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 March 31, 1998
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 April 30, 1998, 1,624,198,000 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
Months Ended
March 31,
1998 1997
Revenues.................................. $12,631 $12,548
Operating Expenses
Access and other interconnection.......... 3,909 4,252
Network and other
communications services.................. 2,264 2,134
Depreciation and amortization ............ 1,016 930
Selling, general and administrative ...... 3,451 3,593
Asset impairment and restructuring charge. 601 -
Total operating expenses ................. 11,241 10,909
Operating income ......................... 1,390 1,639
Other income - net ....................... 700 168
Interest expense ......................... 48 52
Income from continuing operations
before income taxes ..................... 2,042 1,755
Provision for income taxes ............... 726 667
Income from continuing operations ........ 1,316 1,088
Income from discontinued operations
(net of taxes of $6 and $25)............. 10 38
Net income ............................... $ 1,326 $ 1,126
Weighted average common shares and
potential common shares (millions)*...... 1,639 1,628
Per common share - basic:
Income from continuing operations ....... $ 0.81 $ 0.67
Income from discontinued operations...... 0.01 0.02
Net income .............................. $ 0.82 $ 0.69
Per common share - diluted:
Income from continuing operations ....... $ 0.80 $ 0.67
Income from discontinued operations...... 0.01 0.02
Net income ............................... $ 0.81 $ 0.69
Dividends declared per common share....... $ 0.33 $ 0.33
*Amounts represent the weighted-average shares assuming dilution from the
potential exercise of stock options. Amounts are reduced by 16 million and 4
million for the three month periods ended March 31, 1998, and 1997,
respectively, assuming no dilution.
See Notes to Consolidated Financial Statements.
<PAGE> AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Share Amounts)
(Unaudited)
March 31, December 31,
1998 1997
ASSETS
Cash and cash equivalents .............. $ 231 $ 145
Receivables less allowances
of $1,008 and $977
Accounts receivable................... 8,528 8,573
Other receivables..................... 5,116 5,684
Deferred income taxes................... 1,323 1,252
Other current assets.................... 540 525
Total current assets.................... 15,738 16,179
Property, plant and equipment, net
of accumulated depreciation of
$22,659 and $21,853 .................. 21,913 22,710
Licensing costs, net of accumulated
amortization of $1,122 and $1,076..... 8,310 8,329
Investments............................. 3,441 3,857
Long-term receivables................... 1,776 1,794
Prepaid pension costs................... 2,259 2,156
Other assets............................ 2,449 2,509
Net assets of discontinued operations... 1,019 1,101
TOTAL ASSETS............................ $56,905 $58,635
(CONT'D)
<PAGE> AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Share Amounts)
(Unaudited)
March 31, December 31,
1998 1997
LIABILITIES
Accounts payable....................... $ 5,779 $ 6,243
Payroll and benefit-related
liabilities.......................... 1,646 2,348
Debt maturing within one year.......... 2,865 3,998
Dividends payable...................... 538 538
Other current liabilities.............. 4,563 3,815
Total current liabilities.............. 15,391 16,942
Long-term debt......................... 6,293 6,826
Long-term benefit-related liabilities.. 3,147 3,142
Deferred income taxes.................. 5,486 5,711
Other long-term liabilities and
deferred credits..................... 3,308 3,367
Total liabilities ..................... 33,625 35,988
SHAREOWNERS' EQUITY
Common shares - par value $1 per share. 1,624 1,624
Authorized shares: 2,000,000,000
Outstanding shares:
1,623,647,000 at March 31, 1998;
1,624,213,505 at December 31, 1997
Additional paid-in capital............. 15,765 15,751
Guaranteed ESOP obligation............. (58) (70)
Retained earnings...................... 5,957 5,380
Accumulated other comprehensive
income............................... (8) (38)
Total shareowners' equity.............. 23,280 22,647
TOTAL LIABILITIES & SHAREOWNERS' EQUITY $56,905 $58,635
See Notes to Consolidated Financial Statements.
<PAGE> AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Millions)
(Unaudited)
For the Three Months Ended
March 31,
1998 1997
Common Shares
Balance at beginning of year............... $ 1,624 $ 1,623
Shares issued, net:
Under employee plans..................... - 1
Under shareowner plans................... - -
Other.................................... - -
Balance at end of period..................... 1,624 1,624
Additional Paid-In Capital
Balance at beginning of year............... 15,751 15,697
Shares issued(acquired), net:
Under employee plans..................... (45) 20
Other.................................... 59 -
Balance at end of period..................... 15,765 15,717
Guaranteed ESOP Obligation
Balance at beginning of year............... (70) (96)
Amortization............................... 12 12
Balance at end of period................... (58) (84)
Retained Earnings
Balance at beginning of year............... 5,380 3,071
Net income................................. 1,326 $1,326 1,126 $1,126
Dividends declared......................... (536) (536)
Treasury shares issued at less than cost... (215) (24)
Other changes.............................. 2 3
Balance at end of period..................... 5,957 3,640
Accumulated Other Comprehensive Income
Balance at beginning of year............... (38) -
Other Comprehensive Income
(net of taxes of $23 and $9) ............ 30 30 (30) (30)
Total Comprehensive Income................. $1,356 $1,096
Balance at end of period..................... (8) (30)
Total Shareowners' Equity.................... $23,280 $20,867
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 Three Months Ended
March 31,
1998 1997
Operating Activities
Net income .............................. $ 1,326 $ 1,126
Deduct: Income from discontinued
operations ......................... 10 38
Income from continuing operations ....... 1,316 1,088
Adjustments to reconcile net income to
net cash provided by operating
activities of continuing operations:
Asset impairment and restructuring
charge.............................. 601 -
Gains on sales........................ (667) (97)
Depreciation and amortization......... 1,016 930
Provision for uncollectibles.......... 355 430
Increase in accounts receivable....... (368) (42)
Decrease in accounts payable.......... (41) (204)
Net increase in other operating
assets and liabilities.............. (65) (468)
Other adjustments for noncash
items - net......................... (320) (105)
Net cash provided by operating
activities of continuing operations.... 1,827 1,532
Investing Activities
Capital expenditures................... (1,439) (1,380)
Proceeds from sale or disposal of
property, plant and equipment........ 23 30
Decrease in other receivables.......... 661 659
Acquisitions of licenses............... (26) (54)
Net decrease(increase) in investments.. 769 (135)
Proceeds from dispositions............. 642 586
Other investing activities - net....... (26) (20)
Net cash provided by(used in) investing
activities of continuing operations.... 604 (314)
(CONT'D)
<PAGE> AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Dollars in Millions)
(Unaudited)
For the Three Months Ended
March 31,
1998 1997
Financing Activities
Retirements of long-term debt.......... (29) (32)
Acquisition of common shares - net..... (262) (4)
Dividends paid......................... (536) (535)
Decrease in short-term
borrowings - net..................... (1,627) (531)
Other financing activities - net....... 17 28
Net cash used in financing activities
of continuing operations............... (2,437) (1,074)
Net cash provided by
discontinued operations................ 92 54
Net increase in cash and
cash equivalents....................... 86 198
Cash and cash equivalents
at beginning of year................... 145 -
Cash and cash equivalents
at end of period....................... $ 231 $ 198
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, 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 1997 Annual
Report to Shareowners, and Form 10-K for the year ended December
31, 1997.
(b) ASSET IMPAIRMENT AND RESTRUCTURING CHARGE
During the first quarter AT&T recorded a pre-tax charge of $601
related to the Company's decision not to pursue Total Service
Resale (TSR) as a local service strategy. The pre-tax charge
includes a $543 write-down of software, $42 primarily related to
equipment associated with the software platform and $16 for the
termination of certain contracts. The impact on net income was
$371, or $0.23 per share.
The Company's in-market experiences and results have proven that
the TSR solution is not economically viable for the short-term or
the long-term. The current pricing structure established by the
local exchange carriers makes it impossible for TSR to be a
profitable option.
AT&T continues its financial and operational review of the various
alternatives for entering the local market, including the impacts
associated with the acquisition of Teleport Communications Group,
Inc. (TCG). These reviews may result in an additional charge in
1998.
