiting age, sex, race, or any other forms of discrimination or claims
growing out of any legal restrictions on the Company's right to terminate its
employees. Employee represents that he has not filed any charge or lawsuit
against the Company with any governmental agency or Court and that he will not
institute any actions against the Company of any Releases for any reason . With
respect to any administrative charges that have been or may be filed concerning
events or actions relating to his employment or the termination of his
employment that occurred on or before Resignation Date, Employee waives and
releases any right he may have to recover in any lawsuit or proceeding brought
by him or by an Administrative Agency on his behalf. If Employee breaches this
Paragraph, Employee understands that he will be liable for all expenses,
including costs and reasonable attorney's fees, incurred by any Releasee in
defending the lawsuit or charge of discrimination. Employee agrees to pay such
expenses within thirty (30) calendar days of written demand. This Paragraph is
not intended to limit Employee from instituting legal action for the sole
purpose of enforcing this Agreement.
Employee understands that, pursuant to the Older Workers Benefit Protection
Act of 1990, he has the right to consult with an attorney before signing this
General Release of All Claims, he has 21 days to consider the Release before
signing it and he may revoke the Release within seven (7) calendar days after
signing it. Employee further understands that the Release will not become
effective or enforceable until the seven day revocation period has expired and
that the Special Payment (and other benefits provided in this Agreement) will
not be paid until such period has expired.
Notwithstanding the above provisions of this Appendix D, Employee shall not
be precluded from pursuing the enforcement of this Agreement in any manner.
By signing this Agreement and Release of All Claims, Employee states that:
a) He has read it and has had sufficient time to consider its terms;
b) He understands it and knows that he is giving up important rights;
c) He agrees with everything in it;
d) He is aware of his right to consult an attorney before signing it and
has been advised;
e) He has signed it knowingly and voluntarily.
Witnesses:
- -------------------- ----------------------- --------------------
Employee Date
- -------------------- ----------------------- --------------------
For the Company Date
<PAGE>
APPENDIX E
COMPAQ DESKPRO PERSONAL COMPUTER
HP 4L PRINTER
HP 950 FAX
TELEPHONE RECEIVERS (MOST 1993 VINTAGE)
2 TRIMLINE 230
2 FEATURE 705
1 TAS 1539
1 CORDLESS 5470
1 VIDEOPHONE 2500
1 PORTABLE CELLULAR 3760
1 DIGITAL CORDLESS 9100