(c) 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 AT&T's
submarine systems business (SSI), which was sold to Tyco
International Ltd. on July 1, 1997 for approximately $850, and the
sale of AT&T Universal Card Services, Inc. (UCS) which was sold to
Citibank on April 2, 1998 for approximately $3.5 billion as
discontinued operations. Accordingly, the revenues, costs and
expenses, assets and liabilities, and cash flows of SSI and UCS
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 from
discontinued operations," net of applicable income taxes; as "Net
assets of discontinued operations"; and as "Net cash used in
discontinued operations."
<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
Months Ended
March 31,
1998 1997
Revenues $ 365 $ 545
Income before
income taxes 16 63
Net income $ 10 $ 38
At March At December
31, 1998 31, 1997
Current assets $6,989 $7,734
Total assets 7,060 7,808
Current liabilities* 4,952 5,602
Total liabilities* 6,041 6,707
Net assets of discontinued
operations $1,019 $1,101
*Current liabilities include $4,583 and $5,224 of debt maturing within
one year and total liabilities include an additional $1,075 and $1,093
of long-term debt at March 31, 1998, and December 31, 1997,
respectively, all of which is payable to AT&T.
No interest expense was allocated to discontinued operations for the
three month periods ended March 31, 1998 and 1997, respectively, due to
the immateriality of the amounts; however, UCS recorded direct interest
expense of $85 and $72 for the three month periods ended March 31,
1998, and 1997, respectively.
(d) ASSET DISPOSITIONS
On March 3, 1998, AT&T sold all of its 45% common share interest in LIN
Television Corporation (LIN-TV) for $742 to Hicks, Muse, Tate and Furst
Incorporated. The Company recognized a pre-tax gain of $317 in the
first quarter of 1998. Also on March 3, 1998, AT&T sold AT&T Solutions
Customer Care to MATRIXX Marketing Inc., a teleservices unit of
Cincinnati Bell for approximately $625 in cash. AT&T recognized a
pre-tax gain of $350 in the first quarter of 1998 on the sale. These
gains totaled $0.26 per share.
On April 2, 1998, AT&T sold UCS for approximately $3.5 billion to
Citibank. Included in the sale was the signing of a co-branding and
joint marketing agreement. In addition, we received $5.7 billion as
settlement of receivables from UCS.
(e) TELEPORT COMMUNICATIONS GROUP, INC. MERGER
On January 8, 1998, AT&T signed a definitive merger agreement with TCG
for an all-stock transaction. Under the agreement each TCG share will
be exchanged for .943 of an AT&T share. The merger is subject to
regulatory approvals and certain other conditions as well as the
receipt of opinions that the merger will be tax-free to TCG
shareowners. The transaction is expected to close in the second half of
1998. We expect to issue approximately 190 million shares.
<PAGE> AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(f) RECLASSIFICATION
We have reclassified certain prior period amounts to conform with
our current presentation. Customer disputes, unbillable messages
and fraud are now being accounted for as contra-revenue versus
previous periods where they were being charged to expense.
(g) NEW ACCOUNTING PRONOUNCEMENT
In the first quarter of 1998, we adopted Statement of Financial
Accounting Standards (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.
AT&T has elected to display comprehensive income as a component of
the Statement of Changes in Shareowners' Equity. In addition, the
equity section of the balance sheet has been reclassified to
conform with this standard.
(h) SUBSEQUENT EVENT
On April 13, 1998, AT&T experienced a problem with its frame relay
network. The problem arose in a single switch and in a rare series
and set of events. It began when a computer command was issued to
upgrade a circuit card in that switch with new firmware. This
created a faulty communications path, at about the same time that
the operating software in the switch generated a large volume of
administrative messages, which were then sent out to other
switches on the network. As a result, the other switches quickly
became overloaded and stopped routing data from customer's
applications for periods ranging from six to 26 hours before the
network was fully restored. The frame relay problem is not
expected to have a material impact on AT&T's consolidated results
of operations.
<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
AT&T's submarine systems business (SSI), which was sold to Tyco International
Ltd. on July 1, 1997, and the sale of Universal Card Services, Inc. (UCS) which
was sold to Citibank on April 2, 1998, as discontinued operations. Accordingly,
the revenues, costs and expenses, assets and liabilities, and cash flows of SSI
and UCS 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 from discontinued operations", net of applicable income taxes; as
"Net assets of discontinued operations"; and as "Net cash used in discontinued
operations."
The discussion and analysis of AT&T's results of operations is discussed for
consolidated AT&T, as well as by business segment: business services, consumer
services, wireless services and other and corporate. Supplemental information is
also included for local services, new wireless services businesses, AT&T
Solutions, WorldNet and other on-line services, and international operations and
ventures. Earnings before interest and taxes, including other income (EBIT),
total assets and other related information is discussed for the consolidated
results of AT&T and by business segment.
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
Total revenues.............................$12,631 $12,548 $ 83 0.7%
OTHER INCOME STATEMENT ITEMS
Operating income........................... 1,390 1,639 (249) (15.2)%
Operating margin........................... 11.0% 13.1%
Operating income, adjusted for charges
and reserve reversal*.................... 1,991 1,699 292 17.2%
Operating margin, adjusted for charges
and reserve reversal*.................... 15.8% 13.5%
EBIT....................................... 2,090 1,807 283 15.7%
EBIT, adjusted for gains, charges
and reserve reversal*.................... 2,024 1,770 254 14.4%
EBITDA..................................... 3,121 2,753 368 13.3%
EBITDA, adjusted for gains, charges
and reserve reversal*.................... 3,055 2,636 419 15.9%
Diluted earnings per share,
continuing operations.................... 0.80 0.67 0.13 19.4%
Diluted earnings per share,
continuing operations, adjusted for
gains, charges and reserve reversal*.....$ 0.77 $ 0.65 $0.12 18.5%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
* Operating income for the first quarter of 1998 contained a $601 million
asset impairment and restructuring charge, with an after-tax earnings per
share impact of $0.23 per share. This charge was the result of AT&T's
decision not to pursue Total Service Resale (TSR) as a local service
strategy. Along with the $601 million asset impairment and restructuring
charge, EBIT for the first quarter of 1998 also included gains on the
sales of LIN Television Corporation (LIN-TV) and AT&T Solutions Customer
Care. On March 3, 1998, AT&T sold all of its 45% common share interest in
LIN-TV for $742 million to Hicks, Muse, Tate and Furst Incorporated. The
Company recognized a pre-tax gain of $317 million in the first quarter of
1998. Also on March 3, 1998, AT&T sold AT&T Solutions Customer Care to
MATRIXX Marketing Inc., a teleservices unit of Cincinnati Bell for $625
million in cash. AT&T recognized a pre-tax gain of $350 million in the
first quarter of 1998 on the sale. After taxes, these two gains totaled
$0.26 per share.
* Operating income for the first quarter of 1997 contained a $160 million
charge, or $0.06 per share, for exiting the two-way messaging business
and a $100 million benefit, or $0.04 per share, from the reversal of
pre-1995 restructuring charges. In addition, EBIT also included a $97
million pre-tax gain, or $0.04 per share after-tax, on the sale of AT&T
Skynet Satellite Services (Skynet).
Revenues from continuing operations increased $83 million, or 0.7%, in the first
quarter of 1998 compared to the first quarter of 1997. Long-distance services
revenue decreased 0.8% compared to the first quarter of 1997, while calling
volumes increased 4.9%.
Operating income, adjusted for the charges and reserve reversal, increased $292
million, or 17.2%, to $1,991 million. Operating margin, adjusted, showed
improvement of 2.3 percentage points. EBIT, adjusted, increased 14.4% to $2,024
million from $1,770 million in the year ago quarter. The quarter over quarter
increases in both adjusted operating income and adjusted EBIT were primarily due
to lower access and other interconnection expenses and selling, general and
administrative expenses partially offset by higher depreciation and amortization
expenses and network and other communications expenses.
Earnings before interest, taxes, depreciation and amortization (EBITDA),
adjusted, increased 15.9% to $3,055 million for the three months ended March 31,
1998, from $2,636 million for the first quarter of 1997. The increase in
adjusted EBITDA was primarily due to lower access and other interconnection
expenses and selling, general and administrative expenses partially offset by
higher network and other communications services expenses.
Earnings per share, on an adjusted basis, was $0.77 an increase of $0.12, or
18.5%, compared to the first quarter 1997 adjusted earnings per share of $0.65.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
REVENUES
Business services..........................$ 5,673 $ 5,428 $ 245 4.5%
Consumer services.......................... 5,628 5,928 (300) (5.1)%
Wireless services.......................... 1,113 1,040 73 7.0%
Other and corporate........................ 557 460 97 21.1%
Eliminations............................... (340) (308) (32) 10.3%
Total revenues.............................$12,631 $12,548 $ 83 0.7%
REVENUES
Revenues from continuing operations increased $83 million, or 0.7%, in the first
quarter of 1998 compared to the first quarter of 1997. Revenue growth for
business services, other and corporate and wireless services was partially
offset by a decline in revenue from consumer services. Long-distance revenue was
down 0.8% as calling volumes increased 4.9%. The gap between revenue and volume
growth improved to negative 5.7% in the first quarter of 1998 from the fourth
quarter of 1997 as pricing in business services firmed and free minutes, which
continue to be used as a customer incentive, no longer affected year-over-year
revenue growth for consumer services.
OPERATING EXPENSES
Access and other interconnection expenses for the first quarter of 1998
decreased $343 million, or 8.1%, from the first quarter of 1997. The decline
relates primarily to a reduction in other interconnection expenses resulting
primarily from lower international settlement rates, and a reduction in access
charges due to a reduction in per minute access expenses and AT&T's continuing
efforts to manage these costs. Reductions in per-minute access expenses were
partially offset by Primary Interexchange Carrier Charges (PICC), AT&T's
contribution to the Universal Service Fund (USF), and volume increases. Access
and other interconnection expenses as a percentage of long-distance services
revenues were 34.7% for the first quarter of 1998 and 37.5% for the first
quarter of 1997.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Network and other communications services expenses increased $130 million, or
6.1%, for the first quarter of 1998 compared with the first quarter of 1997. The
increase is primarily due to costs associated with compensation to payphone
operators as well as higher costs related to increasing data traffic on the AT&T
network and wireless equipment sales. Recovery of the 28.4 cents-per-call
payphone charge is built into interstate pricing for business customers and is
collected from calling card users as a surcharge on customer bills. The first
quarter 1997 reversal of the non-recurring pre-1995 restructuring charges also
contributed to the increase, while the first quarter 1997 charge for the closing
of the two-way messaging business and a significant decline in uncollectibles in
the current period partially offset the increases.
Depreciation and amortization expenses for the first quarter of 1998 increased
$86 million, or 9.2%, from the first quarter of 1997. Excluding the $80 million
impact of charges to exit the two-way messaging business in the first quarter of
1997, depreciation expense increased $166 million, or 19.5%. The increase was
primarily driven by higher levels of capital expenditures.
Selling, general and administrative (SG&A) expenses decreased $142 million, or
3.9%, in the first quarter of 1998 compared with the first quarter of 1997. SG&A
as a percentage of total revenues decreased to 27.3% for the first quarter of
1998 from 28.6% in the first quarter of 1997. The reduced level of expenses
reflects AT&T's efforts to achieve a best-in-class cost structure, including the
removal of $1.6 billion in SG&A expense from the business in 1998 and a 22% SG&A
as a percentage of revenues ratio by the end of 1999. Cost savings were achieved
in a number of areas across the business in the first quarter: a decline in
costs associated with direct mail and telemarketing to consumers; lower
marketing and sales costs in business services, achieved largely through
consolidation of functions and reductions of support staff headcount; and a
reduction in corporate staff. These decreases were partially offset by increased
expenses for new wireless services businesses.
On January 26, 1998, we announced a plan to reduce headcount by 15,000 to 18,000
as part of the Company's overall cost reduction program. The Company originally
expected to generate 10,000 to 11,000 of these reductions from the voluntary
force reduction offer that is being offered to eligible employees in the second
quarter. Early indications suggest that the original estimate of 10,000 to
11,000 is too low but a revised estimate is not available at this time.
Employees are expected to leave the payroll in stages throughout the remainder
of 1998, with a significant portion exiting the business by June 30. Another
5,000 to 7,000 employees will leave through a combination of managed attrition
and previously announced workforce reductions. Of the 5,000 to 7,000 employees,
approximately 4,500 had left the business as of March 31, 1998.
AT&T has established processes for evaluating and managing the risks and costs
associated with preparing our systems and applications for the year 2000. The
Company expects to incur internal staff costs as well as consulting and other
expenses related to the conversion and testing of our systems and applications.
The Company incurred $33 million in expense for the year 2000 in the first
quarter of 1998. We expect the cost of this project to be approximately $350
million in 1998. Slightly more than half of these costs represent internal
information technology resources that have been redeployed from other projects
and are expected to return to these projects upon completion. We plan on having
substantially all modifications completed by the end of 1998, leaving a full
year for testing. We are still assessing the impact to us, if any, in 1999.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
During the first quarter AT&T recorded a pre-tax charge of $601 million related
to the Company's decision not to pursue Total Service Resale (TSR) as a local
service strategy. The pre-tax charge includes a $543 million write-down of
software, $42 million primarily related to equipment associated with the
software platform and $16 million for the termination of certain contracts. The
impact on net income was $371 million, or $0.23 per share. The Company's
in-market experiences and results have proven that the TSR solution is not
economically viable for the short-term or the long-term. The current pricing
structure established by the local exchange carriers makes it impossible for TSR
to be a profitable option.
AT&T continues its financial and operational review of the various alternatives
for entering the local market, including the impacts associated with the
acquisition of Teleport Communications Group, Inc. (TCG). These reviews may
result in an additional charge in 1998.
<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-net increased $532 million, or 318.3%, for the first quarter of
1998 compared with the first quarter of 1997 due primarily to the pre-tax gains
on the sales of AT&T Solutions Customer Care of $350 million and LIN-TV of $317
million in the first quarter of 1998, partially offset by the pre-tax gain on
the sale of Skynet of $97 million in the first quarter of 1997. The 1998 gains
totaled $0.26 per share and the 1997 gain was $0.04 per share.
Interest expense decreased 6.4% to $48 million for the first quarter of 1998
from $52 million for the same period last year.
The provision for income taxes for the first quarter of 1998 increased $59
million, or 8.9%, compared with the first quarter of 1997. The increase was due
to an increase in income before taxes, partially offset by a lower effective tax
rate. The effective tax rate for the first quarter of 1998 was 35.6%,a decrease
of 240 basis points from the first quarter 1997 rate of 38.0%. The decrease in
the effective tax rate was primarily the result of foreign legal entity
restructurings.
Income from discontinued operations decreased $28 million for the first quarter
of 1998 compared with the first quarter of 1997. For the three month period
ended March 31, 1998, the results from discontinued operations included the
results of UCS. The three month period ended March 31, 1997, included SSI and
UCS. The dispositions of SSI and UCS were successfully completed on July 1,
1997, and April 2, 1998, respectively.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SEGMENT RESULTS
AT&T's results are segmented according to the Company's primary lines of
business: business services, consumer services, and wireless services. A fourth
segment, identified as other and corporate, includes the results of AT&T
Solutions, international operations and ventures, on-line services such as AT&T
WorldNet Internet access, and various other items. The results of these four
segments plus the impact of the elimination of internal business sum to AT&T's
total results. The following is a discussion of each of these segments, as well
as supplemental information on local services, new wireless services businesses,
AT&T Solutions, WorldNet and other on-line services, and international
operations and ventures.
Total assets by segment include all assets, except for interentity receivables,
for each segment except for deferred taxes, prepaid pension assets and
corporate-owned or leased real estate which are held at the corporate level.
Shared network assets are allocated to the segments based on the prior three
years' volumes and are reallocated each January.
BUSINESS SERVICES
Business services results reflect sales of long-distance services (domestic and
international, inbound and outbound, inter- and intraLATA toll services, calling
card and operator-handled services, data services, messaging and other network
enabled services), local services and web hosting and other electronic commerce
services.
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 5,673 $ 5,428 $245 4.5%
EBIT................................. 1,206 1,193 13 1.1%
EBIT excluding gain on Skynet........ 1,206 1,096 110 10.0%
EBITDA............................... 1,694 1,604 90 5.6%
EBITDA excluding gain on Skynet...... 1,694 1,507 187 12.4%
OTHER ITEMS
Capital additions....................$ 711 $ 489 $222 45.5%
At March 31, At Dec. 31,
1998 1997
Total assets.........................$15,391 $15,030
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVENUE
Business services revenue for the first quarter of 1998 increased $245 million,
or 4.5%, compared with the first quarter of 1997, driven primarily by strong
growth in revenue from data services. Data services revenue grew in the low-
double-digits for the quarter, with frame relay service growing in excess of
100%. Revenue from private line data services continued to grow at a
high-single-digit rate. Adjusted for the sales of Skynet and Tridom, which
continue to impact the first quarter's growth rate, data services revenue grew
in the mid-teens for the quarter, while total business services revenue grew
5.3%.
Business long-distance services revenue, which includes data revenue, grew 4.4%
in the first quarter, or 5.2% adjusted for the sales of Skynet and Tridom. Data
revenue was approximately 25% of business long-distance revenue for this
quarter, up from a year ago. Revenue from voice services continued to be
pressured by price competition, particularly on inbound services, and by
substitution of alternate services such as wireless for higher priced services
such as calling cards. Price reductions made in anticipation of access rate
reductions also impacted revenue growth, though they were partially offset by
the flow through of USF/PICC charges to customers. Long-distance calling volumes
grew in the low-double-digits for the quarter, driven by double-digit growth in
inbound services. Volume grew at a slower rate than in recent quarters primarily
as a result of very strong growth a year ago resulting from contract
renegotiations as well as additional volume of governmental traffic under the
FTS 2000 contract.
On April 13, 1998, AT&T experienced a problem with its frame relay network. The
problem arose in a single switch and in a rare series and set of events. It
began when a computer command was issued to upgrade a circuit card in that
switch with new firmware. This created a faulty communications path, at about
the same time that the operating software in the switch generated a large volume
of administrative messages, which were then sent out to other switches on the
network. As a result, the other switches quickly became overloaded and stopped
routing data from customer's applications for periods ranging from six to 26
hours before the network was fully restored. The frame relay problem is not
expected to have a material impact on AT&T's consolidated results of operations.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
EBIT, adjusted for the sale of Skynet, increased 10.0% to $1,206 million in the
first quarter of 1998, from $1,096 million in the first quarter of 1997. EBITDA,
adjusted, increased 12.4% to $1,694 million for the three months ended March 31,
1998 from $1,507 million for the first quarter of 1997. Higher levels of
depreciation due to AT&T's investment in data networks and deploying Synchronous
Optical Network (SONET) technology accounted for the slower rate of EBIT growth
as compared to EBITDA.
OTHER ITEMS
Capital additions increased $222 million to $711 million, or 45.5%, for the
three month period ended March 31, 1998, compared with the first quarter of
1997. Capital additions in the first quarter of 1998 related primarily to
investment in data networks, AT&T's SONET program and the AT&T Digital Link
product for local services.
Total assets increased to $15,391 million at March 31, 1998 from $15,030 million
at December 31, 1997. The increase was primarily due to 1998 capital
expenditures and the reallocation of shared network assets, partially offset by
current year depreciation.
CONSUMER SERVICES
Consumer services results reflect sales of long-distance services (including
domestic and international, inter- and intraLATA toll services, calling card and
operator handled calling, and prepaid calling cards) and local service to
residential customers.
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
Revenue..............................$5,628 $5,928 $(300) (5.1)%
EBIT................................. 1,324 1,184 140 11.8%
EBITDA............................... 1,498 1,358 140 10.3%
OTHER ITEMS
Capital additions....................$ 76 $ 167 $ (91) (54.8)%
At March 31, At Dec. 31,
1998 1997
Total assets.........................$7,031 $7,923
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVENUE
Consumer services revenue for the three months ended March 31, 1998, decreased
$300 million, or 5.1%, compared with the three months ended March 31, 1997.
Consumer long-distance services revenue declined 5.5% on a slight decline in
calling volumes. The decline was due in part to access rate reductions
implemented in July 1997, which enabled AT&T to lower basic rates and move many
customers to more favorable optional calling plans. The controlled migration of
customers to optional calling plans is a key part of AT&T's strategy to retain
profitable customers. In addition, the reduction in revenue reflects the
continuation of AT&T's high value targeting strategy, implemented in the second
half of 1997, under which AT&T stopped targeting non-profitable customers for
acquisition. These changes continue to have an impact on revenue and volume
growth, but contribute to improved profitability and customer retention.
Competition in the residential long-distance market, as well as substitution
away from higher priced services, such as calling cards, toward wireless
services, also contributed to the lower revenue and volume growth rates. Higher
IntraLATA revenue and volume, which has resulted from AT&T's aggressive
localized marketing efforts in areas where presubscription is available,
partially offset these revenue and volume effects.
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 first quarter of 1998
and are expected to continue to impact growth throughout 1998.
EBIT/EBITDA
EBIT was $1,324 million in the first quarter of 1998, an increase of 11.8% from
$1,184 million in the first quarter of 1997. EBITDA increased 10.3% to $1,498
million for the three months ended March 31, 1998 from $1,358 million for the
first quarter of 1997. The increase in both EBIT and EBITDA was primarily due to
lower SG&A expenses. SG&A expense decreases are a result of AT&T's plan to
target and retain the most profitable customers. SG&A reductions include
significantly lower marketing and sales expenses as a result of better targeting
and efficiency gains in customer acquisition efforts. AT&T has also increased
its use of alternative distribution channels, including One Rate On-line.
Additionally, AT&T has focused it customer retention techniques through data
base mining and consolidation of marketing messages. As a result, spending on
telemarketing and direct mail declined for the quarter compared to the first
quarter of 1997.
OTHER ITEMS
Capital additions decreased $91 million, or 54.8%, to $76 million for the three
month period ended March 31, 1998, from $167 million in the first quarter of
1997.
Total assets decreased to $7,031 million at March 31, 1998, from $7,923 million
at December 31, 1997. The decrease is due primarily to the January reallocation
of shared network assets.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
WIRELESS SERVICES
Wireless services results include sales of wireless services and products to
customers in 850 MHz cellular markets and 1.9 GHz markets. Also included are the
results of the messaging, aviation communications, and wireless data divisions,
as well as the costs associated with the development of fixed wireless
technology. The impact of the new 1.9 GHz markets, wireless data, two-way
messaging and fixed wireless development are discussed as "new wireless services
businesses"; all other wireless results are reflected as "core" businesses.
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 1,113 $ 1,040 $ 73 7.0%
EBIT................................. (2) (31) 29 94.0%
EBIT excluding two-way messaging
charge............................. (2) 129 (131)(101.4)%
EBITDA............................... 251 246 5 2.2%
EBITDA excluding two-way messaging
charge............................. 251 326 (75) (22.9)%
OTHER ITEMS
Capital additions....................$ 168 $ 329 $(161) (49.1)%
At March 31, At Dec. 31,
1998 1997
Total assets.........................$18,277 $18,540
REVENUE
Wireless services revenue grew $73 million, or 7.0%, in the first quarter of
1998 compared with the first quarter of 1997, driven by growth in both core and
new wireless services businesses. Core revenue increased 4.3% to $1,083 million,
while revenue from new wireless services businesses was $30 million for the
quarter compared to $2 million for the same period last year. Consolidated
subscribers, those markets in which AT&T owns a controlling interest, increased
16.9% to 6.159 million from 5.270 million in the prior year first quarter.
Consolidated subscribers include well over 100,000 users in AT&T's ten emerging
1.9 GHz markets. Net subscriber adds decreased 22.6% in the first quarter to
195,000 from 251,000 in the prior year first quarter.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Total cellular customers served by companies in which AT&T has or shares a
controlling interest increased 15.3% to 8.371 million at March 31, 1998, from
7.261 million at March 31, 1997. At March 31, 1998, there were 1.329 million
messaging subscribers compared to 1.185 million, or a 12.2% increase, compared
to a year ago.
Average revenue per cellular subscriber continued to decline to $50 per
subscriber in the first quarter of 1998, or 10.2%, compared with $56 in the
first quarter of 1997. This decline reflects the competitive environment in the
industry and AT&T's strategic decision to adjust prices on many of it's high end
rate plans as a customer retention tool. Average revenue per cellular subscriber
is expected to be essentially flat throughout 1998.
AT&T has acted aggressively to convert the wireless subscriber base from analog
to digital service. This conversion contributes to higher costs in the
short-term, but is expected to contribute to lower customer churn. As of March
31, 1998, approximately 35% of AT&T's consolidated subscribers were on digital
plans compared to approximately 20% a year ago.
AT&T continues to find ways to grow its wireless services business. In the
second quarter AT&T announced AT&T Digital One-Rate, the first one-rate national
wireless service price plan.
EBIT/EBITDA
EBIT was negative $2 million in the first quarter of 1998, a decrease of $131
million, or 101.4%, from $129 million in the first quarter of 1997 after
adjusting for the first quarter 1997 two-way messaging charge. The decrease was
due primarily to higher losses for new wireless services businesses in the
current year compared to the prior year first quarter. Adjusted EBIT for new
wireless services businesses was negative $156 million in the first quarter of
1998, compared to negative $45 million in the first quarter of 1997. Core EBIT
was $154 million in the first quarter of 1998, compared to $174 million for the
same period last year.
EBITDA was $251 million in the first quarter of 1998, a decrease of $75 million,
or 22.9%, from $326 million in the first quarter of 1997 after adjusting for the
first quarter 1997 two-way messaging charge. Core EBITDA was $363 million in the
first quarter, compared to $360 million for the same period last year. Adjusted
EBITDA for new wireless services businesses was negative $112 million in the
first quarter of 1998, compared to negative $34 million in the first quarter of
1997.
OTHER ITEMS
Capital additions decreased $161 million to $168 million for the three month
period ended March 31, 1998, compared with $329 million for the first quarter of
1997. Capital spending in 1998 was directed primarily at expanding coverage in
new and traditional markets.
Total assets were $18,277 million at March 31, 1998, and $18,540 million at
December 31, 1997.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NEW WIRELESS SERVICES BUSINESSES
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 30 $ 2 $ 28 NMF
EBIT................................. (156) (205) 49 23.7%
EBIT excluding two-way charge........ (156) (45) (111) (248.2)%
EBITDA............................... (112) (114) 2 1.7%
EBITDA excluding two-way charge...... (112) (34) (78) (228.6)%
OTHER ITEMS
Capital additions....................$ 82 $ 168 $ (86) (51.5)%
At March 31, At Dec. 31,
1998 1997
Total assets.........................$4,457 $4,417
OTHER AND CORPORATE
Other and corporate includes AT&T Solutions, international operations and
ventures, on-line services such as AT&T WorldNet, other businesses, and
corporate operations.
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 557 $ 460 $ 97 21.1%
EBIT................................. (435) (538) 103 19.3%
EBIT excluding one-time gains,
charges and reserve reversal....... (501) (638) 137 21.5%
EBITDA............................... (319) (454) 135 29.7%
EBITDA excluding one-time gains,
charges and reserve reversal.......$ (385) $(554) $169 30.5%
REVENUE
In the first quarter of 1998, other and corporate revenue increased $97 million,
or 21.1%, from the first quarter of 1997. The revenue growth in the first
quarter was primarily due to increased revenue from AT&T Solutions, AT&T
WorldNet and international operations and ventures, partially offset by AT&T
Solutions Customer Care, which was sold on March 3, 1998.
EBIT/EBITDA
Excluding the 1998 gains and charges and the 1997 reserve reversal, EBIT and
EBITDA improved 21.5% and 30.5%, respectively, over the first quarter of 1997.
Adjusted EBIT improved by 21.5% as a result of improvements at AT&T Solutions,
international operations and ventures, and AT&T WorldNet as well as a reduction
in corporate staff. Adjusted EBITDA improved 30.5% as a result of improvements
at international operations and ventures, and AT&T WorldNet as well as a
reduction in corporate staff.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
ELIMINATIONS
Eliminations reflects the elimination of revenue and profit generated by the
sale of services between business segments. Revenue eliminations in the quarter
were negative $340 million, while EBIT and EBITDA were both negative $3 million.
SUPPLEMENTAL DISCLOSURES
LOCAL SERVICES
Local services for business and residential customers are included as part of
AT&T's business services and consumer services segments. Also included within
local are the costs associated with corporate staff dedicated to AT&T's local
services effort. (These costs are reported as part of other and corporate.)
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 37 $ 4 $ 33 779.3%
EBIT................................. (805) (138) (667) (483.9)%
EBIT excluding asset impairment
and restructuring charge........... (204) (138) (66) (48.1)%
EBITDA............................... (781) (128) (653) (512.9)%
EBITDA excluding asset impairment
and restructuring charge........... (180) (128) (52) (41.4)%
OTHER ITEMS
Capital additions....................$ 140 $ 64 $ 76 119.9%
At March 31, At Dec. 31,
1998 1997
Total assets.........................$1,186 $1,637
REVENUE
In the first quarter of 1998, revenue increased to $37 million, up from $4
million in the first quarter of 1997. Revenue consists primarily of services
sold to residential customers on a TSR basis and AT&T Digital Link (ADL) service
for business customers. Growth for total local services in the first quarter was
primarily due to increased revenue from an increased customer base. AT&T
currently offers ADL as an outbound local calling service in 49 states, and as
an outbound and inbound service in 4 states. Local number portability, which is
key to the provisioning of competitive local exchange services, continues to be
an obstacle to AT&T's progress in offering fully functional business local
service. AT&T's pending merger with TCG is designed to accelerate the Company's
penetration on the business local exchange market.
AT&T continues to provide local service on a TSR basis to approximately 400,000
residential customers. However, the Company has discontinued marketing TSR
because the current pricing structure established by the local exchange carriers
makes it impossible for TSR to be a profitable option. AT&T continues to seek
alternative methods of providing local service to residential customers. During
the first quarter AT&T recorded a pre-tax charge of $601 million related to the
Company's decision not to pursue Total Service Resale (TSR) as a local service
strategy. AT&T continues its financial and operational review of the
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
various alternatives for entering the local market, including the impacts
associated with the acquisition of TCG. These reviews may result in an
additional charge in 1998.
EBIT/EBITDA
EBIT, adjusted for the asset impairment and restructuring charge, was negative
$204 million in the first quarter of 1998, a decrease of 48.1% from negative
$138 million in the first quarter of 1997. EBITDA, adjusted, decreased 41.4% to
negative $180 million for the three months ended March 31, 1998 from negative
$128 million for the first quarter of 1997. These decreases were primarily due
to higher costs associated with growth in ADL and TSR. Losses related to
residential local services are expected to decline as the Company further limits
its TSR activities.
OTHER ITEMS
Capital additions were $140 million in the first quarter of 1998, compared to
$64 million in the same period last year. Capital spending for local services
are primarily related to AT&T Digital Link and other facilities-based local
service options.
Total assets were $1,186 million at March 31, 1998, compared to $1,637 million
at December 31, 1997. The decrease is due primarily to the write-down of
software associated with the asset impairment and restructuring charge.
NEW WIRELESS SERVICES BUSINESSES
Information related to AT&T's new wireless services businesses is included in
the wireless services' segment discussion.
AT&T SOLUTIONS
AT&T Solutions is comprised of AT&T's outsourcing, network integration and
consulting and multi-media call center businesses. The results of AT&T Solutions
are included in other and corporate.
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 218 $ 156 $ 62 39.3%
EBIT................................. (12) (53) 41 77.6%
EBITDA............................... 21 (16) 37 229.2%
OTHER ITEMS
Capital additions....................$ 20 $ 17 $ 3 16.3%
At March 31, At Dec. 31,
1998 1997
Total assets.........................$ 546 $ 576
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVENUE
Revenue grew 39.3% to $218 million in the first quarter of 1998 compared with
revenue of $156 million in the first quarter of 1997. Revenue growth is due
primarily to the outsourcing business. Outsourcing revenue is expected to
realize strong growth in 1998 as we continue to win new business contracts such
as Citicorp and McGraw Hill. These contracts are valued at about $1 billion and
were signed in the first quarter of 1998. Including these first quarter wins,
AT&T Solutions currently has a backlog of more than $3 billion under contract
with clients such as United Healthcare, Textron, J.P. Morgan, Merrill Lynch and
MasterCard International.
Although not included within revenue, AT&T Solution's also manages AT&T's
internal network infrastructure, an operation that provides information
technology (IT) services. This operation generated $386 million in internal
billing.
EBIT/EBITDA
EBIT was negative $12 million in the first quarter of 1998, an improvement of
77.6% from negative $53 million in the first quarter of 1997. EBITDA was $21
million for the three months ended March 31, 1998 up from negative $16 million
for the first quarter of 1997. Included in AT&T Solutions' results is the impact
of the realignment of certain start-up network management operations into the
outsourcing business of AT&T Solutions. The increase in both EBIT and EBITDA is
due to revenue growth and lower SG&A expenses. AT&T Solutions remains on target
to turn profitable by the end of 1998.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER ITEMS
Capital additions were $20 million for the three month period ended March 31,
1998, compared to $17 million in the first quarter of 1997. Approximately 50% of
capital additions in the first quarter of 1998 were related to servicing the
internal network infrastructure of AT&T.
Total assets were $546 million at March 31, 1998, compared to $576 million at
December 31, 1997. Approximately 53% of total assets in the first quarter of
1998 were related to servicing the internal network infrastructure of AT&T.
WORLDNET AND OTHER ON-LINE SERVICES
WorldNet and other on-line services includes AT&T WorldNet Internet access
service for residential and business consumers (included in other and corporate)
as well as web site hosting and other electronic commerce services (included in
business services).
Three months
ended
March 31, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 79 $ 40 $ 39 97.4%
EBIT................................. (109) (159) 50 31.7%
EBITDA............................... (95) (152) 57 37.7%
OTHER ITEMS
Capital additions....................$ 7 $ 12 $ (5) (39.7)%
At March 31, At Dec. 31,
1998 1997
Total assets.........................$ 361 $ 334
REVENUE
Revenue grew $39 million, or 97.4%, in the first quarter of 1998 compared with
the first quarter of 1997 due primarily to continued growth in AT&T WorldNet's
residential subscriber base. WorldNet subscribers were 1.085 million at March
31, 1998, from .884 million at March 31, 1997, an increase of 22.7% compared to
prior year. Average revenue per customer continues to increase due to the
expiration of AT&T WorldNet's initial promotional price programs in favor of
regular monthly rates of $9.95 and $19.95. AT&T Web Site Services has more than
8 thousand hosted sites at the end of the first quarter of 1998 compared with
approximately 3 thousand at the end of the first quarter of 1997.
AT&T continues to explore new ways of growing its internet access business,
primarily through AT&T WorldNet and other on-line businesses. In the first
quarter of this year AT&T announced a long-distance offer targeting internet
access customers. Also in the first quarter, AT&T WorldNet customers can sign up
for long-distance services via AT&T's web site and receive a rate of nine cents
per minute. Additionally, AT&T entered into alliances with Lycos, Inc., Infoseek
Corporation and Excite, Inc. to offer multi-media internet applications and
other services.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
EBIT was negative $109 million in the first quarter of 1998, an improvement of
31.7% from negative $159 million in the first quarter of 1997. EBITDA improved
37.7% to negative $95 million for the three months ended March 31, 1998 from
negative $152 million for the first quarter of 1997. This improvement in both
EBIT and EBITDA was primarily due to revenue growth and customer care cost
efficiencies for AT&T WorldNet.
OTHER ITEMS
Capital additions were $7 million for the three month period ended March 31,
1998, compared to $12 million in the first quarter of 1997.
Total assets were $361 million at March 31, 1998, compared to $334 million at
December 31, 1997.
INTERNATIONAL OPERATIONS AND VENTURES
International operations and ventures includes AT&T's consolidated foreign
operations, the Company's transit and reorigination businesses, on-line services
in the Asia/Pacific region, as well as the equity earnings/losses of AT&T's
non-consolidated joint ventures. International operations and ventures does not
include bilateral international long-distance traffic. The results of
international operations and ventures are included in other and corporate.
Three months
ended
March 31, Change
$ In millions 1998 1997 $ %
Revenue..............................$ 179 $ 148 $ 31 20.7%
EBIT................................. (63) (128) 65 50.8%
EBITDA............................... (46) (114) 68 60.2%
OTHER ITEMS
Capital additions....................$ 31 $ 146 $(115) (78.8)%
At March 31, At Dec. 31,
1998 1997
Total assets.........................$1,436 $1,837
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVENUE
Revenue grew 20.7% to $179 million in the first quarter of 1998 as compared to
$148 million for the same period last year. This increase was driven by growth
in reorigination and AT&T Communications Services UK, partially offset by
declines in certain non-strategic businesses, some of which were exited since
the first quarter of 1997. Revenue from continuing strategic international
operations grew 53.4% compared to the first quarter of 1997.
EBIT/EBITDA
EBIT was negative $63 million in the first quarter of 1998, an improvement of
50.8% from negative $128 million in the first quarter of 1997. EBITDA improved
60.2% to negative $46 million for the three months ended March 31, 1998 from
negative $114 million for the first quarter of 1997. This increase in both EBIT
and EBITDA was primarily due to revenue growth and lower costs associated with
operational improvements in consolidated international operations as well as
lower costs required to support both consolidated and non-consolidated
international operations.
OTHER ITEMS
Capital additions were $31 million for the three month period ended March 31,
1998, compared to $146 million for the first quarter of 1997.
Total assets were $1,436 million at March 31, 1998, compared to $1,837 million
at December 31, 1997. The decrease is due primarily to the decrease in cash as a
result of the repatriation of funds to the United States in preparation for the
sales of non-strategic businesses.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
MARCH 31, 1998 VERSUS DECEMBER 31, 1997
March 31, December 31, Change
$ in millions 1998 1997 $ %
Total assets.........................$56,905 $58,635 $(1,730) (3.0)%
Total assets-continuing operations...$55,886 $57,534 $(1,648) (2.9)%
Total assets decreased $1,730 million, or 3.0%, primarily due to decreases in
property, plant and equipment, other receivables and investments. The decrease
in property, plant and equipment is primarily due to the write-down of local
assets and the sale of AT&T Solutions Customer Care. Other receivables represent
funding of UCS receivables by AT&T. The decrease in other receivables is driven
by lower cardholder receivables resulting from the paydown of high year-end
balances, which reflected holiday spending. The decrease in investments reflects
the sale of LIN-TV.
Total liabilities decreased $2,363 million, or 6.6%. This decrease is mainly due
to decreases in debt, payroll and benefit liabilities, accounts payable and
long-term deferred taxes partially offset by an increase in other current
liabilities. The decreases in both long- and short-term debt is mainly due to
the paydown of commercial paper with a portion of the proceeds from the sales of
LIN-TV and AT&T Solutions Customer Care as well as lower funding requirements at
UCS resulting from lower cardholder receivables. The decrease in payroll and
benefit liabilities primarily reflects the payout of 1997 employees' bonuses.
Accounts payable declined primarily due to the paydown of high year-end capital
accruals. The decrease in long-term deferred taxes is primarily due to the
write-down of local assets as well as benefits related to a foreign legal entity
restructuring. The increase in other current liabilities is driven by higher
current accrued income taxes which include the impact of the sales of LIN-TV and
AT&T Solutions Customer Care.
Total shareowners' equity increased $633 million, or 2.8%, primarily due to
current quarter net income partially offset by dividends declared.
The ratio of total debt to total capital, (total debt and equity) was 28.2%
including debt related to UCS. AT&T's debt ratio, net of cash, was 27.7% as of
March 31, and is expected to decline to less than 10% after the sale of UCS to
Citibank, which closed on April 2, 1998.
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
THREE MONTHS ENDED MARCH 31, 1998, VERSUS THREE MONTHS ENDED MARCH 31, 1997 Cash
flows provided by operating activities of continuing operations were $1,827
million for the three months ended March 31, 1998. This represents an increase
of $295 million compared to the first quarter of 1997. The increase in operating
cash flow primarily reflects higher tax payments in 1997 than 1998 associated
with the sale of AT&T Capital Corporation. The 1997 tax payments were partially
offset by first quarter 1997 cash receipts from the collection of
employee-related benefit receivables from Lucent Technologies. In addition, 1998
income from continuing operations contained an increased amount of non-cash
items such as the net impact of the gains on the sales of LIN-TV and AT&T
Solutions Customer Care, and the asset impairment and restructuring charge; and
an increase in the deferred tax provision.
For three months ended March 31, 1998, cash provided by investing activities of
$604 million increased $918 million compared to a $314 million use of cash in
the first quarter of 1997. The increase was due primarily to the proceeds from
the sales of LIN-TV and AT&T Solutions Customer Care of $742 million and $625
million, respectively, in the first quarter of 1998, partially offset by the
proceeds from the sale of Skynet received in the first quarter of 1997.
Net cash used in financing activities of $2,437 million increased $1,363 million
from $1,074 million in the first quarter of 1997. This primarily reflects the
use of increased cash flows from asset dispositions to paydown commercial paper
in 1998 and increased use of cash for the purchase of AT&T shares used for
employee benefit plans.
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, 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
Beginning with the 1998 annual report we will adopt Statement of Financial
Accounting Standards ("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 revenues or holds assets, and
major customers.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosure about Pensions and Other Postretirement Benefits." Among
other provisions, it standardizes certain disclosure requirements for pension
and other postretirement benefits, requires additional information on changes in
the benefit obligations and fair values of plan assets, and eliminates certain
other disclosures. The standard is effective for fiscal years beginning after
December 15, 1997. For AT&T this means that the standard is effective for the
1998 annual report. Since the standard applies only to the presentation of
pension and other postretirement benefit information, it will not have any
impact on AT&T's results of operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Among other provisions, the SOP
requires that entities capitalize certain internal-use software costs once
certain criteria are met. The SOP is effective for financial statements for
fiscal years beginning after December 15, 1998, though early adoption is
encouraged. For AT&T this means that it must be adopted no later than January 1,
1999. If AT&T elects to adopt the SOP earlier than the effective date,
restatement of interim periods during the year of adoption is required.
Management is currently assessing the impact on AT&T's consolidated financial
statements.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER DEVELOPMENTS
January 8, 1998, AT&T signed a definitive merger agreement with TCG for an
all-stock transaction. Under the agreement each TCG share will be exchanged for
.943 of an AT&T share. The merger is subject to regulatory approvals and certain
other conditions as well as the receipt of opinions that the merger will be
tax-free to TCG shareowners. The transaction is expected to close in the second
half of 1998. We expect to issue approximately 190 million shares.
On March 3, 1998, AT&T agreed to sell WOOD-TV, its television station in Grand
Rapids, Michigan, for approximately $123 million, subject to certain
adjustments, which is expected to close in the second quarter of 1998.
On April 2, 1998, AT&T sold UCS for approximately $3.5 billion to Citibank.
Included in the sale was the signing of a co-branding and joint marketing
agreement. In addition, we received $5.7 billion as settlement of receivables
from UCS.
CLARIFICATION
Page 30 of the 1997 Annual Report contains a map of the United States displaying
AT&T Wireless Services Licenses Footprint by cellular markets (blue), PCS
markets (red) and partnership markets (yellow). The labels should have been as
follows: cellular markets (red), PCS markets (blue) and partnership markets
(yellow).
<PAGE> AT&T Form 10-Q - Part I
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
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.
For a more complete discussion of the factors that could cause actual results to
differ materially from such forward looking statements, see the discussion
thereof contained under the heading "Forward Looking Statements" in the
Company's Form 10-K for the year ended December 31, 1997. Readers should also
consider the factors discussed under the headings "Results of Operations" and
"Financial Condition" 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 5. Other Information
AT&T Quarterly Consolidated Statements of Income*
(Dollars in millions except per share amounts)
(Unaudited)
Year
For the three months ended Ended
Mar. 31 June 30 Sept. 30 Dec. 31 Dec. 31
1997 1997 1997 1997 1997
REVENUES
Business services $ 5,428 $ 5,556 $ 5,561 $ 5,485 $22,030
Consumer services 5,928 5,873 5,977 5,749 23,527
Wireless services 1,040 1,116 1,125 1,155 4,436
Other and corporate 460 527 559 665 2,211
Eliminations (308) (344) (319) (341) (1,312)
Total revenues 12,548 12,728 12,903 12,713 50,892
OPERATING EXPENSES
Access and other interconnection 4,252 4,231 3,957 3,840 16,280
Network and other communications
services 2,134 2,261 2,325 2,218 8,938
Depreciation and amortization 930 911 978 1,008 3,827
Selling, general and administrative 3,593 3,814 3,868 3,604 14,879
Total operating expenses 10,909 11,217 11,128 10,670 43,924
Operating income 1,639 1,511 1,775 2,043 6,968
Other income - net 168 56 127 65 416
Interest expense 52 56 44 39 191
Income from continuing operations
before income taxes 1,755 1,511 1,858 2,069 7,193
Provision for income taxes 667 583 725 746 2,721
Income from continuing operations 1,088 928 1,133 1,323 4,472
Income from discontinued operations
(net of taxes of $25, $18, $6, $1,
and $50) 38 31 20 11 100
Gain on sale of discontinued
operations (net of taxes of $43) - - 66 - 66
NET INCOME 1,126 $ 959 $ 1,219 $ 1,334 $ 4,638
Weighted average common shares
and potential common shares
(millions)** 1,628 1,627 1,629 1,637 1,630
PER COMMON SHARE (BASIC):
Income from continuing
operations $ 0.67 $ 0.57 $ 0.69 $ 0.81 $ 2.75
Income from discontinued
operations 0.02 0.02 0.02 0.01 0.06
Gain on sale of discontinued
operations - - 0.04 - 0.04
NET INCOME $ 0.69 $ 0.59 $ 0.75 $ 0.82 $ 2.85
PER COMMON SHARE (DILUTED):
Income from continuing
operations $ 0.67 $ 0.57 $ 0.69 $ 0.81 $ 2.74
Income from discontinued
operations 0.02 0.02 0.02 - 0.06
Gain on sale of discontinued
operations - - 0.04 - 0.04
NET INCOME $ 0.69 $ 0.59 $ 0.75 $ 0.81 $ 2.84
Dividends declared per
common share $ 0.33 $ 0.33 $ 0.33 $ 0.33 $ 1.32
* Amounts have been reclassified to conform to current presentation.
**Amounts represent the weighted-average shares assuming dilution from the
potential exercise of stock options. Amounts are reduced by 4 million, 2
million, 4 million, 12 million and 5 million for the three month periods ended
March 31, 1997, June 30, 1997, September 30, 1997 and December 31, 1997 and for
the year to date period ended December 31, 1997, respectively.
<PAGE> AT&T Form 10-Q - Part II
AT&T Quarterly Segment Disclosures
(Dollars in millions)
(Unaudited) For the three months ended Year
Ended
Mar. 31 June 30 Sept. 30 Dec. 31 Dec. 31
1997 1997 1997 1997 1997
Business services
Revenue $ 5,428 $ 5,556 $ 5,561 $ 5,485 $22,030
EBITDA 1,604 1,467 1,565 1,713 6,349
EBIT 1,193 1,051 1,110 1,238 4,592
Capital additions 489 815 1,144 1,637 4,085
Total assets 15,030
Consumer services
Revenue $ 5,928 $ 5,873 $ 5,977 $ 5,749 $23,527
EBITDA 1,358 1,250 1,550 1,725 5,883
EBIT 1,184 1,058 1,330 1,522 5,094
Capital additions 167 152 239 363 921
Total assets 7,923
Wireless services
Revenue $ 1,040 $ 1,116 $ 1,125 $ 1,155 $ 4,436
EBITDA 246 377 367 238 1,228
EBIT (31) 159 142 (5) 265
Capital additions 329 794 419 616 2,158
Total assets 18,540
Other and corporate
Revenue $ 460 $ 527 $ 559 $ 665 $ 2,211
EBITDA (454) (597) (585) (540) (2,176)
EBIT (538) (700) (679) (643) (2,560)
Capital additions 210 279 179 314 982
Total assets 16,041
Eliminations
Revenue $ (308) $ (344) $ (319) $ (341) $(1,312)
EBITDA (1) (1) (1) (4) (7)
EBIT (1) (1) (1) (4) (7)
Total AT&T*
Revenue $12,548 $12,728 $12,903 $12,713 $50,892
EBITDA 2,753 2,496 2,896 3,132 11,277
EBIT 1,807 1,567 1,902 2,108 7,384
Capital additions 1,195 2,040 1,981 2,930 8,146
Total assets -
continuing ops. 57,534
* Amounts have been reclassified to conform to current presentation.
<PAGE> AT&T Form 10-Q - Part II
AT&T Quarterly Supplemental Disclosures
(Dollars in millions)
(Unaudited) For the three months ended Year
Ended
Mar. 31 June 30 Sept. 30 Dec. 31 Dec. 31
1997 1997 1997 1997 1997
International operations
and ventures
Revenue $ 148 $ 168 $ 178 $ 218 $ 712
EBITDA (114) (114) (71) (39) (338)
EBIT (128) (133) (82) (56) (399)
Capital additions 146 162 69 119 496
Total assets 1,837
Local services
Revenue $ 4 $ 9 $ 16 $ 39 $ 68
EBITDA (128) (214) (206) (267) (815)
EBIT (138) (229) (226) (293) (886)
Capital additions 64 164 222 390 840
Total assets 1,637
AT&T Solutions
Revenue $ 156 $ 186 $ 204 $ 239 $ 785
EBITDA (16) (13) 1 22 (6)
EBIT (53) (50) (37) (14) (154)
Capital additions 17 20 28 53 118
Total assets 576
New wireless services
businesses
Revenue $ 2 $ 3 $ 6 $ 15 $ 26
EBITDA (114) (49) (80) (183) (426)
EBIT (205) (54) (97) (203) (559)
Capital additions 168 615 248 307 1,338
Total assets 4,417
WorldNet & other on-line
services
Revenue $ 40 $ 51 $ 61 $ 67 $ 219
EBITDA (152) (145) (117) (109) (523)
EBIT (159) (152) (124) (118) (553)
Capital additions 12 15 51 40 118
Total assets 334
<PAGE> AT&T Form 10-Q - Part II
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions)
(Unaudited)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated January 8, 1998 was filed pursuant to Item 2
(Acquisitions or Dispositions of Assets) and Item 7 (Financial
Statements and Exhibits). Form 8-K dated March 2, 1998 was filed
pursuant to Item 5 (Other Events) and Item 7.
<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.
/s/ M. B. Tart
------------------------------
By: M. B. Tart
Vice President and Controller
(Principal Accounting Officer)
Date May 13, 1998
<PAGE> AT&T Form 10-Q
Exhibit Index
Exhibit
Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
Exhibit 12
Form 10-Q
For the Three
Months Ended
March 31, 1998
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
Income from Continuing Operations
Before Income Taxes ................................. $2,042
Less Interest Capitalized during
the Period........................................... 57
Add Equity Investment Losses, net of distributions
of Less than 50% Owned Affiliates.................... 71
Add Fixed Charges...................................... 170
Total Earnings from Continuing
Operations Before Income Taxes
and Fixed Charges.................................... $2,226
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $ 105
Interest Portion of Rental Expense..................... 65
Total Fixed Charges................................ $ 170
Ratio of Earnings to Fixed Charges..................... 13.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet of AT&T Corp. at March 31, 1998 and the
unaudited consolidated statement of income for the three-month period ended
March 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 231
<SECURITIES> 0
<RECEIVABLES> 9,536
<ALLOWANCES> 1,008
<INVENTORY> 0
<CURRENT-ASSETS> 15,738
<PP&E> 44,572
<DEPRECIATION> 22,659
<TOTAL-ASSETS> 56,905
<CURRENT-LIABILITIES> 15,391
<BONDS> 6,293
0
0
<COMMON> 1,624
<OTHER-SE> 21,656
<TOTAL-LIABILITY-AND-EQUITY> 56,905
<SALES> 0
<TOTAL-REVENUES> 12,631
<CGS> 0
<TOTAL-COSTS> 11,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 355
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> 2,042
<INCOME-TAX> 726
<INCOME-CONTINUING> 1,316
<DISCONTINUED> 10
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,326
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet of AT&T Corp. at December 31, 1997 and the
unaudited consolidated statement of income for the twelve-month period ended
December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 145
<SECURITIES> 0
<RECEIVABLES> 9,550
<ALLOWANCES> 977
<INVENTORY> 0
<CURRENT-ASSETS> 16,179
<PP&E> 44,563
<DEPRECIATION> 21,853
<TOTAL-ASSETS> 58,635
<CURRENT-LIABILITIES> 16,942
<BONDS> 6,826
0
0
<COMMON> 1,624
<OTHER-SE> 21,023
<TOTAL-LIABILITY-AND-EQUITY> 58,635
<SALES> 0
<TOTAL-REVENUES> 50,892
<CGS> 0
<TOTAL-COSTS> 43,924
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,510
<INTEREST-EXPENSE> 191
<INCOME-PRETAX> 7,193
<INCOME-TAX> 2,721
<INCOME-CONTINUING> 4,472
<DISCONTINUED> 166
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,638
<EPS-PRIMARY> 2.85
<EPS-DILUTED> 2.84
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet of AT&T Corp. at September 30, 1997 and the
unaudited consolidated statement of income for the nine-month period ended
September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 186
<SECURITIES> 0
<RECEIVABLES> 9,927
<ALLOWANCES> 1,046
<INVENTORY> 0
<CURRENT-ASSETS> 15,632
<PP&E> 42,387
<DEPRECIATION> 21,423
<TOTAL-ASSETS> 56,449
<CURRENT-LIABILITIES> 15,957
<BONDS> 7,054
0
0
<COMMON> 1,625
<OTHER-SE> 20,359
<TOTAL-LIABILITY-AND-EQUITY> 56,449
<SALES> 0
<TOTAL-REVENUES> 38,179
<CGS> 0
<TOTAL-COSTS> 33,254
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,178
<INTEREST-EXPENSE> 152
<INCOME-PRETAX> 5,124
<INCOME-TAX> 1,975
<INCOME-CONTINUING> 3,149
<DISCONTINUED> 155
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,304
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 9,593
<ALLOWANCES> 987
<INVENTORY> 0
<CURRENT-ASSETS> 15,056
<PP&E> 40,683
<DEPRECIATION> 20,755
<TOTAL-ASSETS> 54,946
<CURRENT-LIABILITIES> 15,047
<BONDS> 7,216
0
0
<COMMON> 1,625
<OTHER-SE> 19,683
<TOTAL-LIABILITY-AND-EQUITY> 54,946
<SALES> 0
<TOTAL-REVENUES> 25,276
<CGS> 0
<TOTAL-COSTS> 22,126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 809
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 3,266
<INCOME-TAX> 1,250
<INCOME-CONTINUING> 2,016
<DISCONTINUED> 69
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,085
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet of AT&T Corp. at March 31, 1997 and the
unaudited consolidated statement of income for the three-month period ended
March 31, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 198
<SECURITIES> 0
<RECEIVABLES> 9,687
<ALLOWANCES> 999
<INVENTORY> 0
<CURRENT-ASSETS> 15,724
<PP&E> 39,458
<DEPRECIATION> 20,152
<TOTAL-ASSETS> 54,461
<CURRENT-LIABILITIES> 14,464
<BONDS> 7,867
0
0
<COMMON> 1,624
<OTHER-SE> 19,242
<TOTAL-LIABILITY-AND-EQUITY> 54,461
<SALES> 0
<TOTAL-REVENUES> 12,548
<CGS> 0
<TOTAL-COSTS> 10,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 430
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> 1,755
<INCOME-TAX> 667
<INCOME-CONTINUING> 1,088
<DISCONTINUED> 38
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,126
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet of AT&T Corp. at December 31, 1996 and the
unaudited consolidated statement of income for the twelve-month period ended
December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 9,911
<ALLOWANCES> 942
<INVENTORY> 0
<CURRENT-ASSETS> 17,073
<PP&E> 39,385
<DEPRECIATION> 19,649
<TOTAL-ASSETS> 55,382
<CURRENT-LIABILITIES> 16,151
<BONDS> 7,883
0
0
<COMMON> 1,623
<OTHER-SE> 18,672
<TOTAL-LIABILITY-AND-EQUITY> 55,382
<SALES> 0
<TOTAL-REVENUES> 50,201
<CGS> 0
<TOTAL-COSTS> 41,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,514
<INTEREST-EXPENSE> 343
<INCOME-PRETAX> 8,810
<INCOME-TAX> 3,237
<INCOME-CONTINUING> 5,573
<DISCONTINUED> 335
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,908
<EPS-PRIMARY> 3.67
<EPS-DILUTED> 3.66
</TABLE>
